| Nevsun and Eritrea Govt. Give Bisha Official Go-Ahead |
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| Written by Administrator | |
| Saturday, 15 December 2007 | |
 St. LOUIS (ResourceInvestor.com) -- Nevsun Resources [AMEX:NSU; TSX:NSU] has concluded a mining agreement with the Eritrea government for future development and operations at the high-grade gold Bisha Project. The government has advised Nevsun that the mining licence “will be issued soon,” and some speculate that a takeover bid could be in the works already.
John Doody, editor of the Gold Stock Analyst, told RI that now is a perfect entry point as the only item still to come is the actual mining license, probably in Jan. 2008. “After the mining license is granted, I expect a $4/share bid from Lundin, which has done two small private placements with NSU - rumoured but unconfirmed,” said Doody. Lundin Mining would not comment on its holdings in Nevsun or about the rumoured private placements. Likewise, Nevsun said that information was not available. Most recently on Oct. 29, Nevsun completed a non-brokered private placement financing of 10,000,000 common shares at C$1.50. Doody further indicated that a bid would come before Nevsun sells any shares to meet its net $40 million share of capex. The initial mine development is forecast to cost $196 million in capex, with expansion costs bringing the all-in amount to about $250 million. In November 2007, the Eritrea government borrowed $60 million from the China Import-Export Bank for its additional 30% interest to add to its 10% free participating interest. Approximately $25 million of that will go to Nevsun as down payment, with the final price to be determined by an independent valuation when production starts. The $35 million balance funds the country's share of approximately $100 million in equity to build the $200 million project. The balance will be $100 million in project debt, according to Doody. The company had C$13.3 million in cash as of Sept. 30, but obtained C$15 million from the October private placement. Nevsun said it would raise the remaining portion of the funds for project development through debt financing. Doody said Lundin Mining [NYSE:LMC; TSX:LUN] specifically wants Bisha for its copper and zinc output, along with the fact that at $800 gold and 400,000 ounces per year for first 2 years, the project has less than 1 year payback. Lundin owns five operating copper-zinc-lead mines: Neves-Corvo in Portugal, Zinkgruvan and Storliden in Sweden, Galmoy in Ireland and Aguablanca in Spain; with a sixth zinc-lead-silver mine, Aljustrel in Portugal, to begin production in 2007. The company is also developing the world-class Tenke Fungurume copper-cobalt project in the DRC and the zinc Ozernoe deposit in Russia. Bisha is one of the largest undeveloped gold and base metal deposits in Africa, with 1.06 million ounces of gold, 10 million ounces of silver, 747 million pounds of copper and 1.09 billion pounds of zinc. The feasibility study completed in Q4 2006 shows the project to be financially robust as a result of low operating costs throughout the mine life. The mine is modelled at +10 years of open pit production of 2 million tonnes of ore per year. Years 1 and 2 will average 447,000 ounces of gold annually, years 3 to 5 will average 173 million pounds of copper plus precious metal credits and years 6 to 10 will average 218 million pounds of zinc and 39 million pounds of copper plus precious metal credits. Operating costs for the life of the mine are estimated at just $31.64/tonne. The project has a rate of return of 26% using base case metal prices of $435/oz gold, $1.44/lb copper, $0.57/lb zinc and $6.50/oz silver. At these prices, the net present value (NPV) at a 10% discount would be $135 million with a 2.6-year payback. Using metal prices of just $600/oz gold, $3.40/lb copper, $1.50/lb zinc and $11/oz silver, the NPV would be $853 million with a 1.5-year payback. The company will fund expansion costs of $61 million and $31 million in two phases fully from operations. Construction is expected to take two years, allowing commencement of production in early 2010. Nevsun stock rose as high as $2.26 today on AMEX, before falling back to $2.05, up 5 cents on the day.
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