Nevsun’s Bisha gold recovery – now moving to v. high grade copper
In a presentation in London this week, Nevsun gave an update on its performance, now virtually totally recovered from its early year gold target setback and is shortly to transition to very high grade copper.
Posted: Friday , 07 Dec 2012
LONDON (Mineweb) -
When Canadian junior (or perhaps it should be reclassified as mid-tier) miner, Nevsun Resources, had to report a big hole in its predicted Eritrean gold resource back in February and was forced to virtually halve its gold production guidance for the year, its stock price, unsurprisingly, took a knock – but a far bigger one than any sensible examination of the company’s future plans would have suggested and, as a result the big fall in price was heavily overdone by the market. The market was totally fixated on Nevsun’s gold, yet the company’s future announced path was in reality as a potentially highly profitable base metals miner, with the short life gold rich cap giving it substantial early stage cashflow (even with the output fall) thus helping it finance its transition towards mining a hugely rich copper zone which will start dominating the mine’s output from mid 2013.
In an excellent presentation at the well-attended MineAfrica one-day conference in London early this week, Nevsun’s VP of Business Development and Investor Relations Scott Trebilcock, set out the company’s future path very succinctly and it has to remain one of the most successful junior – or mid-tier - miners around despite its early year setback. The group halved 2012 guidance in February to between 190,000 and 210,000 gold ounces the company but has done far better than this already, comfortably producing 267,000 ounces by the end of Q3 alone on its way, said Trebilcock, to 300,000 ounces plus this year. And, he says, the transition to mining the supergene enriched copper ore below the gold bearing oxide cap (from which the copper content has been leached out enriching the ore below) is proceeding on plan.
When one considers that many major miners are currently mining their copper from deposits running at close to 0.5%. perhaps with some byproduct credits, Nevsun’s 6.4 million tonne supergene enriched copper resource, which it will be mining for the next three years runs at 4.09% copper, with 0.67 g/tonne gold and 28 g/tonne silver. It then transitions again into its 19 million tonnes of primary sulphides grading 1.09% copper, 6.33% zinc with byproduct 0.72 g/tonne gold and 47 g/tonne silver – all from open pit mining. The economics of the project are thus very impressive indeed even though it will no longer be a primary gold miner.
The primary sulphide deposit is open at depth, thus giving it the possibility of moving underground when the pit limits have been reached, while there is great potential for additional resources close by the existing property. Eritrea, which has proved to be a mining friendly environment with virtually no corruption (almost unique for Africa) is only sparsely explored and has huge precious and base metals potential - largely in a string of VMS.deposits of which Nevsun's Bisha is the first to be exploited.
Returning to the supergene copper zone output, when Nevsun moves into this zone, planned for Q2 next year, it will be one of the highest grade open pit copper mines in the world and its margins will be exceptional. Trebilcock suggested that it will be able to produce copper at around 50 cents US per lb – compared with the current global price of around $3.60/lb (which itself is well off the red metal’s highs). The company has already been able to finance the cost of its base metals concentrator out of profits from the gold cap, and has around $400 million in cash which puts it in a great position for acquisitions given the parlous cash-strapped state of many exploration juniors at the moment – and Trebilcock did comment that Nevsun does plan to use this money without going into any detail.
Nevsun’s stock price is currently around $4/share – well up from the $2.80 it fell to after its February announcement, but still well below the $7 peak of December 2010 – and it is now paying dividends currently of 10 cents/share on an annual basis so yields 2.5%.
As the first to develop a modern mine in Eritrea, Trebilcock did comment that the company was taking a serious risk in working in what was a new mining environment for both itself and for the country, but given the supportive nature of the government, which has a 10% free carried interest as part of the agreement, but has also purchased a further 30%, it is now reaping the rewards which are looking to be substantial for both company and state.