The price of a major Chinese mining acquisition in West Africa has been slashed by more than a fifth from an initial offer made last year, underlining China's waning appetite for raw materials and gloomy outlook for global commodities.
Sundance, an Australian-listed company with iron ore assets in Cameroon and the Democratic Republic of Congo, said on Monday its board had accepted a revised offer price of 45 Australian cents (46 cents) per share from Sichuan Hanlong, a price that is 21-per-cent lower than the offer Hanlong made last October. The new deal values Sundance at $1.4-billion.
Global commodities markets have taken a beating since Hanlong made its initial approach to Sundance last year. Prices for iron ore, the steel making ingredient contained in Sundance's mines, are at their lowest in nearly three years – driven down by weakening Chinese demand.
Earlier this month China's powerful economic regulator, the National Development and Reform Comission, demanded that Hanlong lower its price as a precondition for government approval for the deal.
Hanlong, a privately owned conglomerate with annual revenues of $2.5-billion, began its courtship with Sundance last July. However some Chinese policy makers have questioned the wisdom of the deal, citing the high cost of developing the infrastructure needed around the mines.
Li Xinchuang, director of the China Metallurgical Industry Planning and Research Institute, a government-linked think-tank, said: "It is really challenging to develop this project … I doubt if the company is ready … Before going out to invest in overseas iron ore, Chinese companies should consider if they are capable of developing it, and if the project would be competitive."
The NDRC has occasionally declined approval for overseas investment deals by private Chinese companies, such as the attempted acquisition of Hummer by Sichuan Tengzhong, a Chinese equipment maker, in 2010.
Chinese mining companies have been scouring the globe for resources investments in recent years, but the changing outlook for commodities has caused problems for several of these projects.
A Sundance shareholder meeting is scheduled for Nov. 30 to vote on the deal, which requires 75-per-cent shareholder approval. The Australian-listed company has been looking for a partner for years to help develop its mines in Cameroon and the DRC at a cost of $4.7-billion.
Sundance shares resumed trading on Monday following a four-week suspension, and the share price rose 7.5 per cent from its last close on July 31. Sichuan Hanlong could not be reached for comment Monday.