VANCOUVER, March 1, 2018 /PRNewswire/ - Nevsun Resources
Ltd. (TSX:NSU) (NYSE AMERICAN:NSU) ("Nevsun" or "the Company") is
pleased to report its financial results for the three months and
full year ended December 31, 2017.
Operating results were pre-released January 10, 2018(1). Unless
otherwise noted all financial results are in millions of US
dollars.
Highlights
- Updated Timok Project Upper Zone Preliminary Economic
Assessment ("PEA") results released in Q4 2017 demonstrate
outstanding project economics with a $1.5
billion NPV and 50% IRR at a discount rate of 8% and a
$3.00 per pound copper price
- Improved mining and metallurgical processes at Bisha in
2017
- Produced 210.4(1) million pounds of zinc in zinc
concentrate, at the top end of revised guidance of 190-210 million
pounds
- Produced 17.5(1) million pounds of copper in copper
concentrate, below revised guidance of 20-30 million pounds
- Realized zinc C1 cash costs(3) of $0.97 per payable pound sold on a co-product
basis and $0.88 per payable pound
sold on a by-product basis
- Realized copper C1 cash costs(3) of $1.72 per payable pound sold on a co-product
basis
"In 2017 we made a number of strategic decisions to position
Nevsun for long-term success. Key accomplishments include advancing
and de-risking the Timok Project through an investment of more than
$41 million. We completed the Upper
Zone PEA which highlighted Timok's outstanding economics. We will
deliver an initial reserve and pre-feasibility study ("PFS") on the
Upper Zone in late March 2018, and an
initial resource statement on the Lower Zone later in 2018," said
Peter Kukielski, Chief Executive
Officer. "The exploration decline permit was granted to Timok this
week – a testament to the strong working relationship that Nevsun
has built with the government of Serbia. We are grateful for their
continued support and plan to begin initial construction of the
decline in Q2 2018, advancing the Timok Upper Zone Project for the
benefit of local stakeholders and our shareholders alike."
Mr. Kukielski continued: "At Bisha, the metallurgical and mining
challenges of 2017 are largely behind us. Bisha is now set to
deliver reliable and consistent cash flows for 2018 and
beyond."
Timok Project Update
In Q4 2017, the Company released the Updated Timok Project Upper
Zone PEA, confirming the Upper Zone as a world-class copper-gold
deposit with outstanding economics as demonstrated by a robust NPV
of $1.5 billion and an IRR of 50% at
a discount rate of 8% and an assumed copper price of $3.00 per pound. The updated PEA highlights the
ultra high-grade nature of the deposit, which results in
exceptional operating margins in the early years of production,
with a payback period of under 1.5 years. The mine life of 16 years
provides an extended window for further exploration success in the
very prospective area around the project.
In late 2017, Jerzy Orzechowski
joined the company to lead the study and construction of the Timok
Project. His extensive experience building large projects in
emerging countries on time and on budget will be key to Timok's
continued successful delivery. Jerzy has built a strong team,
including Serbian site leadership.
Key milestones achieved in 2017 at Timok include the completion
of three phases of metallurgical test work, an extensive infill
drilling program totaling 30,000 metres and the first phase of
condemnation drilling, key technical mining and environmental
studies, and rapidly advancing permitting and land acquisition. As
of December 31, 2017, the Company has
acquired 100% of the land required for development of the
exploration decline and 40% of the required private land for
construction of the project.
Bisha Mine Update
Bisha moved a record 5.3 million tonnes of material in Q4 2017.
The mine's ability to move greater volumes of material has
continued into 2018. This progress is due to the purchase of
additional heavy mining equipment ("HME") made in H2 2017 and
better equipment availabilities due to the outsourcing of HME
maintenance. In Q4 2017 Bisha continued to focus on re-establishing
a more efficient pit configuration, which involved more waste
movement and adversely affected ore access and costs. These
initiatives have improved access to primary ore and will result in
lower unit cash costs going forward.
