With its Bisha mine in Eritrea now operating at full capacity, Nevsun announced its best results yet for the third quarter and has begun work on copper processing facilities.
By Kip Keen,
The full scope of Nevsun Resources’ (TSX: NSU) remarkable third quarter (Q3) became clearer as the Eritrea-focused miner reported its full third quarter financial and production results, pushing the envelope on cash costs, gold grade and profits.
As compared to the previous quarter, Nevsun revenue and net-income surged to $147 million and $89 million respectively, up by about 50 percent in both cases, as cash costs at its Bisha mine in Eritrea dropped over 10 percent to $264 per ounce gold. In all Nevsun produced 110,000 ounces gold – the most yet in the three quarters since it began commercial operations – and sold 108,600 ounces gold at an average $1,715 per ounce.
As Nevsun previously reported, cash and cash equivalents grew $39 million over the previous quarter to $227 million.
Of particular note, while throughput at the Bisha mine held steady at 446,000 tonnes, the milled gold grade rose to 8.45 g/t gold, up by more than a gram over the second quarter and 1.4 grams over the stated reserve grade for the gold-rich oxide portion of the Bisha deposit in which Nevsun is now mining.
That elevated gold grade explains the third quarter’s blistering pace of gold production, which, when first reported in early October, caught analysts off guard. Analysts had expected gold production to come in somewhere closer to 90,000 ounces gold.
This over achievement, in turn, has led to the inevitable question of whether Nevsun will continue to clock such reserve-busting gold grades in coming quarters.
‘Yes, the grade was higher than expected relative to reserve grade, which likely, in part, accounted for the quarter’s low average cash costs,” Stefan Ioannou toldMineweb in an email Monday after Nevsun reported its quarterly results. “It is not clear at the moment whether or not grades will continue to track higher than Bisha’s oxide reserve grade.”
The official answer from Nevsun is no they will probably not. “I would expect grades to be down closer to reserve grades,” said Nevsun president and CEO Cliff Davis in a telephone interview with Mineweb on Monday.
But even then Nevsun will still churn out near 100,000 ounces gold per quarter. As Davis put it, Bisha is “pumping out a lot of gold” at the moment and, according to mining plans, will continue to do so for the next five or six quarters.
Then Nevsun will transition into copper-rich supergene ore below gold rich oxides, to which end Davis noted construction of copper processing facilities had begun. If all goes according to plan Nevsun’s copper days will start in the first half of 2013.
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Nevsun Third Quarter 2011 Financial Results
By Nevsun Resources,
QUARTERLY HIGHLIGHTS
- Gold production of 110,000 ounces. Revenues of $185 million
- Average realized price per ounce sold of $1,715
- Cash cost of $264 per ounce
- Cash increased to $227 million
- Strong drill results announced for Bisha hanging wall copper zone and zinc/copper sub-pit mineralization
- Valuation completed for the sale of Bisha interest to Eritrean government
Nevsun Resources Ltd. (TSX:NSU / NYSE Amex:NSU) is pleased to report its financial and operating results for the third quarter ended September 30, 2011. All figures are in United States dollars, unless otherwise indicated.
KEY QUARTERLY FINANCIAL AND OPERATING RESULTS
In Q3 2011 the Company recorded $185 million in revenues for the quarter on sales of 108,600 ounces of gold for an average realized price $1,715 per ounce. With 110,000 ounces produced, gold production averaged approximately 1,200 ounces per day with an average cash cost per ounce sold of $264. Since the Bisha Mine commenced operations in 2011, there are no comparative operating results for Q3 2010.
The Company had after tax income of $89 million for the quarter (Q3 2010 – loss $1 million), which translated to $0.27 earnings per share (Q3 2010 – $(0.01)). The Company increased its cash and cash equivalents by $39 million to $227 million. Cash from operating activities for the quarter was $103 million (Q3 2010 – used $1 million).
| Financial results (for a 7 month operating period): | ||||
| In US $000s (except per share data) | Q3 2011 | Q2 2011 | Q1 2011 | YTD 2011 |
| Revenues | $ 185,004 | $ 134,655 | $ 53,533 | $ 373,192 |
| Operating income | 146,928 | 101,881 | 39,604 | 288,413 |
| Net after tax income | 89,200 | 60,605 | 21,893 | 171,698 |
| Owners’ earnings per share | 0.27 | 0.18 | 0.06 | 0.51 |
| Total assets | $ 700,769 | $ 480,830 | $ 392,717 | $ 700,769 |
The Bisha Mine achieved commercial production in late February 2011. The year-to-date operating income contains results only from February 22, 2011 to September 30, 2011.
| Gold production and sales statistics(1): | ||||
| Q3 2011 | Q2 2011 | Q1 2011 | YTD 2011 | |
| Tonnes milled | 446,000 | 444,000 | 461,000 | 1,351,000 |
| Gold grade | 8.45 | 7.27 | 6.22 | 7.30 |
| Recovery % of gold | 89% | 89% | 88% | 89% |
| Gold in doré, ounces produced | 110,000 | 93,000 | 75,000 | 278,000 |
| Gold ounces sold | 108,600 | 88,700 | 72,800 | 270,100 |
| Gold price realized per ounce | $ 1,715 | $ 1,510 | $ 1,405 | $ 1,570 |
| Cash cost per ounce sold(2) | $ 264 | $ 301 | $ 299 | $ 284 |
(2) Cash operating cost per ounce sold includes royalties and is a non-GAAP measure.
EXPLORATION
Harena
Harena lies 9.5 km southwest of the Bisha Main deposit on an exploration licence contiguous to the Bisha Mining license. The Company is in the process of applying for a mining licence for this satellite deposit and expects to submit the application in Q4 2011. Upon the grant of an additional mining licence adjacent to Bisha, management expects the oxide component of the Harena deposit to be mined during 2012 and processed through the Bisha plant.
Bisha
The Company announced the results of the 5,900 meter Phase I hanging wall copper zone drill program in separate press releases dated August 31, 2011 and October 27, 2011. The results included 30 metres of 8.5% copper in the hanging wall copper zone in a newly identified sulphide lens immediately west of the northern portion of the Bisha Main deposit. The 3,000 meter Phase II drill program results are expected later in Q4 2011 and a reserve restatement that incorporates the hanging wall copper zone is targeted for Q1 2012.
The Company also announced the results of a 16,000 meter diamond drill program on the Bisha Main deposit. The objective of the program was to infill drill the portion of the Bisha Main deposit currently classified as an inferred resource in order to improve confidence levels of the geology and mineralization with the goal of upgrading the resources to the indicated category. The results included 88 meters of 11.8% zinc and 0.8% copper. The results were positive and have confirmed the grade and continuity of the Bisha primary zone below the current pit shell design. The resulting resource and reserve restatement is targeted for Q1 2012.
Copper phase development:
The Company continued work on copper phase development activities during Q3 2011, expending $8.7 million on terracing, other civils works and completing detailed design work. Total capital for the copper plant phase is expected to be between $90 – $100 million. Ordering of major components has commenced and the copper flotation plant is targeted to be operational in H1 2013. The Company is taking the same approach to eliminate price risk on construction as it was successfully able to accomplish during the build of the gold plant. The same firm, SEGEN of South Africa, is the engineering, procurement, construction management contractor. SEGEN is supported by a pre-dominantly local work force that complies with the Company’s practices as described under Sustainability in the Company’s Q3 MD&A.
VALUATION AND SETTLEMENT OF SALE OF BISHA INTEREST TO ERITREA GOVERNMENT
During August 2011 the Company finalized its arrangements with the State owned Eritrean National Mining Company (ENAMCO) for the purchase by ENAMCO of a 30% paid participating interest in the Bisha Mine. The parties had previously entered into an agreement in October 2007 whereby the State increased its interest in Bisha by 30%, to add to its 10% free carried interest provided by Eritrean mining legislation, resulting in a total participation of 40%. In August 2011 the parties agreed to a purchase price of $253.5 million, resulting in a gain to the Company of $242.5 million. The gain has been recorded directly to retained earnings as it represents a partial disposition of a subsidiary that did not result in a change in control. Taxes of $92,8 million have been settled and the Company has recorded the receivable net-of-tax (see note 7 of the September 30, 2011 condensed consolidated interim financial statements).
The amount receivable from ENAMCO bears interest at LIBOR plus 4% and the amount shall be collected from cash flow from the Bisha Mine that would otherwise be distributed to ENAMCO. The estimated amount to be collected in the next twelve months is recorded as a current asset. During October 2011 the Company collected $27 million of the receivable.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash at September 30, 2011 was $227 million (December 31, 2010 – $50 million). The Company is confident this cash, along with ongoing cash flows, will be sufficient to meet its near term operating and development cash requirements.
In the quarter the Company generated $103 million in cash from operating activities (Q3 2010 – used $1 million), used $19 million in investing activities (Q3 2010 – used $48 million) and used $45 million in financing activities (Q3 2010 – generated $42 million).
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