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Blog Exposure - Nevsun's Board Rejects Proposal from Euro Sun and Lundin Mining

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LONDON, UK / ACCESSWIRE / May 10, 2018 / If you want access to our free research report on Nevsun Resources Ltd. (NYSE: NSU) ("Nevsun"), all you need to do is sign up now by clicking the following link www.active-investors.com/registration-sg/?symbol=NSU as the Company's latest news hit the wire. On May 08, 2018, the Company declared that its Board of Directors has unanimously rejected a non-binding unsolicited proposal by Euro Sun Mining Inc. and Lundin Mining Corp. This non-binding unsolicited proposal was dated April 30, 2018, and was made public by Euro Sun and Lundin on May 07, 2018. Register today and get access to over 1,000 Free Research Reports by joining our site below:

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About the Non-Binding Unsolicited Proposal

The proposal is non-binding and unsolicited, as it neither makes an offer capable of being accepted by the Company's shareholders, nor does it disclose whether there is any intention of making this offer. Therefore, Nevsun's shareholders are not entitled to take any actions in respect of the non-binding unsolicited proposal. However, in case Euro Sun makes a formal proposal, Nevsun's shareholders will get about 105 days to respond.

Financial Details of the Proposal

As per the non-binding unsolicited proposal, Euro Sun would acquire 100% of the shares of Nevsun and Lundin would not directly acquire Nevsun. The consideration for this transaction would be C$2.00 per Nevsun share in cash, plus shares of Euro Sun and Lundin representing C$3.00 per Nevsun share. For this calculation, the value of the Euro Sun and Lundin shares would be based on the volume-weighted average trading price of their shares on the Toronto Stock Exchange for the 30 trading days ending on the last trading day before signing the definitive agreement.

After Euro Sun acquires Nevsun shares, it would sell Nevsun's European assets, including the Timok project, to Lundin and retain the producing Bisha mine in Eritrea as its principal asset. However, the asset transfer from Euro Sun to Lundin is subject to a 60-day right of first refusal held by Freeport.

Reasons for Rejecting the Proposal

Broadly, Nevsun's Board of Directors considers that Euro Sun's proposal is not in the best interest of Nevsun or its stakeholders. However, the Board of Directors will remain open to any transaction that is in the best interest of the Company. The Board's reasons for rejecting the proposal are listed below:

Inadequate Value for Nevsun's Assets - The proposal does not attribute an adequate value to Nevsun's Timok asset. The Timok copper-gold project includes an Upper Zone owned 100% by Nevsun, and a Lower Zone owned through a joint venture with Freeport. Lundin values Timok at C$4.00 per share but Nevsun does not agree with this valuation. Timok Upper Zone, with an after-tax NAV of $1.82 billion, IRR of 80%, and initial probable mineral reserve of 27 million tons, deserves a premium valuation.

Problematic Structure - The proposal would dilute Nevsun's shareholders' exposure to Timok. They would be left with Bisha's assets and liabilities by virtue of their shareholdings of Euro Sun, which would be around 77% of pro-forma Euro Sun shares outstanding. At the same time, the new Euro Sun, a Bisha-focused stand-alone entity, would face several fundamental viability challenges.

Euro Sun, Not an Ideal Partner - Euro Sun is a junior, non-operating Company that had difficulties in raising finance previously. Euro Sun's market capitalization is less than one-tenth of Nevsun's market capitalization. Besides, local government holds a 40% stake in the Bisha mine. Any negative reaction by the government could compromise Bisha, and thus, reduce shareholder value.

Euro Sun's Rovina Project is Marginal - Euro Sun's only meaningful asset, the ultra-low grade, unpermitted Rovina development project in Romania, is not lucrative. As per Euro Sun's 2010 preliminary economic assessment, Rovina project's capital requirements are estimated to be US$509 million. Besides, Romania is historically a challenging jurisdiction for mining projects.

Diminishing Premium - The notional consideration comprises three parts: C$2.00 in cash; C$2.00 in Lundin shares; and C$1.00 in Euro Sun shares. The notional premium of 40% as on the date of the proposal on April 30, 2018, declined to a lower notional premium of 30%, just before Euro Sun and Lundin made the proposal public on May 07, 2018.

Value Uncertainty - About 60% of the total notional consideration is proposed to be in the form of Euro Sun and Lundin shares. These shares have been volatile and, thus, do not provide any certainty of value. Moreover, Nevsun does not consider it fair to value this offer at C$5.00 per Nevsun share.

Deal Uncertainty - The proposal is still subject to Euro Sun shareholders' vote, waiver, or expiry of Freeport's 60-day right of first refusal and completion of due diligence. Since no voting support agreements from Euro Sun's substantial shareholders were offered, the proposal offers Euro Sun a free, non-binding option on Nevsun.

Diligence - A notional 20% of the total proposed consideration comprises shares in Euro Sun and a notional 40% of the proposed consideration comprises shares in Lundin. However, Nevsun has not been given an opportunity to conduct customary due diligence on either of those Companies or their liabilities.

Decision Based on Recommendation from Special Committee

Nevsun's Board had set up a special committee of its independent directors to evaluate the proposal. The Board's decision to reject this proposal was made after careful consideration and receipt of the recommendation from the special committee and after consultation with financial and legal advisors. Also, this rejection comes after an extensive engagement with Euro Sun's bidding partner Lundin for a possible transaction.

Stock Performance Snapshot

May 09, 2018 - At Wednesday's closing bell, Nevsun Resources' stock advanced 4.36%, ending the trading session at $3.59.

Volume traded for the day: 1.75 million shares, which was above the 3-month average volume of 726.08 thousand shares.

Stock performance in the last month – up 40.78%; previous three-month period – up 73.43%; past twelve-month period – up 59.56%; and year-to-date - up 47.13%

After yesterday's close, Nevsun Resources' market cap was at $1.09 billion.

The stock is part of the Basic Materials sector, categorized under the Copper industry. This sector was up 2.2% at the end of the session.

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