why is sdl stagnating? , page-6

Hey Soho

The share price has lifted above its long term level of 12.5c since September, to its current 33-36c price range.

This elevated price level reflects derisking of the project with the MOUs being signed with China Rail and Port. A further derisking occured once the DFS was completed in March.

The current share price is also being negatively affected by overall market sentiment where an over reaction is occuring to the fears of a "slowdown" in China, forcing down the price of iron ore, Greece defaulting on its debt and slowing US growth.

Even BHP, with a $5Billion SHare Buy Back has fallen by 13%+ since the start of April. This company made $10.6Billion from July 1st 2010 to December 31st 2010 or $58.5m per day! And for the period July 1st to September 30th, the price of iron ore was only $120 per tonne! They have been averaging $180 per tonne since January 1st 2011 to June 30 2011.

Basically BHP, like the rest of the Materials Sector is Significantly oversold due to negative sentiment and momentum!

By June 30, or soon there after, Sundance will announce the JV Partners. Once this is official, the biggest derisking of the company, since actually finding the iron ore in 2006 would have occured.

Then the mining licenses will be granted, further derisking the project. Lifting its share price.

Now I will explain why the markets are over reacting about these world economic events.

China:

http://www.theaustralian.com.au/business/markets/australian-dollar-slips-after-goldman-cuts-its-china-growth-forecast/story-e6frg926-1226061910449

The Chinese are successfully slowing their economy to 9.4%, most heading to 8.5%, as their inflation rate will move towards their target inflation rate of 4%. At the same time, continued demand for iron ore will ensure iron ore prices will remain at elevated levels.

Greek Debt Restructuring:

http://online.wsj.com/article/SB10001424052702304520804576341414080784514.html?mod=WSJEurope_hpp_LEFTTopStories

The Greek Govt has accelerated plans to privatise their state owned assets to pay back 50M Euros worth of debt, in return to extend when their current debts expire.

Expect this to be finalised before mid June, most probably 1st week of June.

US Economy Slowing:

The US economy will continue to grow at sub par levels of between 1.5% and 3% for the foreseable future. But continued stimulatory Monetary Policy by the Federal Reserve
well into 2012, will ensure a lower $US, assisting their exports, as well as amplifying US company profits sourced from CHina, Europe, Japan, Australia S Korea. Which will feed back to increased dividends for share holders on Wall St.

Once the media begins to reflect these fundamental economic events from mid June, we will see the two most important factors of a company's share price, sentiment and momentum, improve for SDL, therefore lifting significantly from its current levels. It will be a combination of de risking in the form of JV Partners/Finance and World Economic events that will lift the share price.

The reason we are so bullish on Sundance Resources is the following:

If Mr Casello does need until the end of July to get the best deal he can for SDL, then so be it! What is another 30 days when we have been waiting so long?

Sundance's extremely low cash cost is one of the lowest in the world.



Contrary to what all the "media" is promoting, the US economy is growing, its just that its currently not fast enough to absorb additional unemployed. During the first stage of an economy coming out of a deep recession, productivity growth is extremely high, companies get a lot of extra work out of desperate existing workforce. There comes a time though, that the marginal increase in productivity is not enough to offset increase in demand for labour, then we see unemployment fall. This is expected to occur in coming months, especially with such loose monetary policy! Again this will ensure demand for minerals stays high. Just because we dont sell much iron ore to the US doesn't mean increased demand from them wont put a strain on world seaborne demand. This increased demand will come from Vale, the US's traditional supplier from Brazil, their relatively close neighbour.

And the most important factor is the following:

We have mentioned many time on HC that China's domestic levels of iron ore are deteriorating. To such an extent that in most mines, it is down to 12-15% Fe, with only a few of their best quality mines sitting at a dreadful 30%. This means their internal cash cost to extract iron ore is around $150 per tonne, as mentioned by RIO Tinto in 2010.

They chart from NAB this week shows that China has been desperately accelerating their domestic production of iron ore for the last six months, to try and minimise the world seaborne price of iron ore from break above a technical level of $200 per tonne.



The CHinese know that cannot continue to significantly increase domestic iron ore production for a long period of time due to the quality of their ore being so low. SO they will partner with Sundance on the Mbalam project, opening up the 35mtpa from Nebeba and Mbarga, as well as the other 20 odd mines in the region, and allowing Sundance to continue to explore other iron ore deposits in their tenements to produce additional quantities of iron ore, of which SDL will be able to provide the CapEx themselves and have 100% ownership of those deposits!

PS:

All this nonsense about an over supply of iron ore from 2014 will also come to fruition. BHP in a presentation in 2010 eluded to this......:)



I hope that helps a little.

Cheers Nectar