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( Hold Nevsun Resources as Its Acquired by Chinese Miner

Posted by: Biniam Tekle

Date: Wednesday, 31 October 2018

Hold Nevsun Resources as Its Acqured by Chinese Miner

Stock lacks strong short-term catalysts

October 30, 2018

Mineral and metal producer Nevsun Resources Ltd. (NSU) is trading around $4.42 per share as of Oct. 29, having gained 86% over the previous 52 weeks. As a result, the share price is slightly above the 50-day simple moving average line and decisively over the 200- and 100-day SMA lines. The stock has a market capitalization of approximately $1.35 billion.

In September, China's Zijin Mining Group Co. Ltd. (SHSE:601899) offered to buy the company for 6 Canadian dollars ($4.60) per share.

If the takeover is approved, the capital gain is 20% on tendered ordinary shares acquired before Sept. 5. The return margin is good when compared to the yield on many high-quality securities traded on the financial market as of Oct. 29.

Analysts project the stock will sink to $3.25 per share over the next 52 weeks, a 26.5% downside from the current price. Wall Street is not confident about the stock since its lacks strong short-term catalysts.

In addition, the Canadian miner is highly dependent on the volatility of the commodities market. In the third quarter, Nevsun Resources missed consensus on revenue by nearly $15 million and fell 4 cents short of earnings expectations. The company attributed the poor performance to lower prices for copper and zinc.

Zinc prices fell 29% to $1.02 and copper prices decreased 11% during the quarter. 

Furthermore, the improved full-year guidance for zinc and copper production has already been factored into the stock's market value. The company is projecting zinc production of 245 million to 265 million pounds and byproduct copper production of 33 million to 38 million pounds.

On a byproduct basis, the cash cost is expected to be 71 cents per payable pound of zinc sold. The forecast is at the midpoint of the guidance.

The company doesn’t have any debt as of Sept. 30. It also has $88.7 million in cash on hand and securities, down 29% from the prior quarter. The company is not distributing dividends. Over the trailing 12 months to the third quarter, the levered free cash flow was negative, which suggests Nevsun is struggling to produce the necessary financial resources to complete its projects. Additionally, a non-supportive commodity has delayed Nevsun in reaching its goal of becoming a senior company in the mining industry.

Disclosure: I have no positions in any securities mentioned in this article.

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About the author:

Alberto Abaterusso
If somebody asks what being a Value Investor means, Alberto Abaterusso would answer: “the Value Investor is not the possessor of a security that represents the company, but he is the owner of that company. As an owner of the company the Value Investor is actively involved in the dynamics of that company and his first aim is how to have sales progressively growing.” 

Alberto Abaterusso would add: “probably the Value Investor is one of the least patient persons in the world concerning sales.” 

Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia,, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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