Other Anaylst on nsu
TICKER: TSX:NSU, NYSE.A:NSU
DESCRIPTION: Nevsun is a gold and base metal explorer/developer, currently advancing to production its fully financed high grade gold, copper and zinc Bisha Project, located in Eritrea, Northeast Africa.
WEBSITE: https://www.nevsun.com
The information below is based on the most recent information we have received from analysts and the companies participating in The Gold Report. We encourage you to visit the company's web site for updates.
Analysis & Forecasts: Nevsun remains on-track to begin producing at its 60%-owned Bisha gold-silver-copper-zinc project in Eritrea. The project financing of $235 million (at an average of LIBOR plus 5.7%) is in place with initial drawdown expected in September. We continue to forecast the mine starting up in Q4/2010 with production (Nevsun's 60% share) of 250,000 oz/yr of gold for the first 2.5 yrs, followed by the copper phase (100 million lbs/yr for 3 yrs), and the zinc phase (130 million lbs/yr for 5 yrs). The IRR of the project, based on our metal price forecasts, is 88%. The company indicates there has been $73.3 million spent on Bisha and there remains an additional $177.0 million to complete construction.
Valuation & Recommendation: Our NAV estimate of $3.40 per share is based entirely on the company's 60% interest in Bisha. Our NPV of $406 million is based on a 10% discount rate to account for the political risk, and long-term gold, copper and zinc prices of $950/oz, $2.15/lb, and $0.90/lb, respectively. Our target price of C$3.00 is based on a 0.75x NAV, which brings into consideration the stage of development of Bisha and the base metal component (i.e., lower multiple) of the project. Despite these conservative parameters, our target implies a 79% projected rate of return, which we believe is well worth the risk associated with the name. We are maintaining our OUTPERFORM.
Primary Reasons for Recommendation:
- Development of the Bisha mine in Eritrea is the company's main focus.
- Valuation attractive, but execution risk and political risk are the concerns.
-RICHARD GRAY, BLACKMONT CAPITAL (08/24/09)
"Nevsun has announced the closing of debt facilities totaling $235M to be used to fund development of the Bisha project in Eritrea.
. . .The closing of the debt facility allows the Bisha project to proceed with construction, with completion expected in 12 months. Of the $220M construction capex expected, Nevsun has already spent $100M.
The financing was not cheap, with finance costs representing 19% of the $235M facility but they also include the cost of the hedge position. Terms of repayment and interest costs over the life of the debt will be announced at a later date.
We maintain our Outperform rating and C$2.85 target."
-PIERRE VAILLANCOURT, MACQUARIE SECURITIES (07/17/09)
"Nevsun announced that its 60%-owned subsidiary, Bisha Mining Share Company (BMSC), formally closed a previously announced US$235M debt facility to partially fund development at the advanced-stage Bisha Au-Cu-Zn project in Eritrea (100% owned by BMSC)
. . .We continue to highlight Bisha's modest initial capital cost, coupled with the quality of the underlying asset, relative to the near-term debt requirements of many other advanced-stage project developers. We have mitigated risk associated with potential delays in construction/commissioning by modeling oxide gold production start-up in (early) 2012, versus the company's Q3/10 target. Nevsun has done a good job of advancing its 60%-owned Bisha project from a grassroots exploration story in 1998 through to full feasibility in late 2006, delineating a world-class VMS deposit in the process. However, with permitting and financing risk now significantly reduced, we anticipate that a number of 'seasoned' operators will shift focus to Eritrea, recognizing the country's geologic potential. With construction now underway, we believe Bisha is 'ripe for the picking' in a marketplace characterized by ongoing consolidation."
-STEFAN IOANNOU, HAYWOOD SECURITIES (07/17/09)
"Nevsun's 60%-owned Bisha gold-copper-zinc project in Eritrea is now essentially fully financed following the approval of a US$235M debt facility.
. . .Following the completion of a bankable feasibility study in October 2006, an ownership agreement with the Government of Eritrea in October 2007 and the formal receipt of a mining license in January 2008, Nevsun continues to advance its 60%-owned Bisha gold and base-metal project towards production start-up targeted in Q3/10. Long-lead-time equipment orders have been placed, and construction is underway. Bisha is expected to produce more than 400,000 ounces of gold annually at an average total cash cost of about US$265 per ounce (Haywood model) during its first two years of operation, followed by eight years of high-grade open-pit copper and zinc production. Bisha will likely be the first of a number of recently discovered volcanogenic massive sulphide (VMS) deposits developed in Eritrea. In time, we anticipate that the country will emerge as a world-class VMS mining district, and Nevsun offers the best entrance point to this potential with its advanced-stage Bisha project and a number of other very good exploration targets.
. . .With a feasibility study concluded, a mining license in hand and project financing essentially complete, we believe that Bisha is 'ripe for the picking' in a marketplace characterized by ongoing consolidation. Corporate activity aside, Nevsun is well-positioned to advance Bisha give the company's strong balance sheet and the project's modest initial capital-cost requirements, now more than fully funded in part by a recently approved US$235 million debt facility. Debt financing support, despite the ongoing credit 'crunch', reflects Bisha's 'world-class' potential and advances Nevsun one step closer to producer status. We continue to recommend Nevsun Resources Ltd. (NSU-T) with a SECTOR OUTPERFORM rating and target price of $2.65 per share."
-STEFAN IOANNOU, HAYWOOD SECURITIES (07/14/09)
"Nevsun has received all required credit approvals from the project finance lenders for debt facilities totaling $235 million. Draw down on the debt is expected in the next few months.
We would argue the project has started to be de-risked, as the debt facility validates the economics of this project, removing a bottleneck to an equity rerating. We have kept our discount rate at 20% at this stage.
We expect that the equity finance that has been put into the project (by Nevsun and the state partner ENAMCO) to date will satisfy the project finance requirements and so no further equity will be required.
We value Nevsun using a 0.8x P/NAV to our NAV of C$3.14/sh (at 20%), to derive a 12-month target of C$3.00/shr. We rate the stock a BUY."
-MARK SMITH, GMP SECURITIES EUROPE LLP (07/14/09)