MANAGEMENT S DISCUSSION & ANALYSIS 2017 FIRST QUARTER

Transcription

1 MANAGEMENT S DISCUSSION & ANALYSIS 2017 FIRST QUARTER This Management s Discussin and Analysis (MD&A) was prepared by management as at April 26, 2017, and was reviewed and apprved by the Audit Cmmittee The fllwing discussin f perfrmance, financial cnditin and future prspects shuld be read in cnjunctin with the unaudited cndensed cnslidated interim financial statements f Nevsun Resurces Ltd and ntes theret fr the three mnths ended March 31, 2017, as well as the 2016 audited cnslidated financial statements, the 2016 MD&A, and the 2016 Annual Infrmatin Frm (AIF), all dated February 22, 2017 All references in this MD&A t Nevsun r the Cmpany include Nevsun Resurces Ltd and each f its whlly and partially wned subsidiaries n a cnslidated basis, unless therwise stated The infrmatin prvided herein supplements but des nt frm part f the financial statements This discussin cvers the three mnths ended March 31, 2017, and the subsequent perid up t the date f issue f this MD&A Unless therwise nted, all dllar amunts are stated in thusands f United States dllars, except per unce, per tnne, per pund, and per share data Infrmatin n risks assciated with investing in the Cmpany s securities as well as infrmatin abut mineral resurces and reserves under Natinal Instrument (NI) are cntained in the Cmpany s mst recently filed AIF which is available n the Cmpany s website at wwwnevsuncm r n SEDAR at wwwsedarcm Cntents Business f the Cmpany 2 First quarter highlights 3 Outlk fr Operating review 5 Results f peratins fr the first quarter Selected quarterly financial infrmatin 9 Recnciliatin f realized metal prices 11 Liquidity and capital resurces 11 Off-Balance sheet arrangements 12 Cntingencies 12 Outstanding share data 12 Financial instruments and risk management 12 Prpsed transactins 13 Critical accunting plicies and estimates 13 Internal cntrl ver financial reprting 13 Changes in internal cntrl ver financial reprting 13 Limitatins f cntrls and prcedures 14 Accunting changes and recent accunting prnuncements 14 Quality assurance 14 Nn-GAAP perfrmance measure 14 Frward lking statements 15 NYSE MKT crprate gvernance 16 Cautinary nte regarding preparatin f Mineral Reserves and Resurces 16

2 2 Business f the Cmpany Nevsun is a leading diversified mid-tier base metals cmpany headquartered in Vancuver, British Clumbia, Canada Nevsun s cmmn shares trade n the TSX and the NYSE MKT LLC, under the trading symbl NSU The Cmpany s three principal assets are its wnership interest in the Timk Prject, a high-grade cpper-gld develpment prject in Serbia, its Bisha Mine in Eritrea, and its strng balance sheet with apprximately $167 millin in cash and cash equivalents and n debt The Timk Prject Upper Zne was the key asset acquired as part f the acquisitin f Reservir Minerals Inc ( Reservir ) n June 23, 2016 The Cmpany s primary fcus is t bring the Timk Prject int prductin in an expedient, safe and well-designed manner Key 2017 milestnes include the delivery f a pre-feasibility study, btaining the necessary permits t begin the develpment decline in Q4 2017, and advancing land acquisitin and permitting activities in rder t rapidly advance cmmencement f prductin The Bisha Mine is a Vlcangenic Massive Sulfide ( VMS ) depsit which has been in prductin since February 2011 The first phase f the mine included gld prductin frm February 2011 t June 2013, which allwed fr an early payback f pre-prductin capital and funding f the supergene phase expansin Cmmissining f the cpper fltatin plant at the Bisha Mine cmmenced in late June 2013 and cmmercial prductin was achieved in December 2013 Mining cpper re frm the supergene phase ceased during Q Cmmissining f the zinc plant cmmenced in early June 2016 and cmmercial prductin was achieved in Octber 2016 During the primary phase, the Bisha Mine prduces bth zinc and cpper in cncentrate Additinal nearby pssible satellitefeed VMS depsits and targets, and a large prspective extensin f the existing Bisha Mine land package acquired in 2016, all have the ptential t extend the existing mine life fr many mre years The Timk Prject is a jint venture between the Cmpany and Freeprt-McMRan Explratin Crp ( Freeprt ) The Cmpany is the peratr f the Timk Prject until the ccurrence f certain events and will advance the develpment f bth the Upper Zne and the Lwer Zne The Cmpany will fund 100% f the Upper Zne develpment csts and will sle fund the first $20,000 f agreed Lwer Zne wrk The Cmpany and Freeprt will fund additinal Lwer Zne wrk based n their respective wnership interests in the Lwer Zne After delivery f a feasibility study n either the Upper Zne r the Lwer Zne, Freeprt will increase its wnership in the Lwer Zne t 54% and the Cmpany will wn 100% f the Upper Zne and 46% f the Lwer Zne The Cmpany and Freeprt will be entitled t their pr rata share f the ecnmic benefits f the Lwer Zne and the Cmpany will be entitled t 100% f the ecnmic benefits f the Upper Zne Frm the acquisitin f Timk t March 31, 2017, the Cmpany has incurred $5,949 f Lwer Zne wrk The Bisha Mine is wned by Bisha Mining Share Cmpany ( BMSC ), a 60% wned subsidiary f Nevsun, with the remaining 40% wned by the State-wned Eritrean Natinal Mining Crpratin ( ENAMCO ) On December 12, 2007, BMSC was granted a 20 year mining license fr the Bisha Mine, and n July 6, 2012, a 10 year mining license was granted fr the Harena prperty, where a satellite VMS depsit exists In 2016, BMSC acquired additinal mineral explratin license areas and nw hlds tw explratin licenses (Tabakin and New Mgraib) in clse prximity t the Bisha Mine The explratin licenses, which cver 814 square kilmetres, include a number f ptential satellite VMS depsits

