Focus: Eritrea 'poison pill' complicates miner Lundin's aspirations -sources

Euro Sun Mining

17/05/2018 17:45

By Nicole Mordant and Susan Taylor
    VANCOUVER/TORONTO, May 17 (Reuters) - The weak human rights
record of one of Africa's poorest countries is coming between
Lundin Mining Corp  LUN.TO  and its pursuit of a prized European
copper and gold asset.
    Cash-rich Lundin's latest run at fellow Canadian miner
Nevsun Resources Ltd  NSU.TO  is designed to bag the Timok
project in Serbia, but it had to bring on a partner to pick up
Nevsun's Bisha mine in Eritrea.
    That is because Lundin Mining's board of directors, chaired
by billionaire resources tycoon Lukas Lundin, refuses to invest
in Eritrea, according to four people familiar with, but not able
to speak publicly on, the matter.
    They will not own the Eritrean mine "for even one second,"
one of the people said. That stance is not necessarily a deal
breaker, said an investor who declined to be named.
    Lundin Mining's biggest shareholder is a private investment
company owned by a Lundin family trust, with a near 13-percent
stake, Thomson Reuters data shows.   
    Nevsun, Lundin and partner Euro Sun Mining Inc  ESM.TO , a
tiny mine developer whose stock several Nevsun shareholders are
not keen to own, declined to comment.
    Last week, Lundin Mining disclosed that it partnered with
Euro Sun on a C$1.5 billion ($1.17 billion) cash and stock
proposal to buy Nevsun. Under that plan, Lundin would own the
European assets of Nevsun, including Timok, and Euro Sun would
own the rest of Nevsun, including the Bisha mine in Eritrea. 
    Nevsun rejected the "inadequate" proposal, which is not a
formal bid.  urn:newsml:reuters.com:*:nGNX6SR2dW
    Eritrea's national service program was likened "to slavery
in its effects" by the United Nations in 2015, an allegation the
government rejects. Ruled by a former Marxist guerrilla leader
since its independence from Ethiopia, Eritrea sees conscription
as crucial to its security.
    In a 2014 lawsuit, Eritreans allege they were forced to work
at Nevsun's Bisha mine between 2008 and 2012. Nevsun, which
appealed to Canada's Supreme Court in January to throw out the
case, has said its investment in Eritrea brings social and
economic benefits.  urn:newsml:reuters.com:*:nL2N1PL1KS
    Lundin Mining belongs to the Swedish-Canadian Lundin
family's global empire of copper, diamond, gold and oil
companies, which has previously invested in such higher-risk
jurisdictions as the Democratic Republic of Congo.
    
    'CAUTIOUS'
    The family has become more cautious, the people said, with
an ongoing investigation into allegations that Stockholm-listed
Lundin Petroleum  LUPE.ST  was complicit in crimes against
international humanitarian law in Sudan between 1997 and 2003.
Lundin Petroleum denies any wrongdoing.
    In January, police searched company offices in Stockholm and
Geneva and the Lundin family office in Geneva. No charges have
been laid in the investigation, which began in 2010. 
    "Lukas is highly sensitive to this," a second person said. 
    Several sizeable Nevsun shareholders are concerned about
Lundin's tie-up with Euro Sun, a potential hurdle to any future
deal. Euro Sun has no operations and its core asset is an
undeveloped Romanian gold property. 
    Euro Sun "is not exactly a piece of paper that I am looking
forward to holding for a long time," said Nevsun shareholder
Adrian Day, president of Adrian Day Asset Management. 
    A better partner would have been a Chinese miner, which tend
to have bigger risk appetites, with state backing for a cash
bid, said Rick Rule, CEO of Sprott U.S. Holdings, a unit of
Nevsun's eighth-largest shareholder, Sprott Inc.
    Lundin Mining has been trying to acquire the high-grade
Timok property for two years to boost production. Its proposal
with Euro Sun is the fourth advance that Nevsun has rejected
this year, but the first to include the Eritrean mine.
 urn:newsml:reuters.com:*:nGNX4Xj7bn
    Lifted by hopes of a "white knight" bidder, Nevsun stock
neared C$5 a share on the Lundin-Euro Sun proposal last week,
but by Thursday had deflated to C$4.45.
    "For many companies out there, Bisha is the poison pill,"
said Filipe Martins, analyst at Nevsun's second-biggest
shareholder, M&G Investment, which has called the Lundin-Euro
Sun proposal "pretty fair".  urn:newsml:reuters.com:*:nL1N1SF0TG
($1 = 1.2778 Canadian dollars)

 (Reporting by Susan Taylor in Toronto and Nicole Mordant in
Vancouver; Additional reporting by John Tilak in Toronto.
Editing by Susan Thomas)
 ((susan.taylor1@thomsonreuters.com; +1 416 941 8083; Reuters
Messaging: susan.taylor1.thomsonreuters.com@reuters.net))