The company will make a decision later this year on its $2 billion Mount Pleasant investment and is currently weighing up the cost pressures in the Australian market, including wages, as it seeks to prioritise more than $33 billion of major capital projects that are underway.

Speaking at an investor conference, chief executive Tom Albanese said other emerging coal producers were offering more attractive opportunities for the development of its coal mines.

“Coal is an increasingly difficult business in Australia,” he said.

“Labour rates, capital costs [and] the carbon tax make it really hard to take that business forward.”

Looking outside Australia, Rio Tinto has a strategic foothold in Mozambique after it acquired the Australian Securities Exchange-listed Riversdale Resources.

“The Moatize Basin in Mozambique is one of the largest undeveloped coking coal regions in the world,” Albanese said.

Meanwhile, Mt Pleasant, which sits near the town of Muswellbrook in NSW and near Rio’s Bengalla mine, would employ about 350 people and produce 10.5 million tonnes of thermal coal a year.

“[The] mining industry in Australia is certainly the highest labour cost in the world,” he reportedly told the AFR.

“That’s okay but as long as those wages are commensurate with the productivity.

“Our Hale Creek project 10 years ago was developed for $280 million.

“Now a fleet addition costs $150 million and that is an incredible escalation – and I think over the next few years we will see more capital escalation.”

Albanese is believed to have had a frank discussion with Prime Minister Julia Gillard earlier this week about the impact of government policy, including the mooted removal of the fuel rebate, on the company’s investment decision in light of the softening of commodity prices, especially thermal coal which has slipped below $US100 per tonne.

Jobs and investment will move overseas if the government doesn't seriously address industry-wide cost inflation in the resources sector, according to Institute of Public Affairs North Australia project director John Shipp.

"If one of Australia's largest mining companies is abandoning projects, the Australian economy will undoubtedly suffer," Shipp said.

"Mining companies won't continue to expand or initiate projects in Australia if they can go to places with lower wages, lower capital costs and governments that welcome investment, risk-taking and job creation.

"Tuesday's federal budget may be the final straw for many coal mining companies and many of their projects.

"The mining industry has become an easy target for a government determined to get a surplus at all costs."