Form 6-K NEVSUN RESOURCES LTD For: Sep 30

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 5/15/2024

1. SPY
2. HD
3. AMC
4. GME
5. AAPL

6. GOOGL
7. BABA
8. TME

Top News Most Read Special Reports

October 26, 2018 6:03 AM EDT

E-mail

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934

For the month of October 2018

Commission File Number: 001-32405

NEVSUN RESOURCES LTD.
(Translation of registrant's name into English)

1750 - 1066 West Hastings Street
Vancouver, British Columbia
Canada V6E 3X1
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F:
Form 20-F [ ] Form 40-F [X]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

DOCUMENTS INCLUDED IN THIS FORM 6-K

99.1	News Release for October 25, 2018

99.2	Interim Consolidated Financial Statements for the nine months ended September 30, 2018

99.3	MD&A for the nine months ended September 30, 2018

99.4	Form 52-109F2 CEO & CFO Certifications

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

	NEVSUN RESOURCES LTD.

Date: October 25, 2018	By:	/s/ Joseph Giuffre
		Joseph Giuffre
		Chief Legal Officer

N E W S R E L E A S E

October 25, 2018

Nevsun Announces Third Quarter 2018 Financial Results

Nevsun Resources Ltd. (TSX: NSU) (NYSE AMERICAN: NSU) (“Nevsun” or “the Company”) is pleased to report its financial results for the three and nine months ended September 30, 2018. Unless otherwise noted all financial results are in millions of US dollars.

Q3 2018 Highlights

Strong quarterly production of 69.6 million pounds of zinc and 10.2 million pounds of copper.
Revised full year 2018 zinc guidance upwards to 245 to 265 million pounds from 210 to 240 million pounds.
Revised full year 2018 by-product copper guidance upwards to 33 to 38 million pounds from 25 to 30 million pounds.
C1 cash costs⁽²⁾ in middle of guidance at $0.71 per payable pound of zinc sold on a by-product basis.
Revenue adversely impacted by lower zinc and copper prices.
Advanced both the Timok Upper Zone Project and the Bisha Mine open pit extension.
Announced friendly all-cash agreement for Nevsun to be acquired by Zijin Mining for US$1.41 billion.

Timok Project Update

Site preparation activities continued at the Timok Upper Zone in the third quarter to advance the construction of the portal and exploration decline. Following preparatory work, excavation began as scheduled in late August on the decline boxcut. The Company has acquired 100% of the land required for development of the exploration decline and 74% of the required private land for construction of the Upper Zone project as at September 30, 2018. Drilling also continued as part of a condemnation drill program aimed to ensure that no significant mineralization is present near proposed infrastructure.

The Timok Project feasibility study (“FS”) is progressing on schedule and is expected to be released in mid-2019. Permitting activities also continued with the submission of an Elaborat, a Serbian mineral reserve report, to the Serbian Ministry of Mining and Energy in early September.

At the Lower Zone, a core relogging program continued to better define the geological constraints on this resource to be used in future economic studies. A NI 43-101 Technical Report incorporating the initial resource statement for the Timok Lower Zone was filed in August 2018.

The 2018 regional drilling program continued to target high grade Upper Zone-style mineralization. A total of nine holes are now complete with focus areas including the Eastern Target 2 area immediately east of the Upper Zone; along the northeastern edge of the Lower Zone footprint; the area to the west of the Upper Zone; and two kilometres to the southeast of the Upper Zone. Strong Upper Zone style alteration with associated pyrite, enargite, chalcopyrite and minor covellite mineralization typical of the outer edge of the Upper Zone is being encountered in all of the holes immediately around Cukaru Peki.

Bisha Mine Update

The Bisha Mine maintained total quarterly material movement above five million tonnes for the fourth consecutive quarter. This sustained improvement in mine performance reflects the deployment of new heavy mining equipment (“HME”), and the implementation of a plan for in-pit waste dumping with favourable impacts on haulage distance. Stripping also commenced in July for an open pit extension with 690,000 tonnes moved in the quarter.

The third quarter coincides with the wet season in Eritrea and despite rainfall being almost double the normal amount in 2018, high levels of production were maintained. Ore supply remained tight throughout the quarter due to lower productivity in constrained work areas at the bottom of the pit, however zinc feed grade of 6.7% improved over the previous quarter, while copper feed grade remained at 1.1%. Strong recoveries of both zinc and copper continued through the third quarter with 83.9% and 74.5% achieved respectively. Despite strong zinc production in Q3, the volume of payable zinc in concentrate sold decreased 17% from Q2 2018 as a result of processing higher-grade material late in the quarter which remained in concentrate inventory at September 30, 2018.

2018 Outlook Update

The Company’s previously published 2018 production guidance is 210 to 240 million pounds of zinc and 20 to 30 million pounds of copper. Zinc production in the first nine months of the year was 192.5 million pounds with strong production expected to continue through the remainder of 2018. Accordingly, 2018 production guidance has been revised upwards to 245 to 265 million pounds of zinc. Copper by-product production in the first nine months of the year was 27.8 million pounds and continues to benefit from the implementation of the sodium meta bisulphate (“SMBS”) reagent scheme in mid-June. Due to sustained positive results, 2018 production guidance has been revised upwards to 33 to 38 million pounds of copper.

C1 cash costs per payable pound of zinc sold on a by-product basis are expected to be $0.60 to $0.80 in 2018. C1 cash costs on a by-product basis were $0.66 in the first nine months of the year as strong production results were offset by higher operating costs. Accordingly, C1 cash costs on a by-product basis are expected to remain within the expected range in 2018.

Corporate Update

Zijin Mining Group Co. Ltd. (“Zijin”) and Nevsun entered into a definitive agreement dated September 4, 2018, to which Zijin made a friendly bid to Nevsun Shareholders to acquire all of the issued and outstanding shares of Nevsun for C$6.00 per share in cash (the “Offer”). The Company has been advised by Zijin that Zijin has received Canadian Competition Act clearance for the Offer as well as approval from the People’s Republic of China’s National Development and Reform Commission (“NDRC”). Nevsun would like to remind shareholders to follow the unanimous Board recommendation for shareholders to accept the bid and tender their Nevsun shares to the Zijin offer. For more details on the Zijin offer, please refer to the Nevsun website.

Q3 2018 Financial Review

		Q3 2018		Q2 2018		Q1 2018		Q3 2017 (Restated)⁽¹⁾
Revenue (millions)	$	71.6	$	76.4	$	106.7	$	71.0
Impairment reversals (charges) (millions)		-		5.0		-		2.7
Earnings (loss) from mine operations (millions)⁽¹⁾		(2.7)		2.4		23.4		12.3
Exploration expenses (millions)⁽¹⁾		(4.2)		(1.6)		(8.2)		(12.2)
Net income (loss) (millions)⁽¹⁾		(19.9)		(9.3)		0.5		(8.4)
Net loss attributable to Nevsun shareholders (millions)⁽¹⁾		(18.7)		(9.4)		(4.5)		(11.6)
Basic loss per share attributable to Nevsun shareholders⁽¹⁾	$	(0.06)	$	(0.03)	$	(0.01)	$	(0.04)

Unrestricted cash (millions)	$	88.7	$	125.1	$	149.6	$	151.2
Working capital (millions)		135.5		170.4		187.6		179.1

Zinc price realized, per payable pound sold⁽³⁾	$	1.02	$	1.14	$	1.51	$	1.44
C1 cash cost per payable zinc pound sold, by-product basis⁽²⁾		0.71		0.71		0.58		0.75
C1 cash cost per payable zinc pound sold, co-product basis⁽²⁾		0.94		0.84		0.79		0.84

Copper price realized, per payable pound sold⁽³⁾	$	2.66	$	3.09	$	3.01	$	$2.99
C1 cash cost per payable copper pound sold, co-product basis⁽²⁾		1.58		1.39		1.56		1.70

(1)

Effective December 31, 2017, the Company voluntarily elected to change its accounting policy with respect to exploration and evaluation expenditures, and as such, certain financial measures have been restated. Please refer to the Company’s 2017 annual consolidated financial statements for the full accounting policy, and to the Company’s Q3 2018 interim financial statements for disclosure surrounding the effect of the change as at and for the three and nine months ended September 30, 2017.

(2)

C1 cash cost per pound is a non-GAAP measure. See page 16 of the Company’s Q3 2018 MD&A for discussion of non-GAAP measures and page 6 of the Company’s Q3 2018 MD&A, Cash Costs, for explanation of per-unit costs.

(3)

Zinc and copper prices realized per payable pound sold include provisional pricing adjustments for shipments not yet settled, including shipments in previous quarters. In Q3 2018, zinc and copper prices realized per payable pound sold of $1.02 and $2.66 respectively are inclusive of downward provisional pricing and other adjustments of $0.11 and $0.16 per payable pound sold respectively – see page 19 of the Company’s Q3 2018 MD&A for a reconciliation of realized metal prices.

Q3 2018 Operating Review

	Q3 2018		Q2 2018		Q1 2018		Q3 2017
Mining
Ore mined, tonnes⁽¹⁾		464,000		582,000		640,000		383,000
Waste mined, tonnes⁽²⁾		5,185,000		4,900,000		4,525,000		4,126,000
Strip ratio, using tonnes⁽²⁾		9.7		8.4		7.1		10.8
Processing
Ore milled, tonnes		559,000		491,000		563,000		524,000
Zinc feed grade, %		6.7		6.1		7.1		6.8
Copper feed grade, %		1.1		1.1		1.2		1.0
Recovery, % of zinc		83.9		77.6		81.1		74.0
Recovery, % of copper⁽³⁾		74.5		69.4		61.5		33.4
Zinc concentrate grade, %		49.1		47.8		47.8		42.0
Copper concentrate grade, %⁽³⁾		22.3		21.5		20.9		17.8
Zinc in concentrate produced, millions of pounds		69.6		51.3		71.6		57.8
Zinc in concentrate produced, tonnes		31,600		23,300		32,500		26,300
Copper in concentrate produced, millions of pounds		10.2		8.6		8.9		4.0
Copper in concentrate produced, tonnes		4,600		3,900		4,100		1,800
Payable zinc in concentrate sold, millions of pounds		44.4		53.8		53.4		43.4
Payable zinc in concentrate sold, tonnes		20,200		24,400		24,200		19,800
Payable copper in concentrate sold, millions of pounds		9.3		4.3		7.8		3.1
Payable copper in concentrate sold, tonnes		4,100		2,000		3,500		1,400

(1)

Ore tonnes mined for the three and nine months ended September 30, 2018 consisted of 464,000 and 1,686,000 tonnes of primary ore (Q3 2017 – 381,000 and 1,618,000 tonnes of primary ore and 2,000 and 70,000 tonnes of supergene ore).

(2)

Waste tonnes mined for the three and nine months ended September 30, 2018 include 690,000 tonnes relating to stripping for an open pit extension which commenced in July 2018. This material has been excluded from the strip ratio.

(3)

This represents the copper recovery to copper concentrate from the copper flotation circuit only, and excludes copper recovered to zinc concentrates.

The Company’s Interim Financial Statements and Management’s Discussion and Analysis (“MD&A”) are available on the Company website at www.nevsun.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Qualified Persons Statement

Mr. Peter Manojlovic, PGeo, and Vice President Exploration of Nevsun Resources Ltd. is a Qualified Person under the terms of NI 43-101 and has reviewed the exploration and mineral resource and reserve statements of this press release and approved its dissemination.

About Nevsun Resources Ltd.

Nevsun Resources Ltd. is the 100% owner of the high-grade copper-gold Timok Upper Zone and 60.4% owner of the Timok Lower Zone in Serbia. The Timok Lower Zone is a partnership with Freeport-McMoRan Exploration Corporation (“Freeport”) which currently owns 39.6% and upon completion of any feasibility study (on the Upper or Lower Zone), Nevsun Resources Ltd. will own 46% and Freeport will own 54%. Nevsun generates cash flow from its 60% owned copper-zinc Bisha Mine in Eritrea.

Forward Looking Statements

The above contains forward-looking statements or forward-looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995, and applicable Canadian securities laws. All statements, other than statements of historical facts, are forward looking statements including statements with respect to the Company’s Bisha Mine in Eritrea, 2018 zinc and copper by-product production guidance, its intentions for its Timok Upper Zone Project in Serbia (the “Timok Project”) including timing for release of the Feasibility Study and the outcome of the Zijin offer to Nevsun Shareholders to acquire all of the issued and outstanding shares of Nevsun for C$6.00 per share in cash. The Company also cautions the reader that the PEA previously released in September 2017 and the PFS released in March 2018 on the Timok Project that support the technical feasibility or economic viability of the Timok Project, including the marketability of the concentrate, mining method, costs, processing, metal recoveries and any other technical aspects related to the Timok Project, are preliminary in nature and there is no certainty that the PEA or the PFS will be realized.

Forward-looking statements are frequently, but not always, identified by words such as “expects”, “anticipates”, “believes”, “hopes”, “intends”, “estimated”, “potential”, “possible” and similar expressions, or statements that events, conditions or results “will”, “may”, “could” or “should” occur or be achieved. Forward-looking statements are statements concerning the Company’s current beliefs, plans, objectives and expectations about the future, including but not limited to statements and information made concerning: statements relating to the business, prospects and future activities of, and development plans related to the Company, exploration activities, the adequacy of financial resources, anticipated production, processing and recoveries of zinc and copper, mineral reserve and resource estimates, mining efficiencies and access to mineral reserves, goals, strategies, future growth, planned future acquisitions, anticipated C1 cash costs to produce zinc or copper, resolution of metallurgical challenges from variable ore materials to produce concentrate and the ability to increase processing and recovery rates of zinc and copper, achievement of and timing for achievement of any key milestones including, planned mineral movement at the Bisha Mine and other events or conditions that may occur in the future regarding the Company or its projects.

