Nevsun Resources (NYSEMKT: NSU) is a Canadian mid-tier copper producing company headquartered in Vancouver, British Columbia. The company was initially founded in 1965 but currently only has one operating mine in Eritrea, Africa. The company also recently acquired the Timok Project in Serbia for several hundred million. Together from these assets, the company has significant growth potential along with strong income production capabilities.
Despite these potential and assets, Nevsun Resources has had a difficult time recently. The company watched its stock price peak in April 2016 at more than $3.7 per share. From there, the company's stock price dropped to just over $2.7 per share in early October 2016, a drop of more than 25%. Recently, the company announced some strong drilling results giving a boost to its stock price. The company continues to offer a dividend yield of more than 5%. Because of all this, at a price of less than $3 per share, Nevsun Resources is strongly undervalued.
Nevsun Resources Overview
Nevsun Resources is a copper producer with two incredible assets, including the Bisha Mine, the company's only producing asset. The company's Bisha Mine has positive cash flow with a remaining mine life of approximately a decade. At the same time, the company's Timok project has amazing potential and should come online over the coming years.
On top of these assets, Nevsun Resources also has impressive financial potential. The company managed to acquire Reservoir Minerals without taking on a significant pile of debt. The company has $220 million in cash and absolutely no debt, meaning that the company owns more than 20% of its market cap in cash.
At the same time, the company pays investors a quarterly dividend $0.04 amounting to more than 5%. That dividend will cost the company roughly $50 million per year meaning even if the company were to halt its entire production it could continue to offer the dividend for almost half a decade.
Now that we have an overview of Nevsun Resources, it is now time to delve further into the company's asset overview.
Nevsun Resources Bisha Mine Assets - Nevsun Mine Investor Presentation
Nevsun Resources' Bisha Mine has a life of mine of more than 1.1 billion pounds of payable copper equivalent. The company has been averaging copper costs of roughly $1 per pound meaning that this mine alone has the potential to generate the company more than $1 billion in profits. That means that discounting the value of the company's entire cash pile and its recently acquired Timok Project this one mine alone will generate more than the company's entire market cap in profits.
Nevsun Resources Production Growth Timok Mine - Nevsun Mine Investor Presentation
And the potential of the company's Timok Mine is enormous. Nevsun Resources expects its copper production to triple over the next five years as a result of the Timok Project. Given that the company's Bisha Mine is expected to generate over $100 million per profit a year ($1 billion over 10 years), that means assuming the same cost basis which has yet to be determined) we can assume Nevsun Resources' profits to rise to $300 million per year. Not bad for a company worth less than $1 billion.
Timok Project Overview
Now that we have a strong overview of Nevsun Resources along with an understanding of its assets, it is now time to delve further into the company's Timok Project which will be the major sources of its earnings growth.
Nevsun Resources Timok Project Location - Nevsun Mine Investor Presentation
Nevsun Resources Timok Project is located in Serbia with a strong proximity to local infrastructure. The company's Timok Project has strong proximity to important infrastructure such as power, roads, rail, and water. More importantly, the country represents a stable district for mining companies, especially compared to the company's existing mine in Eritrea, Africa.
Nevsun Resources Upper Zone Value - Nevsun Mine Investor Presentation
Nevsun Resources' first source of operations in the Timok Project will be in the Upper Zone, a semi massive sulphide deposit. The deposit contains 35 million tons of resources at a 2.9% copper grade and 1.7 grams a ton of gold. More useful for the company, the Upper Zone has 1.7 million tons of resources at 13.5% copper and 10.4 grams a ton of gold. Given present copper prices of $2.11 / pound and present gold prices of $40.60 / gram, that means this deposit has 230,000 tons of copper worth just under $1 billion and 17.7 million grams of gold worth another $0.7 billion. Taken all together, that means this high-grade, economical deposit, has a value of more than $1.5 billion at present market prices.
According to the company's April 2016 Reservoir Minerals project, the company expects that it will earn $1.5 billion in profits from these assets. Given that Nevsun Resources' entire market cap is $1 billion and the company also owns the lucrative Bisha Mine project, the fact that the company expects in a few years its Timok Mine project will begin generating $130 million profits per year shows how undervalued the company is.
Nevsun Resources Lower Zone Value - Nevsun Mine Investor Presentation
On top of its Upper Zone project, Nevsun Resources' also has the incredibly valuable lower zone project. The Lower Zone is much larger than the company's Upper Zone though it is owned by Freeport-McMoRan, a 55% JV partner. This project has enormous potential and is located 5 km away from a major mining town. And while the project's feasibility has yet to be completed, there is a good chance that the project will contain decades more of resources.
Together, from these resources, we can see the value of Nevsun Resources' recently acquired Timok Project.
Nevsun Resources' has had a relatively difficult time recently watching its stock price drop by more than 20% from its April peak. At the same time, Nevsun Resources' has a dividend yield of more than 5% and enormous cash flow potential both from its existing Bisha Mine project and its future Timok Mine project.
The company's recently acquired Timok Mine project has the potential to earn the company billions. The Upper Zone of the project alone has the potential to generate the company $1.5 billion in profits, not counting the Lower Zone, which is 55% owned by Freeport McMoRan (NYSE: FCX) and significantly larger.
Combining the value of Nevsun Resources' Timok project along with the company's Bisha Mine project, we can see how undervalued Nevsun Resources is at the present time.
Disclosure: I am/we are long NSU, FCX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.