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Sundance Resources Seen Doubling
Money Today Betting on Takeover:
Real M&A
By Elisabeth Behrmann, Angus Whitley and Jesse Riseborough - Dec 23, 2011 8:23 AM GMT+0800
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Australia’s Sundance (SDL) Resources Ltd. is giving traders a
chance to double their money on the richest mining takeover in five
years.
Sundance rose as much as 34 percent after Sichuan Hanlong Group
offered in July to buy the owner of the Mbalam iron ore project in
Africa. The stock has since lost all its gain on concern the Chinese
conglomerate won’t be able to pay for the $1.4 billion purchase. With
Sundance cheaper than it was before Hanlong announced its bid,
traders can reap a 65 percent return betting on the deal, according to data compiled by
Bloomberg.


While Hanlong has yet to secure a financing commitment five months after agreeing to pay
what is now the biggest premium for a mining company since 2006, the Chinese government
helped Hanlong buy its initial Sundance stake, according to CLSA Asia- Pacific Markets.
That helps to make it the “most significant opportunity” to profit from acquisitions in
Australia’s mining industry, CLSA said. If Hanlong’s bid unravels, it could prompt companies
such as Glencore International Plc, Anglo American Plc or Xstrata Plc to step in with offers,
IG Markets said.

“From a risk-reward perspective, you’d definitely be looking to buy,” Chris Weston, a dealer
at IG Markets in Melbourne, said in a telephone interview. “It’s got some fantastic assets and
it would suit a number of companies. There would potentially be a few others running the
ruler over them.”
Paul Armstrong, a spokesman for Sundance, declined to comment and referred to Chairman
George Jones’ Nov. 25 speech at the Perth, Australia-based company’s annual shareholder
meeting, where he said that Hanlong’s offer “continues to be in the best interest of all
shareholders.”

Acquisition Detail
Michael Vaughan, a Sydney-based spokesman for Hanlong, said in an e-mail that it
“continues to work closely with Sundance on completing the transaction.”
Hanlong, located in Chengdu in China’s southwestern province of Sichuan, has investments
in highway and power projects and said last year it will spend as much as $5 billion on
resource assets to feed China’s demand for commodities.
After becoming Sundance’s largest shareholder, closely held Hanlong made an unsolicited
bid of A$1.2 billion ($1.3 billion), or 50 cents a share in cash (XTA), in July. Hanlong raised
its proposal in October to 57 cents a share, a 68 percent premium to its 20-day average
before the initial offer, according to data compiled by Bloomberg.
The premium was the largest for any metals or mining deal over $1 billion since Xstrata paid
a 110 percent premium to buy Falconbridge Ltd. in 2006, the data show.

‘Handful of Believers’
While Sundance climbed as high as 53.5 cents in July, the stock has since lost more than a
third of its value and ended at 34.5 cents yesterday. When Hanlong first announced its
takeover proposal, Sundance traded at 40 cents a share.
The decline has accelerated in the past month, sparked by speculation that Hanlong hasn’t
been able to persuade its bankers to lend it money to acquire Sundance. The mining
company said on Nov. 25 that it waived a condition that required Hanlong to obtain a “highly
confident letter” for financing from China Development Bank Corp. by Nov. 28.
Sundance estimates that its Mbalam rail, port and mine project straddling the Republic of
Cameroon and Republic of Congo will produce 35 million metric tons a year and cost $4.7
billion to develop.
There are a handful of believers, but there’s a large part of the market which is putting it in
the ‘too hard’ basket,” Giuliano Sala Tenna, who manages $40 million at Katana Asset
Management Ltd. in Perth, said in a telephone interview. “There’s a massive capital
expenditure requirement.”

