Nevsun Resources Ltd. (TSX:NSU)(NYSE MKT:NSU) today reported
financial and operating results for the third quarter ended
September 30, 2012.
This release should be read in conjunction with Nevsun Resources
Ltd.'s ("Nevsun" or the "Company") 2012 third quarter Management
Discussion and Analysis ("MD&A"), which can be found at
www.nevsun.com/investors/financials. Unless otherwise noted, with
the exception of earnings per share and cash cost per ounce
figures, all results are in thousands of US dollars.
Third quarter 2012 highlights
-- Mined 316,000 tonnes of ore at 5.21 g/t gold
-- Produced 98,000 ounces of gold; 267,000 ounces in the nine months ended
September 30, 2012
-- Net income attributable to Nevsun shareholders was $44.2 million,
representing earnings of $0.22 per share
-- Cash costs of $307 per ounce of gold((1))
Outlook
-- Expects to exceed previously announced 2012 gold production target of
280,000 - 300,000 ounces
-- Oxide gold production expected to continue into Q2 2013
-- Copper plant expansion on budget and on schedule with commissioning
expected for mid-2013
-- Mineral resource estimate for North West Zone deposit is expected to be
released by mid-2013
-- Expects to release its exploration plans for Mogoraib region in Q1 2013
Financial review
The Bisha copper plant expansion continues on schedule and on
budget. The copper plant expansion is entirely funded by Bisha
operating cash flows. As a result, Nevsun has not had to access
debt or equity markets to fund the expansion and Nevsun's balance
sheet remains clear of long-term debt obligations.
Revenues for the three months ended September 30, 2012 were
$169,992, a decrease from the three months ended September 30, 2011
of $186,502, resulting from fewer gold ounces sold, with 96,700
ounces sold in the three months ended September 30, 2012 compared
to 108,600 ounces sold in the same period in 2011 and from a lower
realized gold price per ounce with $1,681 realized in Q3 2012,
compared to $1,715 in Q3 2011. The lower Q3 2012 production
resulted from the previously mentioned lower milled grade and from
lower recoveries with 87% for Q3 2012 as compared with 89% for Q3
2011. The comparatively lower milled grades and recoveries were
expected, based on the ore type for the section of the pit that was
processed in Q3 2012. The Company had silver by-product sales of
$7,442 and $1,125, respectively, for the three month periods ended
September 30, 2012 and 2011.
Operating expenses for the three months ended September 30, 2012
of $29,196 (three months ended September 30, 2011 - $20,939)
increased from the same period in the prior year mostly due to
increases in fuel, mill consumables and labour costs and costs
associated with an increased volume of waste removal. Royalties for
the three month periods ended September 30, 2012, and 2011 were
$8,154, and $9,276, respectively.
(1) Non-GAAP measure, refer to page 10 of the Q3 2012
MD&A
Net income attributable to Nevsun shareholders for the three
months ended September 30, 2012 was $44,211, a decrease of $9,112
over the same period in the prior year due to lower revenues and
higher costs, as explained above. Earnings per share attributable
to Nevsun shareholders for the three months ended September 30,
2012 was $0.22, a decrease of $0.05 per share over the same period
in 2011.
Gold cash costs per ounce sold for the three months ended
September 30, 2012 were $307(2), which included $77 per ounce in
silver by-product credits, while gold cash costs per ounce sold for
the same period in 2011 were $267, which included $10 per ounce in
silver by-product credits.
The Company's cash and cash equivalents at September 30, 2012,
were $378,925, up from $347,582 as at December 31, 2011. The
Company generated $79,632 and $102,911, respectively, from its
operating activities for the three month periods ended September
30, 2012 and 2011. There were $30,037 of income taxes paid in Q3
2012 and $nil paid in the comparative period.
During the three months ended September 30, 2012, the Company
used $44,857 (three months ended September 30, 2011 - used $44,722)
in its financing activities. During Q3 2012, the Company received
$5,731, and $369 in related interest, as partial payment on the
sale of 30% of the Bisha Mine to the State-owned Eritrean National
Mining Corporation. No such proceeds were received in Q3 2011.
Operations review
Milled grade increased from 6.58 grams per tonne ("g/t") in Q1
2012 to 7.40 g/t in Q3 2012 as a result of pockets of high grade
acid domain ore that were encountered in the pit. The ore in these
extremely high grade pockets has poor competency making it
difficult to anticipate with exploration core drilling while also
requiring sophisticated stockpile blending to facilitate successful
processing and recovery of the precious metals. Average
metallurgical recoveries for the nine months ended September 30,
2012 of 86% are lower than the 89% experienced in the comparative
prior period as a result of the changing nature of the ore and was
expected.
