hanlong mining probe provides insights , page-47

I totally understand your concerns Squidd and I think that reflects most of risk premia that exists between the current sp and the 50c conditional offer thats already in the bag.

What I think is that as soon as you get the Chinese government on your side, negotiating with you..its just a matter of price and relationships rather than tactics. Sure, some tactics will be involved as generally is the case in any typical commercial transaction, but in this situation we actually have the bargaining power - its a bit of cold-war-like MAD if you like (mutually assured destruction) game theory here.

Why?

Lets assume SDL is in the compromised position it is with such a large project as you say with Hanlong only being the true suitor who is giving the (relatively) best terms compared to the other tyre kickers. The game theory would be:

SDL
Gain through the T/O:
1. Reward investors IMMEDIATELY (many of us suffering paper losses) for years/ months of investment.
2. realise immediate value for what the past directors have sought;
3. minimise risk to shareholders in this time of project finance and terms associated therewith during this time of economic volatility;
4. annihilate project risk, political risk, fx risks and all other risks associated with the project and just get a lump of cash basically.

Loss from no T/O:
1. Have to be at the mercy of the bigger players who would take advantage of the current economic environment to low-ball
2. Be exposed to the current relatively adverse project financing environment we have now with pretty much all 'Western' investment banks,
3. Wait a further few years to realise ANY realisation of investment (i.e. income) and then a further few years on top before we get our return on shares (i.e. DIVIDENDS).

Hanlong
Gain through T/O:
1. De-coupling from the iron (pardon the pun) grip of the big three miners RIO, BHP, Vale.
2. Greater negotiating power in iron ore pricing.
3. First-mover advantage in the very prospective West African region.
4. Capitalise on current relationships Hanlong already have with the African Govts.
5. No carbon/ MMRT tax in West Africa
6. No monopoly of infrastructure in West Africa as there is in the Pilbara (you are building your own CAPEX in Mbalam!)
7. Better an I/O asset in West Africa than the Pilbara due to cost savings in OPEX- miner's here wouldnt look at you for any salary below sig figures - West Africans would kiss your feet if you paid them 4 figures.

Loss through no T/O:
1. Exposed to big three monopoly
2. Run the risk and one of the big boys taking Mbalam and further cementing their I/O dominance in this region, and in the world in general.
3. Lose strategic resource diversification - which is always a prudent policy
4. Lose capitalisation of relationships with SDL board and African heads of Govt that they have already invested in to build.
5. Incur costs to negotiate for another project (that will most likely not have a DFS and will need the same things - i.e. infrastructure)

As you can see this is just a quick overview of the outweighing of the benefits of a Hanlong T/O compared to a JV or walking out - or 'bluffing'. RIO knows this. BHP knows this. Glencore knows this. Vale knows this.

Thats why, IMO, this TAKEOVER has, and will continue to be, in the bag. Its now just a metter of terms and the usual bargaining. You dont buy a house and pay full offer price do you? You try your best, and this is prudent business practice.

But at the end of the day, Hanlong have been working with SDL on this project for over 2 years, they have established strong business relationships with SDL, GJ and the Africans and they have been there behind the scenes.

Does this pic below in the corner look familiar?

Well the pics they didn?t show you after that were ?

Food for thought.

Foxtrot