Nevsun Resources is a miner of copper, gold, and zinc from its single mine in Eritrea. The Bisha mine is a long life primary copper and zinc mine with minor by-products of gold and silver.
Nevsun Resources has been pretty much dead money over the past several years because of the general decline and malaise in the natural resource sector. In addition it is a single mine company which increases risk.
There is also a discount applied to the shares due to the mines location in Eritrea which I am sure most people cannot find on a map.
Nevertheless, the company management has done a superb job managing the mine at Bisha and the company has consistently been profitable and a fountain of cash flow. In fact, the company ended quarter on of 2016 with $483 million in working capital including $438 million in cash. The company actually pays a quarterly dividend of $.04 per quarter which is nearly a 5% yield based on the current share price.
There have been several news items and developments at the company and within the industry as a whole that lead me to believe the company prospects and share price are about to change for the better.
The first potential upside catalyst is a general turnaround in the resource sector. We have been through a five year bear market in the resource sector with some resource company shares down 90%. From a contrarian perspective we like markets that are down this much especially resource markets which are predictably cyclical in nature.
Nevsun Resources itself has found itself in a giant sweet spot. Earlier in its life the mine's primary product was copper with a lesser mix of zinc and gold/silver. As mining has continued over the years Nevsun is now encountering a larger amount of zinc relative to copper. The company prepared for this by installing a zinc recovery circuit.
This is great news for Nevsun Resources as we are facing a zinc deficit and rising zinc prices just as the company plans on ramping zinc production.
- Strategic US$1.1 billion combination creates a diversified mid-tier base metals company
- Transaction consolidates a 100% ownership of the high grade upper zone of the Timok Copper Project
- Timok development is underpinned by Nevsun's strong balance sheet and operating cash flow
- Combined company has significant exploration exposure in two prolific mining districts