Nevsun: More Downside Ahead Or Is A Bottom In?


  • Nevsun has reported its Q1 financial results.
  • The stock has continued to decline leading up to earnings and hit a fresh 52-week low.
  • However, Nevsun's Q1 results were positive and I think the stock may have bottomed. I explain below.

Nevsun: On The Road to Recovery?

NSU Chart

NSU data by YCharts

It certainly hasn't been a pleasant few months for shareholders of Nevsun Resources (NYSEMKT:NSU-OLD). Since my last article in February, shares have only continues to plummet, falling from $2.72 to under $2.40 per share. Between a 75% dividend cut and copper production issues at its Bisha mine, some shareholders have had enough.

It looks like things have begun to turn around for the company following its first-quarter 2017 earnings, however, and I think a bottom could be in. I thought it was a bounce-back quarter for Nevsun and it paves the way for a continued strong performance in 2017, as I'll point out below.

Nevsun says it sold 66.5 million pounds of zinc in Q1 at cash costs of $.89 per pound, plus it produced 3.3 million pounds of copper (no copper sales in Q1). One notable win for Nevsun: it improved zinc recoveries from 63.6% to 71%. With realized zinc prices of $1.28 per pound, Nevsun was profitable in Q1; it produced positive operating income of $11.7 million (much better than the $4.9 million loss reported last quarter), and $2.9 million in net income. It achieved this result without selling any copper in Q1.

The company is making progress at Bisha. Q1 zinc and copper production was higher than expected, and copper sales are expected in Q2. Nevsun says it's on track to meet its annual guidance, which calls for production of between 200-230 million pounds of zinc and 10-20 million pounds of copper.

Nevsun's balance sheet did not improve since the last quarter due to the required spending at Timok. Remember, Nevsun cut its dividend and has decided to redeploy $120 million over a 4-year period to fund Timok. If it does not produce enough cash flow, it has to

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Disclosure: I am/we are long NSU. 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.

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