The 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. These risks, uncertainties and factors include general business, legal, economic, competitive, political, regulatory and social uncertainties; actual results of exploration activities and economic evaluations; fluctuations in currency exchange rates; changes in project parameters; changes in costs, including labour, infrastructure, operating and production costs; future prices of copper, gold, zinc, silver and other minerals; resource estimates and variations of mineral grade or recovery rates; metallurgical challenges on the variable ore materials being processed and if the significant improvements in recovery rates of zinc and copper will be maintained or that recoveries to initial design levels will be achieved; the ability to extend mine life beyond the current mine plans; operating or technical difficulties in connection with exploration; land acquisition; mining method, production profile and mine plan; other development or mining activities, including the failure of plant, equipment or processes to operate as anticipated; performance on ore production and waste movement and improvement in mining capability; delays in exploration, development and construction activities including commencement of the decline construction as planned; changes in government legislation and regulation; the ability to maintain and renew existing licenses and permits and the ability to obtain other required licences and permits in a timely manner or at all; the ability to obtain financing on acceptable terms and in a timely manner or at all; contests over title to properties; employee relations and shortages of skilled personnel and contractors; the speculative nature of, and the risks involved in, the exploration, development and mining business including, without limitation, other risks that are more fully described in the Company’s Annual Information Form for the fiscal year ended December 31, 2017 (the “AIF”) and the Company’s management discussion and analysis for the fiscal year ended December 31, 2017 (the “MD&A”), which are 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 the Company’s forward-looking statements.

Further information concerning risks and uncertainties associated with these forward-looking statements and our business can be found in our AIF and MD&A, which is available on the Company’s website (www.nevsun.com), filed under our profile on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov) under cover of Form 40-F.

NEVSUN RESOURCES LTD.

“Peter G.J. Kukielski”

Peter G.J. Kukielski
President & Chief Executive Officer
NSU 18-29.doc

For further information, contact:
David Jan - Investor Relations
Tel: +1 604 623 4700
Toll free: 1 888 600 2200
Email: [email protected]

Website: www.nevsun.com

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

UNAUDITED—PREPARED BY MANAGEMENT

Nevsun Resources Ltd.

Condensed Consolidated Interim Balance Sheets

Unaudited

(Expressed in thousands of United States dollars)

	Note	September 30, 2018		December 31, 2017

Assets

Current Assets
Cash and cash equivalents	2	$	88,681	$	124,598
Restricted cash	2, 11		5,260		-
Accounts receivable			21,368		29,701
Prepaid expenses and other current assets			5,874		2,305
Inventories	3		97,017		72,261
			218,200		228,865

Non-current assets
Inventories	3		11,614		14,926
Other non-current assets			4,219		-
Mineral properties, plant and equipment	4		832,663		842,561
			848,496		857,487
Total assets		$	1,066,696	$	1,086,352

Liabilities and equity

Current liabilities
Accounts payable and accrued liabilities		$	82,627	$	62,943
Dividends payable	5		-		3,022
Provision for Lower Zone commitment			108		581
			82,735		66,546

Non-current liabilities
Deferred income taxes			36,968		32,722
Provisions for mine closure and reclamation			33,870		33,943
			70,838		66,665
Total liabilities		$	153,573	$	133,211

Equity
Share capital	5	$	704,176	$	702,822
Share-based payments reserve	5		11,204		10,432
Retained earnings			58,001		90,540

Equity attributable to Nevsun shareholders			773,381		803,794

Non-controlling interest			139,742		149,347
Total equity		$	913,123	$	953,141
Total liabilities and equity		$	1,066,696	$	1,086,352

Contingencies (note 11)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

Nevsun Resources Ltd.

Condensed Consolidated Interim Statements of Comprehensive Income

Unaudited

(Expressed in thousands of United States dollars, except per share amounts)

		Three months ended September 30,				Nine months ended September 30,
	Note	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Revenues	6	$	71,608	$	71,036	$	254,764	$	208,774
Cost of sales
Operating expenses			(53,360)		(42,104)		(160,681)		(127,314)
Royalties			(3,916)		(3,402)		(14,361)		(13,324)
Depreciation and depletion			(16,982)		(15,937)		(61,594)		(41,856)
Impairment reversal (charges)	4		-		2,692		4,992		(67,043)
Earnings (loss) from mine operations			(2,650)		12,285		23,120		(40,763)

Exploration expenses	7		(4,178)		(12,223)		(13,955)		(40,545)
Administrative expenses			(13,566)		(5,551)		(28,020)		(16,220)
Finance income			242		635		872		1,350
Finance costs			(519)		(486)		(1,557)		(1,458)
Income (loss) before taxes			(20,671)		(5,340)		(19,540)		(97,636)

Income tax (expense) recovery			801		(3,049)		(9,077)		(4,082)
Net loss and comprehensive loss		$	(19,870)	$	(8,389)	$	(28,617)	$	(101,718)

Net income (loss) and comprehensive income (loss) attributable to:
Nevsun shareholders		$	(18,670)	$	(11,564)	$	(32,539)	$	(81,001)
Non-controlling interest			(1,200)		3,175		3,922		(20,717)
		$	(19,870)	$	(8,389)	$	(28,617)	$	(101,718)

Loss per share attributable to Nevsun shareholders	5
Basic		$	(0.06)	$	(0.04)	$	(0.11)	$	(0.27)
Diluted			(0.06)		(0.04)		(0.11)		(0.27)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

Nevsun Resources Ltd.

Condensed Consolidated Interim Statements of Cash Flows

Unaudited

(Expressed in thousands of United States dollars)

	Three months ended September 30,					Nine months ended September 30,
	Note	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Operating activities
Net loss		$	(19,870)	$	(8,389)	$	(28,617)	$	(101,718)
Items not involving the use (receipt) of cash
Depreciation and depletion			17,085		15,961		61,917		41,894
Impairment charges (reversal)	4		-		(2,692)		(4,992)		67,043
Income tax expense (recovery)			(801)		3,049		9,077		4,082
Share-based compensation			410		491		1,013		1,531
Provision for inventory obsolescence			-		(664)		-		(312)
Other			278		142		623		428
			(2,898)		7,898		39,021		12,948
Changes in non-cash operating working capital
Accounts receivable and prepaids			(5,540)		(986)		4,475		(11,250)
Inventories			(4,819)		(5,794)		(20,090)		(2,742)
Accounts payable and accrued liabilities			230		(3,323)		12,085		6,557

Cash generated from operating activities			(13,027)		(2,205)		35,491		5,513
Income taxes paid			-		-		(8,000)		(18,794)

Net cash provided by (used in) operating activities			(13,027)		(2,205)		27,491		(13,281)
Investing activities
Expenditures on mineral properties, plant and equipment			(31,582)		(6,279)		(50,015)		(13,362)
Change in non-cash working capital related to investing activities			8,150		(4,914)		4,766		(2,559)
Restricted cash held in trust for construction contract	2		(8)				(2,250)		-

Net cash used in investing activities			(23,440)		(11,193)		(47,499)		(15,921)
Financing activities
Dividends paid to Nevsun shareholders	5		-		(2,742)		(2,724)		(16,067)
Distribution to non-controlling interest			-		(4,000)		(14,000)		(8,000)
Amounts repaid by non-controlling interest, including interest			-		-		-		5,000
Issuance of common shares, net of issue costs			65		-		815		245

Net cash received (used) in financing activities			65		(6,742)		(15,909)		(18,822)
Decrease in cash and cash equivalents			(36,402)		(20,140)		(35,917)		(48,024)
Cash and cash equivalents, beginning of period			125,083		171,372		124,598		199,256
Cash and cash equivalents, end of period		$	88,681	$	151,232	$	88,681	$	151,232

Supplementary cash flow information (note 2)

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

Nevsun Resources Ltd.

Condensed Consolidated Interim Statements of Changes in Equity

Unaudited

(Expressed in thousands of United States dollars, except number of shares)

	Number of shares	Share capital		Share-based payments reserve		Retained earnings (Restated – Note 12)		Equity attributable to Nevsun shareholders		Non-controlling interest (Restated – Note 12)		Total equity
December 31, 2016	301,322,891	$	700,133	$	12,775	$	183,465	$	896,373	$	166,086	$	1,062,459

Exercise of stock options	81,333		245		-		-		245		-		245
Transfer to share capital on exercise of stock options	-		107		(107)		-		-		-		-
Stock options reclassified to cash-settled units	-		-		(1,718)		1,718		-		-		-
Share-based payments	-		-		1,644		-		1,644		-		1,644
Shares issued as part of dividend reinvestment program (“DRIP”)	682,952		2,070		-		-		2,070		-		2,070
Loss for the period	-		-		-		(81,001)		(81,001)		(20,717)		(101,718)
Dividends declared	-		-		-		(9,060)		(9,060)		-		(9,060)
Distribution to non-controlling interest	-		-		-		-		-		(8,000)		(8,000)
Spending on Lower Zone commitment	-		-		-		-		-		5,200		5,200
September 30, 2017 (Restated – note 12)	302,087,176	$	702,555	$	12,594	$	95,122	$	810,271	$	142,569	$	952,840
December 31, 2017	302,212,480	$	702,822	$	10,432	$	90,540	$	803,794	$	149,347	$	953,141

Exercise of options	271,002		815		-		-		815		-		815
Transfer to share capital on exercise of stock options	-		241		(241)		-		-		-		-
Share-based payments	-		-		1,013		-		1,013		-		1,013
Shares issued as part of DRIP	109,190		298		-		-		298		-		298
Income (loss) for the period	-		-		-		(32,539)		(32,539)		3,922		(28,617)
Distribution to non-controlling interest	-		-		-		-		-		(14,000)		(14,000)
Spending on Lower Zone commitment	-		-		-		-		-		473		473
September 30, 2018	302,592,672	$	704,176	$	11,204	$	58,001	$	773,381	$	139,742	$	913,123

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

1.	Reporting entity and basis of presentation

Reporting Entity

Nevsun Resources Ltd. (“Nevsun” or “the Company”) is a mid-tier base metals company. The Company is incorporated and domiciled in Canada. These condensed consolidated interim financial statements (“interim financial statements”) of the Company as at and for the three and nine months ended September 30, 2018 include the accounts of the Company and its subsidiaries.

The Company’s two principal assets are its ownership interest in the Timok project, a copper-gold development project in Serbia (“Timok Project”), and its 60% owned Bisha Mine in Eritrea (owned via an Eritrean-registered corporation, Bisha Mining Share Company (“BMSC”)). The Company owns a 100% interest in the Upper Zone of the Timok Project and currently owns a 60.4% interest in the Lower Zone of the Timok Project with Freeport-McMoRan Inc. (“Freeport”) owning the remaining interest in the Lower Zone, which represents a non-controlling interest. Nevsun’s 40% partner in the Bisha Mine is the State-owned Eritrean National Mining Corporation (“ENAMCO”), which also represents a non-controlling interest.

On September 14, 2018, Zijin Mining Group Company Limited (“Zijin”) commenced a take-over bid to acquire all of the issued and outstanding shares of Nevsun for CAD $6.00 per share in cash (the “Offer”). Zijin and the Company entered into a pre-acquisition agreement dated September 4, 2018 (the “Pre-Acquisition Agreement”) pursuant to which Zijin agreed to make the Offer and the Company’s Board of Directors agreed to endorse and recommend the Offer to the Company’s shareholders, all subject to the conditions set for in the Pre-Acquisition Agreement and which are described in Zijin’s take-over bid circular and the Company’s directors’ circular, both dated September 14, 2018 (the “Circulars”). The Offer is valued at CAD $1.86 billion ($1.41 billion) and is not subject to any financing conditions. The Offer is subject to certain specified conditions being satisfied, or where permitted, waived at the expiry time or such earlier or later time during which the Company’s issued and outstanding shares may be deposited under the Offer, excluding the mandatory 10-day extension period or any extension thereafter, which include: (i) there having been validly deposited under the Offer, and not withdrawn 50% of the Company’s issued and outstanding shares together with certain shareholder rights plan rights, which is a non-waivable condition; (ii) there having been validly deposited under the Offer and not withdrawn 66^2/3% of the Company’s issued and outstanding shares together with certain shareholder rights plan rights; (iii) certain regulatory approvals having been obtained; and (iv) there not having occurred, prior to the expiry date, a Material Adverse Effect (as defined in the Pre-Acquisition Agreement) with respect to the Company. Management expects the Offer to be completed in the fourth quarter of 2018 or in the first quarter of 2019. If the Pre-Acquisition Agreement is terminated in certain circumstances described in the Pre-Acquisition Agreement, including failure to obtain the necessary approvals from relevant authorities in China, subject to certain exceptions, Zijin will be required to pay the Company a reverse termination payment of $50 million. If the Offer is not completed as a result of a superior proposal, or in certain other circumstances described in the Pre-Acquisition Agreement, the Company will be required to pay Zijin a termination payment of $50 million. In accordance with the Company’s share-based compensation plans, all of the Company’s share-based awards including stock options, restricted share units, performance share units and deferred share units will automatically vest upon a change of control. Additional information is available in the Circulars which are available under the Company’s profile on SEDAR at www.sedar.com.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

1.	Reporting entity and basis of presentation (continued)

Statement of compliance

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements as at and for the year ended December 31, 2017.

These interim financial statements were authorized for issue by the Audit Committee of the Company’s Board of Directors on October 24, 2018.

