Interesting article on the history of Nevsun
Article by Staci Davidson
Eritrea, with more than 620 miles of coastline along the Red Sea, has always been attractive to various foreign powers, including the Ottoman Empire, Egypt, England and Italy. It was this valuable coastline that also interested its much larger neighbor, Ethiopia, which ruled over the small country from the early 1960s to about 1993. This was not a peaceful rule, however, and after 30 years of war, Eritrea – which only covers about 45,500 square miles – was left without much infrastructure or a sizeable economy, and needed to attract some industry to support its population of 5.6 million people.
Around this same time, Nevsun Resources Ltd., a Canadian gold and base metal explorer, shifted its focus southward toward Africa. It started with a few properties in Ghana and Mali, but eventually realized what Eritrea had to offer. Nevsun made a discovery at Eritrea’s Bisha property in January 2003, and it soon became apparent to Nevsun and the Eritrean government that the development of this property would be a boon to both parties’ interests.
“We got into Africa in 1993 and in 1997 received an enquiry about investing in Eritrea,” Nevsun CEO Cliff Davis recalls. “By 1999, we were actively engaged in Eritrea and excited about the potential we saw there.”
Today, Nevsun is nearly finished with the construction of the Bisha Mine and expects it to be in operation by the end of this year. The Bisha project is a large precious and base metal-rich volcanogenic massive sulphide deposit, and it is fully financed and permitted. Nevsun says the mine will be a low-cost gold producer for the first two years of its 10-plus mine life, and a low-cost, high-grade copper concentrate and zinc producer for the remaining years. The company expects to return payable metals of:
- 1.06 million ounces gold
- 9.4 million ounces silver
- 734 million pounds copper
- 1 billion pounds zinc
Nevsun notes drill hole intersections have encountered mineralization to a maximum tested depth of 1,300 feet, but further resource potential exists beyond this depth and from nearby discoveries within the company’s licensed areas.
“According to our initial feasibility study, the mine plan is for 10 years,” Davis explains. “However, we already know it will have a longer life as there are additional resources that should be converted to reserves. In the long term it may be economical for us to go from open-pit to underground mining, as we know of resources at depth.”
SOUTHERN TRANSITION
Although Nevsun entered the African market in the mid 1990s, the company’s history dates back to 1965. This is when it was founded in Vancouver as a minor exploration operation working throughout Canada and the United States. For many years, it was involved with minor exploration projects, but was restricted to those two countries and never reached the production stage.
In 1993, however, Nevsun set its sights abroad and was successful in identifying properties with significant potential in Africa – the Kubi Project in Ghana and the Tabakoto Mine in Mali.
“Kubi was mined under agreement with Nevsun by Anglogold Ashanti between 1999 and 2004, and Tabakoto went into production in 2006,” Davis recalls. “We ended up selling both of those properties. We sold Kubi in 2007 and sold Tabakoto in 2008. We wanted to focus solely on Eritrea.”
In the early 2000s, Nevsun possessed a number of exploration licenses in Eritrea, which is bordered primarily by Sudan, Ethiopia and the Red Sea. The company was exploring various properties in Eritrea, and in January 2003 it made a discovery at Bisha, which is in the country’s west-central region. Nevsun extensively drilled at the property for the next two years to determine Bisha’s feasibility, and in 2006, the independent feasibility study was completed by AMEC Americas.
“In 2007 we entered into official agreements with the government of Eritrea and started our arrangements to get the development financed,” Davis says. “We commenced development in early 2008, and active construction began that summer. We spent most of last year in procurement and prepping the site, and we should be able to commission the plant in late 2010.”
COOPERATIVE COMMUNITY
Since its first developed interest in Eritrea and Bisha, Nevsun has been working closely with the Eritrean government. Davis says much of the project’s success is due to the government’s support.
“When we started exploration in Eritrea, there were only a few other companies involved in exploration, and it has been great to be one of the first here,” he says. “This government understands that the mining industry can be a significant change agent for the country. The government has been very active in working to attract foreign investment in Eritrea, and they’ve done it in a very responsible way.”
The Bisha Mine will be the first new mine since Eritrea’s colonial times, Nevsun notes, and the country’s mining industry will continue to be developed as the result Eritrean President Isaias Afewerki’s commitment to the country’s economic rehabilitation. The Eritrean government has a 10 percent free participating interest in the Bisha Mine, as well as a 30 percent paid participating interest through the Eritrean National Mining Corporation (ENAMCO), which is the state-owned mining company.
“The government’s objective is to have a clean, well-developed mining industry,” Davis stresses. “They’ve been very supportive in getting this project underway and we’re excited to be here.”
He explains the Eritrean government uses an internal review committee – comprised of representatives from various ministries – to evaluate the potential of a new project like the Bisha Mine. Additionally, the country’s environmental guidelines mandated a careful review of Nevsun’s processes and techniques, as well as the Bisha Mine’s feasibility and potential social and economical impacts. The operation also was evaluated to ensure it met the International Finance Corp.’s Performance Standards and the Equator Principles, which is a financial industry benchmark for determining, assessing and managing social and environmental risk in project financing.
“We have been fortunate that the government and entire country have been so cooperative“ he says. “We haven’t run into any corruption or any underhanded dealings.
