The Nevsun-owned Bisha plans to produce 80,000 tonnes to 90,000 tonnes of copper this year and seeks zinc production at the beginning of 2016 at the mine, located 150km west of Eritrea’s capital, Asmara.
Nevsun owns 60% of the Bisha gold, copper and zinc mine in Eritrea; QKR is funded by Qatar’s sovereign wealth fund and Poland’s richest man Jan Kulczyk; it purchased AngloGold Ashanti’s Navachab mine in Namibia for $110mn in July
QKR Corp, a mining fund headed by former JPMorgan Chase & Co banker Lloyd Pengilly, is close to making a bid of about $1bn 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 has recently received from various parties expressions of interest on a potential corporate transaction,” the company said in a statement yesterday. “Any discussions are at a preliminary stage and there is no certainty that any transaction will be completed. Management is not aware of a bid for the company.”
Bisha would be the second acquisition by QKR, funded by Qatar’s sovereign wealth fund and Poland’s richest man Jan Kulczyk, after its $110mn purchase of AngloGold Ashanti Ltd’s Navachab mine in Namibia in July. It’s seeking assets close to production or from companies struggling to fund them.
Nevsun jumped as much as 25% before the company issued its statement and traded 11% higher at C$4.72 at 4pm in Toronto.
“Nevsun has one of the highest-grade, highest-margin open pit mines in the world with abundant exploration potential,” Adam Low, an analyst at Raymond James Financial, said over the phone yesterday. “Given that they’ve got a significant amount of their market value in cash on the balance sheet without any debt, to a degree the company is almost a partially self-funded takeover target while the rest of the assets are very attractive.” 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 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 to Rio Tinto Group divest operations to cut costs and smaller producers struggle to fund expansion.
Nevsun’s stock closed on Thursday at C$4.24, valuing the company at C$846.5mn ($749mn), about 35% 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.
Nevsun last month reported $416.3mn of sales and $71.5mn of profit for the first nine months of the year. It produced 65,100 tonnes of copper in concentrate in the period and had working capital of $519mn, including $380mn of cash and $113mn in current receivables, it said on October 30. It stopped gold output last year.
The company seeks to generate a free cash flow of $120mn this year after tax and capital expenditure, chief executive officer Cliff Davis said on a conference call October 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 tonnes to 90,000 tonnes of copper this year and seeks zinc production at the beginning of 2016 at the mine, located 150km west of Eritrea’s capital, Asmara.
