On Sunday, Reservoir Minerals announced it has agreed to be acquired by Nevsun Resources. Adrian Day shares his initial thoughts on the deal.
Reservoir Minerals Inc. (RMC:TSX.V, 6.96) announced it has agreed to be acquired by Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT), which operates the high-grade copper-zinc Bisha mine in Eritrea. Nevsun has a cash balance of US$438 million. Under the terms of the deal, Reservoir shareholders will get two Nevsun shares for each Reservoir share. At Friday’s closing price, this amounts to CA$9.40 in Nevsun shares per Reservoir share, a healthy premium.
Nevsun will also subscribe for a private placement and lend Reservoir funds to exercise its “right of first offer” to match the offer Lundin Mining Corp. (LUN:TSX) made in early March for all of Freeport-McMoRan Copper & Gold Inc.’s (FCX:NYSE) interest in the upper zone and part of its interest in the lower zone. The new combined Nevsun-Reservoir company will then own 100% of the upper zone, while it could be diluted by Freeport down a minimum of 46% of the lower zone.
Nevsun is in a strong financial position to advance the Timok project. For Nevsun shareholders, who have been wanting Nevsun to undertake an M&A transaction, it’s a good deal: Timok matches Bisha in terms of project quality, while Serbia is definitely a step up in the geopolitical risk table from Eritrea (but then virtually everywhere would be).
Is it a good deal for Reservoir shareholders? The premium is attractive, though it should be pointed out that only 10 days ago, Nevsun shares were trading at CA$3.90, so it remains to be seen if these new four-year highs for Nevsun hold. Moreover, we think Nevsun is buying Reservoir cheaply. In other circumstances there could have been a bidding war, but Lundin’s agreement with …read more