By Peter Koven (Financial Post),
With its Bisha mine in production and generating major cash flow, Nevsun Resources Ltd. is successfully transitioning from a junior developer to an established producer, something few miners ever do. The company took the next logical step on Wednesday, declaring an inaugural semi-annual dividend of 3¢ per share.
According to Haywood Securities analyst Stefan Ioannou, the dividend represents a modest 1.15% annual yield, equivalent to only about 5% to 10% of Nevsun’s operating cash flow. However, it is likely to attract a batch of new investors.
He remains extremely optimistic on Nevsun’s prospects. He pointed out that the company recently boosted reserve tonnage by 41% at Bisha. The project will be a major gold producer for a couple of years, and a copper and zinc producer after that. It is located in Eritrea, a favorite new mining coutry in the Horn of Africa.
Mr. Ioannou expects that more miners will follow Nevsun’s lead and invest in Eritrea, a country with a lot of undeveloped resource potential. (Editor’s Note: There are more than 18 mining companies already operating in the country).
Nevsun has a head start on the competition with a producing mine and a number of other exploration targets, and he thinks it could be a good takeover target. He noted that Lundin Mining Corp., Newmont Mining Corp. and Antofagasta PLC have all made investments in Eritrea.
“With ‘commercial production’ underway, we believe that Bisha is ‘ripe for the picking’ in a marketplace characterized by ongoing consolidation,” Mr. Ioannou wrote.
On the other hand, he also thinks Nevsun could be a buyer itself. He pointed out that the company has a very strong balance sheet, with US$104-million in cash and no debt as of March 31st. The cash position could increase to about US$310-million by the end of the year, according to his model.
Mr. Ioannou rates the stock an outperform with a target of $7.00 a share.