Xstrata plots $700m sale of Chile's El Morro mine

Xstrata, the Ftse-100 mining group that is locked in a merger battle with peer Anglo American, is in talks to sell a key project in South America for up to $700m (£420m).

The £24.1bn-valued group, led by chief executive Mick Davis, is considering selling its 70 per cent stake in El Morro, a Chilean copper mine Xstrata inherited as part of its takeover of rival Falconbridge in 2006. An industry source said that Chinese companies are particularly interested.

The cash would be used to help develop other projects similar to El Morro, in that they are not fully developed, as well as operational mines. Xstrata has 10 copper mines globally, as well as coal, nickel and steel operations.

The buyer would have to invest at least $1bn to develop El Morro fully, as well as work with 30 per cent shareholder New Gold.

Charles Kernot, mining analyst at Evolution Securities, said the sale would help the miner, as "Xstrata is still somewhat constrained by debt. So it has to pick and choose which projects it invests in," he added.

A spokeswoman said: "Xstrata has received expressions of interest that may result in the introduction of an additional partner into the El Morro copper-gold project, or the sale of Xstrata's 70 per cent interest.

"We are evaluating the approaches we have received and no decisions have been made on whether or not to divest El Morro or dilute our stake."

The news comes as Xstrata is under increasing pressure to revise the terms of its merger approach to Anglo, which the £25.7bn group has rebuffed. Mr Davis has called for "a merger of equals", but many observers think Xstrata will have to pay a premium on any deal.

Xstrata closed at 811.5p on Friday, Anglo at 1,938p.