SDL - Sundance Resources

[Justthinkin]

It's difficult to imagine but not so long ago (about 1 year) SDL was trading at 90 cents...ah those were the days.

In scouring for logical stocks which have been overly beaten to death, SDL must be worth a look. SDL has an impressive JORC resource and does seem to be approaching the project logically and coherently.

However, I'm not putting SDL in my stocking because:

(a) its cash burn can only go so slow. Circa $30m left at September isn't a lot of money to promote internationally a projct of this calibre;
(b) the apparent progression of a neighbour project by CMEC (Belinga Iron ore Project), fully sponsored by Chinese Bank and offtake agreements in place, construction commenced...doubtful any further Chinese interest until this project advanced
(c) soft commodity markets
(d) small minded , short sighted financiers everywhere
(e) ever accelerating capital costs...​

Best outcome for SDL... someone buys the lot and puts it on hold. Not likley but if it were possible then the question moves to does SDL's current market cap (circa $150M, $120M excluding cash @ 8.1 cents) equate to fair value of work , effort and rights it has? Marginal. At 4 cents would be too cheap but a willing buyer / stressed seller, hmmmm

These are my views and I am not an advisor. Do your own research!

Good luck today!

 

[LRG]

agent 86, thanks - sorry i did not read the notice correctly - thought they had dumped the lot.

just thinkin makes good points - this stock will drift lower into march / apr IMO.

People will start to loose patience soon and we will be able to buy more at a substantial discount.

close was 7.8 cents today - maybe low 7,s tmw and 6's next week??

 

[The Muffin Man]

Justthinkin, as a holder I guess I look at those points from another perspective;

a) There was about $32.5m in the bank at the end of the September quarter. In the September quarter, $14.3m was spent. Of that $14.3m spent, $12.3m went to exploration and evaluation. That $12.3m is going to shrink rather significantly from here on in. I'm tipping that $32.5m could be stretched for quite a long time. As for money to promote the venture, I'm pretty sure those that need to know about this project already know about it. I know they are just rumours, but if you read reports in this thread, there have already been a few approaches from serious suitors.

b) I've kept tabs on developments south of the border too. The development of a new iron ore province may have some benefits too. I understand that there has already been big investments there from China, but China isn't the only player in all of this. Cameroon is quite close to Europe also, and China isn't home of the World's largest Steel producer (AM). We also recently saw heavy investment in a Brazilian iron ore company from a South Korean and Japanese syndicate, $3Bn if I remember correctly. China is extremely important, but there are others around also.

c) Soft commodities market, yes, at the moment. Every economic cycle has it's peaks and troughs, upswings and downswings. I think it important to remember that this project wouldn't be producing until 2012. So, while soft commodities experienced now is not the best setting to try and sell this project, I don't think it's a huge problem either. Mbalam will also be a low cost producer, with a high quality product, and steel companies are always going to need iron ore.

d) You're right, there are a lot of short sighted financiers around at the minute. But there are the ones like the South Korean / Japanese consortium, that can see they need to position themselves for the future. I still think there will be investment, but only in high quality assets. I think Mbalam fits that mould.

e) Costs. The costs of constructing the mine and infrastructure will have fallen quite a bit since the CAPEX was done I would have thought. Materials have fallen in price, and so will have labour as there won't be as much building going on. I understand you meant the cost of capital itself, but I wonder how much that would be offset by actual material and labor costs falling.

This thread has some good discussion I think.

 

[Justthinkin]

That's the beauty of democracy... we can exchange views, disagree and not be shot. I love that aspect.

No I don't have a holding and like many stocks have looked to include it in my portfolio but too many no's.

Cost of captial is issue B I think in this case. Issue A is in fact someone with speculative capital available and an appetite for all the real and/or perceived risks implicit in this project.

In a previous review I looked at CMEC because indirectly there was I recall a personal relationship between the 2 coys. Obviously that opportunity is spent. I suspect there is an element of the Chinese looking for partners other than Australians... they possibly already have their fill!!!

Lastly, your point about the forum is spot on... there is a lot of useful and thoughtful commentary from many perspectives. Again the beauty of democracy. My concern when looking at the international arena is that the projects we (Australian coys) are developing are in someway unique in the world... which may not always be true. We need to be open minded

DYOR etc etc

Good luck!

 

[talktome]

I think this environment is a counter-cyclical buying opportunity.

I am a LT holder until 2012 at the very least. I am hoping the SP stays low for quite some time as I have the goal of getting at least 500,000 shares. I'm just over half way there with my monthly purchases but am worried I only have a few more months before the low prices disappear.

