UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
[ ] Registration statement pursuant to
Section 12 of the Securities Exchange Act of 1934
or
[X] Annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934
| For the fiscal year ended December 31, 2014
|
Commission
File Number 001-32405
|
NEVSUN RESOURCES LTD.
(Exact name of registrant as specified in
its charter)
British Columbia
(Province or Other Jurisdiction of
Incorporation or Organization)
|
1041
(Primary Standard Industrial
Classification Code)
|
Not Applicable
(I.R.S. Employer
Identification No.)
|
760 - 669 Howe Street,
Vancouver, British Columbia, Canada V6C
0B4
(604) 623-4700
(Address and telephone
number of registrant’s principal executive offices)
Gibson, Dunn & Crutcher LLP
3161 Michelson Drive, Irvine, CA 92612-4412
(949) 451-4343
(Name, address and telephone number of agent for
service in the United States)
Securities registered or to be registered pursuant to Section
12(b) of the Act:
|
Title of Each
Class:
|
Name of Each
Exchange On Which Registered:
|
|
Common shares, no
par value
|
NYSE MKT LLC
|
Securities registered or to be registered
pursuant to Section 12(g) of theAct: None
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None
For annual reports, indicate by check mark the
information filed with this form:
| [X] Annual Information Form |
[X] Audited Annual Financial Statements |
At December 31, 2014, the Registrant had 199,652,802 outstanding common shares with no par value.
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post
such files).
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
The Annual Information Form of
Nevsun Resources Ltd. (the “Registrant”) for the fiscal year ended December 31,
2014 (the “Annual Information Form”) is attached as Exhibit 99.1 and is
incorporated herein by reference.
The audited consolidated
financial statements of the Registrant for the years December 31, 2014 and 2013
(the “Financial Statements”), including the reports of the auditors with
respect thereto, are attached as Exhibit 99.2 and are incorporated herein by
reference.
The Registrant’s management’s
discussion and analysis (“MD&A”) for the years ended December 31, 2014 and
2013 is attached as Exhibit 99.3 and is incorporated herein by reference.
EXPLANATORY NOTE
The Registrant is a Canadian
issuer eligible to file its annual report pursuant to Section 13 of the
Securities Exchange Act of 1934 (the “Exchange Act”) on Form 40-F. The
Registrant is a “foreign private issuer” as defined in Rule 3b-4 under the
Exchange Act. Accordingly, the Registrant’s equity securities are exempt
from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to
Rule 3a12-3.
CAUTIONARY NOTE TO UNITED STATES INVESTORS CONCERNING
DIFFERENCES IN
UNITED STATES
AND CANADIAN REPORTING PRACTICES
The Registrant is permitted,
under a multi-jurisdictional disclosure system adopted by the United States, to
prepare this annual report on Form 40-F in accordance with Canadian disclosure
requirements, which are different from those of the United States. In particular,
and without limiting the foregoing, all mineral resource and reserve estimates
included in this report have been prepared in accordance with Canadian National
Instrument 43-101 and the Canadian Institute of Mining and Metallurgy (“CIM”)
Classification System. These standards differ significantly from the
requirements of the United States Securities and Exchange Commission (the
“Commission”), and mineral resource and reserve information included herein may
not be comparable to similar information concerning United States companies.
For definitions of the terms
mineral reserve, mineral resource, measured mineral resource, indicated mineral
resource and inferred mineral resource under CIM standards, and a summary of
the differences between CIM and U.S. standards, see information contained in
the section entitled “Cautionary Note to US Investors Regarding Disclosure of
Mineral Reserves and Resource Estimates” on page 4, contained in Exhibit 99.1
filed herewith entitled “Annual Information Form”.
A copy of this 40-F and
accompanying Exhibits may be found on the Company website: www.nevsun.com.
FORWARD LOOKING STATEMENTS
This report contains forward-looking
statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and applicable Canadian securities legislation
concerning anticipated developments in the Company’s continuing and future
operations in Eritrea and in the putative class action lawsuit, the adequacy of
the Company’s financial resources and financial projections. Forward-looking
statements include, but are not limited to, statements concerning or the
assumptions related to estimates of capital and operating costs, the timing,
nature and extent of future copper and gold production, expanding exploration
licenses, the estimation of mineral reserves and resources, methodologies and
models used to prepare resource and reserve estimates, the realization of
mineral reserve estimates, the conversion of mineral properties to reserves and
resources, the potential to expand resources, reserves and mine life, future
exploration budgets, plans, targets and work programs, capital expenditures and
objectives, anticipated timing of grant of permits, mining and development
plans and activities, construction and production targets and timetables,
grades, processing rates, life of mine, net cash flows, metal prices, exchange
rates, reclamation costs, results of drill programs, dividend plans and policy,
litigation matters, integration or expansion of operations, requirements for
additional capital, government regulation of mining operations, environmental
risks, political risks and uncertainties, unanticipated reclamation expenses,
and other events or conditions that may occur in the future. Forward-looking
statements are frequently, but not always, identified by words such as
“expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,”
“possible,” “budget” and similar expressions, or statements that events,
conditions or results “will,” “may,” “could” or “should” occur or be achieved.
Information concerning the interpretation of drill results and mineral resource
and reserve estimates also may be deemed to be forward-looking statements, as
such information constitutes a prediction of what mineralization might be found
to be present if and when a project is actually developed, and in the case of
mineral reserves, such statements reflect the conclusion based on certain
assumptions that the mineral deposit can be economically exploited.
- 2 -
Forward-looking statements are
statements about the future and are inherently uncertain, and actual
achievements of the Registrant or other future events or conditions may differ
materially from those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including, without
limitation, those described in the Annual Information Form of the Registrant
included in this report. Although the Company has attempted to identify
important factors that could cause actual results to differ materially from
those contained in forward-looking statements, there may be other factors that
cause results not to be as anticipated, estimated or intended.
The Registrant’s
forward-looking statements are based on the beliefs, expectations and opinions
of management on the date the statements are made and the Registrant assumes no
obligation to update such forward-looking statements in the future. For the
reasons set forth above, investors should not place undue reliance on forward-looking
statements.
MANAGEMENT REPORT ON DISCLOSURE CONTROLS AND PROCEDURES
The information contained in
the “Disclosure controls and procedures”, contained in Exhibit 99.3 filed
herewith entitled “MD&A” is incorporated herein by reference.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The Registrant’s management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.
The Registrant’s internal
control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Registrant’s
assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that the Registrant’s receipts
and expenditures are being made only in accordance with authorizations of the
Registrant’s management and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Registrant’s assets that could have a material effect on the
financial statements.
With the participation of the
Registrant’s Chief Executive Officer and the Registrant’s Chief Financial
Officer, management conducted an evaluation of the effectiveness of the
Registrant’s internal control over financial reporting, as of December 31, 2014,
based on the framework set forth in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on its evaluation under this framework, management concluded that
the Registrant’s internal control over financial reporting was effective as of
that date.
KPMG LLP, an independent
registered public accounting firm, which audited and reported on the
Registrant’s consolidated financial statements, has issued an attestation
report on management’s assessment of the effectiveness of the Registrant’s
internal control over financial reporting as of December 31, 2014. The
attestation report is included with the Financial Statements in Exhibit 99.2.
- 3 -
AUDITOR
ATTESTATION
The information contained in the “Independent Auditors’
Report of Registered Public Accounting Firm”, contained in Exhibit 99.2 filed
herewith entitled “Financial Statements” is incorporated herein by reference.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The information contained in the “Changes in internal control
over financial reporting”, contained in Exhibit 99.3 filed herewith entitled “MD&A”
is incorporated by reference.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
The information contained in
the “Audit Committee Charter”, “Composition of the Audit Committee”, and
“Pre-Approval Policies and Procedures”, contained in Exhibit 99.1 filed herewith
entitled “Annual Information Form” is incorporated by reference.
CODE OF ETHICS
The Registrant has adopted a
code of ethics that applies to its principal executive officer, principal
financial officer and principal accounting officer or persons performing
similar functions. A copy of the code of ethics, as revised, is posted on
the Registrant’s Internet website at www.nevsun.com, and is available in print
to any person without charge, upon written request to the corporate secretary
of the Registrant. No waivers of the code of ethics have been granted to
any principal officer of the Registrant or any person performing similar
functions.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the “External Auditor Fees”
and “Pre-Approval Policies and Procedures” contained in Exhibit 99.1 filed herewith
entitled “Annual Information Form” is incorporated by reference.
OFF-BALANCE SHEET ARRANGEMENTS
The information contained in the “Off-balance sheet
arrangements”, contained in Exhibit 99.3 filed herewith entitled “MD&A” is
incorporated by reference.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The information contained in
the “Commitments and contractual obligations”, contained in Exhibit 99.3 filed
herewith entitled “MD&A” is incorporated by reference.
MINE SAFETY DISCLOSURE
The Registrant does not operate
any mine in the United States, and has no mine safety incidents to report for
the year ended December 31, 2014.
UNDERTAKINGS
The Registrant undertakes to
make available, in person or by telephone, representatives to respond to
inquiries made by the Commission staff, and to furnish promptly, when requested
to do so by the Commission staff, information relating to: the securities
registered pursuant to Form 40-F; the securities in relation to which the
obligation to file an annual report on Form 40-F arises; or to
transactions in said securities.
CONSENT TO SERVICE OF PROCESS
The Registrant has previously
filed with the Commission a written consent to service of process and power of
attorney on Form F-X.
- 4 -
SIGNATURES
Pursuant to the requirements of
the Exchange Act, the Registrant certifies that it meets all of the
requirements for filing on Form 40-F and has duly caused this annual report to
be signed on its behalf by the undersigned, thereto duly authorized.
NEVSUN RESOURCES LTD.
| By:
|
/s/ “Clifford T. Davis” |
| |
Clifford T. Davis
Chief Executive Officer and Director |
- 5 -
EXHIBIT INDEX
The following exhibits have been filed as part of the
annual report:
- 6 -
NEVSUN
RESOURCES LTD.
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER
31, 2014
Dated: February 25, 2015
|
1 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
TABLE OF CONTENTS
|
2 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
PRELIMINARY
NOTES
In this annual information form (“AIF”) reference to the
Company or Nevsun means Nevsun Resources Ltd. and all of its wholly and
partially owned subsidiaries (“NRL”), and except as otherwise noted, the
information in this AIF is as of December 31, 2014. We prepare the financial
statements referred to in the AIF in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards
Board, and file the AIF with appropriate regulatory authorities in Canada and
the United States. Information on our website is not part of this AIF or
incorporated by reference. Filings on SEDAR are also not part of this AIF or
incorporated by reference except as specifically stated. Additional financial
and other information regarding the Company can be found in our consolidated financial statements for the
year ended December 31, 2014, together with the auditors’ report thereon dated February
25, 2015 and our Management’s Discussion and Analysis (“MD&A”) for the years
ended December 31, 2014.
All
dollar amounts in this AIF are expressed in USD, unless otherwise indicated (“USD”
denotes United States dollars and “CAD” denotes Canadian dollars).
Forward-Looking Statements
This
AIF contains statements and information concerning
anticipated developments in
the Company’s continuing and future operations, the adequacy of the Company’s
financial resources and financial projections. Forward-looking statements
include, but are not limited to, statements concerning or the assumptions
related to estimates of capital and operating costs, the timing, nature and
extent of future copper and gold production, expanding exploration licenses, the estimation of mineral reserves and resources, methodologies
and models used to prepare resource and reserve estimates, the realization of
mineral reserve estimates, the
conversion of mineral properties to reserves and resources, the potential to
expand resources, reserves and mine life, future exploration budgets, plans, targets
and work programs, capital expenditures and objectives, anticipated timing of
grant of permits, mining and development plans and activities, construction and
production targets and timetables, grades, processing rates, life of mine, net
cash flows, metal prices, exchange rates, reclamation costs, results of drill
programs, dividend plans and policy, litigation matters, integration or
expansion of operations, requirements for
additional capital, government regulation of mining operations, environmental
risks, political risks and uncertainties, unanticipated reclamation expenses, and other events or conditions that may
occur in the future.
Forward-looking
statements are frequently, but not always, identified by words such as
“expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,”
“possible,” “budget” and similar expressions, or statements that events,
conditions or results “will,” “may,” “could” or “should” occur or be achieved.
Information concerning the interpretation of drill results and mineral resource
and reserve estimates also may be deemed to be forward-looking statements, as
such information constitutes a prediction of what mineralization might be found
to be present if and when a project is actually developed, and in the case of
mineral reserves, such statements reflect the conclusion based on certain
assumptions that the mineral deposit can be economically exploited.
Forward-looking
statements are statements about the future and are inherently uncertain, and
actual achievements of the Company or other future events or conditions may
differ materially from those reflected in the forward-looking statements due to
a variety of risks, uncertainties and other factors, including, without limitation,
the risks more fully described under the Section titled “Risk Factors”.
Although the Company has
attempted to identify important factors that could cause actual results to
differ materially from those contained in forward-looking statements, there may
be other factors that cause results not to be as anticipated, estimated or
intended. The Company’s
forward-looking statements are based on the beliefs, expectations and opinions
of management on the date the statements are made and the Company assumes no
obligation to update such forward-looking statements in the future, except as
required by law. There can be no
assurance that such statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such
statements. For the reasons
set forth above, investors should not place undue reliance on forward-looking statements.
|
3 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Cautionary Note
to US Investors Regarding Disclosure of Mineral Reserves and Resource Estimates
The disclosure in this AIF uses mineral resource and mineral reserve classification terms that comply with Canadian securities laws that differ in certain material respects from the requirements of United States securities laws. Disclosure has been made in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum’s Classification System. The NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. These standards differ significantly from the disclosure requirements of the SEC.
The SEC’s disclosure standards normally
do not permit the inclusion of information concerning “measured mineral
resources”, “indicated mineral resources” or “inferred mineral resources” in
documents filed with the SEC, unless such information is required to be
disclosed by the law of the Company’s jurisdiction of incorporation or of a
jurisdiction in which its securities are traded. Consequently, mineral
resource and mineral reserve information contained in this AIF is not
comparable to similar information that would generally be disclosed by US companies
in accordance with the rules of the SEC.
The SEC’s Industry Guide 7 applies
different standards in order to classify mineralization as a reserve. As a
result, the definitions of proven and probable reserves used in NI 43-101
differ from the definitions in Industry Guide 7. Under SEC standards, mineralization
may not be classified as a “reserve” unless the determination has been made
that the mineralization could be economically and legally produced or extracted
at the time the reserve determination is made. Accordingly, mineral reserve
estimates contained in this AIF may not qualify as “reserves” under SEC
standards.
This AIF uses
the terms “measured mineral resources”, “indicated mineral resources” and
“inferred mineral resources” to comply with the reporting standards in Canada.
The SEC’s Industry Guide 7 does not recognize these terms and US companies are
generally not permitted to use these terms in documents they file with the SEC.
Investors are cautioned not to assume that any part or all of the mineral
deposits in these categories will ever be converted into SEC defined mineral
“reserves.” Further, “inferred mineral resources” have a great amount of
uncertainty as to their existence and as to whether they can be mined legally
or economically.
Therefore, investors are also cautioned
not to assume that all or any part of an inferred mineral resource exists. In
accordance with reporting standards in Canada, estimates of “inferred mineral
resources” cannot form the basis of feasibility or other economic studies,
except in rare cases. In addition, disclosure of “contained ounces” in a
mineral resource estimate is permitted disclosure under NI 43-101 provided that
the grade or quality and the quantity of each category is stated; however, the
SEC normally only permits issuers to report mineralization that does not
constitute “reserves” by SEC standards as in place tonnage and grade without
reference to unit measures. For the above reasons, information contained in
this AIF containing descriptions of mineral resource and mineral reserve
estimates is not comparable to similar information made public by US companies
subject to the reporting and disclosure requirements of the SEC.
|
4 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Glossary and Defined Terms
| 2013 Technical Report:
|
the NI 43-101 technical report on the Bisha Mine titled “Bisha Mine NI 43-101 Technical Report” with an effective date of December 31, 2013.
|
| AGP:
|
AGP Mining Consultants, Inc.
|
| Bisha Feasibility Study:
|
the feasibility study dated November 15, 2006 on the Bisha Property prepared by AMEC Americas Limited titled “Bisha Property, Gash-Barka District, Eritrea”.
|
| Bisha Main:
|
a large precious metal (Au) and base metal rich (Cu, Zn) VMS deposit on the Bisha Property.
|
| Bisha Mining License:
|
the mining license issued to BMSC in 2008 and valid for 20 years covering an area of 16.5 square kilometres over the Bisha Main and NW Zone deposits.
|
| Bisha Property:
|
the Company’s principal mineral property as more particularly described under the heading “Description of the Business”.
|
| BMSC:
|
Bisha Mining Share Company, an Eritrean entity that owns and operates the Bisha Mine and is a 60% owned indirect subsidiary of NREL with the 40% balance of the outstanding shares owned by ENAMCO.
|
| Board:
|
board of directors of Nevsun Resources Ltd.
|
| C1 cash cost:
|
C1 cash cost per pound is a non-GAAP measure and represents the cash cost incurred at each processing stage, from mining through to recoverable metal delivered to customers, less net by-product credits.
|
| CIM:
|
Canadian Institute of Mining, Metallurgy and Petroleum.
|
| DDH:
|
diamond drilled holes. Holes drilled by a method whereby rock is drilled with a diamond impregnated, hollow drilling bit which produces a continuous, in-situ record of the rock mass intersected in the form of solid cylinders of rock which are referred to as core.
|
| EITI:
|
Extractive Industries Transparency Initiative.
|
| ENAMCO:
|
Eritrean National Mining Corporation, an Eritrean entity owned by the State of Eritrea.
|
| g/t:
|
grams per metric tonne.
|
| Harena Mining License:
|
a conditional license issued to BMSC in 2012 for the Harena deposit and valid for 10 years, covering an area of 7.5 square kilometres located approximately 10 kilometres from the Bisha Mine.
|
| IFC:
|
International Finance Corporation.
|
| indicated mineral resource:
|
that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
|
|
5 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| inferred mineral resource:
|
that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
|
| in-situ:
|
natural material or processes prior to transport.
|
| ISO:
|
International Organization for Standardization.
|
| LG:
|
Lerchs-Grossmann, a method used to determine the optimal open pit limit within the ground including the mineralized material, founded in 3-dimensional graph theory and relying upon a regular system of blocks which defines the value (profit, loss) and type (ore, waste) of material contained in the blocks.
|
| masl:
|
metres above sea level.
|
| measured mineral resource:
|
that part of a mineral resource for which quantity, grade or quality, densities, shape, physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
|
| mineral reserve:
|
the economically mineable part of a measured mineral resource or indicated mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined.
|
| mineral resource:
|
a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal and industrial minerals in or on the earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge.
|
| Mining Agreement:
|
the mining agreement between BMSC and the Government of the State of Eritrea dated December 2007 covering the future development and operations for the Bisha Property, including all substantive requirements of international financial institutions.
|
|
6 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| Mogoraib River Exploration License:
|
the exploration license acquired by the Company from Sanu Resources, a subsidiary of NGEx Resources, containing 54.75 square kilometres of area located 16 kilometres southwest of the Bisha Mine.
|
| NABL:
|
Nevsun Africa (Barbados) Ltd., a wholly-owned subsidiary of NBHL.
|
| NBHL:
|
Nevsun (Barbados) Holdings Ltd., a wholly-owned subsidiary of NRL.
|
| NREL:
|
Nevsun Resources (Eritrea) Ltd., a wholly-owned subsidiary of NABL.
|
| NRL:
|
Nevsun Resources Ltd.
|
| NSR:
|
net smelter return used in mineral resource and reserve calculations is the net value per tonne of ore, inclusive of all recoveries and costs outside the mine gate. It does not include operating costs inside the mine gate.
|
| probable mineral reserve:
|
the economically mineable part of an indicated mineral resource and, in some circumstances, a measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
|
| proven mineral reserve:
|
the economically mineable part of a measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
|
| QP:
|
a qualified person as defined in NI 43-101.
|
| reserve:
|
see “mineral reserve”.
|
| resource:
|
see “mineral resource”.
|
| Run of mine (ROM):
|
material from a mine that has not been crushed or screened.
|
| SEC:
|
United States Security Exchange Commission.
|
| SEIA:
|
Social and Environmental Impact Assessment.
|
| SEMP:
|
Social and Environmental Management Plan.
|
| TMF:
|
tailings management facility.
|
| TSX:
|
the Toronto Stock Exchange.
|
| VMS:
|
volcanic hosted massive sulphides.
|
|
7 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
CORPORATE STRUCTURE
Name,
Address and Incorporation
NRL was incorporated under the laws of the Province of British Columbia under the Companies Act (British Columbia) on July 19, 1965 under the name of “Hogan Mines Ltd.” Since inception, it has undergone four name changes until December 19, 1991 when it adopted the name of “Nevsun Resources Ltd.” NRL is governed by the Business Corporations Act (British Columbia) and its Articles.
The head office of NRL is located at 760
- 669 Howe Street, Vancouver, British Columbia, V6C 0B4 and its registered and
records office is located at 1000 - 840 Howe Street, Vancouver,
British Columbia, V6Z 2M1 and its website address is http://www.nevsun.com.
Intercorporate
Relationships
The following diagram explains the
intercorporate relationships among NRL, and its wholly and partially owned
subsidiaries, (collectively referred to as “Nevsun” or the “Company”); the name
and place of incorporation of each subsidiary; and the percentage of voting
securities legally and beneficially owned:
British Columbia, Canada
|
8 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
GENERAL
DEVELOPMENT OF THE BUSINESS
Three Year History
NRL is a mining company listed on the
TSX and the NYSE MKT LLC. The Company’s major achievements during the past three
fiscal years include the production of approximately 244 million pounds
(110,700 tonnes) of copper since the commencement of copper production in 2013;
the production of approximately 784,000 ounces of gold in doré at Bisha from
2011 through December 31, 2013; maintaining an industry leading safety
performance record at Bisha; generating substantial cash flows since the
commencement of commercial gold production; declaring and paying industry
leading dividends to shareholders; and enhancing its corporate social
responsibility program initiatives that reflect international standards.
2014 Significant Developments
In 2014, the Company produced 196 million pounds of copper in concentrate from the Bisha Mine against guidance of 180 million to 200 million pound at C1 cash costs of $1.05 per payable pound sold which lead to strong earnings and cash flows with year end working capital of $520 million including $442 million in cash.
The Company conducted a 27,300 metre
drilling program and progressed zinc plant expansion on time and on budget.
In 2014, NRL declared a cash dividend of $0.04 per common share in the fourth quarter, payable on January 15, 2015, an increase of 14% from the cash dividends declared in the first three quarters of 2014 of $0.035 per common share quarterly which were paid to shareholders on April 15, 2014, July 15, 2014, and October 15, 2014, respectively. Dividends declared in 2014 totalled $28.9 million.
In the fourth quarter the Company produced 52.5 million pounds of copper in concentrate at C1 cash costs of $1.07 per payable pound sold.
The Company conducted significant
exploration drilling at the Harena Mining License as part of an on-going program
designed to expand the deposit beyond the known resource. The drilling program
successfully extended the deposit by 250 meters down dip and increased the strike
length from 300 meters to over 600 meters. Highlight drill holes include
massive sulphides intersected in the southern extension discovery hole HX-005
which graded 1.77% Cu, 3.99% Zn, 1.22 g/t Au, 78 g/t Ag over 18.5 metres and
hole HX-040 which graded 1.78% Cu, 5.78% Zn, 0.53 g/t Au, 31 g/t Ag over 32.0
metres. Borehole geophysics suggests that Harena has considerable further down
dip extension potential. Also intersected was a number of precious
metal-bearing stringer zones found below and along strike of the massive
sulphides such as hole HX-008 which returned 0.71% Cu, 0.22% Zn, 6.15 g/t Au,
242 g/t Ag over 17.2 metres.
The Company issued an updated mineral resource and mineral reserve estimate effective December 31, 2014 for the Bisha and Harena deposits. The Bisha primary indicated resource increased by 900,000 tonnes, adding 83 million pounds of zinc and 40 million pounds of copper, and primary inferred resource increased by 600,000 tonnes, adding 96 million pounds of zinc and 21 million pounds of copper. The Harena pit indicated resource increased by 1.4 million tonnes, adding 113 million pounds of zinc and 32 million pounds of copper, and primary inferred resources increased by 6.1 million tonnes for an additional 498 million pounds of zinc and 156 million pounds of copper.
In 2014 the Bisha supergene reserve, inclusive of stockpiles, decreased by 3.9 million tonnes, which included 295 million pounds of copper. Of this reduction, approximately 1.8 million tonnes and 230 million pounds of copper were due to mine depletion. The remaining reduction of 2.1 million tonnes and 65 million pounds of copper came from reclassification of supergene to primary ore, removal of the hanging wall copper ore pending further metallurgical testwork, pyrite sand displacement and elevated operating costs. Conversely, this reclassification and a deepening of the Bisha Main pit, lead in part to the Bisha primary reserve increasing by 1.7 million tonnes including an increase of 91 million pounds of copper and 270 million pounds of zinc. The Harena primary reserve increased by 0.3 million tonnes including 8 million pounds of copper and 26 million pounds of zinc.
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In the third quarter the Company produced 56.4 million pounds of copper in concentrate at C1 cash costs of $1.07 per payable pound sold which lead to strong earnings and cash flows with quarter end working capital of $519 million including $380 million cash.
In the second quarter the Company produced 47.4 million pounds of copper in concentrate at C1 cash costs of $1.05 per payable pound sold which lead to strong earnings and cash flows with quarter end working capital of $498 million including $359 million cash.
The Company received strong support at
the 2014 annual general meeting for the election of NRL’s nominees as directors
as well as its approach to executive compensation and the continuation of the
shareholder rights plan.
In the first quarter the Company produced 39.7 million pounds of copper in concentrate at C1 cash costs of $0.98 per payable pound sold which lead to strong earnings and cash flows with quarter end working capital of $462 million including $338 million cash.
The Company released its 2013 Corporate
Social Responsibility Report highlighting its safety record, local employment
opportunities and evolving environmental and social performance governance
programs at the Bisha Mine aimed at reinforcing Nevsun’s commitment to making a
collaborative, positive impact in Eritrea.
The Company filed the 2013 Technical
Report in March 2014.
The Company announced maiden open pit
mineral resource estimates on February 18, 2014 for Hambok and the Northwest
deposits for a combined 92 million pounds copper and 60 million pounds zinc and
an updated mineral reserve estimate for the Bisha Main pit and Harena open pit
mines. This resulted in a 29% increase in the total indicated mineral resource
estimate of the combined Bisha property tenements by an additional 9.3 million
combined oxide gold, supergene copper and primary copper-zinc zone tonnes which
resulted in an additional 247 million pounds of in-situ copper for a 22 percent
increase in contained copper and an additional 47 million pounds of in-situ zinc.
2013 Significant Developments
The Company achieved commercial production of copper on December 1, 2013 from its copper plant on schedule and under budget with a build cost of the copper plant and infrastructure at approximately $110 million, compared to a budget of $125 million.
In 2013, the Company produced 92,000 ounces of gold doré plus 20,000 equivalent gold ounces in precious metal concentrate from the Bisha Mine. The Company also produced 48 million pounds of copper in concentrate against guidance of 30 million to 50 million pounds, which lead to strong earnings and cash flows with year -end working capital of $419 million including $303 million cash.
The Company conducted an eight hole 2,713 metre in-fill
resource definition drilling program at the Hambok polymetallic massive
sulphide deposit, located 16 kilometres southwest from the BMSC processing
plant.
The Company also conducted a 4,325 metre
resource definition drilling program at the Northwest deposit for an aggregate
of 15,890 metres of drilling completed which includes 13,520 metres of drilling
that was completed in 2011 and 2012.
In 2013, NRL declared two cash
dividends of $0.07 per common share on May 15, 2013 and November 14, 2013, which
were paid to shareholders on July 15, 2013 and January 15, 2014, respectively.
Dividends declared in 2013 totalled $27.9 million.
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On October 15, 2013, the Company announced the first shipment of 11,000 tonnes of pre-commercial production copper concentrate from the new Bisha copper plant. Commissioning and ramp up in mill throughput continued with commercial production achieved on December 1, 2013.
The Company released its 2012 Corporate Social Responsibility report. The report was written and released under the Global Reporting Initiative’s G3.1 guidelines and self-declaring Application Level C.
The Company commented on its approach
to human rights at the Bisha Mine and committed to responsible operations and
practices at the Bisha Mine, based on international standards of safety,
governance and human rights.
2012 Significant Developments
In 2012, the Company produced 313,000 ounces of gold in doré from the Bisha Mine, which lead to strong earnings, and cash flows with year end working capital of $398 million including $396 million cash.
The Company’s copper plant expansion at
the Bisha Mine had progressed on schedule and on budget with concentrate
production expected in mid-2013.
Corporate responsibility initiatives were undertaken to reflect evolving international standards for the safety and health of its employees, protecting the environment, respecting human rights of its employees and residents of the communities in which it operates, and contributing to the sustainable development of those communities.
In 2012, NRL declared two cash dividends of $0.05 per common share on May 15, 2012 and November 15, 2012, which were paid to shareholders on July 16, 2012 and January 15, 2013, respectively. Dividends declared in 2012 totalled $19.9 million.
The Company acquired the Mogoraib River
Exploration License and the identified high priority exploration targets.
On September 7, 2012, the Company filed
a NI 43-101 technical report disclosing probable mineral reserves (effective
date May 31, 2012) of 26.5 million tonnes. This included 0.9 million tonnes of
oxide ores grading 5.79 grams per tonne gold for a total of 167,000 troy ounces
of gold, 6.4 million tonnes of supergene ore grading 4.09% copper for a total
of 579 million pounds of copper, and 19.2 million tonnes of primary ores
grading 1.09% copper and 6.33% zinc for a total of 462 million pounds of copper
and 2,680 million pounds of zinc.
The Company conducted a 13,500 metre exploration drill program at the Northwest deposit, which lies two kilometres from the Bisha deposit.
The Company was granted the Harena Mining License, which contains the Harena deposit, a satellite VMS deposit.
NRL purchased a total of 1,732,600
common shares during the year ended December 31 2012 under a normal course
issuer bid through the facilities of the TSX.
A class action lawsuit commenced
against NRL and certain of its executive officers in March 2012, which was
settled in 2014 (see the Section, “Legal Proceeding and Regulatory Actions”).
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DESCRIPTION OF THE BUSINESS
The Company’s principal mineral property is the Bisha Property which hosts a gold, copper and zinc deposit and includes satellite VMS deposits at Harena, Northwest and Hambok. The Mining Agreement governs the development of the Bisha Property and covers an area of 46.5 square kilometres, which contains the Bisha Mine and the Bisha Mining License and the Harena Mining License. In addition, the Company owns the Mogoraib River Exploration License.
The
Bisha Mine
The Bisha Mine is located on the Bisha
Property is owned and operated by BMSC. The Company is a 60% shareholder in
BMSC with the remaining 40% interest held by ENAMCO. BMSC is governed under
the terms of a shareholder agreement between the Company and ENAMCO. The Bisha
Mine began commercial production of gold in February 2011 that allowed an early
payback of gold phase capital and allowed for funding of both the copper and
current zinc phase expansion. The Bisha Mine transitioned from gold production
to copper production in late 2013 and commenced commercial production of copper
in December 2013. The development of the zinc flotation circuit required for
future zinc production is expected to be online in Q2 2016. Mining of the
supergene copper ore is expected to continue until Q2 2016 at which time the
Bisha Mine plans to begin to process ore from the primary phase. The primary
phase ore contains a significant amount of zinc and copper. Construction of
the zinc plant began in 2014 with the zinc plant scheduled for commissioning in
the first half of 2016.
Copper, Gold and Silver Sales
The Company recorded revenues of $555
million based on sales of 185 million pounds of payable copper in 2014 compared
to 96,700 ounces of gold and by-product sales of 507,935 ounces of silver in
2013.
There are numerous customers of copper,
gold and other metals and the Company is not dependent upon any one customer. Copper
production from Bisha is in the form of copper concentrates (including small
amounts of gold and silver credits) produced at site and transported in country
by truck and trailer to the port of Massawa and in turn loaded into ocean freighters
for transport to smelters in Europe and Asia.
Methods of
Production
The Company began processing supergene
copper ores in 2013 using flotation to recover copper as a sulphide concentrate
and will use the same process when primary copper and zinc ores are processed
starting in H1 2016.
The current mine life is estimated to be 11 years, projected to 2025, including six months of final processing of remnant oxide ores and gold doré extraction in the final year of mine life using the original carbon-in-leach circuit. The Company continues to expand its mineral resources with ongoing exploration drilling programs with an expectation of subsequent conversion into mineral reserves. The Company has been conducting ongoing drilling programs on the Bisha and Harena Mining licenses and on the Mogoraib River Exploration License with the plan to further extend the life at the Bisha Operations. There are numerous untested geophysical targets on these properties and new targets are being generated which will be evaluated with future drilling. These targets have the potential to provide significant additional near and long -term mineral resources for the Bisha operations.
Skill and Knowledge
BMSC has built a management team of
skilled mining, processing, maintenance, environmental, financial, and
administrative personnel reporting to the general manager at the Bisha Mine who
is in charge of mine production, process plant facilities, exploration programs,
and future operations of the Bisha Mine. The specialized knowledge and skills
required in all areas of mining include mining, engineering, geology,
metallurgy, environmental permitting, drilling, and exploration program
planning. The Bisha Mine is the first and currently remains the only modern
mining operation in Eritrea. Training and re-training of local staff to attain
and maintain the requisite skills in all aspects of mining operations is, and
has been, a priority.
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Employees
BMSC directly employs approximately 1,100
Eritreans and 130 expatriates at the Bisha Mine and provides a safe and
supportive working environment. Nevsun strives to ensure that its presence has
a positive social and economic impact. With spin-off effects from local
suppliers for certain goods and services required, the Bisha Mine has created
meaningful employment for thousands of Eritreans. Compensation for Eritreans
directly employed by BMSC is well above the average for Eritrea. Employees are
provided free food and free accommodations or free local commuting. These
employees also receive free training and have opportunities for advancement.
Employees also have access to free medical care at the mine’s clinic. The use
of conscripted labour at Bisha is not allowed, and BMSC has strong practices
and procedures to ensure that all individuals at Bisha are working of their own
free will. The procedures include the inspection of national service discharge
documentation for all Eritrean workers at Bisha, and Bisha-issued photo
identification cards for those employed directly or by subcontractors.
Corporate
Social Responsibility
The Company’s objective is to generate sustainable prosperity through its business operations, which means respecting the safety and health of its employees, protecting the environment, respecting the human rights of its employees and the residents of the communities in which it operates, and contributing to the sustainable development of those communities. The Social, Environmental, Health and Safety Committee established by the Board oversee the Company’s efforts in meeting these objectives.
While not a member of the Extractive Industries Transparency Initiative (EITI), the Company supports the goals of fiscal transparency and governance and has taken the approach of disclosing payments made to governments in countries in which it operates, whether or not the host government is a member of EITI.
Since commencement of commercial gold
production in early 2011, the Company has contributed nearly $1 billion in cash
remittances to the Eritrean government and government-owned entities in various
forms of taxation and for the provision of goods and services. The Bisha Mine
is the only modern mine in Eritrea and its direct contribution through
salaries, wages, benefits, local supply-chain purchases and community
assistance, is a significant benefit to the national economy and the local
communities. The resulting impact through the indirect multiplier effect on the
economy of Eritrea is difficult to estimate but is believed to be very
significant.
The Company voluntarily releases a
corporate social responsibility report annually that adheres to the Global
Reporting Initiative (GRI) G4.0 Core requirements. The report addresses a
hybrid of general and specific sectorial information about the Bisha Mine and
its relevance to annualized corporate social responsibility objectives.
Social Responsibility
The Company recognizes that its
activities have the potential to impact the human rights of individuals
affected by its business operations. As such, the Company seeks to integrate
human rights best practices into its business processes and conducts its
business within a framework that promotes worker and community health and
safety, environmental protection, community involvement, community benefits and
quality of life for employees and their families. The Company is committed to
responsible operations and practices at its Bisha
Mine, based on national and international standards of safety, environmental
management, governance and human rights and strives to ensure that the
Company’s presence has a positive socio-economic impact to the national economy
and the local communities. Some of the Company’s social responsibility
commitments and practices include:
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-
actively promoting understanding by all employees of the culture,
language and history of the communities, regions and countries in which it
operates;
- working to protect cultural heritage resources potentially
affected by the Company’s activities;
- conducting activities in a manner that respects traditional-use
rights, cultures, customs and social values;
- promoting job equity and equal access to employment opportunities
for women;
- maintaining formal human resources practices and procedures to
ensure that conscripted labour is prohibited at Bisha, including inspection and
audits of national service discharge documentation for all Eritrean workers at
Bisha;
- building capacity by sharing environmental and social experiences
and solutions with local communities and regional and national governments;
- actively consulting with local communities to identify and
resolve environmental and social issues;
- promoting the use of various grievance mechanisms to enable
ongoing constructive feedback with workers and communities alike;
- procuring materials, goods and services in a manner that enhances
local benefits and protects against unethical practices such as child labour
and forced labour;
- establishing social responsibility performance criteria; and
- monitoring and reporting performance to senior management through
periodic audits.
Health and Safety
The Company recognizes that the
safety and security of its employees and the communities in which it operates
is an integral part of its business. The Company has
maintained top quartile safety performance at Bisha operations now exceeding 21
million hours over three years without a lost time injury, including
contractors. As to safety, the long-term goal is for employees of the
Company to operate injury-free, regardless of what role they perform. The Company likewise has advanced its corporate responsibility
initiatives to reflect evolving international standards.
To achieve its health and safety objectives, the Company
is training employees to work in a safe and responsible manner, carrying out
risk assessments for all construction and operational activities, conducting
thorough investigations when incidents do occur to understand the underlying
causes, ensuring that health and safety performances comply with relevant
legislation and regulation, adhering to local laws as well as international
standards on law enforcement in securing its operations, particularly those
that relate to the use of force, carrying out risk assessments in relation to
security issues at each of its project sites, ensuring that security is managed
in a way that respects and protects human rights, avoids creating conflict, and
addresses security threats in as peaceful a way as possible.
Environment
The Company is committed to achieving high
standards of environmental responsibility in its operations and compliance with
all applicable regulations and laws.
The Company is committed to devoting
its resources to the goal of:
-
complying with all host country environmental laws and
regulations together with industry best practice standards, or whichever is the
more stringent of the two;
- ensuring the necessary resources are provided to support and
implement the Company’s environmental policy;
- continual improvement in environmental performance by developing
environmental indicators, monitoring and auditing performance, and by
implementing corrective actions where needed;
- reporting externally on environmental performance and encouraging
dialogue with employees, local communities and other stakeholders to promote
environmental awareness;
- applying the principles of best available technology to
environment management;
- reducing, re-using and recycling resources and implementing
proper waste management practices;
- training, motivating and ensuring that all employees adhere to
environmental protection and pollution prevention policies;
- incorporating an emergency preparedness and response system into
standard operating practices; and
- monitoring and reporting on performance to senior management
through periodic audits.
