The recent switch from producing gold to copper from Nevsun Resources’ (TSX: NSU; NYSE-MKT: NSU) Bisha mine in Eritrea has gone well for the East Africa-focused miner, which reached the top end of its 2013 copper-production guidance.
The junior’s sole mine delivered 48 million lb. copper in concentrate during the second half of 2013, falling within the forecast of 30 million to 50 million lb. copper. It also generated 92,000 oz. gold in doré and 20,000 equivalent oz. in precious-metals concentrate during the past year.
Located 150 km west of the capital city of Asmara, the 121 sq. km Bisha property hosts a large, high-grade volcanogenic massive-sulphide deposit where Nevsun began building a mine in late 2008, and three years later started commercial production. The Bisha mine generated gold–silver doré until mid-2013 at a rate of 2 million tonnes per year.
Last July, Bisha commissioned its copper-expansion project and declared commercial-copper production in early December. Nevsun spent US$110 million to switch the product to copper and increase throughput to 2.4 million tonnes a year. So far, the change has been fruitful.
During the fourth quarter, Bisha churned out 36 million lb. copper concentrate from 401,000 tonnes grading 5.1% copper, and shipped 32 million lb. Copper recoveries averaged 80% during the quarter and 84% in December. During that month, Bisha produced 190 million lb. copper at an annualized rate, with copper concentrate grading 32% copper.
“December demonstrated the capability of the newly commissioned copper plant to meet production expectations in 2014,” said Nevsun’s CEO Cliff Davis in a release, adding that “we look forward to realizing significant cash flow in 2014, as we process ultra high-grade supergene ore and look to monetize the various stockpiled precious-metal materials.”
So far, Nevsun’s flagship mine generated 100,000 tonnes of copper concentrate, with more than 65,000 tonnes shipped in the fourth quarter. Nevsun is intent on “ensuring land transport keeps up with the copper-concentrate production.”
Raymond James analyst Adam Low commented in a note that “in our view, getting the trucks that are transporting the concentrate to keep up with the concentrate production is a problem that most mine managers would envy,” adding that he is “impressed by the company’s transition to a copper producer, and its ability to meet key production metrics [such as throughput, head grades, recoveries and concentrate rates] during this transformation.”
Low believes Nevsun is undervalued and well-positioned to become a low-cost copper producer, given it has $289 million in cash, no debt, a strong cash flow and potential exploration upside at Bisha. He has an “outperform” rating and $5 target price on the stock.
Bisha is 60% held by Nevsun, and the Eritrean government holds the rest. The firm is considering expanding Bisha’s flotation capacity to produce zinc concentrates.
The stock recently ended at $3.88 within a 52-week range of $2.77 to $4.63. It has 199.3 million shares outstanding.