Sundance Scraps Deal With Hanlong, Shares Plunge

Iron ore mine in Africa
Richard du Toit | Gallo Images | Getty Images
Iron ore mine in Africa

Shares in Australia's Sundance Resources plunged 53 percent to a four-year low after the Africa-focused miner terminated a $1.4 billion takeover by private Chinese firm Hanlong Group saying its funding conditions for the deal had not been met.

Sundance shares sank to 9.5 cents as they came off a three-week trading halt, which compares with the 45 cents a share that Hanlong had offered.

Sundance, in a statement to Australia's stock exchange after the market closed, said that it was now in discussions with other parties, both in China and elsewhere, after being informed by Hanlong that it was unlikely to meet required conditions.

"Whilst it is disappointing after all this time that we will not complete this transaction, the board of Sundance believes it is in its shareholders' best interests to terminate the agreement," Sundance Chairman George Jones said.

"This will enable us to focus all our efforts on discussions with other parties which have expressed strong interest in the MbalamNabeba Project," Jones said.

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The privately owned Hanlong first announced its bid in October 2011 as it sought access to Sundance's $4.7 billion Mbalam iron ore project in central West Africa as an alternative supply to major Australian and Brazilian producers.

But Hanlong missed a series of significant deadlines, including providing proof of financing for its A$0.45 per share bid by a March 26 deadline.

Sundance shares have been suspended from trading since March 19. They last traded at 21 cents, less than half the value of Hanlong's offer, indicating that investors did not expect the deal to go through. Shares in Sundance are expected to resume trading on Tuesday.

The deal was also clouded by Australian Securities and Investments Commission investigations into three of Hanlong's Australia-based executives for insider trading related to several companies including Sundance.

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The Chinese government ordered Hanlong to line up a major Chinese company to help it develop the Mbalam project on the border of Cameroon and Republic of Congo, but those talks stalled following the detention of Hanlong's chairman, Liu Han.

Reports later said Liu was under police investigation for harboring his younger brother, a murder suspect.

Termination of the deal came as Australia's Prime Minister Julia Gillard traveled to China at the head of a high-powered business delegation with the aim of strengthening Australia-China investment ties.

As well as terminating the agreement, Sundance said a convertible note subscription agreement with Hanlong would also terminate at midnight on Monday, meaning two subsequent tranches would not proceed. Hanlong has a 14 percent stake in Sundance.

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An existing tranche of A$5 million in convertible notes would be escrowed for six months from Monday and have their maturity date conditionally extended to June 30, 2014.

Several other Chinese investors are thought to be interested in Sundance's A$5 billion Mbalam iron ore project, with the board working on alternative plans to secure a white knight suitor.

The company said the project had achieved several important environmental approval milestones, while probable ore reserves had increased from 352.3 million tons to 436.3 million tons.

"Sundance's MbalamNabeba Project is significantly more valuable today than when the Hanlong bid was first made," Jones said.