Sundance still pinning hopes on China for Hanlong replacement

Australian iron ore junior Sundance Resources is still looking for a Chinese development partner for its 35 million-tpy Mbalam iron ore project on the Cameroon-Republic of Congo border in West Africa.

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Its long-expected A$1.4 billion ($1.45 billion) takeover by privately owned Chinese outfit Hanlong Mining ground to a halt earlier this month, reaching a premature end on Monday April 8 following Hanlong’s failure to deliver credit-approved term sheets from its Chinese investors by March 26.

“The Chinese authorities [are] happy for us to go ahead with discussions with other Chinese parties, and that’s what we’re doing now,” Sundance ceo Giulio Casello said on the company’s website on April 12.

Sundance is confident of China’s continued support for the project, and is looking to set up a joint venture with a Chinese or other steel mill to develop Mbalam together.

Partnership options
It is also in discussions with other Chinese companies as it explores its partnering options.

The mining junior signed memorandums of understanding with two Chinese state-owned infrastructure companies, China Harbour Engineering Co and China Railway Construction Corp, before Hanlong made its first all-share bid for Sundance in July 2011.

“We’ve also had detailed discussions with the partners that Hanlong [was] speaking to regarding potential involvement in the project,” Casello said.

Wuhan Iron & Steel was tipped as one of the companies Hanlong was speaking to, following the latest requirement from China’s National Development & Reform Commission (NDRC) for the private company to find a large Chinese partner before granting it regulatory approval.

Hanlong failure
Sundance’s takeover attempt by Hanlong, in the making for nearly two years, was characterised by numerous halts and delays, with dates for regulatory approval from China moved several times.

The final blow to Hanlong’s plans followed the detainment of its chairman, Liu Han, in March 2013. He had been instrumental in driving the miner’s bid to find the right Chinese partner.

“The unfortunate events of last month meant the chairman was not able to continue those discussions on behalf of Hanlong, [and] it became clear that Hanlong would be unable to meet the requirements of the [agreement],” Casello said.

Hanlong will retain its 14.3% stake in Sundance, mortgaged to China Development Bank.

Still an option
Sundance may still consider the option of a takeover, although it is “not actively looking to be acquired”, according to Casello.

The Australia-listed junior’s share price tumbled by 58% after news broke of the termination of the Hanlong takeover deal, from A$0.210 ($0.217) before a trading halt on March 19 to a low of A$0.088 ($0.091) on April 11.

However, the reason the deal failed was “not because of Sundance’s asset, which is reassuring for the project”, Matt Fernley, an analyst at GMP Securities, told Steel First.

Low-capital strategy
Sundance is sitting on one of the largest high-grade iron ore resources in the central African region, with 775.4 million tonnes of hematite resources at 57.2% Fe iron content.

The miner secured a mining convention from Cameroon for its Mbarga deposit, and a mining permit for the Nabeba deposit on the Congolese side of the Mbalam project, at the end of last year.

One of the most significant implications of the deal was an infrastructure project involving more than 500km of railway and a port development on Cameroon’s coast, expected to unlock the region’s iron ore potential.

The Australian junior is now also considering a low-capital strategy whereby an infrastructure provider supplies the port and railway for a tariff payment, backed by a guaranteed take-or-pay offtake contract with a Chinese, or non-Chinese, third party, Casello said.

Potential game-changer
Gaining access to the seaborne market is key to Mbalam’s commercial success.

London-based International Mining & Infrastructure Corp (IMIC) proposed a takeover of fellow junior Afferro Mining on April 17, and signed new co-operation agreements with Chinese state-owned infrastructure and trading companies in relation to the potential acquisition.

Afferro has also signed a memorandum of understanding with South Korean steelmaker Posco to develop its flagship 2.5 billion-tonne Nkout iron ore project in Cameroon.

Were IMIC’s proposal to go ahead, it could be a “potential game-changer” for Sundance by lowering capital costs on infrastructure for Mbalam, GMP Securities said in a note to investors on April 17.

“This would make Sundance’s project significantly more attractive to potential acquirers,” it said. “[And we] believe that the presence of Chinese companies in the agreements to develop Nkout does not preclude a Chinese deal with Sundance.”

Bullish view
Sundance remains bullish on China’s interest in Mbalam because of continued urbanisation and expected growth in steel demand in the country.

“We also believe that China sees the strategic potential of the project as a large-scale iron ore development that isn’t aligned to the ‘big three’,” Casello said.

Write-downs for large miners’ adventurous investments – and volatile iron ore prices that have fallen by $2.46 this week to $138.85 per tonne for 62% Fe cfr China on April 18 – have made many industry participants cautious.

But with no debt and holding A$30 million ($31 million) in cash at the end of March, Sundance expects to be able to finance its development operations until a long-term partner is found.

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