Sundance Resources is on the brink of big changes, as its 18-month takeover saga approaches a finale and its African iron ore project completes major milestones.
Sundance Resources is on the brink of big changes, as its 18-month takeover saga approaches a finale and its African iron ore project completes major milestones.
RIGHT from the start, in July 2011, when China’s Hanlong Mining flagged a takeover offer for aspiring iron ore miner Sundance Resources, the market has held doubts about the complex deal.
The doubts have been evidenced by the discount between Hanlong’s (changing) offer price and Sundance’s share price.
But after delays and multiple changes to the takeover scheme, shareholders will come together in two weeks and are likely to approve the deal.
Not that Sundance chief executive Giulio Casello is prepared to predict the outcome.
“In the end, the market will determine what happens,” Mr Casello said last week.
“Trying to understand the market, and predict what the market will do, is something that I can’t do.”
In a wide-ranging interview, Mr Casello said the best way for Sundance to boost shareholder value was to achieve progress on its $US4.7 billion Mbalam project.
“As a management team, we’ve focused on the things we can control that will add value for our shareholders,” he said.
“Our focus has been on satisfying the conditions precedent, reducing the risk, because that will make the project robust and that’s what will ensure the best return for shareholders.”
Mr Casello can point to a long list of achievements, some of which have only just been completed.
“We’ve done a DFS, we’ve done the drilling, we’ve increased the resources, we’ve increased the reserves,” he said.
Recent achievements include the signing in November of a historic convention with the government of Cameroon, which has never before hosted a major mining project.
On Christmas Eve, the company announced a 24 per cent increase in the high-grade iron ore reserve (to 463 million tonnes) for its stage-one mine development.
That was followed on December 30 by the approval of a mining permit in neighbouring Congo.
The result has been a kick-up in the company’s share price to about 38 cents, still below Hanlong’s offer of 45 cents.
The good news came only one month after the share price plunged to 32 cents, after Hanlong was unable to obtain a credit approved term sheet from the China Development Bank by the agreed date.
That resulted in the scheme meeting being postponed from December 14 to February 1.
Takeover pitch
The takeover saga commenced in July 2011, when Hanlong flagged a takeover offer pitched at 50 cents per share.
Three months later, the two companies announced an agreed takeover offer at 57 cents per share, worth $1.65 billion.
Then the bad news started, including an ASIC investigation into insider trading by two Hanlong executives.
A series of delays led Sundance and Hanlong to negotiate a new scheme of arrangement in May, and in August Hanlong slashed its offer price to 45 cents following a slump in the iron ore market.
Mr Casello admits the past 18 months has, at times, been frustrating.
“There is no doubt the pricing discussion was a disappointment, and there were times when the convention discussion was disappointing,” he said.
“We all wish it could have happened quicker.
“But in the end, everyone is working towards the same goal, everyone wants this project to happen. This is fundamentally a good project; I’ve always had an inherent belief this was going to happen.”
Mr Casello said the inter-connected negotiations over the past 18 months had made it a very interesting and satisfying period.
“We’re talking about four countries, all with sovereign rights of their own, and it’s that combination that has made it very interesting.
“The other thing that’s made it interesting is that it’s been a learning experience for all of us.
“Cameroon is new to the mining industry, so developing the convention is something that we’ve done together; we learnt it together.
“It’s more than just a mining project, its hugely important for their nation.”
The project involves development of new mines in both Congo and Cameroon, with output of 35mt per annum, the construction of a 510-kilometre railway through Cameroon, and development of a new deep water port.
“From a technical point of view, mining the ore, building the railway, building the port, its not a difficult project,” Mr Casello said.
More than a takeover
Assuming the Hanlog takeover is approved next month, Mr Casello said there will be a lot of continuity.
“Basically Sundance will stay, as a subsidiary of Hanlong,” he said.
“We’re staying on board to take this project into the development stage. We’ve got about 300 people, and we’ve got good relations and good connections in-country. “
He described the Hanlong deal as more than just a takeover.
“It’s a takeover plus a project. China doesn’t want to take over Sundance and sit on an asset; it wants to develop the project,” Mr Casello said.
“Hanlong is looking at this as a $6 billion investment, not a $1.3 billion investment, and they are doing their due diligence based on that.”
A small army of advisers has worked with Sundance over the past two years, with UBS, Clayton Utz and Citic Securities advising on the takeover while law firms Gilbert + Tobin and Shearman & Sterling worked on the Cameroon convention.
However Mr Casello reserved special mention for the geologists and drilling crews that had put in the hard yards, drilling nearly 1,200 holes in the African jungle to prove up the company’s JORC reserve.
He also paid tribute to the former Sundance board, which tragically perished in a plane crash.
“The board that passed away, they set this company up. We’re here to realise the vision they created,” Mr Casello said.
