Aquila Resources has put its $7.4 billion West Pilbara iron ore project on ice at least through June due to funding difficulties, sending its shares down nearly 10 per cent.

Aquila and its partners AMCI, a mining investment firm, and South Korean steel giant Posco, effectively froze the project last September, when iron ore prices hit a three-year low. They had failed to agree on a budget for the year to June 2013 and sent the dispute into arbitration.

Arbitration was due to begin on February 18, but Aquila said today it had bowed to its partners and would continue the suspension on the project for the rest of this financial year.

"Aquila will continue to focus its efforts on how best to progress the project," executive chairman Tony Poli said in a statement.

The company also said last week that the project's director, Kevin Watters, had quit. He will take up the role of head of project development at a competitor Brockman Mining, working on the Marillana iron ore project also in the Pilbara, which has more options to export its ore.

Aquila and its partners have yet to agree on a replacement for Mr Watters.

Shares in Aquila, 14 per cent owned by China's biggest listed steelmaker, Baoshan Iron & Steel Co, sank to a one-month low of $2.82 and last traded down 4.7 per cent at $2.97.

Securing funding for the West Pilbara project, owned by the API joint venture, grew tougher last year as the cost estimate on the project soared 28 per cent to $7.4 billion and forecast operating costs also increased by about a quarter.

Assuming the project was 40 per cent equity funded, Aquila's share of the equity funding would be around $1.5 billion.

As of December, the company had $441 million in cash, thanks to recent asset sales, and will receive a further $170 million by the end of March from the sale of its stake in a coal project to Brazil's Vale.

One solution to ease Aquila's share of the funding burden would be to sell down its stake in the project to Baosteel. Aquila's Poli, who owns 29 per cent of the firm, was not immediately available to comment on options to advance the project.

The West Pilbara Iron Ore project won state environmental approval last week for its proposed Anketell Port, but still needs rail and port construction approvals, key to its plans for exporting 30 million tonnes a year of ore.

The West Australian state government has said it will not approve construction of Anketell Port until it is certain the project's backers have the funds to build a mine, a 282 km rail line and the multi-user port, which will depend on what has become an increasingly volatile iron ore market.

Rio Tinto, in contrast, has no such problem, having won approval on Monday from the state to expand its Nammuldi mine and build a 130 megawatt power station, a $3 billion iron ore project that is part of its plans to increase annual capacity to 360 million tonnes by 2015.

Aquila has been shedding assets over the past two years to build up its 50 percent share of equity funding for the West Pilbara Iron Ore project.

The API joint venture, 50 per cent owned by Aquila, 25.5 per cent by AMCI and 24.5 per cent by Posco, has wound down all engineering and design work for now, Watters told Reuters last week.

He said that with the heat having coming out of the construction market as several projects have been put on hold, the joint venture should be able to negotiate lower construction and engineering costs when it comes back to the market.

"It's certainly a keener market now in the engineering space and in the construction space," Mr Watters said.

Reuters