Swiss-based miner Xstrata (XTA.L) will be allowed to expand its controversial McArthur River lead and zinc project in northern Australia with conditions, Environment Minister Peter Garrett said on Thursday.

Some Aboriginal groups had appealed against a decision by Australia's previous government to approve Xstrata's plan to divert the McArthur River to expand the mine. They won a court decision in December that forced the current government to reconsider Xstrata's plans.

Garrett said he intended to approve the proposal to expand the mine's open pit operation, but the company and traditional aboriginal owners would have 10 days to respond. My decision is limited to protecting matters of national environmental significance ... in this case the freshwater sawfish and a number of migratory birds. I will ensure that they will be protected by any decision I make and any conditions I apply, Garrett said.

Mining at the site ceased on Dec. 17 following the court decision that the previous government's approval of a A$110 million ($72 million) open cut mine development at the site was invalid.

Xstrata warned on Jan. 16 that it would have to close the mine by the end of this month and sack 300 staff unless Garrett made a decision.

Garrett, a former rock star and conservationist, said other ministers and the mine operator, Xstrata unit McArthur River Mining, would also be able to respond before Feb. 6.

I will consider any submissions they provide to me before I make my final decision. I am moving on this matter as quickly as possible but at the same time, I need to make sure that the process, and any decision I make, is robust and legally sound, he said.

Brian Hearne, chief operating officer for Xstrata Zinc in Australia, said that while the company welcomed the decision, Garrett had given no certainty on the timing of a final outcome. The mine would run out of ore in the next few days.

We will still continue the transition to care and maintenance, he said. We will position ourselves to restart immediately if we get a positive decision from the minister.

Before shutting the mine last month, Xstrata had already cut ore production by 20 percent because of low metals prices, resulting in the loss of 68,000 tonnes of concentrate, containing 31,700 tonnes of zinc metal and 7,200 tonnes of lead.

Separately, Australian mine contractor Sedgman Limited (SDM.AX) confirmed on Thursday that McArthur River Mining had declared force majeure on a crushing contract with a Sedgeman subsidiary. ($1=1.535 Australian Dollar) (Reporting by Rob Taylor; Editing by Jonathan Standing and Clarence Fernandez)

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