(Adds background and further comments from the minister)

By Lucy Craymer

WELLINGTON, Feb 5 (Reuters) - New Zealand defence minister Judith Collins said on Monday she expects to receive a review of the country's defence capabilities in June, the latest step in the modernisation of the country's military.

New Zealand's armed forces are struggling with aging equipment and personnel shortages, with three of the country's nine navy ships idle because of staff shortages and plans for a new patrol ship for the Southern Ocean on hold.

Collins told Reuters in an interview that she was expecting the plan in June and that it would guide where money needs to be spent.

“Nothing in defence is anything other than a big spend and so, it's really important we get it as right as we possibly can, given what we know now and might see in the future,” Collins said.

The Defence Capability Plan follows a government review last year that found New Zealand was facing its most challenging strategic environment in decades amid a great power rivalry and that the was military not fit for future challenges.

Collins, who is also Minister of Space, said that given the size of New Zealand’s space sector she would like to investigate whether the country could operate defence satellites.

“We're one of the very few countries in the world that isn't using our space industry in relation to our own defence area, and there may well be an opportunity," she said. "Whether or not that makes sense, we're still going to work that through, but it's certainly worth looking at.”

Collins said she had spoken with the Australian minister of Defence last week around working together on procurement.

“We are only 5 million people - so we're smaller than Melbourne - but we have a country the size of the United Kingdom and the sixth largest economic zone in the world so we have enormous challenges when it comes to how we can work most effectively,” Collins said.

She said the defence forces were submitting proposals for what they wanted in the May budget.

(Reporting by Lucy Craymer in Wellington Editing by Alasdair Pal and Gerry Doyle)