Vancouver — The Industrial Development Corp. of South Africa (IDC) must have liked what it saw at Nevsun Resources’ (NSU-T, NSU-x) Bisha project when it visited the site in Eritrea this August. The IDC has since decided to ante up US$89 million in senior and subordinate debt for the gold-copper- zinc-silver project.
In so doing the IDC, a state-owned financial institution, will also become Nevsun’s lead banker on Bisha, a project with a preproduction capital cost of about US$250 million. Nevsun president and CEO Cliff Davis says that what largely attracted the investment was the robustness of the Bisha project — even at very low metal prices.
“The economics just prove themselves,” he says.
Nevsun’s bare-bones model, based on US$435-per-oz. gold, US$1.44-per-lb. copper (for the first five years, after which it drops to US$1.28 per lb.), US57-per-lb. zinc and US$6.50-per-oz. silver, yields an internal rate of return (IRR) of 26%, a net present value of US$135 million and a payback period of 2.6 years.
A slightly rosier model, setting gold at US$600 per oz., copper at US$1.50 per lb., zinc at US50 per lb. and silver at US$8 per oz, raises the IRR to 42% and lowers the payback period to 1.6 years. As set out in its 2006 feasibility study, Nevsun plans on a three-phase, 10-year, open-pit mine.
Phase one targets Bisha’s silver-gold oxide zone, 4 million proven and probable tonnes grading 7.99 grams gold and 32.85 grams silver per tonne. The second phase targets the copper-gold supergene zone, 6.4 million proven and probable tonnes grading 4.4% copper, 0.83 gram gold and 35.98 grams silver. And the last phase targets the zinc-copper primary zone, 9.7 million proven and probable tonnes grading 7.21% zinc, 1.14% copper, 0.76 gram gold and 54 grams silver.
The project is a 60-40 joint venture between Nevsun and the Eritrean National Mining Co. (ENAMCO). By law, ENAMCO gets a 10% free-carried interest and is allowed to buy up to a 30% equity position in mining projects. Having opted for the full 40% in Bisha, ENAMCO is responsible for a third of project costs and has so far paid Nevsun US$35 million for its stake.
Davis expects to gain additional sources of funding soon. In the release announcing the agreement with the IDC, Nevsun says “other potential debt providers (are) in the midst of their approval processes.”
To advance Bisha, located about 230 km west of Asmara by road, Nevsun ordered ball and semi-autogenous grinding mills earlier this year. To make way for plant construction, it cleared the site and began heavy-earth moving during the summer. And this fall, it started building town infrastructure to house 400 people.
If all goes according to plan, Nevsun expects to go to production in the second quarter of 2010.
At presstime, Nevsun shares were trading at 65 in a 52-week window of 35-$2.53. The company has 128.2 million shares outstanding.
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