In the last three months that ended September 30, 2012, Nevsun pays the Eritrean government $30,037,000 as income tax and $8,154,000 for Royalty. The government pays back $5,731,000 as partial payment for its 30% share in the Bisha Mine
By Nevsun,
Nevsun Resources Ltd.(TSX:NSU / NYSE MKT:NSU) today reported financial and operating results for the third quarter ended September 30, 2012.
This release should be read in conjunction with Nevsun Resources Ltd.’s (“Nevsun” or the “Company”) 2012 third quarter Management Discussion and Analysis (“MD&A”), which can be found at www.nevsun.com/investors/financials.
THIRD QUARTER 2012 HIGHLIGHTS
- Mined 316,000 tonnes of ore at 5.21 g/t gold
- Produced 98,000 ounces of gold; 267,000 ounces in the nine months ended September 30, 2012
- Net income attributable to Nevsun shareholders was $44.2 million, representing earnings of $0.22 per share
- Cash costs of $307 per ounce of gold(1)
(1) Non-GAAP measure, refer to page 10 of the Q3 2012 MD&A
OUTLOOK
- Expects to exceed previously announced 2012 gold production target of 280,000 – 300,000 ounces
- Oxide gold production expected to continue into Q2 2013
- Copper plant expansion on budget and on schedule with commissioning expected for mid-2013
- Mineral resource estimate for North West Zone deposit is expected to be released by mid-2013
- Expects to release its exploration plans for Mogoraib region in Q1 2013
FINANCIAL REVIEW
The Bisha copper plant expansion continues on schedule and on budget. The copper plant expansion is entirely funded by Bisha operating cash flows. As a result, Nevsun has not had to access debt or equity markets to fund the expansion and Nevsun’s balance sheet remains clear of long-term debt obligations.
Revenues for the three months ended September 30, 2012 were $169,992,ooo a decrease from the three months ended September 30, 2011 of $186,502,000 resulting from fewer gold ounces sold, with 96,700 ounces [2,741 Kgs] sold in the three months ended September 30, 2012 compared to 108,600 ounces sold in the same period in 2011 and from a lower realized gold price per ounce with $1,681 realized in Q3 2012, compared to $1,715 in Q3 2011. The lower Q3 2012 production resulted from the previously mentioned lower milled grade and from lower recoveries with 87% for Q3 2012 as compared with 89% for Q3 2011. The comparatively lower milled grades and recoveries were expected, based on the ore type for the section of the pit that was processed in Q3 2012. The Company had silver by-product sales of $7,442,000 and $1,125,000 respectively, for the three month periods ended September 30, 2012 and 2011.
Operating expenses for the three months ended September 30, 2012 of $29,196,000 (three months ended September 30, 2011 – $20,939,000) increased from the same period in the prior year mostly due to increases in fuel, mill consumables and labour costs and costs associated with an increased volume of waste removal.
Royalties for the three month periods ended September 30, 2012, and 2011 were $8,154,000 and $9,276,000 respectively.
Net income attributable to Nevsun shareholders for the three months ended September 30, 2012 was $44,211,000, a decrease of $9,112,000 over the same period in the prior year due to lower revenues and higher costs, as explained above. Earnings per share attributable to Nevsun shareholders for the three months ended September 30, 2012 was $0.22, a decrease of $0.05 per share over the same period in 2011.
Gold cash costs per ounce sold for the three months ended September 30, 2012 were $307(2), which included $77 per ounce in silver by-product credits, while gold cash costs per ounce sold for the same period in 2011 were $267, which included $10 per ounce in silver by-product credits.
The Company’s cash and cash equivalents at September 30, 2012, were $378,925, up from $347,582 as at December 31, 2011. The Company generated $79,632 and $102,911, respectively, from its operating activities for the three month periods ended September 30, 2012 and 2011. There were $30,037,000 of income taxes paid in Q3 2012 and $nil paid in the comparative period.
During the three months ended September 30, 2012, the Company used $44,857,000 (three months ended September 30, 2011 – used $44,722,000) in its financing activities. During Q3 2012, the Company received $5,731,000 and $369,000 in related interest,as partial payment on the sale of 30% of the Bisha Mine to the State-owned Eritrean National Mining Corporation. No such proceeds were received in Q3 2011.
