Filed by Avantafile.com - Nevsun Resources Ltd. - Exhibit 99.3
MANAGEMENT'S DISCUSSION & ANALYSIS
2018 SECOND QUARTER
This Management’s Discussion and
Analysis (“MD&A”) was prepared by management as at July 26, 2018 and was
reviewed and approved by the Audit Committee. The following discussion of
performance, financial condition and future prospects should be read in
conjunction with the unaudited condensed consolidated interim financial
statements of Nevsun Resources Ltd. and notes thereto for the three and six months
ended June 30, 2018, as well as the 2017 audited consolidated financial
statements and the 2017 MD&A, dated February 28, 2018, and the 2017 Amended
Annual Information Form (“AIF”), dated April 19, 2018. 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 three and six months
ended June 30, 2018, and the subsequent period up to the date of issue of this
MD&A. Unless otherwise noted, all dollar amounts are stated in millions of
United States dollars, except per ounce, per tonne, per pound, and per share
data. Due to rounding, numbers
presented throughout this MD&A may not add precisely to the totals
provided. Information on risks
associated with investing in the Company’s securities as well as information
about mineral resources and reserves under National Instrument (“NI”) 43-101
are contained in the Company’s most recently filed AIF which is available on
the Company’s website at www.nevsun.com or on SEDAR at www.sedar.com. |
TABLE OF CONTENTS
BUSINESS OF THE COMPANY
Nevsun is
headquartered in Vancouver, British Columbia. Nevsun’s mission is to build a
strong, multi-mine, mid-tier mining company, delivering shared prosperity to
all stakeholders. Nevsun’s common shares trade on the TSX and the NYSE American
LLC (“NYSE American”), under the trading symbol “NSU”. The Company’s two principal
assets are its ownership interest in the Timok Project, a high-grade
copper-gold development project in Serbia, and its 60% owned zinc-copper Bisha Mine
in Eritrea. The Company also holds a number of additional exploration licenses
and permits in Serbia, Macedonia and in the Bisha mining district.
The Timok
Project is a joint venture between the Company and Freeport-McMoRan Exploration
Corporation (“Freeport”). The Company is currently the operator of the Timok
Project and will advance the development of both the Upper Zone and the Lower
Zone. The Company will fund 100% of the Upper Zone development costs and is
funding the first $20.0 million of agreed Lower Zone work. The Company and
Freeport will fund additional Lower Zone work pursuant to the terms of its
joint venture arrangement based on their respective ownership interests in the
Lower Zone. After delivery of a feasibility study on either the Upper Zone or
Lower Zone, Freeport’s ownership in the Lower Zone will increase to 54% from its
current 40%. The Company will then own 100% of the Upper Zone and 46% of the
Lower Zone. The Company and Freeport will be entitled to their pro-rata share
of the economic benefits of the Lower Zone and the Company will be entitled to
100% of the economic benefits of the Upper Zone. From the date of acquisition
through June 30, 2018, the Company has incurred $19.7 million of agreed Lower
Zone work.
The Bisha Mine
is a Volcanogenic Massive Sulfide (“VMS”) deposit which has been in production
since February 2011. The first phase of the mine included gold production from
February 2011 to June 2013, which allowed for an early payback of
pre-production capital and funding of the supergene phase expansion.
Commissioning of the copper flotation plant at the Bisha Mine commenced in late
June 2013 and commercial production was achieved in December 2013. Mining
copper ore from the supergene phase ceased during Q2 2016. Commissioning of the
zinc plant commenced in early June 2016 and commercial production was achieved
in October 2016. The Company is now in the primary phase of the mineral deposit
at the Bisha Mine and will continue to produce both zinc and copper in
concentrate through to the end of the mine life, which is projected to the end
of 2022.
The Bisha Mine
is owned by Bisha Mining Share Company (“BMSC”), a 60% owned indirect
subsidiary of Nevsun, with the remaining 40% owned by the State-owned Eritrean
National Mining Corporation (“ENAMCO”). On December 12, 2007, BMSC was granted
a 20-year mining licence for the Bisha Mine, and on July 6, 2012, a 10-year
mining licence was granted for the Harena property, where a satellite VMS
deposit exists. In 2016, BMSC acquired additional mineral exploration licence
areas and now holds two exploration licences (Tabakin and New Mogoraib) in the
Bisha mining district which is in close proximity to the Bisha Mine. The
exploration licences, which cover 814 square kilometres, include a number of
potential satellite VMS deposits. The Company and ENAMCO continue to
investigate alternatives to extend the mine life, including potential
underground developments and a regional exploration program.
1
SECOND QUARTER HIGHLIGHTS
- Broke ground on the Timok Upper Zone exploration
decline.
- Announced initial Timok Lower Zone inferred mineral resource of 1.7
billion tonnes grading 0.86% copper and 0.18 grams per tonne gold (0.96% copper
equivalent) for 31.5 billion pounds of copper and 9.6 million ounces of gold.
- Announced Bisha Mine open pit extension through 2022.
- Achieved copper recoveries of 69.4% with implementation of the
revised reagent scheme in June.
- On track to meet full year 2018 guidance with quarterly production
of 51.3 million pounds of zinc and 8.6 million pounds of copper.
- C1 cash costs(2) within guidance
at $0.71 per payable pound of zinc sold on a by-product basis.
- Revenue adversely impacted by lower zinc prices in June, resulting
in downward provisional pricing adjustments.
- Unrestricted cash balance of $125.1 million at the end of the
quarter, of which $110.8 million is attributable to Nevsun shareholders.
|
(in millions of US dollars, unless
otherwise noted)
|
|
Q2 2018
|
|
|
Q1 2018
|
|
|
Q4 2017
|
|
|
Q2 2017
|
|
|
Revenue
|
$ |
76.4 |
|
$ |
106.7 |
|
$ |
80.6 |
|
$ |
66.1 |
|
|
Impairment reversals (charges)
|
|
5.0 |
|
|
- |
|
|
18.0 |
|
|
(69.7 |
) |
|
Earnings from mine operations (1)
|
|
2.4 |
|
|
23.4 |
|
|
15.0 |
|
|
(64.9 |
) |
|
Exploration expenses (1)
|
|
(1.6 |
) |
|
(8.2 |
) |
|
(10.2 |
) |
|
(15.2 |
) |
|
Net income (loss) (1)
|
|
(9.3 |
) |
|
0.5 |
|
|
2.2 |
|
|
(84.2 |
) |
|
Net loss attributable to Nevsun shareholders (1)
|
|
(9.4 |
) |
|
(4.5 |
) |
|
(3.8 |
) |
|
(57.9 |
) |
|
Basic loss per share attributable to Nevsun
shareholders ($/share) (1)
|
$ |
(0.03 |
) |
$ |
(0.01 |
) |
$ |
(0.01 |
) |
$ |
(0.19 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted cash
|
$ |
125.1 |
|
$ |
149.6 |
|
$ |
124.6 |
|
$ |
171.4 |
|
|
Working capital
|
|
170.4 |
|
|
187.6 |
|
|
162.3 |
|
|
172.1 |
|
|
Total assets (1)
|
|
1,074.0 |
|
|
1,093.1 |
|
|
1,086.4 |
|
|
1,120.2 |
|
|
Total non-current liabilities (1)
|
|
70.1 |
|
|
72.3 |
|
|
66.7 |
|
|
71.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc price realized, per payable pound sold ($/lb)
(3)
|
$ |
1.14 |
|
$ |
1.51 |
|
$ |
1.54 |
|
$ |
1.16 |
|
|
C1 cash cost per payable zinc pound sold, by-product basis
($/lb) (2)
|
|
0.71 |
|
|
0.58 |
|
|
1.13 |
|
|
0.68 |
|
|
C1 cash cost per payable zinc pound sold, co-product basis
($/lb) (2)
|
|
0.84 |
|
|
0.79 |
|
|
1.23 |
|
|
0.92 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper price realized, per payable pound sold ($/lb)
|
$ |
3.09 |
|
$ |
3.01 |
|
$ |
3.26 |
|
$ |
2.65 |
|
|
C1 cash cost per payable copper pound sold,
co-product basis ($/lb) (2)
|
|
1.39 |
|
|
1.56 |
|
|
2.01 |
|
|
1.59 |
|
| (1)
|
Effective December 31, 2017, the Company voluntarily elected to retrospectively change its accounting policy with respect to exploration and evaluation expenditures, and as such, certain financial measures have been restated. Please refer to the Company’s 2017 annual consolidated financial statements for the full accounting policy, and to the Company’s Q2 2018 interim financial statements for disclosure surrounding the effect of the change as at and for the three and six months ended June 30, 2017. |
| (2)
|
C1 cash cost per payable pound sold is a non-GAAP measure – see page 23 of this MD&A for discussion of non-GAAP measures and page 6 of this MD&A, Cash Costs, for explanation of per-unit costs. |
| (3)
|
Zinc price realized per payable pound sold includes provisional pricing adjustments for shipments not yet settled, including shipments in previous quarters. In Q2 2018, zinc price realized per payable pound sold of $1.14 is inclusive of downward provisional and other pricing adjustments of $0.23 per payable pound sold – see page 26 of this MD&A for a reconciliation of realized metal prices.
|
2
CORPORATE DEVELOPMENTS
The Company received notice on July 26, 2018 that Lundin Mining Corporation has made an unsolicited offer to acquire all of the issued and outstanding shares of Nevsun. The Company responded with a press release dated July 26, 2018 that is filed on SEDAR.
