Nevsun deals with human rights lawsuit, takeover rumours

VANCOUVER — Nevsun Resources (TSX: NSU; NYSE-MKT: NSU) is facing a lawsuit in the B.C. Supreme Court alleging it was complicit in the use of forced labour by local contractors at its Bisha copper-gold operation in Eritrea in East Africa. News of the legal trouble hit just hours after the company dealt with rumours of an unsolicited takeover offer from a private equity group backed by Qatar’s sovereign wealth fund.

On Nov. 20 a Vancouver-based law firm filed a notice of civil claim on behalf of three Eritrean refugees who allege they were forced to work at Bisha under threats of torture. The document indicates that the plaintiffs — Gize Yebeyo Araya, Kesete Tekle Fshazion and Mihretab Yemane Tekle — worked at the mine at various times from 1997 to 2012.

The claim seeks damages on behalf of all Eritrean nationals who were allegedly conscripted to work at Bisha from September 2008 to the present under “cruel, inhuman and degrading treatment, as well as harsh conditions including long hours, malnutrition and forced confinement for little pay.”

None of the allegations have been proven in court, and the claim does not include a cash value for damages.

This isn’t the first time Nevsun has run into problems doing business in Eritrea. The country is widely viewed as a repressive, one-party state, and its government is the target of numerous international sanctions. Nevsun holds a 60% stake in Bisha, while the national government holds the rest through the state-owned Eritrean National Mining Corp.

In order to move forward with mine development Nevsun agreed to engage government contractors, including Segen Construction and Mereb Construction. In January 2014 U.S.-based Human Rights Watch accused Segen of employing slave labour at the site.

The civil claim document indicates that the two construction outfits are part of Eriteria’s National Service Program, which forces conscripts to “provide labour to various companies owned by senior military and government officials.”

Nevsun had conducted an investigation on slave labour at Bisha in 2009, and reportedly received a written guarantee from Segen that it would not use conscripts at the mine. The company also imposed certain procedures to safeguard against forced labour, including inspecting national service discharge documentation for all Eritrean workers.

Nevsun responded to the civil suit on Nov. 21 and stated that the allegations are unfounded. The company noted it had commissioned an independent human rights impact assessment earlier this year.

“Based on various company-led and third-party audits, the Bisha Mine has adhered at all times to international standards of governance, workplace conditions and health and safety,” CEO Cliff Davis noted in the release.  “We are committed to ensuring that [the mine] is managed in a safe and responsible manner that respects the interests of the local communities, workers, national governance, stakeholders and the natural environment.”

Meanwhile, Nevsun is also dealing with an unconfirmed report from Bloomberg News that a Qatar-backed private equity fund called QKR is contemplating a US$1-billion bid for the company. Nevsun shares are up 23%, or 88¢ since early November, en route to a $4.64 close at press time, which gives the company a $939-million market valuation.

QKR is headed by former JPMorgan Chase banker Lloyd Pengilly, and boasts financial backing out of Qatar and from Poland’s richest man, Jan Kulczyk. The private mining fund picked up AngloGold Ashanti’s (NYSE: AU; ASX: AGG) Navachab mine for US$110 million in February.

Nevsun said in a statement that it was not aware of any bid for the company, but it “has recently received, from various parties, expressions of interest on a potential corporate transaction.”

During the third quarter Nevsun announced a 19% jump in copper production to 56.4 million lb., which increased cash from operations to US$84 million on the back of strong copper grades and low cash costs of US$1.07 per lb. The company also reported US$400-million cash-on-hand to finish the quarter.