The Company's gold production for Q1, Q2, and Q3 2012 was
82,000, 87,000 and 98,000 ounces respectively. The total for the
nine months ended September 30, 2012, of 267,000 was 4% lower than
the 278,000 produced in the comparative prior period.
Ore mined was significantly higher in Q2 2012 at 500,000 tonnes,
relative to Q1 and Q3 2012 at 349,000 and 316,000 tonnes
respectively, as a result of stockpiling in Q2 to prepare for the
rainy season that runs from mid-June to mid-September. Waste mined
in Q3 2012 of 2,590,000 tonnes increased when compared to the
1,826,000 and 1,659,000 tonnes mined in Q1 and Q2,
respectively.
The increase in the Q3 2012 waste tonnes mined and corresponding
increase in strip ratio to 10.3 was in accordance with
expectations. Copper phase pre-stripping was completed in Q2 2012
so costs related to copper phase waste tonnes are no longer
deferred, adding to the strip ratio in Q3. In addition, strip ratio
increased as a result of increased pit depth and the newly planned
shallower pit walls due to updated geotechnical assessments, as
noted in the August 31, 2012 Technical Report. Strip ratio levels
similar to Q3 are expected to continue for the next 3 - 4 quarters,
however a life of mine strip ratio of 6.6:1 is predicted in the
August 31, 2012 Technical Report.
Reserves update
On September 7, 2012, the Company filed the Canadian National
Instrument 43-101 Technical Report (the August 31, 2012 Technical
Report) in support of previously announced increased mineral
resources and mineral reserves estimates for Bisha. Expressed as
contained metal, the copper reserves estimate increased 6% and the
zinc reserves estimate increased 38% as of May 31, 2012, compared
with the previous reserves estimate effective date January 1,
2011.
Exploration and development
Copper phase development:
The Company continued work on copper phase development
activities during Q3 2012, expending $19,630 on the copper phase.
Total capital for the copper phase expansion is expected to be
approximately $125,000, including the copper plant, port facilities
and concentrate shipping equipment. The Company is taking the same
approach to eliminate price risk on construction that it was
successfully able to accomplish during the build of the gold plant.
As at September 30, 2012, $92,471 had been spent, ordered or
arranged, thereby fixing nearly three quarters of the expected
project costs. The copper flotation plant is targeted to be
operational in mid-2013. SENET of South Africa is the engineering,
procurement, and construction management contractor. Photos of the
expansion can be found at
www.nevsun.com/projects/photogallery/copperphase.
(2) Non-GAAP measure, refer to page 10 of the Q3 2012
MD&A
Harena:
In early July 2012, the State of Eritrea granted a mining
license to Bisha Mining Share Company for the Harena deposit,
located 9 km south of the Bisha plant. The Company started
extracting Harena ore in October and processing it at the Bisha
plant in November.
North West Zone:
The Company has planned a metallurgical and geotechnical
drilling campaign for Q4 2012 with plans to prepare a resource
estimate for the North West Zone by mid-2013.
Mogoraib:
On October 10, 2012 the Company closed the acquisition of the
Mogoraib exploration license in Eritrea, which includes the Hambok
copper and zinc deposit. Consideration for the acquisition was
$5,000, plus an additional possible $7,500 upon commencement of
commercial production from the licensed area.
While management does not believe Hambok is economic as a
stand-alone deposit, the Company plans to undertake further
exploration and, with the Bisha plant a short distance away,
believes Hambok may become an extension for the Bisha base metal
operations. The Company expects to announce its exploration plans
for the region in Q1 2013.
If additional exploration is successful and base metals reserves
are identified, then the Company may consider increasing the
planned capacity of the zinc and copper plant when the Bisha plant
transitions from copper to zinc in 2015 or 2016.
Conference call details
The Company will hold a conference call on Thursday, November 8,
2012 at 8:30AM Vancouver / 11:30AM Toronto, New York / 4:30 PM
London, to discuss the quarterly results. Please call in at least
five minutes prior to the conference call start time to ensure
prompt access to the conference. Dial in details are as
follows:
North America: 416-340-2219 / 1 866-226-1798
UK: 00800-9559-6849 (toll free)
Other International: +1 416-340-2219
The conference call will be available for replay until November
15, 2012 by calling +1 905-694-9451 / 1 800-408-3053 and entering
passcode 7510681.
