MELBOURNE/SYDNEY- Australian miner OZ Minerals agreed to sell most of its assets to China's Minmetals for $1.21 billion on Wednesday, securing Australian mining's second big Chinese investment in as many days.

The OZ Minerals deal, renegotiated after the government blocked a straight takeover by the state-owned Chinese firm, promises to rescue the world's No.2 zinc miner from a debt crisis and gives Minmetals all but two of OZ Minerals' main assets.

It follows approval on Tuesday of a $438 million Chinese investment in iron ore miner Fortescue Metals Group and comes ahead of a foreign investment decision still pending for Chinalco's $19.5 billion investment in global miner Rio Tinto.

A decision on the Chinalco-Rio deal could take until June.

What this really does show is the goodwill from Minmetals to actually come back with a proposal that's attractive to shareholders, suppliers and customers and meets the government's requirements..., OZ Chief Executive Andrew Michelmore said.

The Australian government on Friday rejected Minmetals' original $1.8 billion takeover bid for OZ because OZ Minerals' prized Prominent Hill mine was near a military weapons-testing range in the deserts of outback Australia.

The new deal excludes the Prominent Hill mine.

Minmetals said the Australian government's foreign investment review process on the new offer was underway.

OZ shares, resuming trade for the first time since the original full takeover was knocked back, fell as much as 19 percent. It last traded down 2.7 percent at A$0.545, well below Minmetals original offer of A$0.825 a share.

EXCELLENT SOLUTION

But analysts said the deal at least appeared to safeguard OZ Minerals immediate future and allow it to pay down debt. As a result of the new deal, OZ Minerals' lenders have extended a debt repayment deadline by a month to April 30.

It's potentially a reasonable solution out of a very murky situation, said Ken West, partner at Perennial Growth Partners.

Minmetals, looking to use OZ's assets as a platform to expand outside China, would pick up the Century, Golden Grove, Rosebery and Avebury mines in Australia, the Sepon operations in Laos, mines in Canada and other exploration and development assets.

The new deal also excludes the Martabe gold-silver prospect in Indonesia and OZ Minerals' stakes in listed companies, including Toro Energy (TOE.AX).

We think it's an excellent solution and a complete solution in terms of our refinancing requirements, Michelmore told an analysts' briefing.

If OZ Minerals pays off all its debt, excluding convertible bonds, it would have around A$600 million in cash after the deal.

A sale of the Martabe prospect would provide some comfort to OZ Minerals' lenders if the Minmetals deal did not go ahead by June, Michelmore added. But he said the company was no longer in fire sale mode on Martabe.

You get some parties that come in with an indicative offer

and they think we are desperate and they are going to pick it up for a bargain. We're not going to do that, he said.

OZ Minerals was created last year through a merger of Oxiana and Zinifex. Caught between plunging commodity prices and the global debt crunch, the company careened to the brink of collapse in January when it secured a lifeline from its bankers.

Former Oxiana chief Owen Hegarty has been eyeing the Martabe prospect, but has yet to line up financing for a bid.

Michelmore said the group was also open to bids for Prominent Hill, which recently started producing and is expected to be cash flow positive in the second half of the year.

Top global miner BHP Billiton (BHP.AX)(BLT.L) is seen as the most likely suitor for the mine, valued by OZ at A$1.4 billion, as its Olympic Dam copper and uranium mine is nearby.

($1=1.438 Australian Dollar)

(Editing by Mark Bendeich & Ian Geoghegan)

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