JOHANNESBURG (miningweekly.com) – Dual-listed base metals miner Nevsun Resources has agreed to acquire TSX-listed Reservoir Minerals for about $365-million to create a new, diversified midtier base metals mining company.

The new company would have a cash-producing operating asset in Bisha, Eritrea – a high-grade openpit copper-zinc mine, and 100% ownership of the upper zone of the Timok copper project in Serbia – a high-grade copper and gold development project.   

The transaction would enable Nevsun and Reservoir shareholders to participate in the Bisha mine’s ongoing cash flow generation and to take advantage of the Timok copper project’s growth potential, as well as the significant exploration potential at Bisha and Timok.  

On completion of the arrangement, Nevsun’s current shareholders would own about 67% of the combined company while Reservoir shareholders would own the remaining 33%.

Under the terms of the definitive agreement, announced Sunday, Nevsun agreed to acquire all of Reservoir’s outstanding common shares, as well as its restricted share units, on the basis of two common shares and $0.001 in cash for each Reservoir common share.

“This transaction diversifies Nevsun’s asset base, putting our cash balance to work in a strategic and high-return investment that will deliver significant value to our shareholders,” said Nevsun president and CEO Cliff Davis.

“The upper zone, with its high-grade copper-gold resource and nearby infrastructure in a mining friendly jurisdiction, adds significant growth to Nevsun and, with ongoing cash flow generation from our Bisha mine, we have the financial strength and proven technical ability to move the Timok project forward in a timely manner. We look forward to working with all stakeholders and Timok’s highly capable partner in bringing the project into production.”

Reservoir president and CEO Dr Simon Ingram also highlighted the agreement as a positive move for Reservoir and its shareholders, as it would, among other things, expedite the development of the Timok copper-gold project, to the benefit of all stakeholders.

Meanwhile, Nevsun and Reservoir have also entered into a funding transaction comprising a private placement for 19.99% of Reservoir’s outstanding common shares, as well as a loan transaction. Nevsun subscribed for about 12-million of Reservoir’s common shares at C$9.40 a share, for a total subscription price of about $90-million, increasing Reservoir’s total outstanding shares to about 60-million. The transaction also provided an unsecured cash loan of about $44-million to Reservoir. 

The combined funding transaction provided Reservoir with about $135-million in financing to enable Global Reservoir Minerals, a wholly owned subsidiary of Reservoir, to exercise its right of first offer in the Timok copper project, in respect of its joint venture (JV) with Freeport International Holdings.

Once Global Reservoir closed the exercise of the right of first offer, it would have a 100% interest in the upper zone of Timok and a 60.4% interest in the lower zone – under two JV agreements with Freeport. It would also become the operator of the project.

Freeport could increase its ownership in the lower zone to 54% under the terms of the original Timok JV agreement, with Global Reservoir holding the remaining 46%.

On completion of the combination, Global Reservoir would be a wholly owned subsidiary of the combined company.

“Reservoir’s board of directors have determined that this transaction is the best funding alternative for our shareholders to fund the Timok right of first offer,” said Ingram, adding that Nevsun was a proven mine developer with the technical experience and strong balance sheet to enable Timok development.

“Reservoir shareholders retain exposure to the development potential of Timok and also gain exposure to the operating Bisha mine’s cash flow and additional exploration potential.  The combined company will be in a strong position to efficiently advance the Timok project to production,” he concluded.