* Centrex boosts ore reserves estimate by 223 pct to 338 mln/T
* South Australia, New South Wales ore prospects attracting Asia steel interest
* Lack of suitable port facilities holding back growth
By James Regan
SYDNEY, May 25 (Reuters) - Iron ore company Centrex Metals on Friday more than tripled the estimated reserves at its prospect in southern Australia, a growing zone for new iron ore sources that is attracting increasing interest from Asian steel mills.
Centrex, which is partnering with two Chinese steel firms, said the amount of ore believed buried at its Bungalow Hill prospect on the Eyre Peninsula of South Australia state had ballooned to 338 million tonnes after two years of exploration work.
Inner Mongolia's Baotou Iron and Steel Group owns 30 percent of the project.
Almost all of Australia's ore is mined in the nation's far west, a sparsely-populated expanse four times the size of Texas.
But Asian steel mills who buy most of the ore are increasingly partnering with firms prospecting far from established mine sites in the hope of one day of cutting dependence on mega-suppliers such as Rio Tinto and BHP Billiton
Centrex said it would complete a study into building a mine on the Eyre Peninsula this year, sending its shares up 4 percent to buck a weaker trend in the sector.
Geologists believe deposits in South Australia, fringed by the Southern Ocean, hold as much as 4 billion tonnes of iron ore. That's more than the 3 billion tonnes BHP holds in reserves in the Pilbara and the 2.1 billion held by Rio.
So far, Asian investments in new mining frontiers represent little more than seed money and pale before the billions of dollars big miners are spending to beef up in the west.
But analysts say it demonstrates a willingness to help shoulder the cost of development work with the promise of equity stakes or supply contracts, providing a leg up for projects that a few years ago would have hardly warranted a glance.
The lion's share of investment in the small upstarts is from China, where supplies of iron ore are insufficient to meet the demands of the world's biggest steel-producing nation.
But steel mills in India, South Korea, Taiwan and elsewhere are also combing new Australian iron ore frontiers for buy-ins.
Jindal Steel and Power, India's third-largest steel producer, this month paid A$1 million ($977,000)for a 9.25 percent stake in Apollo Minerals, which has been exploring for ore at a prospect called Commonwealth Hill in South Australia.
In New South Wales, Carpentaria Exploration wants to dig a 5 million tonnes-per-year mine it estimates could run for 50 years. Carpentaria's largest shareholder is Chinese mining investor Conglin Yue.
In South Australia, a Sino-Australian partnership involving one of China's largest steel companies could lead to a new iron ore port capable of handling large Cape-size vessels
"You're seeing strategic investments by Chinese groups that want iron ore and are willing to assist in project development," said Kevin Skinner, who helped organise a conference recently promoting mining in South Australia.
Better known for an abundance of copper and uranium thanks to the giant BHP-owned Olympic Dam mine, South Australia is emerging as a second, albeit smaller, iron ore mining hub.
"While with Olympic Dam we have tracked down an elephant, we are still in the hunt for the rest of the herd," South Australia's minister for mineral resources and energy, Tom Koutsantonis, said. "That requires explorers large and small to take a risk in joining the hunt."
An absence of deep water ports in South Australia capable of carrying large bulk tonnages has meant for now only small deposits can be economically exploited.
Now, Wugang Australian Resources Investment Pty Ltd, a subsidiary of Wuhan Iron and Steel Co, and Centrex want to construct the Port Spencer deepwater iron port leading to the Southern Ocean on the Eyre Peninsula within two years. It's estimated the project will cost $250 million.
Centrex and Wuhan are already partners in Eyre Iron, a company developing iron ore mines and a processing plant immediately to the west of the proposed port site.
Centrex's alliance with Baotou stands to benefit from the port too, as would a handful of other projects in various stages of development, according to Jason Kuchel, chief executive of the South Australian Chamber of Mines and Energy.
"We don't have any deep water ports capable of accepting Cape-size vessels and that has been holding back development of iron ore projects in the state," Kuchel said.
For now, only two companies export iron ore from South Australia. Onesteel ships by barge to waiting cape-size vessels in deeper water. IMX Resources relies on smaller and less economical Panamax-size ships for exporting.
The port Centrex and Wuhan are proposing would allow direct loading of cape-size ships.