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MINERAL PROPERTIES
The Company’s principal mineral
property is the Bisha Property located in Eritrea which hosts the Bisha Mine. The
property is owned and operated by BMSC which in turn is controlled 60% by the
Company and 40% by ENAMCO. BMSC is governed under the terms of a shareholder
agreement between the Company and ENAMCO. Under Eritrean Mining Law, ENAMCO
initially held a 10% free carried interest in BMSC. In October 2007, ENAMCO
agreed to purchase an additional 30% interest in BMSC, the terms of which were
finalized in 2011. In December 2007, BMSC concluded the Mining Agreement with
the State of Eritrea. Royalties payable to the State of Eritrea include a 5.0% royalty
on precious metals and a 3.5% royalty on base metals. The Mining Agreement was
amended in July 2012 to increase the agreement area from 39.0 Km2 to
46.5 Km2.
The Bisha Mine on the Bisha Property began
commercial production in February 2011 with approximately 784,000 ounces of
gold in doré being produced from oxide mineralization until late 2013. In
December 2013, the Bisha Mine transitioned to commercial production of copper derived
from supergene mineralization. The development of the zinc flotation circuit
required for future zinc production from the primary sulphide zone is expected
to come online in Q2 2016. Construction is progressing on schedule.
Unless otherwise stated, the relevant technical and scientific information included in this AIF concerning Bisha Property are derived from either the 2013 Technical Report prepared by Paul Gribble, C. Eng., FIMMM, Chief Resource Geologist, BMSC; Jay Melnyk, P.Eng. AGP; and Peter Munro, BAppSc.,. Mineralurgy Pty. Ltd. effective December 31, 2013; the December 31, 2014 Mineral Resource estimate for Bisha and Harena completed by Matt Bampton, MAusIMM, MAIG (Cube Consulting) and Paul Gribble, C.Eng., FIMMM; or from the December 31, 2014 Mineral Reserve estimate for Bisha and Harena completed by and Anoush Ebrahimi, P.Eng., PhD.(SRK Consulting Canada Inc.). These authors are QPs within the meaning of NI 43-101. The 2013 Technical Report is available for review on SEDAR (www.sedar.com) and EDGAR (http://www.sec.gov/edgar.shtml).
Project Description and Location
The Bisha Mine is located 150 kilometres west of Asmara, 43 kilometres southwest of the regional town of Akurdat and 50 kilometres north of Barentu, the regional or zone Administration Centre of the Gash-Barka District, in Eritrea, at approximate latitude 15°28'N and longitude 37°27'E. The universal transverse mercator system (UTM) coordinates (The World Geodetic System, 1984) of the centre of the Bisha Property are 1,711,000 N and 334,500 E (UTM zone 37). The following Figure 1 shows the location of the Bisha Property.
Onsite infrastructure includes two open
pits (Bisha and Harena), a process plant (crushers and primary and secondary grinding
mills; leach, flotation, thickener, and other tanks; and filter presses), a wet
tailings facility and waste rock storage facilities, offices, maintenance and
laboratory facilities, fuel storage areas, an on-site power plant, 800 person
camp and an airstrip nearby.
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| Figure
1 –
Bisha Site Location |
The Bisha Property consists of the 100% BMSC owned Bisha Mining License, the Mining Agreement, the Harena Mining License and the Mogoraib River Exploration License. The property hosts the Bisha deposit, a large precious metal (Au) and base metal rich (Cu, Zn) VMS deposit currently being mined, as well as the Harena VMS deposit where a portion of the oxide gold cap mineralization was mined until mid-2013. Additional satellite VMS deposits include Northwest and Hambok, both of which may eventually be mined.
BMSC has the exclusive right of land
use in the areas comprising the Mining Licenses. This right is subject to the
acquisition and settlement of any third-party land-use rights by payment of
compensation and/or relocation at the expense of BMSC. The Mogoraib River
Exploration License is subject to 25% annual reductions and it is currently
54.75 square kilometers in area. Annual fees are approximately $96 per square
kilometer for the mining licenses and $32 per square kilometer for the
exploration license.
Figure 2 below shows the areas that
comprise the Mining Agreement and Mining Licenses.
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| Figure
2 –
BMSC Resource Areas and License Map |
Accessibility,
Climate, Local Resources, Infrastructure & Physiography
Access to the Bisha Mine is by paved
road from Asmara to Akurdat, a distance by road of 181 kilometres and then 52
kilometres from Akurdat via an all-weather road, which is currently being
upgraded with over 20 kilometres now paved. The drive from Asmara to the Bisha
camp (also referred to as Bisha Village) takes approximately four to six hours
by passenger vehicle or bus. Asmara is the capital city of Eritrea and is
serviced currently by regular international flights out of Cairo, Doha, Sanaa
and Istanbul.
The principal port for importation of
heavy equipment and shipment of concentrate is Massawa on the Red Sea coast,
which is about 350 kilometres from the Property. Massawa is connected to
Asmara by all-weather paved road. The Company has a special loading system to
accommodate the handling and bulk loading of both copper and future zinc
concentrates onto shipping vessels.
The climate is semi-arid, with elevated
temperatures year-round. During the hot season in April and May, the average
temperature is +42°C. Total rainfall is sparse, with between 250 millimetres and
300 millimetres. The main rainy season is between June and September and local
heavy rains can result in flash floods of the Mogoraib and Barka Rivers. Mining
activities are planned on a year-round basis.
The Bisha Property is mainly located on a flat, desert-like outwash plain. The plain is at 560 metres above sea level (masl) and contains scattered vegetation and few trees. Locally, steep hills and ridges rise above the plain with the Bisha, Wade, and Neve peaks reaching elevations of up to 1,226 masl.
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The Bisha Property is crosscut by the
Mogoraib River, a tributary of the Barka River, as well as abundant seasonal
streams that all flow northwards. A small seasonal tributary of the Mogoraib
River, the Ferektatet River, originally passed immediately over the Bisha
Property but has since been diverted around the deposit.
The village of Mogoraib located 6 kilometres from the Bisha Mine is the closest settlement and is the local administration centre for the Dighe Sub-zone within the Gash-Barka District. The village contains a well-equipped, eight-person health centre with a nursing staff capable of taking care of small medical problems. Better-equipped hospitals are found in Akurdat and Keren. Camp Mogoraib is a military site located just outside the village boundaries and provides basic security to the Mine area. Basic goods are commercially available in the immediate region near the Bisha Mine at Mogoraib or Akurdat, but the main centre for support is the capital city of Asmara.
Freshwater is supplied to the property
from groundwater. Two well farms have been established by the Company, the
first approximately 1 kilometre south of the open pit on the western bank of
the Ferektatet River (which also serves to dewater the Bisha pit), and the
second 5 kilometres to the west, adjacent to the Mogoraib River. Potable water
sourced from the well fields is pumped to a potable water plant utilizing
chlorination filtration and ultraviolet radiation treatment.
Process water is recycled within the
plant as much as possible to minimize the use of fresh groundwater. Water from
the pit and seasonal water from the tailings management facility also
supplement and reduces the dependence on raw water.
Electric power for the mine and
processing plant site is supplied from a diesel-fuelled power station located
adjacent to the process facilities. Site communication is via a satellite
communications system and includes wireless internet access at the village and
administration buildings.
Mineral Property History
The Company has no
record of any previous exploration or mining activities on the property or
surrounding areas prior to 1998. In June 1998, the Company signed a prospecting license agreement with the
State of Eritrea. In 1999,
this agreement was converted to an exploration license that covered an area of 49 square kilometres. This license was expanded to an area of 224 square kilometres in 2003.
Geological
Setting
Eritrea is divided into several north or northeast trending Proterozoic terranes, which are separated by major crustal sutures. The Bisha Property is in the Nacfa Terrane, which comprises low-grade metamorphosed calc-alkaline volcanics and sediments.
The VMS deposits at the Bisha Property are hosted by a bimodal sequence
of volcanic rocks. Felsic volcanics directly host and both underlie and overlie
the mineralization at Bisha, Harena and Northwest deposits. These felsic
volcanics are flow dominated indicating proximity to volcanic vents. Mafic
volcanic rocks occur deeper in the footwall to the east of the known
mineralized zones. Alteration of the felsic volcanics is often very intense
with the primary mineralogy being converted to sericite and chlorite. The
Hambok deposit, in contrast to the Bisha deposits, is entirely hosted in mafic
volcanic rocks. All rock-types are variably foliated and metamorphosed.
Exploration
History
Initial work on
the property began in 1998 but was suspended between 1999 and late 2002 due to
the border war with Ethiopia. The Bisha deposit was discovered in November
2002 by diamond drilling geophysical and geochemical anomalies associated with
a prominent gossan that locally had highly anomalous gold values. A VMS
deposit was defined and found to be overlain by a supergene copper-enriched
zone and a gold-enriched gossan cap.
Between 2003 and 2006, 403 diamond
drill and 33 reverse circulation holes were completed at Bisha to enable a
Feasibility Study. Additional work included mapping, geochemical sampling,
trenching, ground and airborne geophysics, metallurgical test work and
environmental baseline studies. The Northwest and Harena deposits were
discovered with 26 and 27 holes being drilled respectively.
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No holes were drilled in 2007 and 2008
and only minor gravity surveying, geological mapping and mechanical trenching was
completed. In 2009 and 2010, 35 mainly geotechnical holes were completed at
Bisha and 51 holes were completed at Harena to better define the oxide zone. Thirteen
diamond drill holes were drilled to test gravity targets in the Harena area.
No significant mineralization was intersected.
In 2011, 167 diamond drill holes were
drilled at Bisha for resource upgrading as well as for metallurgical and geotechnical
studies. At Harena, 5 regional exploration holes were drilled to test
coincident gravity/EM/soil geochemical anomalies with no significant
mineralization being encountered. Drilling began to define the Northwest deposit
to bring it to a maiden resource estimate. A total of 22 holes were drilled.
In 2012, the majority of drilling was focussed on the development of the Northwest deposit. Seventy -five holes were drilled to define a maiden resource. At Harena, exploration diamond drilling included a total of 6 holes with one of the holes intersecting mineralization peripheral to the Harena open pit.
In 2013, diamond drilling consisted of
27,828 metres of exploration and resource development drilling at Bisha Main,
the Northwest deposit and Hambok. At Bisha, 23 holes for 6,223 metres were
completed in the immediate Bisha area testing geophysical targets. A further 8
holes tested below the northern portion of the Bisha Main deposit. Drilling
concluded at Northwest with 93 holes being completed. At Hambok, eight holes
were completed to infill areas of the deposit that had large gaps in the geological
model. This work allowed for a new open pit constrained mineral resource
estimate to be completed.
For 2014, a total of 91 drill holes were completed at Bisha and Harena,
around Hambok and Aderat and near Tekewuda to complete 27,300 metres of
exploration diamond drilling. A total of 230 line kilometres of ground and 44
holes of Transient EM (TEM) surveying was conducted and a 2,500 line kilometre Versatile
Transient Electromagnetic (VTEM) survey was flown. A significant new extension
of the Harena deposit was discovered and new mineralization was found at Aderat
on the Mogoraib River Exploration License.
Mineralization
Mineralization at the Bisha deposit is divided into
three major zones: oxide, supergene and primary sulphide. The host rocks are
felsic volcanics that have been altered to chlorite and sericite.
Oxide
In the surficial oxide zone, deep weathering has affected the primary massive sulphides producing a high-grade stratified gossanous zone that is enriched in gold. This zone can vary in composition from highly siliceous and somewhat ferruginous to a massive goethite-hematite-jarosite. The depth of this oxidation zone is on the order of 35 metres. The oxidation of the massive sulphides generated strong acid solutions that have progressively destroyed the sulphides and host rock. Gold remained in the oxide zone and became concentrated. This zone is now largely mined-out.
Supergene
As the acid solutions percolate
downward, they deposited their dissolved copper at the primary sulphide
interface to produce a copper-rich supergene zone. A horizon of extremely
acid-leached material or “soap” has developed between the oxide and supergene/primary
domains and the host rocks. The principle copper mineral in the supergene zone
is covellite. This zone is currently being mined.
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19 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Primary Sulphide
This zone is a typical VMS with simple pyrite, chalcopyrite and sphalerite mineralogy in the massive sulphide and chalcopyrite in the stringer zones. Mining and stockpiling of primary zinc ores commenced in March 2014 and by the end of the year, stockpiles of 18,000 tonnes of zinc ore formed part of the stockpile inventory.
Mineralization at the Northwest Zone
occurs in a series of predominantly pyrite massive sulphide lenses hosted
within altered felsic volcanic rocks. Copper and zinc-rich stringer sulphide
mineralization is sporadic within the massive sulphide lenses and in stockwork
zones. Some of the massive sulphides have been exposed to weathering at surface
creating oxide zone that are locally enriched in gold. Beneath these areas,
some supergene copper mineralization may also be present.
The Hambok deposit consists of a single
massive sulphide lens. Base metal values are generally higher nearer to surface
along the top and outer edges of the body. The deposit is hosted by variably
chloritized mafic volcanic rocks and is dominantly composed of massive pyrite
with zones of finely banded chalcopyrite and sphalerite. Intervals of near
massive magnetite are often found associated with the massive sulphides.
The Harena deposit is also a typical massive sulphide body that has been affected by weathering. The host rocks to the Harena deposit are intensely chloritized and sericitized hydrothermally-altered felsic volcanic rocks. Surficial weathering processes have produced a surficial oxide/gossan zone with good gold grades underlain by a primary massive sulphide deposit. Supergene mineralization is not well developed. The primary massive sulphide body is currently being explored and is mainly composed of pyrite, chalcopyrite and sphalerite.
Drilling
Diamond drilling at
the Bisha, Harena, Northwest and Hambok deposits has been undertaken by
contractors in a number campaigns since 2002, with Boart Longyear and Colonnade
being the most recent suppliers in 2014. For drilling prior to 2014, please
refer to the 2013 Technical Report.
In 2014, drilling was completed using Longyear LF90 track mounted drill rigs. Holes are initially collared HQ size diameter and reduced to NQ size diameter after approximately 75 metres. All drill hole collars are surveyed and down the hole surveys were completed with Reflex EZ-Shot camera methods.
At the Bisha Main deposit, massive
sulphide mineralization has been well defined with drilling spaced at 25 metres
by 25 metres or closer in some areas. Drilling density decreases with depth
and the deposit is open at depth in the south. There was no diamond drilling
completed at Bisha in 2014.
At the Harena deposit, massive sulphide mineralization was drilled on a 30 metre by 50 metre patterns prior to 2014. During 2014, drilling down to a depth of 200 metres was on a 50 metre by 50 metre pattern while deeper holes were on a 100 metre by 100 metre pattern or wider. The deposit is open at depth.
At Northwest, the deposit is well defined with drilling spaced at 25 metres by 25 metres or closer in some areas. Drilling density decreases with depth and the deposit is open in a number of directions. Core recovery problems in the oxide zone and supergene zone were countered by classification of this material as Inferred Resources. No drilling was completed at Northwest during 2014.
At the Hambok deposit, much of the
massive sulphide mineralization has been well defined with drilling spaced at
50 metres by 50 metres or closer in some areas. Drilling density decreases
with depth and the deposit remains open at depth and along strike to the north. No drilling was completed at Hambok in 2014.
Sampling and Analysis
For sampling
programs prior to 2014, please refer to the 2013 Technical Report.
In 2014, holes were sampled over all sulphide-bearing intervals at a target length of 1.0 metre per sample. Sample intervals vary based upon mineralogical and lithological contacts. The logging geologist sets out the sample regime. Standard diamond cutting blades flushed with fresh water are used to halve the core.
|
20 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Highly broken core
pieces are cut along the axis if possible or the core is split using a trowel
down the middle of the tray row and handpicked or scooped to ensure
representative samples are obtained. Cutting lines may be drawn on the core.
The remaining half core is returned to the box and boxes stacked in numerical
order by hole.
The technicians or
samplers under the supervision of technicians place half of the core in
individual trays laid out in numerical order. Samples are then placed in a
drying oven for 12 to 18 hours at between 80°C and 100°C. The samples then pass
through a jaw crusher to greater than 75% of sample passing 10 mesh (2 millimetre)
screen. The sample is then split using a Jones-type riffle splitter to achieve
a sub-sample weight of approximately 200 grams to 300 grams. The sample reject
is then bagged, labelled with the original sample ID and put into storage at
Bisha site. The sub-samples are packed and then placed in large plastic
shipping barrels. When samples are ready to be shipped the samples lists are
combined with a sample submission form and enclosed with the samples in plastic
drums.
Samples are
despatched to Asmara to the Genalysis Horn of Africa preparation facility near
Asmara. Here, samples are pulverised and the pulps despatched by courier to
the Genalysis laboratory in Perth, West Australia, for analysis. Pulverisation
is to better than 85% passing 75 microns.
Bulk density for all
samples is determined using Archimedes principle. Rock samples are dried and
then wrapped in foil prior to weighing in air and water.
Security of Samples
The chain-of-custody for core samples
collected and being shipped from site is as follows:
- Core is transported to the Bisha camp by Bisha personnel and
placed in the core logging area.
- The logging and sample preparation area and the Bisha camp are
within a fenced and guarded compound.
- Core samples are crushed and sub-sampled.
- Prepared samples are placed in sealed barrels.
- Each barrel has a list of samples written on the outside of the container.
- A sample submission form accompanies each barrel.
- Barrels are transported to Asmara in company-owned vehicles managed
by BMSC.
The sample barrels are submitted to the
Eritrean Ministry of Energy and Mines for inspection and submission to customs,
a customs seal is placed on the barrels and they are shipped via air transport directly
to the analytical laboratories.
Mineral
Resource Estimate
Commencing in 2005, an initial mineral resource model
for Bisha Main was constructed by AMEC. This model was subsequently updated with
new information. In 2012, AGP, an independent mining and geological consulting
firm that had not previously reported on the property, estimated an updated
mineral resource at Bisha. In 2012, AMEC estimated a mineral resource at
Harena. In August 2012, AGP prepared a new combined Bisha and Harena mineral
reserves estimate with an effective date of May 31, 2012 with a technical report,
which was subsequently filed on SEDAR and EDGAR.
In late 2013, new revised updated mineral resources were
estimated with an effective date of December 31, 2013 for both the Bisha Main
and Harena deposits which took into effect mine depletion, additional drill,
structural mapping and metallurgical test data, and a more refined and slightly
differing approach to mineral resource modeling. Likewise, an updated mineral
resource estimate was generated for the Hambok deposit succeeding the past
historic mineral resource generated by the previous owner Sanu Resources, which
importantly employs a constraining pit shell. In addition, a maiden mineral
resource estimate was completed for Northwest. Details and methodology of this
mineral resource estimate can be viewed more fully in the 2013 Technical
Report.
|
21 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
An updated mineral resource effective
December 31, 2014 was completed for the Bisha and Harena deposits by Cube
Consulting (an independent consulting firm) and announced on February 3, 2015.
The Bisha primary indicated resource grew by 900,000 tonnes, adding 83 million
pounds of zinc and 40 million pounds of copper, and primary inferred resource
increased by 600,000 tonnes, adding 96 million pounds of zinc and 21 million
pounds of copper. The Harena deposit indicated resource grew by 1.4 million
tonnes, adding 113 million pounds of zinc and 32 million pounds of copper and
primary inferred resources increased by 6.1 million tonnes for an additional
498 million pounds of zinc and 156 million pounds of copper.
The sample database for the Bisha, Harena, Northwest and Hambok deposits has undergone a thorough QA/QC process. The current interpretation and estimation for Bisha was completed using DDH cored holes and recent RC grade control holes. The majority of the RC holes were drilled as part of a grade control program for the supergene copper phase beginning in 2013 while almost all the DDH holes were predominantly drilled prior to May, 2012. Diamond drill data for the Northwest and Harena deposits include a significant proportion of drilling completed from 2012 onwards. BMSC prior to use validated all data for Hambok from Sanu Resources.
A major reinterpretation of the geological model for
Bisha was undertaken in 2013, which resulted in a reinterpretation of the
supergene and primary zones. With additional reverse circulation drilling (RC
drilling) in 2014, these zones have been further refined.
Bulk density values for the Bisha Main deposit are assigned
on the basis of rock type and oxidation state, as defined by the interpreted
geological wireframes. The values are based on a combination of:
- bulk
densities from the previous resource estimate;
- some
generic values for waste rock in typical weathering profiles in felsic sediments
at upper greenschist facies; and
- bulk
density values from in-situ measurements in use at the mine, derived over the
last year.
For Harena, there was sufficient
representivity and quantity of density sampling to allow for estimation of this
variable in the block modelling, which was by Ordinary Kriging.
For all deposits, the estimation
process involved the creation of 3D geological and mineralization shapes in
cross section, flagging of database, compositing of samples, exploratory data
analysis including variography, and Kriging neighbourhood analysis.
For Bisha, estimation was by Ordinary Kriging of copper, zinc, lead, arsenic, gold and silver elements in all mineralized domains. Each domain was separately estimated using the unique set of composite samples associated with that domain. For Harena, the main domains were estimated by a single indicator weighted Kriging method.
Visual and statistical validation of
the copper, zinc, lead, gold, and silver grade estimates for Bisha demonstrate
reasonably robust model outcomes. All key comparisons were satisfactory. Some
smoothing of grade was apparent but as expected using Ordinary Kriging as the
interpolation method.
The mineral resource for all deposits is a global
estimate representing a reliable estimate of the total contained metal, but the
current block estimates are likely to vary as compared with the actual
grade/tonnage distribution that will be achieved during selective mining and
over short production periods.
The
mineralization at each deposit has been sufficiently drilled and sampled to
allow classification as a combination of Measured, Indicated or Inferred
Mineral Resource in accordance with the current CIM Definition Standards for
Mineral Resources and Mineral Reserves. The classification employed reflects a
practical combination of both geological knowledge and estimation quality parameters
that may be more numerical in nature. This approach to classification aims to
avoid creating a complex classification system.
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22 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Reasonable prospects for economic extraction were made by applying an NSR-based cutoff to blocks within a constraining optimized pit shell using Lerchs-Grossmann optimization.
The assumed long-term metal prices used for the
optimization work as applied to Mineral Resources are shown in the footnotes of
the mineral resource tables below. These metal prices are approximately 15%
higher than those used in the estimation of Mineral Reserves.
The NSR calculation and pit optimization process
considers many of the parameters used in the mineral reserve estimation, as
these parameters are well established within the working mine. These parameters
include commodity price, budget costs for production and processing, process
recoveries, concentrate grade, selling costs, and other ore-based costs. The
optimization process also uses the current geotechnical model for the pit
design.
For the Bisha and
Harena deposits, mineralization below the pit shell described above was studied
for potential for underground mining. A high-level study in 2013 concluded that
an appropriate underground mining cost per tonne would be $60/t. The
mineralization was then analyzed for contiguous blocks with NSR values
exceeding $100/t. A shape of sufficient tonnage and value was identified, and this
tonnage is included in the Inferred Resource category given in the Mineral
Resource statement.
The following tables are based on the December 31, 2014
mineral resource statement, as certified by the identified QPs as of
the effective dates indicated. Mineral resources that are not mineral reserves
do not have demonstrated economic viability. Mineral Resources reported here
for Bisha and Harena are inclusive of Mineral Reserves.
|
23 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 1.1 Mineral
Resource Estimate (Combined Bisha, Harena, Northwest and Hambok)
Matt Bampton, MAusIMM, MAIG (Cube Consulting) and Paul
Gribble, C. Eng, Effective Date: December 31, 2014
|
Measured
|
Contained
Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000
lbs)
|
('000
lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
Phase
|
|
|
|
|
|
|
|
|
|
|
Supergene
Phase
|
1,420
|
4.50
|
|
0.6
|
23
|
141,000
|
|
30
|
1,060
|
|
Primary
Phase
|
|
|
|
|
|
|
|
|
|
|
Total
Measured
|
1,420
|
|
141,000
|
|
30
|
1,060
|
| |
|
|
Indicated
|
Contained
Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000
lbs)
|
('000
lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
Phase
|
200
|
|
|
7.8
|
3
|
|
|
50
|
20
|
|
Supergene
Phase
|
3,560
|
2.58
|
|
0.5
|
17
|
202,150
|
|
60
|
1,970
|
|
Primary
Phase
|
34,610
|
1.07
|
4.48
|
0.5
|
35
|
816,390
|
3,419,490
|
610
|
38,770
|
|
Total
Indicated
|
38,370
|
|
1,018,540
|
3,419,490
|
720
|
40,760
|
| |
|
|
|
|
|
|
|
|
|
Measured
and Indicated
|
Contained
Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000
lbs)
|
('000
lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
Phase
|
200
|
|
|
7.8
|
3
|
|
|
50
|
20
|
|
Supergene
Phase
|
4,980
|
3.13
|
|
0.6
|
19
|
343,150
|
|
90
|
3,030
|
|
Primary
Phase
|
34,610
|
1.07
|
4.48
|
0.5
|
35
|
816,390
|
3,419,490
|
610
|
38,770
|
|
Total
Meas & Ind
|
39,790
|
|
1,159,540
|
3,419,490
|
750
|
41,820
|
| |
|
|
|
|
|
|
Inferred
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
1,120
|
|
|
3.9
|
21
|
|
|
141
|
760
|
|
Supergene Phase
|
1,200
|
1.1
|
|
0.3
|
3
|
29,000
|
|
10
|
100
|
|
Primary Phase
|
8,402
|
1.1
|
4.1
|
0.6
|
38
|
208,430
|
757,410
|
160
|
10,210
|
|
Total Inferred
|
10,722
|
|
237,430
|
757,410
|
311
|
11,070
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
24 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 1.2 Bisha
Mineral Resource Estimate
Matt Bampton, MAusIMM, MAIG (Cube Consulting),
Effective Date: December 31, 2014
|
Measured
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
|
|
|
|
|
|
|
|
|
|
Supergene Phase
|
1,420
|
4.50
|
|
0.6
|
23
|
141,000
|
|
30
|
1,060
|
|
Primary Phase
|
|
|
|
|
|
|
|
|
|
|
Total Measured
|
1,420
|
4.50
|
|
0.6
|
23
|
141,000
|
|
30
|
1,060
|
| |
|
|
|
|
|
|
Indicated
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
180
|
|
|
9.2
|
|
|
|
50
|
|
|
Supergene Phase
|
2,540
|
3.01
|
|
0.6
|
20
|
169,000
|
|
50
|
1,640
|
|
Primary Phase
|
22,000
|
1.09
|
5.79
|
0.7
|
46
|
528,000
|
2,810,000
|
500
|
32,690
|
|
Total Indicated
|
24,720
|
|
697,000
|
2,810,000
|
600
|
34,330
|
| |
|
Measured and Indicated
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
180
|
|
|
9.2
|
|
|
|
50
|
|
|
Supergene Phase
|
3,960
|
3.55
|
|
0.6
|
21
|
310,000
|
|
80
|
2,700
|
|
Primary Phase
|
22,000
|
1.09
|
5.79
|
0.7
|
46
|
528,000
|
2,810,000
|
500
|
32,690
|
|
Total Meas & Ind
|
26,140
|
|
838,000
|
2,810,000
|
630
|
35,390
|
| |
|
|
Inferred
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
500
|
|
|
5.1
|
23
|
|
|
80
|
360
|
|
Supergene Phase
|
1,100
|
1.1
|
|
|
1
|
27,000
|
|
|
30
|
|
Primary Phase
|
1,900
|
1.0
|
5.4
|
0.5
|
38
|
44,000
|
226,000
|
30
|
2,340
|
|
Total Inferred
|
3,500
|
|
71,000
|
226,000
|
110
|
2,730
|
|
25 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 1.3 Harena
Mineral Resource Estimate
Matt Bampton, MAusIMM, MAIG (Cube Consulting),
Effective Date: December 31, 2014
|
Indicated
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
20
|
|
|
2.5
|
25
|
|
|
0
|
20
|
|
Primary Phase
|
3,220
|
0.82
|
3.77
|
0.5
|
27
|
58,000
|
268,000
|
50
|
2,770
|
|
Total Indicated
|
3,240
|
|
58,000
|
268,000
|
50
|
2,790
|
| |
|
|
|
|
|
|
|
|
|
|
Inferred
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
100
|
|
|
4.2
|
33
|
0
|
0
|
10
|
90
|
|
Primary Phase
|
6,400
|
1.1
|
3.7
|
0.6
|
38
|
162,000
|
529,000
|
120
|
7,810
|
|
Total Inferred
|
6,500
|
|
162,000
|
529,000
|
130
|
7,900
|
| |
|
|
|
|
|
|
|
|
|
|
|
Table 1.4 Northwest Mineral Resource Estimate
Paul Gribble, C. Eng, Effective Date: December 31, 2014
|
Indicated
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
|
|
|
|
|
|
|
|
|
|
Supergene Phase
|
1,020
|
1.47
|
|
0.2
|
10
|
33,150
|
|
10
|
330
|
|
Primary Phase
|
2,530
|
1.04
|
1.08
|
0.3
|
13
|
58,020
|
60,250
|
20
|
1,050
|
|
Total Indicated
|
3,550
|
|
91,170
|
60,250
|
30
|
1,380
|
| |
|
|
|
|
|
|
|
|
|
|
Inferred
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
500
|
|
|
3.7
|
18
|
|
|
50
|
300
|
|
Supergene Phase
|
100
|
0.8
|
|
3.7
|
19
|
2,000
|
|
10
|
70
|
|
Primary Phase
|
100
|
0.9
|
0.9
|
2.9
|
15
|
2,400
|
2,400
|
10
|
60
|
|
Total Inferred
|
700
|
|
4,400
|
2,400
|
70
|
430
|
| |
|
|
|
|
|
|
|
|
|
|
|
26 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 1.5 Hambok
Mineral Resource Estimate
Paul Gribble, C. Eng, Effective Date: December 31, 2014
|
Indicated
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
|
|
|
|
|
|
|
|
|
|
Primary Phase
|
6,860
|
1.14
|
1.86
|
0.2
|
10
|
172,370
|
281,240
|
40
|
2,260
|
|
Total Indicated
|
6,860
|
|
172,370
|
281,240
|
40
|
2,260
|
| |
|
|
|
|
|
|
|
|
|
|
Inferred
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide Phase
|
20
|
|
|
1.5
|
17
|
|
|
1
|
10
|
|
Primary Phase
|
2
|
0.9
|
0.2
|
0.2
|
8
|
30
|
10
|
0
|
0
|
|
Total Indicated
|
22
|
|
30
|
10
|
1
|
10
|
Notes to be read in
conjunction with the Resource tables above:
| (1)
|
Mineral Resources are defined within an optimal Lerchs-Grossman (LG) Pit Shell, generated using metal prices for copper, zinc, gold and silver of $3.35/lb, $1.15/lb, $1,335/oz and $21/oz respectively using blocks of all Resource categories. Overall pit slopes varied from 31 degrees to 44 degrees for Bisha, 29 degrees to 35.5 degrees for Harena, from 39 to 45 for Northwest and 40 overall for Hambok (preliminary assessment). NSR cut-off ($US/t) used were: |
| |
a.
|
Bisha: $40.55 for Oxide Phase; $39.55 for Supergene and Primary Phase.
|
| |
b.
|
Harena: $42.71 for Oxide Phase and $41.71 for Primary Phase.
|
| |
c.
|
Northwest: $40.70 for Oxide Phase, $39.70 for Supergene and Primary Phase.
|
| |
d.
|
Hambok: $44.45 for Oxide Phase and $43.45 for Primary Phase.
|
| (2)
|
NSR values were calculated for each block using all resource categories, metal prices, recoveries, appropriate smelter terms and downstream costs. Metallurgical recoveries, supported by metallurgical test work, were applied as follows:
|
| |
a.
|
Bisha oxide zone: recoveries of 88% and 22% were applied for gold and silver respectively.
|
| |
b.
|
Harena oxide zone: a recovery of 75% was applied for gold.
|
| |
c.
|
c. Bisha Supergene zone: recoveries of 85%, 54% and 74% were applied for copper, gold and silver respectively. |
| |
d.
|
Bisha Primary zone: recoveries to copper concentrate of 85%, 36% and 29% were applied for copper, gold and silver respectively. Recoveries to zinc concentrate of 83.5%, 9% and 20% were applied for zinc, gold and silver respectively.
|
| |
e.
|
Harena primary zone: recoveries to copper concentrate of 85%, 36% and 29% were applied for copper, gold and silver respectively. A zinc recovery to zinc concentrate of 72% was applied.
|
| |
f.
|
Northwest oxide zone: recoveries of 88% and 22% were applied to gold and silver respectively.
|
| |
g.
|
Northwest Supergene zone: recoveries of 87%, 46% and 50% were applied for copper, gold and silver respectively. Zinc has not been assigned a recovery as the values are isolated on the fringes of the deposit.
|
| |
h.
|
Northwest Primary zone: recoveries to copper concentrate of 87%, 36% and 29% were applied for copper, gold and silver respectively. Recoveries to zinc concentrate of 81%, 36% and 29% were applied for zinc, gold and silver respectively.
|
| |
i.
|
Hambok oxide zone: recoveries of 88% and 22% were applied to gold and silver respectively.
|
| |
j.
|
Hambok: recoveries to copper concentrate of 88%, 87%, 36% and 29% were applied for copper, zinc, gold and silver respectively. Preliminary metallurgical characterization studies, but not full testing have been completed for Hambok.
|
| (3)
|
Mineral Resources are reported within the pit shell generated using the specified commodity prices, using NSR block grade cut-off derived as above. Tonnage is rounded to the nearest 10,000 tonnes and grades are rounded to two decimal places for copper and zinc, one decimal place for gold and zero decimal places for silver. Tonnages and grades for the Inferred category are further rounded reflecting the uncertainty that attaches to this category. Contained metal for copper and zinc are rounded to the nearest million pounds for Bisha and Harena.
|
|
27 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| (4)
|
Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade and contained metal content.
|
| (5)
|
Tonnage and grade measurements are in metrics units. Contained gold and silver ounces are reported as troy ounces, contained copper and zinc pounds as imperial pounds.
|
| (6)
|
Stockpile tonnages are included in the total given in the tables for Bisha and Harena, with their resource category generally reflecting the underlying resource category from which they were derived.
|
| (7)
|
Both the Bisha and Harena Primary Inferred Resources include an Underground Resource. These were derived by defining a shape around contiguous blocks outside the optimized resource pit shell, where an overall NSR of $100 was achieved. The value of NSR $100 represents the processing cost plus approximately $60/t mining cost.
|
| (8)
|
Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
|
Mineral Reserves
The Proven and Probable Mineral Reserves at the operation have been classified in accordance with the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves. Mineral Reserves are defined within a mine plan, with open pit phase designs guided by Lerchs-Grossmann optimized pit shells, generated using long-term metal prices for copper, zinc, gold and silver of $2.90/pound, $1.00/pound, $1,160/ounce, and $18.50/ounce respectively. As of February 2015, the copper, gold and silver prices used are below the three-year trailing prices ($3.33/lb, $1,448/oz and $24.45/oz, respectively). The zinc price used is above the three-year trailing price of $0.92/lb, based on consensus market forecasting. Spot market prices for copper, zinc and silver are somewhat lower than what was used. From the start of the resource and reserve estimation process in December 2014, copper and zinc prices fell from $2.91/lb and $1.00/lb respectively to $2.61/lb and $0.97/lb by mid-February. The pricing used for gold though remains lower than spot market pricing ($1,233/oz).
Apart from mine depletion during 2014, the Company identified a further 30 million pounds of copper and 300 million pounds of zinc in mineral reserves. The Bisha supergene reserve, inclusive of stockpiles, decreased by 3.9 million tonnes, which included 295 million pounds of copper. Of this reduction, approximately 1.8 million tonnes and 230 million pounds of copper was due to mine depletion. The remaining reduction of 2.1 million tonnes and 65 million pounds of copper came from reclassification of supergene to primary ore, removal of the hanging wall copper ore pending further metallurgical testwork, pyrite sand displacement and elevated operating costs. Conversely, this reclassification and a deepening of the Bisha Main pit, lead in part to the Bisha primary reserve increasing by 1.7 million tonnes including an increase of 91 million pounds of copper and 270 million pounds of zinc. The Harena primary reserve increased by 0.3 million tonnes including 8 million pounds of copper and 26 million pounds of zinc.
The NSR Cut-Offs (per tonne) are: oxide
zone $41.58 for Bisha and $44.51 for Harena; supergene zone $45.69 for Bisha;
and primary zone $38.19 for Bisha, and $41.12 for Harena.
Pit slope design criteria reflect no
change from the previous reserves estimate with overall pit slopes varied from
31.0° to 44° for Bisha, and from 29° to 35.5° for Harena. Revenue will be
generated from the sale of copper concentrates (which contain payable co-products
of gold and silver) during the supergene ore phase, and both copper and zinc
concentrates during the primary ore phase of the operation. Small quantities of
oxides remaining within the pits and stockpiles will be processed at the end of
the mine life through the currently inactive carbon in leach circuit, producing
doré with payable gold and silver. To capture the multi-rock ore types,
variable recoveries by rock type, and multi-element complexity, NSR values were
calculated for block valuation.
The NSR grade determination considers
the recoveries, concentrate grades, and penalties (where applicable) for each
rock type, and applies the metal prices as noted above and various cost
parameters, resulting in a net value per tonne of ore, inclusive of all costs
outside the mine gate. Only Measured and Indicated Mineral Resources were
considered for processing. Inferred Mineral Resources were treated as waste.
|
28 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
The waste and ore-based costs applied
for pit optimization and mine planning were based on 2015 budget costs
developed by BMSC. The mining cost (inclusive of loading, hauling and support
including maintenance) was $2.91 per tonne, plus an appropriate incremental
haulage cost per bench. The total ore-based costs for Bisha (ore control,
geology, lab services, process, G&A and stockpile re-handle) totaled $45.69
per tonne for supergene and $38.19 for primary ores. For Harena, the ore-based
costs include an additional $2.93/t for overland ore haulage.
Because the mineralization-waste
delineation was performed using an NSR block value, net of downstream costs,
the total ore-based cost represents the marginal break-even cut-off grade for
pit optimization and mine planning purposes.
The Mineral Resource estimates for Bisha and Harena are undiluted. A 1.5 metre dilution skin was added at the time of ore and waste delineation for mine planning purposes (i.e., as a part of the Mineral Reserves process). No mining loss adjustments were made.
Factors that may affect the Mineral
Reserve estimates include dilution; metal prices; smelter, refining, and
shipping terms; metallurgical recoveries and geotechnical characteristics of
the rock mass; operating cost estimates; and effectiveness of surface and
groundwater management.
The QPs who
prepared this information, are of the opinion that these potential modifying
factors have been adequately accounted for using the assumptions in this
report, and therefore the Mineral Resources within the mine plan may be
converted to Mineral Reserves. Factors that may affect the assumptions in this
report are:
- Commodity price and exchange rate assumptions.
- Ensuring marketability of concentrates in
particular the copper concentrate during the supergene phase will require
careful ore control and blending to minimize smelter penalties, as has been
successfully done since mid-2013.
- Mill throughput of the identified ore types may
prove to be higher or lower than modelled. If certain rock types or delivered
blends of rock types have lower throughputs than currently modelled, this would
increase the processing cost, which would in turn increase the mill cut-off
grade. If all other variables are held constant, this would tend to reduce the
tonnage of the Mineral Reserve and the amount of contained metal. If
throughput reductions are significant, this could reduce the size of the
economic pit limits, further reducing the Mineral Reserve. Furthermore, a
reduction in throughput would delay cash flow, resulting in a negative impact
on economics.
