Sundance Resources offloads infrastructure piece of $US4.6bn project

The multibillion-dollar rail and port component of Sundance Resources' $US4.6 billion Mbalam-Nabeba iron ore project has been offloaded to the Cameroon government, leaving the company to focus on swiftly securing about $US1 billion ($1.3 billion) to bankroll the iron ore development.

After years of pursuing funding for the entire project, the junior iron ore hopeful informed the market on Wednesday the government of the Republic of Cameroon would seek financing for and ultimately own the infrastructure. If successfully developed, Sundance would pay tariffs to use the 510 kilometres of rail lines and a port at Lolabe in Cameroon undertake or pay arrangements.

The parties had an option available to extended the alliance "if it was likely that the projects would be developed within a reasonable time". 

The government is pursuing financing in the form of a loan from a Chinese bank, and expects to secure it within six to 12 months. An expected quantum was not revealed but previous disclosures suggest the infrastructure would cost around $US3.5 billion to develop.

If the government achieves a financing commitment, Sundance has just nine months to secure a financing commitment for the $US1.1 billion development of the project's Mbarga and Nabeba mines.

If it fails to do so, Sundance may be forced to transfer the key permit underpinning Mbarga, "to a nominee of the Cameroon government for no consideration".

Sundance has been inching towards construction of the project, which straddles Cameroon and the Republic of Congo in West Africa, for years.

Hard economic conditions

Securing financing for the infrastructure component should make Sundance's work easier, but the company will continue to face the challenge of financing an iron ore development in the worst economic conditions the sector has seen in close to a decade.

China has invested in projects across Africa in the last few years, in a bid to secure resources for its future growth, and Sundance said the government of Cameroon was optimistic it would be successful attracting financing from China after its Prime Minister visited China in June.

A potential financier could be found in China's Export Import Bank, which recently financed other infrastructure projects in the country, including the Kribi deepwater port and Memve'ele hydroelectric dam.

Sundance said in its March quarter report in April it had been working with the government of Cameroon and Chinese debt and equity providers to fund the infrastructure separately from the mines.

"Chinese debt providers will more than likely require substantial Chinese participation in construction activities and the procurement of Chinese equipment where appropriate," Sundance said at the time.

Sundance awarded Portuguese contracting giant Mota-Engil an engineering procurement and construction contract to build the project infrastructure last year but said Wednesday the Cameroon government had commenced the search for a new EPC contractor "to support its application for a loan from financial institutions".

Sundance chief executive Giulio Casella said the company believed the agreement was the best outcome for shareholders.

Alliance agreement

Meanwhile, the alliance agreement Pilbara iron ore developer Flinders Mines signed in 2014 with the members of the neighbouring Balla Balla joint venture, ASX-listed Rutila Resources and private New Zeland company Todd Minerals, is set to be scrapped.

The agreement was for the development of shared transport and export infrastructure for the two projects.

The parties had an option available to extended the alliance "if it was likely that the projects would be developed within a reasonable time". Flinders said the decision had been made not to extend the alliance beyond the end of the calendar year.

Todd recently proposed to pay Flinders $10 million for an option to buy its flagship project with an exercise price of $55 million, and launched a 30¢ a share bid for Rutila.

Flinders' shareholders are expected to vote on the offer in August. The cancellation of the alliance agreement could free Flinders to pursue other strategic options if shareholders reject the deal.


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