VANCOUVER (miningweekly.com) – Base metals miner Nevsun Resources has publicly broken its silence on the announced C$1.5-billion takeover proposal led by Euro Sun Mining and supported by Lundin Mining.
The miner issued a statement on Tuesday, saying the board unanimously rejected four consecutive proposals – three by Lundin and one led by Euro Sun – because it does not value the company’s asset base adequately and that the deal presents a problematic structure that could “further undermine value to our shareholders”, Nevsun chairperson Ian Pearce said.
Lundin made public the refused proposals on Monday.
Under the most recent combined proposal, Lundin and Euro Sun believe they have identified a way to create significant value by proposing C$5 per Nevsun share, comprising C$2 in cash funded by Lundin and C$2 in shares of Lundin, plus C$1 in shares of Euro Sun. Under that proposal, Lundin would own the European assets of Nevsun, including the Timok project, and Euro Sun the remainder of Nevsun, including the Bisha mine and Nevsun's cash balance.
Nevsun is concerned that the deal does not fully value the Timok copper/gold development project and it also pointed out that the proposal has significant structural issues including about C$100-million in estimated cash tax costs payable by Euro Sun, which is expected to be mainly borne by existing Nevsun shareholders.
The Nevsun board also took issue with Euro Sun's valuation of the Rovina project, in Romania, which it considers an unpermitted, capital intensive ultra-low-grade asset that Nevsun had previously evaluated and determined to be highly unattractive.
Further, according to Nevsun, up to 60% of the notional consideration proposed comes from shares that have historically been volatile and do not provide certainty of value and it also does not like what it calls fundamental uncertainty regarding the deal, since it is subject to Euro Sun shareholder approvals, the waiver or expiry of a right of first refusal held by Freeport-McMoRan Exploration on the Timok Lower Zone, and due diligence.
An April prefeasibility study on Nevsun’s Timok Upper Zone (UZ) has confirmed the project as one of the best development-stage copper assets in the world. Based on an assumed copper price of $3.15/lb in 2020, when project construction is expected to start, Timok UZ has an after-tax net present value (NPV), applying an 8% discount rate, of $1.82-billion, and an internal rate of return (IRR) of 80%.
NPV, however, falls to $1.45-billion and IRR to 55% when using the same price assumption in today’s market and including the $574-million preproduction capital cost. Capital expenditure excludes $114-million to be spent to reach a construction decision.
Nevsun guided that pending receipt of all required permitting, first production will take place in 2023, although the company would like to start production in 2022.
Nevsun’s TSX-listed shares jumped 24% to a new 52-week high on Tuesday at C$4.42 a share.