- Effective surface and groundwater management are
important to the safety and productivity of the mining operation. If the
currently planned water management methods prove to be ineffective, additional
dewatering wells and/or sumps and pump systems may be required, which would add
to the capital and operating costs, resulting in a negative impact on economics
and a potential reduction in the Mineral Reserves.
The summary of the Mineral Reserves is shown in the following tables. The Company has done no re-estimates.
|
29 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 2.1 Mineral Reserve Estimate (Combined Bisha and
Harena)
Anoush Ebrahimi
P.Eng, Ph.D., Effective Date December 31, 2014
|
Proven
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Supergene
|
1,350
|
4.46
|
0.08
|
0.6
|
26
|
132,840
|
0 |
27
|
1,145
|
|
Total
|
1,350
|
|
132,840
|
0
|
27
|
1,145
|
| |
|
|
|
|
|
|
|
|
|
|
Probable
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
|
199
|
|
|
8.5
|
206 |
|
|
54
|
1,320
|
|
Supergene
|
2,184
|
3.20
|
|
0.6
|
21 |
154,020
|
|
41
|
1,459
|
|
Primary
|
21,572
|
1.08
|
5.66
|
0.7
|
45 |
512,630
|
2,689,800
|
464
|
31,173
|
|
Total
|
23,956
|
|
666,660
|
2,689,800
|
559
|
33,952
|
| |
|
|
|
|
|
|
|
|
|
|
Total Reserve
(P&P)
|
Contained Metal
|
|
Oxide
|
199
|
|
|
8.5
|
206
|
|
|
55
|
1,320
|
|
Supergene
|
3,535
|
3.68
|
0.03
|
0.6
|
23
|
286,860
|
0 |
68
|
2,604
|
|
Primary
|
21,572
|
1.08
|
5.66
|
0.7
|
45 |
512,640
|
2,689,800
|
464
|
31,173
|
|
Total
|
25,306
|
|
799,490
|
2,689,800
|
587
|
35,097
|
|
30 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Table 2.2 Bisha Mineral Reserve Estimate
Anoush Ebrahimi
P.Eng, Ph.D., Effective Date December 31, 2014
|
Proven
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Supergene
|
1,350
|
4.46
|
|
0.6
|
26
|
132,840
|
|
27
|
1,145
|
|
Subtotal
|
1,350
|
|
132,840
|
|
27
|
1,150
|
| |
|
|
|
|
|
|
|
|
|
|
Probable
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
|
180 |
|
|
9.2
|
227
|
|
|
53
|
1,303
|
|
Supergene
|
2,184
|
3.20
|
|
0.6
|
31
|
154,020
|
|
41
|
1,459
|
|
Primary
|
20,115
|
1.10
|
5.80
|
0.7
|
46 |
488,430
|
2,571,820
|
440
|
29,918
|
|
Subtotal
|
22,478
|
|
642,450
|
2,571,820
|
534
|
32,680
|
| |
|
Total
Reserve (P&P)
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
|
179
|
|
|
9.2
|
227 |
|
|
53
|
1,303
|
|
Supergene
|
3,535
|
3.68
|
|
0.6
|
23 |
286,860
|
|
68
|
2,604
|
|
Primary
|
20,115
|
1.10
|
5.80
|
0.7
|
46
|
488,430
|
2,571,820
|
440
|
29,918
|
|
Subtotal
|
23,828
|
|
775,290
|
2,571,820
|
561
|
33,825
|
Table 2.3 Harena Mineral Reserve Estimate
Anoush Ebrahimi
P.Eng, Ph.D., Effective Date December 31, 2014
|
Probable
|
Contained Metal
|
| |
Tonnes
|
Copper
|
Zinc
|
Gold
|
Silver
|
Cu
|
Zn
|
Au
|
Ag
|
|
Zone
|
('000s)
|
%
|
%
|
g/t
|
g/t
|
('000 lbs)
|
('000 lbs)
|
('000 Oz)
|
('000 Oz)
|
|
Oxide
|
21
|
|
|
2.5
|
26 |
|
|
2
|
17
|
|
Primary
|
1,457
|
0.75
|
3.67
|
0.5
|
27
|
24,200
|
117,980
|
24
|
1,255
|
|
Subtotal
|
1,477
|
|
|
|
|
24,200
|
117,980
|
26
|
1,272
|
Notes to be read in
conjunction with the Reserve tables above:
| (1)
|
NSR Cut-Off ($US/t): Oxide Phase $41.58 for Bisha and $44.51 for Harena: Supergene Phase $45.69 for Bisha and Primary Phase $38.19 for Bisha and $41.12 for Harena. Mineral Reserves are defined within a mine plan, with phase designs guided by Lerch-Grossman (LG) Pit Shells, generated using metal prices for copper, zinc, gold and silver of $2.90/lb, $1.00/lb, $1,160.00/oz, $18.50/oz respectively. The mining cost was $2.91/t, plus $0.014/t/5 m bench for ore and waste below reference elevations of 560 masl and 600 masl for Bisha and Harena respectively. The total ore-based cost (process, G&A, stockpile and rehandle) is 41.58/t for oxide, $45.69/t for supergene and $38.19/t primary ores. Harena ore-based costs include an additional $2.93/t overland ore haulage cost. Overall pit slopes varied from 31 degrees to 44 degrees for Bisha and from 29 degrees to 35.5 degrees for Harena.
|
|
31 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| (2)
|
Economic values for the multi-metal, multi zones were modelled using Net Smelter Return values. Each block NSR value was calculated using diluted grades, metal prices, recoveries and appropriate smelter terms and downstream costs. Metallurgical recoveries, supported by metallurgical test work, were applied as follows:
|
| |
a.
|
Bisha oxide zone: recoveries of 88% and 22% were applied for gold and silver respectively.
|
| |
b.
|
Harena oxide zone: a recovery of 75% was applied for gold.
|
| |
c.
|
Bisha Supergene zone: recoveries of 85%, 54% and 74% were applied for copper, gold and silver respectively. Zinc has not been assigned a recovery, as most of the supergene zone will be processed prior to start-up of the zinc flotation plant. An arsenic recovery of 60% was applied for smelter penalty inclusion in the NSR calculation and cash flow analysis.
|
| |
d.
|
Bisha Transition zone has applied the same metallurgical parameters as Bisha supergene phase.
|
| |
e.
|
Bisha Primary zone: recoveries to copper concentrate of 85%, 36% and 29% were applied for copper, gold and silver respectively. A zinc recovery to zinc concentrate of 83.5% was applied.
|
| |
f.
|
Harena primary zone: recoveries to copper concentrate of 85%, 36% and 29% were applied for copper, gold and silver respectively. A zinc recovery to zinc concentrate of 72% was applied.
|
| (3)
|
Mineral Reserves are reported within Bisha and Harena ultimate pit designs, using NSR block grade, where the marginal cut-off is the total ore based cost stated above. Tonnages are rounded to the nearest 1,000 tonnes. Grades of copper and zinc are rounded to two decimal places. Grades of gold and silver are rounded to one decimal place.
|
| (4)
|
Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade and contained metal content.
|
| (5)
|
Tonnage and grade measurements are in metrics units. Contained gold and silver ounces are reported as troy ounces, contained copper and zinc pounds as imperial pounds.
|
| (6)
|
The life of mine strip ratios (by weight) for Bisha and Harena are 7.02:1 and 4.85:1 respectively.
|
| (7)
|
The Bisha oxide Probable Mineral Reserves, which include pyrite sand and uncrushed DSO Reserves, are 180 kt at 9.2 g/t Au in stockpile as of 31 Dec 2014. |
| (8)
|
The Bisha supergene Proven Mineral Reserves are inclusive of 100 kt at 11.27% Cu in stockpile as of 31 Dec 2014.
|
| (9)
|
The Bisha primary Probable Mineral Reserves are inclusive of 138 kt at 3.57% Zn in stockpile as of 31 Dec 2014.
|
| (10)
|
1.5 m "skin" of dilution is applied at ore/waste contacts.
|
| (11)
|
No mining losses adjustments are made.
|
| (12)
|
The end of December 2014 topography was used for this calculation.
|
|
32 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Mining
Operations
The table below highlights the three -year key mine and process metrics at Bisha.
Table 3.1 Key Production Highlights – 3 Year History
| |
2014
|
2013
|
2012
|
|
Oxide ore
mined, tonnes
|
225,000
|
1,187,000
|
1,591,000
|
|
Supergene ore
mined, tonnes
|
1,936,000
|
805,000
|
-
|
|
Primary ore
mined, tonnes
|
121,000
|
-
|
-
|
|
Waste mined,
tonnes
|
12,277,000
|
9,038,000
|
8,677,000
|
|
Strip ratio,
(using tonnes)
|
5.4
|
4.5
|
5.5
|
|
Copper phase
prestrip, tonnes
|
-
|
-
|
1,220,000
|
| |
|
|
|
|
Processing –
copper:
|
|
|
|
|
Tonnes milled
|
1,789,000
|
767,000
|
-
|
|
Copper feed
grade, %
|
5.9
|
3.9
|
-
|
|
Recovery, % of
copper
|
85.0
|
73.5
|
-
|
|
Copper in
concentrate produced, millions pounds
|
196.0
|
48.0
|
-
|
| |
|
|
|
|
Processing –
gold:
|
|
|
|
|
Tonnes milled
|
-
|
887,000
|
1,807,000
|
|
Gold grade
(g/t)
|
-
|
3.4
|
6.2
|
|
Recovery, % of
gold
|
-
|
79
|
86
|
|
Gold in doré,
ounces produced
|
-
|
92,000
|
313,000
|
The ultimate Bisha Main pit is planned
to be approximately 1.5 kilometres long and 1.0 kilometre wide. The slope
heights will range from 160 metres to 290 metres.
Open pit slope design recommendations
have been provided for each design sector in each geotechnical domain. Design
sectors are defined by the average azimuth of the anticipated wall
orientations, based on geological structural controls on slope stability.
Geotechnical domains result from the combination of structural domains and
geotechnical units, resulting in nine distinct geotechnical domains with the
recommended inter-ramp angles varying from 31° to 46°, depending on the design
sector and geotechnical domain. All of the slope designs assume that controlled
blasting will be undertaken for the final walls of the pit.
Depressurization of the open pit slopes
is required to achieve the open pit slope designs, as the pre-development water
table is approximately 15 metres below ground surface. Therefore a combination
of vertical wells and in-pit sumps (as is the present practice) in use with
horizontal drains are to be installed to dewater the open pit and depressurize
the slopes.
The Bisha and Harena deposits are being
mined by conventional truck and shovel open pit mining methods. The Bisha pit
consists of nine individual pit phases, where the first three phases targeted
oxide ore production, the second three target supergene ore production, and the
final three phases will target primary ore production. The oxide pit phases
have now been exhausted, and Phases 4, 5, and 6 are currently providing
supergene ore. Stripping for the primary mineralization started in Phase 8 in
late 2013 and Phase 9 in 2014.
The Harena pit features two pit phases,
one targeting oxide production (which was mainly completed in 2013 with some
remnant material remaining), and the final phase targeting primary production
to be active in 2021 for waste stripping with ore extraction scheduled commencing
2023. The Harena pit is currently inactive for mining but additional exploration
drilling was completed during 2014 and additional work is planned.
Although the initial oxide production
phase of the operation is complete, small quantities of oxide mineralization
remain in-situ within some of the pit phases and in previously mined stockpiles.
These materials will be processed at the end of the primary phase of the
operation.
|
33 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
The open pit designs for Bisha Main
include double lane ramp design widths of 24 metres, based on three and one
half times the width of the Cat 775 truck, ramp gradient of 10 percent, and
smoothing of walls in areas where convex “noses” could cause geotechnical
issues.
The mine plan for the current December
31, 2014 mineral reserves was developed using an average throughput of 2.4
million tonnes per annum for all materials. Descent rates in the pit were
limited to 50 vertical metres per year. Drilling and blasting will be
performed on 5 metre benches in ore and waste ranging between 5 and 10 metres.
The mine is scheduled to work 360 days a year, with five days allowed for
delays due to weather disruptions. The plant is scheduled to operate 365 days
a year.
The mine delivers ore to the ROM pad,
where it is sorted into several different short-term stockpiles. This ore is
then reclaimed by a front-end loader to the dump pocket, following a blending
plan that is provided daily and modified as required based on process plant
performance. Longer-term stockpiling of non-oxide material has been minimized
to limit oxidization.
Bisha has three different types of
mineralization – oxide, supergene, and primary – each requiring a specific
process flow sheet. The plan in the Bisha Feasibility Study to mine and
process each zone in succession starting with the top oxide zone (now ceased),
is still being followed. The oxide plant facilities included a primary jaw
crusher, a single SAG followed by single ball grinding mills, cyanide leach/carbon
in leach circuit, cyanide destruction circuit, refinery to produce doré
bullion, tailings thickener, tailings discharge system, and the necessary
reagent, water, and air systems. Additional process equipment as part of the
copper flotation plant to treat the supergene mineralization was commissioned
by mid-2013 and installed downstream of the crushing and grinding “front end”
part of the carbon-in-leach plant which treated the oxide ore. This equipment
consists of flotation cells for copper roughing and cleaning duties, regrind
mills for size reduction of rougher concentrate, copper concentrate thickener
and pressure filters, a copper concentrate load-out building, copper flotation
reagent systems, flotation air blowers, and pressure filter air compressors. A
near identical duplicate of this copper flotation circuit is being constructed
downstream for the upcoming zinc flotation circuit, to be commissioned in mid-2016.
Due to the
sub-horizontal and undulating contact between the supergene and primary
mineralized materials, there will be a multi-year period where both supergene
and primary materials are mined. During this overlap period, both supergene
and primary ores will be treated in campaigns of appropriate durations. Some stockpiling of supergene and
primary mineralization types has and will continue to occur. The effect of any
possible sulphide mineral oxidation on flotation performance is minimized by
management practices currently used in the base metal sulphide sector, such as
reduced wetting of broken ore.
The current life of mine plan starts
from the December 2014 end-of-month surveyed surface. Over the remaining LOM,
it is expected that 170 million tonnes of waste rock will be produced from the
Bisha Main and Harena pits and placed in two waste rock facilities to the east
and southeast of the Bisha Main open pit, as well as in a backfill dump located
in the north end of the ultimate Bisha Main pit. The east waste rock facility
nominally covers 80 hectares, and the southeast waste rock facility nominally
covers 90 hectares. An operational scheduling plan has been prepared for
placement of the rock within the dumps that allows potential acid rock drainage
issues to be appropriately managed during operations and closure.
Metallurgical Test
Work and Process Plant Design
The Bisha Property mineral resource
contains three ore types: a gold and silver bearing oxide cap, underlain by a
more complex secondary copper mineralized supergene ore, which is in turn
underlain by primary copper-zinc ore where chalcopyrite (copper) and sphalerite
(zinc) are the main economic minerals.
|
34 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
The metallurgical performances of the
three ore types corresponding with metallurgical test data completed in 2013 and
2014 coupled with actual observed behaviour in 2014 are summarized in the table
below.
|
Table 3.2: Expected Metallurgical
Performance of the Three Ore Types
|
| |
%Au
Recovery |
%Ag
Recovery |
%Cu
Grade |
%Cu
Recovery |
%Zn
Grade |
%Zn
Recovery |
|
Bullion from
Bisha Oxide Ore
|
88
|
22
|
-
|
-
|
-
|
-
|
|
Bullion from
Harena Oxide Ore
|
75
|
n/a
|
-
|
-
|
-
|
-
|
|
Cu Concentrate
from Bisha Supergene Ore
|
54
|
74
|
26-28
|
85
|
-
|
-
|
|
Cu Concentrate
from Bisha Primary Ore
|
36
|
29
|
25.5
|
85
|
-
|
-
|
|
Zn Concentrate from Bisha Primary Ore
|
-
|
-
|
-
|
-
|
55
|
83.5
|
|
Cu Concentrate from Harena Primary Ore
|
36
|
29
|
25.5
|
85
|
-
|
-
|
|
Zn Concentrate from Harena Primary Ore
|
-
|
-
|
-
|
-
|
52
|
72
|
The oxide, supergene
and primary ores require different processing techniques and
equipment. Oxide ore processing ceased in Q2 2013 whereupon supergene
ore commenced. The current plan is to mine the remaining two zones (supergene zone
at Bisha Main and the primary zones at Bisha Main and Harena) in succession
with some minor overlap of supergene and primary ore. This is pending further
reviews to economically optimize the mine production schedule. When the
supergene ore availability diminishes, which is anticipated commencing in H1
2016, the current flotation plant treating supergene ore will have been
suitably modified to accept its first primary copper-zinc ore.
The additional
equipment to be installed (currently well-progressed) will include zinc
roughing and cleaner flotation sections, zinc rougher concentrate regrinding,
zinc concentrate thickener and pressure filters, a zinc concentrate load-out facility,
zinc flotation reagents system, and additional flotation air blowers. This will
allow a manageable transition from processing the supergene ore to primary
copper-zinc ore. There will be some transition period where campaign
treatment of both ore types may be required. While anticipated production will
not be affected, there will be some fluctuation in concentrate grades. However,
no interruption to production is anticipated, as campaign processing of
different ore types is an established practice in the treatment of base metals
sulphide ores.
In 2013, 89,800 dry
metric tonnes (DMT) of concentrate was produced with the copper grade of 24.3%
containing 21,800 tonnes of copper. In 2014, 337,500 DMT of concentrate was
produced with the copper grade of 26.3% containing 88,900 tonnes of copper.
Average copper recovery in 2014 was 85%. Approximately 108,000 tonnes of
copper concentrate per year on average will be produced in 2015 to 2025 due to
lower copper grades due to a decreasing grade profile with depth in the
supergene and due to the lower copper grade in the primary ore. Approximately 175,000
tonnes of zinc concentrate per year on average will be produced from 2016 to
2025. The average copper grade in the primary ore is 1.1% compared to 3.7% in
the remaining supergene ore. The average zinc grade in the primary ore is 5.5%.
Concentrate is
loaded from the dewatered mine site stockpile, sealed in special shipping
containers and transported to the existing container port of Massawa on the Red
Sea by truck. The concentrate is exported using a proven system with industry
leading environmental controls. The sealed containers are stockpiled in Massawa
at the container port facilities while waiting for ship arrival. The mobile crane
system then lifts the
containers with a specialised 360-degree rotating spreader (termed a Rotainer
system) and discharges the concentrate from the containers into bulk vessels. The
empty containers are returned to the Bisha Mine for re-loading. The bulk
vessels deliver the concentrate to copper smelters worldwide.
|
35 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Mine Waste
and Water Management
Waste rock from the Bisha open pit is being placed in two separate
waste rock dumps, non-acid generating (NAG) and potentially acid generating (PAG).
The decision on where to place future waste rock excavated during pit stripping
is based upon waste rock characterization laboratory work. Waste rock
characterization at Harena has indicated there is no potential acid generating for
the oxide zone and consequently no requirement for drainage and sump systems.
Waste rock dump locations are determined taking into account the level of
environmental impact, optimizing mining operations, and permit expansion of
mining areas based on further exploration programs. The Bisha PAG waste rock
dump has been designed with a compacted low permeable soil base layer, drainage
and seepage collection system, and sumps to facilitate re-use of any seepage in
the process plant should it occur. Design criteria at both pits allows for
gravity drainage to the open pits on closure.
Tailings generated from the processes are pumped to the tails management facility (TMF) situated to the north of the process plant. Site selection of the TMF was based on storage characteristics of the basin and natural topography, extent of environmental impact and embankment construction requirements. The TMF is lined with an impermeable HDPE liner to reduce any potential impact to groundwater aquifer and/or downstream users. Tailings deposited since commissioning is approximately 6.6 million tonnes (4.5 million tonnes from the oxide zone and 2.1 million tonnes from the supergene zone). A return water methodology of operation ensures re-use of this valuable resource as far as practicable but further work is being undertaken in 2015 to further improve TMF return water rates. A vigorous cyanide-monitoring program is in place to ensure compliance with International Cyanide Management Code requirements. As the gold phase was complete in the middle of 2013 (and hence no longer using cyanide), and a subsequent lift completed to the tails facility in mid-2014, cyanide in the TMF has all dissipated through natural solar destruction and is no longer a concern. The first 3-metre lift of the existing TMF was completed in April 2014 and there is currently 4.6 meters of freeboard remaining. Natural acid generation from the sulphides of the supergene zone is a new issue and steps are in place to mitigate this influence on the environment.
Surface water flow in the project area
is non-existent for much of the year; however, river and stream flow can be
significant during precipitation events. Three separate diversions in the Ferektatet
River ensure that storm water is directed away from operations to both the east
(Shatera River) and the west (Mogoraib). Groundwater is the main water source
for the process plant, the volume of which is reduced by a zero discharge
policy, judicious re-use of poor quality pit sump water and maximum use of dewatering
well waters.
Socioeconomic and Environmental Assessment and
Approval
The environmental assessment phase of Bisha Mine commenced with baseline studies in 2004. The Eritrean Ministry of Energy and Mines approved the Terms of Reference for the SEIA project in March, 2006 and the SEIA was completed in December, 2006. During 2009 the Company completed an update report which augmented the 2006 SEIA and addressed the revisions to the configuration of the project that had occurred since the Bisha Feasibility Study. The project SEMPs were extended to capture the additional details of the project resulting from the advancement of engineering and development and to ensure full compliance with the Eritrean National Standards, and the IFC Performance Standards as applied to the Equator Principles. The Company continues to consult and work closely with government ministries on matters pertaining to social and environmental aspects and will continue to do so through the LOM. There have been no material adverse social or environmental impacts identified.
The Company adopted the IFC Performance
Standards and developed its management plans accordingly. The plans have been
subject to review by the host country, as well as part of an extensive due
diligence by international bankers who at one time were considered for
funding. The social and environmental plans have been implemented and have
subsequently been audited by an independent third party. Staff training and
engagement with local authorities, as well as significant employment from both
local and other in-country sources are key elements of the Company’s social and
environmental management. Department heads for both human resources and environment
are experienced professionals with a solid understanding of local requirements
as well as IFC Performance Standards. The Company continues to place
significant emphasis on all social and environmental impacts of its operations.
|
36 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
SEMPs are in place and serve to assist the Company in achieving compliance of the operation to both Eritrean legislation and where this is not available, to international best practice or standards. An in-house review and update of the SEMPs was conducted during 2012 based on comments received by the Impact Review Committee. An independent review and update of the SEMP was completed in Q2 2013 and has addressed the updated roles and responsibilities in the SEMP. Internally, policies and statements of intent have been developed with respect to environmental policy, water conservation, energy conservation, cyanide management and materials management. These policies will be augmented with training, awareness and toolbox talks, with the goal of implementing these policies throughout the workforce. An extensive environmental monitoring program which includes air quality (ambient and operational dust and emissions), noise (ambient and operational), water qualities and quantities, natural resources (soils, wildlife, livestock, erosion, ecology, and botanical) measure the effectiveness of the proposed mitigation actions in the environmental management plans. The conceptual closure plan of 2009 has been updated to include the new operations at the Harena deposit.
The Company continues to consult and
work closely with government ministries through the submission of annual and
quarterly reports and quarterly inspections by the Impact Review Committee and
will continue to do so throughout the LOM. There have been no adverse social
or environmental incidents since the commencement of commercial operations.
Other Expansion Plans
BMSC has advanced its zinc expansion project through 2014, with a target start-up scheduled in H1 2016. An increased Owner’s team was assembled and portions of the engineering and procurement were sourced to Outotec, Xstrata technology (Glencore) and SENET. As at December 31, 2014, $51.4 million of the budget has been awarded to contractors, of which $16.3 million has been incurred and a further $23.3 million committed. The civil contractor, SEGEN, completed nearly all their required work with the only outstanding civil works around the ISAMill™ area foundations. The structural, mechanical, plate work and piping (smpp) contractor is set to commence with the steel erection on site beginning in Q1 2015. The expected completion date of the zinc flotation circuit including commissioning is mid-2016.
Exploration and Development
A further $10
million in exploration investment is planned for 2015. Key 2015 exploration
objectives, which will be prioritized on a success basis for additional work
include:
- Expanding and upgrading
the resource at Harena through drilling and down-hole geophysics;
- Drilling high priority
targets at depth and on strike from Bisha Main; and
- Continued testing of
high priority greenfield targets on the Mogoraib River exploration licence.
We expect to drill
in excess of 25,000 metres during the year 2015..
The major development work will be the
completion of the primary metallurgical test work to assist with confirmation
of design of the primary flotation circuit and continued progress with the
engineering design, procurement and construction of the plant due for
completion mid-2016.
The
Company has considerable additional value held in stockpiles that has yet to be
monetized. The Company has already encountered some primary zone material
which has been stockpiled for the primary phase. There are three other
distinct types of stockpiled material.
As at December 31, 2014, there are approximately 6,500 tonnes of precious metals concentrate containing an estimated 7,000 ounces of gold with high silver content that will be monetized via a combination of direct sales and blending with copper concentrate beginning in Q2 2015. A blending facility was purchased for minimal capital during 2014 to ensure we maximize the value of this asset.
|
37 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
As at December 31, 2014, there are approximately 400,000 tonnes of pyrite sand material containing over 60,000 ounces of gold with significant silver content and 130,000 tonnes of oxide ore at over 5 g/t containing over 20,000 ounces of gold. For these remaining types of stockpiled material, the Company is finalizing alternative methods to monetize these assets. Once a final decision has been made, we will provide guidance on the estimated additional value that can be extracted and the timing of the monetization. With lower trucking needs expected in 2015 and the existence of the blending plant, we believe the value is material and could be monetized within the next 18 months.
Risk
Factors
Risks and risk factors relating to the Company and its
business are attached to this AIF as “Schedule B” in addition to other
financial risks which are set out in the Company’s MD&A for the fiscal year
ended December 31, 2014, all of which are hereby incorporated by reference.
DIVIDENDS
NRL declared its first cash dividend of $0.03 per common share on May 18, 2011. The second dividend was declared on November 21, 2011 for $0.05 per common share, giving shareholders an accumulated annual dividend of $0.08 per common share for a total declared dividend of $15.9 million.
In 2012 NRL declared two cash dividends
of $0.05 per common share ($0.10 per common share annually) on May 15, 2012 and
November 15, 2012 for a total declared dividend of $19.9 million.
In 2013 NRL declared two cash dividends
of $0.07 per common share ($0.14 per common share annually) on May 15, 2013 and
November 14, 2013 for a total declared dividend of $27.9 million.
In 2014 NRL declared a cash dividend of
$0.04 per common share in the fourth quarter, payable on January 15, 2015, an
increase of 14% from the cash dividends declared in the first three quarters of
2014 of $0.035 per common share quarterly which were paid to shareholders on
April 15, 2014, July 15, 2014, October 15, 2014, and January 15, 2015,
respectively for a total declared dividend of $28.9 million.
DESCRIPTION OF CAPITAL STRUCTURE
NRL has authorized capital of an
unlimited number of common shares without par value of which 199,657,802 are
issued and outstanding at the date of this AIF. All shares in the capital of Nevsun
are of the same class. The holders of common shares are entitled to dividends,
if, as and when declared by the Board, to one vote per common share at meetings
of the shareholders and, upon liquidation, to share equally in such assets of NRL
as are distributable to the holders of common shares.
NRL also has stock options outstanding
in accordance with its former stock option plan that expired on April 27, 2012
(the “Former Plan”) and its new stock option plan which was approved by
shareholders on September 5, 2012 (the “Current Plan”).
The ability to grant options under the Former Plan
expired on April 27, 2012, but options granted under the Former Plan remain
outstanding and exercisable in accordance with their terms and are governed by
that plan.
The Current Plan provides for a maximum number of securities equaling 6.75% of the outstanding shares, which may be granted as options and including in this calculation the number of options currently outstanding in the Former Plan. As options are exercised or common shares of NRL are otherwise issued, the number of options issuable under the Current Plan up until the date of expiry could be increased up to the 6.75% maximum upon application to the TSX. Options that expire without being exercised are automatically added back into option balance available under the Current Plan.
|
38 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
The Board approved an amendment to the Current
Plan on December 13, 2013 to provide for the immediate vesting of unvested
options on a change of control. This revision to the Current Plan was approved
by the TSX on January 15, 2014.
At the date of this AIF, the total
number of stock options outstanding is 12,177,000 representing 6.1% of the
outstanding shares of NRL of which 6,312,500 options are outstanding under the
Former Plan (of which all are vested), representing 3.2% of its outstanding
shares and 5,864,500 stock options are outstanding under the Current Plan (of which
2,983,660 are vested), representing 2.9% of its outstanding shares. Options under
both plans will remain in existence until they have been exercised, cancelled
or have otherwise expired. Each vested option is exercisable for one common
share of NRL.
As at the date of this AIF, 1,299,902 stock options
were available for grant, but not yet granted under the Current
Plan.
There are no share purchase warrants to
purchase common shares of NRL.
On May 22, 2014 the shareholders of NRL
ratified a shareholder rights plan (the “Rights Plan”) that was originally
adopted on June 8, 2011. The Rights Plan was adopted to provide the Board with
more time to consider alternatives in the event of a takeover bid for the
common shares of Nevsun. A copy of the Rights Plan is available under NRL’s
profile on SEDAR at www.sedar.com.
NRL has not asked for, and is not aware
of any stability or provisional ratings on NRL’s securities set by any approved
rating organization.
MARKET
FOR SECURITIES
NRL’s common shares have traded on the TSX since March 8, 1996 and on the NYSE MKT since January 12, 2005. During the 2014 financial year, the price of NRL’s common shares on the TSX ranged from CAD $3.53 to CAD $5.30, with monthly trading volume on the TSX ranging from 4.0 million shares in July to 15.5 million shares in January, with an average monthly volume of 8.4 million shares on TSX plus 6.9 million shares on NYSE MKT, for a total average monthly volume of 15.3 million shares. There are no seasonal trends to fluctuations in volume or trading price. The monthly high/low trading prices and closing prices on the TSX and monthly volume for 2014 are as follows:
|
Common Shares |
|
CAD
$
|
High ($)
|
Low ($)
|
Close ($)
|
Volume
|
|
January
|
4.47
|
3.53
|
4.09
|
15,526,435
|
|
February
|
4.74
|
4.00
|
4.29
|
11,120,694
|
|
March
|
4.38
|
3.70
|
3.74
|
8,330,510
|
|
April
|
4.09
|
3.61
|
3.97
|
12,886,541
|
|
May
|
4.01
|
3.59
|
3.62
|
6,243,786
|
|
June
|
4.12
|
3.62
|
4.00
|
5,206,104
|
|
July
|
4.21
|
3.93
|
4.14
|
3,958,919
|
|
August
|
4.54
|
4.13
|
4.50
|
6,784,759
|
|
September
|
4.70
|
3.98
|
4.05
|
6,263,934
|
|
October
|
4.13
|
3.61
|
3.81
|
5,834,121
|
|
November
|
5.30
|
3.69
|
4.61
|
12,207,771
|
|
December
|
4.65
|
4.05
|
4.48
|
7,309,352
|
|
39 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
DIRECTORS AND OFFICERS
Name,
Occupation and Security Holding
The following table sets forth, for each director and officer of NRL as of the date of this AIF, the name, municipality of residence, office, periods of service and the principal occupations in which each director and executive officer of NRL has been engaged during the immediately preceding five years. Each director of Nevsun holds office until the next annual general meeting of the shareholders of NRL or until his successor is duly elected or appointed, unless his office is earlier vacated in accordance with the articles of NRL or he becomes disqualified to act as a director. The Board appoints each executive officer.
|
Name, Municipality of Residence and Position Held
|
Principal Occupation for the Past Five
Years
|
Director Since
|
Number
& Percentage of Shares Held
|
R. Stuart Angus(1)(3)(5)(6)
Sechelt, British
Columbia, Canada
Chairman and Director
|
Business
advisor to the mining industry
|
January 2003
|
402,392 (<1%)
|
Ian R. Ashby(3)(4)
Campbell, California, USA
Director
|
Non-Executive
Director and Corporate Advisor 2012-present; President–Iron Ore, BHP Billiton
Ltd. 2006-2012
|
January
2014
|
0
|
Robert J. Gayton(1)(2)(5)(6)
West Vancouver, British Columbia, Canada
Director
|
Financial
Consultant
|
November 2003
|
62,470 (<1%)
|
Gary E. German(1)(2)(3)(4)(5)
Toronto, Ontario, Canada
Director
|
Independent
Director and Advisor for international resource companies
|
April 1996
|
478,494 (<1%)
|
Gerard E. Munera(1)(2)(3)(5)
Greenwich, Connecticut, USA
Director
|
Managing
Director, Synergex Group, investment holding company; Executive Chairman,
Arcadia Inc., manufacturer of building parts
|
April 1996
|
882,618 (<1%)
|
Clifford T. Davis
Vancouver, British Columbia,
Canada
President, Chief Executive Officer, Director
|
President
and Chief Executive Officer of NRL
|
December 1997
|
1,553,219 (<1%)
|
Thomas S. Whelan
Vancouver, British Columbia, Canada
Chief Financial Officer
|
Chief Financial
Officer of NRL. since February 2014; Partner, EY LLP 2004-2014
|
N/A
|
0
|
Frazer W. Bourchier
North Vancouver, British
Columbia, Canada
Chief Operating Officer(4)
|
Chief Operating
Officer of NRL since 2012; VP Business Development
& Technical Services, Silver Wheaton Corp. 2010-2012
|
N/A
|
0
|
|
40 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
|
Name, Municipality of Residence and Position Held
|
Principal Occupation for the Past Five
Years
|
Director Since
|
Number
& Percentage of Shares Held
|
Joseph P. Giuffre
North Vancouver, British Columbia, Canada
Chief Legal
Officer and Corporate
Secretary
|
Chief Legal
Officer and Secretary of NRL since 2013; Partner of Axium Law Corporation,
2005-2012
|
N/A
|
32,500 (<1%)
|
Scott A. Trebilcock
Vancouver, British Columbia, Canada
Chief Development Officer
|
Chief Development Officer of NRL since
2014; VP Business Development & Investor Relations, Nevsun Resources Ltd.
2010-2014; VP Business Development, Nautilus Minerals 2007-2010
|
N/A
|
0
|
Peter J. Hardie
Maple Ridge, British Columbia,
Canada
Vice President Finance
|
Vice President
Finance of NRL since 2013; Chief Financial Officer of NRL
2008-2012
|
N/A
|
2,000 (<1%)
|
Peter M. Manojlovic
Delta, British Columbia, Canada
Vice President Exploration
|
Vice President Exploration of NRL since 2012; VP Exploration, Sabina Gold
& Silver Corp., 2010-2012; Chief Geologist, Sabina Gold & Silver
Corp., 2009-2010
|
N/A
|
0
|
Todd E. Romaine
West Vancouver, British Columbia, Canada
Vice President Corporate Social
Responsibility(4)
|
Vice President
Corporate Social Responsibility of NRL since 2012;
Senior Manager, Land Services (Operations), Enbridge Inc. 2008-2012
|
N/A
|
0
|
| (1)
|
Member of the Governance Committee
|
| (2)
|
Member of the Audit Committee
|
| (3)
|
Member of the Human Resources Committee
|
| (4)
|
Member of the Social Environment, Health & Safety Committee
|
| (5)
|
Member of Special Committee
|
| (6)
|
Member of the Litigation Committee
|
As of February 25, 2015, the directors
and executive officers of NRL, as a group, beneficially owned directly or
indirectly, or exercised control or direction over 3,413,693 common shares or
approximately 1.7% of the issued and outstanding common shares of NRL. The
same directors and executive officers, as a group, have been granted and
currently hold options to purchase up to 10,728,500 shares of NRL, 1,428,500 of
which were granted in 2014.
Cease Trade Orders,
Bankruptcies, Penalties or Sanctions
Certain directors or executive officers
of NRL are, at the date of this
AIF, or have been within the 10 years before the date of this AIF, a director,
chief executive officer or chief financial officer of a company that:
(a)
was subject to a cease trade or similar order,
or an order that denied the relevant company access to any exemption under
securities legislation, that was in effect for a period of more than 30
consecutive days (an “Order”) that was issued while the director or executive
officer was acting in the capacity as director, chief executive officer or
chief financial officer, or
|
41 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
(b)
was subject to an Order that was issued after
the director or executive officer ceased to be a director, chief executive
officer or chief financial officer and which resulted from an event that
occurred while that person was acting in the capacity as director, chief
executive officer or chief financial officer,
details of which are described as
follows:
R. Stuart Angus is a director of
Wildcat Silver Corporation (“Wildcat”), which requested and received notice
from the British Columbia Securities Commission of the issuance of a management
cease trade order (the “MCTO”) on October 30, 2007 in connection with the late
filing of its annual audited consolidated financial statements for the fiscal
year ending June 30, 2007. Wildcat’s failure to make the filing within the
required time frame was due to the need to clarify potential foreign tax
obligations relating to an acquisition it made. The required filing was made
on January 7, 2008 and the MCTO was revoked on January 8, 2008.
One director of NRL has been, within
the 10 years before the date of the AIF, a director or executive officer of a
company that, while that person was acting in that capacity, or within a year
of that person ceasing to act in that capacity, became bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency or was subject
to or instituted any proceedings, arrangement or compromise with creditors or
had a receiver, receiver manager or trustee appointed to hold its assets,
details of which are as follows:
Gerard E. Munera resigned from the
board of SiVault Systems Inc. on October 10, 2006; in July, 2007, SiVault
Systems Inc. started bankruptcy proceedings.
No director or executive officer of NRL,
or shareholder holding a sufficient number of securities of NRL to affect
materially the control of NRL has, within the 10 years before the date of this
AIF, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or was subject to or instituted any proceedings,
arrangement or compromise with creditors, or had a receiver, receiver manager
or trustee appointed to hold the assets of the director, executive officer or
shareholder.
No director or officer of NRL,
or to NRL’s knowledge, a shareholder holding a
sufficient number of securities of NRL to affect
materially the control of NRL, has:
(a)
been subject to any penalties or sanctions imposed by a court relating
to securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory authority; or
(b)
been subject to any other penalties or sanctions imposed by a court or
regulatory body that would likely be considered important to a reasonable
investor in making an investment decision.
Conflicts of Interest
To the best of NRL’s knowledge, there are no existing or potential material conflicts of interest between NRL or any subsidiary of NRL and a director or officer of NRL or a subsidiary of NRL.
Audit Committee
NRL has a separately-designated standing audit committee in accordance with CSA National Instrument 52-110 Audit Committees and with Section 3(a)(58)(A) of the United States Securities Exchange Act of 1934, as amended.
Audit Committee Charter
The Board has adopted a charter for the Audit Committee, which sets out the committee’s mandate, composition, responsibilities and duties. A copy of the Audit Committee Charter is attached to this AIF as Schedule “A”.
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42 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Independent
Advice & Funding
The Audit
Committee shall have the authority to determine the appropriate funding for the
ordinary administrative expenses of the Audit Committee. In addition, the
Audit Committee may, in its sole discretion, retain, at the expense of NRL, and
determine the compensation to be received by, such legal, financial or other
advisors or consultants as it may deem necessary or advisable in order to properly
and fully perform its duties and responsibilities hereunder.
