The $4.6B capex to build the Sundance's raIl and port that will haul 100mtpa of minerals equates to only 3months worth of profit for BHP!
looking at BHP's biannual erports for the last 12 months, they are making approx $10-11 Billion profit every six months!
An offer of $1.50-$2 per share for Sundance or $3.4Billion-$5.6Billion buyout figure would mean the following for BHP, and this applies to the other big three miners Rio Xstrata and Vale:
1. Sigificantly lower cost of iron ore production that most other regions in the world, including Australia 2. Capacity for significant resource increase with many iron ore deposits in SDL's tenements in Cameroon and Congo, allowing profit increase AND MOST IMPORTANTLY 3. protect the supply of iron ore to China. maintain production levels that will not oversupply the market and push down the price of iron ore to below $70 per tonne which China plans on doing as they aggressively drill the tenements to increase the resource and they will at the same time build the infrastructure to transport more than 100mtpa! 200-300mtpa in 7-8 years would not be out of the question in region! And the Chinese have the cash and infrastructure construction experience to accomplish this!
Even RIO and BHP's expansion plans for the hematite cash cost is above $45 per tonne! If spot prices of iron ore fall below $70 per tonne, IMHO these expansion plans will not provide the sort of return BHP and RIO shareholders would expect for the billions of dollars in investment they will have to risk to extract this additional iron ore. Let alone struggle with carbon taxes, mrrtaxes high wage costs etc!
There aren't many magnetite mines in Australia or Itaribite mines in Brazil that are profitable if iron ore prices fall below $70per tonne!
The take over will definitely be watched by many big players in the world economy, including the fledgling magnetite miners in WA waiting for funding to pay for their own infrastructure. Sinosteels departure from the Oakagee investment to reallocate their funds towards this project in West Africa IMHO is part of the strategy the Chinese steel mills are working on!
There are many moves to come in this chess game to come!
we are in an excellent position as SDL holders!
cheers Nectar
SDL Price at posting:
52.0¢ Sentiment: LT Buy Disclosure: Held
