3 June 2008 Comparable M&A deals during the past 12 months...

3 June 2008


Comparable M&A deals during the past 12 months reflect
a range of valuations for Sundance Resources Limited
(SDL) between A$0.45/sh and A$0.87/sh. Continued
definition of a JORC resource should crystallise this value.
We maintain our BUY recommendation and increase our
12 month share price target from A$0.55/sh to A$0.70/sh.


Valuation
Latest DCF Valuation
We have generated a new DCF using our updated iron ore prices. Currently a DSO operation is
expected to produce 35Mtpa for a period of 8 years. Capital expenditure on a treatment plant for itabirite
will be delayed until 2019. Total capex for the DSO option is expected to be around US$3.3bn with an
operating cost of about US$20/t. We have added extra capital expenditure of US$1.0bn in 2019 for the
construction of an itabirite treatment plant and increased operating costs to US$30/t from 2020. These
assumptions could prove conservative as it is quite possible that enough DSO ore could be found on
Exploration Permit 92 (P92) to significantly extend the life of the DSO operation.
The new parameters which are detailed below:
New DCF is
A$0.74/sh
􀀗ƒnInitial Capital Expenditure US$3.28bn
􀀗ƒnPlant Capex (2020) US$1.0bn
􀀗ƒnResource +1 billion t
􀀗ƒnReserve 700Mt minimum
􀀗ƒnBFS 12 months
􀀗ƒnConstruction Period 36 months
􀀗ƒnProject Start Up Januray 2012
􀀗ƒnAnnual Production 35 Mtpa
􀀗ƒnMine Life 20 years
􀀗ƒnOre Split Fines 70%
Lump 30%
􀀗ƒnOperating Cost (pre 2020) US$21.00/t
􀀗ƒnOperating Cost (post 2020) US$30.00/t
􀀗ƒnRoyalty 3% of Revenue
􀀗ƒnCorporate Tax Rates First 10 years 0% tax
15% tax thereafter
􀀗ƒnShares on issue (fully diluted) 1 937bn
􀀗ƒnDiscount Rate 15%
Increases to medium and long term iron ore prices have been offset by increases in capital expenditure
and operating costs as discussed above. The new assumptions have reduced our DCF to A$0.74.
Deal Generated Valuation
The itabirite projects in Brazil represent a useful benchmark for emerging potential of the Mbalam Project.
Significant DSO mineralisation, in addition to a potentially world scale itabirite resource, provides
significant development flexibility, and would allow for low cost production in the early years of operation
of Mbalam. We have summarised two of the latest merger M&A deals we are aware of in the following
sections in order to try and impute a value for SDL once it formally identifies JORC resources. We have
used a common measure of US$ per tonne of 100% Fe equivalent. This measure looks at the total iron
content of the resource and assigns a value to it. We believe this overcomes the problems associated
with different resource grades and haematite enrichment.

TABLE 2: BML RESOURCES
Resources Tonnage (Mt) Grade (%) Tonnage (100% Fe Equivalent)
Measured and Indicated 470 39 183
Inferred 1,490 30 447
Total 1,960 32 630
Source: BBY, ENRC
ENRC holds 50% of the asset (315Mt of 100% Fe equivalent). The deal implies a value of US$0.95/t of
100% Fe equivalent.
The Mbalam Iron Ore Project
The deals value SDL
at between A$0.87/sh
and A$0.45/sh
Currently a DSO shipping operation is expected at production of 35Mtpa for a period of 8 years. Capital
expenditure on a treatment plant for itabirite will be delayed until 2019. Total capex for the DSO option is
expected to be around US$3.3bn with an operating cost of about US$20/t.
Drilling at the Mbarga Deposit has defined two styles of hematite mineralisation ¡V supergene DSO from
surface, underlain by massive itabirite hematite mineralisation to significant depth.
Latest geological modelling (non JORC-Code compliant) of the Mbarga Deposit has outlined the potential
for 1.0 ¡V 1.2 billion tonnes itabirite-style mineralisation at an average grade of approximately 39% Fe. This
is based on all assay data received from the areas drilled to date including laboratory assays and data
obtained using site hand-held XRF instrumentation. This site XRF data is progressively being verified by
laboratory assay work.
The itabirite material comprises banded hematite-quartz with very low phosphorous (~0.03%) and
alumina (~1.5%) contents. As previously reported, very preliminary testwork on a small number of
selected samples of the Mbarga itabirite material has indicated that the itabirite may be beneficiated to
produce a +65% Fe concentrate utilising conventional beneficiation plant similar to that used for
upgrading of itabirite iron ores in Brazil.
The geological modelling has also updated the potential DSO tonnage from the Mbarga Deposit. Latest
estimates range from 100 to 140 million tonnes hematite at an average grade of approximately 60% Fe,
0.09% P and 3.4% Al2O3.
Drilling of both the DSO and itabirite ore horizons is continuing on the Mbarga Deposit utilising five of the
six drill rigs operating on site. Surface and structural mapping gives reasonable confidence that definition
of the itabirite tonnage will increase significantly with additional drilling. SDL will progressively step-out
drilling over coming months to test the potential of other prospects on EP92. These latest findings have
resulted in the Company¡¦s objectives for the Mbalam Iron Ore Project being reviewed, with definition of an
overall Exploration Target of 2.0 to 2.5 billion tonnes of itabirite-style mineralisation.

TABLE 3: MBALAM PROJECT POTENTIAL RESOURCES
Potential Resources Tonnage (Mt) Grade (%) Tonnage (100% Fe Equivalent)
High Grade Haematite 190 60 114
Mbarga - Itabirite 1,100 39 429
Other - Itabirite 1,000 39 390
Total 2,290 41 933
Source: BBY, SDL
At US$1.86/t of 100% Fe equivalent, the project could have an implied value of US$1,735bn while at
US$0.95/t the valuation is of the order of US$886M. This translates into a range of between A$0.87/sh
and A$0.45/sh. We would tend to give the Anglo deal more credence as both companies were listed,
whereas the ERNC deal was with a private company.






My time frame is "as long as it takes¡¨