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A truck arrives to ferry excavated gold, copper and zinc ore from the main mining pit at the Bisha Mining Share Co., which is operated by Nevsun Resources, in Eritrea on Feb. 17, 2016.Thomas Mukoya/Reuters

Nevsun Resources Ltd. is urging its shareholders to reject Lundin Mining Corp.’s $1.4-billion takeover offer, claiming it is too low and arguing that superior bids are likely to surface soon, now that the company has started a strategic review.

Late last month, Toronto-based Lundin took its $4.75 formal all-cash offer directly to Nevsun shareholders, after a number of its earlier informal proposals were rebuffed.

“They’re being opportunistic,” Peter Kukielski, chief executive of Nevsun, said in an interview.

“They know what this company is worth and that’s why we fully expect that superior offers will emerge."

He declined to specify how much he believes Nevsun is ultimately worth, but said its value is “far in excess of what Lundin has offered.”

Lundin’s interest in Nevsun was first made public in May, when the miner tabled a cash and stock proposal worth $5 a share, in conjunction with a junior partner, Euro Sun Mining Inc. At the time, Vancouver-based Nevsun said it wanted a cash-only offer and no involvement from Euro Sun. Lundin eventually ditched Euro Sun and came back with an all-cash offer worth $4.75, which was still rejected on valuation grounds.

“Although we are disappointed that the Nevsun board of directors has rejected our offer, we are pleased to see the board has now begun a strategic review process to consider and evaluate a sale of the entire company,” Marie Inkster, chief financial officer and incoming CEO of Lundin, said in an e-mailed statement to The Globe and Mail.

“We trust that Nevsun will allow its shareholders a full opportunity to evaluate Lundin Mining’s offer, and any other offers for the company as a whole, without disruption of a pre-emptive minority strategic investment or other dilutive transaction.”

Shares in Nevsun rose 0.4 per cent to close at $4.95 a share on Thursday on the Toronto Stock Exchange, 20 cents above Lundin’s offer, which indicates investors are expecting a higher bid to emerge.

Since March, Nevsun has held talks with various companies about raising money to finance its high-grade copper-gold Timok project in Serbia. Mr. Kukielski said that during those talks, “several" parties expressed an interest in buying Nevsun outright and three parties offered to take a 19.9-per-cent stake, at a share price higher than what Lundin is offering.

Lundin’s offer, which is about 25 per cent above the price Nevsun traded at before it publicly expressed an interest, has helped drive Nevsun’s share price to a three-year high. Nevsun is the top-performing stock in the 53-member S&P/TSX materials sector this year with a year-to-date return of 62 per cent.

While some analysts, including Sam Crittenden with RBC Dominion Securities Inc., agree that Lundin’s offer is a little light compared with similar recent takeover valuations in the base metals sector, Nevsun might not have leverage to ask for a higher price.

“In the absence of another bidder, this could be a fair price for Nevsun shareholders,” Mr. Crittenden wrote in a recent note to clients.

Lundin has been vocal about wanting to do a major takeover. The company has had a big cash balance since selling $1.2-billion worth of copper assets in 2016. Lundin ended its most recent quarter with US$1.6-billion in cash.

While Nevsun has a copper-zinc mine in Eritrea in northeastern Africa, its Timok project is its most-prized asset.

According to RBC’s Mr. Crittenden, the economics of developing Timok are attractive, with a projected return of 52 per cent at US$3-a-pound copper and annual production of 80,000 tonnes "which would fit well within Lundin’s portfolio,” he wrote

Lundin has tried and failed to acquire Timok on a number of occasions, bidding US$265-million in 2016 to buy it from then-owner Freeport-McMoRan Inc.

Lundin’s offer is open to Nevsun shareholders until Nov. 9 and it needs approval from two-thirds of shareholders to go through.

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