Sundance Resources has underscored the long-term value of its West African iron ore project, saying a reserve upgrade on the Congo side of the Mbalam-Nabeba venture has the potential to push the first stage mine life out past 10 years.
While positive, the reserve upgrade was well-flagged and, according to Sundance, added little to the economics of the project. The Christmas Eve announcement said the 24 per cent reserve upgrade, to 436.3 million tonnes grading 62.6 per cent iron, had no "material impact" on the valuation of the project, and Hanlong Mining's 45ï¿½ takeover offer was still recommended to shareholders in the absence of a superior offer.
With Sundance shares still languishing well below the offer price, at 31.5ï¿½, the focus for investors has been on the potential for a rival bid. Added to the likely grant of mining permits from the Republic of Congo early in the new year, the reserve upgrade may be the company's last chance to flush out a rival bidder for the cross-border project. If a rival bidder is waiting in the wings, it would need to bid quickly as Sundance shareholders are to vote on the Hanlong offer on February 1.
The major issue for any buyer would be capital costs. Estimates were last updated in 2010 but the bulk of the projected $US4.7 billion capital cost is unrelated to the size of the mine, instead allocated for development of a bulk handling port at Lolabe in Cameroon and the construction of 580km of rail needed to export the project's ore.
With major iron ore players in retreat from spending commitments, it is unclear where an alternate bid could come from.
A rival Chinese play is unlikely, as Beijing does not favour its companies competing.
And after a string of expensive failures in more established jurisdictions, such as the Oakajee Port and Rail project in WA, other steelmakers and metal traders such as Korea's POSCO and Japan's Mitsubishi Corp have also signalled an unwillingness to take risks on development stage projects.
Added to that was a decline in corporate activity and interest in West Africa in the second half of the year, as iron ore prices tumbled and sovereign risk issues moved once again to the forefront of investor thinking about Africa.
BHP Billiton, which has indicated an unwillingness to make a big African investment, is seeking to offload its Mt Nimba project in Guinea. Vale has also cooled on the region, shelving work at its Simandou and Zogota projects in Guinea.
Aside from China, Rio Tinto is the last of the majors standing. It says work at its 95mtpa Simandou project continues, with the $US10 billion port, rail and mine scheduled to begin production in 2015.