Zijin Mining falls on concerns it is paying too much in US$1.39 billion Canadian takeover

Shares of Chinese mining company Zijin Mining fell as much as 4.6 per cent on Thursday on concerns that it may be paying too much with its C$1.8 billion (US$1.39 billion) offer for Vancouver-based Nevsun Resources.

Zijin’s offer of C$6 a share, its biggest overseas acquisition since it went public in Hong Kong in 2003, is at a 26 per cent premium and trumps a rival bid by Toronto-based Lundin Mining of C$4.75 per share. The acquisition, which is subject to a formal agreement, is not big enough to require Zijin shareholders’ approval.

Nevsun owns 60 per cent of the Bisha copper and zinc mine in Eritrea, east Africa, and 60 to 100 per cent interests in two sections of the Timok copper and gold mine in Serbia, in eastern Europe.

“Zijin’s 26 per cent offer premium is high relative to the around 10 per cent premium seen in most deals worth US$1 billion and above,” said Argonaut Securities analyst Helen Lau. “It doesn’t leave much room for earnings per share accretion for shareholders.”

The production cost of the Eritrea project is relatively high, while the Serbia exploration asset’s potential valuation of US$1.8 billion – based on a copper price of US$3.15 per pound according to Zijin’s filing – is too optimistic, she said.

Bisha produced 95,000 tonnes of zinc last year, incurring total cash-based production costs of 97 US cents per pound, and 8,000 tonnes of copper at cash costs of US$1.72 a pound.