In the second quarter of 2016 (Q2) Canadian mining company, Nevsun Resources Ltd (Nevsun), abandoned the production of copper concentrate. This created Q3 copper production numbers that were lower than its projected quarterly goal.

Nevsun is engaged in mining mineral resources. Its main asset is Bisha Mine, located in Eritrea. The North-East African country borders the Red Sea which makes it a strategic location in that region for the flow of exports to markets in Asia and Europe. Bisha Mine specializes in mining gold, copper and zinc resources. The mine began commercial production of gold in 2011.

As planned, Nevsun moved from its gold production phase to copper production phase in 2013. However, the third quarter Management Discussion and Analysis shows the company transitioned from the commercial production of copper to zinc earlier than expected. Transitioning generally occurs when the extracted mineral resource no longer produces a commercially saleable concentrate. In this case, commercial copper production ceased once saleable copper concentrates depleted.

Nevsun’s 2016 objective was to produce 40 to 60 million pounds of copper from primary ore. However, the company’s Progress Update declared it would be unable to meet copper production goals for the second half of the year. In Q3 the company faced a 33 per cent decline in revenue compared to its nine month ended September 2015 numbers and a 67 per cent decline in revenue compared to its three month ended September 2015 numbers. This can be traced back to the depreciation and depletion numbers which increased by 93 per cent as compared to three months ended in September 2015 and 34 per cent as compared to nine months ended in September 2015.

So, how did Nevsun miss its copper target? Working with mineral resources is a calculated risk. In the mining industry, there is a distinction between “mineral reserves” and “mineral resources.” While a mineral reserve illustrates known amounts of concentrated minerals ready for extraction, the term “mineral resources” merely suggests there’s a strong potential for the extraction of mineral concentrates. Though mineral resources offer a strong incentive to extract concentrates, there’s an implication that it may not be possible. Therefore, the challenges faced by Nevsun’s commercial copper production were part of a known risk factored into the mineral resource trade.

Since this challenge is an anticipated risk of the mineral resource industry, Nevsun was able to adapt to its circumstance. In lieu of the ability to export a commercially saleable copper concentrates in Q2 the company found itself speeding up the process to access zinc concentrates. Despite the challenges, the company saw a 33 per cent increase in total assets. This is due to its acquisition of a new mining project in Serbia.

Nevsun also boasts an operating income of $17.5 million in Q3 2016, a 207% increase from operating income of $5.7 million generated in Q3 2015. The Company recorded operating expenses of $2.4 million in Q3 2016 compared $50.1 million to during the same quarter last year. A 54 per cent decrease in described by Nevsun as it being related to the more expensive “pre-commercial production” phase of the mining process took place in the previous quarters.

While operational expenses went down, administrative expenses went way up. Administrative expenses rose by 304 per cent compared to the same time last year. The company explained that this is due to an increase in valuation of the company’s shares. Administrative expenses were made up of increases to employee salaries, benefits and long-term incentive compensation.

Nevsun may have faced challenges in its production of copper concentrates but the company’s expansion into mines in Serbia shows signs of continuing to do business by sticking to the minerals it knows best.

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