UPDATE 1-Australia's Discovery Metals says $856 mln Chinese bid unfair
* CF Investments launched rare hostile bid at A$1.70/shr
* Independent report values firm at A$1.74-A$2.11/shr
* Discovery sees strong prospects for main Botswana project
* Discovery shares close at A$1.69 (Adds CFC comment, updates share prices)
MELBOURNE, Nov 23 (Reuters) - Australia's Discovery Metals told its shareholders it saw strong prospects at its key copper project in Botswana, and spelled out why it thinks they should reject a A$824 million ($856 million) offer from a Chinese bidder.
Cathay Fortune Corp, a private equity firm founded by Chinese billionaire Yu Yong, and the China-Africa Development fund went hostile with a A$1.70 a share offer for Discovery in October after the board rejected an initial approach.
"The offer is opportunistically timed to exploit a period of temporary share price weakness," Discovery said in its formal response to the bid from CF Investments on Friday.
CF Investments is 75 percent owned by Yu's Cathay Fortune Corp (CFC) and 25 percent by China-Africa Development Fund.
CF Investments, which already owns 13.7 percent of Discovery through Cathay Fortune, is targeting the firm for its Boseto project in Botswana, a country which has attracted more than $10 billion in copper takeovers in the past two years.
Discovery said its expansion plans at Boseto and future growth options meant it was well positioned to benefit from a favourable copper market outlook.
An independent report valued the company at A$1.74-A$2.11 per share, Discovery added.
CF has set a minimum acceptance condition of 51 percent, which means it only needs just over 37 percent support to go ahead with the deal.
CFC's Yu said nothing in Discovery's target statement or the independent expert's report had changed its view of the value of Discovery.
"We remain of the belief that our fully valued A$1.70 cash offer per Discovery share provides full and compelling value for Discovery shareholders," Yu said in a statement.
Discovery's shares closed down a cent at A$1.69. The stock has rallied from a low of A$0.88 cents in September, but traded as high A$1.815 in April.