In a July 17, 2018, research note, Eight Capital analyst Ralph Profiti reported that Lundin Mining Corp. (LUN:TSX) plans to initiate a formal bid around July 27, 2018, to acquire Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) for CA$1,436 million. This will be Lundin's fifth purchase proposal, as Nevsun rejected the previous four, all submitted earlier this year.
Profiti explained that under the most recently proposed arrangement, Nevsun shareholders would receive CA$4.75 per share in cash from Lundin, an amount that represents a 12.8% premium to its closing price on July 16, 2018. Euro Sun Mining, present in previous proposals, is not involved this time.
For the prospective acquirer, "we believe this transaction still makes sense with Nevsun's European assets providing a strong fit for Lundin and now includes a risk-adjusted bid on the Bisha asset," Profiti noted. Specifically, Nevsun's Timok project fits Lundin's criteria in that it is "a potentially value-accretive, copper-focused development project in a favorable jurisdiction with optionality."
Lundin should end Q3/18 with $1.5 billion in cash and $350 million in available credit, for total liquidity of $1.85 billion, Eight Capital estimates, using spot prices. If the takeover were to go through, Lundin's liquidity afterward would be about $750 million.
With respect to the takeover target, Nevsun, it would not recoup its full value through the current proposal, Profiti indicated: "We believe that Lundin's CA$4.75 per share offer is inadequate." Eight Capital derives a higher value for Nevsun, of CA$5.50–6.50 per share. The investment firm, however, favorably views the all-cash structure because it lowers transaction risk to Nevsun shareholders.
At CA$4.75 per share, the deal would be 6.3% accretive to Lundin's net asset value per share, Profiti explained. At CA$5.50, it would be 3.7% accretive.
On Lundin, whose stock is trading today at around CA$7.51 per share, Eight Capital has a Buy rating and a CA$12.50 per share target price.
On Nevsun, Eight Capital also has a Buy rating but a CA$6 per share price target. The current share price is about CA$4.74.
Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Nevsun Resources, a company mentioned in this article.
Disclosures from Eight Capital, Lundin Mining and Nevsun Resources, First Impressions, July 17, 2018
Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.
Eight Capital generally restricts any research analyst/associate and any member of his or her household from executing trades in the securities of a company that such research analyst covers, with limited exception.
Research Analyst Certification
Each Research Analyst and/or Associate who is involved in the preparation of this research report hereby certifies that:
• the views and recommendations expressed herein accurately reflect his/her personal views about any and all of the securities or issuers that are the subject matter of this research report;
• his/her compensation is not and will not be directly related to the specific recommendations or views expressed by the Research Analyst in this research report;
• they have not affected a trade in a security of any class of the issuer whether directly or indirectly through derivatives within the 30-day period prior to the publication of this research report;
• they have not distributed or discussed this Research Report to/with the issuer, investment banking at Eight Capital or any other third party except for the sole purpose of verifying factual information; and
• they are unaware of any other potential conflicts of interest.
The Research Analyst involved in the preparation of this research report does not have any authority whatsoever (actual, implied or apparent) to act on behalf of any issuer mentioned in this research report.
Additional disclosures are available here.