TORONTO (miningweekly.com) – Shares in Canada’s Nevsun Resources shed around 30% of their value on Tuesday, after the company slashed its 2012 gold output guidance by half, saying it had overestimated parts of its Eritrean mine’s resources.
Bisha produced 379 000 oz of gold in 2011, and Nevsun expects 2012 output to be between 190 000 oz to 210 000 oz, it said.
The company said it had “concluded that the resource estimate used for mine planning overestimated gold in portions of the Bisha Main oxide mineralization”.
"It was a big disappointment for sure," said Haywood Securities analyst Stefan Ioannou.
"Most people had anticipated that the grades from the oxide zone would decline over time, but the real dissapointment comes on the tonnage side."
He pointed out that the 1.2-million tons that Nevsun had thought was in the oxide zone's resource, but was not, "is a lot to be out by".
Earlier, Nevsun CEO Cliff Davis had stressed on a conference call that Bisha had a "tremendous year in 2011", paying for itself in the first full year of operations.
Predictably, he faced questions from analysts over how the company could have got the resource estimate for the oxide zone so wrong.
Davis, speaking from Eritrea, said that the company first noticed that there might be an issue with the oxides orebody in late fall 2011, and hired a new independent engineer, which delivered a final report in late January.
The company said it would announce a revised reserve estimate for the entire Bisha and Harena deposits around mid-year, later than originally anticipated.
“The time delay from previous guidance is due to the rigorous review process that has commenced using new independent engineers, incorporating actual mine data and data from the extensive 2011 drilling program,” TSX-listed Nevsun said.
The company’s stock plunged 30.6% to close at C$4.40 on Tuesday, chalking up the biggest drop out of any firm on the TSX. That was also the lowest the share has closed at since August 19, 2010.
Ioannou said "you could argue that it [the price plunge] is overdone" and that there "could be a buying opportiunity emerging here", but added that it would take time before management could win back the market's confidence.
Davis pointed out that what he called "the missing oxides" only accounted for around 4% of Bisha's total reserves.
Nevsun is currently building a plant that will produce copper at Bisha, which it said remains on track for commissioning mid-2013. Cash flows from the lower gold production would be "more than sufficient" to fund the completion of this project, the firm said. It ended the year with C$347-million in the bank.
One positive was that Davis said the Vancouver-based company would likely maintain its dividend policy this year, despite the lower production. Nevsun paid a total of C$0.08 a share out to shareholders last year.