Dehai News

Reuters:Edited Transcript of NSU.TO earnings conference call or presentation

Posted by: Semere Asmelash

Date: Saturday, 25 February 2017

https://ca.finance.yahoo.com/news/edited-transcript-nsu-earnings-conference-215422816.html

Edited Transcript of NSU.TO earnings conference call or presentation 24-Feb-17 

Thomson Reuters StreetEvents•February 25, 2017

Q4 2016 Nevsun Resources Ltd Earnings Call 

Vancouver Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Nevsun Resources Ltd earnings conference call or presentation Friday, February 24, 2017 at 4:00:00pm GMT 

TEXT version of Transcript 

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Corporate Participants 

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* Cliff Davis 

Nevsun Resources Ltd. - President & CEO 

* Frazer Bourchier 

Nevsun Resources Ltd. - COO 

* Tom Whelan 

Nevsun Resources Ltd. - CFO 

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Conference Call Participants 

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* Matt Murphy 

Macquarie Capital Markets - Analyst 

* Dalton Baretto 

Canaccord Genuity - Analyst 

* Walt Lipinski 

Summit Mortgage Group - Analyst 

* Stefan Ioannou 

Cormark Securities - Analyst 

* Craig Hutchison 

TD Newcrest Securities - Analyst 

* Sam Crittenden 

RBC Capital Markets - Analyst 

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Presentation 

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Operator [1] 

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Good morning, ladies and gentlemen, and welcome to the Nevsun Resources annual 2016 and fourth quarter 2016 results conference call. I now would like to turn the meeting over to Mr. Cliff Davis, President and CEO. Please go ahead, sir. 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [2] 

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Good morning from Vancouver. With me today is our Chief Operating Officer, Frazer Bourchier; and our Chief Financial Officer, Tom Whelan. Before I begin, a few cautionary comments. The following prepared statements and discussion contains forward-looking statements regarding production, past and future financial results, as well as the potential arising from exploration programs and the strategic direction of the Company. Forward-looking statements are by their nature uncertain and frequently, but not always, are identified by words such as expects, anticipates, believes, and similar expressions or statements that events and conditions or results will, could, or should occur or be achieved. Actual achievements or future events or conditions may differ materially from what is projected due to a variety of risks, uncertainties, and other factors. 

We encourage all listeners to thoroughly read yesterday's news release as well as the annual financial statements, the entire MD&A, and our AIF; all of which have been filed on SEDAR and EDGAR and are also available on our website. All the financial numbers referred to today are in United States dollars. 

Now I'm going to provide my views of what we've accomplished over the last year and where we're headed for 2017 and [for a few] years. We'll then open the call up to a question-and-answer period. Nevsun's past year was transformational. We executed an opportunistic acquisition of one of the best copper gold assets in the world not only for the next 15 to 20 years, but perhaps for some decades if the lower zone proves up or other upper zone targets come to fruition through our exploration. 

We have an excellent asset in the Bisha Mine that has provided significant cash flow to allow us to create even more value through the acquisition of Timok in Serbia. At a macro level in relatively few years, Nevsun has transformed from explorer to producer and now to producer developer. The development part of the business is now our most significant focus because we believe the biggest opportunity for the Company lies in our newly acquired asset. I'll talk about that in a few minutes. The successful expansion of the business has occurred because we have been very financially focused. We were careful to make the right acquisition. We are all about asset quality, which makes return to shareholders possible. High grade, carefully managed assets allow one to produce cash, which in turn can be reinvested or returned to shareholders. 

It's a simple philosophy, but not easy to execute nor easy to choose to be so selective. Frankly, we were fortunate to have positioned Nevsun to be so opportunistic. Through the acquisition of Timok, we have created the platform for significant production and earnings growth for the coming years. The team is advancing a prefeasibility study with delivery plan for September of this year. We have had drills turning in both the upper zone and lower zone. We expect to invest $45 million at the upper zone in 2017 and another $17 million in the lower zone. Right now we have more than 20 drills working on over 130,000 meter drill programs. I'm not aware of any other peer company making this kind of investment in exploration. It's money well spent and we're very optimistic on both Timok as well as Bisha that these dollars will turn into resources and reserves. I'll talk about that a bit later. 