On processing, Bisha realized significant improvements over the
course of 2017, which included attaining breakthrough copper
production levels from primary ore in Q1 2017, moving away from
previous bulk concentrate production in the copper circuit, and a
steady, slow rise in zinc recoveries from an average of 65% in H1
2017 to an average of 73% in H2 2017 as Bisha tested different
operating parameters and reagent schemes.
In early 2018, through further investigations and reagent
trials, Bisha has achieved significant improvements in both copper
and zinc recoveries and concentrate qualities. Specifically, for
the first two months of 2018, zinc recoveries are averaging more
than 80% while copper recoveries are approaching 60%, resulting in
Bisha performing ahead of the 2018 plan and guidance for both metal
production and C1 cash costs. With continued strong zinc and copper
prices and low treatment charges, the Company anticipates excellent
cash generation from the Bisha mine in 2018, bolstering its already
strong balance sheet.
Voluntary Accounting Policy Change
With the increase in exploration and valuation expenditures in
2017 at the Timok Project, the Company initiated a voluntary review
of its accounting policy with respect to these expenditures. As a
result of this review, management has elected to change the
accounting policy effective December 31,
2017 in order to enhance the relevance and reliability of
the information available to the users of the Company's financial
statements. A review of the accounting policies of several peer
companies disclosed three common approaches to exploration and
evaluation expenditures:
- capitalizion of all expenditures;
- recognition of all expenditures in the statement of profit or
loss; or,
- recognition of expenditures in the statement of profit or loss
until a point at which management has a level of confidence in the
viability of the underlying mineral resource and/or reserve.
The Company's change in accounting policy moves it from the
first group to the third, which generally comprises larger mining
companies, consistent with Nevsun's expected growth in light of the
Timok acquisition.
Under the new accounting policy, all direct costs related to the
acquisition of mineral property interests are capitalized in the
period in which they are incurred. Exploration and evaluation costs
are then expensed until the point at which proven and probable
reserves are declared. Subsequent exploration and evaluation costs
are capitalized as incurred. As a result of the change, as at
December 31, 2017, decreases in net
equity were $52.3 million related to
the Timok Upper and Lower Zone Projects, $24.5 million related to the Bisha Mine, and
$2.5 million related to the Company's
other projects in Serbia and Macedonia, for a total decrease in net equity
of $79.3 million.
2017 Financial Review
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2017
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2016
(Restated)(2)
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Q4 2017
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Q4 2016
(Restated)(2)
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Revenue
(millions)
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$
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289.9
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$
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230.7
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$
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80.6
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$
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36.2
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Impairment charges
(millions)
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(49.0)
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-
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18.0
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-
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Earnings (loss) from
mine operations (millions) (2)
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(25.8)
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82.7
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15.0
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(4.7)
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Exploration expenses
(millions)
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(50.8)
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(18.6)
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(10.2)
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(10.4)
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Net income (loss)
(millions)(2)
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(99.6)
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16.2
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2.6
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(17.9)
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Net income (loss)
attributable to Nevsun shareholders
(millions)(2)
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(84.7)
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(2.7)
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(3.8)
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(16.5)
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Basic earnings (loss)
per share attributable to Nevsun
shareholders
(2)
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$
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(0.28)
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$
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(0.01)
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$
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(0.01)
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$
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(0.08)
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Dividends declared,
per share
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0.04
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0.16
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0.01
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0.04
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Cash
(millions)
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$
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124.6
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$
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199.3
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$
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124.6
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$
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199.3
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Working capital
(millions)
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162.3
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201.1
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162.3
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201.1
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Total assets
(millions)(2)
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1,086.4
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1,238.8
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1,086.4
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1,238.8
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Total non-current
liabilities (millions)(2)
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66.7
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82.8
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66.7
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82.8
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Zinc price realized,
per payable pound sold
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$
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1.36
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$
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1.17
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$
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1.54
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$
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1.17
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C1 cash cost per
payable zinc pound sold, co-product
basis
(3)
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0.97
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1.06
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1.23
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1.06
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C1 cash cost per
payable zinc pound sold, by-product
basis
(3)(4)
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0.88
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1.06
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1.13
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1.06
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Copper price
realized, per payable pound sold
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$
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2.88
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$
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2.13
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$
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3.26
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$
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-
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C1 cash cost per
payable copper pound sold, co-product
basis
(3)
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1.72
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1.04
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2.01
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-
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(1)
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Production numbers
for 2017 have been revised from the preliminary figures disclosed
by news release on January 10, 2018. Zinc production was revised
upwards from 207.8 million pounds while copper production was
revised downwards from 18.0 million pounds due to reclassifications
of ending concentrate inventory balances as at December 31,
2017.
