UPDATE 2-Australia-China mining jv clings to outback hopes

* Australia-China JV hopes to restart talks with military

* Cites support from state government for outback investment

* Military unable to support venture on current information (Adds government reaction)

SYDNEY, Sept 29 - An Australian-China mining joint venture signalled on Tuesday it had not given up hope of going ahead with a magnetite project near an outback weapons testing facility, despite opposition from Australia's military. Western Plains Resources <WPG.AX>, which is in partnership with China's state-owned Wuhan Iron and Steel <600005.SS>, said the pair had given themselves another three months to weigh up their options after the Defence Department's decision.

The Australian firm said it aimed to engage in further talks with the department over the future of the project, which falls within the boundary of the Woomera missile-testing zone, an area the size of England in the deserts of South Australia state.

The military came out last week in opposition to the venture, with Defence Minister John Faulkner saying it fell within the most sensitive and dangerous part of the Woomera area.

"Based on the information provided to date by Western Plains Resources, defence is unable to provide support for the proposal," Faulkner's office told Reuters on Tuesday.

But Western Plains Resources said it had been encouraged by support from the South Australian government, noting media reports that the state's premier, Mike Rann, planned to lobby Prime Minister Kevin Rudd over the issue.

In particular, it quoted the reports as saying Rann would ask Rudd to push the military back to the negotiating table.

The Australian government has previously rejected an application by a Chinese state-owned firm to operate within the Woomera zone.

In April, it rejected Minmetals' $2.26 billion bid to acquire debt-stressed OZ Minerals, saying OZ's main mine lay too close to Woomera.

It finally approved a revised deal whereby Minmetals would buy OZ Minerals' other mines.