Chinese Money
Sundance still expects the deal to close by the end of May, meaning that traders buying the
stock now stand to gain the biggest payout of any billion-dollar deal in the world, according
to data compiled by Bloomberg. On an annualized basis, the 65 percent return balloons to
149 percent, the data show.
“You can’t find an investment that can give you such an upside,” said Alick Wong, a
quantitative research analyst at Louis Capital Markets in Hong Kong.
Michael Evans, a Sydney-based analyst at CLSA, says the financing concern is misplaced
partly because the Chinese government assisted Hanlong in acquiring its initial holding in
Sundance. Hanlong owns 18 percent of Sundance, according to data compiled by
Bloomberg.
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Sundance Resources Seen Doubling Money Today Betting on Takeover: Real M&A - Bloomberg
http://www.bloomberg.com/news/2011-12-23/sundance-resources-seen-doubling-money-today-betting-on-takeover-real-m-a.html[23/12/2011 8:45:14 AM]
China’s interest and investments in Africa may also help Sundance secure approvals from
Cameroon and the Republic of Congo. Cameroon has received “substantial” interest-free
loans from China, while the world’s fastest-growing major economy is the biggest buyer of
Congolese timber, CLSA said in October

Ties That Bind
Sundance said in a regulatory filing last month that it is close to completing negotiations with
both countries for clearance to start developing the mine. Leaders of both African nations
have also voiced their support, it said.
“China’s substantial business interest and aid packages that already exists with both these
countries and the high level of discussions that have already taken place, should give
investors a high level of confidence a deal can be done,” CLSA’s Evans wrote in a report to
clients dated Dec. 14.
In April, Sundance said that it intended to build a 510- kilometer (320-mile) heavy-haulage
railroad through Cameroon and a deep-water port for bulk iron ore carriers and aimed to
start shipping iron ore by 2014. Based on the present value of future profits, Evans
estimates that Sundance could be worth A$1.95 billion, or 66 cents a share.
That’s almost double the company’s current market value.

National Interest
While shares of Sundance have also depreciated on speculation an investigation into
allegations of insider trading by two of Hanlong’s employees in Australia will delay the
Foreign Investment Review Board’s ruling on the takeover, Gavin Wendt, senior resource
analyst at Sydney-based Mine Life Pty, said the board will probably approve the deal
because Sundance’s mine isn’t a strategic asset to Australia.
The review board will “separate out whatever is going on with Hanlong’s situation from the
actual deal itself,” he said in a telephone interview.
The FIRB, as the review board is commonly known, considers “the character of an investor
and its corporate governance practices,” the Australian Treasury department’s media office
wrote in an e-mailed response.
Vaughan, Hanlong’s spokesman, reiterated this week that the company isn’t under
investigation. Sundance said on Nov. 22 it wasn’t aware of anything that might bar the
approval.
Even if the agreement with Hanlong collapses, Sundance could make sense for Glencore,
Anglo American (AAL) or Xstrata, according to IG Markets’ Weston.
Glencore, Anglo American
Several parties conducted extensive due diligence on the Mbalam project and were still
doing so when Hanlong made its bid in July, Sundance’s Jones said at its annual meeting.
Glencore Chief Executive Officer Ivan Glasenberg said in August that the largest publicly
Sundance Resources Seen Doubling Money Today Betting on Takeover: Real M&A - Bloomberg
http://www.bloomberg.com/news/2011-12-23/sundance-resources-seen-doubling-money-today-betting-on-takeover-real-m-a.html[23/12/2011 8:45:14 AM]
traded commodities company is “aggressively” seeking acquisitions. Baar, Switzerlandbased
Glencore had $1.6 billion in cash and short-term investments at the end of June, data
compiled by Bloomberg show.
Anglo American, the London-based miner of coal, platinum and diamonds with about $6.8
billion in cash, is always looking for acquisitions, Chief Executive Officer Cynthia Carroll said
in September. She also said in July that it studied several potential deals in the first half of
the year.
Xstrata, co-owner of the $6 billion Zanaga iron ore project in the Republic of Congo, said last
year it was seeking more deals to build up its iron ore business. The Zug, Switzerlandbased
company has about $1.35 billion in cash on hand.
Risk-Reward Ratio’
Charles Watenphul, a spokesman for Glencore, declined to comment on whether the
company is interested in Sundance. Anglo American’s James Wyatt-Tilby and Alison Flynn
of Xstrata also declined to comment.
“There are still some expectations that if not this deal, there will be another one shortly,”
Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which
oversees $14.5 billion of assets, said in a telephone interview. “The deposits are there, they
are proven. Somebody could buy these assets and be very grateful for having done so two
years from now. The risk-reward ratio is pretty favorable.”