At year-end, our cash balance was very strong with about $200 million in cash and no debt. Over the past six years since the start of production at Bisha, the high grade gold and copper at Bisha has produced about $1 billion of cash from operations which has allowed Nevsun to return over $170 million to shareholders, pay lots of taxes to Eritrea, stockpile cash to buy Timok, and still have a few hundred million left over to advance the Timok project development. I like to highlight a few key accomplishments at the Bisha Mine during 2016. One, Bisha had a stellar safety record going the entire year without a lost time injury. Bisha produced 56 million pounds of copper from the Supergene exceeding guidance with C1 cash costs of $1.04 per pound, costs which were much lower than guidance. We also advanced Bisha to its third phase, the copper-zinc phase where the capital expansion was completed on time and $22 million under budget. 

Commercial production at the zinc flotation plant was declared effective October 1. Bisha produced 90 million pounds of zinc, also achieving guidance on zinc. Bisha achieved our gold sales target by monetizing 90,000 gold equivalent ounces. Bisha expanded its exploration ground and we believe the exploration efforts will yield significant increased resources on existing and new ground. Despite these accomplishments, we are extremely disappointed with our inability to produce copper concentrate during the second half of 2016 while commissioning the new copper circuit. We have had a strong track record of delivery that we simply did not meet to our satisfaction when shifting to the primary phase. Now the good news is that I'm very pleased to advise that through the methodical approach to finding solutions, the team at site has had recent success in producing copper concentrate greater than 20%. 

The improvement process is not of all over rather we will continue over the coming months as we better understand the variable nature of the ore body that hosts the high grade zinc and copper. We remain confident that by the way of additional minor alterations to the mining and processing procedures at minimum costs, we are making progress to achieving our ultimate objective of over 40 million pounds of annual copper production during 2018 and beyond, up from the 10 million pounds to 20 million pounds guidance we issued for 2017. Frazer can elaborate further during the Q&A, but key changes in the plant include changes to grind size, minor plant hump and pipe modifications, use of various reagents, and amending residence time in flotation tanks. These changes improved copper recoveries and reduced zinc activation in the copper circuit. 

Ore blending strategies are also part of the overall process to find a long-term sustainable solution to improve the amount and quality of copper concentrate. Bisha has for several months produced and continues to produce a high quality zinc concentrate. For 2017, Bisha expects to produce over 200 million pounds of zinc, which is fortunate timing that coincides with high demand and higher zinc prices. All of this suggests that the cash flow from Bisha will continue to be important to our financial future. Bisha remains a strong ore body and is very prospective for expansion via satellite deposits already identified as well as opportunity on significantly expanded exploration land package surrounding the Bisha Mine. We are very bullish on our ability to increase resources in Eritrea. New topic, dividends. You may have noticed that we led our news release with strong discussion about dividends. 

Dividends are a core principle to the Company. Nevsun has been the highest yielding mining company in our peer group, something over 5%. Total shareholder return is a key metric by which we measure our success and dividends are an important contributor to that shareholder return. The Company has determined that the development of Timok represents by far the best allocation of capital for the Company to provide shareholders their best return. Accordingly, we have adjusted the dividend to $0.01 a share per quarter or $0.04 annually. The end result is that over the next four years, approximately $120 million that would otherwise be allocated for dividends under our previous dividend policy will instead be invested in the development of Timok, which in turn will have a much higher pay back to shareholders. Let me talk a bit more about Timok. 

We will continue to refine our timeline and more detailed development plans will become apparent as we advance Timok to prefeasibility. The prefease in an important milestone where we will have the opportunity to provide the market a better sense of value and a more detailed picture of the way forward. A critical output of the work plan will include a better estimate of our overall capital requirements. Naturally we already have a reasonable sense of development cost, but as part of the PFS process more work is needed to assess critical development decisions and refine estimates before we can make public disclosure. Based on everything we understand about the project; specifically the timing, the cash flow, and very quick predicted payback as well as continued interest from potential sources of financing; we are comfortable that the project development can be financed by a combination of our existing cash, future cash flow, and traditional project debt. 