3 3 First quarter highlights Sld 665 millin punds f cntained zinc in cncentrate at C1 cash csts (1) f $089 per payable pund sld Prduced 33 millin punds f cpper in cncentrate and 519 millin punds f zinc in cncentrate Zinc recvery imprved t 710% during Q frm 636% during Q Annunced a significant increase in resurces at the Bisha Mine Cmpleted the gephysics survey at Bisha, generating prmising new targets Cmpleted the planned infill drilling prgram fr the Timk Upper Zne Apprved a new explratin prgram targeting additinal high-grade mineralizatin at Timk Ended perid with wrking capital f $190 millin, including $167 millin f cash and cash equivalents Declared quarterly dividend f $001 per share Q Q Q Q Revenue (millins) 716 $ 362 $ 229 $ 924 Operating incme (lss) (millins) 117 (49) Net incme (lss) (millins) 29 (85) Net incme (lss) attributable t Nevsun sharehlders (millins) (02) (74) Basic earnings (lss) per share attributable t Nevsun sharehlders (000) (005) Wrking capital (millins) Cpper price realized, per payable pund sld - $ - $ 210 $ 220 Zinc price realized, per payable pund sld C1 cash cst per payable cpper pund sld (1) C1 cash cst per payable zinc pund sld (1) (1) C1 cash cst per pund is a nn-gaap measure see page 14 f this MD&A fr discussin f nn-gaap measures and page 5 f this MD&A, Cash Csts, fr explanatin f per-unit csts

4 4 Outlk fr Objectives Maintain tp quartile safety perfrmance Timk Upper Zne Cpper-Gld Prject Deliver pre-feasibility study in September 2017, with an initial reserve Obtain necessary permits and begin decline develpment in Q Rapidly advance verall prject t prductin in 2021 Bisha Zinc-Cpper Mine Explratin Prduce 200 t 230 millin punds f zinc Prduce 10 t 20 millin punds f cpper Mnetize 10,000 gld equivalent unces frm stckpiles Cmplete 130,000 metres f budgeted explratin and develpment drilling Update Bisha resurce and reserve in Q including indicative undergrund study Cntinue paying quarterly dividend at the new rate f $001 per share 2017 Prgress Update The Cmpany is making gd prgress twards achieving all f the 2017 Objectives utlined abve Sme key highlights during Q include: While Bisha experienced 2 and Timk experienced 1 lst time injuries ( LTI ) during the quarter, elevated fcus n all safety systems was priritized despite Q results remaining well belw 05 LTI per 200,000 hurs wrked Timk Upper Zne Cpper-Gld Prject The pre-feasibility study cntinues t be n track with a cmpletin date f September 2017 Cmpletin f infill resurce drilling and advancement f key peratinal trade-ff studies The majrity f the key permits fr the decline cnstructin have been received Bisha Zinc-Cpper Mine The Bisha Mine is n track t achieve all f its prductin and sales targets fr 2017 Explratin Cntinued imprvements in the primary rebdy fltatin cncentrates Apprximately 40,000 metres f ttal drilling have been cmpleted thrugh the end f Q The Cmpany annunced the updated resurce estimate at Bisha during Q and plans t prvide an updated reserve estimate during Q The Cmpany declared in March 2017 a quarterly dividend f $001 per share

5 5 Operating review Key perating infrmatin Bisha Mine: Q Q Q Q Mining Ore mined, tnnes (1) 651, , ,000 1,337,000 Waste mined, tnnes 3,114,000 2,445,000 2,446,000 2,028,000 Strip rati, (using tnnes) Prcessing Primary Ore Ore Milled, tnnes 599, , ,000 - Zinc feed grade, % Cpper feed grade, % Recvery, % f zinc (2) Recvery, % f cpper (3)(4) Zinc cncentrate grade, % (5) Cpper cncentrate grade, % (4) Zinc in cncentrate prduced, millins f punds Zinc in cncentrate prduced, tnnes 23,500 21,000 17,500 - Cpper in cncentrate prduced, millins f punds (4) Cpper in cncentrate prduced, tnnes (4) 1, Payable zinc in cncentrate sld, millins f punds Payable zinc in cncentrate sld, tnnes 24,000 16,000 9,600 - Prcessing Supergene Ore (6) Ore milled, tnnes ,000 Cpper feed grade, % Recvery, % f cpper Cpper cncentrate grade, % Cpper in cncentrate prduced, millins f punds Cpper in cncentrate prduced, tnnes ,500 Payable cpper in cncentrate sld, millins f punds Payable cpper in cncentrate sld, tnnes ,900 (1) Ore tnnes mined fr the three mnths ended March 31, 2017 included 594,000 tnnes f primary re (Q ,000) and 57,000 tnnes f supergene re (Q ,000) (2) This represents the verall cmbined zinc recvery frm bth the cpper and zinc fltatin circuits (3) This represents the cpper recvery t cpper cncentrate frm the cpper fltatin circuit nly, and excludes cpper recvered t bulk cncentrate (4) Operating statistics related t recvery as a percentage f cpper, cpper cncentrate grade, and cpper in cncentrate prduced, were nt meaningful during Q and Q (5) Represents cmbined cncentrate grade fr bth zinc and bulk cncentrates (6) The supergene phase f the Bisha Mine ceased n June 2, 2016

