Arabian Nubian Shield

Chalice Gold Mines (ASX: CHN)(TSX: CXN) is pleased to report that commercial discussions with ENAMCO (the Eritrean National Mining Corporation) to agree the purchase price for their 30% paid participating interest in the Zara Project are proceeding satisfactorily.

Both Chalice and ENAMCO are hopeful that an agreement on the fair value of the interest can be mutually agreed between the parties. If the parties cannot agree, then an independent valuation will be undertaken.

If, as Chalice currently expects, ENAMCO agrees to pay for their paid participating interest shortly after grant of the Mining Licence, the funding task for Chalice to develop the Koka Gold Deposit will be substantially reduced.

The amount of funding that Chalice may need to source externally will be further reduced by ENAMCO’s progressive contribution to development costs (which will be funded 33.33% by ENAMCO and 66.66% by Chalice).

The project permitting process is also proceeding as expected. Chalice is currently negotiating the terms of the Mining Agreement, which, along with the Mining Licence and the Eritrean Mining Proclamation, will govern all of the rights and obligations of the Eritrean operating company relating to the development and operation of the Zara Project.

About the Zara Gold Project

The Zara Project comprises six Exploration Licences covering an area of 615km2 situated in northern Eritrea, approximately 160km northwest of Asmara city. Chalice currently holds a 100% interest in the project subject to the Eritrean Governments right to acquire a further 30%, at a fair value, in addition to their 10% carried interest.

The Koka Gold Deposit within the project contains a Probable Reserve of 4.6 million tonnes of ore grading 5.1 grams of gold per tonne and containing 760,000 ozs of gold. This is contained within an Indicated Resource of 5.0 million tonnes grading 5.3 grams of gold per tonne containing 840,000 ozs of gold.

Chalice Gold Mines Limited (ASX: CHN) (“Chalice”) announced today that in an important step towards finalisation of a Mining Agreement for the Koka Gold Project, the Eritrean Government has advised its intention to purchase, at fair value, a 30% paid participating interest in the project through the Eritrean National Mining Corporation (ENAMCO). This paid participating interest is in addition to ENAMCO’s 10% carried interest.

The method and timing of the valuation to determine the fair value of the paid participating interest is being discussed with ENAMCO, however, it is expected to follow the precedent set by the Bisha project, held 60% by Nevsun Resources Ltd (TSX:NSU)(AMEX:NSU) and 40% by ENAMCO. In the event the Company and ENAMCO are unable to agree the fair value, a mutually acceptable independent valuer will be appointed to determine the fair value.

ENAMCO will also be required to contribute its proportionate share of project development and capital expenditure. Finalising the terms on which ENAMCO will acquire the 30% interest in the project will greatly assist Chalice’s efforts to secure the necessary approvals to develop Koka and is a strong vote of confidence in the project by the Eritrean Government. Chalice Executive Chairman Tim Goyder said the Company welcomed ENAMCO’s decision to be a significant partner in Koka and Chalice looked forward to the benefits that the arrangement would generate.

“This agreement will allow Chalice and ENAMCO to move rapidly towards finalisation of the agreements covering the project and the granting of a Mining Licence.” Mr Goyder said. “ENAMCO’s involvement will also play a significant role in enabling the project to secure funding and in the process reduce Chalice’s funding requirements.”

DR DOUG JONES

Managing Director

Nevsun Eritrea

Nevsun ownership interest in the Bisha Project

On October 26, 2007 the Company and the State-owned Eritrean National Mining Corporation (ENAMCO) entered into an agreement to increase the State’s participation in the Bisha project. ENAMCO agreed to purchase at fair value a 30% paid participating interest to add to its 10% free participating interest provided by Eritrean mining legislation, resulting in a total State participation of 40% (30% contributing; 10% free carried).

The final amount to be paid by the State will be determined by an independent valuator and will be based on the net present value of 30% of the project, as evaluated upon the first shipment of gold from the mine. As a first provisional payment, ENAMCO paid the Company $25,000,000 during Q1 2008.

Liquidity and Capital Resources

The Company’s cash at December 31, 2009 was $29.1 million (December 31, 2008 – $40.7 million).

In January 2008 the Company received $25 million related to the provisional payment on acquisition by ENAMCO of its contributing interest in Bisha. ENAMCO continues to fund its share of all costs of the Bisha project and advanced $21.9 million to Bisha during 2009. The advances incurred $1,413,850 of interest, which was capitalized to property, plant and equipment. The interest and advances will be repaid out of operating cash flow, are not callable and have no specified repayment terms.

In May 2008 the Company received $20 million from the sale of its Mali assets. In July 2008 the Company also collected $3 million from PMI Gold Corporation related to the 2007 sale of its Ghana assets.

In September 2009 the Company received a $20 million loan from ENAMCO. In October 2009 it then raised $30.1 million by way of a non-brokered private placement of 11,500,000 common shares.

From these cash resources the Company used $83.8 million in its operating and investing activities during 2009 (2008 – $45.1 million). The Company has spent $122.4 million on the Bisha capital project and based on current estimates, as at December 31, 2009 required approximately $137.6 million to complete the project.

Subsequent to December 31, 2009 the Company raised a further $111.5 million by way of a non-brokered private placement of 52,000,000 common shares. The Company is confident the funds from this private placement, together with its existing cash and the ongoing one-third contribution by ENAMCO to Bisha will be sufficient to see the Bisha project through to cash positive operations.

