Nevsun
Nevsun Resources Ltd. is currently focused on advancing its precious and base metal-rich Bisha Project in Eritrea.
Nevsun completed the final feasibility study and a Social & Environmental Impact Assessment (SEIA) as well as a draft Environmental Management Plan for the Bisha Project in Q4 2006. These documents were prepared on behalf of the Company by AMEC Americas for the purpose of licensing the Bisha Project. Subsequently, in January 2008 a mining license was issued to the company.
Nevsun Resources – Vital Statistics
Market: TSX: NSU, AMEX: NSU
Number of shares in issue: 127.9 million
Recent Share Price: C$1.55
Market Cap: C$198.2 million
1 Year trading range: C$2.94 – C$0.80
Nevsun Resources – An emerging mining giant in East Africa
Located in East Africa, bordering Ethiopia and Sudan, Eritrea is ready to carve out a place for itself in the African gold landscape, which is dominated by countries such as South Africa and Ghana. Unbeknownst to much of the world there is a large precious and base metal rich volcanogenic massive sulphide (VMS) deposit in western Eritrea (Bisha Deposit). Toronto and AMEX listed Nevsun Resources (TSX/AMEX: NSU) discovered Bisha in 2002 and together with the Government of Eritrea has already started building a world class mine. Eritrea should hold many more Bisha type opportunities.
Set within its 150 square kilometres of licenses Nevsun’s Bisha project has made considerable progress. The Company completed a feasibility study and Social & Environmental Impact Assessment in Q4 2006. Subsequently, Nevsun negotiated a shareholder agreement with the Eritrean Government in October 2007, concluded the mining agreement for Bisha in December 2007 and was awarded a mining license in January 2008. Efforts are currently underway to prepare for debt financing the project with an aim to commence production in 2010. The longest lead capital items, the grinding mills, have already been purchased and are scheduled to be installed by December 2009.
The project has 27.2 million tonnes of measured and indicated resource and 11.7 million tonnes of inferred resource (43-101 compliant). Reserves within the Bisha pit which will be mined over the first 10 years of operation amount to slightly over 20 million tonnes. The feasibility open pit is 240m deep but the Bisha deposit is open to depths beyond 400 meters. Two additional satellite, massive sulphide deposits of some significance have already been drilled and six prime exploration targets are ready for drilling on the Bisha property. As Nevsun continues its development and exploration activities in its entire land package this resource estimate is expected to increase several folds.
The Bisha project is not an obscure project with marginal grades and a less than inspiring deposit size. With a 30 meter thick surface oxide gold cap averaging 8g/t gold overlying a 4.4% copper supergene sulphide deposit, itself overlying a robust long life zinc/copper primary sulphide deposit, Bisha would rank high on any resource investor’s agenda. Based on an open pit mine modelled at 2 Mt/year of ore output, the feasibility report estimates a production of 1.06 million oz gold, 747 million lb copper, 1,092 million lb zinc and 10 million oz silver over a 10 year mine life.
The sequence of mining produces approximately 450,000 oz gold and 750,000 oz silver for each of the first two years followed by approximately 170 million lb copper for each of the next three years. Following that the zinc/copper operations will produce each year approximately 230 million lb zinc and 40 million lb copper plus precious metal credits.
So how do these numbers boil down to dollars and cents? Based on ultra conservative assumptions in the feasibility, such as Au $435/oz Cu $1.44/lb prior to 2015 and $1.28 thereafter, Zn $0.57/lb, Ag $6.50/oz, the Bisha project generates a return of 26%, a cumulative cash flow of $356 million and payback of 2.56 years. If these assumptions were changed to more realistic metal prices such as Au $800/oz, Cu $3.40/lb, Zn $1.25/lb, Ag$14/oz, viability statistics would improve to an impressive 70% rate of return, $1.86 billion cumulative cash flow, $897 million NPV and a less than one year pay back period.
High profitability, cash flow and valuations can be attributable to high grades, near surface deposit and consequent low operating and capital costs. For instance, Bisha production costs are estimated in the feasibility study to be just $150/oz for gold (after silver credits) in years 1 and 2, $0.27/lb for copper in years 3-5, and $0.06/lb for zinc in years 6-10. These costs are currently being updated by the Company’s EPCM contractor to reflect rises in equipment and mining consumables costs since Q4 2006 when the feasibility was completed.
As the Bisha deposit is not the world’s best known VMS deposit perhaps it is appropriate to draw a parallel to a more familiar deposit environment in Canada. Suggested models for the Bisha deposit include felsic dominated bimodal-siliclastic VMS and Noranda/Kuroko type deposits and a loose comparison can be made to the Matagami VMS district in Quebec. The Matagami VMS district is the home for several well-known deposits such as the Matagami Lake, Bell Allard, Ile Dieu and Garon Lake deposits. Bisha in many respects is considered to have similar geological characteristics and is considered to be among the world’s top 2% VMS deposits by size.
At end of March 2008 the Company had approximately US$40 million in the bank. The Company entered into an agreement for the sale of all of its interests in properties in Mali, including the Tabakoto Mine, the Segala property and exploration properties. Avion Resources Corp. (AVR:TSXV) has agreed to pay Nevsun $20 million plus a 1% net smelter return royalty on future production, subject to normal regulatory approvals and financing. Closing is scheduled for on or before May 23, 2008. Avion has agreed to a US$1 million break fee if the transaction does not close on schedule. The additional $20 million will go towards Nevsun’s share of the development costs for its Bisha project. The sale serves both Nevsun and Avion well, leaving the former to focus on the Bisha development.
Meanwhile, Nevsun has discovered two additional mineralised prospect areas within the Bisha license area. These two areas, named North West zone and Harena, are expected to increase the Company’s resources. Even though there are clear indications of mineralisation, Nevsun is yet to fully evaluate the zones and therefore has not included them in their near term development plans.
Unwelcome government interventions, disruptions due to rebellions and generally opaque regulatory environments have tainted the African mining space for sometime. Recent controversies include contract reviews by the Democratic Republic of Congo (DRC), Excess Profit Taxes by Algeria on oil contracts, rebels in the Niger Delta and the bad press over blood diamonds. In contrast to many other jurisdictions, however, Eritrea is widely considered to be mining friendly with the government playing a keen role to encourage foreign investments.
In fact, the Eritrean government is a partner in Nevsun’s Bisha project. In October 2007, the government confirmed its strong support for the Bisha Project and for the development of a new and strong mining sector in Eritrea through its agreement to purchase a 30% paid participating interest through the Eritrean National Mining Company (ENAMCO). This is in addition to its 10% free participating interest provided by the country’s mining legislation, resulting in a total participation of 40%. ENAMCO will pay the full fair value for its share of the project determined by an independent valuator at the time of Bisha’s first gold shipment. ENAMCO is co-funding the project alongside Nevsun.
Summing up
While high metal prices have made even marginal projects with low grades viable, the deposit size and grades would prove to be important for sustained earnings and valuations. As established gold mining destinations such as South Africa and Australia face depleting deposits and falling gold outputs, emerging gold producing countries assume considerable importance. This makes companies with exposure to such places attractive investment opportunities. With operations in mining friendly Eritrea and an advanced stage project in Bisha, Nevsun beckons mining investors. Nevsun still carries a full 90% of the value of Bisha - cash for 30% of project value to be paid on first gold shipment plus 60% contributing interest.
Other Nevsun news
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12/08/08 Nevsun Resources confident of financing Bisha Gold-Copper-Zinc-Silver Project
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19/05/08 Nevsun says Bisha Project "financially robust"