(2) Non-GAAP measure, refer to page 10 of the Q3 2012 MD&A
OPERATION REVIEW
Milled grade increased from 6.58 grams per tonne (“g/t”) in Q1 2012 to 7.40 g/t in Q3 2012 as a result of pockets of high grade acid domain ore that were encountered in the pit. The ore in these extremely high grade pockets has poor competency making it difficult to anticipate with exploration core drilling while also requiring sophisticated stockpile blending to facilitate successful processing and recovery of the precious metals. Average metallurgical recoveries for the nine months ended September 30, 2012 of 86% are lower than the 89% experienced in the comparative prior period as a result of the changing nature of the ore and was expected.
The Company’s gold production for Q1, Q2, and Q3 2012 was 82,000, 87,000 and 98,000 ounces respectively. The total for the nine months ended September 30, 2012, of 267,000 was 4% lower than the 278,000 produced in the comparative prior period.
Ore mined was significantly higher in Q2 2012 at 500,000 tonnes, relative to Q1 and Q3 2012 at 349,000 and 316,000 tonnes respectively, as a result of stockpiling in Q2 to prepare for the rainy season that runs from mid-June to mid-September. Waste mined in Q3 2012 of 2,590,000 tonnes increased when compared to the 1,826,000 and 1,659,000 tonnes mined in Q1 and Q2, respectively.
The increase in the Q3 2012 waste tonnes mined and corresponding increase in strip ratio to 10.3 was in accordance with expectations. Copper phase pre-stripping was completed in Q2 2012 so costs related to copper phase waste tonnes are no longer deferred, adding to the strip ratio in Q3. In addition, strip ratio increased as a result of increased pit depth and the newly planned shallower pit walls due to updated geotechnical assessments, as noted in the August 31, 2012 Technical Report. Strip ratio levels similar to Q3 are expected to continue for the next 3 – 4 quarters, however a life of mine strip ratio of 6.6:1 is predicted in the August 31, 2012 Technical Report.
RESERVE UPDATE
On September 7, 2012, the Company filed the Canadian National Instrument 43-101 Technical Report (the August 31, 2012 Technical Report) in support of previously announced increased mineral resources and mineral reserves estimates for Bisha. Expressed as contained metal, the copper reserves estimate increased 6% and the zinc reserves estimate increased 38% as of May 31, 2012, compared with the previous reserves estimate effective date January 1, 2011.
EXPLORATION DEVELOPMENT
COPPER PHASE DEVELOPMENT:
The Company continued work on copper phase development activities during Q3 2012, expending $19,630,000 on the copper phase. Total capital for the copper phase expansion is expected to be approximately $125,000,000 including the copper plant, port facilities and concentrate shipping equipment. The Company is taking the same approach to eliminate price risk on construction that it was successfully able to accomplish during the build of the gold plant. As at September 30, 2012, $92,471,000 had been spent, ordered or arranged, thereby fixing nearly three quarters of the expected project costs. The copper flotation plant is targeted to be operational in mid-2013. SENET of South Africa is the engineering, procurement, and construction management contractor.
HARENA:
In early July 2012, the State of Eritrea granted a mining license to Bisha Mining Share Company for the Harena deposit, located 9 km south of the Bisha plant. The Company started extracting Harena ore in October and processing it at the Bisha plant in November.
NORTH WEST ZONE:
The Company has planned a metallurgical and geotechnical drilling campaign for Q4 2012 with plans to prepare a resource estimate for the North West Zone by mid-2013.
MOGORAIB:
On October 10, 2012 the Company closed the acquisition of the Mogoraib exploration license in Eritrea, which includes the Hambok copper and zinc deposit. Consideration for the acquisition was $5,000,000 plus an additional possible $7,500,000 upon commencement of commercial production from the licensed area.
While management does not believe Hambok is economic as a stand-alone deposit, the Company plans to undertake further exploration and, with the Bisha plant a short distance away, believes Hambok may become an extension for the Bisha base metal operations. The Company expects to announce its exploration plans for the region in Q1 2013.
If additional exploration is successful and base metals reserves are identified, then the Company may consider increasing the planned capacity of the zinc and copper plant when the Bisha plant transitions from copper to zinc in 2015 or 2016.
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