Hold Reservoir Minerals after takeout: Adrian Day
On Sunday, Reservoir Minerals announced it has agreed to be acquired by Nevsun Resources. Adrian Day shares his initial thoughts on the deal.
Reservoir Minerals Inc. (RMC:TSX.V, 6.96) announced it has agreed to be acquired by Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT), which operates the high-grade copper-zinc Bisha mine in Eritrea. Nevsun has a cash balance of US$438 million. Under the terms of the deal, Reservoir shareholders will get two Nevsun shares for each Reservoir share. At Friday's closing price, this amounts to CA$9.40 in Nevsun shares per Reservoir share, a healthy premium.
Nevsun will also subscribe for a private placement and lend Reservoir funds to exercise its "right of first offer" to match the offer Lundin Mining Corp. (LUN:TSX) made in early March for all of Freeport-McMoRan Copper & Gold Inc.'s (FCX:NYSE) interest in the upper zone and part of its interest in the lower zone. The new combined Nevsun-Reservoir company will then own 100% of the upper zone, while it could be diluted by Freeport down a minimum of 46% of the lower zone.
Nevsun is in a strong financial position to advance the Timok project. For Nevsun shareholders, who have been wanting Nevsun to undertake an M&A transaction, it's a good deal: Timok matches Bisha in terms of project quality, while Serbia is definitely a step up in the geopolitical risk table from Eritrea (but then virtually everywhere would be).
Is it a good deal for Reservoir shareholders? The premium is attractive, though it should be pointed out that only 10 days ago, Nevsun shares were trading at CA$3.90, so it remains to be seen if these new four-year highs for Nevsun hold. Moreover, we think Nevsun is buying Reservoir cheaply. In other circumstances there could have been a bidding war, but Lundin's agreement with Freeport triggered a deadline for the right to match its offer (expiring May 4), and Reservoir's value is greatly enhanced if it exercises that right (in other words, there is not much time for anyone else to make a competing bid).
We are going to hold for now, listen to the conference call, watch how the market reacts, and assess any possible developments. But clearly, the end-game is underway, and it's only a question of how much we gain.
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."
Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.
Source: Adrian Day
https://www.streetwisereports.com/pub/na/hold-reservoir-minerals-after-takeout-adrian-day
Disclosure:1) Adrian Day: I or my family own shares of the following companies mentioned in this interview: Reservoir, Freeport. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this interview: Reservoir, Freeport. Clients of Adrian Day Asset Management own over 5% of the shares outstanding of Reservoir. 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 Adrian Day and not of Streetwise Reports or its officers. Adrian Day is wholly responsible for the validity of the statements. Adrian Day was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the article preparation or editing so the expert could comment independently about the sector. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.3) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.
Streetwise - The Gold Report is Copyright (C) 2016 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.
Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.
Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.