By Stephan Bogner,
Yesterday the 5-cent “eligible dividend” paying Nevsun Resources Ltd. (TSX/AMEX: NSU) published production results of the first quarter 2012 from its Bisha Mine in Eritrea, East Africa.
In the first 3 months of 2012, a total of 82,000 ounces were mined and sold representing $131 million (at a gold price of $1,600).
For 2012, a total production of around 200,000 ounces is expected representing $320 million (at a gold price of $1,600), whereas Nevsun owns 60% of Bisha and the Government of Eritrea the remainder. Thus, with a current market capitalization of $695 million, Nevsun is valued at only 3.6 times its anticipated 2012 gold sales stake ($192 million) – which we consider undervalued, especially with higher gold prices during 2012.
With cash costs between $264 and $314 per ounce during 2011, Bisha is one of the lowest cost gold mines in the world making Nevsun one of the most profitable resource companies around these days. Since commercial production started in February 2011, the Bisha deposit has turned into one of the highest graded open pits in the world.
As per the latest official reserve calculations (March 2011), the proven and probable reserves stand at 28 million tons of ore averaging 1.8 g/t gold. Due to Bisha being a VMS-deposit, these current reserves additionally host on average 39 g/t silver, 1.6% copper and 3.2% zinc. In 2011, some 34,000 meters were drilled to mainly expand the mineable deposit, whereas the new reserve calculations are expected to be released in late Q2 or early Q3. As the assays already indicate, we anticipate a significant increase in reserves and mine life which currently stands at more than 12 years.
Technically, the stock price consolidated sideways predominately within the boundaries of the red-green triangle between 2003-2010. After the red triangle leg at approx. $3.50 was broken successfully in mid-2010, a so-called “breakout” started reaching $7.50 a few months later. In early 2012, a so-called “classical pullback” occurred typically bringing the price back to the triangle apex at approx. $3.20. The final movement of a triangular price formation is called a “thrust” – either a strong and longer-termed up- or downward trend typically starting immediately after the pullback to the apex. As the price already started to increase from the apex, we anticipate the thrust to go to the upside (sell-signal à la thrust to the downside when breaching the apex and the $3 level). Principally, the goal of a thrust (to the upside) is to transform the resistive high of the breakout ($7.50) into new support in order for a new and longer-termed upward trend to commence thereafter.
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Nevsun Reports Strong Q1 Production
By Henry Lazenby,
TSX-listed Nevsun Resources on Wednesday reported strong first-quarter production results with 82 000 oz of gold produced during the period ended March 31.
The company said gold output from its Bisha mine, in Eritrea, was above expectations on the back of a drawdown of gold-in-circuit in the processing plant, in preparation for a mill reline and higher-than-anticipated grades in portions of the high-grade ore stockpile.
Nevsun stood by its full-year production guidance of 190 000 oz to 210 000 oz.
“The mine performed well in the quarter, producing expected total tonnage and gold head grade. The costs associated with the removal of copper phase prestrip are deferred for accounting purposes,” the company said in a statement.
The reduction in mined head grade for the first quarter year-on-year was according to plan and fitted with the company’s guidance on 2012 production.
The firstquarter plant tonnage was lower than the same period in the prior year owing to changing ore characteristics and lower plant availability.
The reduced milling was offset by the higher-than-budgeted gold grades for the quarter. Gold recoveries during the period decreased when compared with the same period in 2011, owing to the changing ore characteristics. The lower recovery rate was expected to continue throughout the year.
The company expected to release its 2011 full-year financial results during mid-May.
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Gold/Copper miner Nevsun may be a ‘Bottom Fishing Opportunity’ – Says Analyst
By Kip Keen,
In recent months, market players have beat down Nevsun Resources’s (TSX: NSU) shareprice by some 40-odd percent after the junior miner cut gold production guidance for the year by about as much at its Bisha mine in Eritrea. Nevsun did so because modelled gold grades – if still stellar by any account for an open pit mine – have turned out to be far less than expected. That has precipitated analyst and market frustration.
And perhaps a buying opportunity. Stefan Oannou, a Haywood Securities analyst, has called Nevsun a potential bargain. In a recent note to clients Ioannou acknowledges these frustrations – which he shares – but nonetheless maintained an sector outperform rating on Nevsun shares with a 12-month target of C$4.50 (C$5.50 two months ago).
It will take Nevsun a while to regain market confidence, Ioannou writes, and so: “In the interim, we believe Nevsun’s current market valuation provides a potential bottom fishing opportunity for investors with patience.”
One thing Ioannou is looking out for is Nevsun’s upcoming reserve restatement. That should help answer questions about how smooth the transition to copper-dominant operations will unfold. Bisha has been a gold machine in its first year of operation – 2011 – churning out 379,000 ounces gold and underpinning Nevsun’s burgeoning cash pile – $347 million at the end of the last quarter, and now presumably higher. (In the latest quarter Nevsun said it produced 82,000 ounces gold. That was more than expected – at the new lower grades – though Nevsun still held to its 2012 guidance between 190,000 ounces and 210,000 ounces. Either way, it surely generated significant cash.)
Major gold production will come to an end sometime in the next year or so, and meanwhile Nevsun has started preparing for copper days ahead as it gets deeper into the Bisha Main deposit. Copper production is slated to begin mid-2013 and, as such, Ioannou and other analysts are waiting to see what kind of gap there will be between the end of gold-rich mining operations and the beginning of copper-rich mining operations.
As planned, Nevsun will produce about 179 million pounds copper, 90,000 ounces gold and 3.4 million ounces silver a year starting in 2013 until about 2016, after which zinc ore will dominate. During those copper years – a note to those patient investors perhaps – Nevsun is again expected to generate heady amounts of cash flow. At $3 copper, $1,600 gold, $1 zinc and $24 silver, Nevsun has estimated as much between $250 million and $300 million in operational cashflow each year in 2014 and 2015 (after royalties and taxes). Then, cash flow falls off somewhat through to the end of Bisha’s current mine life in 2023 as Nevsun starts mining a zinc rich lower zone. But then, as recently noted in these pages, some leading analysts also see a bright future for zinc in a few years time with a looming gap between supply and demand.
How that – possibly higher zinc prices – could change the picture at Bisha will also be worth keeping an eye on in the coming years.
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