Nevsun’s Bisha not going away any time soon

The Bisha open-pit, zinc-copper mine, 150 km west of Asmara, Eritrea. Credit: Nevsun Resources.The Bisha open-pit, zinc-copper mine, 150 km west of Asmara, Eritrea. Credit: Nevsun Resources.

It looks like the Bisha zinc-copper mine in Eritrea is going to be around a little longer — or perhaps a lot longer than most would have expected, after its mine life was halved less than a year ago.

Nevsun Resources (TSX: NSU; NYSE-AM: NSU) management has decided — together with its partner, Eritrean National Mining, 40% owner of Bisha — to extend the mine life at the open pit at least until the end of 2022.

The 1.5-year extension will add 3.3 million tonnes of high-grade, volcanogenic massive sulphide ore to the Bisha mill and result in payable production of 470 million lb. zinc and 52 million lb. copper, assuming recovery rates of 80% copper and 70% zinc.

The US$39.7-million extension will be funded by Bisha’s free cash flow, which tallied to US$25 million in the first quarter. Nevsun now has US$150 million cash and no debt on the balance sheet.

Cormark Securities analyst Stefan Ioannou says that more than anything the Bisha mine-life extension provides Nevsun with time to fully assess the Asheli and Harena underground deposits near the Bisha open pit, and consider more pit extensions to provide the mill with feed beyond 2022.

“We see this as an interim step towards an even longer mine life at Bisha,” Ioannou says. He adds that Nevsun “could go underground to reach the third layer of the ‘cake’… it’s still early days in the overall scheme of things in Eritrea.”

After building the US$250-million Bisha operation in 2010, Nevsun started mining the soft, gold-rich oxide cap — the first layer of the cake.

That lasted until mid-2013, when a US$110-million expansion allowed Bisha to shift from gold-silver doré to copper-concentrate production, as Nevsun reached the copper-enriched supergene ore.

Nevsun started up Bisha’s US$77-million zinc expansion plant in June 2016.

Machines in the Bisha mine. Credit: Nevsun Resources.

Machines in the Bisha mine. Credit: Nevsun Resources.

The total resource at the Bisha pit now stands 11.3 million tonnes grading 6.5% zinc and 1.1% copper, at a fairly high stripping ratio of 8.4 to 1, with the pit pushback.

“The Bisha team has been working hard to optimize the mine plan and reduce the operational risk of the deeper ore from the main pit,” Nevsun CEO Peter Kukielski said in a release. “The investment … increases the long-term cash flow from Bisha, reducing requirements for external funding for construction of our high-grade, high-return Timok project in Serbia.”

Nevsun’s guidance pegs Bisha’s 2018 production at 20 million lb. to 30 million lb. copper at cash costs of US$1.55 to US$1.75 per lb. (net of by-product credits), and 210 million lb. zinc to 240 million lb. zinc at cash costs of US90¢ per pound (net of by-product credits).

In mid-2017, metallurgical issues forced Kukielski to revise Bisha’s mine plan and lower the mine life to four years from eight, and put the brakes on any more underground development.

Ioannou says a higher metal-price environment likely prompted Kukielski to once again change course, which he had the latitude to do after deftly lowering the market’s expectations in mid-2017.

Cormark’s Bisha model says the mine-life extension adds to Bisha’s net asset value (NAV), which by Ioannou’s numbers increases to US$197 million from US$164 million.

Every little bit helps, as the company attempts to fend off a $1.5-billion bid ($5 per share) for Nevsun by Lundin Mining (TSX: LUN) and Forbes Manhattan-backed Euro Sun Mining (TSX: ESM).

The bid, launched on April 30, includes $2 cash, $2 in Lundin shares and $1 in Euro Sun equity.
Under the proposed deal, Lundin would own Nevsun’s European assets — namely the prized Timok Upper Zone copper project in Serbia — while Euro Sun would get Bisha, the surrounding deposits, and Nevsun’s cash.

Lundin said in a recent press release that it made two takeover offers to Nevsun management in February.

Machines in the Bisha mine. Credit: Nevsun Resources.

Machines in the Bisha mine. Credit: Nevsun Resources.

On April 3, Lundin says it made a third takeover proposal, but only for Nevsun’s European assets. By all accounts the three proposals were rejected in turn almost immediately.

Lundin Mining and Euro Sun say their joint offer for Nevsun is “fully valued,” and point out that it represents a 54% premium to Nevsun’s volume-weighted, average price for the 30 days before the bid.

But Nevsun says the deal vastly undervalues Timok, a high-grade, high-sulphidation copper deposit, which Ioannou calls one of the “best higher-grade, copper-development stories in the world.”

Nevsun owns 100% of the Timok Upper Zone, which has a “probable resource” of 27.1 million tonnes grading 3.3% copper and 2.1 grams gold per tonne, and a measured and indicated resource of 28.7 million tonnes grading 3.7% copper and 2.4 grams gold. Another 13.9 million tonnes are in the inferred category at 1.6% copper and 0.9 gram gold.

Nevsun Resources’ Timok copper-gold project near Bor, Serbia. Credit: Nevsun Resources.

Nevsun Resources’ Timok copper-gold project near Bor, Serbia. Credit: Nevsun Resources.

A recent prefeasibility study on the Timok Upper Zone pegged the after-tax NAV at US$1.31 billion, with a 52% internal rate of return using an 8% discount rate and a long-term copper price of US$3 per pound.

The pre-production capital cost would amount to $574 million, including contingencies. If all goes as planned, Upper Zone production via sub-level caving would begin in late 2022.

The prefeasibility study’s NAV doesn’t include the value of the larger but lower-grade Timok Lower Zone, which should have a maiden resource estimate by July.

Nevsun will own 46% of the Lower Zone once Freeport-McMoRan (NYSE: FCX) completes its earn-in agreement as joint-venture partner.

Nevsun recently held a groundbreaking ceremony at Timok to mark the start of decline construction on the Upper Zone. Development costs in 2018 should come in at US$50 million.

Ioannou has a “buy” recommendation on Nevsun with a $5.25 target.

Nevsun has 302.3 million shares outstanding (309.9 million, fully diluted) and trades in a 52-week range of $2.49 to $4.93.


1 Comment on "Nevsun’s Bisha not going away any time soon"

  1. At the end of the day, both parties still win because they got a valuable mineral.

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