In the first 3 months of 2012, a total of 82,000 ounces of gold were mined and sold, representing $131 million (at a gold price of $1,600). For 2012, a total production of around 200,000 ounces is expected representing $320 million (at a gold price of $1,600), whereas Nevsun owns 60% of Bisha and the Government of Eritrea the remainder. Thus, with a current market capitalization of $695 million, Nevsun is valued at only 3.6 times its anticipated 2012 gold sales stake ($192 million) - which we consider undervalued, especially with higher gold prices during 2012.
With cash costs between $264 and $314 per ounce during 2011, Bisha is one of the lowest-cost gold mines in the world, making Nevsun one of the most profitable resource companies around these days. Since commercial production started in February 2011, the Bisha deposit has turned into one of the highest graded open pits in the world.
As per the latest official reserve calculations (March 2011), the proven and probable reserves stand at 28 million tons of ore, averaging 1.8 g/t gold. Due to Bisha being a VMS-deposit, these current reserves additionally host on average 39 g/t silver, 1.6% copper and 3.2% zinc. In 2011, some 34,000 meters were drilled to mainly expand the mineable deposit, whereas the new reserve calculations are expected to be released in late Q2 or early Q3. As the assays already indicate, we anticipate a significant increase in reserves and mine life which currently stands at more than 12 years.
Technically, the stock price consolidated sideways predominately within the boundaries of the red-green triangle between 2003-2010. After the red triangle leg at approximately $3.50 was broken successfully in mid-2010, a so-called "breakout" started reaching $7.50 a few months later. In early 2012, a so-called "classical pullback" occurred typically bringing the price back to the triangle apex at approx. $3.20. The final movement of a triangular price formation is called a "thrust" - either a strong and longer-termed up- or downward trend typically starting immediately after the pullback to the apex.
As the price already started to increase from the apex, we anticipate the thrust to go to the upside (sell-signal à la thrust to the downside when breaching the apex and the $3 level). Principally, the goal of a thrust (to the upside) is to transform the resistive high of the breakout ($7.50) into new support in order for a new and longer-termed upward trend to commence thereafter.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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