Composition of the Audit Committee
The Audit Committee has three members, all of whom are
independent and financially literate. An outline of each member’s
relevant education and experience follows:
Robert J. Gayton, Chair. Mr. Gayton is a Chartered Accountant with a Ph.D. Business from the
University of California (1973). He is a director and
audit committee chairman of a number of companies, including Eastern Platinum
Limited, Western Copper and Gold Corp., Amerigo Resources Ltd. and B2Gold. Mr.
Gayton is a current member of the Institute of Chartered Accountants of B.C.
From 1976-1987 he was a partner with the accounting firm Peat Marwick Mitchell
in Mississauga, Coquitlam and Vancouver. Mr. Gayton has shown that he has a
clear understanding of the relevant accounting principles, internal controls
and procedures for financial reporting, and the relevant experience preparing,
auditing, analyzing and evaluating financial statements and their associated
complex issues.
The Audit Committee has determined
that Mr. Gayton is an audit committee financial expert within the meaning of
the rules promulgated by the SEC and that Mr. Gayton is independent within the
meaning of the NYSE MKT Company Guide.
Gary E. German. Mr. German has over thirty-five years of senior management and executive positions in global resource projects and companies, including the provision of strategic and corporate finance direction and international commodity brokerage operations. Previously he was Managing Director, Corporate Finance Group (resources), Kingsdale Capital Corp. (2002-03), and prior to this Chairman of the Finance Committee and Senior Advisor to the President-CEO of Ma'aden, the Kingdom of Saudi Arabia's mineral resource development corporation. Mr. German is a graduate of the University of Toronto (Bachelor of Applied Science, Industrial Engineering) and the University of Western Ontario (Diploma, International Management).
Gerard E. Munera. Mr. Munera, a US citizen, is Managing Director of Synergex Group LLC, an investment holding company, and Executive Chairman of Arcadia Inc., a manufacturer of building products. He has served on the Audit Committees of three public company boards and has a diverse background, which includes engineering, economics, sales, finance, operations, mining and metals. His tenures have included Chief Financial Officer or Chief Executive Officer of several mining and metals companies, including 20 years with Pechiney, first as CFO and then as CEO of their Argentine subsidiary, then as CEO of their US subsidiary Howmet Aluminum and then as Senior Vice President of their Ferro Alloys, Uranium and Carbon businesses in several international locations, all of which included detailed financial involvement with such company. Mr. Munera was also CEO of Union Miniere for five years and CEO of Minorco USA for three years.
Pre-Approval
Policies and Procedures
The Audit Committee has adopted policies and procedures
for the engagement of non-audit services, described as follows:
Nevsun will not engage its external
auditor KPMG LLP (“KPMG”) to carry out any non-audit services that are deemed
inconsistent with an auditor’s independence
(“Prohibited Service”). The Audit Committee will consider the pre-approval of
permitted services to be performed by the external auditor in each of the
following broad categories:
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43 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Audit Services, Audit Related
Services, Tax Services, as well as Compliance Services, Tax Planning Services,
Commodity Tax Services, Executive Tax Services.
Other Services: Valuation Services,
Information Technology Advisory and Risk Management Services, Actuarial
Services, Forensic and Related Services, Corporate Recovery Services,
Transaction Services, Corporate Finance Services, Project Risk Management
Services, Operational Advisory and Risk Management Services, Regulatory and
Compliance Services
For permitted services the following
pre-approval policies will apply:
A. Audit Services
The Audit Committee will pre-approve
all Audit Services provided by KPMG through the Audit Committee’s
recommendation to shareholders at NRL’s annual meeting, of KPMG as Nevsun’s
external auditor and through the Audit Committee’s
review of KPMG’s annual Audit Plan.
B. Pre-Approval of Audit Related, Tax and Other Non-Audit Services
Periodically (e.g. annually), the Audit
Committee will update a list of pre-approved services that are recurring or
otherwise reasonably expected to be provided.
The Audit Committee will be
subsequently informed at least annually of the services on the attached
list for which the auditor has been actually engaged.
Any additional requests for
pre-approval will be addressed on a case-by-case specific engagement basis as
described in (C) below.
C. Approval of Additional Services
The Company employee making the request
will submit the request for service to the CFO. The request for service should
include a description of the service, the estimated
fee, a statement that the service is not a “Prohibited Service” and the reason
KPMG is being engaged.
Services
where the aggregate fees are estimated to be less than or equal to $25,000
Recommendations, in respect of each
engagement, will be submitted by the CFO to the Chairman of the Audit Committee
for consideration and approval. The full Audit Committee will subsequently be
informed of the service at its next meeting. The engagement may commence upon
approval of the Chairman of the Audit Committee.
Services
where the aggregate fees are estimated to be greater than $25,000
Recommendations, in respect of each
engagement, will be submitted by the CFO to the full Audit Committee for
consideration and approval, generally at its next meeting
or at a special meeting called for the purpose of approving such services. The
engagement may commence upon approval of the full Committee.
|
44 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
External Auditor Fees
All dollar amounts in this section are
expressed in Canadian currency.
The following table sets forth the
aggregate fees incurred by the Company for the years ended December 31, 2014
and 2013 by KPMG:
| |
Year ended
December 31,
2014
|
|
Year ended
December 31,
2013
|
Audit
fees(1)
Audit-related
fees(2)
|
$ 490,426
6,000
|
|
$ 487,500
-0-
|
|
Tax
fees(3)
|
12,561
|
|
22,715
|
|
All
other fees(4)
|
-0-
|
|
132,900
|
|
Total
|
$ 508,987
|
|
$ 643,115
|
| (1)
|
Audit fees include fees related to the audit of the year-end financial statements, audit of the internal control over financial reporting, review of the interim financial statements, and services that are normally provided by the Auditors in connection with statutory and regulatory filings or engagements for such year.
|
| (2)
|
Audit related fees consist of fees for assurance and related services by the Auditors that are reasonably related to the performance of the audit or review of the financial statements and are not reported above as Audit Fees.
|
| (3)
|
Tax fees for 2014 and 2013 are primarily for tax compliance and other minor tax advisory matters, all in accordance with the pre-approval policies of the Audit Committee.
|
| (4)
|
Other fees were billed by the Auditors in 2013 for other services, general advisory services relating to due diligence.
|
LEGAL
PROCEEDINGS AND REGULATORY ACTIONS
A lawsuit was filed in the Supreme Court of British Columbia against NRL (the "Araya Lawsuit") on November 20, 2014, by three plaintiffs who claim to have once worked with a local sub-contractor at the Bisha Mine. The plaintiffs claim that NRL is legally responsible for breaches of customary international law and British Columbia law for conduct allegedly engaged in by the local sub-contractor and the Eritrean military. The plaintiffs are also claiming the right to bring the action in a representative capacity on behalf of certain persons who they allege were forced to work at the Bisha Mine (the “Group Members”). The plaintiffs claim general, aggravated and punitive damages for themselves and for the Group Members. No amount of damages is required to be quantified by the plaintiffs at this time. No trial date has been set.
It is not
possible at this time to estimate the outcome of the Araya Lawsuit. NRL denies
the allegations and will vigorously defend itself in this matter. No amounts
have been recorded for any potential liability arising from this matter, as NRL
cannot reasonably predict the outcome.
During
May 2014 and July 2014 NRL and certain executive officers settled with United
States and Canadian plaintiffs, respectively, two related securities class
actions initiated during 2012. Settlement agreements release NRL and all its
related parties from any claims described in these class actions. The Canadian
and US settlements received final court approval on October 6, 2014 and January
22, 2015. Both settlements were funded entirely by NRL’s insurance carriers.
INTEREST OF MANAGEMENT AND OTHERS IN
MATERIAL TRANSACTIONS
No director, officer or other insider
of the Company, nor any associate or affiliate of any director, officer or
other insider has participated in, directly or indirectly, nor had any material
interest in, any material transaction of the Company in the most recently
completed financial year or any of the three preceding financial years.
|
45 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
TRANSFER AGENTS AND REGISTRARS
NRL’s registrar and transfer agent is
Computershare Investor Services Inc., located in Vancouver, British Columbia.
MATERIAL CONTRACTS
There were no material contracts other
than in the ordinary course of business entered into during 2014.
NAMES AND INTERESTS OF EXPERTS
Unless otherwise stated, the relevant technical and scientific information included in this AIF concerning Bisha Property are derived from the 2013 Technical Report prepared by Paul Gribble, C. Eng., FIMMM, Jay Melnyk, P.Eng., AGP; and Peter Munro, BAppSc. Mineralurgy Pty. Ltd., effective December 31, 2013. These authors are QPs within the meaning of NI 43-101. This report is available for review on SEDAR (www.sedar.com) and EDGAR (http://www.sec.gov/edgar.shtml).
Other relevant technical and scientific information included in this AIF concerning the Bisha Property that is not derived from the 2013 Technical Report was prepared by Matt Bampton, MAusIMM, MIAG, (Cube Consulting); Paul Gribble, C.Eng., FIMMM; and Anoush Ebrahimi, P.Eng., PhD. (SRK Consulting Canada Inc.)
To the best of the knowledge of the
Company, APG Mining Consultants Inc., Mineralurgy Pty. Ltd, Cube Consulting,
SRK Consulting Canada Inc. and the “designated professionals” (as such term is
defined in Form 51-102F2) thereof hold less than a 1% interest in the
outstanding securities of NRL.
KPMG is the
auditor for the Company and has audited the annual financial statements of the
Company for the year ended December 31, 2014. KPMG have confirmed that they
are independent with respect to the Company within the meaning of the relevant
rules and related interpretations prescribed by the relevant professional
bodies in Canada, and under all relevant US professional and regulatory
standards, including PCAOB Rule 3520.
ADDITIONAL INFORMATION
Additional information relating to the
Company, may be found by using SEDAR on the internet at www.sedar.com, EDGAR filing system at http://www.sec.gov/edgar.shtml, or the Company’s website: www.nevsun.com.
Additional information including directors' and
officers' remuneration and indebtedness, principal holders of NRL's securities
and options to purchase securities is contained in NRL's information circular
for its most recent annual meeting of shareholders that involves the election
of directors.
Additional financial information is also provided in the
Company's audited consolidated financial statements and MD&A for its most
recently completed financial year, copies of which may be found on SEDAR or
EDGAR, or be obtained by contacting the Company at:
Nevsun Resources Ltd.
Suite 760 – 669 Howe Street
Vancouver, BC V6C 0B4
Tel: 604-623-4700 or Toll-free 1-888-600-2200
Email: contact@nevsun.com
|
46 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
SCHEDULE
“A”
NEVSUN RESOURCES LTD. (the “Company”)
AUDIT
COMMITTEE CHARTER
The Audit Committee is appointed by the Board of
Directors to:
| |
i. |
ensure the Company has in place an
effective system of internal controls over financial reporting which meets high standards of quality and integrity and
complies with legal and regulatory requirements, and |
| |
|
|
| |
ii. |
monitor the performance, independence
and qualification of the Company’s independent auditor. |
Composition
The Audit Committee
shall consist of at least three members of the Board of Directors. Each member
of the Audit Committee shall be “independent” of the Company within the meaning
of all applicable legal and regulatory requirements, and each
such member must not have participated in the preparation of the Company’s
financial statements, or that of the Company’s subsidiaries, at any time during
the three years prior to becoming a member of the Audit Committee (except
in the circumstances, and only to the extent, permitted by all applicable legal
and regulatory requirements). Each member of the Audit Committee shall also be
“financially literate”, which means that he or she must have the ability to
read and understand a set of financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable to the
breadth and complexity of the issues that can reasonably be expected to be
raised by the Company’s financial statements. In addition, at least one member
of the Audit Committee shall be a “financial expert” within the meaning of the
rules and forms adopted by the US Securities and Exchange Commission and shall be financial sophisticated, in that he or she has
past employment experience in finance or accounting, requisite professional
certification in accounting or any other comparable experience or background
which results in the individual’s financial sophistication, including but not
limited to being or having been a chief executive officer, chief financial
officer, or other senior officer with financial oversight responsibilities (except
in the circumstances, and only to the extent, permitted by all applicable legal
and regulatory requirements).
Responsibilities
The overall responsibilities of the Audit Committee
are to:
| 1.
|
assist the Board of Directors and Management with meeting their responsibilities with respect to financial reporting;
|
| 2.
|
be directly responsible for (i) the selection of an external auditor to be proposed for election as the external auditor of the Company, (ii) the oversight of the work of the of the Company’s external auditor, (iii) the retention of the Company’s external auditor, and (iv) fixing the compensation of the external auditor of the Company, subject to the grant by the shareholders of the authority to do so, if required;
|
| 3.
|
ensure that at all times there are direct communication channels between the Audit Committee and the Company’s external auditor;
|
| 4.
|
ensure the independence of the Company’s external auditor, including ensuring receipt from the external auditor of a formal written statement delineating all relationships between the external auditor and the Company and actively engaging in dialogue with the external auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the external auditor;
|
|
47 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| 5.
|
periodically review and report to the Board of Directors whether Management has designed and implemented an effective system of internal controls over financial reporting for reviewing and reporting on the Company’s financial statements;
|
| 6.
|
review and report to the Board of Directors on all financial statements (including interim financial statements) prepared by the Company and enhance the credibility and objectivity of all financial reports; and
|
| 7.
|
otherwise review the Company’s compliance with regulatory and statutory requirements as they relate to financial statements, taxation matters and disclosure of related material facts.
|
Duties
For the purposes of
fulfilling its responsibilities, the Audit Committee will:
| 1.
|
schedule meetings to take place on a regular basis;
|
| 2.
|
afford an opportunity periodically to the external auditor and to senior Management to meet separately with the Audit Committee, and when required, meet independently of the external auditor and Management;
|
| 3.
|
keep minutes of all meetings of the Audit Committee;
|
| 4.
|
periodically report the results of the reviews undertaken and any associated recommendations to the Board of Directors;
|
| 5.
|
select an external auditor to be proposed by Management to the shareholders for election by the shareholders as the external auditor for the Company, review and approve the terms of the external auditor's engagement and determine the appropriateness and reasonableness of the proposed audit fees and any unpaid fees;
|
| 6.
|
review and evaluate the qualifications, performance and independence of the lead partner of the external auditor, discuss with Management the timing and process for implementing the rotation of the lead audit partner and the reviewing partners of the external auditor, and other issues related to a change of the external auditor and the planned steps for an orderly transition;
|
| 7.
|
obtain confirmation from the external auditor that it will report directly to the Audit Committee;
|
| 8.
|
obtain confirmation from the external auditor that it will report in a timely matter to the Audit Committee all critical accounting policies and practices to be used, all alternative accounting policies and practices, the ramifications of each of such accounting policy and practice and the accounting policy and practice preferred by the external auditor, for the financial information of the Company within applicable generally accepted accounting principles (GAAP), which have been discussed with Management;
|
| 9.
|
obtain confirmation from the external auditor that it will provide a copy of all material written communications between the external auditor and Management including, without limitation, any Management letter or schedule of unadjusted differences;
|
| 10.
|
obtain confirmation from the external auditor that it will ensure that all reports filed under the United States Securities Exchange Act of 1934, as amended, which contain financial statements required to be prepared in accordance with GAAP and reflect all material correcting adjustments identified by the external auditor of the Company;
|
| 11.
|
review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and any former external auditor of the Company;
|
| 12.
|
review all reportable events, including disagreements, unresolved issues and consultations, as defined in National Instrument 51-102 of the Canadian Securities Administrators, on a routine basis;
|
|
48 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| 13.
|
review and pre-approve any and all engagements for non-audit services to be provided to the Company or to any of its subsidiaries by the Company’s external auditor or any affiliates of the external auditor, together with estimated fees, and review and approve the audit plan with the external auditor and with Management;
|
| 14.
|
review with Management and with the external auditor any proposed changes in major accounting policies, the presentation and impact of significant financial risks and uncertainties and key estimates and judgments of Management that may be material to financial reporting and the steps Management has taken to minimize such risks to the Company;
|
| 15.
|
assist in the preparation of any internal control report by Management, which provides that Management is responsible for establishing and maintaining an adequate control structure and procedures for financial reporting by the Company, assessing the effectiveness of such control structure and procedures and ensuring that the external auditor of the Company, if required by governing legislation or regulation, attest to and report on the assessment of such control structure and procedures by Management;
|
| 16.
|
assist the Chief Executive Officer and the Chief Financial Officer of the Company in their assessment of the effectiveness of the Company’s internal control over financial reporting and in determining whether there has been any material change in the Company’s internal control over financial reporting which has materially affected or could materially affect such internal control subsequent to the date of the evaluation;
|
| 17.
|
assist the Chief Executive Officer and the Chief Financial Officer of the Company in identifying and addressing any significant deficiencies or material weaknesses in the design or operation of the Company’s internal control over financial information and any fraud, whether or not material, that involves Management or other employees who have a significant role in the Company’s internal control over financial reporting;
|
| 18.
|
question Management and the external auditor regarding significant financial reporting issues discussed during the fiscal period and the method of resolution;
|
| 19.
|
review any problems experienced by the external auditor in performing the audit, including any restrictions imposed by Management or significant accounting issues to which there was a disagreement with Management;
|
| 20.
|
review audited annual financial statements, in conjunction with the report of the external auditor, and obtain an explanation from Management of all significant variances between comparative reporting periods;
|
| 21.
|
review the post-audit or Management letter, containing the recommendations of the external auditor and Management’s response and subsequent follow up to any identified weaknesses;
|
| 22.
|
review all interim unaudited financial statements before release to the public;
|
| 23.
|
review all public disclosure documents containing audited or unaudited financial information before release, including any prospectus, the annual report, the AIF and Management’s discussion and analysis;
|
| 24.
|
ensure that the Company discloses in the periodic reports of the Company, as appropriate, whether at least one member of the Audit Committee is a “financial expert” within the meaning of the rules and forms adopted by the US Securities and Exchange Commission;
|
| 25.
|
ensure that all non-audit services provided by the external auditor are approved by or on behalf of the Audit Committee and are disclosed in the periodic reports of the Company;
|
| 26.
|
ensure that each annual report and, to the extent required by any applicable legal or regulatory requirement, any quarterly report of the Company includes disclosure with respect to all material off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Company with unconsolidated entities which may have a current or future effect on the Company in accordance with all applicable legal and regulatory requirements;
|
|
49 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
| 27.
|
ensure that all financial statements and other financial information, including pro forma financial information, included in any report filed by the Company with any regulatory authority or contained in any public disclosure or press release of the Company is presented in a manner which does not contain a material misstatement or omission and reconciles the pro forma information contained therein to GAAP, and which otherwise complies with all applicable legal and regulatory requirements;
|
| 28.
|
review the evaluation of internal control by the external auditor, together with Management’s responses;
|
| 29.
|
to assist Management with its annual risk assessment and reporting strategy to manage the process of the identification, evaluation and mitigation of the Company’s principal enterprise risks;
|
| 30.
|
review the appointments of the chief financial officer and any key financial executives involved in the financial reporting process;
|
| 31.
|
establish procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;
|
| 32.
|
annually assess the adequacy of the Audit Committee Charter; and
|
| 33.
|
annually evaluate the Audit Committee’s performance.
|
Independent
Advice & Funding
The Audit Committee
shall have the authority to determine the appropriate funding for the ordinary
administrative expenses of the Audit Committee. In addition, the Audit
Committee may, in its sole discretion, retain, at the expense of the Company,
and determine the compensation to be received by, such legal, financial or
other advisors or consultants as it may deem necessary or advisable in order to
properly and fully perform its duties and responsibilities hereunder.
|
50 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
SCHEDULE “B”
RISK
FACTORS
Approach to risk
management. The Company’s approach to identifying and managing risk has been a critical component of how management and the Board run the business. The Company’s enterprise risk management process is currently coordinated by the Chief Financial Officer, managed by the senior management team with direct oversight by the Chief Executive Officer and the Board of Directors. The Company conducts a top down review of key strategic, operational and financial risks at least quarterly. The Company maintains a risk register, which is updated on a monthly basis by the appropriate business owner of the risk. The risk register contains a list of actions to ensure risks are mitigated to the agreed upon level of risk tolerance. The results of the Enterprise Risk Management process are reviewed quarterly by the Audit Committee and semi-annually by the Board of Directors.
The business and operations of the Company are
highly speculative due to the high-risk nature of its business in the mining
industry, including but not limited to the acquisition, financing,
exploration, development, operation and production of metals at its mining
properties. The Company’s business is subject to strategic, financial and
operating risks. The risks below, some of which are summarized elsewhere in
this Report, are not the only ones facing the Company. Additional risks not
currently known to the Company, or that the Company currently deems
immaterial, may also impair the Company’s operations. If any of the following
risks actually occur, the Company’s business, financial condition and
operating results could be adversely affected.
Strategic Risk Factors
Foreign operation and political risks. The Company conducts operations in Eritrea through its foreign subsidiaries with financial assets in Barbados and Eritrea, and substantially all of its assets are held in such entities. While the Company believes that the political climate of these countries and strong government support in Eritrea provide a stable environment for its operations, there is no guarantee against any future political, or economic instability in these countries or neighboring countries that might adversely affect the Company.
Political unrest in Egypt, Libya, Syria, Yemen,
Saudi Arabia, Somalia, South Sudan, Sudan and other countries in the region
has had an impact on investor confidence with companies operating in northern
Africa, including Eritrea, even though no direct effect is evident or
anticipated in the operations at Bisha or communications with the Eritrean
government. New government regulations in Canada, the United States or other
countries in which the Company operates could adversely affect the Company’s
future business and operations. In addition, intervention by the
international community through organizations such as the United Nations
could affect the political risk of operating in Eritrea. In December 2009 the
United Nations Security Council (UNSC) imposed sanctions on Eritrea related
to an arms embargo, which in itself has had no direct impact to the Bisha
Mine, except to cause some uncertainty as to how UN member states may
continue to deal with the country. In December 2011 the UNSC provided
additional sanctions guidance to member states. Effects of the sanctions
could impact the Company’s ability to operate efficiently. There are also
unresolved tensions between Ethiopia and Eritrea and the possibility of
future armed conflicts between Ethiopia and Eritrea by rebel groups or
otherwise which could affect or interfere with continued operations at Bisha.
Other risks the Company may face in operating in
foreign jurisdictions include unforeseen government actions, terrorism,
hostage taking, military repression, extreme fluctuations in currency
exchange rates, high rates of inflation, labour unrest, the risks of war or
civil unrest, expropriation and nationalization, renegotiation or
nullification of existing concessions, licenses, permits and contracts,
illegal mining, changes in taxation policies, restrictions on foreign
exchange and repatriation, and changing political conditions, currency
controls, export controls, and governmental regulations that favour or
require the awarding of contracts to local contractors or require foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction or other events.
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All or any of these factors, limitations, or the
perception thereof could impede the Company’s activities, result in the
impairment or loss of part or all of the Company’s interest in the
properties, or otherwise have an adverse impact on the Company’s valuation
and stock price.
Governmental regulatory risks. The Company’s mineral exploration, development and
production activities are subject to various laws governing prospecting,
development, production, taxes, labour standards and occupational health,
mine safety, toxic substances, environmental protection and preservation, and
other matters. No assurance can be provided that the Company will be
successful in its efforts to comply with all existing rules and regulations,
that new rules and regulations will not be enacted, or that existing rules
and regulations will not be modified in a manner that could limit or curtail
production or development of the Company’s properties. All such rules and
regulations governing the operations and activities of the Company could have
a material adverse effect on the Company’s business, financial condition and
results of operations.
Competition risks. The mining industry is intensely competitive in all of its phases and the Company competes with many companies possessing greater financial and technical resources than itself. There is intense competition in the mining industry for mineral rich properties that can be developed and produced economically, the technical expertise to find, develop, and operate such properties, the labour to operate the properties, and the capital for the purpose of funding such properties. Many competitors not only explore for minerals, but conduct refining and marketing operations on a global basis. Such current and future competition may result in the Company being unable to acquire desired properties. The Company is also subject to risks associated with a hostile takeover of the common shares of the Company or other unsolicited attempts to acquire control of the Company.
Key executive risk. The Company is to a large degree dependent on the services of key executives and senior personnel. The loss of these persons or the Company’s inability to attract and retain executives and personnel with the qualifications necessary to operate the business successfully may adversely affect its business and future operations. The Company competes with numerous other companies for the recruitment and retention of qualified executives and employees.
Expatriate and nationals’ skills risk. The Company’s Eritrean operations are the first modern commercial mining operation in that jurisdiction. As a result, the Company is reliant on attracting and retaining expatriate and nationals with mining experience to staff key operations and administration management positions. The Company’s inability to attract and retain personnel with the skills and experience to manage the operation and train and develop staff, due to the intense international competition for such individuals, may adversely affect its business and future operations.
Acquisitions and integration risks. The Company continues to examine opportunities to acquire additional mining assets and businesses. Any acquisition that the Company may choose to complete may be of a significant size, may change the scale of the Company’s business and operations, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company’s success in its acquisition activities depends on its ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition, and integrate the acquired operations successfully with those of the Company.
Any acquisition would be accompanied by risks. For
example, a material ore body may prove to be below expectations; the Company
may have difficulty integrating and assimilating the operations and personnel
of any acquired companies, integrating internal controls over financial
reporting of such acquired companies, identifying and mitigating any
potential domestic or foreign liabilities, including potential liabilities
due to foreign anti-corruption laws, realizing anticipated synergies and
maximizing the financial and strategic position of the combined enterprise,
and maintaining uniform standards, policies and practices across the
organization; the integration of the acquired business or assets may disrupt the
Company’s ongoing business and its relationships with employees, customers,
suppliers and contractors; and the acquired business or assets may have
unknown liabilities which may be significant.
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In the event that the Company chooses to raise debt
capital to finance any such acquisition, the Company’s leverage will be
increased. If the Company chooses to use equity as consideration for such
acquisition, existing shareholders may suffer dilution. Alternatively, the
Company may choose to finance any such acquisition with its existing
resources. There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with
such acquisitions.
Litigation risk. The Company is subject to litigation risks. All industries,
including the mining industry, are subject to legal claims, with and without
merit. Defense and settlement costs of legal claims can be substantial, even
with respect to claims that have no merit. Due to the inherent uncertainty
of the litigation process, the resolution of any particular legal proceeding
to which the Company is or may become subject could have a material adverse
impact on its financial performance, cash flow and results of operations.
Share price risk. The market price of a publicly traded stock is affected by many
variables not directly related to the success of the Company, including the
market for all resource sector shares, the breadth of the public market for
the stock, and the attractiveness of alternative investments. The effect of
these and other factors on the market price of the common shares of the
Company on the exchanges on which the common shares are listed suggests that
the share price will be volatile. In the previous eight quarters, between
January 1, 2013 and December 31, 2014 the Company’s shares traded in a range
between CAD $2.77 and CAD $5.30.
Dividend policy risks. The Company has established a dividend policy that
has considered the long-term sustainability of cash flows and will be
reviewed on a periodic basis and assessed in relation to the growth of the
operating cash flows of the Company. Between January 1, 2013 and December 31,
2014, the Company paid quarterly dividends. Payment of any future dividends
will be at the discretion of the Board after taking into account many
factors, including the Company’s operating results, financial condition,
comparability of the dividend yield to peer mining companies and current and
anticipated cash needs. There can be no assurance that the Company will
continue to pay dividends at the current rate or at all.
Conflicts of interest. Certain of the directors and officers of the
Company also serve as directors and/or officers of other companies involved
in natural resource exploration and development and consequently there exists
the possibility for such directors and officers to be in a position of
conflict. Any decision made by any of such directors and officers involving the
Company will be made in accordance with their duties and obligations to deal
fairly and in good faith with a view to the best interests of the Company and
its shareholders. In addition, each of the directors is required to declare
and refrain from voting on any matter in which such directors may have a
conflict of interest in accordance with the procedures set forth in the
Business Corporations Act (British Columbia) and other applicable laws.
Financial Risk Factors
Commodity price risk. Revenue and profitability of the Company’s
operations will be dependent upon the market price of mineral and materials
commodities. Prices metals are key performance drivers for the Company and
fluctuations in the prices of these commodities can have a significant impact
on the Company’s operations and financial performance. The Company does not
enter into any commodity hedging and accordingly is fully exposed to price
risk. The price of copper, gold, and other metals can and has experienced
volatile and significant price movements over short periods of time, and is
affected by numerous factors beyond the control of the Company, including
international economic and political trends, expectations of inflation or
deflation, currency exchange fluctuations (specifically, the US dollar
relative to other currencies), interest rates, global or regional consumption
patterns, speculative activities and increased production due to improved
mining and production methods. The supply of and demand for copper, gold and
other metals are affected by various factors, including political events,
economic conditions, competition, production costs, and governmental
policies. If the market price of copper, zinc, gold or silver falls
significantly from its current level, the production and ongoing mine
development at Bisha or any other project of the Company may be rendered
uneconomic and the production or development at Bisha or any other project
may be suspended or delayed. In addition, if the market price of copper,
zinc, gold or silver were to decrease significantly and remain at lower levels
for a significant period of time, profitability of the Company and cash flow
would be negatively affected.
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Mineral reserve calculations and life-of-mine plans
using significantly lower metal prices could result in material write-downs
of the Company’s investment in mining properties and increased amortization,
reclamation and closure charges. In addition to adversely affecting the
Company’s mineral reserve estimates and its financial condition, declining
commodity prices can impact operations by requiring a reassessment of the
feasibility of a particular project. Such a reassessment may be the result of
a management decision or may be required under financing arrangements related
to a particular project. Even if the project is ultimately determined to be
economically viable, the need to conduct such a reassessment may cause
substantial delays or may interrupt operations until the reassessment can be
completed.
The Bisha Mine’s power generation plant and mobile
equipment fleet are diesel fuelled. As fuel costs are a significant
component of the Company’s operating costs, changes in the price of diesel
could have a significant effect on its operating costs and adversely affect
profitability. Energy prices can be affected by numerous factors beyond the
Company’s control, including global and regional supply and demand, political
and economic conditions and applicable governmental policies.
Funding risks. . The exploration, development, operations, acquisitions or other activities may require substantial additional financing. Failure to obtain sufficient financing may result in delaying or indefinite postponement of exploration, development, operations, acquisitions or other activities of the Company including a loss of property interest. Historically, the Company has financed its activities through the sale of equity capital and through cash- flow from operations. The sale of metals from Bisha currently provides and is expected to continue to provide revenue from operations, which the Company expects will be sufficient to fund its future needs. Factors which may impact cash flows include changes in metal prices, taxes, operating costs, marketability of metals from operations, capital expenditures or other unexpected occurrences such as unanticipated costs, delays, downtimes, slowdown or stoppage of operations. Failure to obtain sufficient financing to continue operations if such needs arise may adversely affect the Company’s business and financial position. Should the Company require additional funding for exploration, development, operations, acquisitions or other activities, there is no assurance that sources of financing will be available on acceptable terms or at all.
Insurance risks. Although the Company maintains insurance to protect against certain
risks in such amounts as it considers to be reasonable, its insurance will
not cover all the potential risks associated with a mining company’s
operations. Nevsun may also be unable to maintain insurance to cover these
risks at economically feasible premiums. Insurance coverage may not continue
to be available or may not be adequate to cover any resulting liability.
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Write-downs and impairments risk. Mining and mineral interests are the most
significant assets of the Company and represent capitalized expenditures
related to the development of mining properties and related plant and
equipment.
The Company reviews and evaluates its mining
interests for impairment at each reporting or when events or changes in
circumstances indicate that the related carrying amounts may not be
recoverable, which becomes more of a risk in the global economic conditions
that exist currently. An impairment is considered to exist if the total
estimated future undiscounted cash flows are less than the carrying amount of
the assets. An impairment loss is measured and recorded based on discounted
estimated future cash flows. Future cash flows are estimated based on
expected future production, commodity prices, operating costs and capital
costs. There are numerous uncertainties inherent in estimating mineral
reserves and mineral resources. Differences between management’s assumptions
and market conditions could have a material effect in the future on the
Company’s financial position and results of operation.
The assumptions used in the valuation of long-term stockpiles and work-in-process inventories by the Company include estimates of metals contained in the ore stockpiles, crushed ore piles, processing plant circuits, and an assumption of the metal prices expected to be realized when the copper, zinc, gold and silver are recovered. If these estimates or assumptions prove to be inaccurate, the Company could be required to write-down the recorded value of its long-term stockpiles or work-in-process inventories, which would reduce the Company’s earnings and working capital.
Derivatives risk. In the future the Company may use certain derivatives products to
manage the risks associated with changes in metal prices, interest rates,
foreign currency exchange rates and fuel prices. The use of derivative
instruments involves certain inherent risks including, among other things:
(i) credit risk – the risk of default on amounts owing to the Company by the
counterparties with which Company has entered into such transaction; (ii)
market liquidity risk – the risk that the Company has entered into a
derivative position that cannot be closed out quickly, by either liquidating
such derivative instrument or by establishing an offsetting position; and
(iii) unrealized mark-to-market risk – the risk that, in respect of certain
derivative products, an adverse change in market prices for commodities,
currencies or interest rates will result in the Company incurring an
unrealized mark-to-market loss in respect of such derivative products.
Counterparty risks. The Company is exposed to various counterparty
risks including, but not limited to: (i) financial institutions that hold the
Company’s cash and cash equivalents; (ii) amounts owing to the Company by
copper concentrate customers; and (iii) amounts owing to the Company by
ENAMCO in connection with the purchase price for their 30% interest in BMSC.
As a result, the Company may become exposed to credit-related losses in the
event of non-performance by such counterparties.
Currency risks. At present all of the Company’s operations other than head office
corporate functions are carried on outside of Canada and are subject to risks
associated with fluctuations of the rate of exchange of foreign currencies.
The United States dollar (USD) is the Company’s functional currency, exposing
the Company to risk on any fluctuations of the USD with other currencies to
which the Company is exposed, which are primarily the Canadian dollar (CAD),
South African rand (ZAR), the Eritrea Nakfa (ERN), and the Euro. While only
a small portion of the Bisha Mine’s operating expenses are denominated in
ERN, a re-valuation or de-pegging of this currency to the USD could expose the
Company to additional currency risk. Fluctuations in currency exchange rates
could significantly affect the Company’s business, financial condition,
results of operations and liquidity.
Information technology security risk. Nevsun maintains information technology
infrastructure, applications and communications networks to support its
business activities. These systems could be subject to security breaches
resulting in theft, disclosure or corruption of information, including
information relating to acquisitions and divestments, strategic
decision-making, investment market communications or commercially sensitive
information relating to major contracts. Security breaches could also result
in misappropriation of funds or disruptions to business operations.
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Operation Risk Factors
Mineral reserve and mineral resource estimate risk. The tabulated data for mineral reserves and
mineral resources presented in figures in this document and contained in the
Company’s continuous disclosure documents filed on SEDAR (www.sedar.com) and
EDGAR (http://www.sec.gov/edgar.shtml) are estimates generated by Qualified Persons, and
no assurance can be given that the anticipated tonnages and grades will be
achieved or, in the case of reserves, that the indicated level of
metallurgical recovery will be realized. Actual reserves may not conform to
geological, metallurgical or other expectations, and the volume and grade of
ore recovered may be below the estimated levels. Market fluctuations in the
price of mineral commodities or increases in the costs to recover minerals
may render the mining of ore reserves uneconomical and require the Company to
take a write-down of the asset or to discontinue development or production.
Moreover, short-term operating factors relating to the reserves, such as the
need for orderly development of the ore body or the processing of new or
different ore grades, may cause a mining operation to be unprofitable in any
particular accounting period.
There are numerous uncertainties inherent in
estimating quantities of mineral resources and reserves, including many
factors that are beyond the Company’s control. The estimates are based on
various assumptions relating to metal prices and exchange rates during the
expected life of production, mineralization of the area to be mined, the
projected cost of mining including costs of fuel and other critical operating
consumables, and the results of additional planned development work. Actual
future production rates and amounts, revenues, taxes, operating expenses,
environmental and regulatory compliance expenditures, development
expenditures and recovery rates may vary substantially from those assumed in
the estimates. Any significant change in these assumptions, including
changes that result from variances between projected and actual results or
any assumptions in the historical resource estimates turn out to be
incorrect, incomplete or flawed in any respect or the methodologies and
models used to prepare the resource and reserve estimates either
underestimate or overestimate the resources or reserves due to hidden or
unknown conditions, could result in material downward or upward revision of
current estimates.
Exploration, development and operating risks. Mining operations generally involve a high degree
of risk. The Company’s operating mine in Eritrea is subject to all the
hazards and risks normally associated with mineral production, including
damage to or destruction of plant and equipment, unexpected geologic
formations, pit collapse, injury or life endangerment, environmental damage,
fire, equipment failure or structural failures, such as retaining walls or
tailings dams, potentially resulting in environmental pollution and
consequent liability. The Company may at times experience some difficulty in
managing the sulphide rich reactive ground[1]
which may affect blasting and continuous ore supply and experience unplanned
detonations resulting from reactive ground or experience a failure of
drilling, processing and mining equipment or unanticipated costs and
downtimes due to optimizing the copper flotation plant and its operating
facilities. These costs, downturns and other risks can have a material
adverse effect on the Company’s operating costs and results, its operations
and financial position.
[1] Reactive
ground is a term to describe ground in which an exothermic chemical reaction
between sulphides (in this case pyrite, which is an iron sulphide) contained in
rock at Bisha and the ammonium nitrate contained in explosives may take place.
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The exploration for and development of mineral
deposits involves significant risks, which even a combination of careful
evaluation, experience and knowledge may not eliminate. While the discovery
of an ore body may result in substantial rewards, few properties that are
explored are ultimately developed into producing mines. There is no certainty
that expenditures made by the Company towards the search and evaluation of
mineral deposits will result in discoveries or future development. Whether a
mineral deposit will be commercially viable depends on a number of factors,
which include, among other things, the interpretation of geological data
obtained from drill holes and other sampling techniques, feasibility studies
(which include estimates of cash operating costs based upon anticipated
tonnage and grades of ore to be mined and processed), the particular
attributes of the deposit such as size, grade and metallurgy, expected
recovery rates of metals from the ore, proximity to infrastructure and
labour, the cost of water and power, anticipated climatic conditions, cyclical
metal prices, fluctuations in inflation and currency exchange rates, higher
input commodity and labour costs, and government regulations, including
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals, and environmental protection.
Major expenses may be required to locate and
establish additional mineral reserves. It is impossible to ensure that the
exploration or development programs planned by Nevsun will result in
additional profitable commercial mining operations. The exact effect of these
factors cannot be accurately predicted, but the combination of these factors
may result in Nevsun not receiving an adequate return on invested capital. The
Company significantly relies on the analyses performed by its Qualified
Persons to estimate resources and reserves, and such estimates may be subject
to material risks and uncertainties.
