Sell Nevsun Resources Ltd. (NSU, NY, US$4.46-4.47) with a limit of US$4.50.
Zijin announced earlier in the month that it had received its third and final approval from Chinese authorities to proceed with its friendly takeover of Nevsun. There is little chance the takeover will not proceed. We are now going to sell Nevsun officially from our "Current Positions" list.
Why sell, why wait? The possibility of another bid for Nevsun is remote indeed, as is the possibility that Zijin will back out, though there is a risk that the company will not achieve the minimum number of votes required. More certain is currency fluctuation; since the offer is priced in Canadian dollars (C$6 cash per Nevsun share), the amount received by a U.S. or other non-Canadian shareholder will vary with changes in the currency value. While we think the Canadian dollar is undervalued now—it's declined from 1.28 to 1.338 versus the U.S. dollar, within spitting distance of the annual low—there is no certainty what will happen over the next six weeks. Also, if you do not sell the shares in the market, you will receive payment at the Canadian exchange rate on the day of payment, outside your control.
The reason to wait
The main reason to wait is to push the sale date into next year, for tax purposes. See previous discussion. Although the closing date is set at December 28, there is a 10-day mandatory extension, and payment will come in the new year. If you tender, it is uncertain if that will count as a sale next year. We are not tax professionals and are not offering tax advice; you should discuss with your tax professional. So not tendering, but waiting to be subject to compulsory acquisition next year, would make certain the sale date (next year). The risk here is that Zijin gains control of Nevsun but decides not to purchase the shares not tendered.
So all choices—sell in market, tender, or wait—have possible advantages and risks. If you are not concerned with taxes, then let's place a sell. The stock has been volatile; if it does not hit our limit over the next week, we will change the limit to ensure a sale.
We had two positions in Reservoir Minerals, which was acquired in 2016 by Nevsun. One position we sold at the end of that year for a gain of 1,387%. This second position, if sold at $4.50, will generate a return (including dividends) of 105% in little over four years. With this sale, the average return on all closed positions inches up to 97.4%.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
[NLINSERT]Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Nevsun Resources. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Nevsun Resources. I determined which companies would be included in this article based on my research and understanding of the sector.
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