In July 2009 the Company’s subsidiary, Bisha Mining Share Company (BMSC) had arranged debt facilities totalling $235 million for the Bisha project. The debt package was a mix of senior and subordinated facilities from a lending group comprised of seven institutions from Europe and South Africa.

In February 2010 the Company changed its approach to funding the Bisha project to ensure the project continued on schedule. While Bisha had already completed project debt agreements with European and South African lenders, these debt facilities had not yet been drawn and it became apparent that access to the debt in the required time frame was uncertain. The Company and ENAMCO concluded that the debt facilities were unreliable and inconclusive for the Bisha project.

As a result of the change in approach to funding the Bisha project, during Q1 2010 the Company expensed approximately $8 million of costs related to securing the debt financing that at December 31, 2009 were treated as deferred finance costs and were included in property, plant and equipment.

Contractual Obligations

As of December 31, 2009 the Company had the following contractual obligations:

-

The Company also has an environmental bond to cover remediation liabilities for Bisha in the amount of $2,000,000 at a cost of 1% per annum.

The Company has not entered into any specialized financial agreements to minimize its commodity risk, investment risk or currency risk. There are no off-balance sheet arrangements, except for the purchase price adjustment on the disposition of the 30% contributing interest in Bisha, acquired by ENAMCO (the Eritrean State mining company). Refer to note 10(a) of the annual consolidated financial statements for a description of the purchase price adjustment with ENAMCO.

Also refer to note 4 of the annual consolidated financial statements for a description of the Company’s financial instruments and risk management.

Financial Report 2009: http://www.nevsun.com/docs/financials/1209_NSU_MD&A_Final.pdf

Nevsun Resources gambling on a risky African venture that could produce huge dividends for itself and an impoverished African nation

By Krisendra Bisetty

For decades, foreign investors avoided a tiny African country whose struggle for independence and border war had left it damaged and dirt poor.

But one Vancouver company has set up a massive base in the Horn of Africa, as it leads a charge of global opportunity seekers into Eritrea, a country roughly a tenth of the size of B.C.

Eritrea’s 30-year fight with neighbouring Ethiopia ended in 1991 when rebels defeated government forces, and although its independence was shaken two years later by a border war that could erupt again, Cliff Davis thinks the rewards are worth the risks.

“The reason we’re in Eritrea is that there is a fabulous deposit there,” said Davis, president and CEO of Nevsun Resources Ltd. (TSX, Amex:NSU).

The company is betting a US$250 million gold mine it’s building in the impoverished country, which has no history of modern-day mining, will provide a significant payoff for shareholders and become Eritrea’s biggest revenue source.

“As we approach production, we will increase significantly in value as the market better understands the cash that will be generated from this mine,” said Davis. “Given that this would produce significant foreign currency, in terms of taxes for the government, it will have a very significant impact [on] its GDP.”

The development of the high-grade Bisha gold-copper-zinc deposit would also produce training and employment opportunities for locals.

In a country whose population is a little more than that of B.C. and where subsistence agriculture is about its only major economic activity – 80% of Eritrea’s people are involved in farming and herding – a gold mine is being viewed with awe.

“It’ll definitely be the biggest project of any sort in the country, and obviously a huge revenue source for the country,” said Stefan Ioannou, an analyst with Haywood Securities Inc. who toured the site earlier this year. “I think the government is pretty excited about it.”

Eritrea’s government took a 40% stake in the project through state-run Eritrean National Mining Corp. (Enamco).

That’s not necessarily a bad thing, Ioannou said, because it’s in the government’s best interests to get the mine operating sooner than later.

“Time and time again, in other jurisdictions where the government doesn’t have a significant interest in a project, they can care less if a project starts tomorrow or 10 years from now,” he said. “Even with a 60% ownership, the economics coming off this project are extremely robust and extremely good for Nevsun.”

Enamco has also provided US$60 million for Bisha, and Nevsun, which last month raised $32.7 million in a private-placement financing, has already raised the balance of the project capital through equity and debt financing.

Davis said concentrate and refining agreements have been finalized. The gold will be refined in Switzerland and Canada by two major international companies; the copper concentrate will be shipped to major smelters in Europe and India.

Bisha is an open-pit mine that’s about 40% built. It will be Nevsun’s second African mine and is expected to be in operation in late 2010 with staged production of approximately 900,000 ounces of gold, 700 million pounds of copper and one billion pounds of zinc.

However, Nevsun sold a small gold mine in Mali last year after encountering operating challenges.

In Eritrea, where the last and only mine – and a small one at that – operated in the early part of the last century, the challenges include sourcing skills and materials from outside the country, including from South Africa.

Those challenges could delay construction, said Ioannou. “I anticipate delays, but that’s not to say it won’t get built.”

Although mining in Eritrea has been largely overlooked amid the “ongoing war” with Ethiopia, he added Bisha’s discovery sparked a lot of interest in the country and brought in the likes of Vancouver companies Sunridge Gold Corp. (TSX-V:SGC) and NGEx Resources Inc. (TSX:NGQ), which is in the Lundin Group stable.

NG stands for “No Guts. No Glory,” a favourite motto of the group’s founder, the late Adolf Lundin.

“It’s really opened up the entire country,” Ioannou said of Bisha. “There’s no doubt about it. It’s a world-class project.”

kbisetty@telus.net