Significant accounting policies

These interim financial statements follow the same accounting policies and methods of application as the Company’s most recent annual financial statements, except as outlined below. Accordingly, they should be read in conjunction with the Company’s most recent annual financial statements.

IFRS 9 – Financial Instruments

Effective January 1, 2018, the Company has adopted IFRS 9 – Financial Instruments. IFRS 9 provides three different measurement categories for non-derivative financial assets – subsequently measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income – while all non-derivative financial liabilities are classified as subsequently measured at amortized cost. The category into which a financial asset is placed and the resultant accounting treatment is largely dependent on the nature of the business of the entity holding the financial asset. All financial instruments are initially recognized at fair value.

The implementation of the new standard has not had a material impact on the measurement of the Company’s reported financial results; however additional disclosures have been provided.

Under IFRS 9, the Company’s accounting policy for financial instruments is as follows:

Financial assets

The Company initially recognizes financial assets on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.

The Company classifies all of its financial assets, except trade receivables, as subsequently measured at amortized cost. Trade receivables are derivatives and are measured at fair value through profit or loss (“FVTPL”; see note 1(c)(ii)). All financial assets that do not meet the criteria to be recognized as subsequently measured at amortized cost or subsequently measured at fair value through other comprehensive income are classified as FVTPL.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

1.	Reporting entity and basis of presentation (continued)

Significant accounting policies (continued)

IFRS 9 – Financial Instruments (continued)

Financial liabilities

The Company measures all of its financial liabilities as subsequently measured at amortized cost. Financial liabilities are recognized initially at fair value, net of transaction costs incurred and are subsequently measured at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit and loss over the period to maturity using the effective interest method.

ii.

IFRS 15 – Revenue from Contracts with Customers

Effective January 1, 2018, the Company has adopted IFRS 15 – Revenue from Contracts with Customers. The new standard requires a methodology of recognizing revenue in line with the transfer of control of promised goods or services and allocating revenue to separately identifiable goods or services identified within a contract, based on their relative stand-alone selling price. In order to facilitate this identification and allocation process, the new standard employs a five-step model with prescriptive steps and decision-making criteria.

The implementation of the new standard has not had a material impact on the Company’s reported financial results, however additional disclosures have been provided (see note 6).

Under IFRS 15, the Company’s accounting policy is as follows:

Revenue is recognized by the Company when the following conditions have both been met: the Company has the present right to payment for the transferred asset, and the customer has obtained control of the asset. Because sales are completed in the form of executed sales contracts whereby final prices are determined by quoted market prices on a date subsequent to the date of sale, revenue is recorded on a provisional basis based on current market prices on the date control is transferred to the customer. Each period end, prior to final settlement, adjustments are made to the provisional sale price based on movements in quoted forward market prices up to the date of final price determination. This variable pricing adjustment mechanism constitutes a derivative financial instrument and is accounted for at fair value through profit or loss in accordance with IFRS 9 – Financial Instruments, with changes in fair value recorded as an adjustment to revenue. Any variances in the measurements of final metal concentrate weight and/or metal content are also recognized as adjustments to revenue.

Revenue is presented net of treatment and refining charges and penalties. The Company includes proceeds from the sale of by-products in revenue.

iii.

Voluntary change in accounting policy – Exploration and evaluation expenditures

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

1.	Reporting entity and basis of presentation (continued)

Use of judgements and estimates

In preparing these interim financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expense. Actual amounts incurred by the Company may differ from these values.

The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2017.

Changes in accounting standards

IFRS 16 – Leases

On January 1, 2019, the Company will adopt IFRS 16 – Leases, replacing IAS 17 – Leases. The new standard aims to bring most leases into which a lessee has entered on-balance sheet and provides new guidelines under which a lessee must evaluate and measure a contract that contains a lease. The Company continues to evaluate the financial impact the new standard will have on its financial results and is currently reviewing its agreements under the requirements of the new standard. The Company expects adoption of the new standard to result in an increase in assets and liabilities on the balance sheet, a corresponding increase in depreciation and interest expense and a decrease in operating expenses. Further updates will be provided in the Company’s annual 2018 financial statements. While the Company does expect the new standard to have an impact on its financial statements, it cannot yet conclude whether this impact will be material.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

2.	Supplemental cash information

	September 30, 2018		December 31, 2017
Cash	$	88,627	$	59,504
Cash equivalents		54		65,094
Restricted cash		5,260		-
Total cash, cash equivalents and restricted cash	$	93,941	$	124,598

The Company maintains virtually all cash and cash equivalents in USD currency. Cash equivalents consist of short-term deposits that are accessible with 30 days’ notice.

Of the Company’s restricted cash, $3,010 was held in trust related to the Canaccord settlement (note 11) and $2,250 supports a bank guarantee, which will be redeemed in December 2018, in connection with a construction contract at the Timok Project.

Supplementary information for the statements of cash flows is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Non-cash investing and financing transactions
Shares issued as part of DRIP	$	-	$	277	$	298	$	2,070
Closure and reclamation increase (decrease) in mineral properties, plant and equipment		820		196		(1,630)		(609)
Depreciation added to (relieved from) inventory		(1,290)		(2,981)		(101)		(1,038)
Depreciation included in inventory impairment charge (reversal)		-		(145)		-		6,202

3.	Inventories

	September 30, 2018		December 31, 2017
Materials and supplies	$	68,113	$	52,230
Work-in-progress		19,830		20,592
Finished goods – concentrates		20,688		14,365
Total inventories	$	108,631	$	87,187
Less: non-current portion of ore in stockpiles		(11,614)		(14,926)
Inventory recorded as a current asset	$	97,017	$	72,261

The non-current portion of ore in stockpiles as at September 30, 2018 consisted of primary ore (zinc-only) of $9,775 and supergene ore of $1,839 (December 31, 2017 – $13,087 and $1,839, respectively). Depreciation of $6,269 is included in work-in-progress and finished goods inventories at September 30, 2018 (December 31, 2017 – $6,370).

All inventories are located at the Bisha Mine.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

4.	Mineral properties, plant and equipment

The Company’s properties are located in Serbia, Eritrea and Macedonia. The principal property in Serbia is the Brestovac – Metovnica exploration license which hosts the Timok Project. The Company also holds as part of the Timok Project three additional exploration licenses. The Company holds eight additional exploration licenses in the Bor region of Serbia that form the Tilva Joint Venture with Rio Tinto Mining and Exploration Ltd. (“Rio Tinto”). All exploration expenditures on these eight exploration licenses are funded by Rio Tinto. The Company also holds eleven additional 100%-owned exploration licenses in Serbia.

The properties in Eritrea consist of two mining licenses, Bisha and Harena, and two exploration licenses, Tabakin and New Mogoraib. All properties are subject to a mining agreement with the Government of Eritrea. The Bisha mining license was granted in 2008 for an initial period of 20 years and the Harena mining license was granted in 2012 for 10 years. Both licenses can be extended if required. The Tabakin exploration license was granted in 2016 for 10 years before land relinquishment requirements begin. The New Mogoraib license, also granted in 2016, is valid for three years with no relinquishments, followed by two one-year renewals with a 25% annual area reduction after year three.

Properties in Macedonia include one exploration permit and seven pending exploration permits.

Costs classified as mineral properties represent historic acquisition costs and exploration, evaluation and development costs at Bisha and Harena, incurred subsequent to the declaration of the initial reserves on those exploration licenses.

As at September 30, 2018, the Company had commitments to purchase and unsettled obligations for property, plant and equipment of $8,764 (December 31, 2017 – $1,782).

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

4.	Mineral properties, plant and equipment (continued)

Nine months ended September 30, 2018	Exploration and evaluation		Construction- in-progress		Mineral properties		Plant and equipment		Total
Cost
December 31, 2017	$	548,900	$	8,310	$	36,440	$	512,874	$	1,106,524
Additions		21,785		5,945		2,114		20,453		50,297
Disposals		-		-		-		(719)		(719)
Change in reclamation obligation		-		-		-		(1,630)		(1,630)
Reversal of impairment		-		-		-		13,179		13,179
Transfers		-		(9,334)		-		9,334		-
September 30, 2018	$	570,685	$	4,921	$	38,554	$	553,491	$	1,167,651
Accumulated depreciation
December 31, 2017	$	-	$	-	$	20,142	$	243,821	$	263,963
Charge for the period		-		-		3,205		60,334		63,539
Disposals		-		-		-		(701)		(701)
Reversal of impairment		-		-		-		8,187		8,187
September 30, 2018		-		-		23,347		311,641		334,988
Net book value September 30, 2018	$	570,685	$	4,921	$	15,207	$	241,850	$	832,663

Nine months ended September 30, 2017 (Restated – note 12)	Exploration and evaluation		Construction- in-progress		Mineral properties		Plant and equipment		Total
Cost
December 31, 2016	$	547,331	$	308	$	33,865	$	535,970	$	1,117,474
Additions		501		6,137		1,778		4,929		13,345
Transfers to inventory		-		-		-		(5,296)		(5,296)
Change in reclamation obligation		-		-		-		(609)		(609)
Impairment charge		-		-		-		(29,621)		(29,621)
September 30, 2017	$	547,832	$	6,445	$	35,643	$	505,373	$	1,095,293
Accumulated depreciation
December 31, 2016	$	-	$	-	$	17,079	$	205,425	$	222,504
Charge for the period		-		-		2,189		40,416		42,605
Impairment charge		-		-		-		(18,703)		(18,703)
September 30, 2017		-		-		19,268		227,138		246,406
Net book value September 30, 2017	$	547,832	$	6,445	$	16,375	$	278,235	$	848,887

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

5.	Share capital and reserves

Stock options

The three months ended September 30, 2018 included $410 (three months ended September 30, 2017 – $491) in share-based payment costs related to stock options, all of which are presented in administrative expenses.

The nine months ended September 30, 2018 included $1,013 (nine months ended September 30, 2017 – $1,644) in share-based payment costs related to stock options, all of which are presented in administrative expenses.

	Number of options	Weighted average exercise price (CAD)
Outstanding, December 31, 2017	9,364,433	$	3.47
Granted	570,000		3.10
Exercised	(271,002)		3.92
Forfeited or expired	(2,506,198)		3.76
Outstanding, September 30, 2018	7,157,233	$	3.33

The weighted average share price of the Company on the dates options were exercised during the nine months ended September 30, 2018, was CAD $4.45. The weighted average price of options exercisable at the end of the period was CAD $3.73.

Earnings (loss) per share

The calculation of earnings per share is based on the following data:

Three months ended September 30,					Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Net loss attributable to Nevsun shareholders	$	(18,670)	$	(11,564)	$	(32,539)	$	(81,001)
Effect of dilutive securities		-		-		-		-
Diluted net loss attributable to Nevsun shareholders	$	(18,670)	$	(11,564)	$	(32,539)	$	(81,001)
Weighted average number of common shares outstanding for the purpose of basic loss per share (000s)		302,589		302,075		302,423		301,943
Dilutive options and stock appreciation rights		-		-		-		-
Weighted average number of common shares outstanding for the purpose of diluted loss per share (000s)		302,589		302,075		302,423		301,943
Loss per share
Basic	$	(0.06)	$	(0.04)	$	(0.11)	$	(0.27)
Diluted		(0.06)		(0.04)		(0.11)		(0.27)

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

5.	Share capital and reserves (continued)

Dividends

The Company announced in January 2018 that it would be suspending declarations of dividends, and as such no dividends were declared by the Company during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Company declared three dividends of $0.01 per share for total declarations of $9,060.

6.	Revenues

Three months ended September 30,						Nine months ended September 30,
		2018		2017		2018		2017
	Zinc concentrate sales	$	50,192	$	59,778	$	208,344	$	169,860
	Zinc concentrate mark-to-market adjustments		(4,799)		2,450		(19,670)		(74)
	Zinc concentrate by-product sales		148		316		1,855		7,640
	Zinc concentrate treatment charges		(1,291)		(2,863)		(3,686)		(10,445)
	Total revenue from zinc concentrate contracts		44,250		59,681		186,843		166,981
	Copper concentrate sales		26,250		9,479		63,759		29,216
	Copper concentrate mark-to-market adjustments		(1,464)		(227)		(2,170)		459
	Copper concentrate by-product sales		5,890		2,447		14,652		8,311
	Copper concentrate treatment and refining charges		(3,318)		(1,605)		(8,320)		(4,908)
	Total revenue from copper concentrate contracts		27,358		10,094		67,921		33,078
	Other		-		1,261		-		8,715
		$	71,608	$	71,036	$	254,764	$	208,774

Mark-to-market adjustments on sales of zinc and copper concentrates consist of provisional and final pricing adjustments, as well as physical quantity adjustments, made prior to the finalization of the sales contract. Other revenue in 2017 consists of stockpiled gold and silver bearing ore shipped directly to buyers.

The Company’s sales contracts are provisionally priced with provisional pricing periods lasting typically one to four months with provisional pricing adjustments recorded to revenue as market prices vary. The Company’s products are transferred to its customers as at a point in time. As at September 30, 2018, a 10% change to the underlying metals prices would result in a change in revenue and accounts receivable of $8,996, based on the total quantities of metals in sales contracts for which the provisional pricing periods were not yet closed.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

7.	Exploration Expense

For the three and nine months ended September 30, 2018 and 2017, the Company incurred the following exploration expenses:

Three months ended September 30,					Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
BMSC	$	1,082	$	1,859	$	4,313	$	7,421
Timok – Brownfield exploration		2,279		5,250		6,899		18,974
Timok – Lower Zone		34		4,517		1,218		13,212
Other properties		783		597		1,525		938
	$	4,178	$	12,223	$	13,955	$	40,545

8.	Financial instruments

Zinc and copper concentrates sales receivables of $4,313 and amounts refundable of $2,235 (December 31, 2017 – receivables of $16,556) are carried at fair value as the receivables and amounts refundable are derivatives due to the provisional pricing of these sales contracts. The receivables and amounts refundable are measured using quoted forward market prices that correspond to the settlement date of the provisional pricing period for the estimated metals contained within the zinc and copper concentrates or direct shipment sales. There were no changes to the method of fair value measurement during the period.