6 6 Results f peratins fr the first quarter 2017 Overall results frm peratins are nt cmparable t the prir year quarter due t the transitin t the primary phase The Cmpany has prvided cmparisns t the prir quarters (Q and Q4 2016) in additin t thse prvided fr Q in rder t better illustrate the imprving trend f perating results at Bisha Operating incme The Cmpany generated perating incme f $117 millin fr the three mnths ended March 31, 2017, a 64% decrease frm perating incme f $329 millin generated in Q (Q perating lss f $49 millin) The Cmpany was in full primary phase prductin during the three mnths ended March 31, 2017, as cmpared t full supergene phase prductin during the same perid in 2016 The Cmpany s perating margin is expected t be lwer during the primary phase than in the supergene phase The Q perating incme includes a ne-time credit f $9,780 related t the recvery f withhlding taxes paid in prir years with respect t a certain cntractr (recrded t accunts receivable, net f incme taxes) Additinally, the Cmpany generated $05 millin f perating incme in Q frm the sales f direct shipped re ( DSO ) material as cmpared t $100 millin generated in Q Prductin and sales The Cmpany prduced 519 millin punds f zinc in zinc cncentrate and 33 millin punds f cpper in cpper cncentrate during the three mnths ended March 31, 2017, thrugh the prcessing f 599,000 tnnes f primary re averaging 55% zinc and 09% cpper With the nging prgress made in prducing cpper cncentrate in Q1 2017, the Cmpany reduced the prductin quantity f bulk cncentrate (nn-spec cncentrate) in favur f greater prductin f cpper cncentrates and zinc cncentrates in their respective circuits Fltatin f cpper and zinc int their respective cncentrates will allw the Bisha Mine t realize a better smelter return n its ttal cncentrate sales The cpper cncentrate prductin t date still cntains greater-than-desired zinc cntent; hwever, the Cmpany expects this material t be sld at cmpetitive market terms with the first sale f primary phase cpper cncentrates scheduled fr Q Fr the three mnths ended March 31, 2016, the Cmpany prduced 342 millin punds f cpper in cncentrate thrugh the prcessing f 584,000 tnnes f supergene re averaging 31% cpper and recvery f 870% The Cmpany s supergene phase ceased in June 2016 During this past quarter, the Bisha Mine has achieved incremental imprvements in prductin f its tw desired types f cncentrate Due t a variety f changes being implemented at the Bisha Mine, the Cmpany has been able t reduce the activatin f zinc sphalerite re in the cpper circuit, which resulted in the prductin f meaningful quantities f cpper cncentrate during February and March 2017 The imprved separatin is als leading t increased amunts f zinc cncentrate being prduced in the zinc circuit with less prductin f bulk cncentrate The Cmpany cntinues t devte significant resurces including the use f external specialists with the bjective f increasing the recveries f cpper and zinc in their respective circuits twards design levels, and t upgrade the quality f the cpper and zinc cncentrates prduced t imprve marketability The Cmpany sld 529 millin punds f payable zinc during Q (352 millin punds during Q4 2016) versus 349 millin punds f payable cpper during Q The Cmpany had unusually high finished gd inventry at December 31, 2016 due t the timing f shipments, all f which was sld during Q Cash csts Cash csts per payable zinc pund sld fr the three mnths ended March 31, 2017 were $089 (Q $106) After adding back the ne-time recvery f withhlding taxes (as nted abve), and excluding selling csts related t sales f DSO, the C1 cash cst per payable zinc pund sld cnsists f $091 f perating expenses and selling csts and $011 f treatment and refining charges, ffset by $013 f by-prduct credits Mine perating and selling csts are within annual guidance The C1 cash cst per payable zinc pund sld reflects the c-prduct csting methd During Q1 2017, bth zinc and cpper cncentrates were prduced and cash csts were allcated t the respective cncentrates based n expected revenue using budgeted metals prices The realized csts allcated t cpper cncentrate will be disclsed n a per payable pund sld basis upn the first sale f cpper cncentrate generated frm primary re, currently expected fr Q During the three mnths ended March 31, 2016, the C1 cash cst per payable cpper pund sld was $112,

7 7 cmprised f $111 f perating expenses and selling csts and $031 f treatment and refining charges, less $030 f by-prduct credits During the primary phase, it is expected that n a grss basis perating expenses will be slightly higher than thse incurred during the supergene phase, largely as a result f higher reagent use expected during the primary phase t separate the cpper and zinc elements in their respective fltatin circuits Stckpiled materials At the end f the perid, there were fur distinct types f stckpiled material 2,430,000 tnnes f primary re inclusive f bundary re material, 90,000 tnnes f supergene re, 120,000 tnnes f xide re, and 400,000 tnnes f pyrite sand material The 2,430,000 tnnes f primary re include an estimated 2,300,000 tnnes f bundary re material The bundary re material had been intended t be either prcessed in a blended manner with in-pit fresh primary re thrugh bth the existing cpper fltatin plant fllwed by the new zinc fltatin plant, and/r prcessed via an alternative methd based n future planned bundary material prcessing studies cmmencing later this year The Cmpany has decided t segregate and stckpile all bundary primary material fr future prcessing pending these technical investigatins unless re feed blends dictate the need fr sme bundary additin t the prcess plant The Cmpany cntinues t find discreet but smaller znes f supergene re The Cmpany has accumulated sufficient stckpiled supergene re (90,000 tnnes) and intends t undertake a specific campaign t prcess this re thrugh the plant during 2017 The stckpiled xide re cnsists f 20,000 tnnes f material cntaining high grades f gld and silver which is expected t be mnetized by the end f the first half f 2017 The remaining 100,000 tnnes f xide re is expected t be prcessed at the end f the mine life thrugh a re-cmmissining f the existing carbn-in-leach plant The pyrite sand material cnsists f apprximately 10,000 tnnes f higher grade material, and 390,000 tnnes f lwer grade material Further study is required t determine the mst ecnmic methd f mnetizing the lwer grade stckpiled pyrite sand The cmpsitin f stckpiled materials as at March 31, 2017, is as fllws: Ttal Current Nn-current Primary re 2,430, ,000 2,300,000 Supergene re 90,000 90,000 - Oxide re 120,000 20, ,000 Pyrite sand re 400, ,000 Explratin Bisha and Harena The sustainability and grwth f the Bisha peratin is dependent n finding extensins t the knwn depsits and discvering new depsits that culd ultimately be prcessed at the Bisha facilities Drilling in 2016 was successful in increasing the indicated resurce at Harena t 40 millin tnnes cntaining 76 millin punds f cpper and 274 millin punds f zinc and the inferred resurce t 251 millin tnnes cntaining 510 millin punds f cpper and 26 billin punds f zinc A maiden resurce was als annunced fr the Asheli depsit where 24 millin tnnes f inferred resurce was defined cntaining 98 millin punds f cpper and 455 millin punds f zinc In Q1 2017, the Cmpany spent $32 millin t fund 8,646 metres f explratin diamnd drilling (17 hles), 810 metres f reverse circulatin drilling (7 hles), a 6,386 line kilmetre Versatile Time Dmain Electrmagnetic ( VTEM ) helicpter survey, grund and brehle gephysical surveying and ther gelgical wrk The main areas f fcus were the cntinuatin f the drilling f the Harena and Asheli depsits and the cmpletin f a large reginal gephysical survey ver grund that was newly acquired in 2016, encmpassed by the New Mgraib River and Tabakin explratin licenses

