Sundance Resources
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Stay long ......Gruß Che
INITIATION
21 November 2007
Sundance Resources Limited
Strike While The Iron Is Hot
Materials | Metals & Mining | Australia
Event:
• Initiating coverage on SDL with a BUY recommendation.
• SDL is an aspiring iron ore company with a concept to produce 35mtpa
from its Mbalam project in Cameroon.
• The concept is based on a study conducted by the United Nations
Development Fund (UNDF) which concluded that >800mt of
mineralisation was present at Mbalam.
• A significant amount of work needs to be undertaken before the concept
moves into production, however we highlight the key attraction of the
Mbalam project is its conceptual shear size and the potential of a high
grade hematite deposit.
• We see SDL as the "higher risk / higher reward" option for direct
exposure into the iron within the Australian iron ore market as its
Mbalam project still needs to be proved up then funded and then
developed.
• However, we highlight that should the project be developed, its potential
size and scale create a very attractive iron ore company.
Investment View:
• Our view on the outlook for the iron ore market is favourable over the
short to medium term. We see the market remaining very tight with not
enough supply available to meet demand.
• While equities in the iron ore industry have performed very well over the
past 12 months, we see further upside to our iron forecasts continuing
the favourable environment for iron ore exposed equities.
• While there are considerable hurdles, time and risks associated with
SDL, we see the upside from the size and scale of the potential deposit
as outweighing these risks.
• On our analysis, if Mbalam moves into production (35mtpa) as
conceptualised, SDL is inexpensive on all multiples using our LT prices.
• We stress that this is a "higher-risk/higher-reward" play for those
looking for leverage to the iron ore / explorer / developer area of the
market.
• For a detailed analysis on the iron ore market refer to a separate cable
titled 'Iron Ore Market Outlook' in today's Daily Cable.
Goldman Sachs is currently acting as Financial Advisor to BHP Billiton and as
such is an associate of BHP Billiton for the purpose of the Takeover Code
BUY
Key Information
Stock Code SDL
Share Price $0.47
12 Month Price Target $0.70
Expected 12M Total Return 48.6%
Investment Data
Issued Capital 1871.4m
Market Capitalisation $880m
% of S&P 200 Index na
Free Float 78%
Turnover $13.3m/month
12 Month Price Range 87¢-7¢
Debt/Equity -11.4%
Investment Arithmetic
Jun year end 07A 08E 09E 10E
Net Profit Rep. ($m) -9.3 0.4-15.1-52.6
NPAT Adj. ($m) -4.3 0.4-15.1-52.6
EPS Adj. (¢) -0.3 0.0 -0.8 -2.9
EPS Growth (%) 50.0 nm na nm
PER (x) nm na nm nm
Relative PER (%) nm na nm nm
Dividend (¢) 0.0 0.0 0.0 0.0
Yield (%) 0.0 0.0 0.0 0.0
Franking (%) 100 100 100 100
FCFPS (¢) 1.5 -0.6 -0.8 -2.9
P:FCFPS (x) 31.3 nm nm nm
EV/EBITDA (x) na na na na
BV (¢) 5 7 5 3
P/BV (x) 10.0 7.2 8.6 17.8
Av. Full Dil. Shares (m) 1363 1786 1846 1846
Relative Price Performance
1m 3m 12m
vs. S&P 200: -30.7% 11.9%407.1%
vs. MSCI - World: -31.3% 25.0%432.4%
Source: Company data, IRESS, and GSJBW Research estimates.