Although I am sticking to my plan, the financing issue in this financial crisis does worry me.

The thing is, I simply can't expect to make serious money by buying at the same time as the herd, when everything is rosier. I have to buy low and sell much higher.

I guess that is part of the risk.

 

[paddy]

Anyone know anything about the rumouras that Tata Steel could be coming on board?

Could be why George Jones was in Mumbai last month

 

[spottygoose]

Tatas could bid for African iron ore mine

21:04 IST(14/12/2008)


Tata Steel could bid for a strategic stake in Mbalam iron ore mine in Cameroon by partnering Sundance Resources, the company that owns the West African mine, investment banking sources told Hindustan Times.

International media reports said Sundance Resources Chairman George Jones recently returned from a road show to promote Mbalam’s potential. Sources familiar with the development said Jones met senior Tata Steel officials last month on equity participation in the project.

Arcelor Mittal, Posco and Rio Tinto are understood to be the other potential bidders for the Mbalam project for which the potential valuation is not yet known.

A Tata Steel spokesman said reports of his company’s bid was “completely speculative and untrue.” However, company Managing Director B. Muthuraman said recently that it was looking for captive raw material security. Sundance did not respond to an e-mail seeking its comments.

According to industry analysts, Mbalam could be one of the world's biggest iron ore mines with a capacity to produce 35 million tonnes per year at least for the next 20 years. "It's not clear whether Tata is putting a bid for Mbalam. However, if so, Mbalam would assure a long-term raw material security for its operations especially outside India,” said an investment banker close to the Tata Group.

Tata Steel has a production capacity of 28 million tonnes and plans to have at least 40 per cent of raw material resources from captive units over the next five years. It had bought stake in a Canadian iron ore project and has equity participation in another iron ore mine in Ivory Coast. Corus, the Anglo-Dutch group Tata Steel has acquired, is particularly vulnerable to raw material shortage.

 

[Jewels]

Hi Paddy,
More than one source has mentioned simmilar rumours. This is an article from the 8th of December.

Barry FitzGerald
December 8, 2008

Following Sundance's international roadshow, a big brother partner for the Mbalam iron ore project in Cameroon could be just around the corner.

Sundance Resources

SUNDANCE Resources (SDL) chairman George Jones recently returned from an international roadshow to promote the big-time potential of the group's Mbalam iron ore project in Cameroon.

He came back with a few tales to tell, not the least of which was that he had the good fortune to have checked out of the Taj Mahal Hotel in Mumbai just eight hours before the bloody terrorist attacks.

The Taj Mahal is owned by India's maker of all things, the Tata Group. Included in Tata's mix of interests is a major steel business. So you've got to wonder if Tata is one of the 10 groups rumoured to have expressed an interest in striking an off-take, financing and/or a possible joint-venture deal on Mbalam.

What's more, industry gossip is that four of them got as far as presenting non-binding proposals, raising hopes that a big brother partner for Mbalam could be announced early next year.

The strong level of interest in Mbalam during the current gloom and doom surrounding anything to do with the steel sector should not come as a surprise.

The project has the potential to be a top 10 global producer. More to the point, it offers the potential for a new source of long-term supply that falls outside the control of the big three — Vale, Rio Tinto and BHP Billiton.

That's why steel producers, traders and would-be iron ore mining groups are said to be heading up the shortlist of potential joint venture partners/financiers/customers being drawn up by Sundance and its advisers.

Their interest is as good a demonstration as you can get that planning, albeit long term, for the eventual resumption of cohesive global economic growth is under way.

Mbalam is not without its challenges. Its central West African location and $US3.2 billion ($A5 billion) development price tag were not a problem six months ago. But they are now, a situation reflected in Sundance's share price collapse in the past six months from more than 40 ¢ to all of 8.6 ¢ a share on Friday, valuing the group at $162 million.

That's not a lot when compared with some recent deals in the Brazilian iron ore sector where Japanese players have been happy to take a long-term view and pay between $US1 and $US3 a tonne for the type of iron ore (itabirite) that Mbalam will include in its production mix.

The inferred resource at Mbalam was recently upgraded to 2.45 billion tonnes (mostly itabirite overlain by a higher grade hematite cap).

More exploration will find more of the stuff. So Mbalam is not resource-constrained. It is infrastructure-constrained. It needs a 500-kilometre rail line and port built before it goes anywhere.

An earlier development timetable that envisaged first production in 2012 and an annual production of about 50 million tonnes a year is a tough call in the current market.