OPERATING REVIEW
TIMOK PROJECT UPDATE
The Company completed the pre-feasibility study (“PFS”) in Q1 2018
and the NI 43-101 Technical Report that summarizes the results of the PFS and
incorporates an initial reserve statement for the Timok Upper Zone was filed on
May 11, 2018. Following a tendering process, a contract for construction of the
exploration decline was awarded in Q2 2018 and site preparation activities
commenced in May 2018 in advance of construction of the portal and development
of the exploration decline.
In Q2 2018 the
Company also concluded a tendering process and awarded a contract to complete
the Timok Project feasibility study (“FS”). The FS is expected to be released
in mid-2019 and will continue to refine the project and optimize costs for the
construction and operation phases of the Project. Additionally, a ramp-up
scenario is being examined starting with initial
production at 1.6 million tonnes per annum ramping up to 3.25 million tonnes
per annum over a two year period. The ramp up scenario provides
opportunities for risk mitigation and the deferral of initial capital expenditure
of an estimated $100 million. Discussions with potential off takers and
potential finance providers continue to be advanced in parallel with the FS.
The Company is currently evaluating the opportunity to bring a strategic
partner in as an investor to both raise funds for the development of the
project and potentially provide complementary capabilities to the Company.
As at June 30,
2018, the Company has acquired 64% of the required private land for
construction of the Upper Zone project and 100% of the land required for
development of the exploration decline. From April 1, 2018, and following the
release of the PFS results in late March 2018, the Company has commenced the capitalization
of evaluation costs at the Timok Upper Zone incurred to expand the reserve and
its associated value. $5.7 million of evaluation expenditure was capitalized in
Q2 2018.
Work at the
Lower Zone consisted of the preparation and announcement of an initial NI
43-101 compliant inferred resource. A core relogging program is in progress to
better define the geological constraints on this resource to be used in future
economic studies.
KEY OPERATING INFORMATION – BISHA MINE
In Q2, the Bisha
Mine maintained total quarterly material movement above five million tonnes for
the third consecutive quarter. This sustained improvement in mine performance
reflects the deployment of new heavy mining equipment (“HME”), and the
implementation of a plan for in-pit waste dumping with favourable impacts on
haulage distance. The mine is expected to continue to benefit from the in-pit
waste dumping until the end of 2018. These benefits were offset by variances to
the mine plan which resulted in tighter ore supply in the pit. Lower grade ore
encountered outside of the reserve model on the western side of the open pit maintained
the supply of primary ore to the process plant, but resulted in lower zinc feed
grade in Q2 2018.
Plant throughput
decreased in the quarter due to a planned maintenance shut down in April together
with several breakdown events in May and June. The modified reagent scheme was implemented
in June following procurement of sustainable stock levels of sodium meta
bisulphate (“SMBS”) and some required circuit modifications. This has resulted
in significantly improved copper recovery and copper concentrate grades, with
recent copper concentrate grades of up to 24% now in line with industry
standards, in contrast with copper concentrate grades of less than 20% produced
in 2017. The implementation followed a successful 31-day plant trial of this
approach completed in Q1 2018. These improvements were partially offset by a
small decrease in the copper feed grade. Lower zinc feed grades resulted in a
decrease in both zinc recoveries and zinc production from Q1 2018.
3
| |
|
Q2 2018
|
|
|
Q1 2018
|
|
|
Q4 2017
|
|
|
Q2 2017
|
|
|
Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ore mined, tonnes (1)
|
|
582,000 |
|
|
640,000 |
|
|
362,000 |
|
|
654,000 |
|
| Waste mined, tonnes |
|
4,900,000 |
|
|
4,525,000 |
|
|
4,981,000 |
|
|
3,739,000 |
|
| Strip ratio, using tonnes |
|
8.4 |
|
|
7.1 |
|
|
13.8 |
|
|
5.7 |
|
|
Processing
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ore milled, tonnes |
|
491,000 |
|
|
563,000 |
|
|
520,000 |
|
|
590,000 |
|
| Zinc feed grade, % |
|
6.1 |
|
|
7.1 |
|
|
6.9 |
|
|
5.3 |
|
| Copper feed grade, % |
|
1.1 |
|
|
1.2 |
|
|
1.2 |
|
|
0.8 |
|
| Recovery, % of zinc |
|
77.6 |
|
|
81.1 |
|
|
72.6 |
|
|
62.2 |
|
| Recovery, % of copper(2)
|
|
69.4 |
|
|
61.5 |
|
|
27.4 |
|
|
51.6 |
|
| Zinc concentrate grade, % |
|
47.8 |
|
|
47.8 |
|
|
45.6 |
|
|
41.5 |
|
| Copper concentrate grade, %(2)
|
|
21.5 |
|
|
20.9 |
|
|
18.7 |
|
|
17.4 |
|
| Zinc in concentrate produced, millions of pounds |
|
51.3 |
|
|
71.6 |
|
|
57.7 |
|
|
43.0 |
|
| Zinc in concentrate produced, tonnes |
|
23,300 |
|
|
32,500 |
|
|
26,100 |
|
|
19,500 |
|
| Copper in concentrate produced, millions of pounds |
|
8.6 |
|
|
8.9 |
|
|
3.6 |
|
|
5.7 |
|
| Copper in concentrate produced, tonnes |
|
3,900 |
|
|
4,100 |
|
|
1,600 |
|
|
2,600 |
|
| Payable zinc in concentrate sold, millions of pounds |
|
53.8 |
|
|
53.4 |
|
|
44.6 |
|
|
34.3 |
|
| Payable zinc in concentrate sold, tonnes |
|
24,400 |
|
|
24,200 |
|
|
20,200 |
|
|
15,400 |
|
| Payable copper in concentrate sold, millions of pounds |
|
4.3 |
|
|
7.8 |
|
|
3.6 |
|
|
7.7 |
|
| Payable copper in concentrate sold, tonnes |
|
2,000 |
|
|
3,500 |
|
|
1,600 |
|
|
3,500 |
|
| (1)
|
Ore tonnes mined for the three and six months ended June 30, 2018 consisted of 582,000 and 1,222,000 tonnes of primary ore (Q2 2017 – 643,000 and 1,237,000 tonnes of primary ore and 11,000 and 68,000 tonnes of supergene ore).
|
| (2)
|
Represents the copper recovery to copper concentrate from the copper flotation circuit only, and excludes copper recovered to zinc concentrates.
|
4
2018 OUTLOOK
UPDATE
Through the
first half of 2018, the Company achieved three 2018 objectives for the Timok
Project, with the completion of the PFS, the commencement of the exploration
decline and the declaration of an inferred resource on the Lower Zone.
Through the second half of 2018, the Company will complete the initial study
work on the Timok ramp up scenario and advance the feasibility study, with
expected completion in mid-2019. Land acquisition and permitting activities will
continue to advance in parallel with a significant majority of the private
land required for the Timok Project expected to be purchased in 2018.
The Company’s previously
published 2018 outlook production is 210 to 240 million pounds of zinc and 20
to 30 million pounds of copper. Zinc production in the first half of the year
was 122.9 million pounds. The Company expects to revert to processing
higher-grade material in the second half of 2018 and remains confident that
it will achieve its 2018 zinc production guidance. Copper
production in the first half of the year was 17.5 million pounds and it continues
tracking toward the higher end of guidance.
C1 cash costs
per payable pound of zinc sold on a by-product basis are expected to be $0.60
to $0.80 in 2018. C1 cash costs on a by-product basis were $0.65 in the first
half of the year and the Company expects it to remain within the expected
range in 2018.
RESULTS OF OPERATIONS FOR THE SECOND QUARTER 2018
PRODUCTION AND SALES
The Company
produced 51.3 million pounds of zinc in zinc concentrate and 8.6 million pounds
of copper in copper concentrate during Q2 2018 by processing 491,000 tonnes of
primary ore, with a feed grade of 6.1% zinc and 1.1% copper. Zinc recoveries of
77.6% in Q2 2018 decreased from 81.1% in Q1 2018 as a result of lower feed
grade while copper recoveries of 69.4% increased from 61.5% in the same period.
During Q2 2018
total material movement in the mine performed well, reflecting the deployment
of new HME and the implementation of a plan for in-pit waste dumping with
favorable impacts on haulage distance. The mine is expected to continue to
benefit from the in-pit waste dumping until the end of 2018. These benefits
were offset by variances to the mine plan which resulted in tighter ore supply
in the pit. Lower grade ore encountered outside of the reserve model on the
western side of the open pit maintained the supply of primary ore to the
process plant, but resulted in lower zinc feed grade in Q2 2018.
The continued
improvement in mining capability and the availability of additional ore outside
of the reserve model allowed for the processing of primary ore throughout Q2
2018, which continues to benefit copper recoveries. The
decrease in ore milled in Q2 2018 resulted from reduced operating time for maintenance
activities. This, together with reduced feed grades, resulted in zinc in concentrate
produced of 51.3 million pounds in Q2 2018 decreasing from 71.6 million pounds
in Q1 2018. The implementation of the SMBS reagent scheme in mid-June continued
to benefit copper-zinc selectivity and resulted in improved copper concentrate
grade and copper recovery from Q1 2018. Zinc recovery decreased from Q1 2018 as
a result of lower feed grade.
During Q2 2018,
the Company sold 53.8 million pounds of payable zinc in zinc concentrate and 4.3
million pounds of payable copper in copper concentrate, compared to 53.4
million pounds of payable zinc and 7.8 million pounds of payable copper, respectively,
in Q1 2018. Concentrate grades averaged 47.8% for zinc and 21.5% for copper. Revenue
was negatively influenced by the significant decrease in realized zinc price in
Q2 2018 to $1.14 per payable pound sold from $1.51 in Q1 2018. The decrease
reflects a weakening of zinc prices in June 2018 and negative provisional
pricing adjustments for shipments not yet settled, including shipments in
previous quarters.
