Nevsun poised to extend life of mine in Eritrea

Nevsun Resources Ltd. [NSU-TSX; NYSE AMERICAN], the target of a takeover proposal by Euro Sun Mining Inc. [ESM-TSX, CPNFF-OTC] and Lundin Mining Corp. [LUN-TSX; LUMI-Sweden], is set to extend the life of its Eritrea mine.

The announcement comes as Nevsun faces growing pressure to enter into negotiations with its would-be suitors Euro Sun and Lundin Mining.

On Thursday June 14, Nevsun said that together with Eritrean partner ENAMCO, it has approved an extension of the Bisha zinc-copper mine that will be self-funded by existing cash flow.

The updated Bisha Mine plan serves to extend open-pit zinc-copper production to the end of 2022, from mid-2021 previously. In total, the revised mine plan is expected to add incremental life of mine payable zinc and copper production of 470 million pounds and 52 million pounds respectively.

The plan has in incremental capital cost of $40 million, including $26 million this year largely for new mining equipment.  The extension also allows the company more time to assess the potential future development of the Asheli and Harena underground deposits.

Scotiabank senior base metals analyst Orest Wowkodaw views the update as a minor positive for the shares, which rose 1.38% or $0.07 to $4.42 on Thursday on active volume of 1.44 million. He doesn’t see any material implications to the pending Lundin Mining/Euro Sun takeover proposal, according to an investment report.

Nevsun is a leading mid-tier base metals company. It operates Bisha, a high-grade open pit copper-zinc mine in Eritrea and is developing the Timok copper-gold project in Serbia. Timok is located in the historic Bor mining district and benefits from close proximity to existing mining infrastructure.

Under the terms of the offer, Euro Sun would acquire 100% of Nevsun. Upon acquisition of the Nevsun shares, Euro Sun would then vend Nevsun’s European assets, including the Timok project, to Lundin. This would leave the producing Bisha mine in Eritrea as Euro Sun’s principal asset.

Published reports say the proposal has been structured this way because Lundin Mining covets the Timok copper-gold project but its board of directors isn’t keen on investing in Eritrea, where the Bisha Mine is located.

Nevsun recently rejected the $1.5 billion takeover proposal. It said the unsolicited offer was dated April 30, 2018 and made public by Euro Sun and Lundin on May 7, 2018.

“The Nevsun Board of Directors is unanimous in its belief that the non-binding unsolicited proposal fails to reflect the strategic value of our asset base,” said Ian Pearce, Chair of Nevsun’s Board of Directors.

“The non-binding unsolicited proposal also presents a problematic structure that could further undermine value to shareholders,” he said.

However, a senior official at Nevsun’s second largest shareholder M&G Investment Management, recently said the $1.5 billion takeover proposal from Lundin and Euro Sun looks “pretty fair.”

“Nevsun should engage more fully with Lundin Mining and Euro Sun Mining, which made the proposal and run a full sales process,” said Jamie Horvat, director of global equities for M&G Investment Management, which owns 9.5% of Nevsun.

Meanwhile, Scotiabank’s Wowkodaw anticipates the imminent release of the maiden Timok Lower-Zone resource estimate to be a more significant catalyst for the shares.