8 8 At Harena, a ttal f 5 hles (4,229m) have been cmpleted in 2017 Three hles targeted drill spacing gaps f greater than 100 metres within the resurce mdel, including hle HX-084 which intersected massive sulphides ver 840 metres grading 080% Cu and 472% Zn Tw hles tested areas utside f the resurce mdel Hle HX-082, immediately t the sutheast, intersected 405 metres f massive sulphide grading 076% Cu and 482% Zn while hle HX-083, intersected massive sulphide ver 184 metres grading 165% Cu and 403% Zn, 150 metres belw the resurce mdel Drilling at Harena will cntinue thrughut 2017 At Asheli, a ttal f 3,503 metres in 8 hles have been cmpleted, mainly fcused in the Asheli Nrth area, lcated 150 metres nrtheast f the main Asheli depsit, where massive sulphides ver a 310 metre interval were previusly intersected in 2016 T date, nly stringer-style mineralizatin has been encuntered Additinal drilling has als been cmpleted t the suth f the Bisha pit n bth the Bisha mining license (3 hles, 1,218 metres) and the Tabakin explratin license (1 hle, 316 metres) N significant mineralizatin was encuntered The large VTEM survey was cmpleted in early March 2017 ver areas previusly nt cvered by airbrne gephysical surveys Preliminary results indicate that there are numerus new anmalies that will require grund fllw-up This wrk will begin in Q Timk Prject In Q1 2017, drilling cntinued in the Upper Zne at Cukaru Peki aimed at upgrading a large prtin f the depsit frm the categry f inferred resurce t either indicated r measured resurce as part f an nging pre-feasibility study During the quarter, a ttal f 17,386 metres f drilling were cmpleted in 24 hles A ttal f 29,699 metres has nw been cmpleted in the Upper Zne since July 2016, and the prgram is nearing cmpletin with nly tw hles remaining and in prgress This drilling is leading t a mre detailed gelgical mdel f the depsit A cmparisn f the grades and thickness f the intersectins frm the current drill prgram with thse frm adjacent hles frm histrical drilling has shwn a clse crrelatin Drilling als cntinued in the Lwer Zne A ttal f 5,352 metres have been cmpleted in 5 hles as part f the $20 millin, apprximately 60,000 metre cmmitment Timk Prject update The Cmpany is n track t deliver the pre-feasibility study ( PFS ) by the end f September 2017 The Cmpany spent $8 millin during Q (cumulative $16 millin frm June 2016) n Upper Zne activities and anticipates that the PFS will be achieved n time and within the $40 millin budget Key milestnes achieved s far in 2017 include the near cmpletin f all planned infill drilling (30,000 metres), advancement f key technical mining and metallurgy studies, and the engagement f SRK wh will be the verall Qualified Persn ( QP ) n the NI reprt that will accmpany the PFS Additinal areas f fcus include the develpment decline cmmencement by Q The Cmpany has btained 6 f the 9 key permits fr the decline and is preparing t tender the develpment decline cntract during Q Based n the success f discvery and infill drilling fr the very high grade Upper Zne, the Cmpany has recently cmmenced an expanded 10,000 metre drilling prgram t search fr nearby, similar high grade depsits The Cmpany spent $3 millin during Q (cumulative $6 millin frm June 2016) n Lwer Zne drilling The Cmpany has nly drilled 13,000 metres t date as the mther-daughter hle drilling cnfiguratin has prven difficult t achieve The Cmpany has returned t single deep hle drilling fr the Lwer Zne, as fllwed in the past The Cmpany is targeting anther 32,000 metres f Lwer Zne drilling in 2017 Reserves and resurces The Cmpany is currently wrking n updating the mineral reserve estimate fr Bisha and anticipates publishing the results in late Q alng with an updated Bisha technical reprt The Cmpany anticipates publishing a Timk PFS in September 2017 with updated mineral resurce and reserve estimates

9 9 Crprate Scial Respnsibility The Cmpany plans t issue its 2016 annual CSR reprt in May 2017 The Cmpany cntinues with its transparent apprach t peratins and cntributins t the cmmunities and reprting f funds paid t the State f Eritrea in the frm f taxes and ryalties Dividends In February 2017, the Cmpany declared a $001 per share quarterly dividend, resulting in a ttal dividend declaratin f $3,019 During the three mnths ended March 31, 2016, the Cmpany declared a dividend f $004 per share fr a ttal declaratin f $7,994 The Cmpany has in place a Dividend Reinvestment Plan ( DRIP ) which allws sharehlders t purchase additinal cmmn shares f the Cmpany at a 3% discunt t fair market value by reinvesting their cash dividends Apprximately 8% f cmmn sharehlders elected t participate in the DRIP fr the Q dividend Accrdingly, the Cmpany paid dividends f $2,763 in cash and $256 in cmmn shares (104,609 shares) in April 2017 Selected quarterly financial infrmatin Selected cnslidated financial infrmatin fr the mst recent eight quarters (unaudited) are presented belw The financial results frm Q thrugh Q reflect perids in which the Bisha Mine was engaged in full cmmercial cpper cncentrate prductin thrugh the prcessing f supergene re Starting at the end f Q2 2016, the cmmissining phase f the zinc fltatin plant began Csts directly attributable t the prductin f zinc cncentrate incurred during this phase, which is defined by the prcessing f primary re, were capitalized until cmmercial prductin was declared and sales f cmmercially prduced material cmmenced in Q In US $000s (except per share data) st th rd nd Revenues $ 71,647 $ 36,187 $ 22,920 $ 79,165 Operating incme (lss) 11,682 (4,901) 17,542 34,907 Net incme (lss) fr the perid 2,880 (8,457) 5,987 17,976 Net incme (lss) attributable t Nevsun sharehlders (194) (7,423) 1,663 9,612 Earnings (lss) per share attributable t Nevsun sharehlders basic (000) (005) Earnings (lss) per share attributable t Nevsun sharehlders diluted (000) (005) In US $000s (except per share data) st th rd nd Revenues $ 92,433 $ 65,444 $ 70,016 $ 104,240 Operating incme 32,934 5,822 5,693 38,617 Net incme fr the perid 15, ,842 19,165 Net incme (lss) attributable t Nevsun sharehlders 7,501 (679) 1,448 9,447 Earnings (lss) per share attributable t Nevsun sharehlders basic 004 (001) Earnings (lss) per share attributable t Nevsun sharehlders diluted 004 (001) The fllwing variances result when cmparing peratins fr the three mnth perid ended March 31, 2017, with the same perid f the prir year (in US $000s, except per unce and per pund data):

