Sundance Resources is seeking Chinese investors to help fund a $4 billion iron ore project in the Cameroon, west Africa, the latest company seeking to challenge the dominance of Vale , Rio Tinto and BHP Billiton in the overseas market for steelmaking's basic material.
Sundance is in talks with Chinese steel mills, the natural candidates to invest in the project given Beijing's push to consolidate domestic steelmaking and reduce its reliance on the world's three biggest producers of iron ore, said Sundance's managing director Giulio Casello.
“A lot of Chinese steel mills simply want to secure long-term supplies of iron ore from sources other than the big boys and are willing to invest in places like Africa to do that,” Casello told Reuters in an interview.
China has plenty of its own iron ore. But much of it is low grade, meaning it is cheaper to import higher iron-content ore from countries like Australia, Brazil and Africa.
Vale, Rio and BHP between them control about 70 percent of the world's seaborne-traded iron ore and Chinese companies are already buying into foreign iron ore producers.
Chinalco is the biggest shareholder in Rio Tinto and its partner in the yet to be developed Simandou iron ore project in Guinea and Hunan Valin holds 16 percent of Fortescue Metals Group , Australia's third-biggest producer.
The first stage of Sundance's project, consisting of two separate deposits in Cameroon and neighbouring Congo, a 480-kilometre (270 mile) railway and a port, will yield 35 million tonnes of iron ore a year for 10 years, according to Casello.
That's still less than the production plans outlined by some of the other challengers to the sector's majors.
South Africa's AngloAmerican is aiming to double its iron ore production to 80 million tonnes a year in about three years and Fortescue wants to be mining 155 million tonnes by mid-decade.
A final study by Sundance detailing the costs and logistics of the project will be completed by the end of this month, Casello said.
Private Chinese exploration company Hanlong Mining bought an additional 15.95 percent in Sundance this week, making it the largest shareholder with 19 percent.
Hanlong Mining is a part of industrial conglomerate Sichuan Hanlong Group, which operates across many industry sectors in China, including mining, energy, pharmaceuticals, high technology, food and beverage, industrial chemicals, infrastructure development, tourism development and real estate.
But Casello insists he is looking more for investment in the project, ideally accompanied by supply agreements and not more shareholders on the company's registry, averting the need for a big capital raising.
“We are looking for project partners, meaning they will buy into the project, secure supply and that gives us our equity contribution,” he said.
Sundance has signed “memorandums of understanding” with two of China's biggest companies, China Railway Construction Corp and China Harbour Engineering Co to build rail lines and the port and has appointed CITIC to negotiate with prospective Chinese debt and equity providers, he said.
A second stage project that would replace the current operation after 10 years would cost about $3 billion and run for 25 years, according to Casello.
“We want to lock in the Chinese supply chain and also access China's financing,” Casello said. “Chinese debt financing is some of the most appealing in the world,” he added.
Discussions are also underway to finalise the part to be played by the Cameroon government in the project. It has already been granted a 10 percent equity stake and will also receive royalties on the ore, he said.
Casello took over as managing director after a plane carrying the entire board of Sundance crashed in thick jungle last June on a flight from Yaounde, Cameroon's capital, to Yangadou in Congo-Brazzaville. There were no survivors. - Reuters