But should there be confirmation early in the new year of a big brother entrant to the project, the market could well rerate Sundance and the Mbalam project.

Apart from anything else, 2009 will see the completion of the feasibility study into the development and, hopefully, the completion of government and financing approvals.

Founder and former managing director of Macarthur Coal, Ken Talbot, has more at stake than anyone else in Mbalam getting a move on next year.

His Talbot Group owns 19.9 per cent of the stock. But Talbot has something more personal to deal with in 2009. Talbot and former Beattie government minister Gordon Nuttall will defend corruption charges when they go on trial next year. The men were committed last week to stand trial in the Brisbane District Court on charges stemming from alleged secret payments totalling $300,000 over a three-year period.

The article can be found at:
http://business.theage.com.au/busin...ide-mbalam-vies-for-top-10-20081207-6tan.html

Also Concord have recently been selling a large stake to drop below substantial share holder status, however only just below. So they must believe SDL has something to offer. ( A synic may believe that they have dropped below substantial levels to allow easier manipulation of the share price with out having to declare to the ASX).
Volume up to 14 million today, I get the feeling that something is about to be announced in the very near future.

 

[Jewels]

Hi Justthinkin,
At the AGM DL stated that Seismic testing of the proposed railway showed that the rock was actually much softer than initially anticipated, leading to a lower capex for the line, and on top of this deep water testing of the proposed port showed that deep water was much closer to shore than first thought. This will allow SDL to develop "Pilbra type port and loading facilities", once again reducing the projected capex for the port.
It will still be expensive, to do, but not as expensive as budgetted for.
thanks J.

 

[Justthinkin]

Jewels,

Great commentary.

In my experience with infrastructure projects capital costs have an uncanny way of making great projects marginal under any commodity pricing assumption. If I were a cynic I'd possibly conclude that the equipment manufacturers price their components on the basis of commodity values rather than any silly notion of cost plus!!

In a past life I had hoped that CMEC and SDL would have got together, resolved with the respective countries royalties and assembled a single shared railway to port ... surely this would significantly reduce the delivered cost to port!

The Tata et al announcement is really encouraging. And your observation about looking to move away from the big three is very true...

Here's hoping for all the SDL holders.

Good luck today

 

[Agent 86]

Does anyone have a quick 'n dirty valuation of what SDL might be worth based on the recent sale (October 08) of 40% of Namisa to ITOCHU Corporation, Nippon Steel Corporation, JFE Steel Corporation, POSCO, Sumitomo Metal Industries, Ltd., Kobe Steel, Ltd., and Nisshin Steel Co, Ltd.

These 7 companies collectively paid USD3.12bn for a 40% stake.

 

[Jewels]

Does anyone have a quick 'n dirty valuation of what SDL might be worth based on the recent sale (October 08) of 40% of Namisa to ITOCHU Corporation, Nippon Steel Corporation, JFE Steel Corporation, POSCO, Sumitomo Metal Industries, Ltd., Kobe Steel, Ltd., and Nisshin Steel Co, Ltd.

These 7 companies collectively paid USD3.12bn for a 40% stake.

$5.41 if you work on the Aussie dollar at 65cents US and IO prices the same as at the time of the Itochu Deal.
Of course that was at the peak of the market.

 

[Agent 86]

Thanks Jewels for that. But I understood that Namisa was already producing around 14Mt per annum which gives it a bit a flying start in valuation terms over SDL.

Can you take me (and all interested parties on this website) thru your $5.41 valn. Volumes (Mt), grades, DSO or itabirite, etc.

But more importantly, is the Namisa transaction directly comparable to SDL's situation. If so, on what basis is it comparable, and how did you exclude the 14Mt production from Namisa's valn to come up with a like-for-like valn for SDL.

 

[Jewels]

Hi 86,
You asked for a "dirty" back of the envelope calculation, so heres how I came up with it.

Now at the AGM DL actually mentioned this transaction. He said that the ore was of a similar type and quality to Mbalam. So in true "dirty" style I've assumed both ore bodies are the same. Now please correct me if I'm wrong, but I seem to remember reading that Mbalam had a higher quality of IO, and a greater amount of DSO than CSN, whilst the type of ore is very similar (Once again I think Mbalam had slightly lower percentage of impurities). On top of this Mbalam is likely to be a far bigger ore body, open at depth and only 3% drilled.

