PERTH (miningweekly.com) – ASX-listed Cape Alumina has halted work on its Pisolite Hills mine and port project, in Queensland, while a proposed merger with MetroCoal has also been called off.

Earlier this week, the Queensland government announced plans to declare the Steve Irwin Wildlife Reserve and the Wenlock river on Cape York peninsula the region’s first-ever strategic environmental area, effectively killing the Pisolite Hills project.

This was despite the fact that the previous government had declared the project a 'significant project' in 2012.

Cape Alumina MD Graeme Sherlock said on Friday that the decision to halt work on the Pisolite Hills project was a direct result of the Queensland government banning mining activities in the region.

He added that the company would now review its legal rights and possible avenues to challenge the government’s decision.

“We are completely surprised by this decision and expected that the future of the project would be determined through a genuine and rigorous environmental assessment process. Our confidence was bolstered by the government’s declaration of Pisolite Hills as a ‘coordinated project’,” said Sherlock.

“Following the declaration, we increased project expenditure and restarted work on technical and environmental studies. We planned that Pisolite Hills would be in production in 2015.”

Cape Alumina has spent some A$20-million on developing the project, including several million on reactivating the project last year.

Sherlock warned that the decision to ban mining in the region would have serious ramifications for the mining and investment community, and had elevated the sovereign and political risk profile of Queensland.

Meanwhile, Cape Alumina reported on Friday that its proposed merger with fellow-listed MetroCoal had been called off.

In September, the two companies signed a merger implementation agreement that would have seen MetroCoal offer 1.12 of its own shares for every one Cape Alumina share, allowing Cape Alumina shareholders a 55% interest in the merged entity.

The merged entity would have had a market capitalisation of A$28-million, with some 464.2-million shares on issue and a cash reserve of A$12-million. The company would also have had Joint Ore Reserves Committee-compliant resources of 202.4-million tonnes of bauxite and 4.2-billion tonnes of thermal coal.

MetroCoal chairperson Stephen Everett said on Friday that the company had no choice but to call off the merger.

“The new legislation bans any mining activities from ever occurring in the Pisolite Hills project area. Despite declaring the Pisolite Hills project a significant project in 2012 and making regular assurances over many months that the project’s assessment would be determined by due process, the state government unexpectedly announced that mining would not be allowed in the most valuable part of the Pisolite Hills project area.”

Everett said that neither Cape Alumina, nor MetroCoal were given prior warning of the government’s intentions and were “bitterly disappointed” with the outcome, which he labelled “confusing and frustrating”.

“The proposed merger is no longer in the best interest of MetroCoal shareholders,” Everett concluded.

MetroCoal would now refocus its efforts on the search for alternative opportunities to realise value for shareholders.