Cost blow-outs may be hitting the mining sector across the country, but with metal prices strong and no sign of Chinese commodity demand pulling back significantly, the extra expense is being forgiven in the race to raise output.

Yesterday Oxiana gave the go-ahead to its $775 million Prominent Hill major copper and gold mine development in South Australia, with costs some $75 million ahead of expectations.

Compared with last year's original estimate of $530 million, costs at Prominent Hill have blown out by 46 per cent.

While some extra costs have been incurred in enlarging the size of the planned open pit and upgrading the plant, much of the increase is due to the inflation pressure hitting the sector as equipment, material and labour costs soar amid chronic shortages.

High oil prices are also biting, with the original budget predicated on a $30 a barrel oil price compared with more than $70 now.

But investors took the cost increase in their stride, backing the mantra that metal prices are set to be stronger for longer, and celebrating Oxiana's big rise in first-half profit due to high prices, production expansions and acquisitions.

Prominent Hill is expected to be in production by the third quarter of 2008, producing about 100,000 tonnes of copper-in-concentrate and 115,000 ounces of gold a year from a 10-year open pit. But there is scope to extend the life of the mine and convert it to an underground operation.

Oxiana's typically upbeat chief executive Owen Hegarty said the project had "oodles of upside".

"This is a 10-year baseline mine life, but it will go on for many years beyond that."

Production costs are forecast at US73c a pound after accounting for credits from gold and silver production.