Shift In Nevsun Resources (USA) (NSU) Commodity Could Mean Opportunity

Look to Other Miners for Market Knowledge

Nevsun is a bit different versus other miners since it has one mine that produces three minerals but at different points in time.   Comparison to gold miners such as Barrick Bold Corp (ABX) or smaller producers like Banro Corp (BAA) are no longer a good fit given the shift to copper, followed by the shift to zinc production. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO) both are both copper producers and act as a good gauge for that market.  FCX has a lower PE at 7.4, but return on assets of 10.6 versus NSU’s 44%.  SCCO is in the middle of the two with a PE of 14.4 and an ROA of 23%.  In terms of market cap, FCX and SCCO are much larger each valued around $ 34 billion.

Conclusion

Nevsun and mining companies with few assets and no acquisitions trade off of estimate net asset value (NAV) discounted for the risk level and time.  Nevsun has cash and equivalents of $1.83 per share and the remainder of the valuation is the value of the assets.  If prices of copper, gold, or zinc push higher or cash mining cost is lower than expected, the value of Nevsun increases.  Buying the shares at this point assumes management can execute on the production shift in 2013 and increases efficiency at the mine.

The article Shift In Commodity Could Mean Opportunity originally appeared on Fool.com and is written by Mike Thiessen.

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