Immediately affected, the company said, would be two of its projects in Queensland: the $5.1 billion Wandoan thermal coal project and a $509 million project to extend the Ernest Henry copper mine.

The projects would have created 3,250 new jobs, the company said.

Xstrata's announcement represents an escalation in the war between mining companies and the Australian government since it announced plans last month to impose a 40 percent tax on miners' profits within two years.

Xstrata Chief Executive Mick Davis wrote in the Financial Times Wednesday that "no mining company is against the principle of a profit-based tax or sensible taxation reform. But the RSPT … effectively introduces the government as an unwanted, noncontributing 40 percent partner into our existing assets at a depreciated book value excluding intangibles, ignoring the substantial risks that have been borne by our shareholders."

The government says Australians are entitled to a fair share of the country's non-renewable resources. Australia is the world's biggest exporter of coal and iron ore.

"The RSPT has created significant uncertainty for the future of mining investment into Australia and would impair the value of previously approved projects and exploration to the point that continued investment can no longer be justified," Davis said in a release announcing the scrapped projects.

Xstrata said the impact of the tax eliminates the net present value of the Wandoan coal project "almost entirely" and "substantially reduces" the value of the Ernest Henry underground shaft project.

The company said the two projects were worth a capital investment of $5.4 billion overall but that neither would be viable if the tax was imposed.

"The suspension of investment into these key projects for the future of our business in Queensland makes them less likely to proceed and ultimately compromises Australia's ability to continue to benefit from future commodity price rises," Davis said.

Prime Minister Kevin Rudd remains firm on his commitment to the tax.

"On the question of Xstrata, I said at the very beginning of this debate on the future of the resource super-profits tax there'd be claims by mining companies ... there'd be threats of project closures, there'd be projects also threatened to be frozen," he told reporters Thursday.

Such threats, Rudd said, would be "part and parcel ... of a very tense debate" between parts of the mining industry and the federal government.

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