10 10 Revenues The Cmpany s Q revenues f $71,647 (Q $92,433) are cmprised f zinc cncentrate sales f $67,852 (Q $nil), zinc cncentrate by-prduct sales f $7,114 (Q $nil), and ther revenue f $2,664 (Q $15,949), ffset by zinc cncentrate treatment and refining charges f $5,983 (Q $nil) Revenue in Q als included cpper cncentrate sales f $76,670 and by-prduct sales f $10,656, ffset by treatment and refining charges f $10,282 N cmparable sales f cpper cncentrate tk place in Q Zinc revenues include sales f 529 millin payable punds f zinc (Q nil) at an average realized price per pund f $128 (Q nil) Zinc sales include credits f $1,572 related t prvisinal and final pricing and physical quantity adjustments, which reflects a higher price envirnment in Q than in Q The Cmpany als cmpleted direct shipment sales which cntained apprximately 4,800 gld equivalent unces frm stckpiled material that resulted in ther revenue f $2,664 (Q apprximately 20,000 gld equivalent unces fr revenue f $15,949) The gld equivalent unces are calculated based n a rati f 71:1 (Q :1) silver t gld Operating expenses The Cmpany recrded perating expenses f $40,557 in Q (Q $41,471) Excluding the nnrecurring benefit f the recvery f withhlding taxes n cntractr payments verpaid in prir years ($9,780, recrded in accunts receivable, net f incme taxes), Q perating expenses have increased ver the cmparable perid as a result f higher transprt and shipping csts, as well as higher reagent and fuel csts as a result f the Bisha Mine being in the primary re phase On a grss basis, the Cmpany expects mine perating csts t be higher in the primary phase than in the supergene phase Ryalties The Cmpany incurs a 35% ryalty n base metals and a 5% ryalty n precius metals n its metal sales In Q1 2017, ryalty expenses f $6,303 (Q $3,855) were recrded Ryalties are payable at the time cncentrate r DSO shipments leave the mine, which precedes the revenue recgnitin pint The Cmpany is in discussins with the Ministry f Energy & Mines ( MEM ) t btain relief frm the payment f ryalties n a cntained basis fr all metals prduced as it effectively increases the ryalty rates beynd the existing 35% fr base metals and 5% fr precius metals The Cmpany has accrued an additinal $3,467 f ryalty expense during Q f which $1,884 and $1,583 pertained t Q and 2016 prductin, respectively Depreciatin and depletin In Q1 2017, depreciatin and depletin f $13,105 (Q $14,173) was recrded Depreciatin is primarily calculated using the units-f-prductin methd with metal punds prduced and re tnnes mined as the basis fr the calculatin Depreciatin was lwer in Q as result f fewer re tnnes having been mined than in Q1 2016, hwever this was ffset in part by the additin f depreciatin f the zinc circuit, cmmissined in the last quarter f 2016 Administrative Administrative csts in Q were $4,694, dwn frm $5,215 in Q Salaries and emplyee benefits including lng-term incentive cmpensatin decreased frm $3,723 in Q t $2,731 in Q1 2017, largely as a result f a decrease in the Cmpany s share price during Q1 2017, which lwers the liability related t the Cmpany s utstanding share unit incentives (RSUs, PSUs and DSUs) that are cash-settled Business develpment expenses were lwer in Q at $29 fr Q as cmpared t $239 in Q Other administrative csts increased frm $755 in Q t $1,643 in Q due t general increases in travel, legal, ffice and investr relatins csts

11 11 Finance csts Finance csts in Q f $486 are cmprised entirely f accretin expense n the Cmpany's reclamatin liability Finance csts f $486 recrded during Q als related nly t accretin expense n the Cmpany's reclamatin liability Finance incme Finance incme fr Q f $309 (Q $1,004) is cmprised predminantly f interest earned n cash and cash equivalent balances Finance incme in Q included $513 f interest earned n cash and cash equivalent balances and $440 f interest recrded n the amunt due frm nn-cntrlling interest Incme taxes Incme tax expense fr Q f $3,931 (Q $12,653) relates t the BMSC mining peratins where the statutry tax rate is 38% Recnciliatin f realized metal prices Zinc Cpper In US $000s (except punds f payable metal and per payable pund data) Q Q Q Q Ttal cncentrate sales $ 67,852 $ - $ - $ 76,670 Add (less): Prvisinal and final pricing and quantity lsses (gains) n cncentrate sales (1,572) - - (2,001) Cncentrate sales, befre pricing adjustments $ 66,280 $ - $ - $ 74,669 Pund f payable metal sld (millins) Realized price per payable pund sld, befre pricing adjustments $ 125 $ - $ - $ 214 Prvisinal and final pricing and quantity adjustments per payable pund sld $ 003 $ - $ - $ 006 Realized price per payable pund sld $ 128 $ - $ - $ 220 LME average price per pund $ 126 $ - $ - $ 211 Liquidity and capital resurces The Cmpany s cash and cash equivalents at March 31, 2017, were $166,565 (December 31, 2016 $199,256) Wrking capital, including cash and cash equivalents, was apprximately $190,274 Accunts receivable and prepaids f $23,138 (December 31, 2016 $14,986) include n shipments fr which revenue was recgnized but prvisinal payments were nt yet received by perid end (December 31, 2016 n shipments) The increase relates t larger vendr depsits, prvisinal pricing receivables and a receivable fr the recvery f withhlding taxes verpaid in prir years at perid end During Q1 2017, cash generated frm perating activities befre tax was $13,592 (Q $21,970) During the first quarter f 2017, the Cmpany remitted $18,794 in incme taxes (Q $nil) All incme taxes paid in Q relate t the 2016 tax year The Cmpany used $17,172 in investing activities in Q (Q $8,420) The Cmpany spent $15,448 (Q $6,236) n mineral prperties, plant and equipment in Q cmprised f $1,280 fr sustaining capital (Q $1,231), $1,206 n mineral prperties (Q $64) and $12,962 n explratin and evaluatin (Q $2,099), f which $10,582 (Q $nil) related t the Timk Prject The Q expenditures were befre changes in nn-cash wrking capital f $1,724 (Q $2,184) In Q1 2016, the Cmpany als spent $2,842 n the zinc expansin plant

