UPDATE: Sundance Cameroon Iron Ore Project To Cost US$4.6B 06/04/2011 4:23PM
(Adds CEO comments on funding from graph 2.)
By Ross Kelly
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--Sundance Resources Ltd. (SDL.AU) said Wednesday the first stage of its proposed iron ore project in Cameroon and the Republic of Congo will cost US$4.6 billion to construct, and that China could be its main source of funding.
Issuing new shares isn't likely to be necessary to finance any of the development, with the money expected to come from a stake sell down, most probably to a Chinese steel mill, and debt from Chinese banks, said Chief Executive Giulio Casello.
"China is in that mode where it's out into the world looking to secure long-term iron ore supplies to a market that it's consolidating inside of China," said Casello in a telephone interview from China. "So we think this project is a very good strategic fit with the Chinese direction and we're getting a lot of interest in that regard."
Chinese demand for raw materials to feed its fast-developing economy remains buoyant, although analysts expect global iron ore prices to start falling from around 2014 as large production capacity expansions by big producers like BHP Billiton Ltd. (BHP.AU) and Rio Tinto Ltd. (RIO.AU) come on line. Still, Casello said that many Chinese mills want to reduce their exposure to traditional suppliers by taking direct stakes in new mines and developing their own infrastructure.
Sundance has completed a definitive feasibility study for the Cameroon stage of the Mbalam project, which points to mining costs of US$914 million, railway construction costs of US$2.02 billion, port costs of US$537 million and engineering, procurement and construction costs of US$1.21 billion.
China Railway Construction Corp. and China Harbour Engineering Co. have both signed memorandum of understanding terms with Sundance to establish the scope, cost and delivery program for construction of the railway and port. Casello said that both entities haven't yet discussed taking an equity stake in Mbalam but it's possible that they could.
Sundance wants to finalize a strategic partner by the end of June and hopes to start construction late this year.
Casello said the company won't end up owning any less than 50% interest of the project. The government's of Cameroon and the Republic of Congo are expected to take 10% stakes in the respective stages. Perth-based Sundance has also completed a pre-feasibility study for stage two in the Congo and plans to commence a definitive feasibility probe for the expansion in 2012.
Stage one is slated to produce an average of 35 million metric tons a year of direct shipping ore for estimated cash operating costs, before royalties, of US$21.20 per ton. The low operating cost can be attributed to the resource's very low strip ratio, said Casello.
Sundance shares added 1% Wednesday to 49 cents, giving the company a market value of A$1.3 billion.
The late Ken Talbot's stake in Sundance, equivalent to around 16% of the company, was bought last month for 44 cents per share by Hanlong Mining, a subsidiary of privately-owned Chinese infrastructure and mining group Hanlong Group.
Peter Mansell, chairman of Hanlong Mining, said at the time that it had no immediate plans for Hanlong to fund the Mbalam development.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [email protected]
