A rich deposit, a co-operative government and impeccable timing have combined to earn Vancouver’s Nevsun Resources Ltd. (TSX:NSU) the top berth on Business in Vancouver’s list of fastest-growing companies for 2013.
Since starting work on a gold-copper-zinc mine in Eritrea, East Africa, in 2008, Nevsun has been firing on all cylinders.
“The grades have been coming in higher than expected over the last few quarters, they’re meeting their guidance and hitting it out of the park,” said Stefan Ioannou, a mining analyst with Haywood Securities.
For an industry generating so many negative headlines, Nevsun is a rare good-news story. The company has $350 million in cash on its books and a total of $500 million in working capital, and it is now shopping around to buy new assets, most likely outside of Eritrea.
“We’re looking to buy another producing [mine] or development project,” said Scott Trebilcock, Nevsun’s vice-president of business development and investor relations. “We want to grow this company, not through exploring but through developing other projects.”
Nevsun’s Bisha mine went into production in late 2010, producing low-cost doré (an alloy containing both silver and gold) when gold was still at $1,400 per ounce.
In August 2011, the company announced the state-owned Eritrean National Mining Corp. (Enamco) would invest $253.5 million in the project. Enamco now owns a 40% stake in the mine. That has helped the company finance subsequent copper and zinc circuits.
The Bisha deposit is a rich one, with a layer of gold on top of a layer of copper, which sits atop a layer of zinc.
“Bisha is a world-class deposit,” Ioannou said. “It’s large and it has very high grades.”
It also is well located, as it is in flat terrain with access to water and power and is close to Eritrea’s third-largest city, meaning it has access to a local workforce who can commute to the mine, which employs 900 Eritreans and 100 expatriates.
As the topmost gold was processed, the company built a copper processing plant. Budgeted at $125 million, it came in at $110 million.
“Coming in under budget is obviously a huge feather in your cap and it’s pretty rare,” Ioannou said.
The copper came into production in December 2013 when copper prices were still above US$4 per pound, and now the company is investing another $90 million in a zinc circuit, at a time when zinc prices are anticipated to improve.
“Because we have a very rich copper mine, the earnings and revenue growth have been huge in 2013 to 2014,” Trebilcock said.
“We’re planning to have zinc production in late 2016, which, if you believe the current analysts’ forecasts, should be well timed for a robust zinc market.”
“Timing is everything in the mining industry, and these guys have fortunately hit the ground running,” Ioannou said.
In addition to the Bisha deposit, Nevsun owns other deposits within a few kilometres of the mine.
Despite its recent rapid growth, Nevsun is by no means an overnight success story. In fact, it’s a story that started nearly half a century ago.
Founded in 1965 by Vancouver prospectorEd Angus, who died in 2012, Nevsun’s discoveries included deposits in Ghana, Mali and Eritrea.
Some of the world’s richest deposits are located in countries that are politically unstable, which explains why, despite good mineral deposits, Eritrea had no major mining operations before Nevsun’s Bisha mine.
It wasn’t until 1993, when Eritrea won its independence from Ethiopia and was formally recognized by the United Nations, that mining companies and investors began to see Eritrea’s potential.
The Eritrean government created a new mining act designed to promote mining there and has been consistent in its application, Trebilcock said.
The Bisha mine is Eritrea’s only major mine, although other mining companies are now in Eritrea looking to develop new mines, including Vancouver’s Sunridge Gold Corp. (TSX-V:SGC).
“We really were trailblazers,” Trebilcock said. “I think it’s a testament to how Canadian companies can go out and generate value overseas, not just for Canadian shareholders but also for the country we’re in.”