"AN AFRICAN QUEEN"

AN AFRICAN QUEEN

Forty years ago, when Prime Minister Macmillan gave independence to twenty-two African nations and delivered his famous speech in Cape Town, The Winds of Change, Africa actually began a long-term decline. The African characteristic was fighting. The fighting was not against the whites; it was actually among the various tribes, with tragic results in the rate of death and rate of poverty, and rate of AIDS.

It is only recently, maybe at the initiative of Prime Minister Blair, that the West began to take an interest in Africa. Apart from enormous amounts of medical help, Africa has tremendous potential in generating monies via its mining discoveries and developments. In July, 2005, the G-8, the eight richest nations, awarded an annual aid to Africa of about $50 billion and various other subsidiary aids, mainly again through medical organizations.

Africa in a way can be considered as the greatest leveraged buy-out (LBO) in the world. Its various resources generate cash and the amount of cash it generates can create miracles in developing an infrastructure and giving work to people and bringing along modern civilization. The issue is when would Africa be self-sufficient and healthy? The individual projects such as the aluminum project in Guinea gold projects in Ghana, require a little bit more than capital, foreign expertise and organization. The successful development project can generate a $100-200-300 million annual cash flow, which is a very large amount compared to the GNP of an individual country. That points out that the rate of return for outside investments to a peaceful spot in Africa may have a ratio far larger than that in Canada, Australia, or other parts of the world.

In the year 2005, the year after President Bush's trip to Africa where he allocated $15 billion to find a cure for AIDS, the winds of change are blowing through Africa again. On this occasion, it is for development, infrastructure, education, health. In other words, it is a wind of change towards civilization.

Let us compare the potentials of Africa with President Nixon's trip to China in 1972. If anyone invested a thousand dollars in Shanghai real estate in 1972, assuming the investment was available, the rate of return would only be greater when Christopher Columbus bought Manhattan. The year 2005 is more advanced than China in 1972. For instance, Chinese capital, which is probably the largest in the world--$800 billion in dollar terms alone--is already building resource spots in Africa. Capital is entering Africa at a very fast pace. I venture to suggest that in ten or fifteen years, travel agents in Manhattan and Paris would be active in African tours and real estate agents would be flying potential buyers to at least twenty countries in Africa.

Africa has everything. Nevsun Resources Ltd. Is a pure gold play with facilities in Mali and Entera on the east side. It is a gold mining country in West Africa and the East Coast. Nevsun will start delivering gold in the third or fourth quarter of 2005 and reach very soon the rate of 105,000 ounces of gold. At a $400 gold price and five years of production, we are talking of a potential revenue potential of $200 million. Even after a construction cost of $140 million, but developing new resources besides the current Mali project, we can consider a surplus capital after six, seven or eight years of well over a hundred million dollars.

The Entera project called Bisha, on the Red Sea, is more complex. It is estimated that two years the project will provide a million ounces of gold every year, subsequently for another two years about 600 million pounds of copper, and subsequently for seven years, 1,680,000 pounds of zinc and some copper would be the total exploration. It is estimated that upon conversion, we are talking of seven million ounces of gold, which at a $500 level represents a total revenue base of $3.5 billion minus construction yearly operating costs.

The total gross revenue in 7 years is $4.0B. In contrast, the current GNP of Mali is $3.0 billion and that of Entera is $1.7 billion.

NSU is a Westernized company. It's a public company listed on the American Stock Exchange. It has 76,000,000 shares outstanding and 11,000,000 warrants. In other words, it has a market capitalization of $160 million. It has access to the capital markets and it's also actively traded in its native Canada. The company is modern in a sense that it is a public corporation. It raises money in the developed part of the world in the capital markets. It invests in Africa. It produces an international commodity, and it expects to accumulate cash under the Western-listed or U.S.-listed capital umbrella. $4B undiscounted revenue, in contrast to a current $200 million market cap, cannot be all bad. Calculate gold at $800!

In the process of dealing with the total potential valuation of $4 billion, the company in its very process contributes to the infrastructure and the employment of many African citizens. The valuation of such a company is subdued in a sense because on a discounted cash flow basis, you will probably come out with $5.00-7.00 per share. But because it's an African-based producer, the number is much smaller. For investors, it is very important to notice that since NSU is in what we call a peaceful part of the continent, Mali and Eritrea. They are involved in geological trends, developing features of the respective countries would lead to a greater valuation of the stock, particularly as production begins

Below we list a Mali project which is quite near to production level and the valuation, which is totally ours, indicates that the Mali project alone is worth over $3.00 per share.

Our assumption is that the announced production of 105,000 ounces could become bigger and longer in five years. After all, NSU is in unchartered waters in Africa, and therefore the numbers are quoted on the low side. The corporate structure is simple.

We call the Nevsun Company the corporate version of the African Queen. It's a simple company, it's a developing company. It serves the continent. It creates value, and in fact very big value, for the stockholders. We go from here. There may be twenty-five similarly structured companies operating in Africa today, but in ten years' time there may be a hundred. If Africa becomes a favorite mining area to the civilized world and capital attracts foreign investment for the infrastructure, we could only advise the stockholders to hold the stock until all the good news is in, good news which has only yet begun.

(Article 2 - posted August 11, 2005)

e-mail: mlikar@aol.com

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