Except for the Company’s zinc and copper concentrate trade receivables and amounts refundable, the fair values of the Company’s financial assets and financial liabilities approximate their carrying amounts in the condensed consolidated interim balance sheet.

9.	Segment information

Results of operating segments are reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.

The Company conducts its business in two principal operating segments: the development project in Europe (Timok Project, plus other assets) and the mining operations in Africa (BMSC). For segmented reporting purposes, the Company’s reportable operating segments are comprised of Europe, Africa, and all other business activities and operating segments that are not reportable (North America).

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

9.	Segment information (continued)

The principal products of the Company’s mining operations in Africa are zinc and copper concentrates, containing by-products of gold and silver. Cash and cash equivalents of $84,957 are held in banks outside of Africa at September 30, 2018 (December 31, 2017 – $116,099). Information related to the reportable operating segments is as follows:

Total Assets	September 30, 2018		December 31, 2017
Europe	$	542,935	$	501,700
Africa		455,121		472,411
North America		68,640		112,241
Total	$	1,066,696	$	1,086,352
Total liabilities	September 30, 2018		December 31, 2017
Europe	$	10,512	$	6,244
Africa		125,300		117,394
North America		17,761		9,573
Total	$	153,573	$	133,211

	Revenues				Cost of sales				Net income (loss) attributable to Nevsun shareholders
	Three months ended September 30,
	2018		2017		2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Europe	$	-	$	-	$	-	$	-	$	(2,683)	$	(10,422)
Africa		71,608		71,036		74,258		61,443		(1,801)		4,762
North America		-		-		-		-		(14,186)		(5,904)
Total	$	71,608	$	71,036	$	74,258	$	61,443	$	(18,670)	$	(11,564)

	Revenues				Cost of sales				Net income (loss) attributable to Nevsun shareholders
	Nine months ended September 30,
	2018		2017		2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Europe	$	-	$	-	$	-	$	-	$	(9,839)	$	(33,397)
Africa		254,764		208,774		236,636		182,494		5,883		(31,074)
North America		-		-		-		-		(28,583)		(16,530)
Total	$	254,764	$	208,774	$	236,636	$	182,494	$	(32,539)	$	(81,001)

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

10.

Interest in subsidiary

The following table presents the financial position of the Company’s 60% owned subsidiary, Bisha Mining Share Company (“BMSC”), as at September 30, 2018 and December 31, 2017. The information is presented on a 100% basis. As at September 30, 2018, BMSC holds cash and cash equivalents of $23,051 (December 31, 2017 – $22,128).

	September 30, 2018		December 31, 2017
Current assets	$	143,078	$	123,174
Non-current assets		312,043		349,237
Current liabilities		(55,282)		(50,731)
Non-current liabilities		(70,018)		(66,663)
Net assets	$	329,821	$	355,017
Net assets attributable to non-controlling interest	$	131,930	$	142,008

The following table presents the financial results of BMSC for the three and nine months ended September 30, 2018 and 2017, respectively:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Revenues	$	71,608	$	71,036	$	254,764	$	208,774
Net income (loss) and comprehensive income (loss)		(3,001)		7,936		9,805		(51,791)
Net income (loss) and comprehensive income (loss) attributable to non-controlling interest		(1,200)		3,175		3,922		(20,717)

The following table presents the summary cash flow information of BMSC for the three and nine months ended September 30, 2018 and 2017, respectively:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Net cash provided by operating activities	$	4,596	$	19,050	$	64,049	$	40,662
Net cash used in investing activities		(17,218)		(8,758)		(28,126)		(14,059)
Net cash used in financing activities		-		(10,000)		(35,000)		(20,000)
Increase (decrease) in cash and cash equivalents	$	(12,622)	$	292	$	923	$	6,603

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

10.

Interest in subsidiary (continued)

The following table presents the financial position of the Company’s subsidiary, Rakita Exploration doo (“Rakita”), which holds the Timok Project, as at September 30, 2018 and December 31, 2017. The information is presented on a 100% basis.

	September 30, 2018		December 31, 2017
Current assets	$	5,175	$	2,954
Non-current assets		536,803		510,341
Current liabilities		(9,524)		(6,487)
Non-current liabilities		(83,570)		(51,555)
Net assets		448,884		455,253
Net assets attributable to non-controlling interest	$	7,812	$	7,339

The following table presents the financial results of Rakita for the three and nine months ended September 30, 2018 and 2017, respectively:

	Three months ended September 30,				Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Net loss and comprehensive loss	$	(3,202)	$	(9,957)	$	(8,790)	$	(32,369)
Net loss and comprehensive loss attributable to non-controlling interest		(4)		(4,517)		(473)		(13,212)

The following table presents the summary cash flow information of Rakita for the three and nine months ended
September 30, 2018 and 2017, respectively.

	Three months ended September 30,				Nine months ended September 30,
	2018		2017 (Restated – note 12)		2018		2017 (Restated – note 12)
Net cash used in operating activities	$	(3,568)	$	(9,718)	$	(11,518)	$	(32,130)
Net cash used in investing activities		(6,014)		(1,161)		(17,955)		(3,131)
Net cash provided by financing activities		6,234		9,600		31,195		30,000
Decrease in cash and cash equivalents	$	(3,348)	$	(1,279)	$	1,722	$	(5,261)

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

11.

Commitments and contingencies

Legal claims

The Company is involved in various claims, litigation and other matters in the ordinary course and conduct of business. Some of these pending matters will take a number of years to resolve. While it is not possible to determine the ultimate outcome of such actions at this time, and inherent uncertainties exist in predicting such outcomes, it is the Company’s belief that the ultimate resolution of such actions is not reasonably likely to have a material adverse effect on its consolidated financial position or results of operations. As a result, no contingent liabilities have been recorded in these interim financial statements.

Contractual dispute with Canaccord

Canaccord Genuity Corp. (“Canaccord”) was an advisor to Reservoir Minerals Inc. (“Reservoir”) in connection with the Company’s transaction (the “Transaction”) to acquire Reservoir and all of its assets, including the Timok Project.

In early April 2016, Canaccord and Reservoir entered into an advisory agreement regarding a potential acquisition of control of Reservoir (the “April Advisory Agreement”). In September 2016, Canaccord filed a Notice of Claim in the British Columbia Supreme Court regarding the fees under the April Advisory Agreement.

The claim was heard in the British Columbia Supreme Court (“the Court”) on January 25 and 26, 2018. On April 27, 2018, the Court released its judgment concluding that the Transaction Fee under the April Advisory Agreement should total CAD$9,942. The decision was subsequently appealed by Canaccord and cross-appealed by Reservoir in May 2018. At September 30, 2018, the Company has an additional CAD$3,896 ($3,010) placed in trust representing the Transaction Fee of CAD$9,942 per the Court’s judgement less fees previously paid to Canaccord of CAD$6,047. The amount in trust has been classified as restricted cash.

Environmental bond

As at September 30, 2018, the Company has arranged for the issuance of an environmental performance bond for the Bisha Mine for $65,000 (December 31, 2017 – $40,000) at a cost of 1% per annum. The environmental performance bond is in favour of the Eritrean Ministry of Energy and Mines and is renewable April 15, 2019.

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

12.

Change in accounting policy

During 2017, the Company conducted a review of its accounting policy with respect to exploration and evaluation expenditures. As a result of this review, management voluntarily changed the accounting policy effective December 31, 2017, and all such expenditures are now expensed until proven and probable mineral reserves have been declared, and the Company believes that further work will add economic value to those reserves. This change was conducted in order to enhance the relevance and reliability of the information available to the users of the Company’s financial statements. The change in accounting policy was made in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, and was recognized on a full retrospective basis. Further information on this change is provided in the annual consolidated financial statements for the year ended December 31, 2017.

As at September 30, 2017, the following adjustments were recorded to the consolidated balance sheet:

As at September 30, 2017	As previously reported		Adjustment		Restated
Exploration and evaluation	$	640,228	$	(92,396)	$	547,832
Mineral properties, net book value		35,075		(18,700)		16,375
Plant and equipment, net book value		277,637		598		278,235
Net decrease in assets				(110,498)
Deferred income taxes	$	(58,193)	$	24,562	$	(33,631)
Net decrease in liabilities				(85,936)
Non-controlling interest	$	(158,599)	$	16,030	$	(142,569)
Net decrease in equity			$	(69,906)

For the three months ended September 30, 2017, the following adjustments were recorded to the consolidated statement of comprehensive income:

For the three months ended September 30, 2017	As previously reported		Adjustment		Restated
Depreciation and depletion	$	(15,987)	$	50	$	(15,937)
Exploration expenses		-		(12,223)		(12,223)
Income tax expense		(3,736)		687		(3,049)
Decrease in net income			$	(11,486)
Net income (loss) and comprehensive income (loss) attributable to:
Nevsun shareholders	$	(527)	$	(11,037)	$	(11,564)
Non-controlling interest		3,624		(449)		3,175
Weighted average shares outstanding (thousands)
Basic		302,075		-		302,075
Diluted		302,075		-		302,075
Loss per share attributable to Nevsun shareholders
Basic	$	(0.00)	$	(0.04)	$	(0.04)
Diluted		(0.00)		(0.04)		(0.04)

Nevsun Resources Ltd.

Notes to Condensed Consolidated Interim Financial Statements

Unaudited

(Expressed in thousands of United States dollars, unless otherwise stated)

Three and nine months ended September 30, 2018 and 2017

12.

Change in accounting policy (continued)

For the nine months ended September 30, 2017, the following adjustments were recorded to the consolidated statement of comprehensive income:

For the nine months ended September 30, 2017	As previously reported		Adjustment		Restated
Depreciation and depletion	$	(42,239)	$	383	$	(41,856)
Exploration expenses		-		(40,545)		(40,545)
Income taxes		(6,756)		2,674		(4,082)
Decrease in net income			$	(37,488)
Net loss and comprehensive income loss attributable to:
Nevsun shareholders	$	(45,259)	$	(35,742)	$	(81,001)
Non-controlling interest		(18,971)		(1,746)		(20,717)
Weighted average shares outstanding (thousands)
Basic		301,943		-		301,943
Diluted		301,943		-		301,943
Loss per share attributable to Nevsun shareholders
Basic	$	(0.15)	$	(0.12)	$	(0.27)
Diluted		(0.15)		(0.12)		(0.27)

For the three months ended September 30, 2017, the following adjustments were recorded to the consolidated statement of cash flows:

For the three months ended September 30, 2017	As previously reported		Adjustment		Restated
Net cash provided by (used in) operating activities	$	10,018	$	(12,223)	$	(2,205)
Net cash used in investing activities		(23,416)		12,223		(11,193)
Net change in cash and cash equivalents			$	-

For the nine months ended September 30, 2017, the following adjustments were recorded to the consolidated statement of cash flows:

For the nine months ended September 30, 2017	As previously reported		Adjustment		Restated
Net cash provided by (used in) operating activities	$	27,264	$	(40,545)	$	(13,281)
Net cash used in investing activities		(56,466)		40,545		(15,921)
Net change in cash and cash equivalents			$	-

MANAGEMENT'S DISCUSSION & ANALYSIS

2018 THIRD QUARTER

This Management’s Discussion and Analysis (“MD&A”) was prepared by management as at October 25, 2018 and was reviewed and approved by the Audit Committee. The following discussion of performance, financial condition and future prospects should be read in conjunction with the unaudited condensed consolidated interim financial statements of Nevsun Resources Ltd. and notes thereto for the three and nine months ended September 30, 2018, as well as the 2017 audited consolidated financial statements and the 2017 MD&A, dated February 28, 2018, and the 2017 Amended Annual Information Form (“AIF”), dated April 19, 2018. All references in this MD&A to “Nevsun” or the “Company” include Nevsun Resources Ltd. and each of its wholly and partially owned subsidiaries on a consolidated basis, unless otherwise stated. The information provided herein supplements but does not form part of the financial statements. This discussion covers the three and nine months ended September 30, 2018, and the subsequent period up to the date of issue of this MD&A. Unless otherwise noted, all dollar amounts are stated in millions of United States dollars, except per ounce, per tonne, per pound, and per share data. Due to rounding, numbers presented throughout this MD&A may not add precisely to the totals provided. Information on risks associated with investing in the Company’s securities as well as information about mineral resources and reserves under National Instrument (“NI”) 43-101 are contained in the Company’s most recently filed AIF which is available on the Company’s website at www.nevsun.com or on SEDAR at www.sedar.com.

Table of Contents

Business of the Company.	1

Third Quarter Highlights.	2

Corporate Developments.	3

2018 Outlook Update.	4

Operating Review.	4

Financial Results – Three and Nine Months Ended September 30, 2018.	8

Liquidity and Capital Resources.	12

Commitments and Contingencies.	15

Outstanding Share Data.	15

Summary of Quarterly Results.	16

Non-GAAP Performance Measures.	17

Other Information and Advisories.	21

BUSINESS OF THE COMPANY

Nevsun is headquartered in Vancouver, British Columbia. Nevsun’s mission is to build a strong, multi-mine, mid-tier mining company, delivering shared prosperity to all stakeholders. Nevsun’s common shares trade on the TSX and the NYSE American LLC (“NYSE American”), under the trading symbol “NSU”. The Company’s two principal assets are its ownership interest in the Timok Project, a high-grade copper-gold development project in Serbia, and its 60% owned zinc-copper Bisha Mine in Eritrea. The Company also holds a number of additional exploration licenses and permits in Serbia, Macedonia and in the Bisha mining district.