12 12 The Cmpany used $10,317 in its financing activities in Q (Q $9,833) During Q1 2017, the Cmpany paid dividends t Nevsun sharehlders f $10,562 (Q $7,991) Off-Balance sheet arrangements The Cmpany has nt entered int any specialized financial arrangements t minimize its cmmdity price risk, investment risk r currency risk There are n ff-balance sheet arrangements Cntingencies Legal Claims The Cmpany is invlved in varius claims, litigatin and ther matters in the rdinary curse and cnduct f business Sme f these pending matters will take a number f years t reslve While it is nt pssible t determine the ultimate utcme f such actins at this time, and inherent uncertainties exist in predicting such utcmes, it is the Cmpany s belief that the ultimate reslutin f such actins is nt reasnably likely t have a material adverse effect n its cnslidated financial psitin r results f peratins As a result, n cntingent liabilities have been recrded in the Cmpany s interim financial statements Cntractual dispute with Canaccrd Canaccrd Genuity Crp ( Canaccrd ) was an advisr t Reservir in cnnectin with the Cmpany s transactin (the Transactin ) t acquire Reservir and all f its assets, including the Timk Prject In March 2016, Canaccrd and Reservir entered int an advisry agreement t evaluate third party funding arrangements which related t the ptential exercise by Reservir f a right f first refusal ( ROFO ) under its jint venture agreement with Freeprt Canaccrd was paid a fee f $1,000 fr prviding financial advisry services in cnnectin with Reservir s exercise f the ROFO In early April 2016, Canaccrd and Reservir entered int a new advisry agreement regarding a ptential acquisitin f cntrl f Reservir (the April Advisry Agreement ) Canaccrd has filed a Ntice f Claim in the British Clumbia Supreme Curt regarding the fees under the April Advisry Agreement Canaccrd initially demanded an advisry fee f CAD$11,658 (the Transactin Fee ) and has subsequently increased its claim fr a Transactin Fee t CAD$14,670, which wuld represent apprximately 30% f the verall transactin value f apprximately CAD$482,000 based n the clsing price f the Cmpany s shares (CAD$470), n the last trading day prir t the date f annuncement f the Transactin On September 12, 2016, Reservir filed a Reply t the Ntice f Claim t dispute the Transactin Fee demanded by Canaccrd n the basis that, amng ther things, it is nt determined in accrdance with the terms f the April Advisry Agreement Reservir has paid t Canaccrd the sum f CAD$6,047 (which includes a transactin fee f CAD$5,617 and a secnd fairness pinin fee f $100, taxes and expenses) Reservir believes that this cnstitutes all fees that Canaccrd is entitled under the April Advisry Agreement N prvisin has been recrded in the Cmpany s interim financial statements as the utcme f this claim is nt determinable Outstanding share data As f April 26, 2017, the Cmpany had 301,974,202 shares and 9,176,433 ptins issued and utstanding Financial instruments and risk management A descriptin f financial instruments and types f risks that the Cmpany is expsed t and its bjectives and plicies fr managing such risks is included in the Cmpany s Annual Infrmatin Frm fr the year ended December 31, 2016, dated February 22, 2017, which is available n SEDAR at wwwsedarcm The Cmpany s accunts receivable cntains an embedded derivative due t the prvisinal pricing in zinc and

13 13 cpper cncentrates and direct shipment sales cntracts Revenues are recrded using the metal price received fr sales that settle during the reprting perid Fr sales that have nt been settled, an estimate is used based n the expected mnth f settlement and the frward price f the metal at the end f the reprting perid The difference between the estimate and the final price received is recgnized in revenue in the perid in which the final adjustment is determined The final adjustment recrded fr these revenues depends n the actual price when the sale settles There can als be adjustments fr the final amunt f metals in the zinc and cpper cncentrates and direct shipment re The settlement dates under current sales cntracts vary frm ne t fur mnths after shipment Prpsed transactins The Cmpany cntinually reviews pprtunities fr grwth, hwever, there are n prpsed asset r business acquisitins r dispsitins currently under ffer Critical accunting plicies and estimates The Cmpany's cnslidated financial statements are prepared in accrdance with IFRS as issued by the Internatinal Accunting Standards Bard (IASB) The significant accunting plicies applied and recent accunting prnuncements are described in Nte 3 and Nte 4 t the Cmpany's 2016 annual cnslidated financial statements, respectively In preparing the cndensed cnslidated interim financial statements in accrdance with the IAS 34, management is required t make estimates and assumptins that affect the reprted amunts f assets, liabilities, revenues and expenses These estimates invlve cnsiderable judgment and are, r culd be, affected by significant factrs that are ut f the Cmpany s cntrl Actual results culd differ frm thse estimates Management reviews its estimates and assumptins n an nging basis using the mst current infrmatin available Revisins t estimates and the resulting effects n the carrying values f the Cmpany s assets and liabilities are accunted fr prspectively Fr a descriptin f the critical judgements in applicatin f accunting plicies and infrmatin abut assumptins and estimatin uncertainties, refer t the Cmpany s MD&A fr the year ended December 31, 2016, which is available n SEDAR at wwwsedarcm Internal cntrl ver financial reprting The Cmpany s management, with the participatin f the Chief Executive Officer and Chief Financial Officer, is respnsible fr establishing and maintaining adequate internal cntrl ver financial reprting The Cmpany s internal cntrl ver financial reprting is a prcess designed t prvide reasnable assurance regarding the reliability f financial reprting and the preparatin f financial statements fr external purpses in accrdance with IFRS The Cmpany s internal cntrl ver financial reprting includes thse plicies and prcedures that: pertain t the maintenance f recrds that, in reasnable detail, accurately and fairly reflect the transactins and dispsitins f assets f the Cmpany; prvide reasnable assurance that transactins are recrded as necessary t permit preparatin f financial statements in accrdance with IFRS, and that the Cmpany s receipts and expenditures are being made nly in accrdance with authrizatins f management and the Cmpany s directrs; and prvide reasnable assurance regarding preventin r timely detectin f unauthrized acquisitin, use r dispsitin f the Cmpany s assets that culd have a material effect n the Cmpany s cnslidated financial statements The Cmpany s management, with the participatin f the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness f the Cmpany s internal cntrl ver financial reprting using the criteria set frth in the Internal Cntrl Integrated Framewrk (2013) issued by the Cmmittee f Spnsring Organizatins f the Treadway Cmmissin Based n this assessment, management cncluded that the Cmpany s internal cntrl ver financial reprting was effective as f December 31, 2016 Changes in internal cntrl ver financial reprting There have been n changes in the Cmpany s internal cntrl ver financial reprting during the perid ended

