Where did Nevsun’s gold go?

At a time of record high gold prices Nevsun Resources (NSU-T) had the unfortunate task of announcing to the market that it has a lot less gold in its deposit than it originally believed.

As a result of the reduced reserves at its Bisha mine in Eritrea  the company said production could fall as much as 50% this year. That news rattled investors who in turn sent its share price tumbling. In Toronto on Feb. 7 the company’s shares were off 30% or $1.93 to $4.41.

The trouble comes from the Main zone at its Bisha  where an overly optimistic reserve estimate from March of last year is coming back to bite the company.

Nevsun says the estimate overstated reserves in terms of tonnage as what was considered to be gold bearing ore turned out to be waste rock in the upper oxide zone of the deposit.

The result: a 35% reduction in oxide ore. So where there was once 2.5 million tonnes grading 5.1 grams gold, there is now just 1.6 million tonnes of oxide ore at roughly the same grade.

The Bisha deposit is made up of a gold oxide cap above sulphides of zinc and copper. The company plans to start mining the base metals next year, but for this year, the reduction in reserves is set to cut gold output to 190,000 to 210,000 oz., which doesn’t compare well to last years output of 379,000 oz.

So how exactly did such a large amount of phantom gold end up in the reserves?

The company is blaming poor core recovery. Because the oxide zone is broken up, core recovery came in at roughly 71%, which is quite low when compared to core recoveries from the sulphide zones where recovery is between 91 and 98%.

The problem compounded when any core with less than 60% was excluded from the resource model during feasibility. That meant wider spaces between data points, leaving the door open to incorrect estimates of how much gold was actually down there.