Forward Looking Statements
The above contains forward-looking statements regarding future
gold production, future gold recoveries, gold production grades,
future gold cash production costs, future copper phase expansion,
timing of copper production, and future Mogoraib exploration
programs. Forward-looking statements are frequently, but not
always, identified by words such as "expects", "anticipates",
"believes", "intends", "estimated", "potential", "possible" and
similar expressions, or statements that events, conditions or
results "will", "may", "could" or "should" occur or be achieved.
Information concerning the interpretation of drill results and
mineral resource and reserve estimates also may be deemed to be
forward-looking statements, as such information constitutes a
prediction of what mineralization might be found to be present if
and when a project is actually developed. Forward-looking
statements are statements about the future and are inherently
uncertain, and actual achievements of the Company or other future
events or conditions may differ materially from those reflected in
the forward-looking statements due to a variety of risks,
uncertainties and other factors, including, without limitation, the
risks that (i) any of the assumptions in the historical resource
estimates turn out to be incorrect, incomplete, or flawed in any
respect; (ii) the methodologies and models used to prepare the
resource and reserve estimates either underestimate or overestimate
the resources or reserves due to hidden or unknown conditions,
(iii) the mine operations are disrupted or suspended due to acts of
god, internal conflicts in the country of Eritrea, or unforeseen
government actions; (iv) the Company experiences the loss of key
personnel; (v) the mine operations are adversely affected by other
political or military, or terrorist activities; (vi) the Company
becomes involved in any material disputes with any of its key
business partners, lenders, suppliers or customers; (vii) the
Company is subjected to any hostile takeover or other unsolicited
attempts to acquire control of the Company; (viii) the Company is
subject to any adverse ruling in any of the pending litigation to
which it is a party; or (ix) the Company incurs unanticipated costs
as a result of the transition from the oxide phase of the Bisha
mining operations to the copper phase in 2013. Other risks are more
fully described in the Company's most recent Management Discussion
and Analysis, which is incorporated herein by reference. The
Company's forward-looking statements are based on the beliefs,
expectations and opinions of management on the date the statements
are made and the Company assumes no obligation to update such
forward-looking statements in the future, except as required by
law. For the reasons set forth above, investors should not place
undue reliance on forward-looking statements.
Please see the Company's Annual Information Form, 2011 annual
Management Discussion and Analysis, and 2012 third quarter
Management Discussion and Analysis for a more complete discussion
of the risk factors associated with our business.
About Nevsun Resources Ltd.
Nevsun Resources Ltd. is a Vancouver-based mining company with
an operating mine in Eritrea. Nevsun's 60%-owned Bisha Mine
commenced gold production in February 2011 and is scheduled to
transition to copper/gold production in 2013. Management expects
the Bisha Mine will rank as one of the highest grade open pit base
metal deposits in the world.
NEVSUN RESOURCES LTD.
Cliff T. Davis, President & Chief Executive Officer
Summarized financial and operating results
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Financial results:
In US $000s (except per share and per ounce data):
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Nine months
ended
September 30,
------------------
Q3 2012 Q2 2012 Q1 2012 2012 2011(1)
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Revenues $169,992 $147,713 $149,390 $467,095 $376,902
Operating income 125,482 109,671 110,628 345,781 288,529
Net income attributable to
Nevsun shareholders 44,211 39,568 41,238 125,017 100,412
Earnings per share attributable
to Nevsun shareholders 0.22 0.19 0.21 0.62 0.51
Total assets $855,433 $813,352 $747,148 $855,433 $700,769
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Gold production and sales statistics(2):
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Nine months
ended
September 30,
Q3 2012 Q2 2012 Q1 2012 2012 2011
----------------------------------------------------------------------------
Tonnes milled 465,000 465,000 430,000 1,360,000 1,351,000
Milled gold grade
(g/t)(5) 7.40 6.93 6.58 6.98 7.30
Recovery, % of gold 87% 85% 86% 86% 89%
Gold in dore, ounces
produced 98,000 87,000 82,000 267,000 278,000
Gold ounces sold 96,700 87,500 83,100 267,300 270,100
Gold price realized
per ounce $ 1,681 $ 1,599 $ 1,712 $ 1,664 $ 1,605
Cash cost per ounce
sold(3) $ 307 $ 253 $ 277 $ 280 $ 287
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Mining statistics:
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Nine months
ended
September 30,
------------------------
Q3 2012 Q2 2012 Q1 2012 2012 2011
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Ore mined,
tonnes 316,000 500,000 349,000 1,165,000 1,230,000
Mined gold
grade, g/t(5) 5.21 6.04 4.71 5.42 7.70
Waste mined,
tonnes(4) 2,590,000 1,659,000 1,826,000 6,075,000 5,732,000
Strip ratio
(using BCMs)
(6) 10.3 4.0 6.2 6.3 6.6
Copper phase
prestrip,
tonnes - 481,000 739,000 1,220,000 -
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(1) The 2011 revenues, operating income, net income attributable to Nevsun
shareholders and earnings per share attributable to Nevsun shareholders
contain results from February 22, 2011 to March 31, 2011 and February 22,
2011 to September 30, 2011 only.