So US$3 billion for 40% values CSN at US$7.5 billion. Roughly 1.8 billion shares on issue for SDL so that would equate to US$4.16/share. Assuming the AUD is worth 65 UScents this would work out to AUD $6.40/share

Assuming a Cappex of US$3 billion (recent testing implies cappex will be less than forcast), and assuming that SDL wont have to foot the bill for the entire rail/port project ( A big assumption I know, but I think its resonable)you can take AUD$1.00/share off.

So 86 there is my quick and dirty valuation. Hope this doesn't make any Charted analysts out there laugh too hard!

Would be very interested in anybody who can give another more enlightened opinion.

Thanks J

 

[Agent 86]

Again thanx Jewels. I am ok about quick n dirty assumptions, but the most significant difference is that Namisa is an already producing mine of approx 14Mt I think.

This 14Mt production should be worth atleast a USD2-3billion of the USD7.5bn valuation.

whaddayathink?

 

[Justthinkin]

Agent 86 ... I think that under any circumstance there is an enormous spread between SDL's current share price and the 'quick 'n dirty' guesses presented.

Your point is not missed... a significant portion of valuation is attributable to mine condition ie is it at concept stage? Is the resource proven as opposed inferred? What are the barriers to mine operations? Each answer will add proportionately more or less to coy valuation (aka share price).

Securing an offtaker is I understand the current SDL quest.

Undoubtedly, an offtake agreement would add significantly to the share price...by default the offtaker is saying that I am sufficiently confident that SDL will be able to deliver the product within the time frame and to an acceptable quality nominated by SDL. The offtaker has confidence in the project which in turn excites the financiers.

I am curious though how a prospective offtaker might behave in the current environment. Does he rub his chin wisely and think waiting for SDL to become destitute before he moves? Does he discount his offtake price parameters because of (a) his own internal uncertainty (ie can he use what ever volume he committs to buy?) and/or (b) his perception (right or wrong) that SDL will or will not get the project away and therefore risk pricing the offtake. Basically, a lot of due diligence (on the part of offtaker) would be required to underpin an offtake agreement or alternate a miserable price.

I am curious because "what if SDL does not secure and acceptable offtake arrangement pre expiry of $30Mil (@ Sep 08) in bank?" Does any one have any thoughts as to what (or who?) plan B would look like?

I hold SDL

Good luck today

I'm not an advisor and any comments thoughts suggestions are just the rantings of the little yellow man [wearing a lovely pair of bright orange gumboots] in my head...DYOR

 

[Agent 86]

I like yr comments justthinkin.

With the likes of Arcelor Mittal, Rio, Tata and POSCO on the sidelines (based on previously reported rumours), I would think that an auction style process will ensure that those who are interested have to show their interest first otherwise they might miss out. I would like to think that our board would not do anything to flog the company too cheaply.

Yes I agree that $30m is not a lot of cash but SDL could easily last a year or so quite easily with limited drilling. This will give SDL the best opportunity to ride out the depths of this earthquake we are now experiencing.

Plus there is great potential upside in the other exploration permits SDL now has in Congo. Atleast the new Congo permits are held in different subsidiary of SDL to that of Mbalam, which would allow atleast part of Mbalam to be sold to one of these parties without affecting Congo permits.

How far away are the aeromagnetic images of these new permits from being released? Does anyone know this?

 

[The Muffin Man]

Regarding the cash issue, I mentioned in an above post that SDL spent around $14m in the September quarter. $12m was on exploration and evaluation, $2m was on admininstration type expenses if my memory serves correctly. I reckon that $14m quarterly expenditure could fall quite considerably now, I couldn't guess to what figure, but I'm sure that $30m could last quite some time.

If spending stayed at the $14m level per quarter, the cash at bank could stretch to after March. Spending has been slashed, so I'm guessing the cash could last to at least past June, and that's being conservative.

 

[Justthinkin]

My note earlier was just looking at possible allternate routes which SDL might take if offtakers are leveraging todays calamity to propose ordinary arrangements for post 2012... nothing cynical.

For example, if they had access to more cash, would / could / should they accelerate their drilling and so shift resource from inferred to probable or proven?

At face value, dealing with some of the outstanding issues with local government wouldn't be a bad thing either.

Are there other steps they can take to soldify their share price as a precursor to inevitable capital raising?

Cheers

 

[Jewels]

Aero mag survey was completed on the day of the AGM. Results shoulde be available in January according to DL. Drilling Company has been given equity to reduce drilling costs, so concievably SDL could still continue drilliing without such high cashburn.
MOU with Gov't is the big thing and I get the feeling that it is a far more difficult negotiation than originally anticipated.