The Timok Project is a joint venture between the Company and Freeport-McMoRan Exploration Corporation (“Freeport”). The Company is currently the operator of the Timok Project and will advance the development of both the Upper Zone and the Lower Zone. The Company will fund 100% of the Upper Zone development costs and is funding the first $20.0 million of agreed Lower Zone work. The Company and Freeport will fund additional Lower Zone work pursuant to the terms of its joint venture arrangement based on their respective ownership interests in the Lower Zone. After delivery of a feasibility study on either the Upper Zone or Lower Zone, Freeport’s ownership in the Lower Zone will increase to 54% from its current 40%. The Company will then own 100% of the Upper Zone and 46% of the Lower Zone. The Company and Freeport will be entitled to their pro-rata share of the economic benefits of the Lower Zone and the Company will be entitled to 100% of the economic benefits of the Upper Zone. From the date of acquisition through September 30, 2018, the Company has incurred $19.8 million of agreed Lower Zone work.

The Bisha Mine is a Volcanogenic Massive Sulfide (“VMS”) deposit which has been in production since February 2011. The first phase of the mine included gold production from February 2011 to June 2013, which allowed for an early payback of pre-production capital and funding of the supergene phase expansion. Commissioning of the copper flotation plant at the Bisha Mine commenced in late June 2013 and commercial production was achieved in December 2013. Mining copper ore from the supergene phase ceased during Q2 2016. Commissioning of the zinc plant commenced in early June 2016 and commercial production was achieved in October 2016. The Company is now in the primary phase of the mineral deposit at the Bisha Mine and will continue to produce both zinc and copper in concentrate through to the end of the mine life, which is projected to the end of 2022.

The Bisha Mine is owned by Bisha Mining Share Company (“BMSC”), a 60% owned indirect subsidiary of Nevsun, with the remaining 40% owned by the State-owned Eritrean National Mining Corporation (“ENAMCO”). On December 12, 2007, BMSC was granted a 20-year mining licence for the Bisha Mine, and on July 6, 2012, a 10-year mining licence was granted for the Harena property, where a satellite VMS deposit exists. In 2016, BMSC acquired additional mineral exploration licence areas and now holds two exploration licences (Tabakin and New Mogoraib) in the Bisha mining district which is in close proximity to the Bisha Mine. The exploration licences, which cover 814 square kilometres, include a number of potential satellite VMS deposits. The Company and ENAMCO continue to investigate alternatives to extend the mine life, including potential underground developments and a regional exploration program.

THIRD QUARTER HIGHLIGHTS

Strong quarterly production of 69.6 million pounds of zinc and 10.2 million pounds of copper.
Revised full year 2018 zinc guidance upwards to 245 to 265 million pounds from 210 to 240 million pounds.
Revised full year 2018 by-product copper guidance upwards to 33 to 38 million pounds from 25 to 30 million pounds.
C1 cash costs⁽²⁾ in middle of guidance at $0.71 per payable pound of zinc sold on a by-product basis.
Revenue adversely impacted by lower zinc and copper prices.
Advanced both the Timok Upper Zone Project and the Bisha Mine open pit extension.
Announced friendly all-cash agreement for Nevsun to be acquired by Zijin Mining for US$1.41 billion.

	Three months ended Sept 30				Nine months ended Sept 30
(in millions of US dollars, unless otherwise noted)	2018		2017		2018		2017
Revenue	$	71.6	$	71.0	$	254.8	$	208.8
Impairment reversals (charges)		-		2.7		5.0		(67.0)
Earnings (loss) from mine operations⁽¹⁾		(2.7)		12.3		23.1		(40.8)
Exploration expenses ⁽¹⁾		(4.2)		(12.2)		(14.0)		(40.5)
Net income (loss) ⁽¹⁾		(19.9)		(8.4)		(28.6)		(101.7)
Net loss attributable to Nevsun shareholders ⁽¹⁾		(18.7)		(11.6)		(32.5)		(81.0)
Basic loss per share attributable to Nevsun shareholders ($/share)⁽¹⁾	$	(0.06)	$	(0.04)	$	(0.11)	$	(0.27)

Unrestricted cash	$	88.7	$	151.2	$	88.7	$	151.2
Working capital		135.5		179.1		135.5		179.1
Total assets⁽¹⁾		1,066.7		1,101.2		1,066.7		1,101.2
Total non-current liabilities⁽¹⁾		70.8		75.2		70.8		75.2

Zinc price realized, per payable pound sold ($/lb)⁽³⁾	$	1.02	$	1.44	$	1.24	$	1.30
C1 cash cost per payable zinc pound sold, by-product basis ($/lb)⁽²⁾		0.71		0.75		0.66		0.79
C1 cash cost per payable zinc pound sold, co-product basis ($/lb)⁽²⁾		0.94		0.84		0.85		0.88

Copper price realized, per payable pound sold ($/lb)⁽³⁾	$	2.66	$	2.99	$	2.88	$	2.75
C1 cash cost per payable copper pound sold, co-product basis ($/lb)⁽²⁾		1.58		1.70		1.53		1.62

(1)

Effective December 31, 2017, the Company voluntarily elected to retrospectively change its accounting policy with respect to exploration and evaluation expenditures, and as such, certain financial measures have been restated. Please refer to the Company’s 2017 annual consolidated financial statements for the full accounting policy, and to the Company’s Q3 2018 interim financial statements for disclosure surrounding the effect of the change as at and for the three and nine months ended September 30, 2017.

(2)	C1 cash cost per payable pound sold is a non-GAAP measure – see page 16 of this MD&A for discussion of non-GAAP measures and page 6 of this MD&A, Cash Costs, for explanation of per-unit costs.

(3)

Zinc and copper prices realized per payable pound sold include provisional pricing adjustments for shipments not yet settled, including shipments in previous periods. In Q3 2018, zinc and copper prices realized per payable pound sold of $1.02 and $2.66 respectively are inclusive of downward provisional pricing and other adjustments of $0.11 and $0.16 per payable pound sold respectively – see page 19 of this MD&A for a reconciliation of realized metal prices.

CORPORATE DEVELOPMENTS

On March 27, 2018, the Company published updated mineral reserve and resources for the Bisha Mine. Please refer to the Company’s 2017 AIF for more information.

On May 11, 2018, the Company filed a NI 43-101 pre-feasibility study (“PFS”) for the Timok Upper Zone declaring an initial probable mineral reserve with 27 million tonnes at 3.3% copper and 2.1 grams per tonne gold using a price of $3.00 per pound copper and $1,300 per ounce gold.

On June 26, 2018, the Company announced a NI 43-101 compliant initial inferred mineral resource for the Timok Lower Zone with 1.7 billion tonnes grading 0.86% copper and 0.18 grams per tonne gold (0.96% copper equivalent) for 31.5 billion pounds of copper and 9.6 million ounces of gold. The Company filed a NI 43-101 Technical Report incorporating the initial resource statement for the Timok Lower Zone on August 7, 2018.

On July 5, 2018, the Company issued its 2017 annual CSR report. The Company continues with its transparent approach to operations and contributions to the communities in which it operates, including the reporting of funds paid to the State of Eritrea in the form of taxes and royalties.

On July 26, 2018, the Company received notice that Lundin Mining Corporation had made an unsolicited offer to acquire all of the issued and outstanding shares of Nevsun.

On September 14, 2018, Zijin Mining Group Company Limited (“Zijin”) commenced a take-over bid to acquire all of the issued and outstanding shares of the Company for C$6.00 per share in cash (the “Offer”). Zijin and the Company entered into a pre-acquisition agreement dated September 4, 2018 (the “Pre-Acquisition Agreement”) pursuant to which Zijin agreed to make the Offer and the Company’s Board of Directors agreed to endorse and recommend the Offer to the Company’s shareholders, all subject to the conditions set for in the Pre-Acquisition Agreement and which are described in Zijin’s take-over bid circular and the Company’s directors’ circular, both dated September 14, 2018 (the “Circulars”). The Offer is valued at CAD $1.86 billion ($1.41 billion) and is not subject to any financing conditions. The Offer is subject to certain specified conditions being satisfied, or where permitted, waived at the expiry time or such earlier or later time during which the Company’s issued and outstanding shares may be deposited under the Offer, excluding the mandatory 10-day extension period or any extension thereafter, which include: (i) there having been validly deposited under the Offer, and not withdrawn 50% of the Company’s issued and outstanding shares together with certain shareholder rights plan rights, which is a non-waivable condition; (ii) there having been validly deposited under the Offer and not withdrawn 66^2/3% of the Company’s issued and outstanding shares together with certain shareholder rights plan rights; (iii) certain regulatory approvals having been obtained; and (iv) there not having occurred, prior to the expiry date, a Material Adverse Effect, (as defined in the Pre-Acquisition Agreement) with respect to the Company. Management expects the Offer to be completed in Q4 2018 or Q1 2019. The Company has been advised by Zijin that Zijin has received Canadian Competition Act clearance for the Offer as well as approval from the People’s Republic of China’s National Development and Reform Commission (“NDRC”). If the Pre-Acquisition Agreement is terminated in certain circumstances described in the Pre-Acquisition Agreement, including failure to obtain the necessary approvals from relevant authorities in China, subject to certain exceptions, Zijin will be required to pay the Company a reverse termination payment of $50 million. If the Offer is not completed as a result of a superior proposal, or in certain other circumstances described in the Pre-Acquisition Agreement, the Company will be required to pay Zijin a termination payment of $50 million. In accordance with the Company’s share-based compensation plans, all of the Company’s share-based awards including stock options, restricted share units, performance share units and deferred share units will automatically vest upon a change of control. Additional information is available in the Circulars which are available under the Company’s profile on SEDAR at www.sedar.com.

2018 OUTLOOK UPDATE

OPERATING REVIEW

Timok Project Update

Site preparation activities continued in the third quarter to advance the construction of the portal and exploration decline. These included the construction of site infrastructure and roads, stripping, and establishing site security and water management systems including storage ponds. Following preparatory work, excavation began as scheduled in late August on the decline boxcut. Permitting activities also continued with the submission of an Elaborat, a Serbian mineral reserve report, to the Serbian Ministry of Mining and Energy in early September.

The Timok Project FS is progressing on schedule for release in mid-2019 with work currently focused on refining the project and optimizing costs. A ramp-up scenario continues to be examined starting with initial production at 1.6 million tonnes per annum ramping up to 3.25 million tonnes per annum over a two-year period.

As at September 30, 2018, the Company has acquired 100% of the land required for development of the exploration decline and 74% of the required private land for construction of the Upper Zone project. From April 1, 2018 and following the release of the PFS results in late March 2018, the Company has commenced the capitalization of evaluation costs at the Timok Upper Zone incurred to expand the reserve and its associated value. As at September 30, 2018, $12.2 million of evaluation expenditure was capitalized.

Key Operating Information – Bisha Mine

	YTD 2018	Q3 2018	Q2 2018	Q3 2017
Mining
Ore mined, tonnes⁽¹⁾	1,686,000	464,000	582,000	383,000
Waste mined, tonnes⁽²⁾	14,610,000	5,185,000	4,900,000	4,126,000
Strip ratio, using tonnes⁽²⁾	8.3	9.7	8.4	10.8
Processing
Ore milled, tonnes	1,613,000	559,000	491,000	524,000
Zinc feed grade, %	6.7	6.7	6.1	6.8
Copper feed grade, %	1.1	1.1	1.1	1.0
Recovery, % of zinc	81.1	83.9	77.6	74.0
Recovery, % of copper⁽³⁾	68.3	74.5	69.4	33.4
Zinc concentrate grade, %	48.3	49.1	47.8	42.0
Copper concentrate grade, %⁽³⁾	21.6	22.3	21.5	17.8
Zinc in concentrate produced, millions of pounds	192.5	69.6	51.3	57.8
Zinc in concentrate produced, tonnes	87,300	31,600	23,300	26,300
Copper in concentrate produced, millions of pounds	27.8	10.2	8.6	4.0
Copper in concentrate produced, tonnes	12,600	4,600	3,900	1,800
Payable zinc in concentrate sold, millions of pounds	151.6	44.4	53.8	43.4
Payable zinc in concentrate sold, tonnes	68,800	20,200	24,400	19,800
Payable copper in concentrate sold, millions of pounds	21.4	9.3	4.3	3.1
Payable copper in concentrate sold, tonnes	9,600	4,100	2,000	1,400

(1)

(2)

(3)

Represents the copper recovery to copper concentrate from the copper flotation circuit only, and excludes copper recovered to zinc concentrates.

The Bisha Mine maintained total quarterly material movement above five million tonnes for a fourth consecutive quarter. This sustained improvement in mine performance reflects the ongoing impact of additional mining equipment commissioned earlier in 2018 and the development of an in-pit waste dump. Stripping also commenced in July for an open pit extension with 690,000 tonnes moved in the quarter. The third quarter coincides with the wet season in Eritrea and despite rainfall being almost double the normal amount in 2018, high levels of production were maintained. Ore supply remained tight throughout the quarter due to lower productivity in constrained work areas at the bottom of the pit, however zinc feed grade of 6.7% improved over the previous quarter, while copper feed grade remained at 1.1%. Strong recoveries of both zinc and copper continued through the third quarter with 83.9% and 74.5% achieved respectively.