(2) The 2011 gold production and sales statistics include results from the
pre-operating period, January 1 - February 21, 2011. For accounting
purposes, sales from ounces produced prior to February 22, 2011 were
considered pre-production and capitalized to property, plant and equipment.
(3) Cash operating cost per ounce sold includes royalties and is a non-GAAP
measure; see pg 10 of the MD&A for more information.
(4) All waste tonnes mined reflect updated rock density estimates.
(5) The milled grade is consistently higher than the mined grade. This
demonstrates the difficulty in estimating and testing mined grade as a
result of the very high grade pockets of oxide and supergene transitional
ore, as described on pg 5 and 6 of the MD&A.
(6) The increase in the Q3 2012 strip ratio to 10.3 was in accordance with
expectations. Copper phase pre-stripping was completed in Q2 2012 so copper
phase waste tonnes are no longer deferred, adding to the strip ratio in Q3.
In addition, strip ratio increased as a result of increased pit depth and
the newly planned shallower pit walls due to updated geotechnical
assessments, as noted in the August 31, 2012 Technical Report. Strip ratio
levels similar to Q3 are expected to continue for the next 3 - 4 quarters,
however a life of mine strip ratio of 6.6:1 is predicted in the August 31,
2012 Technical Report.
Condensed Consolidated Interim Statements of Comprehensive Income
Unaudited
(Expressed in thousands of United States dollars)
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Three months ended Nine months ended
September 30, September 30,
2012 2011 2012 2011
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Commercial operations
commenced February 22,
2011:
Revenues $ 169,992 $ 186,502 $ 467,095 $ 376,902
Cost of sales
Operating expenses (29,196) (20,939) (75,202) (51,965)
Royalties (8,154) (9,276) (22,934) (18,762)
Depreciation and
depletion (7,160) (9,343) (23,178) (17,646)
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Operating income (1) 125,482 146,944 345,781 288,529
Administrative (3,220) (3,730) (5,116) (11,046)
Finance income 899 2,445 3,104 2,481
Finance costs (153) (595) (459) (1,987)
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Income before taxes 123,008 145,064 343,310 277,977
Income taxes (47,372) (55,864) (132,046) (106,279)
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Net income 75,636 89,200 211,264 171,698
Other comprehensive
income:
Unrealized loss on
available-for-sale
investment, net of tax - (40) - (166)
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Comprehensive income $ 75,636 $ 89,160 $ 211,264 $ 171,532
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Income for the period
attributable to:
Nevsun shareholders 44,211 53,323 125,017 100,412
Non-controlling
interest 31,425 35,877 86,247 71,286
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$ 75,636 $ 89,200 $ 211,264 $ 171,698
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Comprehensive income for
the period attributable
to:
Nevsun shareholders 44,211 53,283 125,017 100,246
Non-controlling
interest 31,425 35,877 86,247 71,286
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$ 75,636 $ 89,160 $ 211,264 $ 171,532
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Earnings per share
attributable to Nevsun
shareholders:
Basic $ 0.22 $ 0.27 $ 0.62 $ 0.51
Diluted $ 0.22 $ 0.27 $ 0.61 $ 0.50
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(1) Operating income for the comparative periods is from July 1 to September
30, 2011 and February 22 to September 30, 2011.