5
EARNINGS FROM MINE OPERATIONS AND CASH FLOW PROVIDED
BY OPERATING ACTIVITIES
The Company
generated earnings from mine operations of $2.4 million during Q2 2018, compared
to $23.4 million during Q1 2018. The decrease is largely as a result of lower
revenues due to the significant decrease in zinc prices in June 2018, combined
with lower volumes of payable copper in copper concentrate sold.
Q2 2018 earnings
from mine operations were further reduced by higher operating costs, which
include higher reagent costs, due to the revised reagent scheme, fuel costs,
due to higher fuel prices, and mining costs, due to the increased strip ratio. Earnings
from mine operations also include significant non-cash depreciation, as a
result of the reduction in mine life in mid-2017 and the acceleration of
depreciation expense. The subsequent mine life extension to 2022, as announced
in June 2018, reduced depreciation expense by approximately $1.8 million in the
month of June and will lower depreciation expense in future periods.
Cash flows
generated by operating activities before income taxes were $12.3 million in Q2
2018 as compared to $36.2 million in Q1 2018 and were negatively influenced by
lower revenue during the period.
CASH COSTS
C1 cash costs
have been calculated on a by-product cost basis for zinc, treating copper sales
as a by-product credit to reported zinc sales. C1 costs are also presented on
co-product bases for zinc and copper, which allocates joint costs based on
expected revenue from actual production in order to provide consistency with reporting
from previous periods.
On a by-product
basis, C1 cash costs per payable pound of zinc sold for Q2 2018 totalled $0.71,
comprised of operating expenses and selling costs of $0.82 and treatment
charges of $0.02, offset by by-product credits of $0.13. By-product credits represent
the net margin realized on copper sales. C1 cash costs were negatively
influenced in Q2 2018 by continued higher maintenance costs, increased fuel
costs and increased reagent usage. C1 cash costs were also negatively
influenced by decreases in zinc feed grade and overall zinc production as
compared to the previous quarter. Copper sales in Q2 2018 were also lower than
in Q1 2018 resulting in reduced by-product credits.
C1 cash costs
per payable pound of zinc sold on a co-product basis for Q2 2018 totalled $0.84
(Q2 2017 – $0.92), comprised of operating expenses and selling costs of $0.82
(Q2 2017 – $0.88) and treatment charges of $0.02 (Q2 2017 – $0.05), offset by
by-product credits of nil (Q2 2017 – $0.01).
C1 cash costs
per payable pound of copper sold on a co-product basis for Q2 2018 totalled $1.39
(Q2 2017 - $1.59), comprised of operating expenses and selling costs of $1.77 (Q2
2017 - $1.92) and treatment and refining charges of $0.42 (Q2 2017 - $0.43),
offset by by-product credits of $0.80 (Q2 2017 - $0.76).
6
STOCKPILED MATERIALS
The composition
of stockpiled materials (tonnes) at the Bisha Mine as at June 30, 2018, is as
follows:
| |
|
Total
|
|
|
Current
|
|
|
Non-current
|
|
|
Written-down(1)
|
|
|
Primary ore
|
|
2,072,000 |
|
|
207,000 |
|
|
600,000 |
|
|
1,265,000(2
|
) |
|
Supergene ore
|
|
80,000 |
|
|
- |
|
|
80,000 |
|
|
- |
|
|
Oxide ore
|
|
106,000 |
|
|
- |
|
|
- |
|
|
106,000 |
|
|
Pyrite sand ore
|
|
395,000 |
|
|
- |
|
|
- |
|
|
395,000 |
|
| (1)
|
The carrying values of these stockpiled materials remain fully impaired for accounting purposes as at June 30, 2018.
|
| (2)
|
The quantity of written-down primary ore stockpiles has decreased from 1,500,000 as at December 31, 2017 due to a change to the specific gravity factor used during the month-end survey process. This decrease has had no effect on the financial results of the Company during the period.
|
At June 30, 2018, there were four distinct types of stockpiled
material – 2,072,000 tonnes of primary ore, which is predominantly “zinc-only”
ore material, 80,000 tonnes of supergene ore, 106,000 tonnes of oxide ore, and 395,000
tonnes of pyrite sand material.
The zinc-only
primary ore stockpiles, consisting of 1,865,000 tonnes of material, are not
homogenous, with known variations in grades and mineralogy, and have been
segregated into different stockpiles based on these characteristics. Of the
total amount, approximately 600,000 tonnes contain high and medium zinc grades,
and are demonstrably economic when assuming metallurgical recovery rates and
zinc concentrate qualities consistent with those achieved during zinc-only
plant trials in late 2017, and using current estimates for zinc metal prices,
commercial terms and operating costs. The 600,000 tonnes, which are recognized
in inventory at their original carrying amount, have been included in the
updated Bisha Mine reserve statement as of December 31, 2017. They are
classified as non-current inventory as no quantities of this stockpile are currently
planned to be processed within the next twelve months. The remaining
1,265,000 tonnes of zinc-only material, which are either low grade or possess
challenging metallurgical characteristics, are not currently expected to be
processed and remain fully impaired for accounting purposes.
The stockpiled
quantities of oxide ore and pyrite sand ore are also fully impaired for
accounting purposes as of June 30, 2018.
The Company
continues to periodically mine small pockets of supergene ore in the main ore
body during the primary phase. The Company has no plans to process this stockpile
within the next 12 months, and as such the supergene ore has been classified as
non-current.
7
EXPLORATION
Bisha
In Q2 2018,
diamond drilling for geotechnical evaluation was completed on the Harena (4,566
metres in 9 holes) and Asheli (2,364 metres in 7 holes) deposits to further
evaluate the potential to mine the deposits. Drilling at Asheli was
particularly successful with the true thickness of the mineralization often
exceeding the thicknesses encountered during the initial drilling of this
deposit.
In Q2 2018,
diamond drilling at Bisha consisted of 4,516 metres of exploration diamond
drilling (18 holes) on the Mogoraib Exploration Licence and 1,072 metres of
exploration diamond drilling (5 holes) on the Tabakin Exploration License.
Reverse circulation drilling consisted of 1,996 metres (17 holes) on the
Mogoraib Exploration License and 120 metres in one hole on the Bisha Mining
License. In addition, ground and borehole geophysical surveying, soil and rock
geochemistry and other geological work was also completed on the Mogoriab,
Tabakin and Bisha Licenses. The primary area of focus was the testing of
geophysical and soil geochemical targets on the Mogoraib River Exploration License.
No new zones of significant mineralization were encountered. Limited drilling
of nickel sulphide targets was also undertaken, with low grade massive
sulphides being encountered on the Tabakin Exploration License.
Timok Project
In Q2 2018, diamond
drilling on the Timok Project consisted of regional exploration drilling on the
Brestovac Metovnica property in search for additional high sulphidation
epithermal mineralization like that of the Upper Zone. Exploration drilling
resumed in the Eastern Target 2 area 500 metres east of the Upper Zone with
three holes currently in progress. Strong Upper Zone style alteration with
associated pyrite, enargite and minor covellite mineralization typical of the
outer edge of the Upper Zone is being encountered. Recent work has
highlighted another area immediately to the west of the Upper Zone with similar
high potential.
Drilling also
continued as part of a condemnation drill program aimed to ensure that no
significant mineralization is present near proposed infrastructure where this
infrastructure could be impacted by, or sterilize this mineralization. A total
of 2,633 metres of drilling was completed in four holes.
With improving
weather conditions, versatile transient electromagnetic surveying (“VTEM”) resumed
in Q2 2018 on the Jasikovo–Durlan Potok and Leskovo–Jasikovo properties.
Tilva, BEM and Macedonia
During Q2 2018,
drilling resumed in hole NRNK17003 on the Nikolicevo property that forms part
of the Tilva Joint Venture with Rio Tinto. Encouraging alteration in andesitic
volcanic rocks and sulphide-bearing fragmental rocks were encountered.
Follow-up geophysical work and additional drilling is planned at this target in
Q3 2018 and drilling of a separate target is in progress. In Q2 2018, a total
of 966 metres of drilling in two holes was completed on the Nikolicevo license.
Drilling was
initiated and is in progress on the BEM Donja Studena property to evaluate the
sedimentary copper model concept. A total of 713 metres of drilling in four
holes was completed in Q2 2018 with results still pending. Drilling also
resumed at the Parlozi project where one hole was in progress at a depth of 42
metres.
In Macedonia, an
induced polarization survey was completed over the Dvorishte license in Q2 2018
which has defined a large chargeability feature that will be the subject of
drilling in Q3 2018.
8
RESERVES AND RESOURCES
On March 27,
2018, the Company published updated mineral reserve and resources for the Bisha
Mine. Please refer to the Company’s 2017 AIF for more information.
On May 11, 2018,
the Company filed a NI 43-101 PFS for the Timok Upper Zone declaring an initial
probable mineral reserve with 27 million tonnes at 3.3% copper and 2.1 grams
per tonne gold using a price of $3.00 per pound copper and $1,300 per ounce
gold. In Q2 2018, following the release of the PFS results in late March 2018,
the Company commenced the capitalization of evaluation costs at the Timok Upper
Zone incurred to expand the reserve and its associated value.