We have not yet decided what form and mix of capital we'll finally use, but you can be sure we will be thinking of return on investment as the key driver taking into account the cost of capital and the timeliness of access to capital so as to execute on our reliable development plan. The most senior government officials in Serbia have made their support for this project very clear. The Prime Minister of Serbia and the Minister of Mines have each very exclusively welcomed Nevsun to move this project forward quickly and cleanly. We have beefed up our corporate team with the addition of Ken Engquist as our VP, Project Development to provide more skills and greater accountability for the Timok development. I am confident we are looking at all ways to expedite the future development with the full cooperation of the state. The project is mutually important to the state, the local community, and Nevsun. 

We will be providing stakeholders periodic updates throughout the development. This will include disclosure of ongoing drill results that will remind shareholders of how spectacular the upper zone mine should be. I like to talk a bit about planning for the future at least for the next five years. After acquiring Timok, we went through a strategic review with our Senior Management and Board of Directors so as to develop a strategic plan for the next five years. It was important to go through a thorough process and get clear alignment on our goals and priorities. Knowing how we've diligently managed the Company in the past several years, our goals for the future are very straightforward. First, we plan to maximize the value of our two main assets, Timok and Bisha. We plan to convert Timok's resources to reserves in the near term and then develop Timok into a world class mine to deliver the most value to our shareholders. 

We also plan to continue to deliver on the full potential of Bisha. Second, we will continue to position our people, our practices, and organization for success. This is about doing the right things with the right people. Third, we will proactively and openly engage with and share benefits with our many stakeholders. And fourth, we will further strengthen asset and regional diversification over the next five years. You maybe noticed a minute ago I was placing special emphasis on Timok as compared to Bisha. The reason for this is also very straightforward. Not to take anything away from Bisha, we believe the largest underlying value in Nevsun is Timok and the market does not yet understand how much value that might be. We plan to derisk Timok by advancing it to prefeasibility, then to feasibility, and we plan to better educate the market as we move the project through development. 

New topic, leadership. You may also be wondering about my planned retirement that we announced last month. There is a robust process being run by our Board of Directors, which is well underway. There's nothing imminent to announce, but rest assured, I'm committed to a smooth transition in what is a natural hand-off in the lifecycle of Nevsun. I have been associated with Nevsun for 23 years and as a significant shareholder, I have assured the Board I will do my best to ensure there is a smooth transition for the CEO. At the Board level itself, we are also going through a renewal process and have added two new Directors at the start of this year and expect to have more change at the AGM in May. I welcome the new Board Members and once again thank the long-standing Directors who have retired after contributing so much to the Company's progress over the years. 

I'd like to sum up with a few key messages. First, we completed the transformation of the Company through the acquisition mid last year and are really well set up to successfully develop the Timok project. We have the skills and leadership to advance Timok to the Tier 1 asset it can be. It is a big part of Nevsun's future. Second, our Bisha zinc plant expansion and commissioning went well with the production of 90 million pounds of zinc in high quality concentrate easily achieving guidance. We continue to better understand the Bisha ore body to allow us to produce a good quality salable copper con. Third, to add more value, we are investing very significantly in exploration and the advancement of Timok. Fourth, our strategic plan for the next five years is straightforward well understood by our team to allow them to execute. 

It's based on capital discipline with total shareholder return as a fundamental driving principle. And finally, the Nevsun story is now a production story, a development story, and an exploration story. It's a quality platform for growth in shareholder value. All in all, we have a proven management team that is looking out for the interests of all of our stakeholders. With that, I will pass the call back to the operator to manage the question-and-answer period. Operator? 

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Questions and Answers 

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Operator [1] 

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Thank you, sir. (Operator Instructions) Matt Murphy, Macquarie. 