14 14 March 31, 2017, that have materially affected, r are reasnably likely t materially affect, the Cmpany s internal cntrl ver financial reprting Limitatins f cntrls and prcedures The Cmpany s management, including the Chief Executive Officer and the Chief Financial Officer, believe that any disclsure cntrls and prcedures r internal cntrls ver financial reprting, n matter hw well cnceived and perated, can prvide nly reasnable, nt abslute, assurance that the bjectives f the cntrl system are met Further, the design f a cntrl system must reflect the fact that there are resurce cnstraints, and the benefits f cntrls must be cnsidered relative t their csts Because f the inherent limitatins in all cntrl systems, they cannt prvide abslute assurance that all cntrl issues and instances f fraud, if any, within the Cmpany have been prevented r detected These inherent limitatins include the realities that judgements in decisin-making can be faulty, and that breakdwns can ccur because f simple errr r mistake Additinally, cntrls can be circumvented by the individual acts f sme persns, by cllusin f tw r mre peple, r by unauthrized verride f the cntrl The design f any systems f cntrls is als based in part upn certain assumptins abut the likelihd f future events, and there can be n assurance that any design will succeed in achieving its stated gals under all ptential future cnditins Accrdingly, because f the inherent limitatins in a cst effective cntrl system, misstatements due t errr r fraud may ccur and nt be detected Accunting changes and recent accunting prnuncements There were n previusly undisclsed significant accunting prnuncements issued during the perid ended March 31, 2017 Quality assurance Mr Peter Manjlvic, PGe, and Vice President Explratin f Nevsun Resurces Ltd is a Qualified Persn under the terms f NI and has reviewed the explratin and mineral resurce and reserve statements f this MD&A and apprved its disseminatin Nn-GAAP perfrmance measure This dcument includes a nn-gaap perfrmance measure that des nt have a standardized meaning prescribed by IFRS This perfrmance measure may differ frm thse used by, and may nt be cmparable t such measures as reprted by, ther issuers The Cmpany believes that this perfrmance measure is cmmnly used by certain investrs, in cnjunctin with cnventinal GAAP measures, t enhance their understanding f the Cmpany's perfrmance The Cmpany uses this perfrmance measure extensively in internal decisin making prcesses, including t assess hw well the Bisha Mine is perfrming and t assist in the assessment f the verall efficiency and effectiveness f the mine site management team The table belw prvides a recnciliatin f this nn-gaap measure t the mst directly cmparable IFRS measures as cntained within the Cmpany's issued financial statements C1 cash cst per payable pund sld C1 cash cst per payable pund sld is a nn-gaap measure and represents the cash cst incurred at each prcessing stage, frm mining thrugh t recverable metal delivered t custmers, less by-prduct credits Ryalties, depreciatin, depletin, and nn-recurring items are excluded frm the calculatin f C1 cash cst per payable pund sld The csts included in this definitin cmprise mine site perating and general and administrative csts, freight, treatment and refining charges, less by-prduct credits By-prduct credits are an imprtant factr in determining the C1 cash csts per pund The Cmpany prduces byprduct metals, gld and silver, incidentally t zinc and cpper prductin activities, and in sme instances cpper metal as a by-prduct where the principal prduct is zinc metal in cncentrate Gld and silver are cnsidered t be by-prducts as they represent less than 20% f revenues frm cncentrate sales during 2017 and 2016, and in instances where cpper is cnsidered t be a by-prduct, it represents less than 10% f revenue recgnized n the related sale The cash cst per payable pund will vary depending n the vlume f by-prduct credits and the

