Nevsun Rejects C$1.5-billion Offer From Lundin, Euro Sun

Late on Monday (May 7), Canadian miners Lundin Mining (TSX:LUN) and Euro Sun Mining (TSX:ESM) released a joint press release revealing the two had been attempting to purchase Nevsun Resources (TSX:NSU), but to no avail.

According to the release, the two companies were seeking to purchase all of Nevsun’s outstanding common shares for a total of C$1.5 billion.

For that price, the miners would acquire Nevsun’s Timok copper-gold project in Serbia and the Bisha zinc-copper mine in Eritrea.

“After months of attempting to reach an agreement, we are disappointed that Nevsun has prevented its shareholders from considering our premium proposals,” Paul Conibear, chief executive officer of Lundin said in the release on Monday evening.

“At this point in time, we believe that all Nevsun shareholders should be made aware of this opportunity,” he added.

On Tuesday (May 8), Nevsun put out an exhaustive release of its own, explaining to shareholders why it had rejected the proposal.

“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 proposal] also presents a problematic structure that could further undermine value to our shareholders.”

In a list for shareholders of “serious deficiencies” in the proposal, Nevsun talked up its own assets, unfavourably comparing Euro Sun’s Romanian assets to them.

“[The proposal] does not fully value Timok, our world-class copper-gold project,” and “overvalues Euro Sun’s Rovina project, which is an unpermitted, capital intensive ultra-low-grade asset in Romania that Nevsun had previously evaluated and determined to be highly unattractive,” the release said.

Nevsun saved more for Euro Sun in a list of reasons why the proposal was worth rejecting, saying the company was “not an attractive partner” with difficulty financing operations.

The company also released more details about the potential deal, explaining that under the terms of the proposal Euro Sun would be acquiring 100-percent of the shares 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.”

Additionally, the company pointed out that the Bisha Mine is 40-percent owned by the Eritrean government, “which has no relationship with Euro Sun.”

“A negative reaction by the government would compromise Bisha. As such, the non-binding unsolicited proposal is potentially destructive of significant shareholder value and the existing relationships with our partner associated with Bisha,” said Nevsun.

According to Lundin Mining, under the terms of the proposal, Nevsun shareholders would receive total consideration of C$5.00 per Nevsun share consisting of C$2.00 in cash funded by Lundin Mining, C$2.00 in shares of Lundin Mining and C$1.00 in shares of Euro Sun.

“The C$5.00 per share value of the total consideration represents a 40-percent premium to Nevsun’s closing price on April 30, 2018 on the Toronto Stock Exchange,” said Lundin Mining.

But these numbers were rejected by Nevsun.

“The notional premium of 40 percent as of April 30, 2018 … declined to a much lower notional premium of approximately 30 percent just before the … proposal was made public. The true premium is even lower, however, as the notional premium does not reflect value leakage from tax and other transaction costs,” the company said.

Lundin Mining has copper, zinc and nickel mines in Chile, the US, Portugal and Sweden, while Euro Sun has the copper-gold Rovina project in Romania.

Nevsun’s Bisha mine produced 71.6 million pounds of zinc and 8.9 million pounds of copper in Q1 2018, and the Timok project is preparing to begin construction in Q2 2018.

On Tuesday, Nevsun’s shares jumped almost 24 percent when markets opened for the day, and as of 11:30 a.m. EST, the company’s share price was trading at C$4.41.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.