Production risk. As is typically the case with the mining industry, no assurances can be given that future mineral production estimates will be achieved. Estimates of future production for the Company’s mining operations are derived from the Company’s mining plans. These estimates and plans are subject to change, including changes based on actual mining results at various phases of the mining operations. The Company cannot give any assurance that it will achieve its production estimates. The Company may not be able to effectively manage potential deleterious elements contained within the ore to ensure continued salability of concentrates produced at projected costs. The Company may not be able to effectively manage the combination of oxidation of ore stocks coupled with in pit water inflow that may adversely affect flotation and quality of concentrates produced. There is a further risk that the potential reactive nature of the ore and waste with high pyrite (sulphides) content and its reactivity with ammonium nitrate contained in explosives will have a negative impact on ore and waste blasting efficiencies and result in increased costs. An additional risk includes the true understanding of the full extent and mineralogical properties of the transition zone between the supergene and primary ore bodies and the subsequent potential disruptive impact on processing this zone, even if campaigned in discrete periods, on the quality and future salability of the concentrates produced. Any process plant adjustments or modifications to further optimize and improve operating efficiencies could result in significant capital expenditures and have an impact on process plant productivity or result in a temporary shutdown to rectify the issues. Failure to effectively manage these and other matters and to achieve its production estimates could have a material and adverse effect on the Company’s future cash flows, results of operations, production cost, financial condition and prospects. The plans are developed based on, among other things, mining experience, reserve estimates, assumptions regarding ground conditions, hydrologic conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical or mineralogical characteristics) and estimated rates and costs of production, and include assumptions derived by geological block models developed by the Qualified Person in consultation with Company personnel. Actual production may vary from such estimates for a variety of reasons, including risks and hazards of the types discussed above, and as set out below, including:
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- greater mining
dilution than expected affecting geological grades and material movement;
- accidents;
- mobile and fixed
plant equipment failures;
- natural phenomena
such as inclement weather conditions, floods, droughts, rock slides and
earthquakes;
- unforeseen
geotechnical structures and faults leading to pit wall failures and
production delays;
- adverse chemical
nature and potential acidity and amount of in-pit water;
- unexpected or higher
than anticipated occurrence of deleterious elements in the ore such as
arsenic, selenium and tellurium impacting subsequent concentrate quality;
- higher than expected
oxidation of in-pit ore stocks adversely impacting flotation characteristics
and subsequent concentrate quality;
- unexpected
mineralogical properties of the supergene to primary transition zone and
impact on concentrate quality;
- encountering unusual
or unexpected mineralogy conditions including reactive sulphide rock with
ammonia nitrate based explosives adversely affecting blasting procedures and
productivity;
- changes in power
costs and potential power shortages;
- shortages of
principal supplies (fixed components, parts and consumables) needed for
operations;
- strikes and other
actions by labour;
- unanticipated costs,
delays or downtime due to maintenance or further required optimisation of the
process plant and operation facilities; and
- regulatory
restrictions imposed by government agencies.
Such occurrences could, in addition to stopping or
delaying mineral production or impacting quality and salability of metal
concentrates, result in damage to mineral properties, injury or death to
persons, damage to the Company’s property or the property of others, monetary
losses and legal liabilities. These factors may also cause a mineral deposit
that has been mined profitably in the past to become unprofitable. Estimates
of production from properties not yet in production or from operations that
are to be expanded are based on similar factors (including, in some
instances, feasibility studies prepared by the Company’s personnel and
outside consultants) but it is possible that actual operating costs and
economic returns will differ significantly from those currently estimated.
Need for additional reserves risk. Given that mines
have limited lives based on proven and probable mineral reserves, the Company
must continually replace and expand its reserves at its mines. The
life-of-mine estimates included in the Company’s continuous disclosure
documents filed on SEDAR and EDGAR are subject to adjustment. The Company’s
ability to maintain or increase its annual production of gold, copper and
other commodities will be dependent in significant part on its ability to
bring new mines into production and to expand reserves at existing mines.
The Bisha Mine has an estimated 10 year mine life remaining. There is no
assurance that Nevsun will be able to maintain or increase its annual
production, bring new mines into production or expand the mineral reserves
and mineral resources at its existing mine.
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Permitting risk. The Company’s operations and future development are subject to
receiving and maintaining permits from appropriate governmental authorities
and the granting of new exploration and other licenses and permits. There is
no assurance that delays will not occur in connection with obtaining all
necessary renewals of existing permits for current operations or exploration
tenements, or for additional permits for any possible future changes to
operations or applications for new exploration tenements, or additional permits
associated with new legislation. Prior to any development on any of its
properties, the Company must receive permits from appropriate governmental
authorities. There can be no assurance that the Company will obtain or
continue to hold all permits necessary to develop or continue operating at
any particular property. Any failure to obtain or maintain requisite permits
could have a material adverse effect on the Company and its future
production.
Environmental
risk. Production at the Company’s
mine involves the use of toxic materials. Should toxic materials leak or
otherwise be discharged from the containment system then the Company may
become subject to liability for cleanup work that may not be insured. While the
Company intends to prevent discharges of pollutants into the ground water and
the environment, it may be unsuccessful and may become subject to liability
for hazards that it may not be insured against. Losses from these events may
cause the Company to incur significant costs that could have a material
adverse effect upon its financial performance and results of operations.
The
Company’s operations are subject to environmental regulations promulgated by
the government of Eritrea. Environmental legislation provides for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry operations,
such as seepage from tailings disposal areas that could result in
environmental pollution. A breach of such legislation may result in the
imposition of fines and penalties. Environmental legislation is evolving in
general in a manner that means standards and enforcement, fines and penalties
for non-compliance are becoming more stringent. Environmental assessments for
projects carry a heightened degree of responsibility for companies,
directors, officers and employees. The cost of compliance with changes in
government regulations has the potential to reduce the profitability of
operations. The Company devotes significant time and resources to meeting
the goal of complete compliance with all environmental regulations in the
countries in which the Company has operations and comply with prudent
international standards.
Environmental hazards may also exist on the
properties on which the Company holds interests that are unknown to the
Company at present and that have been caused previous to the Company
receiving title to the properties.
Failure to comply with applicable laws, regulations
and permitting requirements may result in enforcement actions, including
orders issued by regulatory or judicial authorities causing operations to
cease or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions.
Parties engaged in mining operations, including the Company, may be required
to compensate those suffering loss or damage by reason of the mining
activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations.
Amendments to current laws, regulations and permits
governing operations and activities of mining companies, or more stringent
implementation thereof, could have a material adverse impact on the Company
and cause increases in exploration expenses, capital expenditures or
production costs, reduction in levels of production at producing properties,
or abandonment or delays in development of new mining properties.
Labour risk. The Company is dependent on its workforce to extract and process minerals, and is therefore sensitive to its ability to source skilled labour in country or to a labour disruption of the Company's mining activities or changes to laws. The Company endeavours to maintain good relations with its workforce in order to minimize the possibility of strikes, lockouts and other stoppages at its work sites. Relations between the Company and its employees may be impacted by changes in labour relations that may be introduced by, among other things, employee groups, unions, and the relevant governmental authorities in whose jurisdictions the Company carries on business.
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59 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Risks related to the construction, plant expansion, transition to zinc phase at Bisha, optimisationoptimization of current process plant, and start-up of new mining operations or mining phases. The success of construction projects, plant expansions and their optimisationoptimization, the transition to primary production at Bisha or the start-up of new mines by the Company is subject to a number of factors including the availability and performance of engineering and construction contractors, mining contractors, suppliers and consultants, the receipt of required governmental approvals and permits in connection with the construction of mining facilities and the conduct of mining operations, including environmental permits, price escalation on all components of construction, plant expansion, transition to primary production or start-up of new mines, the underlying characteristics, quality and unpredictability of the exact nature of mineralogy and metallurgy of a deposit and the consequent accurate understanding of doré or concentrate production, the successful completion and operation of conveyors to move ore and other operational elements. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Company is dependent in connection with its construction, expansion or transition activities or start-up of new mines, a delay in or failure to receive the required governmental approvals and permits in a timely manner or on reasonable terms, or a delay in or failure in connection with the completion and successful operation of the construction or operational elements could delay or prevent the construction projects, plant expansions, the transition to primary production at Bisha as planned, or the start-up of new mines. There can be no assurance that current or future construction projects, plant expansions, the transition to primary production at Bisha as planned or the start-up of new mines by the Company will be successful.
Infrastructure risk. Mining, processing and development activities
depend, to some degree, on adequate infrastructure. Reliable roads, bridges,
power sources and water supply are important determinants that affect capital
and operating costs. Disruption or curtailment of access to or maintenance
of such infrastructure or supplies, be it due to inclement weather, wear and
tear, or other reasons, could have an adverse material impact on ability to
service and operate due to higher costs or business interruption. Unusual or
infrequent weather phenomena, sabotage, government or other interference in
the maintenance or provision of such infrastructure could adversely affect the
Company’s operations, financial condition and results of operations.
Transportation risk. Delivery to the mine operation of required
operating consumables and fuel as well as delivery to the various smelters of
mine-produced concentrates is most often subject to third party contractors,
be it land transport in country or sea freight to and from the ocean port.
To a large extent there are many factors outside the control of the Company,
which can adversely affect the delivery of these key consumables or the
export of these metal concentrates ranging from elevated transport costs to
significant delays or temporary stoppage in product movement. The Company may
be unable to achieve transport logistical efficiencies in the transportation
of copper or zinc concentrate from the mine site to port. There remains a
risk that the contractor will not be able to transport the required volume of
concentrate due to various factors such as an inadequate number of trucks,
poor maintenance of those trucks, or an inadequate number of trained drivers
to operate the trucks. In addition, there may be difficulties in chartering
marine bulk carriers into Massawa in a timely manner to transport concentrate
from the port of Massawa to overseas customers. There is also a risk of
piracy with respect to marine transport in and around the Gulf of Aden and
the risk that the port of Massawa could become inaccessible in the event of
piracy, military conflict or political unrest. Any interruption in the
delivery chain from mine site to customers could both halt mine process plant
production due to limited storage capacity for concentrates (as well as risks
associated with build-up of concentrate stocks exposed to the elements)
leading to business interruption losses, and could also breach terms and
conditions of offtake agreements some of which may specify required
quantities of concentrate over set time periods. These factors could have a
material impact on results of the operation and associated revenues and
costs.
|
60 | Nevsun Resources Ltd. |
| ANNUAL INFORMATION FORM - 2014 |
Land title risk. The acquisition of title to mineral properties is a very detailed
and time-consuming process. Title to, and the area of, mineral concessions
may be disputed. Although the Company believes it has taken reasonable
measures to ensure proper title to its properties, there is no guarantee that
title to any of its properties will not be challenged or impaired. Third
parties may have valid claims underlying portions of the Company’s interests,
including prior unregistered liens, agreements, transfers or claims,
including indigenous land claims, and title may be affected by, among other
things, undetected defects. In addition, the Company may be unable to
operate its properties as permitted or to enforce its rights with respect to
its properties.
| 61 | Nevsun Resources Ltd. |
| |
NEVSUN RESOURCES LTD.
Consolidated Financial Statements
Years ended December 31, 2014 and 2013
(Expressed in United States dollars)
|
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated
financial statements of Nevsun Resources Ltd. are the responsibility of
management.
The consolidated financial
statements have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards
Board. These statements include amounts that are based on management’s
best estimates and judgements. Management has determined such amounts on
a reasonable basis in order to ensure that the consolidated financial statements
are presented fairly, in all material respects. Management is also
responsible for ensuring that financial information used elsewhere in annual
filings is consistent with that in the financial statements.
Management is responsible for
establishing and maintaining a system of internal control over financial
reporting. Any system of internal control over financial reporting, no matter
how well designed, has inherent limitations. Accordingly, our system of
internal control over financial reporting provides management with reasonable
assurance that the financial information is relevant, reliable and accurate and
that the Company’s assets are appropriately accounted for and adequately
safeguarded.
The Board of Directors is
responsible for ensuring that management fulfills its responsibilities for
financial reporting and internal control, and exercises this responsibility
through the Audit Committee. The Audit Committee consists of three
directors all of whom are independent. This Committee meets periodically
with management, as well as the external auditors, to satisfy itself that each
party is properly discharging its responsibilities, and to review the quarterly
and annual consolidated financial statements and submit them to the Board of
Directors; review the adequacy of the system of internal controls; review any
relevant accounting, financial and security regulatory matters; recommend the
appointment of external auditors; and approve the scope of the internal and
external auditors' audit and non-audit work.
The Company’s auditors, KPMG
LLP, Registered Public Accountants, appointed by the shareholders, conduct an
examination in accordance with Canadian generally accepted auditing standards
and standards of the Public Company Accounting Oversight Board (United States)
to allow them to express their opinion on the financial statements and our
system of internal control over financial reporting. The auditors have full
and free access to the Audit Committee and their reports are included herein.
“Cliff T. Davis”
Cliff T. Davis
Chief
Executive Officer
“Tom Whelan”
Tom Whelan
Chief
Financial Officer
February
25, 2015
| |
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada |
Telephone (604) 691-3000
Fax (604) 691-3031
Internet www.kpmg.ca |
INDEPENDENT
AUDITORS’ REPORT OF
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Nevsun Resources Ltd.
We have audited the accompanying consolidated financial
statements of Nevsun Resources Ltd., which comprise the consolidated balance
sheets as at December 31, 2014 and December 31, 2013, and the
consolidated statements of comprehensive income, changes in equity, and cash
flows for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements, in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards and
the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments,
we consider internal control relevant to the entity's preparation and fair
presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.
| |
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP |
Nevsun Resources Ltd.
Page 2
Opinion
In our opinion, the
consolidated financial statements present fairly, in all material respects,
the consolidated financial position of Nevsun Resources Ltd. as at December
31, 2014 and December 31, 2013, and its consolidated financial
performance and its consolidated cash flows for the years then ended, in
accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Other Matter
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2014, based on the
criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 25, 2015 expressed an
unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
//s// KPMG
LLP
Chartered
Accountants
February 25,
2015
Vancouver,
Canada
| |
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada |
Telephone (604) 691-3000
Fax (604) 691-3031
Internet www.kpmg.ca |
REPORT OF
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To
the Shareholders and Directors of Nevsun Resources Ltd.
We have audited
Nevsun Resources Ltd.’s (the “Company”) internal control over financial
reporting as of December 31, 2014, based on the criteria
established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, under the heading Changes in Internal Control over Financial Reporting included in the
accompanying Management’s Discussion and Analysis. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our
audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A Company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A Company’s internal control over
financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.
| |
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP |
Nevsun Resources Ltd.
Page 2
Because of its
inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2014, based on the criteria
established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Nevsun
Resources Ltd. as of December 31, 2014 and 2013, and the related
consolidated statements of comprehensive income, changes in equity and cash
flows for the years then ended, and our report dated February 25, 2015
expressed an unqualified opinion on those consolidated financial statements.
//s//
KPMG LLP
Chartered
Accountants
February
25, 2015
NEVSUN RESOURCES LTD.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars) |
| |
Note
|
|
December 31,
2014 |
|
|
December 31,
2013 |
|
| |
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
| Cash and cash equivalents |
6
|
$ |
442,418 |
|
$ |
302,724 |
|
| Accounts receivable and prepaids |
7
|
|
32,188 |
|
|
57,180 |
|
| Inventories |
8
|
|
86,851 |
|
|
61,024 |
|
| Due from non-controlling interest |
9
|
|
21,211 |
|
|
46,691 |
|
| |
|
|
582,668 |
|
|
467,619 |
|
| Non-current assets |
|
|
|
|
|
|
|
| Due from non-controlling interest |
9
|
|
27,272 |
|
|
36,503 |
|
| Account receivable |
7
|
|
1,087 |
|
|
2,573 |
|
| Inventories |
8
|
|
14,819 |
|
|
6,841 |
|
| Mineral properties, plant and equipment |
10
|
|
360,840 |
|
|
357,324 |
|
| |
|
|
404,018 |
|
|
403,241 |
|
| Total assets |
|
$ |
986,686 |
|
$ |
870,860 |
|
| |
|
|
|
|
|
|
|
| Liabilities and equity |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
| Accounts payable and accrued liabilities |
11
|
$ |
54,169 |
|
$ |
30,787 |
|
| Dividends payable |
|
|
7,986 |
|
|
13,943 |
|
| Income taxes payable |
|
|
533 |
|
|
3,832 |
|
| |
|
|
62,688 |
|
|
48,562 |
|
| |
|
|
|
|
|
|
|
| Non-current liabilities |
|
|
|
|
|
|
|
| Deferred income taxes |
12
|
|
56,906 |
|
|
30,188 |
|
| Provision for mine closure and reclamation |
13
|
|
34,196 |
|
|
23,614 |
|
| |
|
|
91,102 |
|
|
53,802 |
|
| Total liabilities |
|
|
153,790 |
|
|
102,364 |
|
| |
|
|
|
|
|
|
|
| Equity |
|
|
|
|
|
|
|
| Share capital |
14
|
|
407,359 |
|
|
405,979 |
|
| Share-based payments reserve |
|
|
16,202 |
|
|
14,843 |
|
| Retained earnings |
|
|
253,035 |
|
|
187,795 |
|
| Equity attributable to Nevsun shareholders |
|
|
676,596 |
|
|
608,617 |
|
| |
|
|
|
|
|
|
|
| Non-controlling interest |
|
|
156,300 |
|
|
159,879 |
|
| Total equity |
|
|
832,896 |
|
|
768,496 |
|
| Total liabilities and equity |
|
$ |
986,686 |
|
$ |
870,860 |
|
Commitments and contingencies (notes 19, 24)
The accompanying notes form an integral part of
these consolidated financial statements.
| |
|
Approved on behalf of the Board:
|
|
"Robert J. Gayton" |
|
Director
|
|
"R. Stuart Angus" |
|
Director
|
|
Robert J. Gayton
|
|
|
|
R. Stuart Angus
|
|
|
2
NEVSUN RESOURCES LTD.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of United States dollars, except per share amounts)
Years ended December 31, 2014 and 2013 |
| |
Note
|
|
2014 |
|
|
2013 |
|
| |
|
|
|
|
|
|
|
| Revenues |
16
|
$ |
555,012 |
|
$ |
155,698 |
|
| Cost of sales |
|
|
|
|
|
|
|
| Operating expenses |
17
|
|
(194,522 |
) |
|
(62,848 |
) |
| Royalties |
|
|
(25,072 |
) |
|
(8,070 |
) |
| Depreciation and depletion |
10
|
|
(40,081 |
) |
|
(13,385 |
) |
| Operating income |
|
|
295,337 |
|
|
71,395 |
|
| |
|
|
|
|
|
|
|
| Administrative expenses |
18
|
|
(17,363 |
) |
|
(14,537 |
) |
| Finance income |
9
|
|
2,974 |
|
|
3,464 |
|
| Finance costs |
13
|
|
(1,906 |
) |
|
(882 |
) |
| Income before taxes |
|
|
279,042 |
|
|
59,440 |
|
| |
|
|
|
|
|
|
|
| Income taxes |
12
|
|
(112,477 |
) |
|
(30,186 |
) |
| Net income and comprehensive income |
|
$ |
166,565 |
|
$ |
29,254 |
|
| |
|
|
|
|
|
|
|
| Net income and comprehensive income attributable to: |
|
|
|
|
|
|
|
| Nevsun shareholders |
|
$ |
93,394 |
|
$ |
12,857 |
|
| Non-controlling interest |
|
|
73,171 |
|
|
16,397 |
|
| |
|
$ |
166,565 |
|
$ |
29,254 |
|
| |
|
|
|
|
|
|
|
| Earnings per share attributable to Nevsun shareholders: |
14
|
|
|
|
|
|
|
| Basic |
|
$ |
0.47 |
|
$ |
0.06 |
|
| Diluted |
|
$ |
0.47 |
|
$ |
0.06 |
|
The accompanying notes form an integral part
of these consolidated financial statements.
3
NEVSUN RESOURCES LTD.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
Years ended December 31, 2014 and 2013 |
| |
Note
|
|
2014 |
|
|
2013 |
|
| Operating activities |
|
|
|
|
|
|
|
| Net income |
|
$ |
166,565 |
|
$ |
29,254 |
|
| Items not involving the use of cash |
|
|
|
|
|
|
|
| Depreciation and depletion |
|
|
40,125 |
|
|
13,436 |
|
| Income taxes |
|
|
112,477 |
|
|
30,186 |
|
| Share based compensation |
14
|
|
2,208 |
|
|
3,137 |
|
| Interest income on due from non-controlling interest |
9
|
|
(2,621 |
) |
|
(3,314 |
) |
| Provision for inventory obsolescence |
|
|
2,094 |
|
|
2,808 |
|
| Other |
|
|
(149 |
) |
|
615 |
|
| |
|
|
|
|
|
|
|
| |
|
|
320,699 |
|
|
76,122 |
|
| Changes in non-cash operating capital |
|
|
|
|
|
|
|
| Accounts receivable and prepaids |
|
|
(8,977 |
) |
|
12,617 |
|
| Inventories |
|
|
(30,865 |
) |
|
(25,459 |
) |
| Accounts payable and accrued liabilities |
|
|
25,623 |
|
|
12,892 |
|
| |
|
|
|
|
|
|
|
| Cash generated from operating activities |
|
|
306,480 |
|
|
76,172 |
|
| Income taxes paid |
12
|
|
(88,983 |
) |
|
(60,484 |
) |
| |
|
|
|
|
|
|
|
| Net cash provided by operating activities |
|
|
217,497 |
|
|
15,688 |
|
| Investing activities |
|
|
|
|
|
|
|
| Expenditures on mineral properties, plant and equipment |
|
|
(55,118 |
) |
|
(133,423 |
) |
| Pre-commercial production copper sales receipts |
|
|
50,936 |
|
|
71,255 |
|
| Loan to supplier |
|
|
(2,200 |
) |
|
(7,000 |
) |
| Changes in non-cash working capital related to investing activities |
|
|
2,124 |
|
|
(38 |
) |
| |
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(4,258 |
) |
|
(69,206 |
) |
| Financing activities |
|
|
|
|
|
|
|
| Dividends paid to Nevsun shareholders |
|
|
(34,770 |
) |
|
(23,880 |
) |
| Distributions to non-controlling interest |
|
|
(76,750 |
) |
|
- |
|
| Amounts repaid by (loaned to) non-controlling interest, including interest |
9
|
|
37,332 |
|
|
(16,750 |
) |
| Issuance of common shares, net of issue costs |
14
|
|
643 |
|
|
468 |
|
| |
|
|
|
|
|
|
|
| Net cash used in financing activities |
|
|
(73,545 |
) |
|
(40,162 |
) |
| Increase (decrease) in cash and cash equivalents |
|
|
139,694 |
|
|
(93,680 |
) |
| Cash and cash equivalents, beginning of year |
|
|
302,724 |
|
|
396,404 |
|
| Cash and cash equivalents, end of year |
|
$ |
442,418 |
|
$ |
302,724 |
|
Supplementary
cash flow information (note 6
)
The accompanying notes form an integral part of these
consolidated financial statements.
4
NEVSUN RESOURCES LTD.
Consolidated Statements of Changes in Equity
(Expressed in thousands of United States dollars)
Years ended December 31, 2014 and 2013 |
| |
|
Number of
shares
(note 14) |
|
|
Share capital
(note 14) |
|
|
Share-based
payments
reserve |
|
|
Retained
earnings |
|
|
Equity attributable to Nevsun shareholders |
|
|
Non-controlling
interest |
|
|
Total
equity |
|
| December 31, 2012 |
|
198,982,815 |
|
$ |
404,960 |
|
$ |
13,145 |
|
$ |
201,698 |
|
$ |
619,803 |
|
$ |
143,482 |
|
$ |
763,285 |
|
| Exercise of stock options |
|
325,000 |
|
|
468 |
|
|
- |
|
|
- |
|
|
468 |
|
|
- |
|
|
468 |
|
| Transfer to share capital on exercise of options |
|
- |
|
|
551 |
|
|
(24 |
) |
|
- |
|
|
527 |
|
|
- |
|
|
527 |
|
| Transfer on forfeiture of vested options |
|
- |
|
|
- |
|
|
(1,113 |
) |
|
1,113 |
|
|
- |
|
|
- |
|
|
- |
|
| Return to treasury of fractional shares |
|
(13 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Share-based payments |
|
- |
|
|
- |
|
|
2,835 |
|
|
- |
|
|
2,835 |
|
|
- |
|
|
2,835 |
|
| Income for the year |
|
- |
|
|
- |
|
|
- |
|
|
12,857 |
|
|
12,857 |
|
|
16,397 |
|
|
29,254 |
|
| Dividends declared |
|
- |
|
|
- |
|
|
- |
|
|
(27,873 |
) |
|
(27,873 |
) |
|
- |
|
|
(27,873 |
) |
| December 31, 2013 |
|
199,307,802 |
|
$ |
405,979 |
|
$ |
14,843 |
|
$ |
187,795 |
|
$ |
608,617 |
|
$ |
159,879 |
|
$ |
768,496 |
|
| Exercise of stock options |
|
345,000 |
|
|
1,327 |
|
|
- |
|
|
- |
|
|
1,327 |
|
|
- |
|
|
1,327 |
|
| Transfer to share capital on exercise of options |
|
- |
|
|
53 |
|
|
(53 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
| Transfer on forfeiture of vested options |
|
- |
|
|
- |
|
|
(774 |
) |
|
774 |
|
|
- |
|
|
- |
|
|
- |
|
| Share-based payments |
|
- |
|
|
- |
|
|
2,186 |
|
|
- |
|
|
2,186 |
|
|
- |
|
|
2,186 |
|
| Income for the year |
|
- |
|
|
- |
|
|
- |
|
|
93,394 |
|
|
93,394 |
|
|
73,171 |
|
|
166,565 |
|
| Dividends declared |
|
- |
|
|
- |
|
|
- |
|
|
(28,928 |
) |
|
(28,928 |
) |
|
- |
|
|
(28,928 |
) |
| Distributions to non-controlling interest |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(76,750 |
) |
|
(76,750 |
) |
| December 31, 2014 |
|
199,652,802 |
|
$ |
407,359 |
|
$ |
16,202 |
|
$ |
253,035 |
|
$ |
676,596 |
|
$ |
156,300 |
|
$ |
832,896 |
|
The accompanying notes form an integral part of these
consolidated financial statements.
5
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
1.
|
Description of business and nature of operations
|
| |
Nevsun Resources Ltd. and its subsidiaries (collectively, Nevsun or the Company) are engaged in the acquisition, exploration, development and operation of mineral property interests. Nevsun is a public company which is listed on the TSX and the NYSE MKT LLC, under the trading symbol “NSU”. Nevsun was incorporated under the laws of the Province of British Columbia under the Company Act (British Columbia), is currently governed by the Business Corporations Act (British Columbia) and maintains its head office at Suite 760 – 669 Howe Street, Vancouver, British Columbia, Canada, V6B 0C4 and its registered and records office at 1000 – 840 Howe Street, Vancouver, British Columbia, Canada, V6Z 2M1 and its website address is www.nevsun.com. |
| |
The Company’s principal operation is the Bisha Mine, owned via the Eritrean registered corporation, Bisha Mining Share Company (BMSC or the Bisha Mine), in which Nevsun has a 60% interest. The remaining 40% ownership in BMSC is owned by the State-owned Eritrean National Mining Corporation (ENAMCO), representing a non-controlling interest. The Bisha Mine is a gold, copper and zinc deposit. Mining of the gold oxide phase began in 2010 and was substantially completed by the end of the second quarter of 2013. Commissioning of the copper flotation plant at the Bisha Mine commenced in late June 2013. On December 1, 2013, the Company determined the commissioning phase of the copper expansion had been completed as the copper plant and facilities were operating in the manner intended by management. Mining of the supergene copper ore is expected to continue until early 2016 at which time the Bisha Mine plans to begin to process ore from the primary phase. The primary phase ore contains a significant amount of zinc and copper. Construction of the zinc plant began in 2014 with the zinc plant scheduled for commissioning in the first half of 2016. |
| |
The consolidated financial statements of Nevsun for the year ended December 31, 2014, were reviewed by the Audit Committee and approved and authorized for issue by the Board of Directors on February 25, 2015. |
| |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). |
| |
These consolidated financial statements have been prepared on a historical cost basis except for derivative financial instruments which have been measured at fair value. These consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand, except where otherwise noted. |
| |
The significant accounting policies are presented in Note 3 and have been applied consistently in each of the periods presented. The critical judgements in applying accounting policies and sources of estimation are presented in Note 5. |
|
3.
|
Summary of significant accounting policies
|
| |
(a)
|
Principles of consolidation
|
| |
These consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Control over a subsidiary is defined to exist when the Company is exposed to variable returns from involvement with an investee and has the ability to affect the returns through power over the investee. Power over an investee exists when the Company has existing rights which gives it the ability to direct the activities that significantly affect the investee’s returns. This control is generally evidenced through owning more than 50% of the voting rights of the subsidiary. All intercompany transactions and balances are eliminated on consolidation. For subsidiaries that the Company controls but does not own 100% of, the interest attributable to non-controlling shareholders is reflected in non-controlling interest. Adjustments to non-controlling interests are accounted for as transactions with owners and adjustments that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. |
6
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
(a)
|
Principles of consolidation (continued)
|
| |
Significant subsidiaries of Nevsun Resources Ltd. are as follows: |
| |
|
|
|
Nevsun’s effective interest |
| |
Name
|
Country of incorporation
|
Principal activity
|
(%)
|
| |
|
|
|
|
| |
Nevsun
(Barbados) Holdings Ltd.
|
Barbados
|
Holding company
|
100
|
| |
Nevsun Africa
(Barbados) Ltd.
|
Barbados
|
Holding company
|
100
|
| |
Nevsun Resources
(Eritrea) Ltd.
|
Barbados
|
Holding company
|
100
|
| |
Bisha Mining
Share Company
|
Eritrea
|
Mining
|
60 |
| |
(b)
|
Foreign currency translation
|
| |
The functional and reporting currency of the Company and all its subsidiaries is the United States dollar. Transactions in currencies other than the functional currency are recorded at the rate of exchange prevailing on the date of the transaction. Monetary assets and liabilities that are denominated in foreign currencies are translated at the rate prevailing at each reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate on the date of the transaction. Foreign currency translation differences are recognized in profit or loss. |
| |
(c)
|
Revenue recognition and trade receivables
|
| |
The Company includes proceeds from the sale of product, including by-product, in revenue. Revenue is recognized when the transfer of title and the risk and rewards of ownership pass to the customer provided that collection is reasonably assured, the price can be reliably measured, the Company has no significant continuing involvement and the costs incurred or to be incurred in respect of the transaction can be reliably measured. |
| |
All sales are completed in the form of executed sales agreements where final prices are determined by quoted market prices on a date subsequent to the date of sale. Revenue is recorded on a provisional basis based on current market prices on the date of sale. Adjustments are made to the sale price based on movements in quoted market prices up to the date of final pricing. The adjustment mechanism in these sales agreements is considered an embedded derivative. The fair value of the final sales price adjustment is adjusted each reporting period by reference to forward market prices and the changes in fair value are recorded as an adjustment to revenue. Any subsequent variations in the final determination of metal concentrate weight and metal content are also recognized as revenue adjustments. |
| |
Revenues received are net of treatment and refining charges. |
| |
Inventories include materials and supplies, work-in-progress and finished goods, and are valued at the lower of weighted average cost and net realizable value. Average costs are calculated by reference to the cost levels experienced in the current month together with those in opening inventory. Cost for materials and supplies includes purchase price and freight, and cost for work-in-progress and finished goods are the costs of production. For this purpose, the costs of production include: |
| |
(i)
|
fuel, power, labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore;
|
| |
(ii)
|
the depreciation of mineral properties and plant and equipment used in the extraction and processing of ore; and
|
| |
(iii)
|
production overheads.
|
7
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
(d)
|
Inventories (continued)
|
| |
Work-in-progress inventory includes ore stockpiles and other partly processed material. Stockpiles represent ore that has been extracted and is available for further processing. Quantities are assessed primarily through surveys and assays. The non-current portion of ore in stockpiles consists of oxide ore and primary ore not expected to be processed in the next twelve months, and pyrite sand which may not be monetized in the next twelve months. |
| |
Write-downs of inventories to net realizable value and all losses of inventories are recognized as an expense in the period in which the write-down or loss occurred. Such write-downs are reversed in the event that there is a subsequent increase in the net realizable value of the inventory. |
| |
(e)
|
Mineral properties, plant and equipment
|
| |
(i)
|
Exploration and evaluation
|
| |
Once the legal rights to explore an area have been secured, expenditures on exploration and evaluation activities are capitalized to exploration and evaluation, and are included within mineral properties, plant and equipment. Costs incurred prior to the Company obtaining the legal rights are expensed. Exploration expenditures relate to the initial search for deposits with economic potential and to detailed assessments of deposits or other projects that have been identified as having economic potential. Obligations for removal and restoration as a result of undertaking the exploration and evaluation are capitalized. Management reviews the carrying value of capitalized exploration costs at least annually. The review is based on the Company’s intentions for further exploration and development of the undeveloped property. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project, net of any previous impairment provisions, are written off. |
| |
(ii)
|
Development and construction in progress
|
| |
When economically viable reserves have been determined and the decision to proceed with development has been approved, exploration and evaluation assets are first assessed for impairment, then reclassified to construction-in-progress or mineral properties. The expenditures related to development and construction are capitalized as construction-in-progress and are included within mineral properties, plant and equipment. Costs associated with the commissioning of new assets incurred before they are operating in the way intended by management, including directly attributable costs of testing, are capitalized. Development expenditures are net of the proceeds of the sale of metals from ore extracted during this phase. When developed or constructed assets are operating in the way intended by management, construction-in-progress costs are reclassified to mineral properties or plant and equipment. |
| |
The costs of removing overburden to access ore are capitalized as pre-production stripping costs and are included within mineral properties, plant and equipment. |
| |
(iii)
|
Plant and equipment
|
| |
Plant and equipment is carried at cost, less accumulated depreciation and accumulated impairment losses. Cost comprises the fair value of consideration given to acquire or construct an asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use, along with the future cost of dismantling and removing the asset. |
| |
When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items, i.e. major components, of plant and equipment. |
8
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
(e)
|
Mineral properties, plant and equipment (continued)
|
| |
(iii)
|
Plant and equipment (continued)
|
| |
The cost of major overhauls of parts of plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the routine servicing of plant and equipment are recognized in profit or loss as incurred. |
| |
Leases that transfer substantially all of the benefits and risks incidental to the ownership of property to the Company are accounted for as finance leases. Assets under finance lease are originally capitalized at the lower of the fair market value of the leased property and the net present value of the minimum lease payments. Each lease payment is allocated between the finance lease obligation and finance charge. The plant and equipment acquired under finance lease is depreciated over the shorter of the asset’s useful life and the lease term. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred. Where a lease is prepaid, the obligation is offset against the prepayment. |
| |
The Company has entered into arrangements that are in substance leasing arrangements and have been accounted for in accordance with this policy. |
| |
(v)
|
Depreciation and depletion
|
| |
Mineral properties, plant and equipment associated with mining operations are depreciated over the estimated useful lives of the assets on a units-of-production basis or on a declining balance basis at rates of 5% to 33% per annum, as appropriate. All other equipment is depreciated on a declining balance basis at rates of 5% to 33%, as appropriate. Depreciation methods and useful lives are reviewed at each reporting date and adjusted as required. |
| |
(vi)
|
Stripping costs in the production phase
|
| |
Where production stripping activity does not result in inventory produced, but does provide improved access to the ore body, the costs are deferred when the stripping activity meets the following criteria: (1) it is probable that the future economic benefit associated with the stripping activity will flow to the Company; (2) the Company can identify the component of the ore body for which access has been improved; and (3) the costs relating to the stripping activity associated with that component can be measured reliably. Deferred stripping costs are capitalized to mineral properties or construction-in-progress and are depreciated on a units-of-production basis over the expected useful life of the identified component of the ore body to which access has been improved as a result of the stripping activity. |
| |
(vii)
|
Impairment of non-financial assets
|
| |
Non-financial assets are evaluated at the end of each reporting period by management for indicators that carrying value is impaired and may not be recoverable. When indicators of impairment are present, the recoverable amount of an asset is evaluated at the level of a cash generating unit (CGU), the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of a CGU is the greater of the CGU’s fair value less costs to sell and its value in use. An impairment loss is recognized in profit or loss to the extent the carrying amount exceeds the recoverable amount. |
9
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
(e)
|
Mineral properties, plant and equipment (continued)
|
| |
(vii)
|
Impairment of non-financial assets (continued)
|
| |
In calculating the recoverable amount, the Company uses discounted cash flow techniques to determine value in use when it is not possible to determine fair value either by quotes from an active market or a binding sales agreement. The determination of discounted cash flows is dependent on a number of factors, including future metal prices, the amount of reserves, the cost of bringing the project into production, production schedules, production costs, sustaining capital expenditures, and site closure, restoration and environmental rehabilitation costs and the discount rate used. Additionally, the reviews take into account factors such as political, social and legal, and environmental regulations. These factors may change due to changing economic conditions or the accuracy of certain assumptions and, hence, affect the recoverable amount. The Company uses its best efforts to fully understand all of the aforementioned to make an informed decision based upon historical and current facts surrounding the projects. Discounted cash flow techniques require management to make estimates and assumptions concerning reserves and expected future production revenues and expenses. |
| |
(f)
|
Provision for mine closure and reclamation
|
| |
The Company records a liability based on the best estimate of costs for site closure and reclamation activities that the Company is legally or constructively required to remediate. The liability is recognized at the time environmental disturbance occurs and the resulting estimated costs are capitalized to the corresponding asset. The provision for mine closure and reclamation liabilities is estimated using expected cash flows based on engineering and environmental reports prepared by third-party industry specialists and discounted at a pre-tax rate specific to the liability. The capitalized amount is depreciated on the same basis as the related asset. The liability is adjusted for the accretion of the discounted obligation and any changes in the amount or timing of the underlying future cash flows. Significant judgements and estimates are involved in forming expectations of the amounts and timing of future closure and reclamation cash flows. |
| |
Additional disturbances and changes in mine closure and reclamation estimates are accounted for as incurred with a change in the corresponding capitalized cost. Costs of rehabilitation projects for which a provision has been recorded are recorded directly against the provision as incurred, most of which are incurred at the end of the life of mine. |
| |
(g)
|
Financial instruments
|
| |
The Company initially recognizes loans and receivables on the date that they originate. All other financial assets are recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. |
| |
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. |
| |
The Company classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired, and management determines the classification of financial assets at recognition. |
10
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
(g)
|
Financial instruments (continued)
|
| |
(i)
|
Financial assets (continued)
|
| |
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables are initially recognized at fair value and subsequently carried at amortized cost less any impairment. Loans and receivables are comprised of cash and cash equivalents, trade and other receivables, and loan to supplier. Included in trade receivables are provisionally priced sales receivables measured at fair value with changes recognized in profit or loss. |
| |
(ii)
|
Financial liabilities
|
| |
The Company classifies all of its financial liabilities as other financial liabilities. Other financial liabilities are non-derivatives and are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit and loss over the period to maturity using the effective interest method. |
| |
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable or receivable in respect of previous years. The Company uses the balance sheet method of accounting for deferred income taxes. Under the balance sheet method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets also result from unused loss carry forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits against which the deferred tax assets can be utilized will be available. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. |
| |
In determining the amount of current and deferred tax the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities. Such changes to tax liabilities will impact tax expenses in the year that such a determination is made. |
| |
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. |
11
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
3. |
Summary of significant accounting policies (continued) |
| |
The Company has a stock option plan that is described in note 14(b). Stock options granted to employees are measured at the grant date fair value of the instruments issued and amortized as an expense with a corresponding increase in equity over the vesting periods. The amount recognized as an expense is adjusted to reflect the number of awards expected to vest. Upon the exercise of stock options, consideration received is recorded as share capital and the related share-based payments reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from share-based payment reserve. For those options that expire or are forfeited after vesting, the recorded value is transferred to retained earnings. |
| |
(ii)
|
Stock appreciation rights (SARs)
|
| |
SARs allow the holder to receive cash or common shares of the Company in the amount of the underlying value of the associated stock option. When the holder has the option of settling in cash or shares, the fair value of the SAR is recorded as a liability with no value assigned to an equity component. Changes to the fair value of the liability are recognized in profit or loss. |
| |
Where the holder elects to take common shares instead of cash, the value of the related liability is transferred directly to share capital; where the holder elects to settle SARs in cash instead of common shares, the value of the related liability is extinguished when the cash is paid. |
| |
(iii)
|
Restricted, performance and deferred share units (RSUs, PSUs and DSUs)
|
| |
RSUs, PSUs and DSUs allow the holder to receive cash in an amount linked to the value of the Company’s shares. The RSUs, PSUs and DSUs are recorded as a liability at fair value at period end, with changes in the fair value of the liability recognized in profit or loss. The liability is extinguished when the units vest and cash is paid to the holder or when the units otherwise expire. |
| |
RSUs vest in thirds over a three year period, beginning one year after the grant date, and are settled in cash upon vesting. PSUs vest in full three years after the grant date and are settled in cash upon vesting, with payout value based on the Company’s share price performance relative to a group of peers. Both units are valued with reference to the Company’s current share price. |
| |
DSUs vest either immediately or over a specified time period, and are settled in cash when the holder of the units resigns from the Company. DSUs are valued with reference to the Company’s current share price. |
| |
Earnings per share are calculated using the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated using the treasury stock method. The weighted average number of common shares outstanding for the calculation of diluted earnings per share assumes all in-the-money stock options and stock appreciation rights are exercised at the beginning of the year and that the proceeds to be received on their exercise are used to repurchase common shares at the average market price during the year. |
|
4.
