Sundance Resources Ltd. (SDL), seeking to develop an iron ore project in Africa, said its $1.19 billion takeover by Sichuan Hanlong Group may be scrapped because the Chinese company will miss a deadline today to provide details of how it would fund the deal.
Closely held Hanlong, whose billionaire chairman may be in police custody after going missing this month, will now hold five days of talks, with both companies able to end the deal, according to a Sundance statement. The Perth-based company may require an investment of $4.7 billion for its Mbalam project, straddling the border between Cameroon and Republic of Congo.
Sundance said March 21 it hasn’t been able to reach Liu Han and the official Xinhua News Agency reported last week that a man with the same name is under investigation for sheltering a murder suspect. Sundance, whose shares have plunged since last year, may struggle to find alternate funding to develop the mine with iron ore prices forecast to drop in the medium term.
“It’s been a very long process that has failed,” said Evan Lucas, market strategist at IG Markets Ltd. in Melbourne. “The underlying commodity is moving in the wrong direction.”
Liu Han’s disappearance may scuttle a second deal as well: General Moly Inc. (GMO), the Lakewood, Colorado-based owner of two molybdenum mining projects in Nevada, suspended work on a $665 million loan that was to be arranged by Sichuan Hanlong after a report that Liu Han had been detained.
A probe of Liu Han could lead to the highest-profile case against a Chinese businessman since Xi Jinping and Li Keqiang took control of the Communist Party in November as part of a once-a-decade leadership transition. Xi and Li were named president and premier this month, both promising to get tough on corruption.
Hanlong won’t deliver a term sheet to acquire Sundance by 5 p.m. in Perth today and the deal can be ended if further talks don’t lead to an agreement by April 3, Sundance said in a statement. An earlier deadline for a term sheet was extended in December. Hanlong reduced its original October 2011 bid last year after iron ore prices plunged. The deadline for the term sheet was extended when China Development Bank Corp. failed to agree on a loan.
“In light of this advice from Hanlong, Sundance and Hanlong are required to enter into a five business day good faith consultation period,” Sundance said in the statement. “If the parties fail to reach an agreement during that period, either party may then terminate,” the deal, it said.
A March 22 Xinhua report posted to the website of China’s Ministry of Public Security said the murder suspect who had been given shelter was Liu Yong, from the city of Guanghan in Sichuan province. The article said his brother, Liu Han, was being investigated for harboring him, without identifying Liu Han as Hanlong’s chairman.
A woman at Sichuan Jinlu Group’s president’s office, who would only give her surname Long, said the man being investigated by police was the company’s chairman. Sichuan Jinlu is part-owned by Hanlong and its president is Yang Shoujun.
Hanlong Chairman Liu Han’s residence is also in Guanghan, according to a 2003 statement by Sichuan Jinlu. In a March 20 statement, Jinlu said it wasn’t able to get in touch with him.
Xinhua reported in 2009 that a man named Liu Yong incited gunmen to kill three people at an outdoor teahouse in the Sichuan city of Deyang.
Liu Han’s past also includes escaping an attack by hired gunmen. Xinhua reported in 2006 that a businessman from Sichuan province named Liu Han was the target of a 1997 assassination attempt by another businessman who blamed him for the loss of more than 90 million yuan. A hit man hired by Yuan Baojing tried to kill Liu Han and failed, according to Xinhua. Yuan was executed in 2006 for killing another man who threatened to expose the murder plot, Xinhua reported, without identifying Liu Han as Hanlong’s chairman.
Attempts by Sundance to contact Liu Han have failed since at least March 21. Sundance Chairman George Jones couldn’t be reached for comment when contacted on his mobile phone today. Paul Armstrong, of Read Corporate, an outside spokesman for Sundance, declined to comment yesterday.
Sundance’s shares were suspended March 19 after trading in Sydney at 21 Australian cents, below Hanlong’s offer of 45 cents a share, signaling investors don’t expect the deal to succeed. Hanlong, which holds about 14 percent of Sundance, in August cut its bid for Sundance by 21 percent to 45 cents. The shares have fallen more than 46 percent since Nov. 30.
‘Terminate the Deal’
“They should terminate the deal,” Peter Strachan, a resources analyst at Perth-based StockAnalysis, said in a phone interview yesterday. “Getting rid of that uncertainty will be positive for the company.”
Liu Han was ranked the 230th richest person in China with wealth of 6.3 billion yuan ($1 billion), according a list of the 1,000 richest people in China published September 2012 by the Shanghai-based Hurun Report. That was up 26 percent from 2011, Hurun said. Liu Han was a member of the Sichuan province’s political consultative conference, a government advisory body, according to a notice in 2009.
“It is possible they will make an example out of it to convince the public that even multimillionaires are not immune to the new spirit of fighting corruption,” said Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong. “It may be one of these politically well-timed cases to illustrate the party’s determination.”
Liu Han and his ex-wife were in Beijing during the National Party Congress this month and were detained after it ended, according to a report in Shanghai Securities News, which cited unidentified people familiar with the matter.
Sichuan Hanlong media official Wu Shijun declined to comment when reached by telephone yesterday. A call to the Ministry of Public Security in Beijing rang unanswered.
In the absence of an agreed extension, failure to deliver the term sheet today will trigger the five-business day good- faith consultation period, followed by a 10-day termination period in which both parties may end the deal, Sundance said March 20. The two companies had met and they remained in incomplete and confidential talks, Sundance said March 22.
“The banks I don’t think would find themselves in a position to do any lending,” Peter Rudd, resources and mining manager at Altitude Private Wealth in Melbourne, said by phone. The deal going ahead “seems remote with the recent circumstances that have developed,” he said.
Iron ore prices may decline to an average of $110 a metric ton in 2014, according to analyst estimates compiled by Bloomberg. They have averaged at $148.90 a ton this year. Mining companies deferred expansions and delayed projects on expectations that prices have passed their highs, after economic growth began slowing in China, the biggest buyer of metals.
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