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Nevsun says Lundin's $1.4-billion bid too low, but leaves door open on talks
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By NIALL MCGEE
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Wednesday, July 18, 2018 – Print Edition, Page B1


Junior base-metals miner Nevsun Resources Ltd. says Lundin Mining Corp.'s latest $1.4-billion takeover proposal undervalues the company, but Nevsun stopped short of slamming the door on its suitor this time, saying talks will continue.

In a news release on Monday, Toronto-based Lundin said it intends to offer $4.75 in cash per share for Nevsun, slightly below its initial May proposal, which was worth $5 a share. However, Lundin's earlier proposal consisted of stock and cash, and was made in conjunction with a junior partner, Euro Sun Mining Inc. Nevsun, which is based in Vancouver, rejected that proposal, saying it wanted Lundin to buy the company on its own, and payment in cash.

On Tuesday, Nevsun argued in a release that the value of the company has risen significantly since Lundin first approached it. Over the past few months, Nevsun has released a prefeasibility study on its key high-grade coppergold Timok project in Serbia, received an important mining permit, and started construction of Timok.

The latest offer ignores "the fundamental value of Nevsun and its assets," said Peter Kukielski, chief executive officer of Nevsun, in the release. "Despite the progress we have made in enhancing Nevsun's value, Lundin's notional takeover offer represents only a 13-per-cent premium to Nevsun's closing trading price of $4.21 per share on the TSX on July 16."

In a note to clients, RBC Dominion Securities Inc. analyst Sam Crittenden wrote that the latest Lundin offer "will be viewed more favourably by Nevsun shareholders, given the all-cash nature."

Nevsun's shares rose 13 per cent to close at $4.76 a share on the Toronto Stock Exchange on Tuesday, indicating a high probability the deal will get done.

As to whether other bidders could emerge for Nevsun, analysts aren't sure.

"Timok is a fairly high quality development opportunity which may draw some attention," Shane Nagle, analyst with National Bank Financial Inc., wrote in an e-mail.

"However, it may just lack the scale that larger global diversified companies like Rio Tinto are looking for." Mr. Nagle said it's unlikely Lundin will readily increase the offer price, in the absence of other bidders.

"There haven't been any other interlopers in the interim, because of the complexities of this deal," Nick Szucs, a buy side analyst with Leith Wheeler Investment Counsel Ltd. in Vancouver, said in a telephone interview.

"Do I see a massive counter bid coming from somebody else? I don't at this stage."

Nevsun rejected the earlier May $5 takeover proposal from Lundin and Euro Sun Mining Inc.

because of its "problematic" deal structure. Under that proposal, Euro Sun Mining proposed acquiring Nevsun's Bisha copper and zinc mine in Eritrea, and at the same time, Lundin said it intended to purchase Timok.

Doubts also arose about how Euro Sun, whose market capitalization is only $51-million, would be able to finance its share of the deal.

Lundin has been vocal about wanting to do a major takeover.

Last year, Lundin looked at doing three separate acquisitions, but ultimately stayed on the sidelines. The company has had a big cash balance since selling $1.2-billion worth of copper assets in 2016. Lundin ended its most recent quarter with US$1.6-billion in cash.

Nevsun is advising its shareholders do nothing for the time being. If and when Lundin submits a formal proposal, Nevsun's board of directors will recommend a course of action.

Lundin said it intends to submit its formal offer on July 27.

While the proposed takeover price is shy of Nevsun's all-time high, it is well above the roughly $3.20 it traded at this time last year. The proposal is also about 25 per cent above the price Nevsun traded at just before Lundin publicly expressed an interest in buying the company in May.


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