Adrian Day shares additional thoughts on Nevsun’s deal to buy Reservoir Minerals. The investment conclusion—to hold—remains. And he has an update on Sunridge being acquired.
As mentioned in the last note, Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) is a strong company, and undervalued stock. Were its flagship Bisha mine not in Eritrea, the stock would be valued considerably higher. (When I mentioned that Nevsun was trading near four-year highs, I was looking at the Canadian chart. Looking at the New York stock in U.S. dollars, this is not the case.)
Operationally, it is a very strong company, having built Bisha, unusually, on schedule and under budget. So merging with Reservoir Minerals Inc. (RMC:TSX.V) and its exciting Timok property, by reducing political risk and diversifying the resource base, could see Nevsun’s stock rerate. In any event, the combination will produce a solid midtier resource company. Ending up with some Nevsun shares is not a bad outcome.
Another offer?
However, as mentioned, I don’t believe that Nevsun is exactly overpaying, and after the normal drop in the acquirer’s share price that occurs in such deals, the premium is a more modest 24%. I believe there is a chance of another bid, after Reservoir, with Nevsun’s cash, has exercised its right-of-first-offer to match Lundin Mining Corp.’s (LUN:TSX) bid for part of Freeport-McMoRan Copper & Gold Inc.’s (FCX:NYSE) interest in the project. We are holding for now, again watching the market and any developments; the downside risk is modest so the risk.
To clarify another comment in the last note: the combined company will have a minimum interest of 46% in the porphyry, assuming Freeport meets the spending hurdles to dilute its partner as much as it can.
Sunridge sale closes
Coincidentally, at the same time one Eritrea-active company is buying Reservoir, another one …read more