UPDATE 1-Canada's Belo Sun touts procedural win but Brazil gold mine still on hold

(Adds comment from public prosecutor, quote, details on the mine)

By Christian Plumb and Jake Spring

SAO PAULO/Brasilia, July 12 (Reuters) - Belo Sun Mining Corp said on Friday it had won a legal victory in its push to mine the country's largest undeveloped gold deposit in the Amazon rainforest, which has drawn criticism from environmentalists and indigenous advocates.

But the public prosecutor's office that is seeking to block the mine disagreed with that interpretation of the ruling.

Felicio Pontes, a federal prosecutor on the case, said the appeals court had merely rejected a request for a preliminary judgment and the merits of the case have yet to be judged.

No work can proceed on the mine in the meantime, he said, predicting that the court would rule in the case by November.

"We tried to force a preliminary decision by the court ... but it said no, it's better to wait for the judgment of the appeal," Pontes said.

"This ruling didn't change anything, the situation is stable."

A representative for Belo Sun acknowledged that "the decision is only temporary."

Belo Sun said in its statement that the appeals court ruling indicated that the state of Para was the appropriate authority to grant an environmental license for the project. Prosecutors had argued that the mine needed a license from federal environmental agency Ibama, winning an initial judgment in a lower court.

The Canadian miner has already received state licensing for the project, adjacent to the massive Belo Monte hydroelectric dam on a tributary of the Amazon river.

If courts ultimately rule that Belo Sun must seek a federal license, it would likely delay the project for years.

Belo Sun shares fell 4.1% on the Toronto stock exchange, wiping out early gains.

The miner separately must still deliver a new study on the impact on nearby indigenous communities of the project

Brazilian nonprofit Instituto Socioambiental, which is documenting the impact of the Belo Monte dam on nearby tribes, has warned that the chemicals and mining waste involved in the Belo Sun project pose serious risks to natives' way of life.

Belo Sun's proposed mine in Volta Grande has 3.8 million ounces of gold in proven and probable reserves and is the country's largest undeveloped gold deposit, according to the company's website.

The company estimates the mine would produce 260,000 ounces of gold annually over the first 10 years of its roughly 17-year lifespan. That is equivalent to 5.2% of Brazil's annual production of gold, according to the latest statistics from mining regulator ANM. (Reporting by Christian Plumb in Sao Paulo and Jake Spring in Brasilia Editing by Susan Thomas and Jonathan Oatis)