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.
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Disclosures from Eight Capital, Lundin Mining and Nevsun Resources, First Impressions, July 17, 2018
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