On June 26, 2018,
the Company announced a NI 43-101 compliant initial inferred mineral resource
for the Timok Lower Zone with 1.7 billion tonnes grading 0.86% copper and 0.18
grams per tonne gold (0.96% copper equivalent) for 31.5 billion pounds of
copper and 9.6 million ounces of gold. The Company expects to file a NI 43-101
Technical Report incorporating the initial resource statement for the Timok
Lower Zone in Q3 2018.
CORPORATE SOCIAL RESPONSIBILITY
The Company
continues with its transparent approach to operations and contributions to the
communities in which it operates, including the reporting of funds paid to the
State of Eritrea in the form of taxes and royalties. The Company issued its
2017 annual CSR report on July 5, 2018.
DIVIDENDS
The Company
announced in January 2018 that it would be suspending declarations of
dividends, and as such no dividends were declared by the Company during the
three and six months ended June 30, 2018. During the six months ended June 30,
2017, the Company declared two dividends of $0.01 per share for a total
declaration of $6.0 million.
FINANCIAL
RESULTS – THREE MONTHS ENDED JUNE 30, 2018
The following variances result when comparing operations for
the three-month period ended June 30, 2018, with the same period of the prior
year:
| |
|
Three months ended June 30 |
|
|
(in millions of US dollars, unless
otherwise noted)
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Revenues
|
$ |
76.4 |
|
$ |
66.1 |
|
$ |
10.3 |
|
|
Operating expenses
|
|
52.1 |
|
|
44.7 |
|
|
7.4 |
|
|
Royalties
|
|
5.0 |
|
|
3.6 |
|
|
1.4 |
|
|
Depreciation and depletion(1)
|
|
21.9 |
|
|
13.0 |
|
|
8.9 |
|
|
Impairment charges (reversals)
|
|
(5.0 |
) |
|
69.7 |
|
|
(74.7 |
) |
|
Exploration expenses(1)
|
|
1.6 |
|
|
15.2 |
|
|
(13.6 |
) |
|
Administrative
|
|
9.0 |
|
|
6.0 |
|
|
3.0 |
|
|
Finance costs
|
|
0.5 |
|
|
0.5 |
|
|
0.0 |
|
|
Finance income
|
|
0.3 |
|
|
0.4 |
|
|
(0.1 |
) |
|
Income tax expense (recovery)(1)
|
|
0.8 |
|
|
(1.9 |
) |
|
2.7 |
|
| (1)
|
Effective December 31, 2017, the Company voluntarily elected to retrospectively change its accounting policy with respect to exploration and evaluation expenditures, and as such, certain financial measures have been restated. Please refer to the Company’s 2017 annual consolidated financial statements for the full accounting policy, and to the Company’s Q2 2018 interim financial statements for disclosure surrounding the effect of the change as at and for the three and six months ended June 30, 2017. Comparative discussions below on financial statement classifications impacted by this change in accounting policy are denoted by the term “(Restated)” in the header.
|
9
REVENUES
The Company’s Q2
2018 revenues of $76.4 million (Q2 2017 - $66.1 million) are comprised of zinc
concentrate sales of $62.6 million (Q2 2017 – $39.7 million), zinc concentrate
by-product sales of $0.1 million (Q2 2017 – $0.2 million), copper concentrate
sales of $13.3 million (Q2 2017 – $20.4 million), copper concentrate by-product
sales of $3.4 million (Q2 2017 – $5.9 million) and other revenue of $nil (Q2
2017 – $4.8 million), offset by zinc concentrate treatment and refining charges
of $1.2 million (Q2 2017 – $1.6 million) and copper concentrate treatment and
refining charges of $1.8 million (Q2 2017 – $3.3 million).
Zinc revenues include sales of 53.8 million payable pounds of zinc
(Q2 2017 – 34.3 million) at an average realized price per pound of $1.14 (Q2 2017
– $1.16). Zinc sales are net of downward provisional and final pricing and
physical quantity adjustments of $12.2 million (Q2 2017 – $4.1 million). The increase
in provisional pricing adjustments reflect a weakening of zinc prices in June
2018 and the resulting downward adjustments for shipments not yet settled,
including shipments in previous quarters.
Copper revenues include sales of 4.3 million payable pounds of
copper (Q2 2017 – 7.7 million) at an average realized price per pound of $3.09 (Q2
2017 – $2.65). Copper sales are net of downward provisional and final pricing
and physical quantity adjustments of $0.2 million (Q2 2017 – positive
adjustments of $0.7 million). Sales in Q2 2018 increased over those realized in
Q2 2017 primarily as a result of improved production of copper.
The Company did
not complete any additional sales of direct shipped ore (“DSO”) in Q2 2018. In
Q2 2017, the Company completed DSO sales which contained approximately 6,000
gold equivalent ounces from stockpiled material that resulted in other revenue
of $4.8 million. The gold equivalent ounces were calculated based on a ratio of
71:1 silver to gold.
OPERATING EXPENSES
The Company
recorded operating expenses of $52.1 million in Q2 2018 (Q2 2017 - $44.7
million). Operating expenses incurred during Q2 2018 have increased over the
comparative period as a result of several factors. Firstly, maintenance of HME continues
to be outsourced to a contractor resulting in higher costs but improved
availabilities of equipment. The new HME that arrived on site in late 2017 and
early 2018 are now fully operational, which has allowed for a sustained focus
on maintenance of older assets. Additionally, Q2 2018 operating expenses
reflect increased reagent usage, which has had a positive impact on copper
recoveries and copper concentrate grades. Fuel costs are also higher as the
cost of fuel on a per-litre basis has increased over the Q2 2017 period.
Lastly, as a result of increased sales volumes during Q2 2018, higher transport
and shipping costs were incurred.
10
ROYALTIES
The Company
incurs a 3.5% royalty on the sale of base metals and a 5% precious metals
royalty on the sale of gold and silver. For Q2 2018, royalty expense of $5.0
million (Q2 2017 – $3.6 million) was recorded. Royalties are payable at the
time concentrate shipments leave the mine, which precedes the revenue
recognition point.
The Company is
required to remit royalties on metals within concentrate on a contained, rather
than payable, basis. The Company has held discussions with the Eritrean
Ministry of Energy & Mines (“MEM”) in order to obtain relief from the
payment of royalties on such a basis as it effectively increases the royalty
rates beyond the existing 3.5% for base metals and 5% for precious metals,
however the MEM has not altered its position.
DEPRECIATION AND DEPLETION (RESTATED)
During Q2 2018,
depreciation and depletion of $21.9 million (Q2 2017 – $13.0 million) was
recorded. Depreciation is calculated primarily using the units-of-production
method with metal pounds produced and ore tonnes mined as the basis for the
calculation. Fixed assets such as mobile equipment and buildings are amortized
using the declining balance method. Depreciation recorded during Q2 2018 was
higher than Q2 2017 as a result of a shorter mine life in effect during Q2 2018
as compared to the mine life in effect during Q2 2017, which results in an increased
per-unit rate of depreciation for assets depreciated using the units of
production method. Additionally, in Q3 2017, the Company increased the
declining balance amortization rates of its remaining fixed assets in order to
ensure sufficient amortization is taken through to the end of the mine life. In
addition to higher rates of depreciation, depreciation in Q2 2018 has also
increased as new assets have been brought into use in 2018, namely the Phase
III tailings management facility lift and HME additions. The above-noted
increases in depreciation were partially offset by the June 2018 announcement
of a mine life extension to 2022. The extension
decreased the per-unit rate of depreciation for assets depreciated using the
units of production method resulting in a reduction in depreciation expense of
approximately $1.8 million in the month of June.
IMPAIRMENT CHARGES
In Q2 2017 the Company recorded a write down of $69.7 million in connection
with a revised life of mine plan. The write down was comprised of $58.8 million
of long term stockpiles for material which was no longer in the life of mine
plan and $10.9 million of equipment and related materials and supplies
inventory for which it was estimated that there was no longer any useful life.
$21.0 million of the write down was reversed in the second half of 2017
comprising $19.6 million of stockpiles that were deemed economic and $1.4
million relating to revisions of estimates of property, plant and equipment
that were originally deemed to be non-operational and therefore obsolete.
During Q2 2018, an
additional $5.0 million of impairment charges related to mine equipment and
related materials and supplies inventory were reversed. As a result of the extended
mine life announced in June 2018, it was determined that certain equipment previously
written-down would be able to conduct additional waste mining as part of the
extended life of mine plan. The reversal of impairment charge relates to these
assets.
11
EXPLORATION EXPENSES (RESTATED)
As disclosed in the Company’s 2017 annual consolidated
financial statements, the Company has voluntarily changed its accounting policy
for expenditures on exploration and evaluation, with all such expenditures now
expensed until proven and probable mineral reserves have been declared, and the
Company believes that further work will add economic value to those reserves.
Exploration expense consists of activities such as drilling, assaying,
sampling, technical studies and related administrative expenditures.
During Q2 2018, the Company incurred exploration expense of $1.6
million (Q2 2017 – $15.2 million) comprised of $1.2 million incurred at the
Bisha Mine (Q2 2017 – $2.9 million), no expenditures incurred at the Timok
Upper Zone region (Q2 2017 - $6.4 million), $0.2 million incurred at the Timok
Project Lower Zone (Q2 2017 – $5.8 million) and $0.1 million incurred at the
Company’s other properties in Serbia and Macedonia (Q2 2017 – $0.1 million).
In Q2 2018,
following the release of the PFS results in late March 2018, the Company commenced
the capitalization of evaluation costs at the Timok Upper Zone incurred to
expand the reserve and its associated value. $5.7 million incurred on the Timok
Project Upper Zone was capitalized in Q2 2018 (nil in Q2 2017).