During Q3 2018, the Company sold 44.4 million pounds of payable zinc in zinc concentrate and 9.3 million pounds of payable copper in copper concentrate, compared to 53.8 million pounds of payable zinc and 4.3 million pounds of payable copper, respectively, in Q2 2018. Concentrate grades averaged 49.1% for zinc and 22.3% for copper. Despite strong zinc production in Q3, the volume of payable zinc in concentrate sold decreased 17% from Q2 2018 as a result of processing higher-grade material late in the quarter which remained in concentrate inventory at September 30, 2018.

At September 30, 2018, 765,000 tonnes of stockpiled material were available for processing. Of this, 80,000 tonnes of supergene ore and 464,000 tonnes of non-homogeneous “zinc-only” primary ore containing high and medium zinc grades remain classified as non-current inventory. No quantities of these stockpiles are currently planned to be processed within the next twelve months. The remaining 221,000 tonnes are planned to be processed within the next twelve months, including 136,000 tonnes of “zinc-only” primary ore that had been previously classified as non-current inventory. As a result, $3.3 million of zinc-only ore was reclassified from non-current inventory to current inventory at September 30, 2018.

C1 Cash Costs – Bisha Mine

		Three months ended September 30, 2018
(US dollars per pound)		Zinc (copper as by-product)		Zinc (co-product)		Copper (co-product)
Payable metal sold		44.4		44.4		9.3
Operating expenses and selling costs	$/lb	0.91	$/lb	0.91	$/lb	1.85
Concentrate treatment and refining charges		0.03		0.03		0.36
Concentrate by-product credits		(0.23)		-		(0.63)
Total C1 cash cost		0.71		0.94		1.58

C1 cash costs have been calculated on a by-product cost basis for zinc, treating copper sales as a by-product credit to reported zinc sales. C1 cash costs are also presented on co-product bases for zinc and copper, which allocates joint costs based on expected revenue from actual production in order to provide consistency with reporting from previous periods. Please refer to the section ‘Non-GAAP Performance Measures’ for additional detail on C1 cash costs.

On a by-product basis, zinc C1 cash costs were negatively influenced in Q3 2018 by a higher strip ratio than in the previous quarter resulting in greater costs incurred per tonne of ore mined. This was combined with continued high maintenance and fuel costs as well as increased reagent usage following implementation of the SMBS reagent scheme in mid-June. However, zinc C1 cash costs were positively influenced by increases in zinc feed grade and overall zinc production as compared to the previous quarter. By-product credits represent the net margin realized on copper sales with copper sales in Q3 2018 higher than in Q2 2018 resulting in increased by-product credits.

Exploration

Timok Project

In Q3 2018, diamond drilling on the Timok Project consisted of regional exploration drilling on the Brestovac Metovnica property (5,541 metres in 9 holes) in search for additional high sulphidation epithermal mineralization like that of the Upper Zone. Focus areas included the Eastern Target 2 area immediately east of the Upper Zone; along the northeastern edge of the Lower Zone footprint; the area to the west of the Upper Zone; and 2 kilometres to the southeast of the Upper Zone. Strong Upper Zone style alteration with associated pyrite, enargite, chalcopyrite and minor covellite mineralization typical of the outer edge of the Upper Zone is being encountered in all of the holes immediately around Cukaru Peki. The intense clay-rich alteration encountered presented challenges for drilling and many holes were lost prematurely. As such, borehole electromagnetic surveying has not been utilized in many of the holes to date.

Drilling also continued as part of a condemnation drill program aimed to ensure that no significant mineralization is present near proposed infrastructure where this infrastructure could be impacted by or sterilize this mineralization. In Q3 2018, 5,529 metres of drilling was completed in 17 holes with no significant zones of mineralization encountered.

Bisha

In Q3 2018, exploration diamond drilling was completed on the Bisha Mining License (727 metres in 2 holes) and the Tabakin Exploration License (1,193 metres in 4 holes). No new zones of significant mineralization were encountered. Diamond drilling for geotechnical evaluation was completed on the Harena deposit (1,896 metres in 8 holes) to further assess the deposit for potential future mining. In addition, diamond drilling for pit wall stability studies was completed at Bisha (1,318 metres in 7 holes).

In the third quarter, the focus of exploration transitioned from the testing of isolated geophysical anomalies to the evaluation of the long favourable trends between the known deposits where the geophysical signature of a deposit is likely to be masked by regional graphitic horizons. This work is better suited to reverse circulation drilling which was completed on the Bisha Mining License (3,328 metres in 50 holes) and the Tabakin Exploration License (1,344 metres in 18 holes). In addition, ground and borehole geophysical surveying, soil and rock geochemistry and other geological work was completed on the Mogoriab, Tabakin and Bisha Licenses.

Tilva, BEM and Macedonia

During Q3 2018, drilling was completed in one hole for 533 metres on the Nikolicevo property that forms part of the Tilva Joint Venture with Rio Tinto. In addition, Titan 24 geophysical surveying was completed over part of the property and additional drilling is planned for Q4 2018. Drilling was also completed in one hole for 1,081 metres on the Tilva Njagra property. Encouraging porphyry style alteration was intersected and assays are pending.

Drilling was completed on the BEM Donja Studena and Samanjac properties in Q3 2018 to evaluate the sedimentary copper model concept. At Donja Studena, 997 metres in 2 holes were completed with no significant zones of copper intercepted. At Samanjac, 983 metres in 6 holes were completed with copper bearing bleached zones encountered, validating the sedimentary copper model concept. Assays are pending. Drilling also resumed at the Parlozi project where 1,881 metres in four holes were completed with drilling defining an extensive silica - pyrite alteration zone. Assays are pending.

In Macedonia, drilling was initiated on the Dvorishte license with 1,423 metres completed in 6 holes. Porphyry style alteration dominated by pyrite is being intersected and assays are pending.

FINANCIAL RESULTS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

The following variances result when comparing operations for the three and nine-month periods ended September 30, 2018, with the same periods of the prior year:

	Three months ended Sept 30				Nine months ended Sept 30
(in millions of US dollars, unless otherwise noted)	2018		2017		2018		2017
Revenues	$	71.6	$	71.0	$	254.8	$	208.8
Operating expenses		53.4		42.1		160.7		127.3
Royalties		3.9		3.4		14.4		13.3
Depreciation and depletion⁽¹⁾		17.0		15.9		61.6		41.9
Impairment charges (reversals)		-		(2.7)		(5.0)		67.0
Earnings (loss) from mine operations⁽¹⁾		(2.7)		12.3		23.1		(40.8)
Exploration expenses⁽¹⁾		4.2		12.2		14.0		40.5
Administrative		13.6		5.6		28.0		16.2
Finance costs		0.5		0.5		1.6		1.5
Finance income		0.2		0.6		0.9		1.4
Income tax expense (recovery)⁽¹⁾		(0.8)		3.0		9.1		4.1

(1)

Revenues

The composition of the Company’s revenues in the three and nine months ended September 30, 2018 is as follows:

	Three months ended Sept 30				Nine months ended Sept 30
(in millions of US dollars, unless otherwise noted)	2018		2017		2018		2017
Zinc concentrate sales	$	50.2	$	59.8	$	208.3	$	169.9
Zinc concentrate mark-to-market adjustments		(4.8)		2.5		(19.7)		(0.1)
Zinc concentrate by-product sales		0.1		0.3		1.9		7.6
Zinc concentrate treatment charges		(1.3)		(2.9)		(3.7)		(10.4)
Total revenue from zinc concentrate contracts		44.2		59.7		186.8		167.0
Copper concentrate sales		26.3		9.5		63.8		29.2
Copper concentrate mark-to-market adjustments		(1.5)		(0.2)		(2.2)		0.5
Copper concentrate by-product sales		5.9		2.4		14.7		8.3
Copper concentrate treatment and refining charges		(3.3)		(1.6)		(8.3)		(4.9)
Total revenue from copper concentrate contracts		27.4		10.1		67.9		33.1
Other revenue		-		1.3		-		8.7
Revenues	$	71.6	$	71.0	$	254.8	$	208.8

Revenues in the three months ended September 30, 2018 increased slightly over those realized in the comparative period as a result of improved copper production resulting in increased copper sales, offset in part by lower zinc sales. Despite a comparable volume of zinc sales in both periods, revenue was negatively influenced by the significant decrease in realized zinc price to $1.02 per payable pound sold in Q3 2018 from $1.44 in Q3 2017. The decrease reflects a weakening of zinc prices in the third quarter of 2018 and negative provisional pricing adjustments for shipments not yet settled, including shipments in previous quarters. Sales in the nine months ended September 30, 2018 increased over those realized in the comparative period as a result of improved production of both zinc and copper, higher metals prices in the first half of 2018, and the drawdown of concentrate stockpiles through the nine months ended September 30, 2018 from December 31, 2017.

Zinc revenues in the three months ended September 30, 2018 include sales of 44.4 million payable pounds of zinc (Q3 2017 – 43.4 million) at an average realized price per pound of $1.02 (Q3 2017 – $1.44). Zinc sales are net of downward provisional and final pricing and physical quantity adjustments of $4.8million (Q3 2017 – positive adjustment $2.5 million). Zinc revenues in the nine months ended September 30, 2018 include sales of 151.6 million payable pounds of zinc (nine months ended September 30, 2017 – 130.6 million) at an average realized price per pound of $1.24 (nine months ended September 30, 2017 – $1.30) and are net of downward provisional and final pricing and physical quantity adjustments of $19.7 million (nine months ended September 30, 2017 – $0.1 million). The increase in provisional pricing adjustments in both the three and nine-month periods reflect a weakening of zinc prices and the resulting downward adjustments for shipments not yet settled, including shipments in previous periods.

Copper revenues in the three months ended September 30, 2018 include sales of 9.3 million payable pounds of copper (Q3 2017 – 3.1 million) at an average realized price per pound of $2.66 (Q3 2017 – $2.99). Copper revenues in the nine months ended September 30, 2018 include sales of 21.4 million payable pounds of copper (nine months ended September 30, 2017 – 10.8 million) at an average realized price per pound of $2.88 (nine months ended September 30, 2017 – $2.75).

The Company did not complete any sales of direct shipped ore (“DSO”) in the nine months ended 2018. In the three months ended September 2017, the Company completed DSO sales which contained approximately 2,000 gold equivalent ounces from stockpiled material that resulted in other revenue of $1.3 million. In the nine months ended September 30, 2017, the Company completed DSO sales which contained approximately 13,000 gold equivalent ounces from stockpiled material that resulted in other revenue of $8.7 million. In both periods, the gold equivalent ounces were calculated based on a ratio of 71:1 silver to gold.

Operating Expenses

Operating expenses incurred during the three and nine months ended September 30, 2018 have increased as a result of several factors. Firstly, maintenance of heavy mining equipment (“HME”) continues to be outsourced to a contractor resulting in higher costs but improved availabilities of equipment. The new HME that arrived at the Bisha Mine in late 2017 and early 2018 are now fully operational, which has allowed for a sustained focus on maintenance of older assets. Additionally, operating expenses reflect increased reagent usage, which has had a positive impact on copper recoveries and copper concentrate grades. Fuel costs are also higher as the cost of fuel on a per-litre basis has increased over the comparative periods. Lastly, due to increased sales volumes in 2018, higher transport and shipping costs were incurred.

In the nine months ended September 30, 2017, operating expenses were net of a $9.8 million non-recurring credit related to the recovery of withholding taxes on contractor payments overpaid in prior years. After removing the non-recurring credit, operating expenses in the nine months ended September 30, 2018 of $160.7 million are 17% higher than adjusted operating expenses in the nine months ended September 30, 2017 of $137.1 million.

Royalties

The Company incurs a 3.5% royalty on the sale of base metals and a 5% precious metals royalty on the sale of gold and silver. Royalties are payable at the time concentrate shipments leave the Bisha Mine, which precedes the revenue recognition point. The Company is required to remit royalties on metals within concentrate on a contained, rather than payable, basis.

Despite revenue being over 22% higher in the nine months ended September 30, 2018, royalty expense is only 8% higher than in the comparative period as royalty expense in the nine months ended September 30, 2017 includes $1.6 million related to 2016 production that had originally been accrued on a payable, rather than contained, basis.

Depreciation And Depletion (Restated)

Depreciation is calculated primarily using the units-of-production method with metal pounds produced and ore tonnes mined as the basis for the calculation. Fixed assets such as mobile equipment and buildings are amortized using the declining balance method. The Bisha Mine life was shortened by approximately four years effective July 2017 resulting in an increased per-unit rate of depreciation for assets depreciated using the units of production method. This was partially offset by a mine life extension of approximately one year in June 2018 following the approval of an open pit extension which commenced in July 2018.

Depreciation recorded during the three months ended September 30, 2018 was higher than in the comparative period primarily as a result of increased ore tonnes mined offset in part by a shorter mine life in effect during the three months ended September 30, 2017. Depreciation recorded during the nine months ended September 30, 2018 was higher than in the comparative period primarily as a result of a longer mine life in effect in the first six months of 2017 and a decreased per unit rate of depreciation during that period for assets depreciated using the units of production method. Depreciation has also increased in both the three and nine-month periods ended September 30, 2018 due to new assets brought into use at the Bisha Mine in 2018, including the Phase III tailings management facility lift and HME additions.

