Nearly 600 South Australian jobs will be axed as the plunging iron ore price prompted Arrium to halt a mining project.

The loss-making Southern Iron mining operations, south of Coober Pedy, will be mothballed, resulting in 200 full time Arrium workers and about 380 contractors losing their jobs.

Arrium, formerly known as OneSteel, is Australia’s fourth largest iron ore producer, and its mining operations have been under immense pressure since the iron ore spot price fell below $US80 a tonne late in 2014.

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The spot price in China was $US66.79 a tonne on Friday, compared to Arrium’s last reported production costs of $US73 a tonne.

Arrium is keeping its lower-cost Middleback Ranges iron ore project going, but annual production will fall from 12.5 million tonnes to 9 million tonnes.

“This is a positive announcement albeit difficult, impacting employees and contractors,” chief executive Andrew Roberts said.

South Australian resources and energy minister Tom Koutsantonis said he had expressed his disappointment to Arrium Mining chief executive Greg Waters.

The State Development department is to provide assistance to affected workers.

The decision indicates Arrium does not have confidence iron ore prices, which have more than halved in 12 months, will recover soon.

While action was expected, an 18.4 per cent rise in Arrium’s share price on Thursday sparked speculation something more definite may have been known before Friday’s announcement.

“The iron ore price was down one per cent and Atlas and BC Iron were two of the worst percentage performers (on Thursday),” optionsXpress market analyst Ben Le Brun told AAP.

“To have shares move completely in reverse of that certainly has question marks around it.”

The Australian Securities and Investments Commission has not said whether it was looking at unusual trades or continuous disclosure-related issues.

Arrium’s shares fell nearly nine per cent to 20.5 cents on Friday, close to the record lows reached in September during its $754 million capital raising.

Arrium’s half year financials will take a hit from a $1.3 billion-plus writedown, mostly related to the iron ore business.

Despite a difficult environment, Mr Roberts said he was positive about the outlook for the company’s three businesses – steel and recycling, mining and mining consumables.

“Arrium has two businesses in a difficult market (steel and iron ore) but through this redesign of the business we will be able to manage our way through that,” he said.

Arrium expects its half underlying earnings will be between $180 million and $190 million.

A weaker Australian dollar was beneficial, its steel business and best performer, mining consumables, are increasing earnings, and the iron ore price was expected to improve, Mr Roberts said.

Morningstar analyst Mathew Hodge said the $320 million acquisition of Southern Iron was a bad investment made during the mining boom in 2011.

“They are in a really tough spot … they should do some more asset sales if they can and work to keep the business free cashflow positive and start paying down debt,” he said.