A call to suspend the dividend by Nevsun Resources (NSU, Financial) caused the company's stock to fall sharply in late trading on the American Stock Exchange. However, by this morning, the stock had regained some of its losses.
At the end of trading on Wednesday, shares of the base metal mining company tumbled nearly 9% to $2.05 per unit. By late morning trading, though, the stock had inched up 3.66% to $2.13.
Wednesday's collapse of the stock was largely due to the company’s unmoved perspective on copper production from last year’s guidance of 190 million to 210 million pounds of concentrate and its decision to cancel the distribution of .01 cent of its free cash flow per share to its shareholders.
The dividend suspension was necessary because Nevsun needs to “redeploy capital to growth,” the miner reported. Nevsun will redistribute the cash flow to the development of the Timok Upper Zone project, which is one of best copper development projects in the world in terms of metal concentration, according to Nevsun.
A prefeasibility study for Timok is excepted to be completed by the end of March 31.
For the 52-weeks through Jan. 31, the stock lost 34% on the market and it is now trading below the 200, 100 and 50-SMA lines:
The stock is trading cheaply, according to the last prices; this is corroborated by a lower than industry median indicator of price-book (P/B) ratio of 0.75 times. Nevsun’s peers are trading with book values 2.01 times on average.
Besides an improvement in the zinc production of 190 million to 210 million pounds, the company expects for 2018, investors of Nevsun need other catalysts to look more optimistic. Analysts are predicting a 58% growth in the stock’s market value in 2018. The average target price is set at $3.24 and the recommendation rating is 2.2 out of 5.
In my opinion, the stock needs to be affected by additional factors in order to reach this level of apprecation. Some of these factors were addressed by Peter G. Kukielski, Nevsun president and chief executive officer, in this comment:
"At Bisha, zinc and copper production are expected to increase, taking advantage of a strong base metals market. The resulting cash flow and dividend redeployment will bolster an already strong balance sheet enabling growth from Timok development and exploration."
Thanks to the acquisition of new equipment and shorter haul distances at the Bisha main pit, the main source of primary ore for 2018, Nevsun plans to increase the total material by 15% to 21.2 million tons, with which its miners will feed the mill. Here the company estimates to invest about $15 million as capex, including a $3 million portion in exploration activities.
A short-term catalyst that can revitalize Nevusn on the market is the first estimate of metal reserve that will be sourced from the prefeasibility study for the Timok development project in Serbia, if adequately promoted.
Excluding exploration activities, the company projects to advance the Copper-Gold Project at the Upper-Zone of Timok with a financial allocation of approximately $55 million.
(Disclosure: I have no positions in Nevsun Resources Ltd.)
