Base Metals

Canadian copper miner Nevsun Resources released its third-quarter results last Thursday, and they show increased copper production as well as higher copper grades. That’s given analysts plenty to mull over and praise.

The third quarter brought good news for Nevsun Resources (TSX:NSU,NYSEMKT:NSU) and its Bisha mine as higher-than-estimated copper grades and increased output brought praise from analysts.

The company posted its third-quarter results last Thursday, highlighting a 19-percent quarter-on-quarter increase in copper production at its East African property, while keeping cash costs relatively flat. The mine produced 56.4 million pounds of the metal, with revenue somewhat slumping to $147.9 million from $169.2 million in the prior quarter.

To date, the Canadian company’s share price is up 7.37 percent, despite a copper market that has seen steep drops over the course of the past year.

What’s the silver lining?

Since Nevsun’s Q3 results release analysts have been lining up to praise the company, pointing out several highlights seen this past quarter. As mentioned, while revenue and net income saw slight slumps, higher grades and increased output helped provide a surge of optimism. Nevsun also had the lowest quarterly cash costs across the industry at $1.07 per pound of copper.

Additionally, the company reported a safety milestone of over three years without a delay caused by injuries.

Despite its underwhelming financial results, Nevsun’s balance sheet remains strong. It has a cash position of US$380 million, and analysts with Haywood see it increasing to $435 million by the end of 2014.

Meanwhile, Joseph Gallucci of Dundee Capital Markets said in a note to investors that increased copper production from quarter to quarter makes the company an attractive investment. “With excess capacity at the plant, we believe [Nevsun] is well on track to meet 2014 production guidance of 180-200M lbs of copper,” he states.

While the company had expected copper grades to go down with continued mining, the grades (at 6.3 percent) beat out the estimate of 5.5 percent Dundee had given.

Over at Haywood Securities, the view is much the same.

“The Company is backed by a strong balance sheet that included a September 30, 2014 cash position of US$380M ($2.14 per share; increasing to ~US$435M [$2.40 per share] by year-end 2014 in our model) and no long-term debt, positioning Nevsun for corporate growth—arguably the Company’s next ‘wildcard catalyst’,” wrote Stefan Ioannou in a note to investors.

What does the future hold?

In a conference call held on Friday, Cliff Davis, CEO of Nevsun, spoke of the company’s long-term plans and goals, noting that exploration will be a big focus.

“Over the past year we have released drill results confirming what we have believed … there is a significant potential to expand the mine life over several years, if not decades. Four years ago the mine life was 10 years. After four years of mining, its now 11 years, which is a 50-percent increase,” he said, adding, “we’re bullish on exploration success.”

Davis also said he expects the mine to generate about $120 million in post-tax, pre-capex cash flow, ensuring the company has the ability to stay agile in the market.

Finally, while the good news was largely about copper, Davis also spoke of the company’s desire to forge ahead with a zinc expansion on its Bisha property. An $89.5-million budget — including a $9-million contingency — has been approved to complete the expansion, a move Davis says will continue.

“Growth is the next plan. We’re considering additional investment in zinc mining in 2016 and 2017,” he said.


Securities Disclosure: I, Nick Wells, hold no direct or indirect investment in any of the companies mentioned.



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