Nevsun Resources (NYSEMKT:NSU) (see my initial coverage for an introduction to the company) has been in a lot of trouble lately. The company drastically cut production estimates earlier this year, an event that sent the share price tumbling, and they are now being sued for deceiving shareholders regarding their estimates. The chart below shows how Nevsun's share price has fared relative to gold mining ETFs (NYSEARCA:GDX) and (NYSEARCA:GDXJ). The bad news has caused Nevsun to significantly underperform.
However, there are still some reasons to be bullish on the firm:
1. Nevsun said it has no plans to cut its dividend in spite of its production cuts. The drastic fall in share price coupled with maintenance of dividends has sent Nevsun's dividend yield rising; the yield currently stands at 2.85%. There is no other miner listed on US exchanges that has a dividend yield as high, a P/E ratio below 8, and a market capitalization between $500 million and $2 billion. These metrics suggest Nevsun still has growth potential while also offering a dividend to patient investors who come along for the ride.
2. Nevsun announced a share buyback program, which I view as a very reassuring sign in light of the revised production estimates and fraud allegations. In addition to boosting demand for the stock, such a buyback program suggests the company has some faith in what it's doing.
3. I called Nevsun's investor relations firm today in hopes of learning more about how they feel about the lawsuit, as I did not see any official response from management. I was told Nevsun could not comment much about the issue due to the pending lawsuit, but that the firm does deny any allegation of fraud. Of course this is not exactly a surprising or revelatory statement, but in light of management's silence on the issue thus far, I think it is worth noting.
Ultimately, I still like Nevsun. I think the Bisha mine is a very unique and appealing project whose most productive days are still to come, and that investors are overly fearful of political risk due to the company's operations in Eriteria (which the company is looking to diversify against anyway). Moreover, the firm's financials show a low P/E that suggest the company is undervalued, a higher dividend yield than many of its peers, and a market capitalization that indicates the company has much room to grow. I purchased Nevsun recently at around $4 per share; the stock is at $3.51 at the time of this writing. In light of where I believe copper prices are headed in the years to come and the prospects Nevsun has with the Bisha mines and with the potential acquisitions that the company is looking to make with its robust cash reserves, I consider it probable that the stock will re-visit its all-time highs of $7.75 that it reached in January of last year.
Lastly I'd like to note that Nevsun will have its Q4 2011 earnings call after the close of trading on March 21. In light of all that the company's gone through in the first quarter of this year, this call may be especially worth paying attention to for current and prospective shareholders.