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Matt Murphy, Macquarie Capital Markets - Analyst [2] 

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I was wondering if you could expand a little more on the success you've had of late in making a copper concentrate higher than 20% grade. How sustainable is that and what informs your guidance for a maximum of six months of separate copper concentrate production? Just trying to get a sense of how quickly things are changing or how you have 2017 laid out in terms of running further trials and why it takes that long? 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [3] 

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Matt, it's Cliff. I'm going to pass that over to Frazer Bourchier, our Chief Operating Officer. 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [4] 

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I could spend 20 minutes on that answer, but it's actually pretty clear and concise and I'll keep it down to about a minute or two. So the recent success the past four weeks, probably 80% of the time we are producing a pretty decent copper con; which of course may lead you to think if you're making a copper con at over 20% copper, then why only the prediction of doing that for three to six months this year. That's because we're being pedantic and thorough in our approach to make sure that we have clearly identified both what drives the pre-activation of the sphalerite and understanding the ore body and then managing that accordingly. So one might argue we're being somewhat conservative, but this is the chemistry issue that we're working through and we don't want to prematurely jump to any conclusions that we have this magically solved. 

It's not a binary issue. That's why we keep talking about progressive improvements throughout the year. So put quite simply, every time we make a copper con, we're making between 3 million pounds to 3.5 million pounds of copper a month and so that's where you get the 10 million pounds to 20 million pounds from. 10 million pounds would represent three months, 20 million pounds would represent six months. If it's more, then that's even more fantastic. So we've done that as I say three quarters 80% of the time in the last month since we made certain changes, but we have continued trials that we want to progress throughout the year just to ensure that we have this fully understood on both sides. 

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Matt Murphy, Macquarie Capital Markets - Analyst [5] 

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And how much of that is what ore type you're feeding it versus changes you're making in the mill? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [6] 

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I would say recently it's 50-50, but really now majority of the focus is that understanding of the ore coming in. The plant as well built, we're happy with the plant. There are always going to be minor modifications one makes after commissioning a plant, but that for all intents and purposes is essentially done. This is really dealing with the chemistry issue in terms of the ore feed coming in and how that's managed through blending techniques and various reagent additions. 

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Matt Murphy, Macquarie Capital Markets - Analyst [7] 

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Okay. And then just one other question on the ore type for the ore feed so 6% grade was better than what I had for 2017. Just wondering if I'm looking at the 2013 Bisha technical report, over the next couple years we're in the 4% range. How sustainable is the 6% and is it something where you're running higher grade given the challenges this year or is it just your pit feeling has changed? Any color around that? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [8] 

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So look, it's probably more of the latter. But before I answer that, I do want to share there will be an updated technical report with an associated mineral reserve that will clearly show that and we plan to have that done around early June, late May this year. So, you'll see all those numbers as we continue to progress through that life of mine work. But essentially there's minor changes we made to the mining plan, but this ore body was always high grade zinc near the top and then progressively gets somewhat lower. So, 6% is very sustainable throughout this year and likewise the 1% for copper. 

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Operator [9] 

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Dalton Baretto, Canaccord. 

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Dalton Baretto, Canaccord Genuity - Analyst [10] 

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If I can just jump on Matt's question a little bit further just on Bisha. Frazer, can you maybe try and explain to us, it sounds like you made a lot of progress understanding what's going on. What are some of the key gaps that you're still facing and what gives you comfort that you'll close that gap during the course of this year? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [11] 

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Dalton, it's Frazer again. So as I said, there are two key areas that we focused on. Number one is understanding what pre-activates the sphalerite, which is the zinc ore. In other words, what's causing the zinc to float earlier than we want and hence dilute the copper con and that's why we were making that bulk con, which by the way is still sellable with great terms but it's not ultimately what we want. And we have a few external groups involved with this doing that analysis, doing quantitative mineralogy, and helping assist in clearly identifying that driver. That's a three to six month process that we're progressing. So, that's point number one. The second is clearly better understanding the ore body, which is natural as one becomes more granular and you move into that ore body with more drilling and geomet test work, et cetera. That's an ongoing process of which we have a separate firm assisting with that as well as what they are doing on site. 

And one can argue that's again continually progressive over the next three to nine months, which is the same for any ore body, you better understand more and more as you progress through that. So once you add those two things together, you better understand the ore body and mineralogy not just the assays and number two, you clearly understand the key drivers. Then it's an issue of how you manage around that in terms of blending and campaigning, which is a mining issue but very manageable. So, that's why recently we've been doing some trials and we're pretty happy with what we see. But it's a matter of confirming those two gaps as you refer to them and then implementing that throughout the plan, which we see quite manageable. And I think, Dalton, you know the history of our Company. If anything, maybe we're a bit conservative, we want to make sure we have this down and hence why you've seen the guidance we've shared and the timeline. 

