Nevsun Resources: Significantly Undervalued Mining Corporation
Jul. 19, 2017 2:55 PM ET|
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About: Nevsun Resources Ltd. (NSU), Includes: FCX
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Growth, long-term horizon, Deep Value, momentum
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Summary
Nevsun Resources has had an incredibly difficult time over the past year. Despite this, the company continues to generate significant cash flow while exploring its Timok Project.
Commodity prices are recovering after the devastating 2011 crash. A lack of major projects and growing worldwide demand should continue to support prices.
Nevsun Resources' Timok Project has significant growth potential. The project's indicated resources alone have the potential to provide Nevsun Resources with a more than doubling in annual profits.
Nevsun Resources (NYSEMKT: NSU) is a mining company with a market cap of $0.7 billion that has had a difficult time recently. However, as we will see throughout this article, strong market fundamentals, along with the company’s impressive distribution of assets and growth potential from its Timok Project, make the company a strong investment at the present time.
Copper and Zinc Market Overview
Copper and zinc markets have both had an incredibly difficult time since the start of the commodity crisis in 2011.
Copper prices dropped from a peak of more than $4 per pound in 2011 to less than $2 per pound at year-end 2015. However, starting in late-2016, the market’s copper price began to recover to present prices of more than $2.5 per pound. Given that a significant portion of Nevsun Resources’ income comes from the 10-20 million pounds of annual copper it produces at roughly $1 per pound, a 50% increase in copper prices means an additional $7.5 million in profits annually, a lot for $0.7 billion company.
On top of that, scrap, or recycled copper, a major source of new production, has decreased in 1Q 2017. This can be attributed to more efficient copper usage in modern electronics which is harder to recycle and reuse. This, combined with continued strong demand in China and increasing demand in Europe / North America, means that prices should continue to recover.
This recovery in copper prices will continue to support Nevsun Resources’ profits.
Zinc Market Tightening - Wood Mac
Along with a recovery in copper markets, the zinc markets have begun to tighten which has supported prices recently. Zinc prices also have been increasing rapidly from less than $1 per pound to more than $1.2 per pound recently as the markets have tightened. Given that Nevsun Resources anticipates 2017 production of 200-230 million pounds of Zinc, that should provide an additional $40 million or so of revenue for Nevsun Resources.
Zinc Market Balance - Mining.com
More importantly, both copper and zinc prices can be expected to continue increasing. Copper prices can be expected to continue increasing as a result of continued modest demand growth and the depletion of existing mines. Zinc demand is anticipated to continue increasing rapidly over the past decade while existing production and approved projects are declining. That means that there is a substantial zinc supply gap. That should support zinc prices and Nevsun Resources’ long-term profits.
As we can see, zinc and copper markets remain strong and should support the long-term profits of Nevsun Resources.
Nevsun Resources' Impressive Asset Distribution
Now that we have discussed the zinc and the copper markets, it is now time to continue discussing Nevsun Resources’ impressive distribution of assets, the next part of my thesis for Nevsun Resources.