From: Biniam Haile \(SWE\) (eritrea.lave@comhem.se)
Date: Tue Oct 06 2009 - 15:20:52 EDT
Midas Letter: Gold, Silver, Commodities, Economics, Investment
Nevsun Shares Power Up on Analyst Visit, Reports
By James West
Tuesday, October 06, 2009
In case you haven't heard, there's a new mine going into production in a
small African country called Eritrea. Nevsun Resources (TSX-NSU,
AMEX-NSU) expects to commence production at a jaw-dropping rate of
431,000 ounces per year of gold and 702,000 ounces of silver. Financing
is in place, construction has begun, and based on a recent property tour
of the project, analysts around the world are falling all over each
other in a hurry to recommend the stock.
GMP Securities (Griffiths McBurney) raised targets to CA$3.60 a share,
with analyst Mark Smith summarizing as follows:
"We are upgrading our target price on Nevsun following a field visit to
Eritrea, touring the VMS exploration projects and Nevsun's Bisha mine.
We have lowered our discount rate to 15% from 20% on the basis of our
current view of political and development risk.
We believe Nevsun has a significant first mover advantage in Eritrea
(with the development of Bisha) which we view is developing into a world
class VMS district.
We value Nevsun using a 1.0x P/NAV to our NAV of C$3.60/shr (at 15%), up
from previous NAV (at 20%) of C$2.99/shr. We derive a 12 month target of
C$3.60, up from C$3.00. We rate the stock a BUY."
Canaccord Adams mining analyst Steven Butler was even more bullish,
raising his price target to CA$4.15 a share. He commented as follows:
Earlier this week, we visited Nevsun's Bisha development project located
in Eritrea, Africa. Our overall impressions of Eritrea were favourable.
Senior local management of all the companies reported on the
government's principled and involved commitment to a successful mining
industry in the country. The Bisha project also showed well; overall
completion is estimated at 34% as of the end of August.
(The impact on Eritrea is) positive, from both the point of view of the
country and the project. Bisha is "hot in more ways than one";
temperatures were north of 40 degrees and the deposit's reserve grades
are absolutely stellar (highlighting 8 g/t Au in oxides, 4.4% Cu in
supergene).
Nevsun's shares continue to trade at a deep discount to NAV (P/NAV
multiple of 0.49 times our 12.5%/spot gold NAV or only 0.32 times our
5%/spot gold NAV) and only 1.8 times cash flow based on the first three
year average. Our target price has been revised to C$4.15 (from $2.60),
reflecting 1 times (previously 0.6 times) our revised 12.5% NAV of
US$3.73, adjusted for a US$0.90/C$ fx rate. We maintain our SPECULATIVE
BUY rating on the shares."
Nevsun is a gold and base metal developer focused on the completion and
production of the Bisha Mine in Eritrea, Africa. The Bisha Project is a
high-grade gold, copper and zinc deposit in a newly discovered VMS
district of Western Eritrea. Nevsun began construction of the Bisha Mine
in September 2008 and is actively engaged in its development with
production anticipated in fall 2010.
At current metal prices, the Bisha Project has a projected 2.5-year
payback including debt and further mine expansion. The Bisha Mine will
be a low-cost gold producer for the first two years and a low-cost,
high-grade copper and zinc producer for the remaining life of the mine.
Life of Mine Projected net cash flow per year is projected at over
~$180M per year making this one of the most robust mines in the world
being built right now.
Nevsun has received substantial financial and other support from the
Eritrean government, with in excess of $300 million being made available
to the company from both the Eritrean and South African financial
communities.
The company has also completed negotiations on sales contracts for life
of mine production.
The Bisha Mine is expected to begin production in the fall of 2010, with
a projected 10 year mine life. Bisha's gold will be refined in
Switzerland and Canada by two major international companies while the
copper concentrate will be shipped to major smelters in Europe and
India.
Metal production within the first two years is estimated at
approximately 900,000 ounces of payable gold, followed by over
500,000,000 pounds of payable copper in years 3-5, plus in years 5-10 an
additional 1 billion pounds of payable zinc and 200,000,000 pounds of
copper.
As a result of very high grade gold ore, the expected $200 per ounce
operating costs are much lower than industry averages and accordingly
the mine will generate significant cash flow for the Company and the
Government of Eritrea. The resulting cash flow should enable Nevsun to
quickly pay off project debt, allow for mine expansion and provide
significant returns to shareholders.
There would appear to be a lot of upside left in the company shares
considering its bright production future.
Follow the company's progress at http://www.nevsun.com.
SOURCE:
http://www.midasletter.com/news/09100606_Nevsun-shares-power-up-on-analy
st-visit-reports.php
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