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Dalton Baretto, Canaccord Genuity - Analyst [12] 

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Okay. Speaking of conservatism, maybe I'll leave Bisha there for now and just quickly talk about the dividend. Cliff, you cut the dividend by 75%. Why leave the $10 million per year on the table? Why not use that towards even more exploration? 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [13] 

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As we've always said and we've done this right from the get-go since we started production at Bisha, dividends we think is an important component of return to shareholders and there are people that even at this kind of yield, the yield I think is about 1.3%, 1.4% still is one of the highest; certainly the highest I think in our peer group. We think it's important for shareholders to get dividends as part of their return not just through value accretion that we will be able to demonstrate through the investment in Timok. Clearly when you stand back and say do we want to send dividends back to shareholders the size of dividends we have historically been doing versus do we want to invest in Timok is a no-brainer to us. We contemplated, the Board was fully supportive, and made the decision very, very recently to reallocate that future capital. And we said in our news release $120 million, it's actually a bit more than that when you actually do the numbers, but makes sense to us. And I think based on the commentary I've heard, reaction by the market overnight and this morning, I think everybody would agree with that. 

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Dalton Baretto, Canaccord Genuity - Analyst [14] 

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I don't disagree as well. I was just wondering if just in terms of shareholder returns whether shareholders would be better served with more exploration at Bisha for example. 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [15] 

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We are allocating sufficient funds to exploration of Bisha. Tom, I think the budget is. 

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Tom Whelan, Nevsun Resources Ltd. - CFO [16] 

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$10 million, Dalton, as we've done. The other interesting capital allocation. First and foremost, capital allocation is obviously jumping right to the top of our top list to talk about and think about all the time. But specifically as it relates to exploration at Bisha, we completed that transaction halfway through the year to get all the additional land. When Frazer and I were out there in January, we saw that helicopter zooming around doing the VTEM survey so have all of the results and we'll be able to sort of sit back and assess those results and decide where is that best allocation of capital. But obviously we've got lots of alternatives that are available to us right now and Timox obviously priority number one, but there's lots of competition for capital and we're having fun allocating it. 

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Operator [17] 

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(Operator Instructions) Walt Lipinski, Summit Group. 

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Walt Lipinski, Summit Mortgage Group - Analyst [18] 

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One, I was looking at the January 23 press release 2016 where it spelled out some of the indicated and inferred resources. So the challenges that you've had at Bisha with getting copper con production going, do you think it's going to impact the long-term reserve and resource numbers that you've previously published? 

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Tom Whelan, Nevsun Resources Ltd. - CFO [19] 

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I think that's a question probably for Frazer. 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [20] 

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That's a good fair question. There may be some impact, but we're actually pretty optimistic. Look, I want to emphasize this is work in progress. We're going through just finalizing our mineral resource. There's obviously a bit more work that spills off into the mineral reserves. So, I don't want to prematurely make some assessment on that until the work is done because there's a fair bit more to do more on the mineral reserve side now and that's probably where the main focus point is. So my question is it may, but it's premature to say what that impact may be. 

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Walt Lipinski, Summit Mortgage Group - Analyst [21] 

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Okay. And in terms of your zinc guidance for 2017, you're indicating little over 200 million pounds. But if you produce 90 million pounds in fourth quarter alone, is 2017 a lowball estimate then because it seems like if you just annualize what you did in the fourth quarter, you're way above 200 million pounds? 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [22] 

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Walt, it's Cliff. I'm going to pass that to Tom Whelan, our Chief Financial Officer. 

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Tom Whelan, Nevsun Resources Ltd. - CFO [23] 

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Actually that 90 million pounds was produced since June 2 is when we actually flipped the switch on the zinc. 

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Walt Lipinski, Summit Mortgage Group - Analyst [24] 

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Okay. I thought the 90 million pounds was when you commissioned it as of October 1. 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [25] 

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And other thing, Walt, again if the math is done just roughly if you have as we stated 2.4 million tons at 6% zinc; if you average 70% recovery, that's an annual rate of about 220 million pounds; if you do 75%, that's 238 million pounds. So again just want to be sure we have this correctly identified. There is some interlink between copper production and zinc production so that's why we said the 200 million pounds to 230 million pounds. 

