TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH SUNDANCE RESOURCES
(ASX:SDL) MANAGING DIRECTOR AND CEO, GIULIO CASELLO
Lelde Smits: Hello Lelde Smits reporting for the Finance News Network. Joining me today from Sundance Resources is Managing Director and CEO, Giulio Casello. Giulio, welcome to FNN.
Giulio Casello: Thank you.
Lelde Smits: Could you start by introducing Sundance Resources?
Giulio Casello: Well Sundance Resources is an iron ore company, so we’re at work in developing two iron ore mines, one in Cameroon and one in Congo, both only about 50 kilometres away from each other. And to develop those mines, we’re also looking at building a railway line which is about 510 kilometres to the coast at Cameroon where we’ll also build a port where, with the intention of exporting 35 million tonnes per annum of high-grade, direct shipping, all quality iron ore.
Lelde Smits: Great. Now you’ve recently joined Sundance, can you tell us about your background and the make-up of the Board?
Giulio Casello: I joined Sundance not that long ago, although we’ve done a lot in the last six months. When I joined early November, I joined from Sinosteel Midwest, so I was involved in the iron ore industry in Western Australia before I came on to Sundance. And for many years before that I was in the aluminium alumina bauxite mining industry, both in the US and Australia for quite a number of years.
We’ve got a tremendous Board set up. We’ve got George Jones, who’s very well known in the resource industry in Australia as our Chairman and he was the original Chairman of the Company actually and retired – went into semi-retirement a couple of years ago and then came back last year. And then the Board itself, we’ve got a great spread. You know all the way from - at one end you’ve got Fiona Harris who’s an ex-partner of KPMG, ex-head of the Western Australian division of Australian Institute of Company of Directors, so a wonderful person on governance.
We’ve got Michael Blakiston on the Board. Michael has been involved with Sundance for many years and Michael is the managing partner of Blakiston & Crabb and one of the known experts, legal experts, in Australia on African affairs. So it’s fantastic having him on the Board. Barry Eldridge is also on the Board, another well-known developer of iron ore projects in Western Australia and our most recent addition has been Robin Marshall. And Robin comes from an iron ore background project management – has run some of the biggest projects in the world, so he brings a great spread of that project management expertise.
Lelde Smits: OK, now for investors not familiar with your stock, where’s your share price and what’s your market cap?
Giulio Casello: Currently right now our share price is around 35 cents; our market cap is about $1 billion right now. And so we’ve got a lot of stock out there of about 2.7 billion shares or 2.8 billion shares now on the market.
Lelde Smits: OK, now to your Mbalam iron ore project in West Africa, what’s the size of the resource and its grade?
Giulio Casello: Well there’re two types of resource, one is the direct ship and the high-grade hematite resource. We put out a Release on the 17th of March where we released a resource of about 484 million tonnes reaching around 61 per cent. Now, the beauty of this iron ore is that what we have is this high-grade hematite cap, once you remove the cap, what we have underneath it is called an itabirite material. Itabirite comes from the name of a town in Brazil. It’s typically the type of iron ore that’s found in Brazil and that Valay exports. That we’ve got about 2.3 billion tonnes averaging around 38 per cent which we’d concentrate up to a product of about 66 per cent.
Lelde Smits: And what stage is the project?
Giulio Casello: Well we’ve just finished the Definitive Feasibility Study; we’ll release that to the market on the 6th of March. So the Feasibility Study was done with Western companies - Calibre Rail did the estimation on the rails, Sangriya of France did the port, Lycopodium did the processing facilities and AMC did the independent reserves and the mine plan.
So we released that to the market the 6th of March, it’s a project that’s about $4.7 billion worth of capital costs. But the thing that offsets that capital costs, it’s a product with an operating cost that first ten years of around $21 a tonne.
Lelde Smits: Great, so what’s the net present value of the project and what internal rate of return are you basing this on?
