Nevsun Resources (TSX:NSU) Stock: Don’t Chase the Action

Nevsun Resources (TSX:NSU)(NYSE:NSU) is trading above Lundin Mining Corp’s (TSX:LUN) current all-cash offer. Are investors expecting a higher offer?

| More on:

One of the biggest one-time factors in a stock surge, or plunge, is acquisition news. Companies that are getting acquired tend to see significant gains, as investors are offered a premium to current market prices.

At times, a company’s share price can be bid up above the offer price in anticipation of a competing bid or a higher bid by the same company. On the flip side, if no competing bid materializes, or if the offer is rejected, the shares can drop, and investors who’d invested on such hopes are left holding on to losses.

A good example of this is Broadcom’s aggressive pursuit of Qualcomm. Although Broadcom’s takeover was ultimately blocked by the Feds, it upped its offer a number of times, and there was even talk of a private takeover offer. Qualcomm’s shares were bid up in anticipation.

In the end, Qualcomm’s and Broadcom’s shares tumbled when no deal materialized.

It is therefore interesting to analyze the price action on Nevsun Resources (TSX:NSU)(NYSE:NSU) and Lundin Mining (TSX:LUN).

Joint offer

For the past few months, Lundin Mining has been aggressively pursing Nevsun Resources. In May, the company joined forces with Euro Sun Mining, offering $1.5 billion, or $5 per share, for Nevsun. Shareholders were offered $2 in Lundin shares, $2 in cash, and $1 in Euro Sun shares.

The offer was rejected by Nevsun for two reasons: it undervalued Nevsun’s three properties, and it outright stated that Euro Sun was not “an attractive partner.”

Despite being quick to reject the offer, Nevsun’s share price jumped 17% on news of the takeover attempt.

Going at it alone

In July, Lundin decided to go at it alone. It offered $4.75 per share for Nevsun in an all-cash bid. You’ll note, the bid is lower than the previous offer, which was rejected on the basis that it undervalued its properties. A statement the company has re-iterated since the new bid.

What’s next? Lundin officially made the hostile takeover offer on July 26. Shareholders will be asked to tender their shares in exchange for the $4.75 in cash.

The company is currently trading slightly above this amount, which means that shareholders may be holding out for a higher bid.

Significant downside

If shareholders reject the offer, there is significant downside to Nevsun’s share price. The current offer is a whopping 82% above where the company was trading prior to Lundin first expressing interest. It’s also trading 33% above the company’s joint takeover attempt with Euro Sun.

Although Lundin’s aggressive pursuit highlights the value of Nevsun’s assets, investors should be careful. By rejecting the bid, current shareholders can leave money on the table. Likewise, new investors jumping on board in the hopes of a higher offer can be left disappointed.

Don’t chase the action.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien has no position in any of the companies listed.

More on Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »