Nevsun Delays Timok Schedule, Provides More Capital for Bisha Operations

Nevsun add more capital on its flagship Bisha mine in Eritrea
Nevsun’s short-term challenge. Nevsun announced a strategic update on its capital allocation plans, allotting an additional $24-million to its Eritrea-based Bisha zinc/copper/gold operation by delaying the Serbia-based Timok prefeasibility study (PFS) by two quarters to Q1 2018. It’s shares fell as much as 24.4% after the announcement.

BY HENRY LAZENBY | MINING WEEKLY

Canadian base metals producer Nevsun Resources this week announced a strategic update on its capital allocation plans, allotting extra capital to its Eritrea-based Bisha zinc/copper/gold operation and delaying the timetable to deliver the Serbia-based Timok prefeasibility study (PFS) to the first quarter of 2018.

Previously scheduled for delivery in September, the PFS will now be preceded by an updated preliminary economic assessment in October this year, which will help with risk mitigation, the company advised.



Under newly installed president and CEO Peter Kukielski, Nevsun outlined key challenges it is grappling with, including capital allocation, capital project execution, ensuring the company maintains its social licence to operate in Serbia and Eritrea, and continued diversification of the company’s asset base.

However, the company has now provided an additional $24-million for Bisha to assist solving the two most pressing operational challenges: improving recovery of copper and zinc and respective concentrate grades; and increasing the total material (ore plus waste) movement to meet feed and stripping requirements for the updated life-of-mine plan.

Management stated that the capital, which will be completely funded by Bisha’s internally generated cash flow, will provide a robust return on investment, while mitigating these two key challenges.

Recoveries are forecast to be 77% for zinc and 70% for copper over the four-year mine life. Total ore and waste movement will be 21-million and 22-million tonnes in 2018 and 2019, respectively, a modest increase from the forecast 18-million tonnes in 2017.

Nevsun advised that it considered a bigger investment option that could deliver a longer mine life, but opted for the current plan as the larger investment plan could not be funded by internal Bisha cash flows alone.

Nevsun’s 60%-owned subsidiary Bisha Mining Share Company (BMSC) proven and probable reserves total 9.6-million tonnes at December 31, 2016, owing to a decision not to allocate further capital to recover previously deferred Phase 9 stripping.

The company advised that it is following up the results of the versatile time-domain electromagnetic survey completed during the first quarter on its newly acquired exploration licences to identify new potential deposits.

Timok Focus

Meanwhile, the company’s main focus remains to bring the Timok project into production in an expedient, safe and well-designed, optimised manner, it said.

Since its acquisition in June 2016, it has completed all infill drilling in the Upper Zone, which will convert a significant portion of previously published metal from inferred resources to a measured and indicated category. It has also progressed various trade-off studies to determine the most optimal alternatives for the mine design, planned throughput, and processing flowsheet and has continued to make progress on permitting for both the decline and the whole project and significantly advanced the required land acquisitions.



It also reported that it has developed strong relationships with all key stakeholders in Serbia, including employees, local suppliers, the various levels of local and federal government and the Nevsun’s joint-venture partner in the Lower Zone, Freeport-McMoRan.

After delivery of a feasibility study on either the Upper Zone or the Lower Zone, Freeport will increase its ownership in the Lower Zone to 54% and Nevsun will own 100% of the Upper Zone and 46% of the Lower Zone.

Nevsun is completing its analysis of various trade-off studies to ensure the various alternatives, including the mining methods, output from the metallurgical testing, capital cost estimates and concentrate marketing studies, are fully considered to ensure the high-grade resource is effectively developed into a low-cost, long-life and cash-flowing asset.

The company has determined that the ore body will be best accessed via a decline rather than a shaft. The development decline tender process is underway with a short list of bidders being interviewed for bid clarification meetings during the current quarter, with an expected board approval in September and commencement in the fourth quarter. The company continues to target first production in 2021.

Q2 Results

Nevsun said it was in full primary phase production during the second quarter at Bisha, producing both zinc and copper in their respective concentrates. Nevsun sold 34.3-million payable pounds of zinc in zinc concentrate at C1 cash costs of $0.92/lb sold, and sold 7.7-million payable pounds of copper in concentrate at C1 cash costs of $1.59/lb sold.

The company recorded a $70-million noncash, pretax write-down of long-term stockpiles and mobile equipment, which drove the bottom line to a net loss of $44.5-million, or $0.15 a share, compared with earnings of $9.6-million, or $0.04 a share in the comparable period a year earlier.

Revenues fell 17% year-over-year to $66-million, on lower copper revenues.

Nevsun reduced the full-year zinc production guidance to between 190-million and 210-million pounds, from 200-million to 230-million pounds forecast previously, while its copper production outlook improved to a range of 20-million pounds to 30-million pounds, from the previous forecast of 10-million pounds to 20-million pounds.

The cash cost guidance for zinc was confirmed at between $0.70/lb and $0.90/lb of payable metal, and revised significantly higher for copper to a range of $1.55/lb and $1.75/lb of payable metal sold, up from $0.90/lb and $1.10/lb forecast previously.

The company’s stock fell as much as 24.4% this week to a low of C$2.51 a share this week, a level last seen in February 2010.

  • Are we in trouble?

    The shares of Nevsun tumbled this week by as much as 24.4% after the company :

    – Cut the flagship Bisha mine life to 4 years (previously 8+ years).
    – Reject the Harena and Bisha underground mine plans
    – Delays the Timok Pre-Feasibility Study by two quarters to Q1 2018 (previously September 2017), as well as
    – Announced about some negative changes in the production and cost guidance.

    Nevsun has never seen such a collapse of its shares in many years. The last time its shares suffer by such margin was in February 2010.

    https://uploads.disquscdn.com/images/f67ffa48ff184ef98c8c60520f54907465e96299124dd78f675d193dd8a2decb.jpg

    • Amanuel Kidane

      This is the markets.the fact that Nevson is looking into diversifying and prioritizing other sites does signify it’s changing strategy to maximize it’s chances for more profit,albeit, not withstanding the current loss in value shares perhaps temporarily.As for Eritrea and the revenue from Bisha there is other mines that the country can open including to my understanding the adjacent lands, which The government want to open up, ( open pit mine ) plus the others such as potash sites that should compensate revenues soon enough for current losses.In conclusion Mining is a volatile economy, interms of demand and market trends and as vital as it may be as a foreign currency earner for the nation’s economy and development, there is a challenge a head and with it an opportunity and one of diversifying and attracting other investors in all areas of economic sectors,

    • Mdri Bahri

      Well it is a sad thing that Nevsun reversed their original plans but I don’t think we should panic ,the thing is that eritrea economy is in better situation than it was 5 or 6 years ago other than that there are more and more mining companies gearing up to start production like Essel potash in 2018, danakali in 2019 , Asmara area mining project in 2018 these 3 companies will easily give back 1 billion dollars $ to GOE in one year

      Yes if bisha continued to 2025 as Their original plans it would have been marvelous they are basically cutting 1billion $ in income to the government in the 4 years they cut back (250 million a year ×4) but that doesn’t mean bisha is done ,like they said in their website they are taking with the GOE to have the best possible outcome ,perhaps selling the bisha mine (60%) to the Chinese or selling the (60%) to ENAMCO (considering the shares are down) and it would become a 100% eritrean owned mine ,Hopefully like always Shabia will surprise us with great outcome.

    • Segum

      The Bisha area has tremendous untapped resources, some been categorized as reserves already. I wouldn’t be concerned about their re-strategizing. The revenue to Eritrea will come sooner or later, either way. My concern has always been with their copper and zinc concentrator recoveries. 70% is ridiculous. They are wasting a third of the metal mined to tailings. They need to work with well known metallurgical solutions to bring the copper recovery at least above 85%. Imagine, mining a 6% Zinc and throwing the 2% back? A 2% Zinc concentration is a minable deposit in itself.

      • I agree.

      • One Observer

        Humm, interesting. Thanks for the education on the issue with the recoveries.

  • Haimanot Teckle

    I need a tip to which Eritrean mining sector should I invest in,what the codes will be ?