Page 36 - Sundance Resources 2014 Annual Report

34 SUNDANCE RESOURCES LIMITED ANNUAL REPORT 2014
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2014
• ➢ Standard internationally‐recognised and accepted contract terms based on FIDIC Yellow Book;
• The Contractor must meet and comply with the Equator Principles;
• Performance obligation consists of throughput guarantees for system to produce, transport and
ship 35Mtpa;
• Performance Bond and Performance Damages if the system does not achieve the required throughput; and
• International standards and specifications and nominated Australian Standards.
The Mota Engil Group is a multidisciplinary Portuguese construction company with an international presence that spans
21 countries. It established its African operations in Angola in 1946. Mota-Engil Africa, which is a subsidiary of Mota-Engil
SGPS, is currently building a 245km railway in Malawi that is part of the Nacala Corridor, a facility for transporting mining
products from the Moatize coal mine in Mozambique that is operated by Brazilian mining group Vale.
Mine Plant and Associated Infrastructure EPC
During the reporting period Sundance also completed the mine plant and associated infrastructure EPC tender process.
Initial responses from the market were favourable and this resulted in the identification of a select group of international
companies who have expressed interest in tendering. Importantly Sundance believes these parties have demonstrated the
key skills and expertise required to successfully undertake these works.
Competitive tenders were received from three bidders for the execution of a Front End Engineering Design (FEED) study
together with indicative pricing for an EPC contract for the delivery of the mine plant and associated site infrastructure in
April 2014. The quality of the submissions was of a high standard and the Company anticipates that a contract for the
execution of the FEED study will be awarded in late 2014 leading to the award of an EPC contract in 2015.
Financial Advisor and Lead Debt Arranger
In June 2014, Sundance announced the appointment of Standard Bank, Africa’s largest bank by assets and earnings, to be
the Company’s exclusive debt financial advisor and non-exclusive lead debt arranger with respect to project-level funding.
Standard Bank indicated they plan to use their balance sheet to support the debt raising that will be required for the
Project. Standard Bank’s proposed tiered funding plan for debt financing includes involvement from export credit agencies,
development finance institutions and commercial banks.
Discussions with a wide variety of potential funding partners have been undertaken with several expressions of interest
being received. In addition, expressions of interest have also been received from insurance agencies who will provide
protection for the commercial banking tranche. The result of these discussions is that Sundance is confident there is
considerable support for the Mbalam-Nabeba Iron Ore Project from the above-mentioned institutions, including Western
and Chinese providers of project equity and debt capital.
The following sources of project equity funding are being considered:
• Partial mine equity sale;
• Partial port and/or rail equity sale;
• Total infrastructure sale; and
• Strategic investment.
Off-take
On 25 March 2014, Sundance subsidiaries Cam Iron and Congo Iron signed a binding long-term off-take contract with
leading global commodities trader Noble Resources International (‘Noble’). The contract stipulates that Noble must buy all
product produced by Mbalam Nabeba for the first 10 years of operation, minus any product that may be allocated to project
equity participants. Sales will be based on international standard pricing benchmark (Platts IODEX 62% Fe CFR China less
freight costs) Free on Board (FOB) Lolabe Cameroon. In the event that Cam Iron and Congo Iron need to sell a portion of their
production to a third party in order to attract an equity investor into the Project, the off-take agreement includes a claw-back
clause which will enable project equity participants to buy up to 50 per cent of the production. There are no costs to Cam Iron
or Congo Iron for this claw back.
The term of the off take agreement is for the first 10 years of production and although the Company aims to produce 35
million tonnes per annum, there is no liability for either Cam Iron or Congo Iron if that level of production is not achieved.
The basis for how ships are nominated, received into port, loaded and dispatched is in accordance with industry practice.
Sundance expects this contract will help facilitate completion of debt funding for the construction of the port, rail and mines.
5. Review of Operations (continued)