Chinese investment in an Australian iron ore project has been blocked by the Defence Department in a move that has angered the mining industry.

Defence has told mining company Western Plains Resources that it will not agree to Chinese partners investing in its Hawks Nest project 120km south-east of Coober Pedy in central South Australia.

The project is within the Woomera Prohibited Area and the move echoes Defence blocking a Chinese bid to take over the Prominent Hill mine earlier this year in a veto that heightened tensions with Australia’s biggest trading partner.

SA Mineral Resources Development Minister Paul Holloway said he was concerned by the Defence veto.

“It is unacceptable and certainly not in the national interest for an area of this size with some of the most prospective land in the world to be quarantined from mining operations,” he said.

Hawks Nest is near the Stuart Highway but 180km from the Woomera range and 800km from Pine Gap.

Western Plains has signed a deal with Wugang Australian Resources, a division of Chinese giant Wuhan Iron and Steel (WISCO), to invest $45 million to help fund a feasibility study into the magnetite project, a resource estimated to be worth $18 billion over 30 years.

WISCO would earn a 50 per cent participating interest in the project.

WISCO intends to apply to the Foreign Investment Review Board for clearance and requested a letter of support from Defence.

Instead, Defence rejected the plan.

“The proposed joint venture at Hawks Nest would not be compatible with Defence’s activities at the Woomera Prohibited Area on safety, operational and national security grounds,” Defence said in a letter.

The project falls under one of more than 120 active mineral exploration licences in the Woomera Prohibited Area.

SA Chamber of Mines and Energy chief executive Jason Kuchel said his organisation had been “shocked”.

“The Chinese and Western Plains were happy to make all the concessions Defence had requested,” he said.

Western Plains reacted angrily to the letter, saying it was perplexed that previous co-operative relations with Defence had been shattered.

Shares in the company slumped on the news, closing 16 per cent — or 5 — lower at 27.

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