|
Accounting changes and recent accounting pronouncements
|
| |
In May 2013, the IASB issued IFRIC 21 - Levies, which sets out the accounting treatment for an obligation to pay a levy that is not an income tax. The interpretation defines the obligating event that gives rise to the requirement to pay a levy and when a liability should be recognized. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The application of IFRIC 21 did not have a significant impact on the Company’s consolidated financial statements. |
12
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
4. |
Accounting changes and recent accounting pronouncements (continued) |
| |
In July 2014, the IASB published IFRS 9 - Financial Instruments, which replaces IAS 39 - Financial Instruments: Recognition and Measurement, the existing guidance of the same name. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial assets from IAS 39. |
| |
IFRS 9 is effective for annual reporting periods beginning on or after January 1, 2018, and is available for early adoption. The Company will evaluate the new standard to determine the impact, if any, it may have on its financial statements. |
| |
In May 2014, the IASB issued the final revenue standard, IFRS 15 - Revenue From Contracts With Customers, which will replace IAS 18 - Revenue, among other standards that do not currently affect the Company. The new standard is effective for fiscal years beginning on or after January 1, 2017, and is available for early adoption. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The Company intends to adopt IFRS 15 in its financial statements for the annual period beginning January 1, 2017. The Company will evaluate the new standard to determine the impact, if any, it may have on its financial statements. |
|
5.
|
Use of judgements and estimates
|
| |
In preparing these consolidated financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expense. Actual amounts incurred by the Company may differ from these values. |
| |
The critical judgements that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimation uncertainty (note 5(b)), that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows: |
| |
(i)
|
Achievement of commercial production
|
| |
Costs incurred to construct and develop mineral properties, plant and equipment, including directly attributable costs of testing, are capitalized until the assets are brought into the location and condition necessary to be capable of operating in the manner intended by management. Net proceeds from mineral sales realized during this period are offset against costs capitalized. Depletion of capitalized costs for mineral properties and related plant and equipment begins when operating levels intended by management have been reached. The results of operations of the Company during the years presented in these consolidated financial statements have been impacted by management’s determination that the Bisha Mine reached the operating levels intended by management with regards to copper production on December 1, 2013. |
| |
(ii)
|
Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs
|
| |
Management has determined that exploration drilling, evaluation, development and related costs incurred which have been capitalized are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to proven and probable reserves, scoping and feasibility studies, accessible facilities, existing permits and life of mine plans. |
13
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
5. |
Use of judgements and estimates (continued) |
| |
(a)
|
Judgements (continued)
|
| |
(iii)
|
Functional currency
|
| |
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the entity operates. The Company has determined the functional currency of each entity is the US dollar. Assessment of functional currency involves certain judgements to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment. |
| |
(b)
|
Key sources of estimation uncertainty
|
| |
The preparation of consolidated financial statements requires that the Company’s management make assumptions and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Actual future outcomes could differ from present estimates and assumptions; potentially having material future effects on the Company’s consolidated financial statements. Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. |
| |
The significant assumptions about the future and other major sources of estimation uncertainty as at the end of the reporting period that have a significant risk of resulting in a material adjustment to the carrying amounts of the Company’s assets and liabilities are as follows: |
| |
(i)
|
Reserve estimates including life of mine plan
|
| |
The Company estimates its ore reserves and mineral resources based on information compiled by experts. Reserves are used in the calculation of depreciation, impairment assessment and for forecasting the timing of payment of mine closure, reclamation and rehabilitation costs. |
| |
There are numerous uncertainties inherent in estimating ore reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecasted prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. |
| |
The carrying amounts of the Company’s mineral properties, plant and equipment are depleted based on recoverable copper pounds, gold ounces, and ore reserve tonnes. Changes to estimates of recoverable copper pounds, gold ounces, ore reserve tonnes and depletable costs, including changes resulting from revisions to the Company’s mine plans and changes in metals prices forecasts, can result in a change to future depletion rates and impairment analysis. |
| |
(ii)
|
Estimated mine closure and reclamation costs
|
| |
The Company’s provision for mine closure and reclamation cost obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized by the Company. |
| |
Changes to mine closure and reclamation cost obligations are recorded with a corresponding change to the carrying amounts of related mineral properties, plant and equipment for the year. Adjustments to the carrying amounts of related mineral properties, plant and equipment can result in a change to future depletion expense. |
14
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
5. |
Use of judgements and estimates (continued) |
| |
(b)
|
Key sources of estimation uncertainty (continued)
|
| |
(iii)
|
Classification of current and non-current portion of due from non-controlling interest
|
| |
In determining the classification of current and non-current portion of due from non-controlling interest, the Company makes estimates of the future after-tax cash flows expected to be derived from the Bisha mining operation. Changes in metal price forecasts, estimated future costs of production, and estimated future capital expenditures could result in a change in the classification of the current and non-current portions of the due from non-controlling interest. |
| |
(iv)
|
Fair value of embedded derivative
|
| |
The value of copper concentrate trade receivables is measured using quoted forward market prices as at the balance sheet date that correspond to the settlement date of the provisional pricing period for the estimated metals contained within the copper concentrate. Fluctuations in the underlying market price of copper, metal content and concentrate weight can cause significant changes to the ultimate final settlement value of the receivables and the final revenue recorded can vary significantly as a result. |
| |
In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted income from operations and the application of existing tax laws in each jurisdiction. Forecasted income from operations is based on life of mine projections internally developed and reviewed by management. |
| |
Importance is given to tax planning opportunities that are within the Company’s control, and are feasible and implementable without significant obstacles. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on individual facts and circumstances of the relevant tax position evaluated in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets. |
| |
(vi)
|
Share-based payments
|
| |
The factors affecting share-based payments include estimates of when stock options might be exercised and the stock price volatility. The timing for exercise of options is out of the Company’s control and will depend, among other things, upon a variety of factors including the market value of Company shares and financial objectives of the holders of the options. The Company has used historical data to determine volatility in accordance with Black-Scholes modeling, however future volatility is inherently uncertain and the model has its limitations. While these estimates can have a material impact on the share-based payments expense and hence, results of operations, there is no impact on the Company’s financial condition or liquidity. |
15
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
6.
|
Supplemental cash information
|
| |
|
|
2014 |
|
|
2013 |
|
| |
Cash and cash equivalents |
|
|
|
|
|
|
| |
Cash |
$ |
94,818 |
|
$ |
42,224 |
|
| |
Cash equivalents |
|
347,600 |
|
|
260,500 |
|
| |
|
$ |
442,418 |
|
$ |
302,724 |
|
| |
Cash and cash equivalents deposited with financial institutions located outside of Africa at December 31, 2014, equal $431,678 (December 31, 2013 - $298,776). |
| |
|
|
2014 |
|
|
2013 |
|
| |
Non-cash investing and financing transactions |
|
|
|
|
|
|
| |
Closure and reclamation increase in mineral properties, plant and equipment |
$ |
9,379 |
|
$ |
4,719 |
|
| |
Change in accounts receivable related to pre-commercial production copper sales |
|
(41,661 |
) |
|
41,661 |
|
| |
Capital assets under finance lease |
|
1,694 |
|
|
4,659 |
|
| |
Depreciation added to inventory |
|
1,039 |
|
|
3,040 |
|
|
7.
|
Accounts receivable and prepaids
|
| |
|
|
2014 |
|
|
2013 |
|
| |
Trade receivables |
$ |
19,403 |
|
$ |
43,632 |
|
| |
Advances to vendors |
|
9,873 |
|
|
11,672 |
|
| |
Loan receivable |
|
1,700 |
|
|
2,698 |
|
| |
Prepaid expenses |
|
1,744 |
|
|
1,435 |
|
| |
Other receivables |
|
555 |
|
|
316 |
|
| |
Total accounts receivable and prepaids |
$ |
33,275 |
|
$ |
59,753 |
|
| |
Less: non-current portion of loan receivable |
|
(1,087 |
) |
|
(2,573 |
) |
| |
Accounts receivable and prepaids recorded as a current asset |
$ |
32,188 |
|
$ |
57,180 |
|
| |
During the year ended December 31, 2014, the Company made a loan of $2,200 (2013 – $7,000) to a transport company for equipment that is used in the transport of copper concentrate from mine site to port within Eritrea. The loans are repayable in equal instalments in the form of credits offset against operating amounts payable to the transport company over a five year period. A portion of the loan receivable has been recorded as a prepayment of an associated finance lease obligation related to the transport equipment. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Materials and supplies |
$ |
59,533 |
|
$ |
41,043 |
|
| |
Work-in-progress |
|
24,640 |
|
|
13,318 |
|
| |
Finished goods – copper concentrate |
|
17,497 |
|
|
13,504 |
|
| |
Total inventories |
$ |
101,670 |
|
$ |
67,865 |
|
| |
Less: non-current portion of ore in stockpiles |
|
(14,819 |
) |
|
(6,841 |
) |
| |
Inventory recorded as a current assets |
$ |
86,851 |
|
$ |
61,024 |
|
| |
During the year ended December 31, 2014, an inventory obsolescence provision of $2,094 (December 31, 2013 – $2,808) was recorded in relation to slow moving inventory (2013 - gold phase materials and supplies). The non-current portion of ore in stockpiles is not expected to be further processed in the next twelve months and consists of oxide ore, pyrite sand and primary ore. Depreciation of $5,605 is included in work-in-progress and finished goods inventories at December 31, 2014 (December 31, 2013 – $4,566). |
16
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
9.
|
Due from non-controlling interest
|
| |
The amounts due from ENAMCO arose originally in October 2007 when the Company entered into an agreement with ENAMCO whereby the State increased its ownership in BMSC to 40% from its previous 10% free carried interest provided by Eritrean mining legislation. The amount receivable bears interest at a rate tied to the US Dollar LIBOR (December 31, 2014 – 0.5%) plus 4%. Interest income of $2,621 was recorded during the year ended December 31, 2014 (2013 - $3,314). |
| |
During 2013 the Company loaned an additional $16,750 to ENAMCO, which was collected in full during 2014, including interest of $682. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Opening Balance |
$ |
83,194 |
|
$ |
63,130 |
|
| |
|
|
|
|
|
|
|
| |
Accrued interest on purchase price receivable |
|
2,305 |
|
|
2,948 |
|
| |
Advances to non-controlling interest |
|
- |
|
|
16,750 |
|
| |
Accrued interest on advances to non-controlling interest |
|
316 |
|
|
366 |
|
| |
Amounts received from non-controlling interest, including interest |
|
(37,332 |
) |
|
- |
|
| |
Total due from non-controlling interest |
$ |
48,483 |
|
$ |
83,194 |
|
| |
Less: non-current portion of due from non-controlling interest |
|
(27,272 |
) |
|
(36,503 |
) |
| |
Due from non-controlling interest recorded as a current asset |
$ |
21,211 |
|
$ |
46,691 |
|
|
10.
|
Mineral properties, plant and equipment
|
| |
The Company’s properties are located in western Eritrea, a country located in north-eastern Africa. The properties under mining licenses include Bisha and Harena which together are subject to a mining agreement with the Government of Eritrea. The Bisha license was granted in 2008 for an initial period of 20 years. The Harena license was granted in 2012 for 10 years. The Mogoraib River exploration license is valid until July 2, 2015, but can be extended subject to a license renewal application. |
| |
Commercial copper production was achieved on December 1, 2013, and construction-in-progress amounts related to the copper phase were transferred to the appropriate categories of mineral properties, plant and equipment. Depreciation of these assets commenced at that time. |
| |
Costs classified as mineral properties represent historic acquisition, exploration, evaluation and development costs at Bisha and Harena. Construction-in-progress at December 31, 2014, represents costs associated with the zinc phase construction. |
17
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
10. |
Mineral properties, plant and equipment (continued) |
| |
Year ended December 31, 2014 |
|
Exploration
and evaluation |
|
|
Construction-
in-progress |
|
|
Mineral
properties |
|
|
Plant and
equipment |
|
|
Total |
|
| |
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2013 |
$ |
23,836 |
|
$ |
5,749 |
|
$ |
44,248 |
|
$ |
371,038 |
|
$ |
444,871 |
|
| |
Additions |
|
5,668 |
|
|
18,458 |
|
|
3,690 |
|
|
24,307 |
|
|
52,123 |
|
| |
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
(25 |
) |
|
(25 |
) |
| |
Transfers |
|
- |
|
|
(7,503 |
) |
|
- |
|
|
71 |
|
|
(7,432 |
) |
| |
December 31, 2014 |
|
29,504 |
|
|
16,704 |
|
|
47,938 |
|
|
395,391 |
|
|
489,537 |
|
| |
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2013 |
|
- |
|
|
- |
|
|
6,439 |
|
|
81,108 |
|
|
87,547 |
|
| |
Charge for the year |
|
- |
|
|
- |
|
|
2,633 |
|
|
38,533 |
|
|
41,166 |
|
| |
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
(16 |
) |
|
(16 |
) |
| |
December 31, 2014 |
|
- |
|
|
- |
|
|
9,072 |
|
|
119,625 |
|
|
128,697 |
|
| |
Net book value
December 31, 2014 |
$ |
29,504 |
|
$ |
16,704 |
|
$ |
38,866 |
|
$ |
275,766 |
|
$ |
360,840 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2013 |
|
Exploration
and evaluation
|
|
|
Construction-
in-progress
|
|
|
Mineral properties |
|
|
Plant and equipment |
|
|
Total
|
|
| |
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2012 |
$ |
8,309 |
|
$ |
87,255 |
|
$ |
38,688 |
|
$ |
268,242 |
|
$ |
402,494 |
|
| |
Additions |
|
15,720 |
|
|
34,513 |
|
|
191 |
|
|
28,915 |
|
|
79,339 |
|
| |
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
(263 |
) |
|
(263 |
) |
| |
Transfers |
|
(193 |
) |
|
(116,019 |
) |
|
5,369 |
|
|
74,144 |
|
|
(36,699 |
) |
| |
December 31, 2013 |
|
23,836 |
|
|
5,749 |
|
|
44,248 |
|
|
371,038 |
|
|
444,871 |
|
| |
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2012 |
|
- |
|
|
- |
|
|
3,623 |
|
|
58,443 |
|
|
62,066 |
|
| |
Charge for the year |
|
- |
|
|
- |
|
|
2,816 |
|
|
22,722 |
|
|
25,538 |
|
| |
Disposals |
|
- |
|
|
- |
|
|
- |
|
|
(57 |
) |
|
(57 |
) |
| |
December 31, 2013 |
|
- |
|
|
- |
|
|
6,439 |
|
|
81,108 |
|
|
87,547 |
|
| |
Net book value
December 31, 2013 |
$ |
23,836 |
|
$ |
5,749 |
|
$ |
37,809 |
|
$ |
289,930 |
|
$ |
357,324 |
|
18
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
10. |
Mineral properties, plant and equipment (continued) |
| |
Transfers of construction-in-progress for the year ended December 31, 2014 and 2013, to mineral properties, plant and equipment are comprised as follows: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Opening balance of Construction-in-progress |
$ |
5,749 |
|
$ |
87,255 |
|
| |
Additions: |
|
|
|
|
|
|
| |
Copper phase plant and equipment |
|
- |
|
|
28,764 |
|
| |
Tailings dam |
|
2,175 |
|
|
5,328 |
|
| |
Zinc phase construction |
|
16,283 |
|
|
421 |
|
| |
Balance before transfers |
|
24,207 |
|
|
121,768 |
|
| |
Copper phase assets transferred to Plant and equipment |
|
- |
|
|
(116,019 |
) |
| |
Tailings dam assets transferred to Plant and equipment |
|
(7,503 |
) |
|
- |
|
| |
Closing balance of Construction-in-progress |
$ |
16,704 |
|
$ |
5,749 |
|
| |
|
|
|
|
|
|
|
| |
Assets transferred from Construction-in-progress to Plant and equipment |
$ |
7,503 |
|
$ |
116,019 |
|
| |
Add (deduct) |
|
|
|
|
|
|
| |
Pre-commercial production sales credit |
|
(9,725 |
) |
|
(112,916 |
) |
| |
Capitalized pre-commercial operating costs |
|
6,287 |
|
|
76,217 |
|
| |
Deferred stripping transferred to mineral properties |
|
- |
|
|
(5,176 |
) |
| |
Operational spares transferred to inventory |
|
(3,994 |
) |
|
- |
|
| |
Assets transferred to plant and equipment |
$ |
71 |
|
$ |
74,144 |
|
| |
As at December 31, 2014, plant and equipment includes $nil (2013 - $4,532) of capitalized pre-commercial production copper concentrate inventory, and finance leased assets with a net book value of $4,710 (2013 - $4,271). As at December 31, 2014, the Company had commitments to purchase property, plant and equipment of $25,765, related primarily to the zinc phase expansion. |
|
11.
|
Accounts payable and accrued liabilities
|
| |
|
|
2014 |
|
|
2013 |
|
| |
Trade accounts payable |
$ |
33,723 |
|
$ |
18,705 |
|
| |
Accrued royalties |
|
7,201 |
|
|
4,629 |
|
| |
Accrued liabilities |
|
13,245 |
|
|
7,453 |
|
| |
|
$ |
54,169 |
|
$ |
30,787 |
|
| |
Included in accrued liabilities are incentive amounts due to employees (RSUs, PSUs) of $1,364 (December 31, 2013 - $50) and directors (DSUs) of $1,999 (December 31, 2013 – nil). The Company recorded $1,856 (2013 - $50) for RSUs and PSUs and $1,999 (2013 – nil) for DSUs in administrative expenses. |
19
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
| |
Income tax expense was recorded for income earned in the years ended December 31, 2014 and 2013, as follows. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Current income tax expense |
$ |
(85,759 |
) |
$ |
(20,702 |
) |
| |
Deferred income tax expense |
|
(26,718 |
) |
|
(9,484 |
) |
| |
Income tax expense |
$ |
(112,477 |
) |
$ |
(30,186 |
) |
| |
(b)
|
Reconciliation of income taxes
|
| |
A reconciliation of the income tax expense to the amount calculated using the Company’s statutory tax rate is as follows: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Income tax expense at statutory rate of 26.0% |
$ |
(72,551 |
) |
$ |
(15,960 |
) |
| |
Tax effect of: |
|
|
|
|
|
|
| |
Difference in tax rates of foreign jurisdictions(1)
|
|
(34,982 |
) |
|
(8,063 |
) |
| |
Benefit of tax losses not recognized |
|
(2,331 |
) |
|
(2,753 |
) |
| |
Non-deductible and other items |
|
(2,613 |
) |
|
(3,410 |
) |
| |
|
$ |
(112,477 |
) |
$ |
(30,186 |
) |
| |
(1) The Eritrean statutory mining income tax rate is 38%. |
| |
(c)
|
Recognized deferred tax assets and liabilities
|
| |
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Deferred tax assets |
|
|
|
|
|
|
| |
Losses carried forward |
$ |
136 |
|
$ |
951 |
|
| |
|
|
|
|
|
|
|
| |
Deferred tax liabilities |
|
|
|
|
|
|
| |
Mineral properties, plant and equipment |
|
(57,042 |
) |
|
(31,139 |
) |
| |
Net deferred tax liabilities |
$ |
(56,906 |
) |
$ |
(30,188 |
) |
| |
(d)
|
Unrecognized tax losses and tax assets
|
| |
At December 31, 2014, the Company has available losses for income tax purposes in Canada totaling approximately $44,738 (2013 - $41,343) and losses carried forward in foreign jurisdictions of approximately $6,874 (2013 - $6,764) which, if not utilized to reduce income in future periods, expire through 2029. The benefits of these available tax losses and tax assets have not been recognized. Access to the losses carried forward in the future may be restricted. |
| |
Deferred tax assets have not been recognized in respect of the following items: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Mineral properties, plant and equipment |
$ |
6,529 |
|
$ |
5,741 |
|
| |
Tax losses carried forward |
|
53,006 |
|
|
49,561 |
|
| |
|
$ |
59,535 |
|
$ |
55,302 |
|
20
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
13.
|
Provision for mine closure and reclamation
|
| |
|
|
2014 |
|
|
2013 |
|
| |
Balance, beginning of year |
$ |
23,614 |
|
$ |
18,013 |
|
| |
Accretion |
|
1,203 |
|
|
882 |
|
| |
Additional liability |
|
9,379 |
|
|
4,719 |
|
| |
Balance, end of year |
$ |
34,196 |
|
$ |
23,614 |
|
| |
The Company’s provision for mine closure and reclamation consists of costs accrued based on the current best estimate of mine closure and reclamation activities that will be required at the Bisha and Harena sites upon completion of mining. These activities include costs for earthworks, including land re-contouring and re-vegetation, water treatment and demolition. The Company’s provision for future site closure and reclamation costs is based on the level of known disturbance at the reporting date, known legal requirements and cost estimates prepared by a third party specialist. |
| |
During 2012 estimates prepared by the third-party specialist were updated to include the Harena mining license area as well as increases in cost estimates for certain reclamation activities. This report was updated internally as at December 31, 2014, to reflect additional disturbances incurred during the 2014 year. Management used a pre-tax discount rate of 4.57% and an inflation factor of 3.0% in preparing the Company’s provision for mine closure and reclamation. Although the ultimate amount to be incurred is uncertain, based on development, legal requirements and estimated costs as at December 31, 2014, the undiscounted inflation-adjusted liability for provision for mine closure and reclamation is estimated to be approximately $50,400 (December 31, 2013 – $37,000), the increase in the obligation resulting from an increase to the impact area of the mine as well as an increase to cost assumptions for various closure activities. The cash expenditures are expected to occur over a period of time extending several years after the projected closure of the Bisha and Harena sites. Accretion expense of $1,203 (2013 – $882) is recorded in finance costs. |
| |
(a)
|
Authorized share capital consists of an unlimited number of common shares without par value.
|
| |
The Company’s ability to grant stock options under its former stock option plan (the Former Plan) expired April 27, 2012. A new stock option plan (the New Plan) was approved by shareholders at a Special Meeting on September 5, 2012. The Former Plan remains in existence until all outstanding options have been exercised, cancelled or otherwise expired. As at December 31, 2014, 6,312,500 options issued under the Former Plan remain outstanding. |
| |
In accordance with the Company’s intention to reduce the cost of an equity based plan to shareholders, the New Plan is more restrictive than the Former Plan in the number of shares which can be issued (maximum 6.75% of issued and outstanding shares, versus 10% in the Former Plan) and the length of time before expiry (5 years, versus 10 years in the Former Plan). |
| |
The Company has recorded the fair value of all options granted using the Black-Scholes model. Share-based payment costs are amortized over vesting periods ranging between one and three years. During 2014, share-based payments costs were calculated using the following weighted average assumptions: expected life of option 4.1 years (2013 – 3.3 years), stock price volatility 55% (2013 – 59%), dividend yield 3.8% (2013 – 4.3%) and a risk-free interest rate yield of 1.3% (2013 – 1.3%). The fair value is particularly impacted by the Company’s stock price volatility. |
| |
The year ended December 31, 2014, includes $2,185 (2013 - $2,835) in share-based payment costs related to stock options, $2,152 (2013 - $2,825) of which were presented in administrative expenses and $33 (2013 – $10) in operating expenses. |
21
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
14. |
Share capital (continued)
|
| |
(b)
|
Stock options (continued)
|
| |
|
|
Number of options |
|
|
Weighted average exercise price (CAD) |
|
| |
Outstanding, December 31, 2012 |
|
10,857,500 |
|
$ |
4.08 |
|
| |
Granted |
|
2,006,000 |
|
|
3.44 |
|
| |
Exercised as stock options |
|
(325,000 |
) |
|
1.49 |
|
| |
Exercised as stock appreciation rights |
|
(250,000 |
) |
|
3.53 |
|
| |
Forfeited |
|
(1,150,000 |
) |
|
5.09 |
|
| |
Outstanding, December 31, 2013 |
|
11,138,500 |
|
|
3.95 |
|
| |
Granted |
|
1,853,500 |
|
|
4.18 |
|
| |
Exercised as stock options |
|
(345,000 |
) |
|
2.02 |
|
| |
Forfeited |
|
(465,000 |
) |
|
5.09 |
|
| |
Outstanding, December 31, 2014 |
|
12,182,000 |
|
$ |
4.00 |
|
| |
Type |
Range of exercise
price (CAD) |
|
Number of options |
|
Average remaining
life in years |
|
| |
Vested (exercisable) |
$3.14–$4.81 |
|
7,298,667 |
|
1.5 |
|
| |
Vested (exercisable) |
$5.68–$6.34 |
|
1,862,500 |
|
1.1 |
|
| |
Unvested |
$3.28–$4.40 |
|
3,020,833 |
|
4.4 |
|
| |
Total |
|
|
12,182,000 |
|
2.2 |
|
| |
The weighted average share price of the Company on the dates options were exercised in 2014 was CAD $4.18 (2013 – CAD $3.38). The weighted average price of options exercisable at the end of the year was CAD $4.05 (December 31, 2013 – CAD $4.04). |
| |
(c)
|
Stock appreciation rights
|
| |
At December 31, 2014, $654 (December 31, 2013 - $1,369) was recorded in accounts payable and accrued liabilities to account for the liability associated with cash-settled SARs. All SARs that were eligible to be settled in either cash or equity, at the option of the holder, were exercised prior to their expiry in August 2014. The intrinsic value of vested SARs outstanding as at December 31, 2014, is $561.
During the year ended December 31, 2014, the Company recorded $23 in administrative expenses related to changes in the fair value of the stock appreciation rights during the year (2013 – $352). |
| |
(d)
|
Shares reserved for issuance (fully diluted)
|
| |
|
|
Number of shares |
|
| |
Issued and fully paid at December 31, 2014 |
|
199,652,802 |
|
| |
Reserved for options (note 14(b)) |
|
12,182,000 |
|
| |
Shares reserved for issuance (fully diluted) at December 31, 2014 |
|
211,834,802 |
|
22
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
14. |
Share capital (continued) |
| |
The calculations of earnings per share is based on the following data: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Net income attributable to Nevsun shareholders |
$ |
93,394 |
|
$ |
12,857 |
|
| |
Effect of dilutive securities: |
|
|
|
|
|
|
| |
Change in stock appreciation rights liability |
|
175 |
|
|
(616 |
) |
| |
Diluted net income attributable to Nevsun shareholders |
$ |
93,569 |
|
$ |
12,241 |
|
| |
Weighted average number of common shares outstanding for the purpose of basic earnings per share (000s) |
|
199,469 |
|
|
199,147 |
|
| |
Dilutive options and SARs |
|
1,268 |
|
|
798 |
|
| |
Weighted average number of common shares outstanding for the purpose of diluted earnings per share (000s) |
|
200,737 |
|
|
199,945 |
|
| |
Earnings per share |
|
|
|
|
|
|
| |
Basic |
$ |
0.47 |
|
$ |
0.06 |
|
| |
Diluted |
$ |
0.47 |
|
$ |
0.06 |
|
| |
Basic earnings per share is computed by dividing the net income or net income attributable to Nevsun shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of outstanding SARs and stock options in the weighted average number of common shares outstanding during the year, if dilutive. |
|
15.
|
Interest in subsidiary
|
| |
The following table presents the financial position of the Company’s 60% owned subsidiary, BMSC, as at December 31, 2014 and 2013. The information is presented on a 100% basis. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Current assets |
$ |
156,122 |
|
$ |
152,522 |
|
| |
Non-current assets |
|
372,145 |
|
|
332,870 |
|
| |
|
|
|
|
|
|
|
| |
Current liabilities |
|
(47,501 |
) |
|
(32,232 |
) |
| |
Non-current liabilities |
|
(90,017 |
) |
|
(53,463 |
) |
| |
Net assets |
$ |
390,749 |
|
$ |
399,697 |
|
| |
Net assets attributable to non-controlling interest |
$ |
156,300 |
|
$ |
159,879 |
|
| |
The following table presents the financial results of BMSC for the years ended December 31, 2014 and 2013, respectively: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Revenues |
$ |
555,012 |
|
$ |
155,698 |
|
| |
Net income and comprehensive income |
|
182,927 |
|
|
40,993 |
|
| |
Net income and comprehensive income attributable to non-controlling interest |
$ |
73,171 |
|
$ |
16,397 |
|
| |
The following table presents the summary cash flow information of BMSC for the years ended December 31, 2014 and 2013, respectively: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Net cash provided by operating activities |
$ |
227,061 |
|
$ |
25,702 |
|
| |
Net cash used in investing activities |
|
(2,058 |
) |
|
(85,856 |
) |
| |
Net cash provided by (used in) financing activities |
|
(210,453 |
) |
|
33,250 |
|
| |
Increase (decrease) in cash and cash equivalents |
$ |
14,550 |
|
$ |
(26,904 |
) |
23
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
| |
|
|
2014 |
|
|
2013 |
|
| |
Copper concentrate sales |
$ |
544,232 |
|
$ |
- |
|
| |
Copper concentrate by-product sales |
|
60,323 |
|
|
- |
|
| |
Other |
|
5,467 |
|
|
2,008 |
|
| |
Treatment and refining charges |
|
(55,010 |
) |
|
- |
|
| |
Gold doré sales |
|
- |
|
|
153,690 |
|
| |
|
$ |
555,012 |
|
$ |
155,698 |
|
| |
For the year ended December 31, 2014, copper concentrate sales are net of provisional pricing and physical quantity adjustments of $30,522 (2013 – $nil). As at December 31, 2014, a 10% change to the underlying metals prices would result in a change in revenue and accounts receivable and payable of $17,424, based on the total quantities of metals in sales contracts for which the provisional pricing periods were not yet closed. Provisional pricing periods are typically one to four months after shipment (see also note 21). |
| |
Other revenue consists of high-grade precious metals ore shipped directly to buyers. |
| |
For the year ended December 31, 2014, the Company also recorded pre-commercial production copper sales of $9,275 (2013 – $112,916). When offset by pre-commercial production operating costs of $4,803 (2013 – $61,673), depreciation and amortization of $855 (2013 – $8,223), and royalties of $629 (2013 – $6,321), the resultant net credit of $3,438 (2013 – $36,699) was offset against copper phase plant and equipment costs. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Raw materials, consumables and supplies |
$ |
77,620 |
|
$ |
61,669 |
|
| |
Employment, benefits and contractors |
|
42,404 |
|
|
40,729 |
|
| |
Transport, port and shipping |
|
68,408 |
|
|
24,999 |
|
| |
Repairs and maintenance |
|
11,488 |
|
|
7,039 |
|
| |
Overheads |
|
9,249 |
|
|
9,054 |
|
| |
Changes in inventories |
|
(9,844 |
) |
|
(18,969 |
) |
| |
Pre-commercial production operating expenses capitalized |
|
(4,803 |
) |
|
(61,673 |
) |
| |
|
$ |
194,522 |
|
$ |
62,848 |
|
|
18.
|
Administrative expenses
|
| |
|
|
2014 |
|
|
2013 |
|
| |
Salaries and employee benefits |
$ |
5,912 |
|
$ |
5,555 |
|
| |
Share-based payments |
|
2,174 |
|
|
3,127 |
|
| |
Long-term incentives |
|
3,855 |
|
|
50 |
|
| |
Business development |
|
1,491 |
|
|
1,912 |
|
| |
Other |
|
3,931 |
|
|
3,893 |
|
| |
|
$ |
17,363 |
|
$ |
14,537 |
|
| |
As of December 31, 2014, the Company had the following contractual obligations: |
| |
|
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
Over 5 years |
|
| |
Purchase commitments and contractual obligations |
$ |
45,813 |
|
$ |
45,813 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| |
Mine closure and reclamation |
|
50,400 |
|
|
600 |
|
|
1,400 |
|
|
1,200 |
|
|
47,200 |
|
| |
Minimum operating lease payments |
|
4,971 |
|
|
4,722 |
|
|
249 |
|
|
- |
|
|
- |
|
| |
Total contractual obligations |
$ |
101,184 |
|
$ |
51,135 |
|
$ |
1,649 |
|
$ |
1,200 |
|
$ |
47,200 |
|
24
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
19. |
Commitments (continued) |
| |
The Company has arranged an annually renewable environmental bond for the Bisha Project for $15,000 at a cost of 1% per annum. |
| |
The Company conducts its business as a single operating segment being the mining business in Africa. All mineral properties and equipment are situated in Africa. |
|
21.
|
Financial instruments and risk management
|
| |
Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. |
| |
The Company has exposure to the following risks from its use of financial instruments:
- market risk,
- credit risk, and
- liquidity risk.
|
| |
This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, procedures and processes for measuring and managing risk, and the Company’s management of capital. |
| |
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management procedures are established to identify and analyze the risks faced by the Company. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. |
| |
The Company’s Audit Committee oversees how management monitors compliance with the Company’s financial risk management procedures and processes and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. |
| |
Market risk is the risk that changes in market prices, such as foreign exchange rates, commodity prices, interest rates, fuel prices and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on capital. |
| |
The Company is subject to price risk fluctuations in market prices of copper, gold, and silver, and the profitability of the Company’s operations is highly correlated to the market prices of these metals. Historically, copper, gold, and silver prices have fluctuated widely and are affected by numerous factors outside the Company’s control. |
| |
The Company is subject to price risk from these fluctuations for sales that have not yet settled as of the balance sheet date. The commodity price risk associated with financial instruments relates to changes in fair value caused by final pricing adjustments to receivables for these metals. |
25
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
21. |
Financial instruments and risk management (continued) |
| |
(a)
|
Market risk (continued)
|
| |
(i)
|
Metals price risk (continued)
|
| |
The Company has not hedged any of its concentrate sales. The quantities of payable copper, gold, and silver subject to final settlement as at December 31, 2014, and the weighted average forward prices per pound or ounce used to value the related receivables are as follows: |
| |
|
|
2014 |
|
| |
|
|
Quantity
(000s payable
pounds) |
|
|
Weighted average
forward price per
pound |
|
| |
Copper subject to final settlement |
|
56,430 |
|
$ |
2.87 |
|
| |
|
|
Quantity
(payable ounces |
) |
|
Weighted average
forward price per
ounce |
|
| |
Gold subject to final settlement |
|
5,771 |
|
$ |
1,199 |
|
| |
Silver subject to final settlement |
|
325,267 |
|
$ |
15.97 |
|
| |
Sales of copper concentrate are recognized on a provisional pricing basis when risks and rewards, transfers and the rights and obligations of ownership pass to the customer, which usually occurs on shipment. However, the final pricing for the product sold and purchased is not determined at that time as it is contractually linked to market prices on a subsequent date. These arrangements have the characteristics of a derivative instrument as the value of the related receivables will vary as the price for the underlying commodity varies in the metal markets. These pricing adjustments result in gains in a rising price environment and losses in a declining price environment and are recorded as a change in revenue at each balance sheet date and at final settlement. The effect on revenue and accounts receivable and payable of a 10% change to the underlying metals prices is disclosed in note 16. |
| |
Fuel consumption comprises a significant portion of the Company’s operating expenses and the Company is therefore subject to fuel price risk on fluctuations of the market price of diesel. Based on an estimated 40 million litres of diesel fuel, a $0.10 change in the price per litre of fuel would have a $4 million impact on earnings. |
| |
The Company’s functional currency is the United States dollar (USD). The Eritrean nakfa (ERN) is directly tied to the USD and therefore does not present a foreign exchange risk in terms of the functional currency. The Company is exposed to currency risk on settlements of purchases that were denominated in currencies other than the functional currency. Historically the currency exposures are primarily to the Canadian dollar (CAD), South African rand (ZAR), Australian dollar (AUD), and Euro (EUR). |
26
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
21. |
Financial instruments and risk management (continued) |
| |
(a)
|
Market risk (continued)
|
| |
(iii)
|
Currency risk (continued)
|
| |
The following is a break-down of financial assets and liabilities denominated in foreign currencies to which the Company is exposed: |
| |
|
|
2014 |
|
| |
|
|
CAD |
|
|
ZAR |
|
|
AUD |
|
|
EUR |
|
| |
Cash and cash equivalents |
|
297 |
|
|
1,870 |
|
|
- |
|
|
- |
|
| |
Accounts receivable |
|
168 |
|
|
23 |
|
|
- |
|
|
- |
|
| |
Payables and accruals |
|
(8,305 |
) |
|
(314 |
) |
|
(203 |
) |
|
(1,501 |
) |
| |
Net financial assets (liabilities) |
|
(7,840 |
) |
|
1,579 |
|
|
(203 |
) |
|
(1,501 |
) |
| |
USD foreign exchange rate |
|
0.86 |
|
|
0.09 |
|
|
0.82 |
|
|
1.22 |
|
| |
Balance sheet exposure in equivalent USD |
|
(6,753 |
) |
|
136 |
|
|
(166 |
) |
|
(1,825 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2013 |
|
| |
|
|
CAD |
|
|
ZAR |
|
|
AUD |
|
|
EUR |
|
| |
Cash and cash equivalents |
|
198 |
|
|
766 |
|
|
- |
|
|
- |
|
| |
Accounts receivable |
|
116 |
|
|
120 |
|
|
- |
|
|
- |
|
| |
Payables and accruals |
|
(2,278 |
) |
|
(2,292 |
) |
|
(220 |
) |
|
(135 |
) |
| |
Net financial assets (liabilities) |
|
(1,964 |
) |
|
(1,406 |
) |
|
(220 |
) |
|
(135 |
) |
| |
USD foreign exchange rate |
|
0.94 |
|
|
0.10 |
|
|
0.89 |
|
|
1.38 |
|
| |
Balance sheet exposure in equivalent USD |
|
(1,846 |
) |
|
(134 |
) |
|
(195 |
) |
|
(186 |
) |
| |
Currency risk sensitivity analysis |
| |
A 10 percent strengthening (weakening) of the US dollar against the above currencies at December 31 would have increased (decreased) net income by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant: |
| |
|
|
2014 |
|
|
2013 |
|
| |
CAD |
$ |
675 |
|
$ |
185 |
|
| |
ZAR |
|
14 |
|
|
13 |
|
| |
AUD |
|
17 |
|
|
19 |
|
| |
EUR |
|
182 |
|
|
19 |
|
| |
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s financial assets. |
| |
The Company limits its exposure to credit risk by only investing in highly liquid securities and only with counterparties that have a strong credit rating. Given these high credit ratings, management does not expect any counterparty to fail to meet its obligations. |
| |
The Company’s accounts receivable are due primarily from the smelters and other customers to which the Company sells copper concentrate and have maximum settlement periods of approximately four months. Management does not expect these counterparties to fail to meet their obligations. |
27
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
21. |
Financial instruments and risk management (continued) |
| |
(b)
|
Credit risk (continued)
|
| |
(iii)
|
Due from non-controlling interest
|
| |
Due from non-controlling interest is collected from ENAMCO with collection terms based on cash flow from the Bisha Mine with a guarantee from the State of Eritrea for any shortfall. Management expects that Bisha Mine cash flow will be sufficient to allow collection from the non-controlling interest. |
| |
(iv)
|
Exposure to credit risk
|
| |
The carrying amount of financial assets represents the maximum credit exposure. Cash and cash equivalents held by the Company have contractual maturities of less than 90 days. The maximum exposure to credit risk at the reporting date was: |
| |
|
|
2014 |
|
|
2013 |
|
| |
Cash and cash equivalents |
$ |
442,418 |
|
$ |
302,724 |
|
| |
Due from non-controlling interest |
|
48,483 |
|
|
83,194 |
|
| |
Accounts receivable |
|
20,571 |
|
|
44,073 |
|
| |
|
$ |
511,472 |
|
$ |
429,991 |
|
| |
The Company does not have any amounts receivable that it considers impaired or otherwise uncollectible. |
| |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquid funds to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. |
| |
Typically the Company ensures that it has sufficient cash on hand to meet expected operational expenses including the servicing of financial obligations, if any; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. |
| |
The contractual financial liabilities of the Company as of December 31, 2014, equal $54,169 (December 31, 2013 - $30,787). The undiscounted cash flows of the liabilities are equal to their contractual amounts. Substantially all of the liabilities presented as accounts payable and accrued liabilities are due within ninety days of December 31, 2014. |
| |
(d)
|
Fair value versus carrying amounts
|
| |
The carrying amount of financial assets and liabilities carried at amortized cost is a reasonable approximation of fair value. |
| |
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The capital of the Company consists of equity attributable to Nevsun shareholders and amounts related to non-controlling interest. |
| |
The Company manages its capital structure and makes adjustments in light of the changes in its economic environment and the risk characteristics of the Company’s assets. To effectively manage the Company’s capital requirements, the Company has in place a planning, budgeting and forecasting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. |
28
NEVSUN RESOURCES LTD.
