Sept. 24 (Bloomberg) -- Gindalbie Metals Ltd., the Australian iron ore mining company backed by China's third- largest steelmaker, agreed to buy Sundance Resources Ltd. for A$1.6 billion ($1.4 billion) in stock to add projects in Africa.

Gindalbie offered one of its shares for every two of Sundance, the Perth-based company said today in a statement. The deal values Sundance stock at 15 percent more than the Sept. 21 close. Shareholders in Perth-based Sundance will end up with 65 percent of the new company.

Buying Sundance will add the $2.5 billion Mbalam project in Cameroon to two mines Gindalbie is developing in Australia with China's Anshan Iron & Steel Group. Demand from the Asian nation may help push the price of iron ore, used to make steel, up 30 percent next year, Merrill Lynch & Co. said this month.

``It is an interesting diversification for'' Gindalbie, Peter Arden, commodities analyst at Ord Minnett Ltd. in Melbourne, said today by phone. ``These iron ore developers need to do a few things just to keep in front of investor minds because it is a long lead time to develop some of these projects.''

Gindalbie fell 6.5 cents, or 3.8 percent, to A$1.635 at the 4:10 p.m. close in Sydney of the Australian Stock Exchange. Its shareholders will have 35 percent of the new company. Sundance stock rose 6.5 cents, or 8.8 percent, to a record 80.5 cents.

Talbot Group Holdings, Sundance's largest shareholder with a 19.9 percent stake, will support the offer, the statement said. Talbot will end up with 13 percent of Gindalbie should it accept the takeover.

Shareholder Support

Gindalbie's two largest shareholders, Melewar Steel, a unit of Melewar Industrial Group Bhd., and Anshan, are also expected to support the deal, George Jones, the chairman of both companies, said today on a media conference call.

``The management and the boards of the two groups have an appetite for growth,'' Jones said on a conference call with journalists. ``You either grow or you die, if you don't go forward you definitely go backward.''

Adding the African project will reduce Gindalbie's reliance on its Karara development in Western Australia where expansion may be constrained by any delays to the development of a new A$2 billion port to service proposed mines in the state's mid-west.

``The risk for Gindalbie was that they would become a bit of an orphan in that part of the world in that they are beholden on others to develop infrastructure,'' Arden said.

Chinese Investment

Steelmakers in China, the biggest user of the alloy, are investing in Australian iron ore companies such as Gindalbie, Midwest Corp., Mt. Gibson Iron Ltd. and Fortescue Metals Group Ltd. to secure supplies.

Gindalbie plans to start output at Karara in the first quarter of 2010 while Sundance is seeking to start mining in Cameroon by 2011. Gindalbie and Anshan agreed earlier this month to spend A$1.8 billion on developing two projects, Karara and Mungada, both in Western Australia.

Iron ore prices may stay at records for three years because of the inability of Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd. to expand output fast enough to meet rising demand for the steel-making ingredient, Merrill Lynch said in Sept. 7 report.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

Last Updated: September 24, 2007 03:20 EDT