Lundin Mining makes new bid for Nevsun

In its second major overture in three months, Lundin Mining (TSX: LUN) said it plans to offer US$1.4 billion in cash for Nevsun Resources (TSX: NSU; NYSE: NSU).

Lundin Mining intends to offer $4.75 per share, a 12.8% premium to Nevsun’s closing price of $4.21 per share on July 16.

The proposal — which will be submitted in a formal takeover bid circular at the end of July — follows a US$1.5 billion cash and share offer from Lundin Mining and Euro Sun Mining (TSX: ESM) in May.

Nevsun rejected the earlier offer and CEO Peter Kukielski says Lundin’s latest proposal “continues to ignore the fundamental value of Nevsun and its assets.”

Nevsun declined a request from The Northern Miner for comment, but in a statement said that since Lundin Mining first expressed an interest in the company, it has reached a number of milestones at its Timok project in Serbia and at its Bisha copper-zinc mine in Eritrea.

In March, Nevsun released a prefeasibility study on the Timok Upper Zone with an after-tax net asset value of US$1.82 billion, and started construction on an exploration decline in May. In June, it completed an initial inferred resource on the Timok Lower Zone containing 31.5 billion pounds of copper and 9.6 million ounces of gold in 1.7 billion tonnes grading 0.86% copper and 0.18 gram gold per tonne.

At Bisha, Nevsun has extended the mine life through 2022—adding 3.3 million tonnes of high-grade ore to the mill for additional payable production of 470 million pounds of zinc and 52 million pounds of copper.

“The work we have been doing has also been noticed by several strategic parties that have expressed an interest in participating in the development of Timok,” Kukielski says.

Nevsun owns 100% of the Timok Upper Zone and 60.4% of the Timok Lower Zone. Nevsun is in a partnership at the Timok Lower Zone with Freeport-McMoRan (NYSE: FCX), which currently owns 39.6% of the project. (After the two companies complete a feasibility study, Nevsun’s stake declines to 46% and Freeport’s rises to 54%.)

Nevsun Resources’ Timok copper-gold project near Bor, Serbia. Credit: Nevsun Resources.

For its part, Lundin Mining argues that its latest proposal of $4.75 per share values Nevsun at $1.4 billion (US$1.1 billion) and represents an 82% premium to Nevsun’s closing price of $2.61 on Feb. 6 (the date of its first offer to Nevsun related to its interest in acquiring Timok), and a 33% premium to Nevsun’s $3.58 per share close on April 30, the date of Lundin Mining’s previously announced prior proposal to Nevsun.

“Following our attempts to constructively engage Nevsun since early February 2018, after having made a series of proposals and observing significant recent changes in the political landscape related to Eritrea, we have determined that the best course now is to make an all-cash offer directly to Nevsun’s shareholders,” Paul Conibear, Lundin’s president and CEO, stated in a press release.

Nevsun Resources’ Bisha copper-zinc mine in Eritrea, 150 km west of the capital Asmara. Credit: Nevsun Resources.

Conibear was referring to the recent thaw in relations between Eritrea and Ethiopia after decades of conflict. Eritrea has re-opened its embassy in Ethiopia after Ethiopia’s recently elected Prime Minister Abiy Ahmed visited Eritrea on July 8, and signed a pact with his Eritrean counterpart, President Isaias Afeworki, bringing an end to a 20-year-old rivalry.

Under Lundin Mining’s prior proposal with Euro Sun Mining, Lundin would own Timok and Nevsun’s other European assets. while Euro Sun would get Nevsun’s 60% stake in the Bisha mine in Eritrea.

Nevsun reminded shareholders that Lundin Mining had previously made “highly conditional confidential non-binding offers to Nevsun but has never presented a binding offer.”

It also pointed out that in Lundin Mining’s last “expression of interest” on July 3, it had “re-affirmed its interest in pursuing a transaction at $5.00 per Nevsun share, funded in cash and Lundin shares,” and that the offer in the latest proposal is 25¢ per share (5%) less than “this latest formal communication.”