April 9, 2013 / 6:43 AM / 4 years ago

UPDATE 2-Failed China deal dooms Sundance Africa iron ore project

5 Min Read

* Sundance seeks new partner, Chinese or non-Chinese

* Suitor Hanlong lacked China government support

* Port, rail challenge dims iron ore mine prospect

* Sundance shares dive to 4-year low (Recasts, adds fund manager, banker, analyst comments)

By Sonali Paul

MELBOURNE, April 9 (Reuters) - Australia's Sundance Resources Ltd will find it tough to fund its $4.7 billion iron ore project in Africa after the collapse of a takeover by Hanlong Group, the fourth mining deal China has pulled since commodity prices fell last year.

The failed deal adds to evidence of dim prospects for large new mines and more caution in China's push for assets overseas. It also highlights Africa as a risky region for developing projects mostly due to regulatory uncertainty and lack of infrastructure, ranging from power to transport routes.

Sundance's shares plunged 56 percent on Tuesday after it terminated the $1.4 billion takeover by China's Hanlong, with investors saying there was little hope now for the Mbalam-Nabeba project on the border of Cameroon and the Republic of Congo.

"Clearly the sale process isn't happening for all sorts of reasons. That's going to put into question the whole viability of the project and the ability to fund it," said Darko Kuzmanovic, a resources fund manager at Caledonia Investments.

The biggest hurdle for the project is not the mine, aiming to produce 35 million tonnes a year of iron ore, but funding and construction of a deepwater port and a 510-kilometre (320-mile) rail line from Congo to the Cameroon coast.

"It's a complex set of challenges in a market that probably is a bit more pessimistic about iron ore and resources in general and junior companies looking to develop projects," said Kuzmanovic.

The explorer said it was in talks with other potential partners, both Chinese and non-Chinese, to develop the project, but it has not identified the parties.

China, the world's biggest importer of iron ore, is keen to see the mine developed as an alternative supplier to the world's top two iron ore exporters, Australia and Brazil.

However Beijing never had the confidence to back Hanlong's takeover bid and in February ordered the company to line up a state-owned Chinese firm to help fund development of Mbalam.

A senior resources banker in Hong Kong said no other Chinese company had been willing to bid for Sundance when iron ore markets were booming two years ago, so it was unlikely any would want to take on the project in today's more subdued climate.

"There is not a lot money floating around for such projects now. For junior miners that are a few years away from a feasibility study and production it is a real struggle," the banker said.

Sundance Chairman George Jones and Managing Director Giulio Casello were not immediately available to comment, but Jones said on Monday he was confident Mbalam would attract a partner.

It is the latest Chinese deal to founder, after China National Gold abandoned talks to take over African Barrick Gold , Chinese private equity firm Cathay Fortune Corp withdrew a bid for Discovery Metals and Chalco dropped its bid for a stake in Mongolia coal miner SouthGobi Resources.

Oversupply

Lenders, investors and miners themselves have grown wary about new iron ore mines following a slump in iron ore prices last year to $87 a tonne amid slowing demand from China. Even though the price has recovered to around $137 a tonne, the market is seen as volatile.

With China looking to moderate its growth, its steel output is also expected to slow, impacting iron ore demand. At the same time majors are expanding their iron ore output, which will put the market into oversupply.

"Some might think that now's a good time to snap up projects that might be undervalued, but unless there's a change in what's happening with Chinese demand stabilising we are unlikely to see any new, large-scale investments in iron ore this year," said Lip Ban Soh, a lead analyst at Wood Mackenzie.

Hanlong, which owns 14 percent of Sundance, wanted the company for the Mbalam-Nabeba project but failed to come up with the financing it needed to seal the deal nearly two years after first approaching the Australian miner.

Approvals were initially held up when some Hanlong executives in Australia were charged with insider trading. The deal ran into more trouble last month when the private Chinese company's chairman was reported by Chinese media to be under police investigation for harbouring his younger brother, a murder suspect.

Sundance shares sank to a four-year low of 9.3 cents, coming off a three-week trading halt, compared with Hanlong's offer of 45 cents a share. ($1 = 0.9622 Australian dollars) (Additional reporting by Denny Thomas in HONG KONG; Editing by Stephen Coates)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below