The Vancouver-based mining company Nevsun Resources held a conference call on Friday, April 22, 2016 to discuss Q1 (01 January – 31 March) 2016 earnings results from its 60% owned Bisha mine in Eritrea that is regarded as one of the highest grade open pit copper mines in the world.
Present at the conference call, Nevsun Executives including Cliff Davis – President and CEO; Frazer Bourchier – COO, Tom Whelan – CFO; and Scott Trebilcock – Chief Development Officer.
Analysts present at the conference call includes Stefan Ioannou – Haywood Securities; Albert Sebastian – Prospect Advisors; Craig Hutchison – TD Securities; and Joseph Gallucci – Dundee Capital Markets.
Operator : Good morning, ladies and gentlemen and welcome to the Nevsun Resources Q1 2016 Earnings Results Conference Call.
I now would like to turn the conference over to Cliff Davis, President and CEO. Please go ahead, sir.
Cliff Davis : Good morning, everybody. Thank you, operator. I had a very nagging cough and I don’t want to be hacking my way through this conference call. So I am going to hand this over to Scott Trebilcock, our Chief Development Officer. Go ahead.
Scott Trebilcock : Thank you, Cliff
All right. Let’s get to it. I’ll try and do the script to justice and then we’ll move to the Q&A per usual after the script is finished.
Here with Cliff and I are Chief Operating Officer, Frazer Bourchier; and our Chief Financial Officer, Tom Whelan.
Before I begin, the usual cautionary comments. The following prepared statements and discussion contain forward-looking statements regarding production forecasts, past and future financial results, as well as the potential arising from exploration programs and potential M&A [mergers and acquisitions] activity. We encourage all listeners to thoroughly read yesterday’s news release, as well as the quarterly financial statements and the entire MD&A [Management Discussion and Analysis]. Note that all of the financial numbers referred today are in U.S. dollars.
Okay. Let’s get to the heart of it. Now I am going to provide Cliff’s views of what we’ve accomplished over the quarter [the first three months of 2016] and where we’re headed all in the context of our long term strategies that we’ve consistently communicated. We’ll then open up the call to the question-and-answer period.
Nevsun had a tremendous first quarter. We continue to deliver value for our shareholders. We’re profitable despite the significant downturn in the industry and we’re delivering on our objectives.
Nevsun remains strongly positioned in the sector. We have a great asset in Bisha. We have no debt and the capacity to carryout M&A. We focus on financial results and we have an aligned partner in the State of Eritrea. We take a very disciplined approach to running our business.
Q1 was no exception. Bisha mined 732,000 tons of supergene ore, 42% more than last year at 3.1% copper from the Bisha open pit. We’ve also stockpiled another 605,000 tons of primary ore as we prepare to start up our Zinc plant later this quarter.
We milled 584,000 tonnes of ore, 32% more than 2015 to produce 32 million pounds of copper, way to go Frazer. Bisha is ahead of production guidance and with our focus on cost containment and lower fuel prices, we achieved a C1 cash cost of $1.12 per pound, well ahead of budget and in the lowest quartile of the industry, way to go Tom.
We monetized 20,000 gold equivalent ounces from stockpiled material during the quarter, which contributed $11 million of operating income. With higher gold prices now then in the start of the year and another 60,000 to 80,000 gold equivalent ounces to be monetized, we expect these sales will make a healthy contribution to our bottom line in 2016.
We generated $22 million of net cash from operations from the mine. We had income before taxes of about $28 million. So we continue to generate strong operating cash flow. We continue to pay our shareholders a peer-leading quarterly dividend. We continue to invest in growth through exploration.
The balance sheet is very strong and with about $483 million in working capital including $438 million in cash. Our dividend is U.S. dollar $0.04 a share per quarter or $0.16 a share per annum, which is a yield of about 5%. Nevsun remains one of the highest yielding and most profitable companies in our peer group.
Planning for the future; our strategy is concise and straightforward. First, we plan to maximize the value of the Bisha asset and its resources. Second, we plan to grow our Eritrean assets through exploration and third, we plan to diversify our asset base through merger or acquisition to elaborate on each maximizing value from Bisha.
We continue to evaluate the underground opportunity at Bisha. We took the initial step last year to halt the way striping on Phase 8 and 9, which translated to reduced waste stripping cost of about $270 million over the next few years. We expect the decision of underground development [mining] will be taken later this year.
The Zinc plant continues to charge ahead. Cold commissioning on most of the zinc plant is almost finished. The next step will be hot ore commissioning after we process the remaining Supergene copper ore. Once the zinc plant is running, we expect the total Bisha revenue will be approximately 50% copper and 50% zinc with continued gold and silver credits in the concentrates.
As described in our MD&A, the zinc plant expansion is progressing very well and we’re ahead of schedule and well below budget. Recall, we’ve not committed any of our zinc off take, which means we have the opportunity to maximize value during future sales negotiations as we take advantage of what we believe will be a seller’s market for zinc and zinc prices appear to have some long awaited momentum with prices trending higher for most of 2016.
Exploration : Unlike other mining companies, we have no plans to reduce our spending on exploration. Both Nevsun and the Government of Eritrea are very optimistic about the future of the Bisha District. Our exploration efforts continue to be very successful.
Earlier this week, we released some new drill results that suggest we should continue to drill out the newest Asheli discovery. Asheli looks to be another copper, zinc rich deposit that could feed our Bisha mill in the years ahead.
We’ve just started looking at its four kilometers strike length. Between Bisha, Harena, Asheli and other targets, the VMS district could grow to rival some of the most famous campus in Canada.
Diversification and business development: We believe the declining commodities price provides a great opportunity to acquire assets and naturally we continue to be very active in M&A. We’re currently looking at several opportunities and will move forward when we see the clear path to generate a good return for our shareholders.
Finally I’d like to sum up with the few key messages. First we had a great quarter with positive financial results and we’re financially very healthy. Second, our exploration program continues to be very successful, which should translate into further mine life extension and value.
Third, our zinc expansion is ahead of schedule, under budget and we should be processing zinc concentrate in late Q2. Fourth, our M&A strategy is based on capital discipline with total shareholder return at the fundamental driving principle. All in all, we have a proven Management Team that’s looking out for the interest of all our stakeholders.
With that, I’ll pass the call back to the operator to manage the question-and-answer period. Operator?
Question-and-Answer Session
Operator : Thank you, sir. [Operator Instructions] One moment please for your first question, which will be coming from the line of Stefan Ioannou at Haywood Securities. Please go ahead.
Stefan Ioannou : Great. Thanks very much guys. Great looking quarter, congratulations. Just a couple of quick questions, just on the precious metal stockpile stuff that you sold in Q1, it was great to see that.
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Financial Review
| Q1 2016 | Q1 2015 | |||
| Revenue (millions) | $ | 92.4 | $ | 117.2 |
| Operating income (millions) | 32.9 | 42.6 | ||
| Net income (millions) | 15.6 | 23.0 | ||
| Net income attributable to Nevsun shareholders (millions) | 7.5 | 12.6 | ||
| Basic earnings per share attributable to Nevsun shareholders | 0.04 | 0.06 | ||
| Working capital (millions) | 483.3 | 517.0 | ||
| Copper price realized, per payable pound sold | 2.20 | 2.49 | ||
| C1 cash cost per payable pound sold(1) | $ | 1.12 | $ | 1.23 |
