Nevsun Resources Ltd. [NSU-TSX; NYSE AMERICAN] shares jumped 16.1% in early trading Tuesday May 8 after the company said it had rejected an unsolicited $1.5 billion offer from Lundin Mining Corp. [LUN-TSX; LUMI-Sweden] and Euro Sun Mining Inc. [ESM-TSX, CPNFF-OTC].
Nevsun said the non-binding unsolicited proposal, worth $5 a share, was dated April 30, 2018 and made public by Euro Sun and Lundin on May 7, 2018.
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.
On Tuesday, Nevsun was the most active stock on the TSX, rising $0.615 to $4.435 on volume of 9,014,000 shares traded. Prior to the offer, the 52-week range was $2.49 and $3.88.
“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.
Nevsun went on to say that the non-binding unsolicited proposal has the following serious deficiencies:
- Does not fully value Timok, a world-class copper-gold project.
- Has significant structural issues, including $100 million in estimated cash tax costs payable by Euro Sun, which is expected to be largely borne by existing Nevsun shareholders.
- Overvalues Euro Sun’s Rovina Project, which is unpermitted, capital intensive ultra-low-grade asset in Romania that Nevsun had previously evaluated and determined to be highly unattractive.
- 60% of the notional consideration offered comes from shares that have historically been volatile and do not provide certainty of value.
- Is fundamentally uncertain as it is contingent on completion of Euro Sun shareholder approvals, waiver or expiry of right of first refusal by Freeport-McMoran Exploration Co., and due diligence.
Under the terms of the offer, Euro Sun would acquire 100% of Nevsun. Lundin would not be acquiring Nevsun. Consideration would be $2 per Nevsun share in cash, plus shares of Euro Sun representing $3 per Nevsun shares.
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.
The transaction would require Euro Sun shareholder approval. The transfer from Euro Sun to Lundin is subject to a 60-day right of first refusal held by Freeport.
Euro Sun is focused on the exploration and development of its 100%-owned Rovina Valley gold and copper project, located in west-central Romania, which hosts the second largest gold deposit in Europe.
Lundin is a diversified Canadian base metal mining company with operations in Chile, the United States, Portugal, and Sweden, primarily producing copper, nickel and zinc. In addition, Lundin holds an indirect 24% equity stake in Freeport Cobalt Oy business, which includes a cobalt refinery in Kokkola, Finland.
In a press release, Euro Sun said Lundin has been unable to successfully engage Nevsun in meaningful discussions after numerous attempts. Lundin submitted its first proposal to Nevsun on February 7, 2018 and a further proposal on February 25, 2018. Both were rejected.
On April 3, 2018, Lundin Mining submitted a proposal to Nevsun to acquire Nevsun’s European assets, including Timok, for cash and shares. That offer was also rejected.
Lundin has since found a partner to lead the acquisition of 100% of Nevsun at a significant premium, Euro Sun said. On April 30, 2018, Lundin Mining and Euro Sun submitted the proposal to Nevsun for its consideration, which would allow Nevsun shareholders to continue to benefit from the advancement of the Timok Project and from Lundin Mining’s operations as well as maintain material exposure to the Bisha Mine as shareholders of Euro Sun and benefit from Euro Sun’s 100%-owned Rovina Valley gold-copper project in the Tethyan Belt of Romania. Nevsun rejected the proposal on May 7, 2017, Euro Sun said.