Hanlong set to finalize takeover of Australian mining firm

Sichuan-based private company Hanlong Group has taken a further step in its takeover bid for Australian business Sundance Resources Ltd, a deal, once completed, will allow China to own the third largest unexplored iron ore mine globally.

However, analysts Sunday said it is too early to say the deal is a major win for the country.

Hanlong announced Friday on its website that it has signed a revised Scheme Implementation Agreement with Australian mining company Sundance, under which Hanlong will buy out 100 percent of Sundance for $1.66 billion. The buyout, which still needs approval from supervisors, is expected to be completed by mid-November, the announcement said.

As Sundance runs Mbalam, an iron ore project in West Africa, the deal will enable the Chinese company to also own Mbalam, which is believed to be the third largest undeveloped iron ore mine, with a reserve of over 10 billion tons and annual turnover of around 35 million tons of iron ore.

Though some industry insiders expect the deal can help China break the monopoly of global giants over iron ore supply and win a greater say in global pricing, others believe it is too early to say the country can achieve desired effects.

"An annual output of 35 million tons can only meet a small part of China's import needs," said Zhang Lin, an analyst at the Beijing Lange Steel Information Research Center.

China is expected to import over 730 million tons of iron ore in 2012, according to the Ministry of Industry and Information Technology in March.

Besides, "uncertainties like strikes, which have taken place following some overseas acquisitions, may also hamper a smooth operation of the project," she said.

China has heavily relied on imports of iron ore for a long time for its domestic consumption. However the reliance began to ease since 2010.

According to the China Iron and Steel Association in February, the country relied on imports for 60 percent of its consumption, down from some 70 percent in 2009.

"Enhanced output in domestic mines and production by acquired overseas mines has eased the country's reliance on imports," said Zhang Meng, a tube researcher at industry consultancy custeel.com.

But Zhang believes the timing of the Hanlong deal is not ideal. "Five years ago, such a deal as Hanlong's would be a definite win as the global demand for iron ore was strong, but both domestic and foreign demand for iron ore is expected to steadily slump," he said.

The peak period of demand for iron ore driven by infrastructure construction projects and real estate boom "has passed in China," Zhang noted.

In March 2011, Hanlong became the largest shareholder of Sundance by taking a 18.6 percent stake in the company.