Australian Iron-Ore DealMay Signal More MergersBy STEPHEN...

Australian Iron-Ore Deal
May Signal More Mergers
By STEPHEN BELL
September 25, 2007

PERTH, Australia -- The iron-ore sector in Australia might face renewed takeover interest after Gindalbie Metals Ltd. and Sundance Resources Ltd. said they agreed to a A$2.4 billion (US$2.07 billion) merger.

The deal, which comes as analysts are predicting another big price increase next year for iron ore, will create a Perth-based group with projects in Western Australia's Midwest and in Cameroon, West Africa.

The expanded company will enjoy better access to debt and equity markets as it looks to fund its multibillion-dollar development ventures, said George Jones, the chairman of both companies.

The merged entity plans to have five major projects under construction in the next five years, Mr. Jones said in an interview. "The diversity -- where we are located in Australia and Africa -- also makes you more attractive to Asian and European customers," he said.

Subject to environmental clearances, Gindalbie hopes to build its Stage One Karara venture in Western Australia next year. The full-scale A$1.6 billion project, involving exports of around 20 million metric tons a year by early 2010, has major infrastructure needs.

It may be a foundation customer for Yilgarn Infrastructure's proposed A$3 billion port and rail network, which is backed by five Chinese companies. "We strongly support the Yilgarn proposal," Mr. Jones said. Sundance is focused on its 90%-owned Mbalam Iron Ore Project in Cameroon.

Under the deal Gindalbie will offer to acquire all of Sundance's shares, by way of a plan due to be finalized in February. Sundance shareholders will receive one Gindalbie share for every two Sundance shares.

Based on the A$1.70 price of Gindalbie shares Friday, the offer values Sundance at about A$1.6 billion and represents a premium of 15% to the 74-cent price of Sundance shares Friday, the two companies said. The offer represents a 35% premium to the 30-day volume weighted average price of Sundance shares, they said. Sundance shareholders will hold about 65% of the merged company; Gindalbie shareholders, 35%, they said.

Talbot Group Holdings, which owns 19.9% of Sundance, has expressed strong backing for the merger, Mr. Jones said. He said he expects the merger to be supported by Gindalbie shareholders, including Malaysia's Melewar Industrial Group, which holds 14% of Gindalbie, and China's Ansteel, with 12.6%.

The deal could spur further consolidation in Australia's iron-ore sector as Chinese, Japanese and Russian interests look to snare supply.

Consolidation "needs to happen," Mr. Jones said. "There are a lot of junior and midrange companies, and really some of them should be getting together."

Write to Stephen Bell at [email protected]