Notes to Consolidated Financial Statements
(Expressed in thousands of United States dollars, unless otherwise stated)
Years ended December 31, 2014 and 2013 |
|
23.
|
Key management personnel compensation
|
| |
Key management personnel consists of directors, executive officers, management at a vice president level and the Bisha Mine General Manager. |
| |
|
|
2014 |
|
|
2013 |
|
| |
Salaries, directors fees and other short-term benefits |
$ |
5,545 |
|
$ |
5,224 |
|
| |
Share-based payments |
|
1,820 |
|
|
2,136 |
|
| |
Long-term incentives |
|
3,980 |
|
|
50 |
|
| |
Total key management personnel compensation |
$ |
11,345 |
|
$ |
7,410 |
|
| |
A lawsuit was filed in the Supreme Court of British Columbia against the Company (the "Araya Lawsuit") on November 20, 2014, by three plaintiffs who claim to have once worked with a local sub-contractor at the Bisha Mine. The plaintiffs claim that the Company is legally responsible for breaches of customary international law and British Columbia law for conduct allegedly engaged in by the local sub-contractor and the Eritrean Military. The plaintiffs are also claiming the right to bring the action in a representative capacity on behalf of certain persons who they allege were forced to work at the Bisha Mine (the “Group Members”). The plaintiffs claim general, aggravated and punitive damages for themselves and for the Group Members. No amount of damages is required to be quantified by the plaintiffs at this time. No trial date has been set. |
| |
It is not possible at this time to estimate the outcome of the Araya Lawsuit. The Company denies the allegations and will vigorously defend itself in this matter. No amounts have been recorded for any potential liability arising from this matter, as the Company cannot reasonably predict the outcome. |
| |
(b)
|
Putative class action complaints
|
| |
During May 2014 and July 2014 the Company settled with United States and Canadian plaintiffs, respectively, two related securities class actions initiated during 2012. Settlement agreements release the Company and all its related parties from any claims described in these class actions. The Canadian and US settlements received final court approval on October 6, 2014 and January 22, 2015, respectively. Both settlements were funded entirely by the Company’s insurance carriers. |
29
MANAGEMENT’S DISCUSSION & ANALYSIS – FISCAL 2014
This Management’s Discussion and Analysis (MD&A) was prepared
by management as at February 25, 2015, and was reviewed and approved by the Board
of Directors. The following discussion of performance, financial condition
and future prospects should be read in conjunction with the audited annual consolidated
financial statements of Nevsun Resources Ltd. and notes thereto for the year
ended December 31, 2014. All references in this MD&A to “Nevsun” or the
“Company” include Nevsun Resources Ltd. and each of its wholly and partially
owned subsidiaries on a consolidated basis, unless otherwise stated. The
information provided herein supplements but does not form part of the
financial statements. This discussion covers the year and the subsequent
period up to the date of issue of this MD&A. Unless otherwise noted, all
dollar amounts are stated in thousands of United States dollars, except per
ounce, per tonne, per pound, per litre and per share data. Information on
risks associated with investing in the Company’s securities as well as
information about mineral resources and reserves under National Instrument
43-101 are contained in the Company’s most recently filed Annual Information
Form which is available on the Company’s website at www.nevsun.com or on SEDAR at
www.sedar.com.
2
Nevsun Resources Ltd. and its
subsidiaries (collectively, Nevsun or the Company) are engaged in the
acquisition, exploration, development and operation of mineral property
interests. Nevsun is a public company which is listed on the TSX and the
NYSE MKT LLC, under the trading symbol “NSU”. Nevsun was incorporated under
the laws of the Province of British Columbia under the Company Act (British
Columbia), is currently governed by the Business Corporations Act (British
Columbia) and maintains its head office at Suite 760 – 669 Howe Street,
Vancouver, British Columbia, Canada, V6B 0C4 and its registered and records
office at 1000 – 840 Howe Street, Vancouver, British Columbia, Canada, V6Z
2M1 and its website address is www.nevsun.com.
The Company’s principal mining operation is the Bisha
Mine and the Company’s principal mineral property is the Bisha Property owned
by Bisha Mining Share Company (BMSC), an Eritrean registered corporation.
Nevsun is a 60% shareholder of BMSC with the remaining 40% ownership in BMSC
held by the State-owned Eritrean National Mining Corporation (ENAMCO). BMSC
is governed under the terms of a shareholder agreement between Nevsun and
ENAMCO. Under Eritrean Mining Law, ENAMCO initially held a 10% free carried
interest in the property. In October 2007, ENAMCO agreed to purchase an
additional 30% interest in BMSC, the terms of which were finalized in 2011.
BMSC was granted a 20 year mining license for the Bisha project on December
12, 2007. BMSC was granted a 10 year mining license for the Harena property on
July 6, 2012. BMSC renewed the Mogoraib River exploration license in Q3 2014
which includes the Hambok deposit. This exploration license is valid until
July 2, 2015, but can be extended subject to a license renewal application.
The Bisha Mine hosts a gold, copper and zinc deposit and
the overall Bisha district includes satellite VMS deposits known as Harena,
Northwest and Hambok. The Bisha Mine was in commercial production of gold
from February 2011 to June 2013 which allowed an early payback of gold phase
capital and allowed for funding of the copper phase expansion. Commissioning
of the copper flotation plant at the Bisha Mine commenced in late June 2013
and achieved commercial production for accounting purposes on December 1,
2013, as the Company determined the commissioning phase of the copper expansion
had been completed as the copper plant and facilities were operating in the
manner intended by management. Mining of the supergene copper ore is
expected to continue until the first half of 2016 at which time the Bisha
Mine plans to begin to process ore from the primary phase. The primary phase
ore contains a significant amount of zinc and copper. Construction of the
zinc plant began in 2014 with the zinc plant scheduled for commissioning in
the first half of 2016. The Bisha Mine has the full support of the Eritrean
Government.
- Exceeded 21.6 million
hours without a lost time injury (now over 3 years without an LTI)
- Earnings per share of
$0.47
- Cash provided by operating activities of $217 million
- Working capital of $520
million, including $442 million of cash
- Produced 196 million
pounds of copper in concentrate against guidance of 180 to 200 million pounds
- Achieved industry
lowest quartile C1 cash costs(1) of $1.05 per pound
- Executed a successful
27,300 metre exploration program
- Progressed zinc plant
expansion – on time and on budget
- Announced a 14% increase
to the annualized dividend, from $0.14 to $0.16 per share (approximately 34%
of earnings per share)
(1) C1 cash cost per pound is a non-GAAP measure – see page 19 of the 2014 Annual MD&A for discussion of non-GAAP measures.
3
| |
|
Q4 2014 |
|
|
Q3 2014 |
|
|
Q2 2014 |
|
|
Q1 2014 |
|
|
2014 |
|
| Revenues (millions) |
$ |
138.7 |
|
$ |
147.9 |
|
$ |
169.2 |
|
$ |
99.2 |
|
$ |
555.0 |
|
| Operating income (millions) |
|
70.3 |
|
|
78.1 |
|
|
94.9 |
|
|
52.0 |
|
|
295.3 |
|
| Net income (millions) |
|
40.1 |
|
|
44.6 |
|
|
53.7 |
|
|
28.2 |
|
|
166.6 |
|
| Net income attributable to Nevsun shareholders (millions) |
|
21.9 |
|
|
25.5 |
|
|
30.5 |
|
|
15.5 |
|
|
93.4 |
|
| Basic earnings per share attributable to Nevsun shareholders |
|
0.11 |
|
|
0.13 |
|
|
0.15 |
|
|
0.08 |
|
|
0.47 |
|
| Working capital (millions) |
|
520.0 |
|
|
519.0 |
|
|
497.8 |
|
|
462.2 |
|
|
520.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Copper price realized, per payable pound sold |
|
2.87 |
|
|
2.98 |
|
|
3.21 |
|
|
3.01 |
|
|
3.02 |
|
| C1 cash cost per payable pound sold (1)
|
$ |
1.07 |
|
$ |
1.07 |
|
$ |
1.05 |
|
$ |
0.98 |
|
$ |
1.05 |
|
2015 Objectives
-
Maintain top quartile
safety performance and social license to operate
Produce 160 to 175
million pounds of copper at C1 cash costs(1) of $1.20 to $1.40 per
pound payable
- Extend the Bisha mine
life through exploration and optimize mine plan
- Keep zinc expansion
project on time and on budget for H1 2016 commissioning
- Opportunistically
monetize stockpiled gold ore
- Continue to pay peer
leading dividends
- Continue to pursue
M&A opportunities supported by our strong balance sheet
We are in the process of preparing our 2014 Corporate
Social Responsibility (CSR) report and it will include detailed disclosure on
key strategies we employ and the key metrics we use to monitor progress in
this area. BMSC will continue its ongoing efforts to provide training at its
Bisha operations, employment opportunities and localization in Eritrea to
promote and enhance our collective corporate social responsibility program
initiatives to reflect evolving international standards.
BMSC expects to produce between 160 and 175 million
pounds of copper in concentrate in 2015 through the processing of
approximately 2,300,000 tonnes of ore from the Bisha Main pit averaging about
3.9 percent copper feed grade. We expect our C1 cash cost(1) for
2015 will be $1.20 to $1.40 per payable pound sold. Key assumptions include a
delivered diesel fuel price of $1.13 per litre and by-product revenues based
on $1,100 per ounce of gold and $15 per ounce of silver. We expect there may
be some opportunity to improve on these assumptions.
As a result of the successful regional exploration
program in 2014, the Company announced a revised mineral resource on February
3, 2015. The primary change to the current estimate revolved around the
successful southern down-dip drilling at the Harena deposit announced over
the last half of 2014. The accompanying mineral reserve as a subset of this
mineral resource was impacted mainly by mine depletion, updated reverse
circulation drilling in 2014 creating an improved understanding of the
supergene to primary transition zone, and an opportunity to further deepen
the Bisha main pit in the primary zone. As disclosed in the 2014 Annual
Information Form, apart from mine depletion during 2014, the Company identified a further 30 million pounds of copper and 300 million pounds of zinc in mineral reserves. Commencing
in early Q2 2015 an independent mining engineering firm will assist in
further optimizing the life of mine production schedule which will include
scoping work for potential underground mining scenarios at the Hambok, Bisha
Main and Harena deposits.
The zinc expansion remains on track for commissioning by
mid-2016. We are confident the total capital costs will not exceed the
budget estimate of $89.5 million. Our sustaining and expansion capital
expenditures are expected to range from $20 to $30 million in 2015. The
Company has made a strategic decision to increase the capacity of the mining
fleet to mitigate any potential risk on delayed waste mining and to provide
us with greater flexibility to increase tonnes mined in future years should
zinc prices increase.
(1) C1 cash cost per pound is a non-GAAP measure – see page 19 of the 2014 Annual MD&A for discussion of non-GAAP measures.
4
A further $10 million in exploration investment is
planned for 2015. Key 2015 exploration objectives, which will be prioritized
on a success basis for additional work, include:
- Expanding and upgrading the resource at Harena through drilling
and down-hole geophysics;
- Drilling high priority targets at depth and on strike from
Bisha Main; and
- Continued testing of high priority greenfield targets on the
Mogoraib River exploration license.
We expect to drill in excess of 25,000 metres during the
year.
The Company has considerable additional value held in
stockpiles to be monetized. This includes 6,500 tonnes of precious metals
concentrate containing about 7,000 ounces of gold with high silver content,
which will be monetized in 2015. The Company has also mined and stockpiled
approximately 130,000 tonnes of oxide ore at over 5 g/t Au containing over
20,000 ounces of gold. In addition, nearly 400,000 tonnes of pyrite sand
material estimated to contain over 60,000 ounces of gold with significant
silver content has been stockpiled. Over half of these contained ounces in
the pyrite sands are considered economic and the Company is finalizing
alternative methods to monetize this portion commencing in 2015. Further
economic assessment of the remaining pyrite sands will be performed over the
next 18 months.
The Company continues to dedicate significant management
time and effort for external growth. The Company’s approach to M&A is
based on capital discipline and staying true to our commitment of generating
a financial return on our investment for shareholders that will allow us to
maintain and grow our dividend in the future.
Key
operating information – Bisha Mine:
| |
|
Q4 2014 |
|
|
2014 |
|
|
Q4 2013(4)
|
|
|
2013(4)
|
|
| Ore mined, tonnes(1)
|
|
617,000 |
|
|
2,282,000 |
|
|
533,000 |
|
|
1,992,000 |
|
| Waste mined, tonnes |
|
3,380,000 |
|
|
12,277,000 |
|
|
2,664,000 |
|
|
9,038,000 |
|
| Strip ratio, (using tonnes) |
|
5.5 |
|
|
5.4 |
|
|
5.0 |
|
|
4.5 |
|
| Ore milled tonnes |
|
573,000 |
|
|
1,789,000 |
|
|
401,000 |
|
|
767,000 |
|
| Copper feed grade, % |
|
4.9 |
|
|
5.9 |
|
|
5.1 |
|
|
3.9 |
|
| Recovery, % of copper |
|
85.7 |
|
|
85.0 |
|
|
79.7 |
|
|
73.5 |
|
| Copper concentrate grade, %(2)
|
|
25.8 |
|
|
26.3 |
|
|
25.9 |
|
|
24.3 |
|
| Copper in concentrate produced, millions of pounds |
|
52.5 |
|
|
196.0 |
|
|
36.0 |
|
|
48.0 |
|
| Copper in concentrate produced, tonnes |
|
23,800 |
|
|
88,900 |
|
|
16,300 |
|
|
21,800 |
|
| Payable copper in concentrate sold, millions of pounds(3)
|
|
49.4 |
|
|
184.7 |
|
|
30.6 |
|
|
30.6 |
|
| Payable copper in concentrate sold, tonnes(3)
|
|
22,400 |
|
|
83,800 |
|
|
13,800 |
|
|
13,800 |
|
| (1)
|
Ore tonnes mined for the year ended December 31, 2014 included 225,000 tonnes of oxide ore including pyrite sand, 1,936,000 tonnes of supergene ore and 121,000 tonnes of primary ore. |
| (2)
|
When provisional adjustments for the quantity of contained copper sold, based on final assay results are considered, the realized copper grade for 2014 becomes 26.3%. |
| (3)
|
Q1 2014 included 4.5 million pounds or 2,000 tonnes (Q4 2013 – 30.6 million pounds or 13,800 tonnes) of pre-commercial production. Receipts from pre-commercial production sales were credited against mineral property, plant and equipment, net of cost of sales. |
| (4)
|
During Q3 2013 and most of Q4 2013, the Company was considered to be in pre-commercial production of its copper phase. For the year ended December 31, 2013, the Company milled 887,000 tonnes of oxide ore at 3.43 g/t Au at recovery of 79.4%, producing 92,000 ounces of gold in doré (Q4 2013 – 1,500) and selling 96,700 ounces of gold (Q4 2013 – 1,200) at a realized price per ounce of $1,471 (Q4 2013 – $1,246).
|
5
|
Results of operations for the
year ended December 31, 2014
|
Operating income
The Company generated operating income of $295.3 million
for the year ended December 31, 2014, which was an increase of $223.9 million
from 2013. The two years are not comparable as 2014 was the first full year
of commercial production of the supergene copper phase of the Bisha Mine.
The supergene copper phase is expected to continue until 2016 when the Bisha Mine
will enter into the primary phase. During the primary phase, the Bisha Mine will
produce both a copper and zinc concentrate. During 2013 there were six
months of gold oxide mining and five months of pre-commercial production of
the supergene copper phase.
Production and sales
The Company produced 196.0 million pounds of copper in
concentrate by processing approximately 1,789,000 tonnes of ore averaging
about 5.9% copper during 2014. The total 2014 production was at the high end
of our annual guidance of between 180 and 200 million pounds of copper in
concentrate.
We mined approximately 14,559,000 tonnes of total
material during 2014 at a 5.4 strip ratio. Of the 2,282,000 tonnes of ore
mined, 1,936,000 tonnes were supergene ore. The remaining tonnes related to 225,000
of oxide ore, including pyrite sand, and 121,000 of primary ore, all of which
have been stockpiled for future periods. The mining rate during 2014 was
sufficient to meet the plant capacity. We experienced lower than planned
mobile equipment availability throughout 2014 which negatively impacted our
strip of waste tonnes. During the fourth quarter, we mined nearly 4,000,000
tonnes of material demonstrating that improvements in the extraction of waste
material are beginning to take effect. The shortfall of waste movement is
not expected to affect 2015 copper ore production.
Copper feed grades significantly exceeded our
expectations due to a combination of positive metal reconciliation and a
variance to the original mine plan. The copper concentrator was designed for
an average copper feed grade of 4.5%. Accordingly, mill feeds were purposely
reduced in order to maintain good copper recoveries. Copper recoveries have
steadily increased throughout 2014 with an average recovery of 85.0%.
Accordingly the Company has been able to draw down its
copper concentrate stockpile to approximately 15,000 dry metric tonnes (DMT) containing
10 million pounds of copper from 25,000 DMT at Q3 2014 (15 million pounds of
copper). At December 31, 2014, a further 10 million pounds of copper (4,500
tonnes) are either at the port of Massawa or in-transit to a customer.
Similar to Q1 2014, the sale to this particular customer is not eligible for
revenue recognition but will be recorded in Q1 2015.
Cash costs
Our copper cash costs per payable pound sold for the
year was $1.05 which was firmly within our guidance of lowest quartile cash
costs for the industry. Cash costs have increased slightly each quarter as
our copper feed and copper concentrate grades have decreased throughout the
year. We have also experienced higher treatment and refining charges during
the second of half of 2014. Q1 2014 also included particularly higher
precious metal by-product credits.
Stockpiled material
The Company has considerable additional value held in
stockpiles that has yet to be monetized. The Company has already encountered
some primary zone material which has been stockpiled for the primary phase.
There are three other distinct types of stockpiled material.
There are approximately 6,500 tonnes of precious metals
concentrate containing an estimated 7,000 ounces of gold with high silver
content that will be monetized via a combination of direct sales and blending
with copper concentrate during 2015.
There are approximately 400,000 tonnes of pyrite sand material
that is estimated to contain over 60,000 ounces of gold with significant
silver content and 130,000 tonnes of oxide ore at over 5 g/t Au containing
over 20,000 ounces of gold. For precious metal concentrate, this material
will be sold in 2015 by either direct sales or blending with other material.
For the pyrite sands material, the Company is finalizing alternative methods
to best monetize this asset in the near term. Once a final decision has been
made, we will provide more detailed guidance on the estimated additional
value that can be extracted and the timing of the monetization. A blending
facility was purchased for minimal cost during 2014 to ensure we maximize the
value of this asset. With lower trucking needs expected in 2015 and the
existence of the blending facility, we believe a significant portion of the
higher grade pyrite sands containing approximately 50% of the estimated
contained ounces could be monetized over the next 18 months.
6
Exploration
The Company continues its exploration efforts in the
largely underexplored Bisha district. A key element of our organic growth
strategy is to leverage opportunities in the immediate mine area to optimize
and extend the mine life of Bisha. We believe these near term exploration
targets, which can be quickly permitted and could take advantage of existing
processing facilities, are an excellent allocation of capital.
In 2014, the Company spent $9.4 million to fund 27,300
meters of exploration diamond drilling (91 holes), 230 kilometers of ground
geophysics, geophysical surveying of 44 drill holes and 2,500 line kilometers
of airborne geophysics, in addition to other geological work. This total
includes $3.7 million of activities related to the Harena deposit, which are
classified as capitalized expenditures on mineral properties.
During Q4 2014, exploration drilling continued at the
Harena deposit. A total of 5,902 meters of diamond drilling was completed in
12 holes during the quarter. The Harena ore body is located approximately 10
kilometers south of the Bisha Mine and processing plant. A highlight during
the quarter was hole HX-040 which returned 1.78% Cu, 5.78% Zn, 0.53 g/t Au
and 31 g/t Ag over 32.0 meters including a section with 4.19% Cu over 11.90 meters
at a down hole depth of 407.2 meters. This hole encountered significantly
better grade than the average at Harena. Our work in 2014 has been
successful in extending the Harena deposit from a depth of 220 meters to
nearly 450 meters below surface while increasing strike length from 300
meters to 600 meters. Borehole geophysics indicates the deposit still has
further considerable down plunge extent that has yet to be drill tested.
Drilling will continue in 2015 to assess the excellent potential at Harena.
Significant drill results were obtained at Harena, and this work was incorporated
in a new resource estimate which was announced February 3, 2015.
The success achieved at Harena by combining the
understanding of host geology, mineralization and alteration with borehole
geophysics has led to a re-evaluation of our other deposits. In 2015, we
will continue to utilize this methodology in our exploration efforts at Bisha
and the Northwest deposits. Work will also continue to explore for
greenfield deposits on the Mogoraib River Exploration License initially
focusing in the Asheli area where there are a number of high potential
targets.
Bisha Zinc Expansion Plan
During 2014, the BMSC board approved the zinc expansion
phase budget for $89.5 million, including a $9.0 million contingency. The
commissioning of the plant is expected to be completed by the end of H1
2016. As at December 31, 2014, $51.4 million of the budget has been awarded
to contractors, of which $16.3 million has been incurred and a further $23.3
million committed.
The majority of the engineering for the flotation cells
and the IsaMill is complete, most procurement is arranged, civil works for
all required foundations are nearing completion and tenders have been
received for the required steel, mechanical, piping and platework, with the
contract award imminent. The owners’ team is now predominantly located on
site and principal construction with steel erection is soon to commence.
Updated Mineral Reserves and Resource Estimate
As announced on February 3, 2015, the Company has significantly expanded the mineral resource estimate at Harena based on the successful exploration efforts of 2014. As disclosed in the 2014 Annual Information Form, apart from mine depletion during 2014, the Company identified a further 30 million pounds of copper and 300 million pounds of zinc in mineral reserves. Details of the mineral reserves and resources are included in our Annual Information Form.
7
|
Results of operations for the
fourth quarter 2014
|
Operating income
The Company generated operating income of $70.3 million
for the quarter ended December 31, 2014. The Q4 2013 quarter is not
comparable as 2014 was the first full year of commercial production of the
supergene copper phase of the Bisha Mine. Quarterly operating income
decreased from Q3 2014 despite a 4% increase in volumes of DMT of copper sold
as copper feed grade and copper concentrate grades declined by 22% and 14%
respectively, which impacted unit cost. The other significant impact on Q4
2014 operating income was the lower realized copper prices which decreased by
2%.
Production and sales
The Company produced 52.5 million pounds of copper in
concentrate by processing approximately 617,000 tonnes of ore averaging about
4.9% copper. Q4 2014 was a strong quarter as we mined nearly 4.0 million
tonnes and achieved our highest quarterly plant throughput rate despite a
shutdown due to a power shortage in December. This result provides additional
confidence that the plant can run at its designed rate which will be required
in 2015 as the copper feed grades decrease.
Q4 2014 was the first quarter where we saw our copper
feed grades decrease below 6%. We have steadily increased the number of dry
metric tonnes (DMT) of copper concentrate sold, resulting in a total of 331,200
tonnes for 2014. The Q4 2014 total sold of 94,500 tonnes is a 4% increase
from the 90,900 tonnes sold in Q3 2014, resulting in sales of 49.4 million
pounds of payable copper.
Cash costs
Our copper cash costs per pound sold for the quarter was
$1.07, which was firmly within our guidance of lowest quartile cash costs for
the industry. Cash costs have increased slightly each quarter as our copper
feed and copper concentrate grades have decreased throughout the year. We
have incurred higher trucking costs during Q4 2014 as our copper concentrate
grades decreased to 25.8%. We saw our fuel charges decrease during Q4 2014
to an average of $1.00 per litre of diesel fuel delivered. We hope to see
further decreases in this cost in 2015.
8
|
Selected annual financial
information
|
The following annual
financial information for the years ended December 31, 2014, 2013, and 2012,
were prepared in accordance with International Financial Reporting Standards
(IFRS).
Fiscal years ended:
| In US $000s (except per share data) |
|
December 31,
2014 |
|
|
December 31,
2013(1) |
|
|
December 31,
2012 |
|
| Revenues |
$ |
555,012 |
|
$ |
155,698 |
|
$ |
566,039 |
|
| Operating income |
|
295,337 |
|
|
71,395 |
|
|
405,674 |
|
| Net income for the year |
|
166,565 |
|
|
29,254 |
|
|
246,696 |
|
| |
|
|
|
|
|
|
|
|
|
| Net income attributable to Nevsun shareholders |
$ |
93,394 |
|
$ |
12,857 |
|
$ |
145,262 |
|
| Earnings per share attributable to Nevsun shareholders – basic |
|
0.47 |
|
|
0.06 |
|
|
0.73 |
|
| Earnings per share attributable to Nevsun shareholders – fully diluted |
|
0.47 |
|
|
0.06 |
|
|
0.72 |
|
| |
|
|
|
|
|
|
|
|
|
| Cash |
$ |
442,418 |
|
$ |
302,724 |
|
$ |
396,404 |
|
| Working capital |
$ |
519,980 |
|
$ |
419,057 |
|
$ |
394,444 |
|
| Total assets |
$ |
986,686 |
|
$ |
870,860 |
|
$ |
873,696 |
|
| Total non-current liabilities |
$ |
91,102 |
|
$ |
53,802 |
|
$ |
38,717 |
|
| Dividends declared, per share |
$ |
0.145 |
|
$ |
0.140 |
|
$ |
0.100 |
|
| 1)
|
Copper commercial operations commenced December 1, 2013. Figures for the year ended December 31, 2013 only reflect gold phase operating results.
|
The following variances result when comparing operations
for the year ended December 31, 2014, with the same period of the prior year
(in US$000s, except per pound and per ounce data). Most of the variances for
revenues, operating expenses, royalties and depreciation and depletion are
attributable to the Company’s transition from a gold producer through
mid-2013 to a copper producer thereafter. Another important factor impacting
the results was the determination that the Company had achieved commercial
production for the copper phase on December 1, 2013.
Revenues
The Company’s revenues for the year ended December 31,
2014, of $555,012 (2013 – $155,698) are comprised of copper concentrate sales
of $544,232 (2013 - $nil), copper concentrate by-product sales of $60,323
(2013 - $nil), and other revenue of $5,467 (2013 - $2,008), net of copper concentrate
treatment and refining charges of $55,010 (2013 - $nil). Other revenue
consists of sales of high-grade precious metals ore directly to buyers and
price adjustments on those sales. Revenues for the year ended December 31,
2014, included sales of 180.2 million payable pounds of copper (2013 – nil)
at an average realized price of $3.02 per pound (2013 - $nil). During 2014, 4.5
million pounds of pre-commercial production receipts were credited against
mineral property, plant and equipment, net of costs of sale. Copper
concentrate revenue for the year ended December 31, 2014, is net of $29,406 (2013
– $nil) of provisional and final pricing and physical quantity adjustments.
Copper concentrate by-product revenues for the year ended December 31, 2014,
included sales of 27,000 ounces of gold at an average realized price of $1,216
per ounce and 1,523,900 ounces of silver at an average realized price of $18.04
per ounce. Revenues on gold doré sales for the year ended December 31, 2013,
of $153,690 included sales of 96,700 ounces of gold at an average realized
price of $1,471 per ounce, and 507,935 ounces of silver at an average
realized price of $24.63 per ounce.
Operating expenses
The Company recorded operating expenses for the year
ended December 31, 2014, of $194,522 (2013 - $62,848). The increase from the
comparative period results from the Company having been in pre-commercial
production for a large portion of the year. The Company expects total
operating costs to be higher during the copper phase. Consistent with prior
disclosure, our per-unit costs on a per pound basis (see page 19 for a
reconciliation of our C1 cash cost per payable pound sold) increased
throughout 2014 but remain in the lowest quartile for copper producers. The
reason for the increase in costs is primarily due to expected lower copper
feed grade and reduced by-product credits. Included in operating expenses
was a Q3 2014 charge of $4,274 for material and supplies inventory
adjustments for obsolescence and freight cost estimates. A charge of $2,808
was recorded during 2013 for a materials and supplies adjustment for
obsolescence, comprised mainly of gold phase chemical processing reagents.
9
Royalties
The Company incurs a 3.5% royalty on base metal
shipments and a 5% precious metals royalty on its gold and silver sales. In the
year ended December 31, 2014, royalty expenses of $25,072 (2013 - $8,070)
were recorded. The increase in royalties is attributable to higher sales
recorded during 2014. Royalties are payable at the time concentrate shipments
leave the mine, which precedes the revenue recognition point, and are based
on estimated values of contained metal at the time of shipment without
subsequent adjustment.
Depreciation and depletion
In the year ended December 31, 2014, depreciation and
depletion of $40,081 (2013 - $13,385) was recorded. The increase in this
amount is attributable to a higher value of depreciable assets, primarily
related to the addition of the copper phase assets, as well as to higher
units of production over which depreciation and depletion are recognized.
Administrative
Administrative costs comprising head office costs
including salaries and employee benefits, share-based payments, business
development and other general administrative expenses for the year ended
December 31, 2014, were $17,363, up from $14,537 in the year ended December
31, 2013. Salaries and employment benefits, including share-based payments
and long-term incentive compensation, increased from $8,732 for the year
ended December 31, 2013 to $11,941 for the year ended December 31, 2014. The
increase relates to employee additions as well as higher short-term and
long-term incentive compensation based on the Company’s absolute and relative share price
performance versus its peer group. Other administrative expenses increased slightly
from $3,893 during the year ended December 31, 2013, to $3,931 during the
year ended December 31, 2014, as a result of higher travel, CSR and general
office expenses offset by fewer consultants used in our business development
activities.
Finance costs
Finance costs for the year ended December 31, 2014,
total $1,906 and are comprised of $1,203 of accretion expense related to the
Company's reclamation liability, and a one-time charge in Q2 2014 of $703 related
to the loan to a supplier. Finance costs of $882 for the year ended December
31, 2013, are comprised entirely of accretion expense.
Finance income
Finance income for the year ended December 31, 2014,
totals $2,974 (2013 – $3,464) and is comprised of net interest accrued on
amounts receivable from the non-controlling interest of $2,621 (2013 –
$3,314), and other finance income of $353 (2013 – $150), comprised
predominantly of interest earned on cash and cash equivalent balances.
Income taxes
Income tax expense for the year ended December 31, 2014,
of $112,477 (2013 - $30,186) was comprised of current income tax expense of $85,759
(2013 - $20,702) related to the BMSC mining operations and deferred income
tax expense of $26,718 (2013 - $9,484).
10
|
Selected quarterly financial
information
|
Selected
consolidated financial information from continuing operations for the most
recent eight quarters, prepared in accordance with IFRS, are presented
below:
| In US $000s (except per share data) |
|
2014
4th |
|
|
2014
3rd |
|
|
2014
2nd |
|
|
2014
1st |
|
| Revenues |
$ |
138,695 |
|
$ |
147,943 |
|
$ |
169,223 |
|
$ |
99,151 |
|
| Operating income |
|
70,323 |
|
|
78,076 |
|
|
94,955 |
|
|
51,983 |
|
| Net income for the period |
|
40,098 |
|
|
44,599 |
|
|
53,688 |
|
|
28,180 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income attributable to Nevsun shareholders |
|
21,878 |
|
|
25,548 |
|
|
30,528 |
|
|
15,440 |
|
| Earnings per share attributable to Nevsun shareholders – basic |
|
0.11 |
|
|
0.13 |
|
|
0.15 |
|
|
0.08 |
|
| Earnings per share attributable to Nevsun shareholders – diluted |
|
0.11 |
|
|
0.13 |
|
|
0.15 |
|
|
0.08 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| In US $000s (except per share data) |
|
2013
4th
|
|
|
2013
3rd
|
|
|
2013
2nd
|
|
|
2013
1st
|
|
| Revenues |
$ |
4,000 |
|
$ |
25,783 |
|
$ |
54,785 |
|
$ |
71,130 |
|
| Operating income |
|
587 |
|
|
12,980 |
|
|
20,049 |
|
|
37,779 |
|
| Net income (loss) for the period |
|
(4,860 |
) |
|
4,306 |
|
|
10,305 |
|
|
19,503 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) attributable to Nevsun shareholders |
|
(4,212 |
) |
|
1,170 |
|
|
5,274 |
|
|
10,625 |
|
| Earnings (loss) per share attributable to Nevsun shareholders – basic |
|
(0.03 |
) |
|
0.01 |
|
|
0.03 |
|
|
0.05 |
|
| Earnings (loss) per share attributable to Nevsun shareholders – diluted |
|
(0.03 |
) |
|
0.01 |
|
|
0.03 |
|
|
0.05 |
|
The following variances result when comparing operations
for the three months ended December 31, 2014, with the same period of the
prior year (in US $000s, except per ounce and per pound data). Most of the
variances for revenues, operating expenses, royalties and depreciation and
depletion are attributable to the Company completing the mining of the gold
oxide phase by June 30, 2013, and being in pre-commercial production for most
of Q4 2013, as compared to being in full copper production phase during Q4
2014. Accordingly, the explanations of the variances from the comparative
period are not as useful as in prior periods.
Revenues
The Company’s Q4 2014 revenues of $138,695 (Q4 2013 - $4,000)
are comprised of copper concentrate sales of $141,739 (Q4 2013 - $nil) and
copper concentrate by-product sales of $14,143 (Q4 2013 - $nil), net of
copper concentrate treatment and refining charges of $17,187 (Q4 2013 - $nil).
Revenues included sales of 49.4 million payable pounds of copper (Q4 2013 – 30.6
million) at an average realized price of $2.87 per pound (Q4 2013 - $3.20).
Copper concentrate revenue is net of $7,832 of provisional and final pricing
and physical quantity adjustments. Copper concentrate by-product revenues
for Q4 2014 included sales of 7,000 ounces of gold at an average realized
price of $1,164 per ounce and 385,000 ounces of silver at an average realized
price of $15.57 per ounce. Q4 2013 revenue of $4,000 included sales of 1,200
ounces of gold at an average realized price of $1,246 per ounce, and 5,706
ounces of silver at an average realized price of $19.41 per ounce. Q4 2014
revenues were impacted by the decrease in copper prices during the quarter
culminating with the quarter end closing price of copper of $2.87 per pound.
Copper concentrate treatment and refining charges, which are accounted for as
a reduction of revenues, increased slightly on a per pound basis reflecting a
tightening in the market. Copper concentrate by-product credits decreased on
a per pound basis as expected in the mine plan (see page 19 for a
reconciliation of C1 cash cost sold) and due to decreased by-product metal
prices.
11
Operating expenses
The Company recorded operating expenses for Q4 2014 of $49,807
(Q4 2013 - $2,521). The increase from the comparative period is due to the
Company having been in pre-commercial production for two months in Q4 2013,
and commercial copper phase operating costs having not yet been realized.
The Company expects total operating costs to be higher during the copper
phase than during the gold phase. Q4 2014 operating expenses and selling
costs have increased slightly on a per-pound of payable copper sold basis
(see page 19 for a reconciliation of C1 cash cost sold) with prior quarters
as copper feed grades have decreased and treatment and refining charges have
increased.
Royalties
The Company incurs a 3.5% royalty on base metal
shipments and a 5% precious metals royalty on its gold and silver sales. In Q4
2014 royalty expenses of $7,201 (Q4 2013 - $320) were recorded. In Q4 2014,
the Company incurred higher royalties as compared to Q4 2013 as a result of having
recognized commercial sales in the current quarter, as compared to the
comparative quarter when royalties were capitalized. Royalties are payable
at the time concentrate shipments leave the mine, which precedes the revenue
recognition point, and are based on estimated values of contained metal at
the time of shipment without subsequent adjustment.
Depreciation and depletion
In Q4 2014 depreciation and depletion of $11,364 (Q4
2013 - $572) was recorded. Depreciation is primarily calculated using the
units-of-production method with copper pounds produced and ore tonnes mined
as the basis for the calculation. The increase from Q4 2013 to Q4 2014 is
the result of depreciation and depletion incurred during Q4 2013 having been
capitalized as it was incurred during the pre-commercial production phase.
Administrative:
Administrative costs in Q4 2014 were $4,838, up from $4,577
in Q4 2013. Salaries and employees benefits including long-term incentive compensation
increased from $3,034 in Q4 2013 to $3,445 in Q4 2014, consistent with the
overall trend primarily due to higher long-term incentive compensation based on the
Company’s absolute and relative share price performance versus its peer group.
