UPDATE 2-China Molybdenum buys Rio Tinto Australia copper mine in 1st offshore deal

Sun Jul 28, 2013 11:16pm EDT

* China Molybdenum makes 1st foray offshore and into copper

* Chinese firm outbids OZ Minerals, Nyrstar, MMG

* Japan's Sumitomo has right to match bid

By Sonali Paul

MELBOURNE, July 29 (Reuters) - Rio Tinto has agreed to sell its majority stake in the Northparkes copper mine in Australia for $820 million to China Molybdenum Co Ltd, a Chinese firm making its first foray offshore and into copper.

The purchase marks the biggest Chinese mining deal since China Guangdong Nuclear Power Corp won control of the Husab uranium project in Namibia for about $2.3 billion last year, as Beijing turned cautious on approving overseas acquisitions after splashing billions of dollars on iron ore projects in Australia that have yet to generate returns.

The stake in Northparkes is one of several assets Rio has put up for sale as it aims to slash $5 billion in costs, pare debt and focus on its biggest, most profitable mines. It is also trying to sell a minority stake in Coal & Allied in Australia and its majority hold in Iron Ore Company of Canada.

Copper assets are selling fastest among the wide range of mining assets on the block worldwide, with the higher-than-expected price tag on the Northparkes deal boding well for Glencore Xstrata's sale of the $5 billion Las Bambas copper project in Peru.

"Clearly there's a market for these assets," said Mike Harrowell, an analyst at broker BBY Ltd.

BHP Billiton recently sold a copper mine in Arizona for a better-than-expected $650 million.

China Molybdenum (CMOC) was a surprise winner, as Australian copper miner OZ Minerals had been seen as the most likely buyer of the 80 percent stake in Northparkes after China's MMG Ltd dropped out of the race.

CMOC, with a market value of $5 billion, mainly produces molybdenum and tungsten. The company went public last year backed by state-owned Luoyang Mining Group Co and billionaire Yu Yong.

"Copper is seen as one of the preferred commodities by the investment market," said UBS analyst Glyn Lawcock, adding that BHP and Rio's $3.4 billion investment on a water plant at the Escondida copper mine in Chile, announced last week, was evidence of bullish views on copper.

"Obviously the Chinese are taking a view on the copper market as well," Lawcock said.

Japan's Sumitomo Metal Mining Co Ltd and Sumitomo Corp, which own the remaining 20 percent of Northparkes, have rights to match China Molybdenum's bid.

Sumitomo confirmed that, but otherwise declined to comment on the deal.

The Japanese may want to increase their stake in the mine, but are unlikely to buy the full 80 percent, said banking sources who declined to be named as they are not directly involved.

UNDER PRESSURE

The price was better than analysts' valuations on Rio's Northparkes stake at around $400 million, excluding potential new resources. But analysts had said the company would look for between $750 million and $1 billion.

OZ Minerals had been under pressure from shareholders not to overpay for Northparkes, although the mine would have been a good fit as OZ needs production to fill a gap between the decline of its Prominent Hill mine and the ramp-up of its Carapateena mine.

Others who were in the running for Northparkes were Nyrstar and private equity firms Carlyle and KKR & Co. Most bids were below $800 million, said one banker involved. He declined to be named as the process was confidential.

Yu Yong's Cathay Fortune, a major stakeholder in China Molybdenum, is in the midst of another potential copper mine takeover, with a conditional bid for Australia's Discovery Metals, which owns a mine in Botswana.

Rio Tinto was advised by Macquarie Bank, while Citi advised China Molybdenum.

The Chinese firm was not available to comment ahead of releasing an announcement to the Hong Kong and Shanghai exchanges.

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