ADMINISTRATIVE
Administrative
costs for Q2 2018, comprising head office costs including salaries and employee
benefits, share-based payments, business development and other general
administrative expenses were $9.0 million, up from $6.0 million in Q2 2017.
Salaries and employment benefits, including share-based payments and long-term
incentive compensation, decreased slightly from $4.3 million for Q2 2017 to $4.2
million for Q2 2018. Other administrative expenses increased from $1.7 million
during Q2 2017 to $4.8 million during Q2 2018. The increase is predominantly
due to a $3.0 million accrual for the Canaccord claim.
FINANCE COSTS
Finance costs in
Q2 2018 of $0.5 million (Q2 2017 – $0.5 million) are comprised entirely of
accretion expense on the Company's reclamation liability.
FINANCE INCOME
Finance income
for Q2 2018 of $0.3 million (Q2 2017 – $0.4 million) is comprised of interest
earned on cash and cash equivalent balances
INCOME TAXES (RESTATED)
Income tax
expense for Q1 2018 of $0.8 million (Q2 2017 - recovery of $1.9 million)
relates to the Bisha Mine which has a statutory tax rate is 38%. Income tax
expense has increased as a result of improved financial results and higher
taxable income.
12
FINANCIAL RESULTS
– SIX MONTHS ENDED JUNE 30, 2018
The following variances result when comparing operations for
the six-month period ended June 30, 2018, with the same period of the prior
year:
| |
|
Six months ended June 30 |
|
| (in millions of US dollars, unless otherwise noted) |
|
2018 |
|
|
2017 |
|
|
Change
|
|
| Revenues |
$ |
183.2 |
|
$ |
137.7 |
|
$ |
45.5 |
|
| Operating expenses |
|
107.3 |
|
|
85.2 |
|
|
22.1 |
|
| Royalties |
|
10.4 |
|
|
9.9 |
|
|
0.5 |
|
| Depreciation and depletion(1) |
|
44.6 |
|
|
25.9 |
|
|
18.7 |
|
| Impairment charges (reversals) |
|
(5.0 |
) |
|
69.7 |
|
|
(74.7 |
) |
| Exploration expenses(1) |
|
9.8 |
|
|
28.3 |
|
|
(18.5 |
) |
| Administrative |
|
14.5 |
|
|
10.7 |
|
|
3.8 |
|
| Finance costs |
|
1.0 |
|
|
1.0 |
|
|
- |
|
| Finance income |
|
0.6 |
|
|
0.7 |
|
|
(0.1 |
) |
| Income taxes(1) |
|
9.9 |
|
|
1.0 |
|
|
8.9 |
|
| (1)
|
Effective December 31, 2017, the Company voluntarily elected to retrospectively change its accounting policy with respect to exploration and evaluation expenditures, and as such, certain financial measures have been restated. Please refer to the Company’s 2017 annual consolidated financial statements for the full accounting policy, and to the Company’s Q2 2018 interim financial statements for disclosure surrounding the effect of the change as at and for the three and six months ended June 30, 2017. Comparative discussions below on financial statement classifications impacted by this change in accounting policy are denoted by the term “(Restated)” in the header.
|
REVENUES
The Company’s revenues
for the six months ended June 30, 2018 of $183.2 million (six months ended June 30, 2017 - $137.7 million) are
comprised of zinc concentrate sales of $143.3 million (six months ended June
30, 2017 – $107.6 million), zinc concentrate by-product sales of $1.7 million (six
months ended June 30, 2017 – $7.3 million), copper concentrate sales of $36.8
million (six months ended June 30, 2017 – $20.4 million), copper concentrate
by-product sales of $8.8 million (six months ended June 30, 2017 – $5.9 million),
and other revenue of $nil (six months ended June 30, 2017 – $7.5 million), offset
by zinc concentrate treatment and refining charges of $2.4 million (six months
ended June 30, 2017 – $7.6 million) and copper concentrate treatment and
refining charges of $5.0 million (six months ended June 30, 2017 – $3.3 million).
13
Sales in the six
months ended June 30, 2018 increased over those realized in the six months
ended June 30, 2017 largely as a result of improved production of both zinc and
copper, higher metals prices, and the drawdown of concentrate stockpiles
through six months ended June 30, 2018 from December 31, 2017.
Zinc revenues
include sales of 107.2 million payable pounds of zinc (six months ended June 30,
2017 – 87.2 million) at an average realized price per pound of $1.34 (six
months ended June 30, 2017 – $1.23). Zinc sales are net of downward provisional
and final pricing and physical quantity adjustments of $14.9 million (six
months ended June 30, 2017 – $2.5 million). The increase in provisional pricing
adjustments reflects a weakening of zinc prices in June 2018 and the resulting
downward adjustments for shipments not yet settled.
Copper revenues
include sales of 12.1 million payable pounds of copper (six months ended June
30, 2017 – 7.7 million) at an average realized price per pound of $3.04 (six
months ended June 30 2017 – $2.65). Copper sales are net of downward
provisional and final pricing and physical quantity adjustments of $0.7 million
(six months ended June 30, 2017 – positive adjustments of $0.7 million).
The Company did
not complete any additional sales of direct shipped ore (“DSO”) in six months
ended June 30, 2018. In six months ended June 30, 2017, the Company completed DSO
sales which contained approximately 10,000 gold equivalent ounces from
stockpiled material that resulted in other revenue of $7.5 million. The gold
equivalent ounces were calculated based on a ratio of 71:1 silver to gold.
OPERATING EXPENSES
The Company
recorded operating expenses of $107.3 million in six months ended June 30, 2018
(six months ended June 30, 2017 - $85.2 million). In the six months ended June
30, 2017, operating expenses were net of a $9.8 million non-recurring credit
related to the recovery of withholding taxes on contractor payments overpaid in
prior years. After removing the non-recurring credit, operating expenses in the
six months ended June 30, 2018 of $107.3 million are 13% higher than adjusted operating
expenses in the six months ended June 30, 2017 of $95.0 million.
Operating
expenses incurred during the six months ended June 30, 2018 have increased over
the comparative period as a result of several factors. Firstly, maintenance of
HME continues as the mining department works towards continual improvement of
availabilities and usage rates. The new HME that arrived on site in late 2017
and early 2018 are now fully operational, which has allowed for a sustained
focus on maintenance of older assets. Additionally, in the six months ended
June 30, 2018, operating expenses reflect increased reagent usage, which has
had a positive impact on copper recoveries and copper concentrate grades. Fuel
costs are also higher as the cost of fuel on a per-litre basis has increased
over the six months ended June 30, 2017 period. Lastly, as a result of
increased sales volumes during the six months ended June 30, 2018, higher
transport and shipping costs were incurred.
ROYALTIES
The Company incurs a 3.5% royalty on the sale of base metals and a 5%
precious metals royalty on the sale of gold and silver. For the six months ended
June 30, 2018, royalty expense of $10.4 million (six months ended June 30, 2017
– $9.9 million) was recorded. Royalties are payable at the time concentrate
shipments leave the mine, which precedes the revenue recognition point.
14
Despite revenue being
over 30% higher in the six months ended June 30, 2018, royalty expense is only 5%
higher than in the six months ended June 30, 2017 as the six months ended June
30, 2017 amount includes $1.6 million related to 2016 production that had
originally been accrued on a payable, rather than contained, basis.
DEPRECIATION AND DEPLETION (RESTATED)
During the six months ended June 30, 2018, depreciation
and depletion of $44.6 million (six months ended June
30, 2017 – $25.9 million) was recorded. Depreciation is
calculated primarily using the units-of-production method with metal pounds
produced and ore tonnes mined as the basis for the calculation. Fixed assets
such as mobile equipment and buildings are amortized using the declining
balance method. Depreciation recorded during the six
months ended June 30, 2018 was higher than in the six months ended June 30, 2017 as a result
of a shorter mine life being in effect during the 2018 period as compared to
the 2017 period, which results in an increased per-unit rate of depreciation
for assets depreciated using the units of production method. Additionally, in
Q3 2017, the Company increased the declining balance amortization rates of its
remaining fixed assets in order to ensure sufficient amortization is taken
through to the end of the mine life. In addition to higher rates of
depreciation, depreciation in the six months ended June 30, 2018 has also
increased as new assets have been brought into use, namely the Phase III
tailings management facility lift and new HME additions. The above-noted
increases in depreciation were partially offset by the June 2018 announcement
of a mine life extension to 2022. The extension
decreased the per-unit rate of depreciation for assets depreciated using the units
of production method resulting in a reduction in depreciation expense of
approximately $1.8 million in the month of June.
IMPAIRMENT CHARGES
In the six months ended June 30, 2017, the Company recorded a
write down of $69.7 million in connection with a revised life of mine plan. The
write down was comprised of $58.8 million of long term stockpiles for material
which was no longer in the life of mine plan and $10.9 million of equipment and
related materials and supplies inventory for which it was estimated that there
was no longer any useful life. $21.0 million of the write down was reversed in
the second half of 2017 comprising $19.6 million of stockpiles that were deemed
economic and $1.4 million relating to revisions of estimates of property, plant
and equipment that were originally deemed to be non-operational and therefore
obsolete.
During the six months ended June 30, 2018, a further $5.0
million of impairment charges related to mine equipment and related materials
and supplies inventory were reversed. As a result of the extended mine life
announced in June 2018, it was determined that certain equipment previously
written-down would be able to conduct additional waste mining as part of the
extended life of mine plan. The reversal of impairment charge relates to these
assets.