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Walt Lipinski, Summit Mortgage Group - Analyst [26] 

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Okay. And I'm a little bit newer to the story so I'm assuming the challenges that you're having now because you indicated you've been at Bisha for six years, the challenges that you're having now is just moving to a different ore body because it seems like if you've been there for over six years, some of this shouldn't be a surprise. 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [27] 

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Correct. So this is a chemistry issue with a new and final section of this ore body called the hypogene or primary, whatever term you want to use. So, it's different because you've got zinc and copper together now so it's all about separation of those two. 

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Operator [28] 

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Stefan Ioannou, Cormark Securities. 

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Stefan Ioannou, Cormark Securities - Analyst [29] 

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Just on the whole issue with the metallurgy at Bisha then. As you get deeper into the ore deposit, do you think the metallurgy will become a little more simpler in terms of the pre-activation issue of sphalerite? Is it really related to sort of that transition between Supergene and primary or is this something that you think is going to be reflective of the entire primary deposit regardless how deep you get? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [30] 

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It's Frazer again and I'll answer that, it's a good question. Maybe the initial thought or the rather simplistic cartoon you might see on the website of that layer cake approach, one might think it's a layer transition issue and that's part of our learnings. While not a major concern, it's probably not as simple as just a plainer sort of once we're through this, we're into some fresh primary ore. It's probably throughout the deposit. However, the good news is that's not catastrophic in the sense that we believe as we better understand this and manage it, it just becomes an issue of how we blend it. So, this is progressive. I think by 2018 on will be looking quite good, but that's more from learning and understanding exactly where it is rather than just because we think we're through a top layer of the ore body. 

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Stefan Ioannou, Cormark Securities - Analyst [31] 

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Okay. And then just switching over to Timok, when do you guys actually think you might have some more drill results for the market to see? 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [32] 

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Don't know, (inaudible). 

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Operator [33] 

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Craig Hutchison, TD Securities. 

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Craig Hutchison, TD Newcrest Securities - Analyst [34] 

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Question on costs. I know you guys provided unit costs on a per pound basis for zinc and for copper, can you simplify that for us and maybe give us costs on a per ton milled or what your operating budget is for onsite costs sort of nominal basis for 2017? 

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Tom Whelan, Nevsun Resources Ltd. - CFO [35] 

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In terms of the key metrics just going back to the 43-101 cost per ton mined have been traditionally $2.75 in the 43-101. We've made some changes to where we put in a new waste dump and we are expecting a significant decrease in our cost per ton milled this year slightly above $2 per ton mined. And then the process and G&A, which has been kind of in that $38 per ton milled in the 43-101, again I would say we're going to do a little bit better there. So, run your math depending on exactly where the strip. If you're coming out to mine operating cost inside the gate somewhere in the $120 to $140 range, you're probably getting pretty close. And then in terms of the selling cost, this is the I think really good news piece of this. The three main components of that are land transportation, shipping, and of course the treatment charges. 

And so, treatment charges are at all-time lows. The competition, as Frazer has mentioned, for the zinc has been tremendous. So, we're achieving well below historic lows when it comes to the treatment charges, certainly well below $100. So, I'll leave it to everyone else to figure out what they want to guide there. And in terms of the shipping costs, again we're at all-time lows from shipping. So, hopefully that gives you a sense. If you're in the $60 million to $80 million a year, you're probably getting pretty close. But again there's obviously lots of different estimates and assumptions that go into that. But just if you want it normally, hopefully that gives us a little flavor to figure out what the income statement might look like for 2017. 

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Craig Hutchison, TD Newcrest Securities - Analyst [36] 

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Okay. So I see it at $60 million to $80 million so it's offsite costs, correct? 

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Tom Whelan, Nevsun Resources Ltd. - CFO [37] 

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Correct. 

