Rio Tinto sells Northparkes mine stake for $820m

Rio Tinto has sold its controlling stake in the Northparkes copper-gold mine in New South Wales to China Molybdenum for $820m, as part of its efforts to reduce debt.

But the Anglo-Australian mining company faced a fresh setback in Mongolia where it announced a delay to the timetable for a $5bn expansion of its Oyu Tolgoi copper mine, one of the largest projects Rio is developing.

Rio's 80 per cent stake in Northparkes is one of several assets intended to be sold as the group tries to protect its prized single A credit rating.

The purchase is one of the biggest this year by a Chinese company of a mining asset. One of the largest shareholders in China Molybdenum is Chinese private equity group Cathay Fortune, which has been involved in a long-running takeover battle for Discovery Metals, another Australian copper miner. State-owned Luoyang Mining is another large investor in China Molybdenum.

China considers copper, used in almost all electric wiring, a strategic metal.

Chris Lynch, Rio's chief financial officer, said: "Northparkes is a successful business but is not of sufficient size to be a good fit with our strategy."

Rio said it expected the deal, which comes as Glencore Xstrata tries to find a buyer for its $5bn Las Bambas copper mine in Peru, to be completed by the end of the year. It is subject to regulatory approval and conditional on Rio's joint venture partner in the mine, Sumitomo Corp, waiving its right to match the offer.

In Mongolia Rio said the government now required it to get parliamentary approval for the project financing planned to build an underground extension to Oyu Tolgoi.

"In view of the current uncertainty, including continued discussions with the government on a range of other issues, all funding and work on the underground development will be delayed until these matters are concluded and a new timetable has been agreed," Rio said.

The underground expansion was due to begin production in 2016 and some analysts suggested this could now be delayed. "Clearly today's announcement puts the timing of this at risk . . . the decision to stall underground development appears to be a clear signal from Rio that it is not going to invest more risked capital until the country's issues are sorted," said Investec.

Rio is already in a tussle with the government over whether it should have to bank sales revenues from the project in Mongolia.

Rio had agreements in place from banks to support the $4bn of project finance needed for the underground expansion, at least some of which are due to expire in August.

Sam Walsh, Rio's chief executive, has promised "significant cash proceeds" from the sale of non-core businesses in 2013 and has pledged to strip out more than $5bn of costs by the end of 2014.

Rio also recently sold a nickel and copper project in the US for $325m but abandoned the sale of its diamond business last month after failing to find a buyer.

Oz Minerals had been seen as the most likely buyer for Northparkes but the Australian copper miner was under pressure from shareholders not to overpay even though the purchase would have filled a production gap. Shares in the company fell sharply on Monday after it said it would take an asset impairment charge of up to A$240m (US$221m), blaming falling copper and gold prices.

Shares in Rio were up 0.7 per cent at £29.40 in mid-afternoon trading in London.

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