EXPLORATION EXPENSES (RESTATED)
As disclosed in the Company’s 2017 annual consolidated
financial statements, the Company has voluntarily changed its accounting policy
for expenditures on exploration and evaluation, with all such expenditures now
expensed until proven and probable mineral reserves have been declared, and the
Company believes that further work will add economic value to those reserves.
Exploration expense consists of activities such as drilling, assaying,
sampling, technical studies and related administrative expenditures.
15
During the six months ended June 30, 2018, the Company
incurred exploration expenses of $9.8 million (six months ended June 30, 2017 –
$28.3 million) comprised of $3.2 million incurred at the Bisha Mine (six months
ended June 30, 2017 – $5.6 million), $4.6 million incurred on the Timok Project
Upper Zone (six months ended June 30, 2017 – $13.7 million), $1.2 million incurred
on the Timok Project Lower Zone (six months ended June 30, 2017 – $8.7 million)
and $0.7 million incurred on the Company’s other properties in Serbia and
Macedonia (six months ended June 30, 2017 – $0.3 million).
From April 1,
2018 and following the release of the PFS results in late March 2018, the
Company has commenced the capitalization of evaluation costs at the Timok Upper
Zone incurred to expand the reserve and its associated value. $5.7 million
incurred on the Timok Project Upper Zone was capitalized in the six months
ended June 30, 2018 (nil in the six months ended June 30, 2017).
ADMINISTRATIVE
Administrative
costs for the six months ended June 30, 2018, comprising head office costs
including salaries and employee benefits, share-based payments, business
development and other general administrative expenses were $14.5 million, up
from $10.7 million in the six months ended June 30, 2017. Salaries and
employment benefits, including share-based payments and long-term incentive
compensation, decreased from $7.7 million for the six months ended June 30, 2017
to $6.8 million for the six months ended June 30, 2018. The decrease is due to
the expedited vesting of some of the Company’s cash-settled share unit
incentives in the six months ended June 30, 2017, offset by an increase in the
valuation of long-term incentives in the six months ended June 30, 2018, the
fair value of which is based on the Company’s share price, which has increased during
the same period. Other administrative expenses increased from $3.0 million during
the six months ended June 30, 2017 to $7.7 million during the six months ended
June 30, 2018, due to a $3.0 million accrual related to the Canaccord claim, as
well as higher travel, consulting, office and business development costs.
FINANCE COSTS
Finance costs
for the six months ended June 30, 2018 of $1.0 million (six months ended June
30, 2017 – $1.0 million) are comprised entirely of accretion expense on the
Company's reclamation liability.
FINANCE INCOME
Finance income
for the six months ended June 30, 2018 of $0.6 million (six months ended June
30, 2017 – $0.7 million) is comprised of interest earned on cash and cash
equivalent balances.
INCOME TAXES (RESTATED)
Income tax
expense for the six months ended June 30, 2018 of $9.9 million (six months
ended June 30, 2017 – $1.0 million) relates to the BMSC mining operations where
the statutory tax rate is 38%, and has increased as a result of improved
financial results and higher taxable income.
16
LIQUIDITY AND CAPITAL
RESOURCES (RESTATED)
The Company’s unrestricted
consolidated cash and cash equivalents at June 30, 2018, were $125.1 million
(December 31, 2017 – $124.6 million). Cash and cash equivalents attributable to
Nevsun shareholders, excluding ENAMCO’s 40% share of cash held by BMSC, was $110.8
million (December 31, 2017 - $115.7 million). Working capital, including cash
and cash equivalents, was $170.4 million (December 31, 2017 – $162.3 million).
Restricted cash of $2.2 million at June 30, 2018 supports a bank guarantee,
expiring October 2018, in connection with a construction contract at the Timok
Project (December 31, 2017 – nil).
During the six
months ended June 30, 2018, cash generated from operating activities before
changes in non-cash operating working capital and income taxes paid was $41.9
million, compared to $5.1 million during the six months ended June 30, 2017. During
the six months ended June 30, 2018, the Company remitted $8.0 million in income
taxes, all related to the 2018 fiscal year (six months ended June 30, 2017 –
$18.8 million, all related to the 2016 fiscal year; no income tax was paid for
the 2017 fiscal year).
The Company used
$24.1 million in investing activities in the six months ended June 30, 2018
(six months ended June 30, 2017 – $4.7 million), comprised of $4.3 million on
land acquisition at Timok (six months ended June 30, 2017 – $0.4 million), $7.5
million on sustaining capital (six months ended June 30, 2017 – $5.8 million),
$0.3 million on exploration and evaluation at Bisha (six months ended June 30,
2017 – $0.9), $0.6 million on decline construction at Timok (six months ended
June 30, 2017 – $nil), $5.7 million on capitalized evaluation at Timok (six
months ended June 30, 2017 – $nil) and $2.2 million of restricted cash that
supports a bank guarantee in connection with a construction contract at the
Timok Project (six months ended June 30, 2017 – $nil). The Company additionally
used $3.4 million in relation to changes in non-cash working capital relating
to investing activities (six months ended June 30, 2017 – cash generated of $2.4
million).
The Company used
$16.0 million in its financing activities in the six months ended June 30, 2018,
compared to $12.1 million in the six months ended June 30, 2017. In the six
months ended June 30, 2018, $2.7 million of dividends were paid to Nevsun
shareholders (six months ended June 30, 2017 – $13.3 million), and a $14.0
million distribution to non-controlling interests was made (six months ended
June 30, 2017 - $4.0 million).
17
SUMMARY OF
QUARTERLY RESULTS
Selected
consolidated financial information from continuing operations for the most
recent eight quarters (unaudited) are presented below. Starting at the end of
Q2 2016, the commissioning phase of the zinc flotation plant began. Costs
directly attributable to the production of zinc concentrate incurred during
this phase, which is defined by the processing of primary ore, were capitalized
until commercial production was declared and sales of commercially produced
material commenced in Q4 2016.
All figures in
this table from Q3 2016 through Q3 2017 have been restated to reflect the
Company’s voluntary change in accounting policy with respect to exploration and
evaluation expenditures. Please refer to note 27 in the Company’s 2017 annual
consolidated financial statements for more information.
|
(in millions of US dollars, unless
otherwise noted)
|
|
2018
2nd
|
|
|
2018
1st
|
|
|
2017
4th
(Restated)
|
|
|
2017
3rd
(Restated)
|
|
|
Revenues
|
$ |
76.4 |
|
$ |
106.7 |
|
$ |
80.6 |
|
$ |
71.0 |
|
|
Earnings (loss) from mine
operations
|
|
2.4 |
|
|
23.4 |
|
|
15.0 |
|
|
12.3 |
|
|
Net income (loss) for the
period
|
|
(9.3 |
) |
|
0.5 |
|
|
2.1 |
|
|
(8.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
Nevsun shareholders
|
|
(9.4 |
) |
|
(4.5 |
) |
|
(3.7 |
) |
|
(11.6 |
) |
|
Loss per share attributable
to Nevsun shareholders – basic ($/share)
|
|
(0.03 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.04 |
) |
|
Loss per share attributable
to Nevsun shareholders – diluted ($/share)
|
|
(0.03 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.04 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of US dollars, unless
otherwise noted)
|
|
2017
2nd
(Restated
|
) |
|
2017
1st
(Restated
|
) |
|
2016
4th
(Restated
|
) |
|
2016
3rd
(Restated
|
) |
|
Revenues
|
$ |
66.1 |
|
$ |
71.6 |
|
$ |
36.2 |
|
$ |
22.9 |
|
|
Earnings (loss) from mine
operations
|
|
(64.9 |
) |
|
11.8 |
|
|
(4.7 |
) |
|
17.7 |
|
|
Net income (loss) for the
period
|
|
(84.2 |
) |
|
(9.1 |
) |
|
(17.9 |
) |
|
1.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Nevsun shareholders
|
|
(57.9 |
) |
|
(11.6 |
) |
|
(16.5 |
) |
|
(2.9 |
) |
|
Earnings (loss) per share
attributable to Nevsun shareholders – basic ($/share)
|
|
(0.19 |
) |
|
(0.04 |
) |
|
(0.08 |
) |
|
(0.01 |
) |
|
Earnings (loss) per share
attributable to Nevsun shareholders – diluted ($/share) |
|
(0.19 |
) |
|
(0.04 |
) |
|
(0.08 |
) |
|
(0.01 |
) |
18
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.
COMMITMENTS AND
CONTINGENCIES
LEGAL CLAIMS
The Company is
involved in various claims, litigation and other matters in the ordinary course
and conduct of business. Some of these pending matters will take a number of
years to resolve. While it is not possible to determine the ultimate outcome of
such actions at this time, and inherent uncertainties exist in predicting such
outcomes, it is the Company’s belief that the ultimate resolution of such
actions is not reasonably likely to have a material adverse effect on its
consolidated financial position or results of operations. As a result, no
contingent liabilities have been recorded in these interim financial
statements.
CONTRACTUAL
DISPUTE WITH CANACCORD
Canaccord
Genuity Corp. (“Canaccord”) was an advisor to Reservoir in connection with the
Company’s transaction (the “Transaction”) to acquire Reservoir and all of its
assets, including the Timok Project. In early April 2016, Canaccord and
Reservoir entered into an advisory agreement regarding a potential acquisition
of control of Reservoir (the “April Advisory Agreement”). In September 2016, Canaccord
filed a Notice of Claim in the British Columbia Supreme Court regarding the
fees under the April Advisory Agreement.
The claim was
heard in the British Columbia Supreme Court (“the Court”) on January 25 and 26,
2018. On April 27, 2018, the Court released its judgment concluding that the
Transaction Fee under the April Advisory Agreement should total CAD$9.9 million.
