Reservoir Minerals goes out in glory

July 11, 2016 03:06 PM

The acquisition of Reservoir Minerals, Inc. by Nevsun Resources Ltd. has been completed, after the latter added a CA$2 cash bonus to its two-for-one share offer. 

Nevsun Resources is a cash-rich, operationally strong company, and the combination with Reservoir produces a solid mid-tier base metals company. The cash flow from its mine in Eritrea (shifting to a zinc-heavy part of the deposit) plus the potential from the developmental copper and gold project acquired from Reservoir, gives good diversification. The stock pays a decent dividend. Over the longer term, it is potentially an acquisition target in its own right. 

Reservoir shareholders received two Nevsun shares plus CA$2 for each Reservoir share. 

A cloud hangs over the party 

The great conclusion to this story is somewhat marred by the tax treatment for U.S. shareholders. Nevsun obtained an opinion indicating that the acquisition would be a taxable event on all shares received (plus the cash of course), and they filed with the IRS to that effect. Given this, most custodians are likely to report the share exchange as fully taxable, and unless a Reservoir shareholder has a particularly knowledgeable and assertive CPA, that's the way it will be. 

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