Nevsun Resources - Strong Quarterly Earnings Shows Continued Strength

| About: Nevsun Resources (NSU)

Summary

Nevsun Resources' stock price peaked in mid-2010 and starting in mid-2011, the company's stock price began to fall before bottoming in January 2016.

Nevsun Resources has recently acquired full rights to the Timok Project Upper Zone along with 54% of the Timok Project Lower Zone.

Combining the Bisha Mine and the Timok Project, Nevsun Resources assets are worth billions of dollars. This will provide Nevsun Resources with significant long-term income.

Introduction

Nevsun Resources (NYSEMKT: NSU) is a Canadian mid-tier mining company headquartered in Vancouver, British Columbia. The company's only producing asset is the Bisha Mine in Eritrea, Africa which produces copper, gold, and zinc. However, the company as also acquired the Timok Mine project in Serbia, which as we will see, has significant potential to increase the company's production.

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Nevsun Resources - BP Blogspot

Nevsun Resources has had a difficult time since the peak in the commodities business in 2011. The company's stock peaked at more than $7.5 per share in 2010, however, the company's stock price really began to fall in 2011. Nevsun Resources' stock price drop bottomed out at just over $2 per share in January 2016, and since then, the company's stock has recovered to present prices of almost $3 per share.

However, despite the stock price not representing it, Nevsun Resources has shown some impressive growth during this time. The company has offered investors a mid-single digit dividend yield during this time, very respectable in the present environment. At the same time, the company has continued to make new discoveries at its Bisha Mine keeping reserves growing. And the company has recently used its cash pile to acquire the Timok Mine which should bring it impressive future growth.

Bisha Mine Discussion

Now that we have an overview of Nevsun Resources, it is now time to begin our discussion with an overview of Nevsun Resources' only producing asset, Bisha Mine.

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Bisha Mine Production - Nevsun Resources Investor Presentation

Nevsun Resources' has a significant amount of remaining payable metals in the Bisha Mine. The company's Bisha Mine has 0.47 billion pounds of copper, 1.7 billion pounds of zinc, 240 thousand ounces of gold, and 8.2 million ounces of silver. At present market prices, that means that the company's Bisha Mine has the ability to generate $3.5 billion in revenue.

Over the past month, copper prices have ticked up to $2.5 per pound. Previously at roughly $2.0 per pound, Nevsun Resources was earning roughly $50 million in operating income for $200 million in revenue. That means that Nevsun Resources' remaining revenue has the potential to generate the company almost $0.9 billion in operating income.

Given that this income is expected to be paid out over the next decade as the Bisha Mines' reserves are used, that shows strong immediate cash for Nevsun Resources shareholders.

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Nevsun Resources Capital and Financial Delivery - Nevsun Resources Investor Presentation

And these expected earnings from Nevsun Resources' Bisha Mine don't take into account the company's growth in reserves. Looking at the above graphs, you can see that since the startup of the Bisha Mine almost a decade ago, the mine's reserve life has increased roughly the same as new discoveries have made up for the decrease in resources.

Given the size of the Bisha Mine project and the idea that Nevsun Resources is planning on spending $10s of million in additional exploration this year and in subsequent ones, we can expect the mine's reserves to continue to increase.

Timok Project Discussion

Now that we have talked about Nevsun Resources' Bisha Mine, it is now time to discuss the company's recently acquired Timok Project.

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Nevsun Resources Serbia Overview - Nevsun Resources Investor Presentation

Unlike Nevsun Resources' Bisha Mine project that has had to deal with being in Eritrea, a country with a dictatorship and a poor human rights record, Nevsun Resources' Timok Project is located in Serbia. Serbia is a country with a strong support for foreign nations and strong mining infrastructure. Nevsun Resources' Timok Project will provide the company with strong power, roads, rail, and water infrastructure along with other assets.

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Nevsun Resources Upper Zone Overview - Nevsun Resources Investor Presentation

Nevsun Resources is broken into both the Upper Zone and the Lower Zone, with the Upper Zone being where Nevsun Resources plans to start mining. The Upper Zone is an impressively large semi massive sulphide deposit holding resource grades incredibly rare in major projects. The Upper Zone is 100% owned by Nevsun Resources and mining is expected to start in a few years.

Nevsun Resources Upper Zone has 35 million tons of resources at a 2.9% copper grade and 1.7 grams per ton of gold. In these resources, are 1.7 million tons of indicated material at a 13.5% copper grade and a 10.4 grams per ton gold grade. That means that these indicated mineral resources are currently valued at $1.85 billion.

And that value of the indicated mineral resources does not even take into account Nevsun Resources inferred mineral resources. And the value of Nevsun Resources Upper Zone indicated resources has increased by more than $0.2 billion from the recent spike in copper prices.

Since the cost of Nevsun Resources' production will likely not increase, that means this $0.2 billion will go straight to the profits. And with a 12 year mine life, assuming Nevsun Resources manages to hold the same profit margin of its Bisha Mine (except with its 100% stake), that means the Upper Zone will likely earn Nevsun Resources $10s of millions in additional profits each year of its mine life.

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Nevsun Resources Upper and Lower Zone Deposits - Nevsun Resources Investor Presentation

And if you thought that the Upper Zone was impressive, take a look at the Lower Zone which is significantly larger than the Upper Zone. The Lower Zone is an extensive porphyry style copper-gold mineralization with significant earnings potential from underground mining. The stake is so impressive that Freeport-McMoRan (NYSE: FCX) has signed on for the project and is a 54% JV.

As a result, the project is so impressive that Nevsun Resources is spending $20 million drilling in the Lower Zone before the end of 2017. That shows the potential of the Lower Zone project.

Conclusion

Nevsun Resources has had a difficult time since stock prices took a large hit after the commodity peak in 2011. However, despite this, Nevsun Resources has continued to provide investors with a respectable mid-single-digit, significantly higher than other mining companies. On top of that, Nevsun Resources has continued to grow recently acquiring the Timok Project and continuing Bisha Mine exploration.

As we saw above, Nevsun Resources' recent decisions leave the company in an impressive position. With the recent rise in copper prices, Nevsun Resources Bisha Mine is valued at almost $4 billion. On top of that, the company's Timok Project Upper Zone has a large amount of high grade reserves valued at almost $2 billion and the Timok Project Lower Zone has even more reserves.

As a result, Nevsun Resources is a strong investment at the present time.

Disclosure: I am/we are long NSU, FCX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.