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(2)
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Figures disclosed for
2016 have been restated as a result of a voluntary change in the
Company's accounting policy applied retrospectively for exploration
and evaluation expenditures. Please refer to note 27 of the
Company's 2017 Annual Consolidated Financial Statements for full
disclosure and quantification of the revised accounting
policy.
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(3)
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C1 cash cost per
pound is a non-GAAP measure. See page 30 of the Company's 2017
MD&A for discussion of non-GAAP measures and page 10 of the
Company's 2017 MD&A, Cash Costs, for explanation of per-unit
costs.
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(4)
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From 2018 onwards, C1
cash costs will be disclosed showing cash costs per payable pound
of zinc with copper on both a by-product and co-product basis.
Please refer to page 30 of the Company's 2017 MD&A for
additional discussion.
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In Q4 2017, the Bisha mine re-established a more efficient pit
configuration to rectify mine sequencing deviations made in earlier
quarters as a short-term measure to gain greater access to primary
ore. The focus on waste movement in Q4 2017 led to a higher strip
ratio and a reduced supply of primary ore feed, necessitating
additional processing trials of boundary ore (now reclassified as
"zinc-only") stockpiles, which were treated successfully for zinc
recoveries. Processing of these stockpiles resulted in higher
reagent costs due to increased lime usage to control pH levels.
These events contributed to abnormally low copper recoveries and
higher C1 cash costs for the fourth quarter and full year 2017. The
Company expects sustained primary ore feed from the mine in 2018,
reduced stripping requirements, and better copper and zinc
recoveries in the plant will lead to higher metal production and a
significant drop in C1 cash costs for both copper and zinc.
Based on the sustained successful recovery of zinc from
zinc-only stockpiles in Q3 and Q4 2017, the company has reversed
the previous impairment taken on the high- and medium- grade
portions of the zinc-only stockpiles. This resulted in an
impairment reversal of $13.1 million
recorded as at December 31, 2017
related to stockpiled ore, and a reversal of $6.5 million related to the zinc-only ore that
was successfully processed during Q3 and Q4 2017. This resulted in
a total reversal related to zinc-only stockpiles of $19.5 million recorded during 2017. The remaining
$49.0 million impairment charge as at
December 31, 2017 is composed of
$32.2 million related to zinc-only
stockpiles, $4.1 million related to
pyrite sand stockpiles, $3.0 million
related to oxide stockpiles, and $9.7
million related to obsolete equipment and related
inventory."
