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BRYAN FRITH
Sundance-Hanlong deal shaky in the scheme of things
BY: BRYAN FRITH From: The Australian January 30, 2013 12:00AM
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IT'S looking increasingly likely that the privately owned Hanlong Mining will have to partner with a Chinese state-owned enterprise if it is to obtain final approval for its protracted takeover of iron ore hopeful Sundance Resources.

Sundance owns the Mbalam iron ore project, which straddles the Cameroon-Republic of Congo border in central West Africa. Mbalam is part of an emerging iron ore province and the $US4.7 billion ($4.5bn) project aims to develop a major mining operation, producing 35 million tonnes of direct shipping ore initially, with the potential to go to 50 million tonnes a year.

Hanlong, which is controlled by Sichuan-based billionaire Liu Han, owns a 14.15 per cent strategic stake in Sundance, acquired in March 2011 from the estate of late mining magnate and Sundance director Ken Talbot, who died along with other Sundance directors in a place crash following a visit to the Mbalam project.

In July 2011, Hanlong proposed a scheme of arrangement at 50c a share, but Sundance rejected it as inadequate. In October 2011, Sundance recommended an increased offer of 57c a share and the scheme was expected to be completed by April last year.


But delays in obtaining approvals from the Cameroon and Congo governments and the Chinese regulatory bodies, notably the National Development Reform Commission, have forced the completion date to be extended several times.

Moreover, last August, as iron prices began to tumble, the NDRC made it clear that its approval would not be forthcoming unless the offer price was reduced and Sundance was forced to agree to a lowered bid price of 45c a share, which reduced the value of the deal from $1.65bn to $1.38bn.

The approvals of the Cameroon and Congo governments have now been obtained, which satisfies Sundance's obligations, but Hanlong as yet has been unable to obtain final approvals from the NDRC and its financier, China Development Bank. Sundance shareholders were scheduled to vote on approval of the scheme on December 14, but the meeting was adjourned to February 1, this Friday, because Hanlong was unable to obtain a credit-approved term sheet from CDB by the time of the meeting.

The term sheet is required by tomorrow (January 31) while the deadline for the Chinese regulatory approvals is February 8 and the end date of the scheme has been moved out to March 1.

The failure to obtain the term sheet came about because the NDRC at the 11th hour advised Hanlong that it required a review of the Cameroon and Congo mining permits. The CDB's stance almost certainly reflected the hand of the NDRC.

Sundance obtained a trading halt before the start of trading yesterday "pending an announcement on the funding commitments by Hanlong", which almost certainly means that the required term sheet won't be obtained by tomorrow's deadline and that Friday's scheme meeting will have to be adjourned for a second time.

The reason given for the trading halt is similar to that used when a trading halt was obtained on December 3, and led to Sundance confirming that it would not receive the term sheet in time for the December 14 scheme meeting to proceed.

If Sundance expected to receive the term sheet by tomorrow's deadline there would be no reason to obtain a trading halt. The logical conclusion is that Sundance does not expect to receive the term sheet within the deadline and the scheme meeting will need to be again adjourned or the transaction called off.

It's unlikely that either Hanlong or Sundance want the transaction called off. When the December scheme meeting was delayed, Hanlong agreed to provide Sundance with a $15m convertible note facility, which could be drawn down to meet the company's working capital requirement and which Hanlong claimed was evidence of its commitment to the merger.

But the delays in securing the term sheet would seem to add weight to suggestions that the NDRC was not happy when Hanlong snapped up the Talbot stake in Sundance and followed up with a bid for the company.

China will be the end customer for the Mbalam iron ore and it is suggested that it would have preferred to see a state-owned entity in control of what will be a major project in an emerging and strategically important region.

Since the December scheme meeting was adjourned, Hanlong has admitted to talking with several state-owned steel companies "on a request from relevant government agencies" about co-operation to jointly develop the Mbalam project. Wuhan Iron & Steel has been mentioned as one such group which has talked to Hanlong.

A further adjournment of the scheme meeting will mean that new deadlines will need to be set for the term sheet, Chinese regulatory approvals and the end date of the scheme.

Last time around, the parties gave themselves more than six weeks in which to attempt to secure the necessary approvals and it may be that they will again allow themselves at least the same amount of leeway in an attempt to secure a resolution.

If so, the Sundance share price is likely to reflect uncertainty. For some time the shares have sold in a range of 32c to 39c and last sold at 34c, a discount of almost 25 per cent to the 45c a share offer price, reflecting pessimism as to whether the deal will go ahead.

Macquarie rapped