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."
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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.
2) The following companies mentioned in this article are billboard sponsors
of Streetwise Reports: None. Click here
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