Bisha Mining Share Company is very pleased to announce that it has entered into metal sales contracts for its future gold ore and copper concentrate production at the Bisha Mine in Eritrea. Pricing for all metals will be fixed at spot rates at the time of delivery.

The 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.

Production is currently scheduled to commence during autumn of 2010. Gold production within the first two years is estimated at approximately 900,000 ounces of payable metal, followed by over 500,000,000 pounds of payable copper in years 3-5, plus an additional 1 billion pounds of payable zinc and 200,000,000 pounds of copper in years 5-10.

Eritrea Map

Nevsun Resources Ltd., (NSU-TSX/NYSE AMEX) has announced the financial closing of debt facilities totaling $235 million for its Bisha gold-silver-copper-zinc Project in Eritrea (the “Project”).  All amounts are expressed in United States dollars.

A debt package totaling $235 million has been arranged for Bisha Mining Share Company (“BMSC”) to complete its funding arrangements to develop the Project.  

The debt package is a mix of senior and subordinated loans from a lending group comprised of seven institutions (“Lenders”) from Europe and South Africa. 

The arrangements include an available cost over-run facility of $30 million that will be in addition to a contingency allowance of $32 million in the Project Cost Budget (“Budget”). The Project is now more than one third completed, and the forecast cost to complete remains on Budget.

CEO, Cliff Davis, stated “It is a tribute to the strength and quality of the Project and the support of the country that even during difficult financial markets we have managed to arrange a significant debt package to fully complete Eritrea’s first modern day major mining project.  

This accomplishment has been a collaborative effort between Nevsun and our partner, the Eritrean National Mining Corporation, our current and past staff and advisors and ultimately only made possible through the support of the governments of Eritrea, Germany and South Africa. We naturally also thank the Lenders for their contribution to make this happen and look forward to their continued support.”

Summary of Estimated Project Costs and Funding:

Pre production costs:

Historic property related costs      $29million (exploration, pre-development, etc)

Pre production project costs        220 million

Contingency allowance                   32 million

Cost overrun allowance                  30 million (management does not expect to incur)

Pre production finance costs         44 million (includes interest, fees and a small hedge per below)

                                                         $355 million

 Funded by:

 Nevsun and State of Eritrea      $120 million

 Senior debt                                      125 million

 Subordinated debt                           80 million

 Senior cost overrun                          30 million (management does not expect to utilize)

                                                          $355 million

Utilization of the debt facilities is expected in the next few weeks after certain conditions are met, including the registration of security, final letters from governments and final insurance arrangements.

In connection with the debt facilities the Company is required to establish a gold price protection programme in the unlikely event that the price of gold falls below $700/oz.  The programme is a purchase of gold puts of 200,000 ounces for the first two years of production.  This ensures the Project benefits from not only the floor price of $700/oz, but also 100% of all gold prices higher than $700/oz. 

The debt facilities are secured by BMSC and all of its assets, as well as by a completion guarantee from each of Nevsun and the Eritrean National Mining Corporation, to their respective contributing interests. 

Endeavour Financial is the Company’s project finance advisor.

At recent metal prices, the Project is expected to generate enough cash in the first two and a half years to repay all debt facilities, as well as fund the copper phase mine expansion. The projected operating cash costs for gold production are estimated to be less than $230/oz, including royalties. The after tax internal rate of return of the Project, using recent metal prices and including the cost of finance, is approximately 54%.

The mine is expected to start producing gold in Q3 2010. A recent update on the Project itself can be found in the Company’s Q1 MD&A and news release dated May 13, 2009. Photographs of progress can be found on the Nevsun web site at – http://www.nevsun.com/properties/photo_gallery/.

The Company looks forward to progressing Bisha through to production with the continued full support of the Eritrean Government.

Alem Kibreab, from the Eritrean Ministry of Energy and Mines told Reuters, that another eight companies have been awarded licences for gold mining in Eritrea.

The new entrants are named as Andiamo Exploration and London Africa from Britain, Land and Energy and Zhongchang Mining from China, The Mining Share joint venture from Lybia and Eritrea, South Boulder and Gippsland from Australia as well as Spice Minerals from India.

Further, he informed Reuters that Eritrea’s first mining project, which is the Bisha Mining venture will start producing gold around the third quarter of 2010.

Alem states, that Eritrea is well aware of the negative side effects a gold boom could cause for the country, referring to historic exploitation of Africa’s mining resources by short term focused decision making.Thus Eritrea would aim for a sustainable and long term approach in developing the mining sector, which is expected to have important multiplier effects for the development of other industrial areas in the country.

Eritrea’s gold ventures appear to be promising and first signs where the road might lead to, can be observed from Nevsun Resources and its Bisha project in the near future. In March 2009 capitaleritrea reported about Nevsun’s ownership structure as well as the financial result it made for 2008.

View Larger Map

Gold Mining Eritrea

 Sidney, Australia: Few days ago Nevsun Recourses published its Annual Result 2008 and confirmed that it is making progress in its gold mining efforts in Eritrea. Within days two other mining companies, namely Sub Sahara Resources and Chalice Gold Mines Ltd announced to merge in order to raise funds for Sub Sahara’s gold mining project in Eritrea.

 Both companies are listed on the Australian Stock Market and aim to invest in the Zara Project, which is a joint venture between the Government of Eritrea (31% stake) and Sub Sahara Resources (69% stake). Chalice Ltd is believed to have substantial cash resources of over 10 million Australian Dollars, which Sub Sahara requires in order to finance its Zara Gold Project in Eritrea.

Currently, there are six major international mining enterprises in joint ventures with the Eritrean Government. Four of them are Donia Resources & Co of China, Nevsun Resources and Sunridge Gold of Canada, Sub Sahara Resources of Australia.

The merger of both Sub Sahara and Chalice is subject to approval by the shareholders of Sub Sahara Resources. The move is especially important in the current economical situation, with banks not willing or able to provide substantial cash due to the financial crisis.

According to Reuters  the President of Eritrea has reshuffled the cabinet ministers for energy and environment in a move to address the increasing interest of foreign investors in Eritrea’s mineral resources.

So far the western region of Eritrea has been promising in the exploration of gold with more than 2 million ounces of gold recovered until now.

nevsun gold eritrea

eritrea project

Nevsun has a joint venture with the government of Eritrea to explore gold, copper and zinc under a project called Bisha, which is estimated to contain 27 million tonnes of ore consisting out of 1 million ounces of gold, 800 million lb of copper as well as 1 billion lb of zinc. The project has so far raised US$250 million for mining infrastructure from the Eritrean government, which holds a 40% stake and Nevsun Resources, which holds a 60% of the shares.

Bisha has not laid out, when it is expecting to turnover the business and make a profit. Nevsun Recourses is listed on the Tokyo Stock Exchange under the Symbol NSU. Information about the financial result can be obtained from: Annual Report Nevsun Resources