The decision was subsequently appealed by Canaccord and cross-appealed by
Reservoir in May 2018. At June 30, 2018, the Company has accrued an additional
CAD$3.9 million ($3.0 million) in administrative expenses, representing the
Transaction Fee of CAD$9.9 million per the Court’s judgement less fees
previously paid to Canaccord of CAD$6.0 million.
ENVIRONMENTAL
BOND
As at June 30, 2018, the Company has
arranged an annually renewable environmental bond for the Bisha Mine for $65.0
million (December 31, 2017 – $45.0 million) at a cost of 1% per annum.
OUTSTANDING
SHARE DATA
As of July 26,
2018, the Company had 302,592,672 shares and 7,135,233 options issued and
outstanding.
FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT
A description of
financial instruments and types of risks that the Company is exposed to and its
objectives and policies for managing such risks is included in the Company’s Amended
Annual Information Form for the year ended December 31, 2017, dated April 19,
2018, which is available on SEDAR at www.sedar.com.
19
The Company’s
zinc and copper concentrates sales receivables and amounts refundable are
carried at fair value as the receivables and payables are derivatives due to
the provisional pricing of these sales contracts. The receivables and payables are
measured using quoted forward market prices that correspond to the settlement
date of the provisional pricing period for the estimated metals contained
within the zinc and copper concentrates or direct shipment sales. There were no
changes to the method of fair value measurement during the period. The
Company’s zinc and copper concentrate trade receivables are carried at fair
value. The fair values of the Company’s other financial assets and financial
liabilities approximate their carrying amounts in the condensed consolidated
interim balance sheet.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated annual 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 2017 annual
consolidated financial statements, respectively, except as discussed below.
In preparing the
condensed consolidated interim financial statements in accordance with the IAS
34, management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. These estimates
involve considerable judgment and are, or could be, affected by significant
factors that are out of the Company’s control. Actual results could differ from
those estimates. Management reviews its estimates and assumptions on an ongoing
basis using the most current information available. Revisions to estimates and
the resulting effects on the carrying values of the Company’s assets and
liabilities are accounted for prospectively. For a description of the critical
judgements in application of accounting policies and information about
assumptions and estimation uncertainties, refer to the Company’s MD&A for
the year ended December 31, 2017, which is available on SEDAR at www.sedar.com.
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:
20
- pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of assets of
the Company;
- provide 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
- 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 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
effective as of December 31, 2017.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been
no changes in the Company’s internal control over financial reporting during
the period ended June 30, 2018, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
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 is
also 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.
ACCOUNTING CHANGES AND RECENT ACCOUNTING
PRONOUNCEMENTS
IFRS 9 – Financial
Instruments
Effective
January 1, 2018, the Company has adopted IFRS 9 – Financial Instruments. IFRS 9
provides three different measurement categories for non-derivative financial
assets – subsequently measured at amortized cost, fair value through profit or
loss or fair value through other comprehensive income – while all
non-derivative financial liabilities are classified as subsequently measured at
amortized cost. The category into which a financial asset is placed and the
resultant accounting treatment is largely dependent on the nature of the
business of the entity holding the financial asset. All financial instruments
are initially recognized at fair value.
21
The
implementation of the new standard has not had a material impact on the
measurement of the Company’s reported financial results, however it has
resulted in additional disclosures.
IFRS 15 – Revenue
from Contracts with Customers
Effective
January 1, 2018, the Company has adopted IFRS 15 – Revenue from Contracts with
Customers. The new standard requires a methodology of recognizing revenue in
line with the transfer of control of promised goods or services, and allocating
revenue to separately identifiable goods or services identified within a
contract, based on their relative stand-alone selling price. In order to
facilitate this identification and allocation process, the new standard employs
a five-step model with prescriptive steps and decision-making criteria.
The
implementation of the new standard has not had a material impact on the
Company’s reported financial results, however it has resulted in additional
disclosures.
Voluntary change
in accounting policy – Exploration and evaluation expenditures
Effective
December 31, 2017, the Company implemented a voluntary change in accounting
policy with respect to exploration and evaluation expenditures. As such,
certain prior period amounts within this management’s discussion and analysis
have been restated in accordance with the new policy. Refer to note 12 of the
Company’s interim financial statements for the three and six months ended June
30, 2018 for additional disclosure regarding the effects of the change.
IFRS 16 - Leases
On January 1, 2019, the Company will adopt IFRS 16 – Leases,
replacing IAS 17 – Leases. The new standard aims to bring most leases into
which a lessee has entered on-balance sheet and provides new guidelines under
which a lessee must evaluate and measure a contract that contains a lease. The
new standard is likely to result in increases to both the asset and liability
positions of lessees, as well as affect the reported depreciation expense and
finance costs of these entities in the statement of profit or loss. The Company
is currently evaluating the financial impact the new standard will have on its
financial results.
22
QUALITY
ASSURANCE
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 and
mineral resource and reserve statements of this MD&A and approved its
dissemination.
NON-GAAP
PERFORMANCE MEASURES
This document
includes non-GAAP performance measures, discussed below, that do not have a
standardized meaning prescribed by IFRS. The performance measures may differ
from those used by, and may not be comparable to such measures as reported by,
other issuers. The Company believes that these performance measures are
commonly used by certain investors, in conjunction with conventional GAAP measures,
to enhance their understanding of the Company's performance. The Company uses
these performance measures extensively in internal decision-making processes,
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 these non-GAAP
measures to the most directly comparable IFRS measures as contained within the
Company's issued financial statements.
C1 CASH COST
PER PAYABLE POUND SOLD
C1 cash cost per
payable pound sold 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 by-product credits. Royalties, depreciation, and depletion are
excluded from the calculation of C1 cash cost per payable pound sold. 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 zinc and
copper production activities. Gold and silver are considered to be by-products
as they generally represent less than 20% of revenues from concentrate.
Additionally,
copper metal may also be considered a by-product in relation to zinc sales
given that revenue from sales of copper concentrate may range from 20% to 30%
of total revenue. Therefore, the Company has presented its C1 cash cost per
payable pound sold of zinc on both a by-product basis (with gold, silver and
copper as by-products), and on a co-product basis (with gold and silver as
by-products). The presentation of both methods is intended to provide another
illustrative representation of the net cost of zinc production at the Bisha
Mine. Copper by-product credits are expected to vary period to period as sales
quantities of copper concentrate may differ between quarters based on
production quantities and the timing of shipments, and from metal prices
movements.
The cash cost
per payable pound sold 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
sold is calculated by dividing the total costs, net of the by-product credits,
by payable pounds of metal sold. The calculation method is consistent on a
period to period basis for purposes of meaningful comparison.
23
| |
|
(U.S. $000s, except per pound amounts) |
|
| |
|
Zinc (copper as by-product) |
|
| |
|
Q2 2018 |
|
|
Q2 2017 |
|
|
YTD 2018 |
|
|
YTD 2017 |
|
|
C1 cash cost per payable
pound
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Pounds of payable metal sold
(millions)
|
|
|
|
|
53.8 |
|
|
|
|
|
34.3 |
|
|
|
|
|
107.2 |
|
|
|
|
|
87.2 |
|
|
Operating expenses and
selling costs
|
$ |
44,301 |
|
$ |
0.82 |
|
$ |
30,123 |
|
$ |
0.88 |
|
$ |
87,119 |
|
$ |
0.82 |
|
$ |
78,355 |
|
$ |
0.90 |
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate treatment and
refining charges
|
|
1,234 |
|
|
0.02 |
|
|
1,599 |
|
|
0.05 |
|
|
2,395 |
|
|
0.02 |
|
|
7,582 |
|
|
0.09 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate by-product
credits
|
|
(7,437 |
) |
|
(0.13 |
) |
|
(8,382 |
) |
|
(0.24 |
) |
|
(20,370 |
) |
|
(0.19 |
) |
|
(15,496 |
) |
|
(0.18 |
) |
|
Total C1 cash cost
|
$ |
38,098 |
|
|
0.71 |
|
$ |
23,340 |
|
|
0.68 |
|
$ |
69,144 |
|
$ |
0.65 |
|
$ |
70,441 |
|
|
0.81 |
|
| |
|
(U.S. $000s, except per pound amounts) |
|
| |
|
Zinc (co-product) |
|
|
Copper (co-product) |
|
| |
|
Q2 2018 |
|
|
Q2 2017 |
|
|
Q2 2018 |
|
|
Q2 2017 |
|
|
C1 cash cost per payable
pound