Business development expenses were $786 for Q4 2014 as compared to $403 in Q4
2013. Other administrative costs decreased from $1,140 in Q4 2013 to $607 in Q4
2014.
Finance costs
Finance costs in Q4 2014 of $384 are comprised entirely
of accretion expense on the Company's reclamation liability. Finance costs of
$270 recorded during Q4 2013 also related only to accretion expense on the
Company's reclamation liability.
Finance income
Finance income for Q4 2014, totals $756 (Q4 2013 – $959)
and is comprised of net interest accrued on amounts receivable from the
non-controlling interest of $603 (Q4 2013 – $892), and other finance income
of $153 (Q4 2013 – $67), comprised predominantly of interest earned on cash
and cash equivalent balances.
Income taxes
Income tax expense for Q4
2014 of $25,759 (Q4 2013 - $1,559) is comprised of current income tax expense
of $15,954 (Q4 2013 - $7,085) related to the BMSC mining operations and
deferred income tax expense of $9,805 (Q4 2013 – recovery of $5,526).
12
|
Reconciliation
of realized copper price
|
| in U.S. $000s (except pounds of payble copper and per payable pound data) |
|
Q4 2014 |
|
|
2014 |
|
| Total revenues |
$ |
138,695 |
|
$ |
555,012 |
|
| |
|
|
|
|
|
|
| Add (less): |
|
|
|
|
|
|
| Copper concentrate by-product sales |
|
(14,143 |
) |
|
(60,323 |
) |
| Other revenues |
|
- |
|
|
(5,467 |
) |
| Treatment and refining charges |
|
17,187 |
|
|
55,010 |
|
| Provisional and final pricing and quantity adjustments on copper concentrate sales |
|
7,832 |
|
|
29,406 |
|
| Copper concentrate revenues, before pricing adjustments |
$ |
149,571 |
|
$ |
573,638 |
|
| Pounds of payable copper sold (millions) |
|
49.4 |
|
|
180.2 |
|
| Realized copper price per payable pound sold, before pricing adjustments |
$ |
3.03 |
|
$ |
3.18 |
|
| Provisional and final pricing and quantity adjustments per payable pound sold |
$ |
(0.16 |
) |
$ |
(0.16 |
) |
| Realized copper price per payable pound sold |
$ |
2.87 |
|
$ |
3.02 |
|
| LME average copper price per pound |
$ |
2.98 |
|
$ |
3.10 |
|
| (1)
|
Pounds of payable copper sold during the year ended December 31, 2014, do not include 4.5 million pounds of copper sold during the pre-commercial production phase. Receipts from pre-commercial production sales were credited against mineral property, plant and equipment, net of cost of sales. |
|
Liquidity and
capital resources |
The Company’s cash and cash
equivalents at December 31, 2014, was $442,418 (December 31, 2013 –
$302,724). Working capital, including cash and cash equivalents, was $519,980
(December 31, 2013 – $419,057). Accounts receivable of $32,188 (December 31,
2013 - $57,180) include one shipment for which revenue was recognized but
provisional payments were not yet received by year end (December 31, 2013 –
two shipments).
During the year
ended December 31, 2014, cash generated from operating activities was
$306,480, compared to $76,172 in the prior year. The Company paid $88,983 in
income taxes for the year ended December 31, 2014 (2013 - $60,484).
The Company used $4,258 in investing activities during the year ended December 31, 2014 (2013 – used
$69,206). The Company spent $55,118 on mineral properties, plant and
equipment compared to $133,423 during the prior year. Included in these
expenditures is $5,668 spent on exploration and evaluation work during the year ended December 31, 2014, compared to
$15,720 in the prior year. Expenditures on mineral properties, plant and
equipment were offset in the year ended December 31, 2014, in part by $50,936
(2013 - $71,255) of proceeds received on the sale of pre-commercial
production copper concentrate inventory during the year. Changes in non-cash
working capital related to investing activities increased from a credit of
$38 during the year ended December 31, 2013, to an increase of $2,124 during
the year ended December 31, 2014.
The Company used $73,545 in its financing activities in
2014, compared to $40,162 in the prior year. During the year ended December
31, 2014, the Company paid dividends to Nevsun shareholders of $34,770 (2013
- $23,880), and distributed $76,750 to the non-controlling interest (2013 - $nil).
The increase in dividends to Nevsun shareholders from 2013 is due to
dividends being declared on a quarterly basis for 2014. The Company also
received $37,332 (2013 – loaned $16,750) from the non-controlling interest,
comprised of a partial repayment of the purchase price settlement consisting
of principal of $17,089 and interest of $2,811 (2013 - $nil and $nil), and
full repayment of a loan made in 2013 of $16,750 plus interest of $682.
13
|
Commitments and contractual obligations
|
As of December 31, 2014, the
Company had the following contractual obligations:
| In U.S. $000s |
|
Total |
|
|
Less than
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
Over 5 years |
|
| Purchase commitments and contractual obligations |
$ |
45,813 |
|
$ |
45,813 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
| Mine closure and reclamation |
|
50,400 |
|
|
600 |
|
|
1,400 |
|
|
1,200 |
|
|
47,200 |
|
| Minimum operating lease payments |
|
4,971 |
|
|
4,722 |
|
|
249 |
|
|
- |
|
|
- |
|
| Total contractual obligations |
$ |
101,184 |
|
$ |
51,135 |
|
$ |
1,649 |
|
$ |
1,200 |
|
$ |
47,200 |
|
The Company also has an environmental bond to cover
remediation liabilities for Bisha in the amount of $15,000 at a cost of 1%
per annum.
The above table includes the Company’s
estimated obligation for mine closure and reclamation following completion of
mining activities at the Bisha Mine and is based on the level of known disturbance
at the reporting date, known legal requirements and estimates prepared by
Management with input from a third party specialist. The undiscounted amount
of the estimated obligation for reclamation and closure of the operations,
adjusted for estimated inflation of 3%, is approximately $50,400. While the
Company has recorded the fair value for the mine closure and reclamation obligation
using a pre-tax discount rate of 4.57%, the amounts
reflected in the above table represent the undiscounted amounts estimated at
the time of payment. Ongoing reclamation costs incurred as part of normal
mining operations are expensed as incurred.
|
Off-balance sheet arrangements
|
The Company has not entered into any specialized
financial arrangements to minimize its commodity price risk, investment risk
or currency risk. There are no off-balance sheet arrangements.
The Araya Lawsuit
A lawsuit was filed in the Supreme Court of British
Columbia against the Company (the "Araya Lawsuit") on November 20,
2014, by three plaintiffs who claim to have once worked with a local
sub-contractor at the Bisha Mine. The plaintiffs claim that the Company
is legally responsible for breaches of customary international law and British
Columbia law for conduct allegedly engaged in by the local sub-contractor and
the Eritrean Military. The plaintiffs are also claiming the right to
bring the action in a representative capacity on behalf of certain persons
who they allege were forced to work at the Bisha Mine (the “Group
Members”). The plaintiffs claim general, aggravated and punitive
damages for themselves and for the Group Members. No amount of damages is
required to be quantified by the plaintiffs at this time. No trial date
has been set.
It is not possible at this time to estimate the outcome
of the Araya Lawsuit. The Company denies the allegations and will
vigorously defend itself in this matter. No amounts have been recorded
for any potential liability arising from this matter, as the Company cannot
reasonably predict the outcome.
Putative class action complaints
During May 2014 and July 2014 the Company settled with
United States and Canadian plaintiffs, respectively, two related securities
class actions initiated during 2012. Settlement agreements release the
Company and all its related parties from any claims described in these class
actions. The Canadian and U.S. settlements received final court approval on October
6, 2014 and January 22, 2015, respectively. Both settlements were funded
entirely by the Company’s insurance carriers.
14
As of February 25,
2015, the Company had 199,657,802 shares and 12,177,000
options issued and outstanding.
|
Financial instruments and risk management
|
The following describes the use of
financial instruments and types of risks that the Company is exposed to and
its objectives and policies for managing such risks:
Market risk
Price risk: The Company is, or will be, subject to
price risk from fluctuations in market prices of gold, copper and other
metals. As discussed above in respect of metals in concentrate, there is a
time lag between the time of initial payment on shipment and final settlement
pricing, and changes in the price of gold, copper and other metals during
this period impact the Company’s revenues and working capital position. The
Company’s policy is not to hedge precious metals doré or base metal
concentrate sales. Accordingly, as at December 31, 2014, and as of the date
of this MD&A, the Company has not entered into any hedge contracts or
other financial arrangements to minimize its commodity price risk.
Sales of copper concentrate are recognized on a
provisional pricing basis when risks and rewards transfer and the rights and
obligations of ownership pass to the customer, which usually occurs on
shipment. However, the final pricing for the product sold and purchased is
not determined at that time as it is contractually linked to market prices at
a subsequent date. These arrangements have the characteristics of a
derivative instrument as the value of the related receivables will vary as
the price for the underlying commodity varies in the metal markets. These
pricing adjustments result in gains in a rising price environment and losses
in a declining price environment and are recorded as a change in revenue at
each balance sheet date and at final settlement.
Fuel price risk: Fuel consumption
comprises a significant portion of the Company’s operating expenses and the
Company is therefore subject to fuel price risk on fluctuations of the market
price of diesel. Based on an estimated 40 million litres of diesel fuel used
annually, a $0.10 change in the price per litre of fuel would have a $4
million impact on earnings.
Currency risk: Currency risk is the risk that the fair
values or future cash flows of the Company’s financial instruments will
fluctuate because of changes in foreign exchange rates. Exchange rate
fluctuations may affect the costs that the Company incurs in its operations.
The Company’s functional currency is the United States dollar, and while
metals sales are in U.S. dollars, certain of the Company’s costs will be
incurred in other currencies, namely the Eritrean nakfa, Canadian and
Australian dollars, Euro and South African rand. Additionally, the Company
also holds cash and cash equivalents that are denominated in currencies that
are subject to currency risk. Accounts receivable and other current and
non-current assets not denominated in US dollars relate to goods and services
taxes, income taxes and value-added taxes.
The Eritrean nakfa is directly tied to the US dollar.
At December 31, 2014, net financial assets (liabilities) denominated in
Canadian dollars are $(6,753), South African rand are $136, Australian
dollars are $(166) and Euros are $(1,825). A 10% strengthening of the U.S.
dollar against these currencies at December 31, 2014, with all other
variables held constant, would have resulted in an estimated gain on the
Canadian dollar denominated net financial liabilities of $675, an estimated loss
on South African rand denominated net financial assets of $14, an estimated
gain on the Australian dollar denominated net financial liabilities of $17,
and an estimated gain on the Euro denominated net financial liabilities of $182.
As a result, management does not consider currency risk to be significant.
Credit risk
Financial instruments that potentially subject the
Company to credit risk consist of cash and cash equivalents, trade
receivables, and due from non-controlling interest. In order to manage
credit risk, the Company deposits cash and cash equivalents kept in highly
liquid instruments with high credit quality financial institutions. Such
instruments are managed by independent financial managers with ultimate
oversight by the Company. Given the strong credit ratings of these
institutions, management does not expect any counterparty to fail to meet its
obligations. Additionally, a high percentage of the funds are maintained in
accounts outside of Africa.
15
As at December 31, 2014, the Company’s credit risk
related to the recovery of trade accounts receivable, including receivables
of $19,403 related to copper concentrate sales due from eight customers.
Copper concentrate sales started in the fourth quarter
of 2013 and are subject to credit risk related to trade receivables from the
sale of metals in concentrate. The Company tries to limit credit risk
exposure on sales of concentrate by selling its product to large,
international purchasers with high credit ratings, and requiring purchasers
to issue letters of credit with high credit quality financial institutions to
support such purchases. Additionally, the Company maintains separate and
sufficient insurance and requires the transporters of its concentrates to
carry sufficient insurance to prevent loss during transportation.
The Company does not consider credit risk associated
with the recovery of value added taxes (VAT) and other receivables, which at
December 31, 2014, totaled $555, to be a significant risk.
The Company is also subject to credit risk related to
due from non-controlling interest, which at December 31, 2014, was $48,483.
Due from non-controlling interest is collected from ENAMCO with collection
terms determined by cash flow from the Bisha Mine with a guarantee from the
State of Eritrea. Management expects that cash flow will be sufficient to
allow collection in full from the non-controlling interest and, as a result,
credit risk on exposure on due from non-controlling interest is not
considered to be a significant risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be
able to meet its financial obligations as they fall due. The Company’s
approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquid funds to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation. This approach includes a
rigorous planning and budgeting process, which is reviewed and updated on a
regular basis, to help determine the funding requirements to support the
Company’s current operations and expansion and development plans and by managing
its capital structure.
In the opinion of management, the working capital at
December 31, 2014, of $519,980, together with future cash flows from
operations, is sufficient to support the Company’s operations and expansion
plans.
Fair value versus carrying amounts
The carrying amount of financial assets and liabilities
carried at amortized cost is a reasonable approximation of fair value.
The Company continually reviews opportunities for
growth, however, there are no proposed asset or business acquisitions or
dispositions currently under offer.
|
Use of judgements and
estimates in applying critical accounting policies
|
The Company's consolidated
financial statements are prepared in accordance with IFRS as issued by the
International Accounting Standards Board (IASB). The significant accounting
policies applied and recent accounting pronouncements are described in Note 3
and Note 4 to the Company's annual consolidated financial statements,
respectively.
Judgements
The critical judgements that the Company’s management
has made in the process of applying the Company’s accounting policies, apart
from those involving estimation uncertainty, that have the most significant
effect on the amounts recognized in the Company’s consolidated financial
statements are as follows:
16
Achievement of commercial production
Costs incurred to construct and develop mineral
properties, plant and equipment, including directly attributable costs of
testing, are capitalized until the assets are brought into the location and
condition necessary to be capable of operating in the manner intended by
management. Net proceeds from mineral sales realized during this period are
offset against costs capitalized. Depletion of capitalized costs for mineral
properties and related plant and equipment begins when operating levels
intended by management have been reached. The results of operations of the
Company during the years presented in the consolidated financial statements
have been impacted by management’s determination that the Bisha Mine reached
the operating levels intended by management with regards to copper production
on December 1, 2013.
Economic recoverability and probability of future
economic benefits of exploration, evaluation and development costs
Management has determined that exploration drilling,
evaluation, development and related costs incurred which have been
capitalized are economically recoverable. Management uses several criteria in
its assessments of economic recoverability and probability of future economic
benefit including geologic and metallurgic information, history of conversion
of mineral deposits to proven and probable reserves, scoping and feasibility
studies, accessible facilities, existing permits and life of mine plans.
Functional currency
The functional currency for each of the Company’s
subsidiaries is the currency of the primary economic environment in which the
entity operates. The Company has determined the functional currency of each
entity is the US dollar. Assessment of functional currency involves certain
judgements to determine the primary economic environment and the Company
reconsiders the functional currency of its entities if there is a change in
events and conditions which determined the primary economic environment.
Key sources of estimation uncertainty
The preparation of consolidated financial statements
requires that the Company’s management make assumptions and estimates of
effects of uncertain future events on the carrying amounts of the Company’s
assets and liabilities at the end of the reporting period. Actual results
may differ from those estimates as the estimation process is inherently uncertain.
Actual future outcomes could differ from present estimates and assumptions;
potentially having material future effects on the Company’s consolidated
financial statements. Estimates are reviewed on an ongoing basis and are
based on historical experience and other facts and circumstances. Revisions
to estimates and the resulting effects on the carrying amounts of the
Company’s assets and liabilities are accounted for prospectively.
The significant assumptions about the future and other
major sources of estimation uncertainty as at the end of the reporting period
that have a significant risk of resulting in a material adjustment to the
carrying amounts of the Company’s assets and liabilities are as follows:
Reserve estimates including life of mine plan
The Company estimates its ore reserves and mineral
resources based on information compiled by experts. Reserves are used in the
calculation of depreciation, impairment assessment and for forecasting the
timing of payment of mine closure, reclamation and rehabilitation costs.
There are numerous uncertainties inherent in estimating
ore reserves, and assumptions that are valid at the time of estimation may
change significantly when new information becomes available. Changes in the
forecasted prices of commodities, exchange rates, production costs or
recovery rates may change the economic status of reserves and may,
ultimately, result in the reserves being restated.
The carrying amounts of the Company’s mineral
properties, plant and equipment are depleted based on recoverable copper
pounds, gold ounces, and ore reserve tonnes. Changes to estimates of
recoverable copper pounds, gold ounces, ore reserve tonnes and depletable
costs, including changes resulting from revisions to the Company’s mine plans
and changes in metals prices forecasts, can result in a change to future
depletion rates and impairment analysis.
17
Estimated mine closure
and reclamation costs
The Company’s provision for mine closure and reclamation
cost obligations represents management’s best estimate of the present value
of the future cash outflows required to settle the liability which reflects
estimates of future costs, inflation, movements in foreign exchange rates and
assumptions of risks associated with the future cash outflows, and the
applicable risk-free interest rates for discounting the future cash outflows.
Changes in the above factors can result in a change to the provision recognized
by the Company.
Changes to mine closure and reclamation cost obligations
are recorded with a corresponding change to the carrying amounts of related
mineral properties, plant and equipment for the year. Adjustments to the
carrying amounts of related mineral properties, plant and equipment can
result in a change to future depletion expense.
Classification of current and non-current portion of
due from non-controlling interest
In determining the classification of current and
non-current portion of due from non-controlling interest, the Company makes
estimates of the future after-tax cash flows expected to be derived from the
Bisha mining operation. Changes in metal price forecasts, estimated future
costs of production, and estimated future capital expenditures could result
in a change in the classification of the current and non-current portions of
the due from non-controlling interest.
Fair value of embedded derivative
The value of copper concentrate trade receivables is
measured using quoted forward market prices as at the balance sheet date that
correspond to the settlement date of the provisional pricing period for the
estimated metals contained within the copper concentrate. Fluctuations in
the underlying market price of copper, metal content and concentrate weight
can cause significant changes to the ultimate final settlement value of the
receivables and the final revenue recorded can vary significantly as a
result.
Income taxes
In assessing the probability of realizing income tax
assets recognized, management makes estimates related to expectations of
future taxable income, applicable tax opportunities, expected timing of
reversals of existing temporary differences and the likelihood that tax
positions taken will be sustained upon examination by applicable tax
authorities. In making its assessments, management gives additional weight to
positive and negative evidence that can be objectively verified. Estimates of
future taxable income are based on forecasted income from operations and the
application of existing tax laws in each jurisdiction. Forecasted income from
operations is based on life of mine projections internally developed and
reviewed by management.
Importance is given to tax planning opportunities that
are within the Company’s control, and are feasible and implementable without
significant obstacles. The likelihood that tax positions taken will be
sustained upon examination by applicable tax authorities is assessed based on
individual facts and circumstances of the relevant tax position evaluated in
light of all available evidence. Where applicable tax laws and regulations
are either unclear or subject to ongoing varying interpretations, it is
reasonably possible that changes in these estimates can occur that materially
affect the amounts of income tax assets recognized. At the end of each
reporting period, the Company reassesses unrecognized income tax assets.
Share-based payments
The factors affecting share-based payments include
estimates of when stock options might be exercised and the stock price
volatility. The timing for exercise of options is out of the Company’s
control and will depend, among other things, upon a variety of factors
including the market value of Company shares and financial objectives of the
holders of the options. The Company has used historical data to determine
volatility in accordance with Black-Scholes modeling, however future
volatility is inherently uncertain and the model has its limitations. While
these estimates can have a material impact on the share-based payments
expense and hence, results of operations, there is no impact on the Company’s
financial condition or liquidity.
18
|
Disclosure controls and
procedures
|
The Company’s management, with the participation of the
Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining the Company’s disclosure controls and
procedures. Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed in the Company’s
annual filings, interim filings and other reports filed or submitted is
recorded, processed, summarized and reported, within the appropriate time
periods and is communicated to senior management, including the Chief
Executive Officer and Chief Financial Officer on a timely basis so that the
appropriate decisions can be made regarding public disclosures.
The Chief Executive Officer and Chief Financial Officer,
after participating with the Company’s management in evaluating the
effectiveness of the Company’s disclosure controls and procedures have
concluded that as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective.
| Changes in internal control over financial reporting |
The Company’s management, with the participation of the
Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The Company’s internal control over
financial reporting includes those policies and procedures that:
-
pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets of the Company;
- rovide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with IFRS, and that the Company’s receipts and expenditures are
being made only in accordance with authorizations of management and the
Company’s directors; and
- rovide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the
Company’s consolidated financial statements.
The Company’s management, with the participation
of the Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting using
the criteria set forth in the Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that the
Company’s internal control over financial reporting was appropriately designed
and operating effectively as of December 31, 2014.
KPMG LLP, the Company's Independent Registered Public
Accountants, have audited the annual consolidated financial statements of the
Company for the year ended December 31, 2014, and have also issued a report
on the internal controls over financial reporting based on the criteria
established in the Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
|
Limitations of controls and
procedures
|
The Company’s management, including the Chief Executive
Officer and the Chief Financial Officer, believe that any disclosure controls
and procedures or internal controls over financial reporting, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems,
they cannot provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgements in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by unauthorized
override of the control. The design of any systems of controls also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Accordingly, because of
the inherent limitations in a cost effective control system, misstatements
due to error or fraud may occur and not be detected.
19
|
Accounting changes and recent
accounting pronouncements
|
In May 2013, the IASB issued IFRIC 21 - Levies,
which sets out the accounting treatment for an obligation to pay a levy that
is not an income tax. The interpretation defines the obligating event that
gives rise to the requirement to pay a levy and when a liability should be
recognized. IFRIC 21 is effective for annual periods beginning on or after
January 1, 2014. The application of IFRIC 21 did not have a significant
impact on the Company’s consolidated financial statements.
In July 2014, the IASB published IFRS 9 - Financial
Instruments, which replaces IAS 39 - Financial Instruments:
Recognition and Measurement, the existing guidance of the same name. IFRS
9 includes revised guidance on the classification and measurement of
financial instruments, including a new expected credit loss model for
calculating impairment on financial assets, and the new general hedge
accounting requirements. It also carries forward the guidance on recognition
and derecognition of financial assets from IAS 39.
IFRS 9 is effective for annual reporting periods
beginning on or after January 1, 2018, and is available for early adoption.
The Company will evaluate the new standard to determine the impact, if any,
it may have on its financial statements.
In May 2014, the IASB issued the final revenue standard,
IFRS 15 - Revenue From Contracts With Customers, which will replace
IAS 18 - Revenue, among other standards that do not currently affect
the Company. The new standard is effective for fiscal years beginning on or
after January 1, 2017, and is available for early adoption. The standard
contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The new
standard does not apply to insurance contracts, financial instruments or
lease contracts, which fall under the scope of other standards.
The Company intends to adopt IFRS 15 in its financial
statements for the annual period beginning January 1, 2017. The Company will
evaluate the new standard to determine the impact, if any, it may have on its
financial statements.
Mr. Peter Manojlovic, PGeo, and Vice
President Exploration of Nevsun Resources Ltd. is a Qualified Person under
the terms of NI 43-101 and has reviewed the exploration statements of this
MD&A and approved its dissemination.
|
Non-GAAP
performance measure
|
This document includes a non-GAAP performance measure
that does not have a standardized meaning prescribed by IFRS. This
performance measure may differ from those used by, and may not be comparable
to such measures as reported by, other issuers. The Company believes that
this performance measure is commonly used by certain investors, in
conjunction with conventional GAAP measures, to enhance their understanding
of the Company's performance. The Company uses this performance measure
extensively in our internal decision making process, including to assess how
well the Bisha Mine is performing and to assist in the assessment of the
overall efficiency and effectiveness of the mine site management team. The
table below provides a reconciliation of this non-GAAP measure to the most
directly comparable IFRS measures as contained within the Company's issued
financial statements.
C1 cash cost per
payable pound
C1 cash cost per pound is a non-GAAP measure and
represents the cash cost incurred at each processing stage, from mining
through to recoverable metal delivered to customers, less net by-product
credits. Royalties are excluded from the calculation of C1 cash cost per
pound. The costs included in this definition comprise mine site operating
and general and administrative costs, freight, treatment and refining
charges, less by-product credits. By-product credits are an important factor
in determining the C1 cash costs per pound. The Company produces by-product
metals, gold and silver, incidentally to copper production activities. The
gold and silver are considered to be by-products as they only represent 11%
of total revenues during 2014. The cash cost per payable pound will vary
depending on the volume of by-product credits and the relative price of the
by-products. The C1 cash cost per payable pound is calculated by dividing
the total costs by payable copper pounds sold. The calculation method is consistent
on a period to period basis for purposes of meaningful comparison.
20
| |
|
|
Q4 2014 |
|
|
2014 |
|
| C1 cash cost per payable pound (U.S. $000s, except per pound amounts) |
|
|
Total |
|
|
per
pound |
|
|
Total |
|
|
per
pound |
|
| Pounds of payable copper sold (millions)(1) |
|
|
|
|
|
49.4 |
|
|
|
|
|
180.2 |
|
| Operating expenses and selling costs |
$ |
|
49,807 |
|
$ |
1.01 |
|
$ |
194,522 |
|
$ |
1.08 |
|
| Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Copper concentrate treatment and refining charges |
|
|
17,187 |
|
|
0.35 |
|
|
55,010 |
|
|
0.31 |
|
| Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Copper concentrate by-product credits |
|
|
(14,143 |
) |
|
(0.28 |
) |
|
(60,323 |
) |
|
(0.33 |
) |
| Selling costs not related to concentrate sales |
|
|
(90 |
) |
|
(0.01 |
) |
|
(762 |
) |
|
(0.01 |
) |
| Total C1 cash cost(2) |
|
$ |
52,761 |
|
$ |
1.07 |
|
$ |
188,447 |
|
$ |
1.05 |
|
| (1)
|
Pounds of payable copper during the year ended December 31, 2014, do not include 4.5 million pounds of copper sold during the pre-commercial production phase. Receipts from pre-commercial production sales were credited against mineral property, plant and equipment, net of costs of sale.
|
|
Additional information and risk factors
|
Additional information relating to the Company,
including risk factors, is discussed in the Company’s 2014 Annual Information
Form and other filings available on the Company’s website at www.nevsun.com and on SEDAR at www.sedar.com.
|
Forward looking statements
|
This Management’s Discussion and Analysis contains
statements and information concerning anticipated developments in the
Company’s continuing and future operations, the adequacy of the Company’s
financial resources and financial projections. Forward-looking statements
include, but are not limited to, statements concerning or the assumptions
related to estimates of capital and operating costs, the timing, nature and
extent of future copper and gold production, expanding exploration licenses,
the estimation of mineral reserves and resources, methodologies and models
used to prepare resource and reserve estimates, the realization of mineral
reserve estimates, the conversion of mineral properties to reserves and
resources, the potential to expand resources, reserves and mine life, future
exploration budgets, plans, targets and work programs, capital expenditures
and objectives, anticipated timing of grant of permits, mining and
development plans and activities, construction and production targets and
timetables, grades, processing rates, life of mine, net cash flows, metal
prices, exchange rates, reclamation costs, results of drill programs,
dividend plans and policy, litigation matters, integration or expansion of
operations, requirements for additional capital, government regulation of
mining operations, environmental risks, political risks and uncertainties,
unanticipated reclamation expenses, and other events or conditions that may
occur in the future.
Forward-looking statements are frequently, but not always,
identified by words such as “expects,” “anticipates,” “believes,” “intends,”
“estimates,” “potential,” “possible,” “budget” and similar expressions, or
statements that events, conditions or results “will,” “may,” “could” or
“should” occur or be achieved. Information concerning the interpretation of
drill results and mineral resource and reserve estimates also may be deemed
to be forward-looking statements, as such information constitutes a
prediction of what mineralization might be found to be present if and when a
project is actually developed, and in the case of mineral reserves, such
statements reflect the conclusion based on certain assumptions that the
mineral deposit can be economically exploited.
21
Forward-looking statements are statements about the
future and are inherently uncertain, and actual achievements of the Company
or other future events or conditions may differ materially from those
reflected in the forward-looking statements due to a variety of risks,
uncertainties and other factors including, without limitation, the risks more
fully described in the Company’s 2014 Annual Information Form and other
filings.
Although the Company has attempted to identify important
factors that could cause actual results to differ materially from those contained
in forward-looking statements, there may be other factors that cause results
not to be as anticipated, estimated or intended. The Company’s
forward-looking statements are based on the beliefs, expectations and
opinions of management on the date the statements are made and the Company
assumes no obligation to update such forward-looking statements in the
future, except as required by law. There can be no assurance that such
statements will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements. For the reasons
set forth above, investors should not place undue reliance on forward-looking
statements.
|
NYSE MKT corporate governance
|
The Company’s common shares are listed on NYSE MKT. Section
110 of the NYSE MKT company guide permits NYSE MKT to consider the laws,
customs and practices of foreign issuers in relaxing certain NYSE MKT listing
criteria, and to grant exemptions from NYSE MKT listing criteria based on
these considerations. A company seeking relief under these provisions is
required to provide written certification from independent local counsel that
the non-complying practice is not prohibited by home country law. A
description of the significant ways in which the Company’s governance
practices differ from those followed by U.S. domestic companies pursuant to NYSE
MKT standards is posted on the Company’s website at http://www.nevsun.com/corporate/governance/nyse-amex/
and a copy of such description is available by written request made to the
Company.
|
Cautionary note regarding preparation
of reserves and resources
|
The disclosure in this Management’s Discussion and Analysis
uses mineral resource and mineral reserve classification terms that comply
with Canadian securities laws that differ in certain material respects from
the requirements of United States securities laws. Disclosure has been made
in accordance with Canadian National Instrument 43-101 – Standards of
Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of
Mining, Metallurgy and Petroleum’s Classification System. The NI 43-101 is a
rule developed by the Canadian Securities Administrators that establishes
standards for all public disclosure an issuer makes of scientific and
technical information concerning mineral projects. These standards differ
significantly from the disclosure requirements of the SEC.
The SEC’s disclosure standards normally do not permit
the inclusion of information concerning “measured mineral resources”,
“indicated mineral resources” or “inferred mineral resources” in documents
filed with the SEC, unless such information is required to be disclosed by
the law of the Company’s jurisdiction of incorporation or of a jurisdiction
in which its securities are traded. Consequently, mineral resource and
mineral reserve information contained in this AIF is not comparable to
similar information that would generally be disclosed by U.S. companies in
accordance with the rules of the SEC.
The SEC’s Industry Guide 7 applies different standards
in order to classify mineralization as a reserve. As a result, the
definitions of proven and probable reserves used in NI 43-101 differ from the
definitions in Industry Guide 7. Under SEC standards, mineralization may not
be classified as a “reserve” unless the determination has been made that the
mineralization could be economically and legally produced or extracted at the
time the reserve determination is made. Accordingly, mineral reserve
estimates contained in this AIF may not qualify as “reserves” under SEC
standards.
This Management’s Discussion and Analysis uses the terms
“measured mineral resources”, “indicated mineral resources” and “inferred
mineral resources” to comply with the reporting standards in Canada. The
SEC’s Industry Guide 7 does not recognize these terms and U.S. companies are
generally not permitted to use these terms in documents they file with the
SEC. Investors are cautioned not to assume that any part or all of the
mineral deposits in these categories will ever be converted into SEC defined
mineral “reserves.” Further, “inferred mineral resources” have a great amount
of uncertainty as to their existence and as to whether they can be mined
legally or economically.
22
Therefore, investors are also cautioned not to assume
that all or any part of an inferred mineral resource exists. In accordance
with reporting standards in Canada, estimates of “inferred mineral resources”
cannot form the basis of feasibility or other economic studies, except in
rare cases. In addition, disclosure of “contained ounces” in a mineral
resource estimate is permitted disclosure under NI 43-101 provided that the
grade or quality and the quantity of each category is stated; however, the
SEC normally only permits issuers to report mineralization that does not
constitute “reserves” by SEC standards as in place tonnage and grade without
reference to unit measures. Accordingly, information concerning descriptions
of mineralization and resources contained in this Management’s Discussion and
Analysis may not be comparable to information made public by US domestic
companies subject to the reporting and disclosure requirements of the SEC.
Section
302 Certifications
I, Clifford T. Davis, Chief Executive
Officer of Nevsun Resources Ltd. certify that:
| 1.
|
I have reviewed this annual report on Form 40-F of Nevsun Resources Ltd.;
|
| 2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
|
| 4.
|
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the issuer and have:
|
| |
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| |
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| |
(c)
|
Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| |
(d)
|
Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
|
| 5.
|
The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):
|
| |
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
|
| |
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
|
| By:
|
__________________________ |
| |
Clifford T. Davis
Chief Executive Officer
|
Section
302 Certifications
I,
Thomas S. Whelan, Chief Financial Officer of Nevsun Resources Ltd.
certify that:
| 1.
|
I have reviewed this annual report on Form 40-F of Nevsun Resources Ltd.;
|
| 2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
|
| 4.
|
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the issuer and have:
|
| |
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| |
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| |
(c)
|
Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| |
(d)
|
Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
|
| 5.
|
The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):
|
| |
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
|
| |
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
|
| By:
|
__________________________ |
| |
Thomas S. Whelan
Chief Financial Officer
|
Section
906 Certifications
CERTIFICATION
PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
annual report of Nevsun Resources Ltd. (the “Company”) on Form 40-F for
the fiscal year ending December 31, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Clifford
T. Davis, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
| 1.
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
|
| 2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
| By:
|
__________________________ |
| |
Clifford T. Davis
Chief Executive Officer |
Section
906 Certifications
CERTIFICATION
PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the
annual report of Nevsun Resources Ltd. (the “Company”) on Form 40-F for
the fiscal year ending December 31, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas
S. Whelan, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
| 1.
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
|
| 2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
| By:
|
__________________________ |
| |
Thomas S. Whelan
Chief Financial Officer
|
| |
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada |
Telephone (604) 691-3000
Fax (604) 691-3031
Internet www.kpmg.ca |
Consent
of
Independent Registered Public
Accounting Firm
The Board of Directors
Nevsun
Resources Ltd.
We consent to the use of our reports, each dated February
25, 2015, with respect to the consolidated financial statements and
the effectiveness of internal control over financial
reporting included in this annual report on Form 40-F.
Chartered Accountants
February 25, 2015
Vancouver, Canada
| |
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP. |
CONSENT OF QUALIFIED
PERSON
I, Matthew Bampton,
confirm that:
I am the Qualified Person for the
Mineral Resources for the Bisha and Harena deposits detailed in the Annual
Information Form of Nevsun Resources Ltd. dated February 25, 2015 (“AIF”).
I have read National Instrument
43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and understand
these Standards as pertains to the work for which I am responsible as disclosed
in the AIF.
I am a Member of the Australian
Institute of Geologists (Membership No.6028), and a Member of the Australasian
Institute of Mining and Metallurgy. I have worked as a geologist for more than
20 years since my graduation from University. Relevant experience has been
gained from working in the gold and base metal mining and exploration industry in
various provinces throughout Australia. I am a Qualified Person as defined in
NI 43-101, having more than 5 years of experience which is relevant to the
style of mineralization and type of deposit described in the AIF, and to the
activity for which I am accepting responsibility.
I have reviewed the AIF to which
this statement of consent applies.
I am a Senior Consultant
Geologist with Cube Consulting Pty Ltd of 1111 Hay Street, West Perth, WA 6005.
I am independent of the issuer (Nevsun Resources Ltd.) as described by Section
1.5 of NI 43-101, and I visited the minesite most recently in September 2014.
I verify that the information in
the AIF is based on and fairly and accurately reflects in the form and context
in which it appears, the information in my supporting documentation relating to
Mineral Resources.
I consent to the release of the AIF
and this statement of consent by Nevsun Resources Ltd.
Dated this 25th day of February, 2015
"Matthew Bampton"
_________________________
Signature
of Qualified Person
MATTHEW BAMPTON
Print name of Qualified Person
CONSENT OF QUALIFIED
PERSON
I, Paul Gribble, confirm
that:
I am the Qualified Person for the
Mineral Resources for the Northwest and Hambok deposits detailed in the Annual
Information Form of Nevsun Resources Ltd. dated February 25, 2015 (“AIF”).
I have read National Instrument
43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and understand
these Standards as pertains to work for which I am responsible as disclosed in
the AIF.
I am a Geologist, with a Bachelor
of Science (Honours) degree from the University of London, graduating in 1977.
I am a Fellow in good standing of the Institute of Minerals, Mining and
Materials, membership number 50145 and Chartered Engineer with the Engineering
Council, UK, registration number 518788. I have worked as a geologist for more
than 35 years since my graduation from University. Relevant experience has been
gained from working in the gold and base metal mining and exploration industry in
a variety of relevant projects in Botswana, Ecuador and Eritrea contributing
more than five years of relevant experience. As a result of my experience and
qualifications I am a Qualified Person as defined in NI 43-101 as relevant to
the style of mineralization and type of deposit described in the AIF, and to
the activity for which I am accepting responsibility.
I have reviewed the AIF to which
this statement of consent applies.
I am an Independent Mineral
Resource Geologist of 3 Rye Hill, Latchbrook, Saltash PL12 4UW, England. I am not
independent of the issuer (Nevsun Resources Ltd.) as described by Section 1.5
of NI 43-101, as I was formerly employed at the Bisha Mine as Chief Resource
Geologist. My most recent visit to the minesite was in August 2014.
I verify that the information in
the AIF is based on and fairly and accurately reflects in the form and context
in which it appears, the information in my supporting documentation relating to
Mineral Resources.
I consent to the release of the AIF
and this statement of consent by Nevsun Resources Ltd.
Dated this 25th day of February, 2015
“Paul Gribble”
__________________________
Signature
of Qualified Person
PAUL GRIBBLE
Print
name of Qualified Person
CONSENT OF QUALIFIED
PERSON
I, Anoush Ebrahimi,
confirm that:
I am the Qualified Person for the
Mineral Reserve section of the Annual Information Form of Nevsun
Resources Ltd. dated February 25, 2015 (“AIF”).
I have read National Instrument
43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and understand
these Standards as pertains to the work for which I am responsible as disclosed
in the AIF.
I am a principal consultant with
SRK Consulting (Canada) Inc. located at 22nd Floor, 1066 West
Hastings Street, Vancouver, BC V6E 3X2, Canada. I am a mining engineer with 24
years of experience in mining operation as well as mine planning and design.
This includes numerous base metal projects in recent years. I received a Ph.D.
degree in mining engineering from the University of British Columbia, Canada.
I am an active member of Professional Engineers and Geoscientists of British
Columbia (APEGBC). I am a Qualified Person as defined in NI 43-101, having 24
years of experience which is relevant to the activity for which I am accepting
responsibility.
I have reviewed the AIF to which
this statement of consent applies.
I am independent of Nevsun
Resources Ltd. as described by Section 1.4 of NI 43-101.
I verify that the information in
the AIF is based on and fairly and accurately reflects in the form and context
in which it appears, the information in my supporting documentation relating to
Mineral Reserve.
I consent to the release of the AIF
and this statement of consent by Nevsun Resources Ltd.
Dated this 25th day of February, 2015
“Anoush Ebrahimi”
__________________________
Signature
of Qualified Person
ANOUSH EBRAHIMI
Print name of Qualified Person
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