Mining group Xstrata Plc agreed to sell its 70 percent interest in the El Morro copper-gold project in Chile for $465 million to Canada's Barrick Gold Corp, Xstrata said on Monday.

While we have demonstrated through the feasibility study that El Morro has strong prospects, our agreement with Barrick is a recognition that it will create more value as part of Barrick's portfolio than Xstrata Copper's, said Charlie Sartain, who heads Xstrata's copper division.

The sale ... will enable us to better direct our resources toward our other priority development projects.

Xstrata, the world's fifth biggest diversified mining group by market value, said the deal was expected to close before the end of January.

Xstrata acquired El Morro, which is located 4,000 meters above sea level in north-central Chile, when it bought Canada's Falconbridge in 2006.

It is awaiting the outcome of an environmental and social impact assessment by the Chilean government.

Barrick, the world's biggest gold producer, said on September 14 it would use excess cash from higher production and cost savings for acquisitions and to increase its reserves.

Xstrata has been seeking a merger with rival Anglo American Plc and UK takeover authorities have given it until October 20 to decide whether to make a formal bid or walk away for six months.

(Reporting by Eric Onstad; editing by John Stonestreet)