Impairment Charges

In Q2 2017 the Company recorded a write down of $69.7 million in connection with a revised life of mine plan. The write down was comprised of $58.8 million of long term stockpiles for material which was no longer in the life of mine plan and $10.9 million of equipment and related materials and supplies inventory for which it was estimated that there was no longer any useful life. Of the write down, $21.0 million was reversed in the second half of 2017, comprising $19.6 million of stockpiles that were deemed economic and $1.4 million relating to revisions of estimates of property, plant and equipment that were originally deemed to be non-operational and therefore obsolete.

During the nine months ended September 30, 2018, a further $5.0 million of impairment charges related to mine equipment and related materials and supplies inventory were reversed. As a result of the mine life extension announced in June 2018, it was determined that certain equipment previously written-down would be able to conduct additional waste mining as part of the extended life of mine plan. The reversal of impairment charge relates to these assets.

Earnings (loss) from Mine Operations (Restated)

The Company generated a loss from mine operations of $2.7 million in the three months ended September 30, 2018 compared to earnings generated of $12.3 million in the comparative period. The decrease is largely as a result of increased operating expenses and non-cash depreciation.

Exploration Expenses (Restated)

		Three months ended Sept 30				Nine months ended Sept 30
(in millions of US dollars, unless otherwise noted)		2018		2017		2018		2017
Bisha Mine	$	1.1	$	1.9	$	4.3	$	7.4
Timok Brownfield exploration		2.3		5.3		6.9		19.0
Timok Lower Zone		-		4.5		1.2		13.2
Other Serbian and Macedonian properties		0.8		0.6		1.5		0.9
Exploration expenses (restated)		4.2		12.2		14.0		40.5

As disclosed in the Company’s 2017 annual consolidated financial statements, the Company has voluntarily changed its accounting policy for expenditures on exploration and evaluation, with all such expenditures now expensed until proven and probable mineral reserves have been declared, and the Company believes that further work will add economic value to those reserves. Exploration expense consists of activities such as drilling, assaying, sampling, technical studies and directly attributable administrative expenditures.

From April 1, 2018 and following the release of the PFS results in late March 2018, the Company has commenced the capitalization of evaluation costs at the Timok Upper Zone incurred to expand the reserve and its associated value. During the three and nine months ended September 30, 2018, $6.5 million and $12.2 million, respectively, of evaluation costs incurred on the Timok Project Upper Zone were capitalized (three and nine months ended September 30, 2017 - $nil).

Administrative

Administrative costs comprise head office costs including salaries and employee benefits, share-based payments, business development and other general administrative expenses. The $8.0 million increase in the three months ended September 30, 2018 from the comparative period includes $5.4 million in business development expenses relating to the Zijin Offer and the unsolicited offer from Lundin Mining Corporation, consisting of professional and consulting fees and other related expenses. There was also an increase of $1.5 million in employee compensation primarily due to an increase in the valuation of accrued share-based payments, the value of which is based on the Company’s share price, which increased during the same period.

The $11.8 million increase in administrative costs in the nine months ended September 30, 2018 also related to increased business development expenses and an increase in the valuation of accrued share-based payments, in line with increases in the Company’s share price during this period. Additionally, $3.0 million related to the Canaccord claim was expensed in the second quarter of 2018 – see the ‘Commitments and Contingencies’ section of this MD&A for a discussion of the Canaccord claim. These increases were partially offset by higher employee compensation costs in the comparative period as a result of non-recurring employee severance and expedited vesting of some of the Company’s outstanding share unit incentives that are cash-settled.

Finance Costs And Income

In the three and nine months ended September 30, 2018 and 2017, finance costs are comprised entirely of accretion expense on the Company's reclamation liability and finance income is comprised of interest earned on cash and cash equivalent balances.

Income Taxes (Restated)

Income tax expense relates to earnings from mine operations at the Bisha Mine. During the three months ended September 30, 2018, income tax recovery is the result of a loss generated from mining operations. During the nine months ended September 30, 2018, income tax has increased as a result of improved operating results and higher taxable income. The Bisha Mine is subject to a statutory tax rate of 38%.

LIQUIDITY AND CAPITAL RESOURCES

Financial Condition

The Company’s unrestricted consolidated cash and cash equivalents at September 30, 2018, were $88.7 million (December 31, 2017 – $124.6 million). Cash and cash equivalents attributable to Nevsun shareholders, excluding ENAMCO’s 40% share of cash held by BMSC, was $79.5 million (December 31, 2017 - $115.7 million).

Unrestricted consolidated cash and cash equivalents decreased by $36.4 million during the three months ended September 30, 2018 as a result of $23.4 million of investment in property, plant and equipment primarily relating to the Timok Upper Zone Project and the Bisha Mine open pit extension, $10.0 million of cash used in operating activities including expenses relating to the Zijin Offer and $3.0 million of cash placed in trust and reclassified to restricted cash.

Restricted cash of $5.3 million at September 30, 2018 (December 31, 2017 – nil) consists of $2.3 million which supports a bank guarantee in connection with a construction contract at the Timok Project and $3.0 million held in trust in connection with the Canaccord claim – see the ‘Commitments and Contingencies’ section of this MD&A for a discussion of the Canaccord claim. Working capital, including cash and cash equivalents, was $135.5 million (December 31, 2017 – $162.3 million).

The Company has not entered into any specialized financial arrangements to minimize its commodity price risk, investment risk or currency risk. There are no off-balance sheet arrangements.

Operating Activities (Restated)

In the third quarter, cash flows used in operating activities before income taxes paid were $13.0 million (Q3 2017 – $2.2 million) and were negatively influenced by higher operating expenses and business development costs. During the nine months ended September 30, 2018, cash flows generated from operating activities before income taxes paid were $35.5 million (nine months ended September 30, 2017 - $5.5 million) and reflected higher metals prices in the first half of 2018, offset in part by higher operations and business development costs. Additionally, the Company commenced the capitalization of evaluation costs at the Timok Upper Zone from April 1, 2018 with related cash expenditure capitalized as property, plant and equipment and included in investing activities from that date. During the nine months ended September 30, 2018, the Company also remitted $8.0 million in income taxes, all related to the 2018 fiscal year (nine months ended September 30, 2017 – $18.8 million, all related to the 2016 fiscal year; no income tax was paid for the 2017 fiscal year).

Investing Activities (Restated)

		Three months ended Sept 30				Nine months ended Sept 30
(in millions of US dollars, unless otherwise noted)		2018		2017 (restated)		2018		2017 (restated)
Timok Upper Zone capital expenditures	$	10.8	$	-	$	17.1	$	-
Timok land acquisition		2.2		0.2		6.5		0.5
Bisha Mine capitalized stripping		2.1		-		2.1		-
Bisha Mine sustaining capital expenditures		12.6		5.4		19.8		11.5
Other capital expenditure		4.2		0.7		4.8		1.3
Total capital additions		31.9		6.3		50.3		13.3
Reconciliation to cash capital additions:
Contractor deposit classified as restricted cash		-		-		2.3		-
Capitalized equipment depreciation		(0.3)		-		(0.3)		-
Capital accruals		(8.2)		4.9		(4.8)		2.6
Total cash capital additions	$	23.4	$	11.2	$	47.5	$	15.9

During the third quarter, the Company invested $23.4 million in property, plant and equipment (Q3 2017 - $11.2 million). At the Timok Upper Zone project, expenditure primarily related to construction of the exploration decline as well as ongoing FS work, permitting activities and land acquisition. At the Bisha Mine, expenditure primarily related to the open pit extension including procurement of HME and capitalized stripping.

Financing Activities

In the third quarter, the Company generated a cash inflow of $0.1 million from financing activities due to shares issued as a result of stock options exercised (three months ended September 30, 2017 - cash used of $6.7 million). In the nine months ended September 30, 2018, the Company used $15.9 million in financing activities (nine months ended September 30, 2017 - $18.8 million) including $2.7 million of dividends paid to Nevsun shareholders (nine months ended September 30, 2017 – $16.1 million), and $14.0 million of distributions to non-controlling interests (nine months ended September 30, 2017 – distributions net of repayments of $3.0 million).

On January 31, 2018, the Company announced that it would be suspending declarations of dividends, and as such no dividends were declared by the Company during the nine months ended September 30, 2018.

Commitments and Contingencies

Legal Claims

Canaccord Genuity Corp. (“Canaccord”) was an advisor to Reservoir in connection with the Company’s transaction (the “Transaction”) to acquire Reservoir and all of its assets, including the Timok Project. In early April 2016, Canaccord and Reservoir entered into an advisory agreement regarding a potential acquisition of control of Reservoir (the “April Advisory Agreement”). In September 2016, Canaccord filed a Notice of Claim in the British Columbia Supreme Court regarding the fees under the April Advisory Agreement.

The claim was heard in the British Columbia Supreme Court (“the Court”) on January 25 and 26, 2018. On April 27, 2018, the Court released its judgment concluding that the Transaction Fee under the April Advisory Agreement should total CAD$9.9 million. The decision was subsequently appealed by Canaccord and cross-appealed by Reservoir in May 2018. At September 30, 2018, the Company has accrued an additional CAD$3.9 million ($3.0 million) in administrative expenses, representing the Transaction Fee of CAD$9.9 million per the Court’s judgement less fees previously paid to Canaccord of CAD$6.0 million.

Environmental Bond

As at September 30, 2018, the Company has arranged for the issuance of an environmental performance bond for the Bisha Mine for $65.0 million (December 31, 2017 – $40.0 million) at a cost of 1% per annum. The environmental performance bond is in favour of the Eritrean Ministry of Energy and Mines and is renewable April 15, 2019.

Purchase Commitments

As at September 30, 2018, the Company had commitments to purchase and unsettled obligations for property, plant and equipment of $8.8 million (December 31, 2017 - $1.8 million).

OUTSTANDING SHARE DATA

As of October 25, 2018, the Company had 302,592,672 shares and 7,157,233 options issued and outstanding.

SUMMARY OF QUARTERLY RESULTS

Selected consolidated financial information from continuing operations for the most recent eight quarters (unaudited) are presented below. Starting at the end of Q2 2016, the commissioning phase of the zinc flotation plant began. Costs directly attributable to the production of zinc concentrate incurred during this phase, which is defined by the processing of primary ore, were capitalized until commercial production was declared and sales of commercially produced material commenced in Q4 2016.

All figures in this table from Q4 2016 through Q3 2017 have been restated to reflect the Company’s voluntary change in accounting policy with respect to exploration and evaluation expenditures. Please refer to note 27 in the Company’s 2017 annual consolidated financial statements for more information.

(in millions of US dollars, unless otherwise noted)	2018 3rd		2018 2nd		2018 1st		2017 4th
Revenues	$	71.6	$	76.4	$	106.7	$	80.6
Earnings (loss) from mine operations		(2.7)		2.4		23.4		15.0
Net income (loss) for the period		(19.9)		(9.3)		0.5		2.1

Net loss attributable to Nevsun shareholders		(18.7)		(9.4)		(4.5)		(3.7)
Loss per share attributable to Nevsun shareholders – basic ($/share)		(0.06)		(0.03)		(0.01)		(0.01)
Loss per share attributable to Nevsun shareholders – diluted ($/share)		(0.06)		(0.03)		(0.01)		(0.01)

(in millions of US dollars, unless otherwise noted)	2017 3rd (Restated)		2017 2nd (Restated)		2017 1st (Restated)		2016 4th (Restated)
Revenues	$	71.0	$	66.1	$	71.6	$	36.2
Earnings (loss) from mine operations		12.3		(64.9)		11.8		(4.7)
Net income (loss) for the period		(8.4)		(84.2)		(9.1)		(17.9)

Net income (loss) attributable to Nevsun shareholders		(11.6)		(57.9)		(11.6)		(16.5)
Earnings (loss) per share attributable to Nevsun shareholders – basic ($/share)		(0.04)		(0.19)		(0.04)		(0.08)
Earnings (loss) per share attributable to Nevsun shareholders – diluted ($/share)		(0.04)		(0.19)		(0.04)		(0.08)

NON-GAAP PERFORMANCE MEASURES

This document includes non-GAAP performance measures, discussed below, that do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”). The performance measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. The Company believes that these performance measures are commonly used by certain investors, in conjunction with conventional GAAP measures, to enhance their understanding of the Company's performance. The Company uses these performance measures extensively in internal decision-making processes, including to assess how well the Bisha Mine is performing and to assist in the assessment of the overall efficiency and effectiveness of the mine site management team. The table below provides a reconciliation of these non-GAAP measures to the most directly comparable IFRS measures as contained within the Company's issued financial statements.

C1 Cash Cost Per Payable Pound Sold

C1 cash cost per payable pound sold is a non-GAAP measure and represents the cash cost incurred at each processing stage, from mining through to recoverable metal delivered to customers, less by-product credits. Royalties, depreciation, and depletion are excluded from the calculation of C1 cash cost per payable pound sold. The costs included in this definition comprise mine site operating and general and administrative costs, freight, treatment and refining charges, less by-product credits.

By-product credits are an important factor in determining the C1 cash costs per pound. The Company produces by-product metals, gold and silver, incidentally to zinc and copper production activities. Gold and silver are considered to be by-products as they generally represent less than 20% of revenues from concentrate.

Additionally, copper metal may also be considered a by-product in relation to zinc sales given that revenue from sales of copper concentrate may range from 20% to 30% of total revenue. Therefore, the Company has presented its C1 cash cost per payable pound sold of zinc on both a by-product basis (with gold, silver and copper as by-products), and on a co-product basis (with gold and silver as by-products). The presentation of both methods is intended to provide another illustrative representation of the net cost of zinc production at the Bisha Mine. Copper by-product credits are expected to vary period to period as sales quantities of copper concentrate may differ between quarters based on production quantities and the timing of shipments, and from metal prices movements.

