Qatar-Backed QKR Said Close to $1 Billion Bid for Nevsun

QKR Corp., a mining fund headed by former JPMorgan Chase & Co. banker Lloyd Pengilly, is close to making a bid of about $1 billion 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 percent 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 today. “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 $110 million 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 percent before the company issued its statement and traded 11 percent higher at C$4.72 at 4 p.m. in Toronto.

Hunting Assets

“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 Inc., said over the phone today. “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 Plc 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 Ltd. to Rio Tinto Group divest operations to cut costs and smaller producers struggle to fund expansion.

Nevsun’s stock closed yesterday at C$4.24, valuing the company at C$846.5 million ($749 million), about 35 percent 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.

Gold Output

Nevsun last month reported $416.3 million of sales and $71.5 million of profit for the first nine months of the year. It produced 65,100 tons of copper in concentrate in the period and had working capital of $519 million, including $380 million of cash and $113 million in current receivables, it said on Oct. 30. It stopped gold output last year.

The company seeks to generate a free cash flow of $120 million this year after tax and capital expenditure, Chief Executive Officer Cliff Davis said on a conference call Oct. 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 tons to 90,000 tons of copper this year and seeks zinc production at the beginning of 2016 at the mine, located 150 kilometers west of Eritrea’s capital, Asmara.

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