UPDATE 1-Australia's Altona weighs options after Xstrata shuns copper project

Sun Jan 13, 2013 10:08pm EST

* Xstrata opts not to buy 51 pct stake in Roseby project

* Altona could sell stake in Roseby or whole project, or seek merger

* China's MMG seen as potential partner

* Altona shares slide 9 pct

By Sonali Paul

MELBOURNE, Jan 14 (Reuters) - Australia's Altona Mining may sell its Roseby copper project or seek to merge itself with another firm after global miner Xstrata decided not to buy into the copper project in Queensland state, Altona's managing director said on Monday.

Xstrata chose not to exercise an option to buy a 51 percent stake in the project after seeing the valuation put on it by an independent party, an Xstrata spokesman said. Altona and Xstrata did not disclose the price.

Credit Suisse is advising Altona on the sale process, which Altona's Alistair Cowden expected would take about six months.

"We are starting a process essentially to look at a strategic transaction," Cowden told Reuters by phone from Perth. He said the options were to sell a stake in the project or the entire project or even consider merging with another company with a stronger balance sheet.

"Everything's always for sale," he added.

Analysts have speculated Chinese miner MMG Ltd, which is developing the neighbouring A$1.49 billion ($1.57 billion) Dugald River zinc-lead-silver mine, may be interested in the Roseby project.

Melbourne-based MMG, which has repeatedly flagged it is on the lookout for base metals acquisitions, declined to comment.

"We've had numerous approaches but been unable to pursue them because of the nature of the agreement with Xstrata that prevented us from dealing on the project," Cowden said.

He did not say how many approaches it had received nor who they were from.

While Altona is in constant contact with MMG, as their projects are right next to each other, Cowden played down the chances of a deal with MMG.

"I'd suggest that they've pretty much got their hands full with the A$1.5 billion development at Dugald River. But you never know, it's up to them," he said.

SHARES TUMBLE

Altona's shares fell as much as 20 percent after the announcement that Xstrata was not exercising its option on the Roseby project and last traded down 8.9 percent at A$0.255, valuing the company at A$134 million.

"While we have not exercised this option, we remain strongly committed to mining investment in North West Queensland," an Xstrata Copper spokesman said in an email.

Capital costs for the Roseby project were estimated last year at A$320 million for a project targeting annual production of 38,800 tonnes of copper and 17,200 ounces of gold.

With the cooling of Australia's mining boom, Cowden said the company expected the capital cost could come down a bit, but would be particularly interested in cutting forecast operating costs from last year's estimate of $1.73 a pound.

"With mining contractors there might be a little bit more hunger in the market compared to when we priced nearly a year ago," he said.

Analysts see the project as viable in light of a strong copper market, with copper trading around $3.60 a pound.

"With the copper price remaining strong and financing expected to be more readily available for projects of decent scale in 2013, we believe it is may be feasible for AOH to seek to raise finance (debt/offtake/equity) and retain majority exposure to the project," Foster Stockbroking said in a note.