202 (27.08.18)



In Belgrade, Copper Buyers Gather

With two large copper assets on the block for sale, mining executives from at least seven different countries are dashing round Serbia’s capital looking for an IMF-approved deal. “If you don't have a good relationship with the smelter, you're going to die in Serbia.”

In September 2016, two executives from one of the world's largest copper groups and a banker who had flown in from Switzerland sat down for dinner at Boudin Blanc, a French restaurant in London. They ordered wine and snails and spoke briefly about fishing and Saddam Hussein. Then one pitched the idea of creating a large new copper company.
    The IMF, he said, was putting pressure on the government of Serbia to privatise assets. It had tried to sell its state-owned smelter, RTB Bor, but an opaque ownership structure, an unfriendly site manager and waste ponds that drain into the Danube had all put bidders off.
    Bor came with its own copper mine, once Europe's biggest, but grades had fallen and it was now almost as unpalatable as the smelter. 6km up the road, however, was Timok, a huge new copper-gold discovery that had just been bought for $440m by Nevsun, a Vancouver-based company that was trying to reinvent itself, having got caught-up in political difficulties in Eritrea.
    Buy Bor for a nominal dinar, the reasoning went, and gain a stranglehold over Timok. The new mine would be high in arsenic, so its only alternatives would be to build a new smelter, pay traders via a big discount to shift the product, or ship it to China for treatment.
    Two years later and executives from at least seven countries have been ducking in and out of taxis in Serbia's capital Belgrade, liaising with the President's office and chasing the same two assets: Bor is being auctioned off, attracting bids from China

and Russia, whilst Swedish mining billionaire Lukas Lundin has launched a $1.4bn hostile bid for Nevsun that has so far been brushed off. Nevsun, meanwhile, has continued its overhaul, appointing a new technically-minded management and board to shove Timok forward.
    Everyone with a nose in Serbia offers a different story. Nevsun can build Timok without relying on the smelter, which needs extra tonnage to pay down its own debt, one mining executive says. “They would love to get some of the product.” Others think the boot is on the other foot. “If you don't have a good relationship with the smelter, you're going to die in Serbia.”
    Either way, with copper assets scarce, evermore players are being drawn to Serbia's assets. Australian gold group Newcrest declined to respond to questions on whether it is exploring a current deal, but looked closely at Timok and weighed a bid in 2016, before it was snapped-up by Nevsun. It has since been scouting-out other transactions, signing agreements with three copper companies in South America, El Cobre, SolGold and Mirasol, but is yet to put its foot on a big new asset.
    There is also Zijin Mining, which is circling Bor, according to Serbian tabloid Vecernje Novosti. Zijin, other bidders assume, has the backing of the government of China, which sees Serbia as a foothold into the European market, where China is otherwise locked out. Bor will “go to the Chinese”, says one bidder who believes his side is already out of the race.
    Fragmented offers and a shared

ownership structure could be fitting for Timok. Capex is provisionally pegged at $5bn but could easily go to $6bn or $7bn, according to those who have worked on the project.
    The value of the copper in the ground could also swell. Bor's geology includes 26 high-grade copper bubbles that have been mined over the last century. Timok looks geologically similar, but was only hit on by drilling in 2012 and only one high-grade bubble has so far been found. It is an “area play”, far from complete, says a source involved in the initial discovery. “There'll be more of these bubbles,” another executive says.
    The geology may be open-ended, but the corporate battling is “a bit of a mess”, says one party in the thick of the overlapping rumours and bids. It is “Serbia smelter sweepstakes,” one broker says. To make complexities even worse, Nevsun could block any takeover by selling 19 per cent of the company to Newcrest or Zijin. Its shares would drop from nearly five to three dollars, where it traded before Lundin's interest first emerged. But Nevsun's new management would be given time to go through Timok's pockets of value.
    “Promote and put a company up for sale, that's not we're they're looking to do,” says a source working with Nevsun. That said, the company's bosses, who are based in Vancouver and have ambitions to pick-up other assets, spend very little time in Belgrade. “If anyone shows up tomorrow and offers ten bucks a share, they'd have to take it.”



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