Nevsun Resources and Reservoir Minerals combine—consolidate Timok Copper Project ownership

Nevsun Resources Ltd. and Reservoir Minerals Inc. have announced that they have entered into a definitive agreement to combine their respective companies. — Photo courtesy Nevsun

Vancouver, British Columbia – Nevsun Resources Ltd. and Reservoir Minerals Inc. have announced that they have entered into a definitive agreement to combine their respective companies. The combination creates a diversified mid-tier base metals company with a cash producing operating asset in Bisha, a high grade open pit copper-zinc mine, and 100% ownership in the upper zone of the Timok Copper Project in Serbia (“Upper Zone”), a high grade copper and gold development project. The combined company will be well funded with Nevsun’s existing strong balance sheet and operating cash flow and positioned to deliver value via Nevsun’s highly successful development team.

Under the terms of the arrangement agreement announced today, Nevsun has agreed to acquire all of the outstanding common shares, and restricted share units of Reservoir on the basis of two (2) common shares and $0.001 in cash for each Reservoir common share pursuant to a Plan of Arrangement under the British Columbia Business Corporations Act for a total value of approximately US$365 million. Based on the closing price of Nevsun common shares on April 22, 2016, the consideration represents a premium of 35% to Reservoir’s 20-day volume weighted average price (VWAP). The transaction will allow both Reservoir and Nevsun shareholders to participate in the ongoing cash flow generation of the Bisha mine, the growth potential of the Timok Copper Project, and significant exploration potential at both Bisha and Timok. Upon completion of the arrangement, current Nevsun shareholders will own approximately 67% of the combined company and current Reservoir shareholders will own the remaining 33%.

Concurrently, the two companies have also entered into a funding transaction comprised of a private placement for 19.99% of Reservoir’s outstanding common shares and a loan transaction. Nevsun has subscribed for 12,174,928 common shares of Reservoir at a price of C$9.40 per share, for a total subscription price of CAD$114,444,323 (US$90,296,571), increasing Reservoir’s total shares outstanding to 60,905,093, and provided an unsecured cash loan of US$44,703,429 to Reservoir. The combined funding transaction provides US$135,000,000 in financing to enable Global Reservoir Mineral (BVI) Inc. (“Global Reservoir”), a wholly owned subsidiary of Reservoir to exercise its right of first offer (“ROFO”) in respect of its joint venture with Freeport International Holdings (BVI) Inc. (“Freeport”) in the Timok Copper Project. Upon Global Reservoir closing the exercise of the ROFO, Global Reservoir will have a 100% interest in the Upper Zone and a 60.4% interest in the lower zone of the Timok Copper Project (“Lower Zone”) under two joint venture agreements with Freeport and will become the operator of the project. Freeport may 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%. Upon completion of the combination, Global Reservoir will be a wholly owned subsidiary of the combined company.

• Strategic US$1.1 billion combination creates a diversified mid-tier base metals company.
• Transaction consolidates a 100% ownership of the high grade upper zone of the Timok Copper Project.
• Timok development is underpinned by Nevsun's strong balance sheet and operating cash flow.
• Combined company has significant exploration exposure in two prolific mining districts.
• Significant benefits to both Nevsun and Reservoir shareholders.

“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 Mr. Cliff Davis, Nevsun’s President and Chief Executive Officer. “The Upper Zone, with its high grade copper-gold resource and nearby infrastructure in a mining friendly jurisdiction, adds significant growth to Nevsun. 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.”

“This is an excellent outcome for Reservoir and its shareholders, delivering premium value, and most importantly will expedite the development of the Timok Copper-Gold Project to the benefit of all stakeholders,” said Dr. Simon Ingram, Reservoir’s President and Chief Executive Officer. “Reservoir’s Board of Directors determined that this transaction is the best funding alternative for our shareholders to fund the Timok ROFO. Nevsun is 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.”

• Expedited Development of Timok. The Timok Project will be expedited to production for the benefit of all stakeholders.
• Premium value. Based on the closing price of Nevsun common shares on April 22, 2016, the consideration represents a premium of 124% over the trading price of Reservoir shares on March 2, 2016, the day prior to receiving notification of the ROFO and a 35% premium to the 20 day VWAP.
• Increases long-term exposure in Timok. Through Nevsun's funding of Global Reservoir's ROFO, Global Reservoir will have a 100% stake and operatorship of the Upper Zone.
• Strong balance sheet and cash generation to fund Timok's growth potential. The transaction offers shareholders exposure to cash generated from the Bisha mine, a high grade mine which generated US$120 million of operating cash flow in 2015, and pro-forma US$300 million in cash to fund development.
• Strong operating team to advance the Timok project. Nevsun's management team has demonstrated the ability to develop and bring a mining project into production on time and under budget. Nevsun has invested over US$430 million in a three-phase development of the Bisha mine, all on-time and under budget.
• Increased capital market profile. Nevsun's shares are liquid with a strong institutional shareholder base. Completion of the arrangement should result in further increases in trading liquidity and a broader depth of major institutional shareholders.

• On strategy for diversification. ­The transaction delivers on the company's stated goal to diversify geographically through a strategic transaction.
• Attractive deployment of capital. The transaction puts Nevsun's cash balance and ongoing cash flow generation capacity to use in an attractive development project with a high projected return.
• High quality asset. The Upper Zone, a high grade copper-gold development project, is in a historic mining jurisdiction with excellent local and regional infrastructure.
• Increased growth potential. The Upper Zone significantly increases Nevsun's growth profile. In addition, the Lower Zone, a joint venture with Freeport, represents further upside in the potential large-tonnage porphyry style mineralization.
• Strategic partner. The combined company forms a strategic long-term partnership with Freeport, a leading copper and gold producer.

The Timok project represents four exploration permits in the highly prospective Timok Magmatic Complex in eastern Serbia, near the world class Bor and Majdenpek mines. The Timok project centres on the Cukaru Peki deposit, which includes the Upper Zone (characterized by massive and semi-massive sulphide mineralization) and the Lower Zone (characterized by porphyry-style mineralization). Refer to Reservoir’s April 19, 2016 news release announcing the results of the Preliminary Economic Assessment on the Timok JV Project and Cukaru Peki deposit. The Timok project is a joint venture with Freeport governed by a joint venture shareholders agreement.

Freeport is currently the Timok Project operator and is fully funding the project. Following exercise of the ROFO, Global Reservoir will be appointed the operator until completion of the combination and until the occurrence of certain events, will advance the development of both the Upper Zone and the Lower Zone in accordance with approved budgets and work programs. Global Reservoir will have the sole right to propose budgets and work programs relating to the Upper Zone and for certain agreed Lower Zone work, and Freeport will have the sole right to propose budgets and work programs relating to the Lower Zone, subject to specified exceptions. Until the delivery of a feasibility study, Global Reservoir will fund 100% of the Upper Zone development costs, as well as US$20 million of agreed Lower Zone work. Global Reservoir and Freeport will fund 28% and 72% of all other Lower Zone development costs, respectively.