“Bisha is breaking ground for this industry in Eritrea. It was the first mining project to be financed and the first to complete a feasibility study. Financiers carried out extensive due diligence to make sure this project meets high international standards.”
MINING INDUSTRY MAINSTAYS
Bisha has progressed farther than other Eritrean mining endeavors, and Nevsun sees this as an opportunity to help equip the country’s work force with the skills necessary to perpetuate the industry as a whole. Although a number of the company’s Canadian employees came to Eritrea to start the Bisha project and some have remained to oversee it, Nevsun primarily has hired local laborers for the project.
“When Bisha is in full operation, we expect to have at least 400 total employees,” Davis says. “About 50 of those will be expats, but the rest will be local. Our dedication to local staff is apparent right now during the construction phase. Out of about 700 people that we have working on the project right now, less than 100 are expats.”
He admits the country has not fully developed all the necessary mining skills, so Nevsun is and will be providing extensive process and operational training in three core areas: work ethic training and induction to health, safety, environment and community standards; skills and craft training; and on-the-job training. In these core areas, Nevsun will:
- Provide basic literacy and skills training
- Work with local organizations to develop apprenticeship programs and promote technical training by establishing skills-development centers
- Supply teaching and learning materials
- Support the region’s private training colleges
“It only makes sense for us to use as many local resources as possible,” Davis asserts. “It is important for the local people to know and understand what we are doing in their country, and we can help our project and the local economy even more by hiring and training Eritrean residents.
ENVIRONMENTAL AND EMPLOYEE PROTECTION
Nevsun stresses its dedication to social improvements is equal to its focus on maintaining environmental sustainability, so the company is using local and national Eritrean requirements for land use, as well as International Finance Corp. (IFC) Performance Standards as guides for remaining in compliance in these areas.
Before construction, the Bisha project area did not include any permanent residential land, but some herders had built seasonal dwellings for periodic use in the area. Nevsun found that most of the project’s land was used as grazing for livestock, and only minimal space was for crop cultivation. To mitigate the effects of land lost to the Bisha project, Nevsun has provided local residents with compensation, non-land-based employment opportunities, assistance with establishing businesses and support services. Its efforts to date have included:
- Consulting with a number of affected families and communities during the impact assessment to discuss land use and compensation issues
- Supporting government activities to provide replacement land for 19 families affected by the loss of agricultural land in the project area
- Renting a tractor for farmers – those who were displaced from farming near the Bisha mine – to plow their new land that was allocated by the local and regional authorities.
As for the land within the Bisha project, Nevsun will use conventional open-pit mining techniques when the Bisha mine is in operation, but it has established a number of processes and procedures to limit its effect on the land. For example, Nevsun has plans for the management of noise, wildlife, air quality and erosion control, and is dedicated to:
- Protecting the land from and effectively disposing of hazardous and non-hazardous waste
- Ensuring the proper storage, management and disposal of petroleum and oils
- Environmentally sound disposal of waste
- Effectively transporting, storing, managing and disposing of cyanide used during the gold and silver extraction phase
- Protecting the water resources in the areas surrounding the Bisha project during the construction, operations and closure phases of the project.
“The head of our environmental department has a Ph.D. in hydrology and is Eritrean by birth,” Davis explains. “He has been instrumental in all environmental aspects of the project since we conducted the feasibility study, and has been very helpful in developing responsible social and environmental processes for our operations at the Bisha mine. Our employees also are engaged with liaison officers in the community to ensure everyone is informed of what we are doing and the plans we have.”
In addition to protecting the environment, he adds, Nevsun is dedicated to helping its employees remain safe. “A strong safety record and demonstrating limited impacts on the environment are key ingredients of a successful development,” Davis stresses. “Training is a significant part of our development of the Bisha project, because we want it to be the best it can be. Currently, we have more than 2 million man-hours invested in this project, and we’ve only had on lost-time accident. We are dedicated to ensuring everyone has been properly oriented, has the proper equipment and understands the proper procedures for working here.”
OPTIMISTIC AND FOCUSED
At this time, construction of the Bisha mine is more than 50 percent complete and Nevsun expects to commission the production plant in late 2010. It has procured the necessary equipment and materials and its principal development and operational contracts are in place. Pre-strip mining commenced in March 2010 and will last for about six months. Ore stockpiling will likely begin during the early part of the third quarter.
Additionally, Nevsun continues to work at the nearby Harena deposit – which is within its current mining license – to define its potential as mill feed for the Bisha plant. The company also plans to drill at other potential targets on the property, along with continued prospecting, mapping, sampling and ground geophysical surveys in order to potentially identify new targets within its license.
Davis describes the economic strength of the Bisha project as having high returns and quick capital payback, due to low operating costs throughout the projected mine life. Nevsun has developed three scenarios of economic estimates from the mine, based on three types of metals prices:
- With low metals prices, Nevsun expects a 20 percent internal rate of return, payback within 2.8 years and $426 million net cash for mine’s life.
- With medium metals prices, the company projects a 45 percent rate of return, payback within 1.6 years and $1.1 billion net cash for the mine’s life.
- If metals prices are high, the firm plans for a 63 percent internal rate of return, payback within one year and $1.75 billion net cash for the mine’s life.
“Right now, we are totally focused on getting Bisha into production,” Davis stresses. “We plan to stay super focused on that before we allow ourselves to be distracted by other opportunities.”