hanlong lenders’ hold on sundance

AFR Online

Hanlong lenders’ hold on Sundance

UPDATED: 10 APR 2013 05:30:31

Chinese lenders could gain control of significant stakes in two Australian mining companies, with Hanlong Mining sitting on a combined $274 million loss on its debt-funded investments in Sundance Resources and Moly Mines.

When metals prices were higher, the private Chinese group had invested $346 million buying shares in the two companies. But the value of Hanlong’s 17 per cent stake in Sundance Resources plunged 48 per cent on Tuesday after the Australian company terminated a $1.3 billion takeover agreement and hedge funds dumped the stock due.

Hanlong also owns a 57 per cent stake in Moly Mines, which entered a trading halt on Tuesday after reports the private Chinese group was seeking to oust the company’s independent directors. Sources said the board spill was related to Hanlong’s attempts to recoup a $US45 million payment it had made to the Perth-based company.

Hanlong’s overseas investment strategy appears to be in tatters and its founder Liu Han, was recently detained by Chinese authorities. Hanlong’s local chairman, Peter Mansell, who is also chairman of Ampella Mining and chairman of the advisory board of Rio Tinto’s Pacific Aluminium unit, did not return calls.

Pengana Global Resources Fund portfolio manager Tim Schroeders said investors were likely to be cautious about Hanlong’s activities in the Australian market given its failure to complete the Sundance deal and a previous offer for Bannerman Resources. “From my point of view it is going to be very difficult to believe any future M&A activity they are involved in,” he said.

Hanlong's stake in Sundance is now worth $49 million, versus the $191 million it paid in March 2011.

Sundance owns the $US4.7 billion Mbalam iron ore project straddling the border of Cameroon and the Republic of Congo in West Africa, with a target of 35 million tonnes of annual production. Mr Schroeders said the volatile nature of the iron ore market and problems with stable fiscal regimes in Africa made it improbable Sundance could receive a similar price from another suitor. “It is an asset of value but it is definitely a buyer’s market,” he said.

Sundance chairman George Jones, speaking at the opening of Gindalbie Metals’ Karara iron ore project in Western Australia, said it was getting harder to finance iron ore projects generally. “There is pressure in the industry, sentiment in equity markets has changed, enthusiasm in equity markets is diminished,” Mr Jones said.

Sundance said now that the Hanlong deal had been terminated it would focus its efforts on talks with other parties – including Chinese groups – that had expressed interest in the project. Mr Jones said he would not step down from the Sundance board until the Mbalam project was sold or financed.

Hanlong financed its purchases of shares in Sundance and Moly Mines using Chinese lenders. In the case of Moly Mines, backed by a loan from China’s Export Import Bank secured over its shares, Hanlong paid $155 million in October 2009 for a 57 per cent stake now worth just $22 million.

Hanlong had also extended $US45 million to Moly Mines which was only due to be repaid once its $US720 million Spinifex Ridge project in Western Australia was fully financed and a final investment decision was made.

The project has not yet been approved, but sources said Hanlong was attempting to get the independent directors of Moly Mines to change the deal and get the cash back, threatening to use its majority holding to push for a board spill if needed. Moly Mines has $41 million of cash – nearly equal to its $42 million market value – but sources said Hanlong had been reluctant to spend it on acquisitions to date even though the Spinifex Ridge project is uneconomic at current molybdenum prices.

The price of the metal has fallen by around two-thirds since Hanlong invested in Moly Mines and General Moly, a US-based company for which it is obligated to raise $US665 million of financing by April 30 after being granted an extension last week.

Cheers,

Samson