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Craig Hutchison, TD Newcrest Securities - Analyst [38] 

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Okay. And then in terms of strip ratio, can you provide us with that number? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [39] 

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It's Frazer. Look, strip ratio will start to climb back up again, probably average about 5% this year. I know it was only about 2.6% or half of that last year. But we brought a bunch of vehicles, HME equipment that was parked up back off the gold line so that's starting to progress up. So we're going to get back to levels that we had probably back in 2014, but we believe that's manageable and not a concern. 

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Craig Hutchison, TD Newcrest Securities - Analyst [40] 

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And then just one more question from me. In terms of Timok, have you guys done any more met work and do you have a better sense on how you'll recover the gold from the deposit? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [41] 

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Craig, it's Fraser again. We're doing a number of trade off studies and I'm not going to give preferential disclosure on that until we deliver the PFS, but we're pretty excited. Just keep in mind all options we're looking at in that aspect that you've asked particular, which is recovering gold from pyrite as opposed to the estimated 30% that just naturally went into the concentrates as per the PEA, that would all be upside for us and we're pretty excited about some of the results, but again premature to say too much about that. And you'll see that in September when we've completed those studies and they're shared in the PFS as far as additional gold we think we can recover from this deposit through a pyrite con. 

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Operator [42] 

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Sam Crittenden, RBC Capital Markets. 

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Sam Crittenden, RBC Capital Markets - Analyst [43] 

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A couple more Bisha questions for you. Just wondering if you think certain parts of the ore body might need to come out of the reserves due to the new blending plan like are certain parts just kind of not amenable to the circuit or is that not the case? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [44] 

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Sam, it's Fraser again. I think Walt earlier asked a similar question. So for not sounding repetitive, this continues to be work in progress. May there be some change to the reserve, naturally apart from mine depletion there could be some change. But again the dilemma I just emphasized whenever one does show a resource or reserve for that matter, we've got to remember that's a reflection of our knowledge at that point in time we can go up or down. So, there are certain things that we will park and we're doing a number of studies on for additional recovery. For that matter we're even doing the same thing with the tailings dam right now, that's a separate study that we don't even consider and include. So, the answer is I don't know that yet. We'll certainly know within two-and-a-half months, but presently I'm not really stressed or panicked about that. 

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Sam Crittenden, RBC Capital Markets - Analyst [45] 

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And then question on the mining, do you have to get more selective and do you think you need to make any changes to your mining fleet? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [46] 

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Certainly not, no. Good question, but we do not believe that's the issue at all. We don't have the largest size mining fleet. These are 60 ton trucks we've got and smaller shovels so 5 meter bench heights. Everything the way that we're operating right now, we believe that's quite manageable. But there is a geographical issue within the pit in terms of different sections and how do you mine that. So, that selectivity in our view is manageable. 

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Sam Crittenden, RBC Capital Markets - Analyst [47] 

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Okay. And then just one last one on the underground mining study, just curious if anything's changed recently based on drilling or engineering around the viability of that underground scoping study? 

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Frazer Bourchier, Nevsun Resources Ltd. - COO [48] 

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Yes. And it's changed in a good way, but again I want to be careful on preferential disclosure. So, we are going to be updating that also in this technical report coming out. We haven't issued technical report in probably three years now. So, there will be everything under Chapter 24. There'll be the section of what I would call the updated internal but we haven't shared it explicitly now, but scoping study on underground and you'll see some of the improved met results we have based on some retesting in Harena. And then that whole underground opportunity at Bisha and Harena, the potential for that will be shared in that chapter. The challenge any operation has is that as excited as we may be and again work in progress so let's see what the results actually are. It's probably a few years away before that would ever move into reserve because you've got to do some more prove up. So even though it's going to look possibly interesting at a scoping level, you've got to do the work and there's going to be a gap before that could move into reserve if it proves it truly can be economic. 

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Operator [49] 

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Thank you. At this time, I would like to turn the conference back over to Mr. Davis. 

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Cliff Davis, Nevsun Resources Ltd. - President & CEO [50] 

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Thank you, operator. Just one closing comment. Nevsun is very disciplined in how we run the Company and how we will grow shareholder value. With that, I'd like to thank everybody for participating in this call. Have a great day and have a great weekend. 

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Operator [51] 

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Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again thank you for attending and at this time we do ask that you please disconnect your lines. Have yourself a lovely weekend.
Eritv

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