Updated 2018 Outlook
- Achieve top quartile safety performance at all operations
- Advance Timok Project Upper Zone with an investment of
$50 to $60
million
-
- Complete the PFS
- Declare an initial reserve, advance the feasibility study
("FS")
- Commence construction of the exploration decline
- Declare an initial resource on the Timok Project Lower
Zone
- Invest $15 million in exploration
including 12.5 km of follow-up drilling on highly prospective
exploration targets near the Timok Project Upper Zone
- Produce 210 to 240 million pounds of zinc at:
-
- C1 cash cost of $0.70 to
$0.90 per payable pound sold with
copper on a co-product basis; and
- C1 cash cost of $0.60 to
$0.80 per payable pound sold with
copper on a by-product basis
- Produce 20 to 30 million pounds of copper at:
-
- C1 cash cost of $1.55 to
$1.75 per payable pound sold on a
co-product basis
The Company plans to invest a further $50 to $60 million
at the Timok Project Upper Zone during 2018. This expenditure
underscores the Company's conviction that the Timok Project is
exceptional, offering amongst the highest project returns in the
mining sector. The PFS results on the Timok Project Upper Zone will
be released by the end of Q1 2018 followed by an initial reserve
estimate. The Company will then proceed with preparation of a
definitive feasibility study with an anticipated target completion
date within H1 2019. The new objective of delivering an initial
resource on the Timok Lower Zone was added to our original
outlook.
The Serbian government has issued the permit for construction of
the exploration decline. An estimated $15
million of capital expenditure on the exploration decline is
included in the 2018 budget for the Timok Project Upper Zone, with
construction scheduled to start in Q2 2018. The increased capital
expenditure on the Upper Zone in 2018 is offset by the reduced
capital spend on the Lower Zone as $16.5
million of the agreed $20
million Lower Zone commitment was incurred in 2017.
Approximately $1 million of Lower
Zone spending is planned in 2018.
Capital investment at Bisha will also decrease in 2018, with
budgeted capital of $15 million,
including $3 million on studies
investigating options to extend the mine life and $12 million for sustaining capital. This compares
to $29 million of capital spending in
2017.
Exploration expenditure of $5
million is planned around the Timok Project Upper Zone. The
2018 budget includes approximately 12,500 metres of Upper Zone
exploration drilling. Drilling will target new high grade,
high sulphidation mineralization near the Timok Upper Zone,
building on the promising exploration results announced in January
2018.
Approximately 16,000 metres of exploration drilling is planned
at the Company's 100% owned exploration projects in Serbia and
Macedonia at a cost of
$4 million. The exploration costs at
Tilva in Serbia are predominantly funded by Rio Tinto as part of
its earn-in agreement. A budget of $7
million for 15,000 metres of exploration drilling is planned
at Bisha.
Q4 2017 and 2017 Annual Results Conference Call and Webcast
Details
The Company will hold a conference call and webcast on
Friday, March 2, 2018, at
8AM Vancouver / 11AM
Toronto, New York / 4PM
London, to discuss the financial
and operating results.
Conference Call:
Please call in at least five minutes prior to the conference
call start time to ensure prompt access to the conference. Dial in
details are as follows:
North
America: 1 888-390-0546 / +1 416-764-8688 / +1
778-383-7413
UK: 0800 652 2435 (toll free)
Other International: +1
416-764-8688 / +1 778-383-7413
The conference call will be available for replay by phone until
Friday, March 9, 2018, by calling 1
888-390-0541 / +1 416-764-8677 and entering passcode 946987 #.
Webcast:
A live audio webcast of the conference call will be available on
the Company's website www.nevsun.com or by clicking
https://event.on24.com/wcc/r/1613620/6AEF584A5DC281DF7DD9FF4E5E8FFB23
About Nevsun Resources Ltd.
Nevsun Resources Ltd. is the 100% owner of the high-grade
copper-gold Timok Upper Zone and 60.4% owner of the Timok Lower
Zone in Serbia. The Timok Lower Zone is a partnership with
Freeport-McMoRan Exploration Corporation ("Freeport") which
currently owns 39.6% and upon completion of any feasibility study,
Nevsun Resources Ltd. will own 46% and Freeport will own 54%. Nevsun generates cash
flow from its 60% owned copper-zinc Bisha Mine in Eritrea.
Nevsun is well positioned with a strong debt-free balance sheet to
grow shareholder value through advancing Timok to production.
