* U.S-based Moly-Cop unit sold to private equity -sources
* Ends long sales process for Arrium
* Still seeks buyer of Australian unit (Adds details of sale process)
By James Regan
SYDNEY, Nov 4 (Reuters) - Insolvent Australian industrial group Arrium Ltd's ARI.AX U.S. based Moly-Cop division has been sold to private equity firm American Industrial Partners for $1.23 billion, two sources close to the deal said, ending a drawn out sale process.
"I can confirm it is American Industrial Partners," one source said.
Moly-Cop, which makes steel balls to grind ore and operates mostly in the United States and Latin America, also attracted interest from KPS Capital, a private equity limited partnerships with about $5.5 billion of assets under management.
Arrium's advisers, Deutsche Bank (DE:DBKGn) and KordaMentha, and its lenders also considered an initial public offering for the profitable Moly-Cop division, which had been excluded from Arrium's restructuring of its steel and iron ore mining businesses in Australia.
A public announcement of the deal was expected to be made later on Friday, the second source said.
American Industrial Partners invests in industrial companies with operations in the United States and Canada.
Arrium in April descended into voluntary administration, a precursor to bankruptcy, after creditors rejected a $927 million bailout proposal by private equity firm GSO Capital Partners that would have paid no more than 55 cents on the dollar for their claims.
KordaMentha, the private corporate restructuring firm handling the sale and dealing with creditors, has shown a preference for a buyer-takes-all sale of Arrium's assets in Australia that includes an east coast steel business, the Whyalla steelworks, a Southern Ocean port and an iron ore mine.
A meeting of Arrium's creditors is scheduled for Friday in Sydney.
Australian industry minister Greg Hunt said on Thursday that steelmaker POSCO 005490.KS was interested in the Whyalla steelworks after meeting with the South Korean firm, but POSCO said later it has not participated in the bidding.