GMP Securities (Griffiths McBurney) raised targets to CA$3.60 a share, with analyst Mark Smith summarizing as follows:
"We are upgrading our target price on Nevsun following a field visit to Eritrea, touring the VMS exploration projects and Nevsun's Bisha mine. We have lowered our discount rate to 15% from 20% on the basis of our current view of political and development risk.Canaccord Adams mining analyst Steven Butler was even more bullish, raising his price target to CA$4.15 a share. He commented as follows:
We believe Nevsun has a significant first mover advantage in Eritrea (with the development of Bisha) which we view is developing into a world class VMS district.
We value Nevsun using a 1.0x P/NAV to our NAV of C$3.60/shr (at 15%), up from previous NAV (at 20%) of C$2.99/shr. We derive a 12 month target of C$3.60, up from C$3.00. We rate the stock a BUY."
"Earlier this week, we visited Nevsun's Bisha development project located in Eritrea, Africa. Our overall impressions of Eritrea were favorable. Senior local management of all the companies reported on the government's principled and involved commitment to a successful mining industry in the country. The Bisha project also showed well; overall completion is estimated at 34% as of the end of August.Nevsun is a gold and base metal developer focused on the completion and production of the Bisha Mine in Eritrea, Africa. The Bisha Project is a high-grade gold, copper and zinc deposit in a newly discovered VMS district of Western Eritrea. Nevsun began construction of the Bisha Mine in September 2008 and is actively engaged in its development with production anticipated in fall 2010.
(The impact on Eritrea is) positive, from both the point of view of the country and the project. Bisha is "hot in more ways than one"; temperatures were north of 40 degrees and the deposit's reserve grades are absolutely stellar (highlighting 8 g/t Au in oxides, 4.4% Cu in supergene).
Nevsun's shares continue to trade at a deep discount to NAV (P/NAV multiple of 0.49 times our 12.5%/spot gold NAV or only 0.32 times our 5%/spot gold NAV) and only 1.8 times cash flow based on the first three year average. Our target price has been revised to C$4.15 (from $2.60), reflecting 1 times (previously 0.6 times) our revised 12.5% NAV of US$3.73, adjusted for a US$0.90/C$ fx rate. We maintain our SPECULATIVE BUY rating on the shares."
At current metal prices, the Bisha Project has a projected 2.5-year payback, including debt and further mine expansion. The Bisha Mine will be a low-cost gold producer for the first two years and a low-cost, high-grade copper and zinc producer for the remaining life of the mine.
Life of Mine Projected net cash flow per year is projected at over ~$180M per year making this one of the most robust mines in the world being built right now.
Nevsun has received substantial financial and other support from the Eritrean government, with in excess of $300 million being made available to the company from both the Eritrean and South African financial communities.
The company has also completed negotiations on sales contracts for life of mine production.
The Bisha Mine is expected to begin production in the fall of 2010, with a projected 10 year mine life. Bisha's gold will be refined in Switzerland and Canada by two major international companies while the copper concentrate will be shipped to major smelters in Europe and India.
Metal production within the first two years is estimated at approximately 900,000 ounces of payable gold, followed by over 500,000,000 pounds of payable copper in years 3–5, plus in years 5–10 an additional 1 billion pounds of payable zinc and 200,000,000 pounds of copper.
As a result of very high grade gold ore, the expected $200 per ounce operating costs are much lower than industry averages and accordingly the mine will generate significant cash flow for the Company and the Government of Eritrea. The resulting cash flow should enable Nevsun to quickly pay off project debt, allow for mine expansion and provide significant returns to shareholders.
There would appear to be a lot of upside left in the company shares considering its bright production future.
DISCLOSURE: James West and affiliates have no shares or compensatory relationship with Nevsun Resources.