It is unclear whether a United Nations Security Council decision to impose sanctions against Eritrea will affect the debt financing of Nevsun Resource‘s (NSU-T, NSU-X) Bisha project.
The UN imposed sanctions for the first time against Eritrea on Dec. 23 because it believes the state in the Horn of Africa is aiding Islamist insurgents in Somalia.
Eritrea denies allegations by the United States and other countries that it is supplying al Shabaab rebels with money and arms to fight a U.N.-backed transitional government in Somalia.
The sanctions were supported by 13 of the 15 members of the Security Council with Libya voting against the resolution and China abstaining.
Nevsun, which has operated in Eritrea for more than ten years, says the UN sanctions “should not have any direct impact on the company or its Bisha project” but concedes it is “uncertain” whether they could “indirectly impact” debt facilities the company announced earlier this year.
In the meantime Nevsun says it has “contemplated alternative finance sources if the sanctions do eventually negatively impact the debt facilities.”
In July, Nevsun signed a $235 million debt package with a mixture of senior and subordinated loans from a lending group made up of seven institutions from Europe and South Africa.
The government of Eritrea is a partner in the development of the Bisha mine with a 40% stake and Nevsun says it has a “strong relationship” with the state.
Bisha is a high-grade gold/silver/copper/zinc VMS deposit in western Eritrea that was discovered in 2003, brought to feasibility in late 2006 and moved into development at the start of 2009. It is on track to start operations in the fall of 2010.
The mine has a projected 10-year mine life and its gold will be refined in Switzerland and Canada by two major international companies while the copper concentrate will be shipped to major smelters in Europe and India.
Metal production within the first two years is estimated at about 900,000 ounces of payable gold, followed by over 500 million pounds of payable copper in years 3-5, plus and an additional 1 billion pounds of payable zinc and 200 million pounds of copper in years 5-10.
In mid-day trading in Toronto Nevsun’s shares were down 27¢ or 8.77% to $2.81.
Over the last the year the company has traded in a range of 79¢-$3.66 per share.
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