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Pounds of payable metal sold
(millions)
|
|
|
|
|
53.8 |
|
|
|
|
|
34.3 |
|
|
|
|
|
4.3 |
|
|
|
|
|
7.7 |
|
|
Operating expenses and
selling costs
|
$ |
44,301 |
|
$ |
0.82 |
|
$ |
30,123 |
|
$ |
0.88 |
|
$ |
7,592 |
|
$ |
1.77 |
|
$ |
14,812 |
|
$ |
1.92 |
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate treatment and
refining charges
|
|
1,234 |
|
|
0.02 |
|
|
1,599 |
|
|
0.05 |
|
|
1,822 |
|
|
0.42 |
|
|
3,303 |
|
|
0.43 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate by-product
credits
|
|
(113 |
) |
|
- |
|
|
(210 |
) |
|
(0.01 |
) |
|
(3,439 |
) |
|
(0.80 |
) |
|
(5,864 |
) |
|
(0.76 |
) |
|
Total C1 cash cost
|
$ |
45,422 |
|
$ |
0.84 |
|
$ |
31,512 |
|
$ |
0.92 |
|
$ |
5,975 |
|
$ |
1.39 |
|
$ |
12,251 |
|
$ |
1.59 |
|
24
| |
|
(U.S. $000s, except per pound amounts) |
|
| |
|
Zinc (co-product) |
|
|
Copper (co-product) |
|
| |
|
YTD 2018 |
|
|
YTD 2017 |
|
|
YTD 2018 |
|
|
YTD 2017 |
|
|
C1 cash cost per payable
pound
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Total
|
|
|
Per
pound
|
|
|
Pounds of payable metal sold
(millions)
|
|
|
|
|
107.2 |
|
|
|
|
|
87.2 |
|
|
|
|
|
12.1 |
|
|
|
|
|
7.7 |
|
|
Operating expenses and
selling costs
|
$ |
87,119 |
|
$ |
0.82 |
|
$ |
78,355 |
|
$ |
0.90 |
|
$ |
21,900 |
|
$ |
1.81 |
|
$ |
14,812 |
|
$ |
1.92 |
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate treatment and
refining charges
|
|
2,395 |
|
|
0.02 |
|
|
7,852 |
|
|
0.09 |
|
|
5,002 |
|
|
0.41 |
|
|
3,303 |
|
|
0.43 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrate by-product
credits
|
|
(1,707 |
) |
|
(0.02 |
) |
|
(7,324 |
) |
|
(0.09 |
) |
|
(8,762 |
) |
|
(0.72 |
) |
|
(5,864 |
) |
|
(0.76 |
) |
|
Total C1 cash cost
|
$ |
87,807 |
|
$ |
0.82 |
|
$ |
78,613 |
|
$ |
0.90 |
|
$ |
18,140 |
|
$ |
1.50 |
|
$ |
12,251 |
|
$ |
1.59 |
|
25
RECONCILIATION
OF REALIZED METAL PRICES
| |
|
Zinc |
|
|
Copper |
|
|
(in millions of US dollars, unless
otherwise noted)
|
|
Q2 2018
|
|
|
Q2 2017
|
|
|
Q2 2018
|
|
|
Q2 2017
|
|
|
Total concentrate sales
|
$ |
62,615 |
|
$ |
39,706 |
|
$ |
13,299 |
|
$ |
20,423 |
|
|
Add (less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisional and final
pricing and quantity losses (gains) on concentrate sales
|
|
12,219 |
|
|
4,096 |
|
|
171 |
|
|
(686 |
) |
|
Concentrate sales, before
pricing adjustments
|
$ |
73,834 |
|
$ |
43,802 |
|
$ |
13,470 |
|
$ |
19,737 |
|
|
Pound of payable metal sold
(millions)
|
|
53.8 |
|
|
34.3 |
|
|
4.3 |
|
|
7.7 |
|
|
Realized price per payable
pound sold, before pricing adjustments ($/lb)
|
$ |
1.37 |
|
$ |
1.28 |
|
$ |
3.13 |
|
$ |
2.56 |
|
|
Provisional and final
pricing and quantity adjustments per payable pound sold ($/lb)
|
$ |
(0.23 |
) |
$ |
(0.12 |
) |
$ |
(0.04 |
) |
$ |
0.09 |
|
|
Realized price per payable
pound sold ($/lb)
|
$ |
1.14 |
|
$ |
1.16 |
|
$ |
3.09 |
|
$ |
2.65 |
|
|
LME average price per pound
($/lb)
|
$ |
1.41 |
|
$ |
1.18 |
|
$ |
3.12 |
|
$ |
2.57 |
|
| |
|
Zinc |
|
|
Copper |
|
|
(in millions of US dollars, unless
otherwise noted)
|
|
YTD 2018
|
|
|
YTD 2017
|
|
|
YTD 2018
|
|
|
YTD 2017
|
|
|
Total concentrate sales
|
$ |
143,281 |
|
$ |
107,558 |
|
$ |
36,803 |
|
$ |
20,423 |
|
|
Add (less):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisional and final
pricing and quantity losses (gains) on concentrate sales
|
|
14,871 |
|
|
2,524 |
|
|
706 |
|
|
(686 |
) |
|
Concentrate sales, before
pricing adjustments
|
$ |
158,152 |
|
$ |
110,082 |
|
$ |
37,509 |
|
$ |
19,737 |
|
|
Pound of payable metal sold
(millions)
|
|
107.2 |
|
|
87.2 |
|
|
12.1 |
|
|
7.7 |
|
|
Realized price per payable
pound sold, before pricing adjustments ($/lb)
|
$ |
1.48 |
|
$ |
1.26 |
|
$ |
3.10 |
|
$ |
2.56 |
|
|
Provisional and final
pricing and quantity adjustments per payable pound sold ($/lb)
|
$ |
(0.14 |
) |
$ |
(0.03 |
) |
$ |
(0.06 |
) |
$ |
0.09 |
|
|
Realized price per payable pound
sold ($/lb)
|
$ |
1.34 |
|
$ |
1.23 |
|
$ |
3.04 |
|
$ |
2.65 |
|
|
LME average price per pound
($/lb)
|
$ |
1.48 |
|
$ |
1.22 |
|
$ |
3.14 |
|
$ |
2.61 |
|
FORWARD
LOOKING STATEMENTS
This
management’s discussion and analysis contains forward-looking statements or
forward-looking information within the meaning of the United States Private
Securities Litigation Reform Act of 1995, and applicable Canadian securities
laws. All statements, other than statements of historical facts, are forward
looking statements including statements with respect to the Company’s Bisha
Mine in Eritrea and its intentions for its Timok Upper Zone Project in Serbia
(the “Timok Project”). The Company also cautions the reader that the PEA
previously released in September 2017 and the PFS released in March 2018 on the
Timok Project that support the technical feasibility or economic viability of
the Timok Project, including the marketability of the concentrate, mining
method, costs, processing, metal recoveries and any other technical aspects
related to the Timok Project, are preliminary in nature and there is no
certainty that the PEA or the PFS will be realized.
26
Forward-looking
statements are frequently, but not always, identified by words such as
“expects”, “anticipates”, “believes”, “hopes”, “intends”, “estimated”,
“potential”, “possible” and similar expressions, or statements that events,
conditions or results “will”, “may”, “could” or “should” occur or be achieved.
Forward-looking statements are statements concerning the Company’s current
beliefs, plans, objectives and expectations about the future, including but not
limited to statements and information made concerning: statements relating to
the business, prospects and future activities of, and development plans related
to the Company, exploration activities, the adequacy of financial resources,
anticipated production, processing and recoveries of zinc and copper, mineral
reserve and resource estimates, mining efficiencies and access to mineral
reserves, goals, strategies, future growth, planned future acquisitions,
anticipated C1 cash costs to produce zinc or copper, resolution of
metallurgical challenges from variable ore materials to produce concentrate and
the ability to increase processing and recovery rates of zinc and copper,
achievement of and timing for achievement of any key milestones including,
planned mineral movement at the Bisha Mine and other events or conditions that
may occur in the future regarding the Company or its projects.
The 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. These risks, uncertainties
and factors include general business, legal, economic, competitive, political,
regulatory and social uncertainties; actual results of exploration activities
and economic evaluations; fluctuations in currency exchange rates; changes in project
parameters; changes in costs, including labour, infrastructure, operating and
production costs; future prices of copper, gold, zinc, silver and other
minerals; resource estimates and variations of mineral grade or recovery rates;
metallurgical challenges on the variable ore materials being processed and if
the significant improvements in recovery rates of zinc and copper will be
maintained or that recoveries to initial design levels will be achieved; the
ability to extend mine life beyond the current mine plans; operating or
technical difficulties in connection with exploration; land acquisition; mining
method, production profile and mine plan; other development or mining
activities, including the failure of plant, equipment or processes to operate as
anticipated; performance on ore production and waste movement and improvement
in mining capability; delays in exploration, development and construction
activities including commencement of the decline construction as planned;
changes in government legislation and regulation; the ability to maintain and
renew existing licenses and permits and the ability to obtain other required
licences and permits in a timely manner or at all; the ability to obtain
financing on acceptable terms and in a timely manner or at all; contests over
title to properties; employee relations and shortages of skilled personnel and
contractors; the ultimate outcome of various claims and litigation, the
speculative nature of, and the risks involved in, the exploration, development
and mining business including, without limitation, other risks that are more
fully described in the Company’s Amended Annual Information Form for the fiscal
year ended December 31, 2017 (the “AIF”) and the Company’s management
discussion and analysis for the fiscal year ended December 31, 2017 (the
“MD&A”), which are incorporated herein by reference.
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. For the reasons set forth above, investors should not place
undue reliance on the Company’s forward-looking statements.
27
Further
information concerning risks and uncertainties associated with these
forward-looking statements and our business can be found in our AIF and
MD&A, which is available on the Company’s website (www.nevsun.com), filed
under our profile on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov) under
cover of Form 40-F.
NYSE
AMERICAN CORPORATE GOVERNANCE
The Company’s
common shares are listed on NYSE American. Section 110 of the NYSE American
company guide permits NYSE American to consider the laws, customs and practices
of foreign issuers in relaxing certain NYSE American listing criteria, and to
grant exemptions from NYSE American 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 American standards is
posted on the Company’s website at http://www.nevsun.com/corporate/governance/nyse/
and a copy of such description is available by written request made to the
Company.
CAUTIONARY NOTE REGARDING PREPARATION OF MINERAL AND
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 Management’s Discussion and Analysis 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
Management’s Discussion and Analysis may not qualify as “reserves” under SEC
standards.
28
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.
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” or “contained pounds” 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.
29
