PDAC-Nevsun Resources to diversify outside Eritrea

Mon Mar 7, 2011 2:17pm EST

* Looking for new copper project in Africa, S.America

* VP says company needs to diversify political risk

* Sees 350,000 ounces of gold in 2011

* Sees cash flow around $300 mln in first two years

By Julie Gordon

TORONTO, March 7 (Reuters) - Nevsun Resources (NSU.TO) plans to use the cash flow from its newly producing Bisha mine in Eritrea to acquire a new copper project in another mining jurisdiction, a company VP said on Monday.

"We're looking for acquisitions in the copper space ... and we're looking to diversify political risk," Scott Trebilcock, vice president of business development, said on the sidelines of the PDAC prospectors and developers conference in Toronto.

"It would likely be out of Eritrea," he said. "We certainly like Namibia, Botswana, the other established mining districts like Ghana."

He added the company will likely look for more projects in Eritrea, on the Horn of Africa, after it has diversified. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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With the focus on copper, Trebilcock said that continuing to develop in Africa makes sense, but that Nevsun is not limiting itself.

"We are also looking off the continent, in the Americas," he said. "But really we're looking for asset quality, as opposed to geography."

Copper CMCU3 for three-month delivery on the London Metal Exchange has risen by two-thirds since June, hitting an all-time high of $10,190 a tonne in mid-February. The metal, used in power lines, construction and industrial applications, was trading at $9,614 on Monday.

Bisha, which is 60 percent owned by Nevsun and 40 percent owned by the Eritrean government, is a mixed copper, gold and zinc project. The Canadian junior poured its first gold in December and will start copper production at the mine in 2013.

Gold production will last for just over two years, with 2011 production expected be around 350,000 ounces, said Trebilcock.

"We fully expect to be mining on this site for 20-30 years, based on the additional upside," said Trebilcock, adding that the company will put out two resource updates in 2011.

With the spot gold price down slightly from a record high of $1,444.40 an ounce, Nevsun expects cash flows of around $300 million for the first two years of production.

Trebilcock said the company is well-funded to develop the copper and zinc stages of the Bisha project, as well as to fund future exploration and merger activities.

He added that the board is considering ways to return cash to shareholders.

"Share buybacks and dividends are things we will consider, although no decisions are made yet," he said.

(Editing by Frank McGurty)