No.2 Nevsun shareholder says takeover offer looks “fair”

Nevsun's Bisha copper-zinc mine in Eritrea, Africa. Source Nevsun Resources Ltd.

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Nevsun’s Bisha copper-zinc mine in Eritrea, Africa. Source Nevsun Resources Ltd.

Nevsun Resources Ltd.‘s [NSU-TSX; NYSE AMERICAN] second largest shareholder says a $1.5 billion takeover proposal by from Lundin Mining Corp. [LUN-TSX; LUMI-Sweden] and Euro Sun Mining Inc. [ESM-TSX, CPNFF-OTC] 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. He was speaking during an interview with Reuters News service.

The comment comes one day after Nevsun said it had rejected the unsolicited offer, which 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 may 7, Nevsun shares were up as much as 24% on news of the approach, reaching $4.74. Today, Wednesday, the shares advanced 1.02% or $0.09 to $4.55 on volume of 712,045.

“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 CEO Peter Kukielski told Reuters that Lundin was given exclusive month-long access to Nevsun’s data and the CEOs have held repeated meetings on the understanding that Lundin would make a fair priced, cash-and-share bid.

“To this day they have failed to deliver,” he said.

Nevsun has said the non-binding unsolicited proposal has the following serious deficiencies:

  • Does not fully value Timok, the 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.

However, Nevsun has said that Euro Sun was not an attractive partner and has had difficulty raising financing.

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