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AAP

February 04 2013, 4:44PM

By Kim Christian

PERTH, Feb 4 AAP - News that Aquila Resources has been unable to agree on a budget for its $7.4 billion West Pilbara Iron Ore Project has driven the iron ore hopeful's shares lower.

Aquila shares were 12 cents, or 3.9 per cent, lower at $3.00 on Monday.

Aquila said it would continue to focus its efforts on "how best to progress the project" and would maintain the project on minimum expenditure for the remainder of the financial year.

It said it had failed to strike an agreement with its joint venture partner AMCI Pty Ltd on the 2012/2013 budget.

The developments came three days after Aquila received the green light from the West Australian government to develop Anketell Port as part of its $7.4 billion iron ore project, in which Aquila holds a 50 per cent stake.

However, analysts remain doubtful that the project will go ahead.

Morningstar Resources analyst Gareth James said he had always been doubtful about the West Pilbara Iron Ore project proceeding following a $1.4 billion capital cost blowout in October.

"Even if they did resolve the budget dispute with the joint venture partner, even if they did find the billions of dollars required to fund the project, you then have the massive risk of development, during which time costs could blow out further," Mr James said.

Production would be years away, leaving the $1.2 billion company with no obvious revenue or profit in the meantime.

"When these announcements come out, for us it doesn't really change much.

"We're of the view that this project is very unlikely to happen."

The federal government will now consider whether to also approve the project.

In October, 2012 Aquila announced a $1.4 billion cost blowout, a month after the dispute with AMCI was referred to arbitration.

The coal producer has been moving into iron ore and developed proposals for two key mines in WA's Pilbara region.

Integral to the project is the proposed port development at Anketell.

The planned development of the port is crucial to Aquila securing the majority of more than $3 billion in funding it needs.

Aquila recently settled its lengthy legal battle with Brazilian miner Vale over the sale of the Perth-based company's 24.5 per cent stake in the Belvedere coal project in Queensland.