Nevsun's Bisha Mine Back On Track?

Summary

• The good news is that the efficiency of the copper circuit at the Bisha mine has improved notably in Q2 2017.
• The bad news is that zinc production declined significantly, due to the lower feed grades and recoveries.
• Despite some positive developments, there is still a lot of space for further improvements at the Bisha mine.
• Things seem to be much better in Serbia. The Timok Upper Zone PFS is still expected in September, and the Lower Zone keeps on delivering extremely long intervals of copper-gold mineralisation.
• Shares of Nevsun Resources still provide significant upside potential.

Nevsun Resources (NYSEMKT:NSU-OLD) announced Q2 production results from its Bisha mine. Although zinc production declined compared to Q1, due to lower feed grade and recoveries, copper production increased notably. The most important news, according to Peter Kukielski, Nevsun's CEO, is that:

We continue to see gradual improvements in the plant performance. We are now producing copper concentrate consistently in the copper circuit versus the prior three quarters where bulk concentrate was being produced.

Although there is still a lot of room for more improvements, the main issue of the Bisha mine seems to have been resolved. Nevsun is finally able to produce not only zinc but also copper concentrate. However, the whole process still needs a lot of fine-tuning in order to get to the projected production volumes.

In Q2, zinc feed grade declined from 5.9% to 5.3%, or by slightly more than 10%. Copper feed grade declined from 0.9% to 0.8%, or by slightly more than 11%. However, the grades should improve in the future, as the primary ore included in the reserves contains 5.57% zinc and 1.1% copper.

(Source: Nevsun Resources)

Also, zinc recoveries experienced a decline. In Q1, recoveries of 66.6% were achieved at the Bisha mine. In Q2, recoveries declined to 62.22%. According to the company, the decline in zinc recoveries was caused by the efforts to improve copper recoveries. Copper recoveries increased rapidly, from 34% in Q1 to 51.6% in Q2. Zinc and copper concentrate grades remained almost unchanged.

(Source: Nevsun Resources)

Lower feed grades and recoveries had a negative impact on Q2 zinc production. While Nevsun was able to produce 51.9 million lb zinc in Q1, it produced only 43 million lb zinc in Q2. This represents a more than 17% decline. Copper production increased almost by 36% to 5.7 million lb. The loss of 8.9 million lb zinc can be hardly compensated by 1.5 million lb copper. It means that while the improvement of copper recoveries and growth of copper production is positive news, Q2 operating results as a whole are negative compared to Q1.

(Source: Nevsun Resources)

During H1 2017, Nevsun produced 94.9 million lb zinc and 9.9 million lb copper. According to 2017 production guidance released in February, 200-230 million lb zinc and 10-20 million lb copper should be produced this year. Based on H1 production results, the company should be able to exceed the upper limit of copper production guidance. The lower limit has almost been reached already. However, due to poor Q2 performance, zinc production lags slightly behind the plan. Zinc production will have to increase in Q3 and Q4 if the lower limit of 2017 zinc production guidance is reached. More information about what to expect in the second half of 2017 should be known on August 10, when the Q2 earnings call is scheduled.

(Source: Author's own calculations, using data from Nevsun Resources)

Although the Bisha mine is Nevsun's only producing asset right now, the company's future depends especially on the Timok Project. The Timok Upper Zone PFS is still expected in September. And the Timok Lower Zone keeps on growing. On June 29, further drill results from the Lower Zone were reported. The most exciting results were provided by drill holes TC170131A that intersected 798.1 meters grading 0.8% copper and 0.22 g/t gold, TC170125D (1.02% copper and 0.25 g/t gold over 327 meters) and TC160118 (1.01% copper and 0.18 g/t gold over 336.1 meters).

Conclusion

Although the performance of the copper circuit has improved notably, the situation at the Bisha mine is still far from optimal. There are still some improvements needed in order to reach the designed production metrics. More information about what to expect from Bisha in the coming months should be known on August 10. On the other hand, the developments in Serbia seem to be very positive. The Timok Upper Zone PFS is still expected in September, and the Timok Lower Zone keeps on providing very good exploration results. When talking about exploration, in H2 2017 too some news related to the exploration program in Eritrea can be expected. Despite the recent issues, shares of Nevsun Resources still provide significant upside potential.

Analyst’s 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.