Nevsun eyes ‘strategic’ alternatives to Lundin proposal

Vancouver-based Nevsun Resources Ltd. on Tuesday urged shareholders to ignore a potential $4.75 cash per share hostile takeover offer from Toronto-based Lundin Mining Corp., signalling also how the company may respond when an actual bid materializes.

In a news release, Nevsun chief executive Peter Kukielski said “several strategic parties” have expressed interest in participating as it seeks to build its copper-gold mine in Serbia, known as Timok, raising the prospect that his company could sell a stake in the asset, or strike a joint partnership with another company, which would complicate Lundin’s takeover offer.

The proposed deal came back into the news after Lundin Mining on Monday announced it intends to bid about $1.4 billion for Nevsun, at $4.75 per share, and plans to release a formal offer by the end of the month. In May, Lundin sought to purchase only Timok, and enlisted Euro Sun Mining Inc. to purchase Nevsun’s other main asset, a zinc-copper mine in Eritrea known as Bisha.

But Nevsun rejected the overtures, and a formal offer was never put forward. Now Lundin is seeking to buy Nevsun outright, noting changes in Eritrea’s political landscape contributed to its change in strategy.

Nevsun jumped nearly 14 per cent in Toronto at $4.78 per share on Tuesday afternoon. Lundin edged 1.7 per cent higher to $7.6.

Neither Lundin nor Nevsun would provide comment, and instead issued news releases that contained comments from their chief executives.

“This latest announcement from Lundin continues to ignore the fundamental value of Nevsun and its assets,” Nevsun’s Kukielski said in a news release.

He noted that the original plan put forward by Lundin and Euro Sun, which included a mix of cash and shares, valued Nevsun at around $1.5 billion, or $5 per share — higher than the current proposed cash offer by Lundin.

Meanwhile, Kukielski added that in the intervening time, Nevsun updated shareholders on its exploration results in the Timok Lower Zone — a portion of the asset held in joint venture with Freeport-McMoRan Inc. It suggested 31.5-billion pounds of copper and 9.6-million ounces of gold in the deposit, according to an initial inferred resource estimate, which means further exploration is still required.

That happened in late June and prompted CIBC Capital Market analysts Oscar Cabrera and Raphael De Souza to speculate that Lundin would “sweeten” its offer. On July 4, they predicted Lundin would raise its offer by as much as $785 million to $1.985 billion.

Lundin has not addressed how a pending lawsuit in British Columbia against Nevsun, in which former workers say they were forced to toil at its Eritrean mine under threat of torture and physical punishment, affects the company’s valuation.