the austalian

New Sundance hitch

THE latest ructions in the long-running saga of Hanlong Mining's $1.38 billion bid for iron ore hopeful Sundance Resources raises the question as to whether consideration needs to be given to taking a leaf out the British rule book regarding takeover offers by Chinese companies.

Sundance owned the Mbalam iron ore project, which straddles the Cameroon-Democratic Republic of Congo border in central west Africa. It is part of an emerging iron province and is a $US4.7bn ($4.5bn) project to develop a major operation, producing 35 million tonnes of direct shipping ore initially, with the potential for 50 million tonnes a year. The output is destined for China.

It is therefore seen as strategically important for China, which is keen to secure alternative sources of iron ore than the Pilbara producer, Rio Tinto and BHP Billiton and Brazil's Vale.

The acquisition of Sundance is conditional, among other things, on approval by the Chinese regulatory authorities, in particular the National Development and Reform Commission.

It's more than 18 months since Sundance agreed to recommend a cash offer of 57c a share from Hanlong, but since then the NDRC has forced a downward revision of the offer price to 45c a share, delayed funding of the transaction by Hanlong's financier, China Development Bank, and more recently added a special requirement that Hanlong must bring in a large Chinese corporation as a partner in the development of the iron ore project, which almost certainly means a state-owned enterprise.

There have been suggestions that Hanlong has been talking to Magang Group and Wuhan Iron & Steel, both SOEs.

There has now been yet another hitch. On Wednesday Sundance advised that Hanlong had advised that its talks aimed at securing a Chinese partner failed to enable CDB to issue a credit approved term sheet by the latest deadline of next Tuesday.

Moreover, reports from China indicate that Chinese billionaire Liu Han, 46, a flamboyant character with a penchant for fast cars (Ferrari) and mink coats, has been detained by the police.

It's unknown whether it is linked to his tilt for Sundance.

The latter cannot be dismissed as a possibility.

China would almost certainly have preferred that Sundance be acquired by an SOE and is said to have been unhappy when Hanlong stole a march by acquiring a 14.5 per cent stake from the estate of mining magnate Ken Talbot, who died, with other Sundance directors, in a plane crash in 2010 following a visit to the Mbalam project, and then when it followed up with bid for Sundance.

Hanlong probably always intended to bring in a partner but is said to have believed it would be able to do so after first acquiring 100 per cent of Sundance, giving it leverage to negotiate a higher price.

It has been suggested that Hanlong has sought to resist the conditions imposed by NDRC and. If so, that may have some relevance to his latest difficulties. While there has been no indication as to how large a stake Hanlong would be expected to cede to a Chinese state-owned steel mill, it would not surprise if the NDRC wants the Chinese partner to have a majority interest, and to be the operator, with Hanlong relegated to a minority interest.

It remains to be seen whether or not this transaction will ultimately collapse. But if Hanlong succeeds in securing a partner and obtains the necessary Chinese regulatory approvals its probable that the scheme transaction will need to be renegotiated to take account of the changed circumstances.

In Britain a firm offer can only be announced once finance is committed. Bids can be made subject to objective conditions, such as competition law or certain other types of regulatory approval, but bids are generally not allowed to be conditional on approval by Chinese regulatory bodies such as NDRC, because it considers that such approval may be influenced by political or nationalistic factors, rather than by objective analysis.