The next billion dollar mining takeout could be in Eritrea

Nevsun stocks rise amid billion dollar bid rumor

The next billion dollar mining takeout could be in Eritrea

By James Fraser,

Rumors are circulating this morning that the latest takeover in the mining space will be Nevsun Resources (NSU.T). Bloomberg is reporting that QKR Corp, a mining fund backed by Qatari investors, is set to make a $1 billion bid for Nevsun. QKR Corp is led by Lyold Pengilly, a former banker at JP Morgan.

Nevsun’s stock was halted at 7:22 am (pst) and is up 13.2% on 1.9 million shares traded giving the company a market cap of  ~$956.9 million.

Representatives from both companies have refused to comment at this time.

Nevsun had $570 million in working capital ($380 million in cash) and no debt at the end of September. The company has now transitioned from a gold producer into a copper producer and has strong earnings and free cash flow at current metal prices. The strong free cash flow allows Nevsun to pay a dividend of 14 cents per share annually.

The company’s Bisha mine is expected to produce 180-200 million pounds of copper at a grade of 4% per year. In 2016 the mine will become a zinc mine. This could be optimal timing as many analysts see a deficit in the zinc market in the next couple years.

Nevsun owns 60% of the Bisha mine and the Eritrean government owns the other 40%.

QKR is a mining fund that was established to buy distressed mining assets that are near or in production. The fund made its first bet earlier this year purchasing a gold mine in Nambia from AngloGold Ashanti for $110 million.

QKR has deep pockets as it is backed by Poland’s richest man Jan Kulcyzk and Qatar’s sovereign wealth fund.

Here’s the Nevsun chart:

The rumored takeover has pushed Nevsun’s share price to $4.67, which is close to a 3 year high.

It remains to be seen if the deal will close or if another offer will come in.

Investors should also keep an eye on Sunridge Gold (SGC.V), a junior stock with interests in Eritrea, run by former Nevsun employees. Sunridge is up 19% already this morning, and looks to be backed by some smart guys here in Vancouver.

Symbol: NSU.T
Share price: $4.80
Shares outstanding: 199.35M
Market cap: $956.9 M

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