Nevsun Q3 Gold Output Rises by 18 Percent

Cash increased to US $226 million at September 30, 2011.

Highlights

• 110,000 ounces produced in Q3
• 278,000 ounces produced year-to-date
• Cash balance US $226 million

The Bisha Mine continues to operate in excess of plan for mill gold recovery and increased the rate of gold production during the third quarter (Q3) to approximately 1,200 ounces per day.  The rainy season in Eritrea at the Bisha Site has had no material impact on operations.

As at September 30, the Company was waiting on settlement of sales of approximately 24,000 ounces of gold [worth US $36 million].

Cliff Davis, Nevsun CEO commented,

“Bisha’s smooth start-up earlier this year and the continuing impeccable production track record is a testament to the team at Bisha and our partnership with the Eritrean State mining company, ENAMCO.  The strong cash generation from the project will eventually be recognized in the market.”

Bisha started civil works in preparation for construction of the second phase copper plant in June.  The development drill programs that are expected to significantly increase Bisha mineral reserves continue with Phase 2 of the hanging wall copper zone currently underway.  Assay results from the Bisha Main infill drilling are expected later this month.

Nevsun plans to release its full Q3 results on November 14, 2011 with a conference call following on November 15th.

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NEVSUN ‘DESTROYS’ PRODUCTION ESTIMATES, CRACKS 100,000 – OUNCE – GOLD MARK IN Q3

Nevsun pulled in its best quarter yet in terms of gold production and pushed cash reserves beyond $200 million .

Mineweb,

HALIFAX, NS  – Just three quarters deep into mining in Eritrea, Nevsun Resources (TSX: NSU) churned out 110,000 ounces of gold in the third quarter according to its latest production update.

It is the most gold Nevsun has produced in a quarter since starting commercial production at its Bisha mine earlier this year.

Third quarter gold production outpaced the previous quarter by 18 percent and meanwhile Nevsun’s wallet burgeoned to $226 million in the third quarter from $186 million in Q2.

Depressed as markets have been lately, Nevsun president and CEO Cliff Davis highlighted that growing pile of cash in a prepared statement. “The strong cash generation from the (Bisha) project will eventually be recognized in the market.”

Cash flows, so long as gold remains strong, should remain solid for Nevsun as its cash costs per ounce gold have so far been exceedingly low. In the previous quarter, cash costs were $301 per ounce gold and profits high enough that Nevsun announced its first $0.03 semi-annual dividend.

Stefan Ioannou, who covers Nevsun as a mining analyst for Haywood Securities, said most analysts had expected Nevsun to produce 1,000-ounces-gold per day.

“They absolutely destroyed that,” Ioannou said. Nevsun averaged 1,200 ounces gold per day in the third quarter.

But Ioannou noted that Nevsun’s production update was bare on details and it wasn’t clear if it would keep up the pace. Making him somewhat wary of Nevsun’s stamina on that score is the fact that the Bisha deposit, especially in its upper oxide reaches, has high grade pockets of gold that might skew production one quarter to the next.

Whether Nevsun mined particularly strong grades in the third quarter will become clearer when the group releases full quarterly results on November 14.

In the third quarter Nevsun also settled unfinished business with its partner on the Bisha project, in which Nevsun owns a 60 percent stake. For some months earlier this year, since achieving commercial production, Nevsun was in negotiations with Eritrea’s state miner ENAMCO to reconcile the price ENAMCO would pay for its 30 percent participating interest in the Bisha project. That is in addition to ENAMCO’s 10 percent free carried interest.

After delaying a decision date while both parties poured over independent assessments of what was due from ENAMCO, Nevsun finally announced an agreement in August. ENAMCO will pay Nevsun $253 million from cash flows over the next two years for the 30 percent interest.

Then there is the question of what Nevsun will do with its swelling cash reserves. At $226 million they more than cover anticipated capital costs at Bisha for project upgrades which earlier this year were estimated at $120 million. The upgrades will allow Nevsun to treat Bisha’s base-metal rich supergene and primary ore that sit below gold rich oxides, which are to dominate production for the first two years of mining.

Some cash will likely go to dividends, but Ioannou noted they do not add much of a drag on Nevsun’s overall cash flows.

So, earmarking $120 million or so of Nevsun’s cash reserves for capital programs, Ioannou agreed that the group now more or less has some $100 million to play with, a number which he expected will grow significantly over coming quarters.

Barring another miner taking Nevsun over, an acquisition seems likely. Ioannou said Nevsun has signalled as much.

Ioannou speculated that the door is wide open for what type of acquisition Nevsun might pursue, though he expected it would be in the base metal arena. While gold is Nevsun’s money maker at the moment, ultimately copper and zinc become increasingly important for Nevsun as it moves into ore below gold-rich oxides.

Could Nevsun go after a small- to mid-tier base metal miner? With a potential $100 million to play with Ioannou said Nevsun is “probably not quite there yet.”

But then, with a little patience as cash rolls in on strong margins, Ioannou suggested Nevsun may be in such a position six or so months from now.

Q4 Reserve Update

Meantime, Nevsun will be growing its reserves, which it has said it wants to double with a reserve update due out in the fourth quarter.

At last count proven and probable reserves in the Bisha Main deposit were 28 million @ 1.78 g/t gold, 38.90 g/t silver, 1.6 percent copper and 3.15 percent zinc. This includes three separate zones within the Bisha deposit, gold-rich oxides at top, copper-rich supergene in between and zinc-rich primary ore below.

The updated reserves will include drilling results from the Hanging Wall copper zone in the Bisha Main deposit and the Harena satellite deposit, which Nevsun has suggested could  one day provide ore to the Bisha mill.

Nevsun has another satellite deposit, the NW zone, for which it hopes to have a resource statement out in 2012.