Forward Looking Statements
The above contains forward-looking statements or
forward-looking information within the meaning of the United States
Private Securities Litigation Reform Act of 1995, and applicable
Canadian securities laws. All statements, other than statements of
historical facts, are forward looking statements including
statements with respect to the Company's Bisha Mine in Eritrea and its intentions for its Timok Upper
Zone Project in Serbia (the "Timok Project"). The Company also
cautions the reader that the PEA previously released in September,
2017 and the PFS anticipated to be released in March, 2018 on the
Timok Project that supports the technical feasibility or economic
viability of the Timok Project, including the marketability of the
concentrate, mining method, costs, processing, metal recoveries and
any other technical aspects related to the Timok Project, is
preliminary in nature and there is no certainty that the PEA or the
PFS will be realized.
Forward-looking statements are frequently, but not always,
identified by words such as "expects", "anticipates", "believes",
"hopes", "intends", "estimated", "potential", "possible" and
similar expressions, or statements that events, conditions or
results "will", "may", "could" or "should" occur or be achieved.
Forward-looking statements are statements concerning the Company's
current beliefs, plans, objectives and expectations about the
future, including but not limited to statements and information
made concerning: statements relating to the business, prospects and
future activities of, and development plans related to the Company,
exploration activities, the adequacy of financial resources,
anticipated production, processing and recoveries of zinc and
copper, mineral reserve and resource estimates, mining efficiencies
and access to mineral reserves, goals, strategies, future growth,
planned future acquisitions, anticipated C1 cash costs to produce
zinc or copper, resolution of metallurgical challenges from
variable ore materials to produce concentrate and the ability to
increase processing and recovery rates of zinc and copper,
achievement of and timing for achievement of any key milestones
including, planned mineral movement at the Bisha Mine and other
events or conditions that may occur in the future regarding the
Company or its projects.
The actual achievements of the Company or other future events
or conditions may differ materially from those reflected in the
forward-looking statements due to a variety of risks, uncertainties
and other factors. These risks, uncertainties and factors include
general business, economic, competitive, political, regulatory and
social uncertainties; actual results of exploration activities and
economic evaluations; fluctuations in currency exchange rates;
changes in project parameters; changes in costs, including labour,
infrastructure, operating and production costs; future prices of
copper, gold, zinc, silver and other minerals; resource estimates
and variations of mineral grade or recovery rates; metallurgical
challenges; operating or technical difficulties in connection with
exploration; land acquisition; mining method, production profile
and mine plan; other development or mining activities, including
the failure of plant, equipment or processes to operate as
anticipated; delays in exploration, development and construction
activities; changes in government legislation and regulation; the
ability to maintain and renew existing licenses and permits and the
ability to obtain other required licences and permits in a timely
manner or at all; the ability to obtain financing on acceptable
terms and in a timely manner or at all; contests over title to
properties; employee relations and shortages of skilled personnel
and contractors; the speculative nature of, and the risks involved
in, the exploration, development and mining business including,
without limitation, other risks that are more fully described in
the Company's Annual Information Form for the fiscal year ended
December 31, 2016 (the "AIF") and the
Company's management discussion and analysis for the fiscal year
ended December 31, 2017 (the
"MD&A"), which are incorporated herein by
reference.
The Company's forward-looking statements are based on the
beliefs, expectations and opinions of management on the date the
statements are made and the Company assumes no obligation to update
such forward-looking statements in the future, except as required
by law. For the reasons set forth above, investors should not
place undue reliance on the Company's forward-looking
statements.
Further information concerning risks and uncertainties
associated with these forward-looking statements and our business
can be found in our AIF and MD&A, which is available on the
Company's website (www.nevsun.com), filed under our profile on
SEDAR (www.sedar.com) and on EDGAR (www.sec.gov) under cover of
Form 40-F.
NEVSUN RESOURCES LTD.
"Peter G.J. Kukielski"
Peter G.J. Kukielski
President & Chief Executive Officer
SOURCE Nevsun Resources Ltd.