Condensed Consolidated Interim Statements of Cash Flows
Unaudited
(Expressed in thousands of United States dollars)
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Three months ended Nine months ended
September 30, September 30,
2012 2011 2012 2011
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Cash provided by (used
in):
Operating:
Income for the period $ 75,636 $ 89,200 $ 211,264 $ 171,698
Items not involving the
use of cash:
Accretion on reclamation
liability 153 153 459 356
Depreciation and
depletion 7,165 9,343 23,182 17,646
Income taxes 47,372 55,864 132,046 106,279
Share-based payments and
stock appreciation
rights 1,219 2,493 751 7,730
Interest income on due
from non-controlling
interest (816) (2,414) (2,929) (2,414)
Interest expense on
advances from non-
controlling interest - 406 - 1,495
Changes in non-cash
operating capital:
Accounts receivable and
prepaids (16,308) (44,440) (33,796) (45,456)
Inventories (4,002) (5,367) (10,963) (13,402)
Accounts payable and
accrued liabilities (750) (2,327) (3,625) (1,756)
Income taxes paid (30,037) - (169,586) -
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Net cash provided by (used
in) operating activities 79,632 102,911 146,803 242,176
Investing:
Proceeds on sale of pre-
production gold sales - - - 48,613
Expenditures on property,
plant and equipment -
gold phase (2,415) (8,559) (9,210) (35,096)
Expenditures on property,
plant and equipment -
copper phase (19,630) (8,711) (46,294) (12,608)
Expenditures on
exploration and
evaluation (2,600) (1,680) (4,850) (4,565)
Changes in non-cash
working capital related
to investing activities (555) - (1,696) -
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Net cash provided by (used
in) investing activities (25,200) (18,950) (62,050) (3,656)
Financing:
Dividends paid to Nevsun
shareholders (9,976) (5,935) (19,989) (5,935)
Dividends paid to non-
controlling interest (38,000) - (64,000) -
Receipt of purchase price
settlement from non-
controlling interest 5,731 - 34,223 -
Interest received on due
from non-controlling
interest 369 - 1,773 -
Principal and interest
paid on loan from non-
controlling interest - - - (4,103)
Repayment of advances
from non-controlling
interest - (41,000) - (58,000)
Issuance of common
shares, net of issue
costs 160 2,213 855 6,035
Repurchase and
cancellation of common
shares (3,141) - (6,272) -
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Net cash used in financing
activities (44,857) (44,722) (53,410) (62,003)
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Increase in cash and cash
equivalents 9,575 39,239 31,343 176,517
Cash and cash equivalents,
beginning of period 369,350 187,423 347,582 50,145
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Cash and cash equivalents,
end of period $ 378,925 $ 226,662 $ 378,925 $ 226,662
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Non-cash investing and
financing transactions:
Reclassification of
share-based payments
reserve to share capital
upon exercise of options 49 880 280 2,255
Depreciation capitalized
to property, plant and
equipment - - - 397
Share-based payments
capitalized to property,
plant and equipment - - - 276
Closure and reclamation
increase in property,
plant and equipment - - - 1,074
Interest capitalized to
property, plant and
equipment - - - 693
Stock appreciation rights
liability settled with
common shares - 8,451 - 8,451
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Condensed Consolidated Interim Balance Sheets
Unaudited
(Expressed in thousands of United States dollars)
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September 30, December 31,
2012 2011
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Assets
Current assets
Cash and cash equivalents $ 378,925 $ 347,582
Accounts receivable and prepaids 54,285 20,490
Inventories 43,839 32,099
Due from non-controlling interest - 11,137
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477,049 411,308
Non-current assets
Due from non-controlling interest 62,382 84,312
Property, plant and equipment 316,002 279,606
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378,384 363,918
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Total assets $ 855,433 $ 775,226
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Liabilities and equity
Current liabilities
Accounts payable and accrued liabilities $ 18,618 $ 24,651
Dividends payable - 10,013
Income taxes payable 67,067 103,670
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85,685 138,334
Non-current liabilities
Deferred income taxes 15,249 16,187
Provision for closure and reclamation 13,692 13,233
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28,941 29,420
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Total liabilities 114,626 167,754
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Equity
Share capital 404,168 409,305
Share-based payments reserve 12,920 11,736
Retained earnings 191,424 76,383
------------------------------
Equity attributable to Nevsun shareholders 608,512 497,424
Non-controlling interest 132,295 110,048
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Total equity 740,807 607,472
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Total liabilities and equity $ 855,433 $ 775,226
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Contacts: Kin Communications 604 684 6730 or Toll free: 1 866
684 6730nsu@kincommunications.com www.nevsun.com