15 15 relative price f the by-prducts The C1 cash cst per payable pund is calculated by dividing the ttal csts, net f the by-prduct credits, by payable punds f metal sld The calculatin methd is cnsistent n a perid t perid basis fr purpses f meaningful cmparisn C1 cash cst per payable pund (US $000s, except per pund amunts) Zinc Cpper Q Q Q Q Per pund Per pund Per pund Per pund Ttal Ttal Ttal Ttal Punds f payable metal sld (millins) Operating expenses and selling csts $ 40,557 $ 077 $ - $ - $ - $ - $ 41,471 $ 119 Add: Cncentrate treatment and refining charges 5, , One-time recvery f withhlding tax verpayment 9, Less: Cncentrate by-prduct credits (7,114) (013) (10,656) (030) Selling csts nt related t cncentrate sales (2,130) (004) (2,700) (008) Ttal C1 cash cst $ 47,076 $ 089 $ - $ - $ - $ - $ 38,957 $ 112 Frward lking statements This Management s Discussin and Analysis cntains statements and infrmatin cncerning anticipated develpments in the Cmpany s cntinuing and future peratins, the adequacy f the Cmpany s financial resurces and financial prjectins Frward-lking statements include, but are nt limited t, statements cncerning r the assumptins related t estimates f capital and perating csts, the timing, nature and extent f future cpper and zinc prductin, expanding explratin licenses, the estimatin f mineral reserves and resurces, methdlgies and mdels used t prepare resurce and reserve estimates, the realizatin f mineral reserve estimates, the cnversin f mineral prperties t reserves and resurces, the ptential t expand resurces, reserves and mine life, future explratin budgets, plans, targets and wrk prgrams, capital expenditures including land acquisitin and bjectives, anticipated timing f grant f permits, mining and develpment plans and activities, cnstructin and prductin targets and timetables, grades, prcessing rates, life f mine, net cash flws, metal prices, exchange rates, reclamatin csts, results f drill prgrams, dividend plans and plicy, litigatin matters, integratin r expansin f peratins, requirements fr additinal capital, gvernment regulatin f mining peratins, envirnmental risks, plitical risks and uncertainties, unanticipated reclamatin expenses, and ther events r cnditins that may ccur in the future Frward-lking statements are frequently, but nt always, identified by wrds such as expects, anticipates, believes, hpes, intends, estimates, ptential, pssible, budget and similar expressins, r statements that events, cnditins r results will, may, culd r shuld ccur r be achieved Infrmatin cncerning the interpretatin f drill results and mineral resurce and reserve estimates als may be deemed t be frward-lking statements, as such infrmatin cnstitutes a predictin f what mineralizatin might be fund t be present if and when a prject is actually develped, and in the case f mineral reserves, such statements reflect the cnclusin based n certain assumptins that the mineral depsit can be ecnmically explited

16 16 Frward-lking statements are statements abut the future and are inherently uncertain, and actual achievements f the Cmpany r ther future events r cnditins may differ materially frm thse reflected in the frward-lking statements due t a variety f risks, uncertainties and ther factrs including, withut limitatin, the risks that: (i) any f the assumptins in the histrical resurce estimates turn ut t be incrrect, incmplete, r flawed in any respect; (ii) the methdlgies and mdels used t prepare the resurce and reserve estimates either underestimate r verestimate the resurces r reserves due t hidden r unknwn cnditins, (iii) explratin activities r the mine peratins are disrupted r suspended due t acts f gd, internal cnflicts in the cuntry f Eritrea r Serbia, unfreseen gvernment actins r ther events; (iv) the Cmpany experiences the lss f key persnnel; (v) the Cmpany s peratins r explratin activities are adversely affected by ther plitical r military, r terrrist activities; (vi) the Cmpany becmes invlved in any material disputes with any f its key business partners, suppliers r custmers; (vii) the Cmpany is subjected t any hstile takever r ther unslicited attempts t acquire cntrl f the Cmpany; (viii) the Cmpany is subject t any adverse ruling in any f the pending litigatin t which it is a party; (ix) the timing and success f imprving the quality f the cpper circuit prduct by reslving the metallurgical challenges frm the variable re materials being prcessed t prduce cncentrate frm the cpper circuit; (x) the effect n resurce r reserve estimates due t the pssible inability t reslve the metallurgical challenges n the variable re materials being prcessed n a timely basis r at all; and ther risks mre fully described in the Cmpany s Annual Infrmatin Frm fr the fiscal year ended December 31, 2016 Althugh the Cmpany has attempted t identify imprtant factrs that culd cause actual results t differ materially frm thse cntained in frward-lking statements, there may be ther factrs that cause results nt t be as anticipated, estimated r intended The Cmpany s frward-lking statements are based n the beliefs, expectatins and pinins f management n the date the statements are made and the Cmpany assumes n bligatin t update such frward-lking statements in the future, except as required by law There can be n assurance that such statements will prve t be accurate, as actual results and future events culd differ materially frm thse anticipated in such statements Fr the reasns set frth abve, investrs shuld nt place undue reliance n frward-lking statements NYSE MKT crprate gvernance The Cmpany s cmmn shares are listed n NYSE MKT Sectin 110 f the NYSE MKT cmpany guide permits NYSE MKT t cnsider the laws, custms and practices f freign issuers in relaxing certain NYSE MKT listing criteria, and t grant exemptins frm NYSE MKT listing criteria based n these cnsideratins A cmpany seeking relief under these prvisins is required t prvide written certificatin frm independent lcal cunsel that the nn-cmplying practice is nt prhibited by hme cuntry law A descriptin f the significant ways in which the Cmpany s gvernance practices differ frm thse fllwed by US dmestic cmpanies pursuant t NYSE MKT standards is psted n the Cmpany s website at and a cpy f such descriptin is available by written request made t the Cmpany Cautinary nte regarding preparatin f Mineral Reserves and Resurces The disclsure in this Management s Discussin and Analysis uses mineral resurce and mineral reserve classificatin terms that cmply with Canadian securities laws that differ in certain material respects frm the requirements f United States securities laws Disclsure has been made in accrdance with Canadian Natinal Instrument Standards f Disclsure fr Mineral Prjects ( NI ) and the Canadian Institute f Mining, Metallurgy and Petrleum s Classificatin System The NI is a rule develped by the Canadian Securities Administratrs that establishes standards fr all public disclsure an issuer makes f scientific and technical infrmatin cncerning mineral prjects These standards differ significantly frm the disclsure requirements f the SEC The SEC s disclsure standards nrmally d nt permit the inclusin f infrmatin cncerning measured mineral resurces, indicated mineral resurces r inferred mineral resurces in dcuments filed with the SEC, unless such infrmatin is required t be disclsed by the law f the Cmpany s jurisdictin f incrpratin r f a jurisdictin in which its securities are traded Cnsequently, mineral resurce and mineral reserve infrmatin cntained in this AIF is nt cmparable t similar infrmatin that wuld generally be disclsed by US cmpanies