Next Billion Dollar Mining Takeover Could be in Eritrea

Qatar-Backed QKR Corp. poised to takeover Nevsun's 60 percent share of the Bisha gold, copper and zinc mine in Eritrea for a $1 Billion Bid
Qatar-Backed QKR Corp. poised to takeover Nevsun’s 60 percent share of the Bisha gold, copper and zinc mine in Eritrea for a $1 Billion Bid

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.

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.

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Qatar-Backed QKR Said Close to $1 Billion Bid for Nevsun

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By Firat Kayakiran,

QKR Corp., a mining fund headed by former JPMorgan Chase & Co. banker Lloyd Pengilly, is close to making a bid of about $1 billion for Canada’s Nevsun Resources Ltd. (NSU), according to people with knowledge of the situation.

Negotiations are ongoing between QKR and Vancouver-based Nevsun, which owns 60 percent of the Bisha gold, copper and zinc mine in Eritrea in East Africa. There’s no guarantee an agreement will be reached, said the people, who asked not to be identified because the talks are private.

Nevsun jumped as much as 25 percent in Toronto and traded 15 percent higher at C$4.86 at 9:50 a.m. local time.

Bisha would be the second acquisition by QKR, funded by Qatar’s sovereign wealth fund and Poland’s richest man Jan Kulczyk, after its $110 million purchase of AngloGold Ashanti Ltd. (ANG)’s Navachab mine in Namibia in July. It’s seeking assets close to production or from companies struggling to fund them.

A representative of QKR declined to comment. Nevsun said in a statement it doesn’t comment on market speculation.

Private equity funds, including those led by former Xstrata Plc Chief Executive Officer Mick Davis and ex-Barrick Gold Corp. CEO Aaron Regent, are hunting for assets as the world’s largest mining companies from BHP Billiton Ltd. to Rio Tinto Group divest operations to cut costs and smaller producers struggle to fund expansion.

Nevsun ’s stock was as of yesterday trading at C$4.24, valuing the company at C$846.5 million ($746 million), about 35 percent below its February 2012 valuation, when it cut its gold production forecast by almost half for that year to a range of 190,000 ounces to 210,000 ounces.

Copper Concentrate

Nevsun last month reported $416.3 million of sales and $71.5 million of profit for the first nine months of the year. It produced 65,100 tons of copper in concentrate in the period and had working capital of $519 million, including $380 million of cash and $113 million in current receivables, it said on Oct. 30. It stopped gold output last year.

The company seeks to generate a free cash flow of $120 million this year after tax and capital expenditure, Chief Executive Officer Cliff Davis said on a conference call Oct. 31.

The Bisha deposit consists of a layer of gold oxide above layers of copper and zinc. The mine produced only gold until last year, after which it began to expand into copper and zinc. It plans to produce 80,000 tons to 90,000 tons of copper this year and seeks zinc production at the beginning of 2016 at the mine, located 150 kilometers west of Eritrea’s capital, Asmara.

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Nevsun Resources Stock Leaps on Talk Qatar-backed QKR is Close to $1-billion Bid

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By Bloomberg News,

QKR Corp., a mining fund headed by former JPMorgan Chase & Co. banker Lloyd Pengilly, is close to making a bid of about $1 billion for Canada’s Nevsun Resources Ltd., according to people with knowledge of the situation.

Negotiations are ongoing between QKR and Vancouver-based Nevsun, which owns 60% of the Bisha gold, copper and zinc mine in Eritrea in East Africa. There’s no guarantee an agreement will be reached, said the people, who asked not to be identified because the talks are private.

Nevsun jumped as much as 25% in Toronto and traded 15% higher at $4.86 at 9:50 a.m. local time.