Giulio Casello: The internal rate of return for the project is about 27 per cent which means we actually paid back the capital in less than three years of production. If you take a total MPV, the MPV is based on stage 1 where we’ve done the Definitive Feasibility Study for, and stage 2 which has a prefeasibility number on it and the MPV value of that 25 year project is well over $4 billion.
Lelde Smits: That sounds like a great pay-off based on an internal rate of return approaching 30 per cent. Is that normal for projects this size and complexity?
Giulio Casello: No, this is a fantastic return. As I said it’s all based on – what it’s based on is a very low operating cost. It’s got a low strip ratio which means you don’t need to mine a lot of ore to get your product. So the low strip ratio of less than one, which is competitive with almost every project in the world - the only people that are sort of matching those sort of numbers are the existing Pilbara operations. So, with very low mining costs, you know, we end up with a freight on board an FOB price out of Cameroon now of around the $21.20. And with anybody who understands the iron ore price at the moment, I’m not saying that that iron ore price will keep going forever, but that is a very low operating cost and it’s probably one of the lowest anywhere in the world at the moment.
Lelde Smits: Thanks. So as far as iron ore projects go, how would you classify the Mbalam iron ore project - at the bigger end or medium sized?
Giulio Casello: Ah this is one of the top ten projects in the world and I think it’s not just the project. What we’re developing is two mines and an infrastructure solution in an area in central West Africa. It’s an area which has a number of other iron ore deposits which have never been developed; you know all of them some years behind where we are. But what we’re developing is we’re developing the birth of a region. So our mines will be the start of it - 35 million tonnes a year with the railway and with the port, we believe the region itself you know, has the potential for 100 million tonnes a year.
Lelde Smits: Thanks Giulio, now million dollar question. When are you forecasting production to commence?
Giulio Casello: Well we’re looking at final investment decision quarter 3 this year and pending all the Government approvals and the financing, we’re looking at starting construction in quarter 4 this year, so towards the end of 2011. The longest part of our construction is actually building the railway. We think that the Definitive Feasibility Study has gone to a three-year timeframe to build that, so that means we’re targeting first ore on ship the last quarter of 2014.
Lelde Smits: OK, given the Capex involved, where will this come from?
Giulio Casello: Well we’ve been working now for some period of time with potential seeking investors. So we’ve been all over the world looking for people particularly in the steel industry that we can partner with in this project. And we still have our options around the world but we are getting strongly focused on China. So we’ve been in a lot of discussions with Chinese steel mills, so we see this mid-West Africa fit as a very strong link to China.
Lelde Smits: Great, so who are your major shareholders and what’s their interest?
Giulio Casello: Well right now our biggest shareholder is Hanlong who are just under 20 per cent. They purchased their share only a number of weeks ago. Hanlong is a private Chinese company with a number of interests in Australia and many more interests inside of China. They’re financially backed by the China Development Bank and the China Exxon Bank which is an interesting tie up with us. And you know we’ve really seen that they buying this almost 20 per cent stake as a great vote of confidence from the Chinese system to us, because of where they’re backed from.
So if you look at our spread of ownership at the moment, we’ve got about 12 per cent of our stock owned by institutional investors in the US and Europe, 10 per cent by institutional investors in Australia, 20 per cent through Hanlong. And then predominantly the rest of it is through retail holders’ right here in Australia, who are a big part of our business and our bread and butter at the moment where our stock is.
Lelde Smits: Last question, Giulio. Where would you like to see Sundance Resources 12 months from now?
Giulio Casello: Well what we’d like to see in the next 12 months is a railway being built. We’re in there in construction, we’ve got our partner you know so that we’ve started and as you say, it’s very quick. I think once you get started next year, then we want to really fast track and make sure we get to the market as soon as possible. And so we’re going to become a substantial iron ore producer in any global sense.
Lelde Smits: Giulio Casello thanks for the introduction and congratulations on the progress so far.
Giulio Casello: Thank you.
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