I have stated that I believe the Nevsun
Resources Ltd. (NSU:TSX; NSU:NYSE.MKT) offer for Reservoir
Minerals Inc. (RMC:TSX.V) undervalues the company and its assets, just as
did the prior Lundin purchase of part of Freeport's interest in the joint
venture. Now there is a twist in the saga and a rival proposal.
In an advertisement in the June 3rd Toronto Globe and Mail newspaper,
Jing Bao, a Hong Kong-based investment group, discussed a proposal made by
Xiangyuang Copper (XGC), which owns one of the largest and most modern
smelters in the world. Both Jing Bao (9%) and XGC are long-term significant
shareholders of Reservoir.
New suitor makes its case
The advertisement points investors to a website, www.abetterdealforreservoir.com,
which makes several points:
- Having exercised its right-of-first-offer-albeit with a
loan from Nevsun-Reservoir now owns 100% of the upper portion of the
deposit and (at present) a majority of the porphyry.
- Reservoir's recent preliminary economic assessment
values the upper portion of the deposit alone at US$1 billion at today's
depressed copper price. (Reservoir is trading post-Nevsun bid at an
ex-cash market cap at just half that, with no consideration for the
porphyry and other assets).
- XGC states it has submitted an alternative offer to
Reservoir; the term sheet includes an US$80 million private placement
underwritten by XGC and a $50 million loan; this would enable Reservoir
to repay Nevsun's loan as well as provide funds for development of the
project.
- The website urges investors to vote "no" on
Nevsun's offer. That would allow the XGC offer to proceed.
Such a vote would not, of course, mean the XGC's offer would necessarily
be accepted. It is possible that Nevsun would sweeten its offer; after all,
acquiring Reservoir would be a great deal for Nevsun, adding a second great
mine to its portfolio and improving its political profile. (Eritrea is hardly
flavor of the month.) It is possible that Lundin returns with a better offer.
It would mean, however, that the original Nevsun offer would be rejected and
others would have the opportunity to step forward.
Reservoir suggests it's worth more!
Although Reservoir accepted the Nevsun offer, the latest corporate presentation on its website supports the view
that Nevsun's offer undervalues Reservoir (though it doesn't state that, of
course), as does a very well-done video
on the website (bottom of home page in middle, "The Cukaru Peki
Deposit").
One analyst who has followed Reservoir for a while has a 12% discounted
NAV of C$15 per share. . .and that's just for the upper deposit alone!
A rare opportunity that should be maximized
Deposits like this, and companies like Reservoir, come along only once in a
while. For second and third-rate deposits owned by second and third-rate
companies we would gladly and without hesitation accept a decent offer. With
a Diamondfields.or a Virginia..and now with a Reservoir Minerals, realizing
just how rare such discoveries, deposits and companies are, we want to
maximize our returns.
This new twist offers us just that opportunity. Only if the Nevsun
proposal is rejected can the XGC proposal proceed, or another offer,
including perhaps a sweetened Nevsun offer, come forth. Scuttlebutt in
Toronto suggests the XGC proposal buys time for another offer. The fat lady
has not sung yet.
Disclosure:1) Adrian Day: I or my family own shares of the following
companies mentioned in this article: Reservoir Minerals. I personally am or
my family is 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. Clients of Adrian Day Asset Management own
shares of the following companies mentioned in this article: Reservoir
Minerals. Clients of Adrian Day Asset Management own over 5% of the shares
outstanding of Reservoir Minerals. I determined which companies would be
included in this article based on my research and understanding of the
sector. Statement and opinions expressed are the opinions of the author and
not of Streetwise Reports or its officers. The author is wholly responsible
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