The cash cost per payable pound sold will vary depending on the volume of by-product credits and the relative price of the by-products. The C1 cash cost per payable pound sold is calculated by dividing the total costs, net of the by-product credits, by payable pounds of metal sold. The calculation method is consistent on a period to period basis for purposes of meaningful comparison.

(in thousands of US dollars, except per pound amounts)
	Zinc (copper as by-product)
	Q3 2018				Q3 2017				YTD 2018				YTD 2017
C1 cash cost per payable pound	Total		Per pound		Total		Per pound		Total		Per pound		Total		Per pound
Pounds of payable metal sold (millions)				44.4				43.4				151.6				130.6
Operating expenses and selling costs	$	40,382	$	0.91	$	34,112	$	0.78	$	127,501	$	0.84	$	112,467	$	0.86
Add:
Concentrate treatment and refining charges		1,291		0.03		2,863		0.07		3,686		0.02		10,445		0.08
Less:
Concentrate by-product credits		(10,268)		(0.23)		(4,296)		(0.10)		(30,638)		(0.20)		(19,792)		(0.15)
Total C1 cash cost	$	31,405		0.71	$	32,679		0.75	$	100,549	$	0.66	$	103,120		0.79

(in thousands of US dollars, except per pound amounts)
	Zinc (co-product)								Copper (co-product)
	Q3 2018				Q3 2017				Q3 2018				Q3 2017
C1 cash cost per payable pound	Total		Per pound		Total		Per pound		Total		Per pound		Total		Per pound
Pounds of payable metal sold (millions)				44.4				43.4				9.3				3.1
Operating expenses and selling costs	$	40,382	$	0.91	$	34,112	$	0.78	$	17,238	$	1.85	$	6,114	$	1.96
Add:
Concentrate treatment and refining charges		1,291		0.03		2,863		0.07		3,318		0.36		1,605		0.52
Less:
Concentrate by-product credits		(148)		-		(316)		(0.01)		(5,890)		(0.63)		(2,447)		(0.78)
Total C1 cash cost	$	41,525	$	0.94	$	36,659	$	0.84	$	14,666	$	1.58	$	5,272	$	1.70

(in thousands of US dollars, except per pound amounts)
	Zinc (co-product)								Copper (co-product)
	YTD 2018				YTD 2017				YTD 2018				YTD 2017
C1 cash cost per payable pound	Total		Per pound		Total		Per pound		Total		Per pound		Total		Per pound
Pounds of payable metal sold (millions)				151.6				130.6				21.4				10.8
Operating expenses and selling costs	$	127,501	$	0.84	$	112,467	$	0.86	$	39,138	$	1.82	$	20,926	$	1.94
Add:
Concentrate treatment and refining charges		3,686		0.02		10,445		0.08		8,320		0.39		4,908		0.45
Less:
Concentrate by-product credits		(1,855)		(0.01)		(7,640)		(0.06)		(14,652)		(0.68)		(8,311)		(0.77)
Total C1 cash cost	$	129,332	$	0.85	$	115,272	$	0.88	$	32,806	$	1.53	$	17,523	$	1.62

Reconciliation of Realized Metal Prices

	Zinc				Copper
(in thousands of US dollars, unless otherwise noted)	Q3 2018		Q3 2017		Q3 2018		Q3 2017
Total concentrate sales	$	45,393	$	62,228	$	24,786	$	9,252
Add (less):
Provisional and final pricing and quantity losses (gains) on concentrate sales		4,799		(2,450)		1,464		227
Concentrate sales, before pricing adjustments	$	50,192	$	59,778	$	26,250	$	9,479
Pound of payable metal sold (millions)		44.4		43.4		9.3		3.1
Realized price per payable pound sold, before pricing adjustments ($/lb)	$	1.13	$	1.38	$	2.82	$	3.06
Provisional and final pricing and quantity adjustments per payable pound sold ($/lb)	$	(0.11)	$	0.06	$	(0.16)	$	(0.07)
Realized price per payable pound sold ($/lb)	$	1.02	$	1.44	$	2.66	$	2.99
LME average price per pound ($/lb)	$	1.15	$	1.34	$	2.77	$	2.88

	Zinc				Copper
(in thousands of US dollars, unless otherwise noted)	YTD 2018		YTD 2017		YTD 2018		YTD 2017
Total concentrate sales	$	188,674	$	169,786	$	61,589	$	29,675
Add (less):
Provisional and final pricing and quantity losses (gains) on concentrate sales		19,670		74		2,170		(459)
Concentrate sales, before pricing adjustments	$	208,344	$	169,860	$	63,759	$	29,216
Pound of payable metal sold (millions)		151.6		130.6		21.4		10.8
Realized price per payable pound sold, before pricing adjustments ($/lb)	$	1.37	$	1.30	$	2.98	$	2.71
Provisional and final pricing and quantity adjustments per payable pound sold ($/lb)	$	(0.13)	$	-	$	(0.10)	$	0.04
Realized price per payable pound sold ($/lb)	$	1.24	$	1.30	$	2.88	$	2.75
LME average price per pound ($/lb)	$	1.37	$	1.26	$	3.01	$	2.70

OTHER INFORMATION AND ADVISORIES

Financial Instruments and Risk Management

A description of financial instruments and types of risks that the Company is exposed to and its objectives and policies for managing such risks is included in the Company’s Amended Annual Information Form for the year ended December 31, 2017, dated April 19, 2018, which is available on SEDAR at www.sedar.com.

The Company’s zinc and copper concentrates sales receivables and amounts refundable are carried at fair value as the receivables and payables are derivatives due to the provisional pricing of these sales contracts. The receivables and payables are measured using quoted forward market prices that correspond to the settlement date of the provisional pricing period for the estimated metals contained within the zinc and copper concentrates or direct shipment sales. There were no changes to the method of fair value measurement during the period. The Company’s zinc and copper concentrate trade receivables are carried at fair value. The fair values of the Company’s other financial assets and financial liabilities approximate their carrying amounts in the condensed consolidated interim balance sheet.

Critical Accounting Policies and Estimates

The Company's consolidated annual financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB). The significant accounting policies applied, and recent accounting pronouncements are described in Note 3 and Note 4 to the Company's 2017 annual consolidated financial statements, respectively, except as discussed below.

In preparing the condensed consolidated interim financial statements in accordance with IAS 34 – Interim Financial Reporting, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control. Actual results could differ from those estimates. Management reviews its estimates and assumptions on an ongoing basis using the most current information available. Revisions to estimates and the resulting effects on the carrying values of the Company’s assets and liabilities are accounted for prospectively. For a description of the critical judgements in application of accounting policies and information about assumptions and estimation uncertainties, refer to the Company’s MD&A for the year ended December 31, 2017, which is available on SEDAR at www.sedar.com.

Accounting Changes and Recent Accounting Pronouncements

The accounting policies applied in the condensed consolidated interim financial statements for the three and nine months ended September 30, 2018 are the same as those applied in the Company’s audited consolidated financial statements for the year ended December 31, 2017, except as otherwise indicated. Refer to note 1 to the condensed consolidated interim financial statements for the three and nine months ended September 30, 2018 for information on accounting pronouncements adopted in 2018 as well as issued accounting pronouncements that will be effective in future periods.

Effective December 31, 2017, the Company implemented a voluntary change in accounting policy with respect to exploration and evaluation expenditures. As such, certain prior period amounts within this management’s discussion and analysis have been restated in accordance with the new policy. Refer to note 12 of the Company’s condensed consolidated interim financial statements for the three and nine months ended September 30, 2018 and to note 27 of the Company’s audited consolidated financial statements for the year ended December 31, 2017 for additional disclosure regarding the effects of the change.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the period ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations of Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Quality Assurance

Mr. Peter Manojlovic, P.Geo, and Vice President Exploration of Nevsun Resources Ltd. is a Qualified Person under the terms of NI 43-101 and has reviewed the exploration and mineral resource and reserve statements of this MD&A and approved its dissemination.

Forward Looking Statements

This management’s discussion and analysis contains forward-looking statements or forward-looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995, and applicable Canadian securities laws. All statements, other than statements of historical facts, are forward looking statements including statements with respect to the Company’s Bisha Mine in Eritrea, 2018 zinc and copper by-product production guidance, its intentions for its Timok Upper Zone Project in Serbia (the “Timok Project”) including timing for release of the Feasibility Study and the outcome of the Zijin offer to Nevsun Shareholders to acquire all of the issued and outstanding shares of Nevsun for C$6.00 per share in cash. The Company also cautions the reader that the PEA previously released in September 2017 and the PFS released in March 2018 on the Timok Project that support the technical feasibility or economic viability of the Timok Project, including the marketability of the concentrate, mining method, costs, processing, metal recoveries and any other technical aspects related to the Timok Project, are preliminary in nature and there is no certainty that the PEA or the PFS will be realized.

The 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. These risks, uncertainties and factors include general business, legal, economic, competitive, political, regulatory and social uncertainties; actual results of exploration activities and economic evaluations; fluctuations in currency exchange rates; changes in project parameters; changes in costs, including labour, infrastructure, operating and production costs; future prices of copper, gold, zinc, silver and other minerals; resource estimates and variations of mineral grade or recovery rates; metallurgical challenges on the variable ore materials being processed and if the significant improvements in recovery rates of zinc and copper will be maintained or that recoveries to initial design levels will be achieved; the ability to extend mine life beyond the current mine plans; operating or technical difficulties in connection with exploration; land acquisition; mining method, production profile and mine plan; other development or mining activities, including the failure of plant, equipment or processes to operate as anticipated; performance on ore production and waste movement and improvement in mining capability; delays in exploration, development and construction activities including commencement of the decline construction as planned; changes in government legislation and regulation; the ability to maintain and renew existing licenses and permits and the ability to obtain other required licences and permits in a timely manner or at all; the ability to obtain financing on acceptable terms and in a timely manner or at all; contests over title to properties; employee relations and shortages of skilled personnel and contractors; the ultimate outcome of various claims and litigation, the speculative nature of, and the risks involved in, the exploration, development and mining business including, without limitation, other risks that are more fully described in the Company’s Amended Annual Information Form for the fiscal year ended December 31, 2017 (the “AIF”) and the Company’s management discussion and analysis for the fiscal year ended December 31, 2017 (the “MD&A”), which are 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 the Company’s forward-looking statements.

NYSE American Corporate Governance

The Company’s common shares are listed on NYSE American. Section 110 of the NYSE American company guide permits NYSE American to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE American listing criteria, and to grant exemptions from NYSE American listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Company’s governance practices differ from those followed by U.S. domestic companies pursuant to NYSE American standards is posted on the Company’s website at http://www.nevsun.com/corporate/governance/nyse/ and a copy of such description is available by written request made to the Company.

Cautionary Note Regarding Preparation of Mineral and Reserves and Resources

The disclosure in this Management’s Discussion and Analysis uses mineral resource and mineral reserve classification terms that comply with Canadian securities laws that differ in certain material respects from the requirements of United States securities laws. Disclosure has been made in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum’s Classification System. The NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. These standards differ significantly from the disclosure requirements of the SEC.

The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” in documents filed with the SEC, unless such information is required to be disclosed by the law of the Company’s jurisdiction of incorporation or of a jurisdiction in which its securities are traded. Consequently, mineral resource and mineral reserve information contained in this Management’s Discussion and Analysis is not comparable to similar information that would generally be disclosed by U.S. companies in accordance with the rules of the SEC.

The SEC’s Industry Guide 7 applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in Industry Guide 7. Under SEC standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Accordingly, mineral reserve estimates contained in this Management’s Discussion and Analysis may not qualify as “reserves” under SEC standards.

This Management’s Discussion and Analysis uses the terms “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” to comply with the reporting standards in Canada. The SEC’s Industry Guide 7 does not recognize these terms and U.S. companies are generally not permitted to use these terms in documents they file with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into SEC defined mineral “reserves.” Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically.

Therefore, investors are also cautioned not to assume that all or any part of an inferred mineral resource exists. In accordance with reporting standards in Canada, estimates of “inferred mineral resources” cannot form the basis of feasibility or other economic studies, except in rare cases. In addition, disclosure of “contained ounces” or “contained pounds” in a mineral resource estimate is permitted disclosure under NI 43-101 provided that the grade or quality and the quantity of each category is stated; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Accordingly, information concerning descriptions of mineralization and resources contained in this Management’s Discussion and Analysis may not be comparable to information made public by US domestic companies subject to the reporting and disclosure requirements of the SEC.

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Peter G. Kukielski, Chief Executive Officer of Nevsun Resources Ltd., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Nevsun Resources Ltd. (the “issuer”) for the interim period ended September 30, 2018.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	*Control framework:* The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2	ICFR – material weakness relating to design: N/A

5.3	*Limitation on scope of design:* N/A

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: October 25, 2018

/s/ Peter G. Kukielski

_______________________

Peter G. Kukielski

Chief Executive Officer

Form 52-109F2

Certification of Interim Filings

Full Certificate

I, Ryan MacWilliam, Chief Financial Officer of Nevsun Resources Ltd., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Nevsun Resources Ltd. (the “issuer”) for the interim period ended September 30, 2018.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1	*Control framework:* The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2	ICFR – material weakness relating to design: N/A

5.3	*Limitation on scope of design:* N/A

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2018 and ended on September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: October 25, 2018

/s/ Ryan MacWilliam

_______________________

Ryan MacWilliam

Chief Financial Officer

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 6-K NEVSUN RESOURCES LTD For: Sep 30

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed