****

**ANNUAL INFORMATION FORM**

**For the fiscal year ended December 31, 2011**

**March 28, 2012**

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**TABLE OF CONTENTS**

| **PRELIMINARY NOTES **                                          | **iii**                                                 |
|----------------------------------------------------------------------|---------------------------------------------------------|
| Incorporation of Financial Statements and MD&A              | iii                                                     |
| Forward Looking Statements                                      | iii                                                     |
| Information Concerning Preparation of Reserve and Resource Estimates | iii                                                     |
| Glossary and Defined Terms                                           | iv                                                      |
| Reporting Currency                                              | viii                                                    |
| **ITEM 1.  **                                                   | **CORPORATE STRUCTURE**                                 | **1** |
| 1.1                                                                  | Nameand Incorporation                              | 1 |
| 1.2                                                                  | IntercorporateRelationships                        | 1 |
| **ITEM 2.**                                                          | **GENERAL DEVELOPMENT OF THE BUSINESS**                 | **2** |
| 2.1                                                                  | ThreeYear History                                       | 2 |
| 2.2                                                                  | SignificantAcquisitions and Dispositions                | 3 |
| **ITEM 3.**                                                          | **DESCRIPTION OF THE BUSINESS**                         | **3** |
| 3.1                                                                  | General                                                 | 3 |
| 3.2                                                                  | Risk Factors                                            | 5 |
| 3.3                                                                  | Mineral Properties:  Bisha, Eritrea                | 13 |
| **ITEM 4.**                                                          | **DIVIDENDS**                                           | **13** |
| **ITEM 5.**                                                          | **DESCRIPTION OF CAPITAL STRUCTURE**                    | **28** |
| **ITEM 6.**                                                          | **MARKET FOR SECURITIES**                               | **28** |
| 6.1                                                                  | Market for Securities                                   | 28 |
| **ITEM 7.**                                                          | **DIRECTORS AND OFFICERS**                              | **29** |
| 7.1                                                                  | Name,Occupation and Security Holding                    | 29 |
| 7.2                                                                  | CeaseTrade Orders, Bankruptcies, Penalties or Sanctions | 29 |
| 7.3                                                                  | Conflictsof Interest                                    | 31 |
| 7.4                                                                  | AuditCommittee                                          | 32 |
| **ITEM 8.**                                                          | **LEGALPROCEEDINGS AND REGULATORY ACTIONS**             | **35** |
| **ITEM 9.**                                                          | **INTEREST OF MANAGEMENT AND OTHERS IN TRANSACTIONS**   | **35** |
| **ITEM 10.**                                                         | **TRANSFER AGENTS AND REGISTRARS**                      | **36** |
| **ITEM 11.**                                                         | **MATERIAL CONTRACTS**                                  | **36** |
| **ITEM 12.**                                                         | **NAMES AND INTERESTS OF EXPERTS**                      | **36** |
| **ITEM 13.**                                                         | **ADDITIONAL INFORMATION**                              | **36** |
| 13.1                                                                 | AdditionalInformation                                   | 39  |

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**PRELIMINARY NOTES**

**Incorporation of FinancialStatements and MD&A**

The following documents are incorporated by reference andform part of this annual information form (the “Annual Information Form” or“AIF”) which is prepared in accordance with Form 51-102F2 – *AnnualInformation Form*(“Form 51-102F2”).  These documents may be accessed usingthe System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com: 

Consolidated financial statements for the year endedDecember 31, 2011, together with the auditors’ report thereon dated March 20, 2012;

Management’s discussion and analysis (“MD&A”) for theyear ended December 31, 2011; and

News Release dated February 7, 2012 entitled “Nevsun 2012Outlook Including Production Guidance”.

**Forward Looking Statements**

This report contains forward-looking statements concerninganticipated developments in the Company’s continuing operations in Eritrea andin the putative class action lawsuit, the adequacy of the Company’s financialresources, the potential to expand resources, reserves and mine life, dividendpolicy, financial projections, including, but not limited to, estimates ofcapital and operating costs, mining activities, production, grades, processingrates, life of mine, net cash flows, metal prices, exchange rates, reclamationcosts, results of the drill program, the conversion of mineral properties to reservesand resources and other events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by wordssuch as “expects,” “anticipates,” “believes,” “intends,” “estimates,”“potential,” “possible,” “budget” and similar expressions, or statements thatevents, conditions or results “will,” “may,” “could” or “should” occur or beachieved.  Information concerning the interpretation of drill results and mineralresource and reserve estimates also may be deemed to be forward-lookingstatements, as such information constitutes a prediction of what mineralizationmight be found to be present if and when a project is actually developed. Forward-looking statements are statements about the future and are inherentlyuncertain, and actual achievements of the Company or other future events orconditions may differ materially from those reflected in the forward-lookingstatements due to a variety of risks, uncertainties and other factors,including, without limitation, those described in this Annual Information Form.

The Company’s forward-looking statements are based on thebeliefs, expectations and opinions of management on the date the statements aremade and the Company assumes no obligation to update such forward-lookingstatements in the future, except as required by law.  For the reasons set forthabove, investors should not place undue reliance on forward-looking statements.

**Information Concerning Preparation of Reserve and ResourceEstimates**

All reserve and resource estimates included orincorporated by reference in this Annual Information Form have been prepared inaccordance with Canadian National Instrument 43-101 - *Standards ofDisclosure for Mineral Projects*(“NI 43-101”) and the Canadian Institute ofMining, Metallurgy and Petroleum’s Classification System. These standardsdiffer significantly from the requirements of the United States Securities andExchange Commission (the “SEC”). Under SEC Industry Guide 7, mineralization maynot be classified as a “reserve” unless the determination has been made that is“part of a mineral deposit

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which could be economically and legally extracted orproduced at the time of the reserve determination”. In addition, the term “resource”does not equate to the term “reserve”. The SEC’s disclosure standards normallydo not permit the inclusion of information concerning “measured mineralresources”, “indicated mineral resources” or “inferred mineral resources” indocuments filed with the SEC, unless such information is required to bedisclosed by the law of the Company’s jurisdiction of incorporation or of ajurisdiction in which its securities are traded. Accordingly, informationconcerning descriptions of mineralization and resources contained in thisAnnual Information Form or incorporated by reference may not be comparable toinformation made public by U.S. companies subject to the reporting anddisclosure requirements of the SEC.

**Glossary and Defined Terms**

The following is a glossary of certain mining terms usedin this Annual Information Form.

| alteration: | Refers toprocess of changing primary rock minerals (such as quartz, feldspar andhornblende) to secondary minerals (quartz, carbonate, and clay minerals) byhydrothermal fluids (hot water). |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| breccia: | Arock in which angular fragments are surrounded by a mass of fine-grainedminerals. |
|----------|------------------------------------------------------------------------------------|

| CIL (Carbon-in-leach): | Aprocess where soluble complexes of gold and silver attach (without a chemicalreaction) to the surfaces of activated carbon particles. |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| CIM: | CanadianInstitute of Mining, Metallurgy and Petroleum. |
|------|--------------------------------------------------------|

| concentrate: | Powdery productof high grade ore which has the majority of the waste (gangue) removed. |
|--------------|----------------------------------------------------------------------------------------|

| deposit: | Naturalmineralization under the ground in sufficient quantities to warrant furtherstudies. |
|----------|--------------------------------------------------------------------------------------------|

| doré: | A semi-purealloy of gold and silver, usually created at the site of a mine. It is thentransported to a refinery for further purification. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| feasibility study: | A FeasibilityStudy is a comprehensive technical and economic study of the selecteddevelopment option for a mineral project that includes appropriately detailedassessments of realistically assumed mining, processing, metallurgical,economic, marketing, legal, environmental, social and governmentalconsiderations together with any other relevant operational factors anddetailed financial analysis, that are necessary to demonstrate at the time ofreporting that extraction is reasonably justified (economically mineable). Theresults of the study may reasonably serve as the basis for a final decision bya proponent or financial institution to proceed with, or finance, thedevelopment of the project. The confidence level of the study will be higherthan that of a Pre-Feasibility Study. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| flotation: | Millingprocess that uses bubbles to capture valuable minerals particles that float tothe surface, thereby separating them from waste which sinks to the bottom. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g/t or gpt: | Gramsper metric tonne. |
|-------------|------------------------|

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| geotechnical work: | Tasks that providerepresentative data of the geological rock quality in a known volume. |
|--------------------|-----------------------------------------------------------------------------------------|

| gossan: | Aniron-bearing weathered product overlying a sulphide deposit. It is formed bythe oxidation of sulphides and the leaching-out of the sulphur and most metals,leaving hydrated iron oxides and rarely sulphates. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| gravity: | A methodologyusing instrumentation allowing the accurate measuring of the difference betweendensities of various geological units in situ. |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------|

| lithologic: | Pertaining tolithology. |
|-------------|-------------------------|

| lithology: | The study ofrocks, with particular emphasis on their description and classification. |
|------------|--------------------------------------------------------------------------------------|

| mineralogic: | Pertaining tomineralogy |
|--------------|-------------------------|

| mineralogy: | The study ofchemistry, crystal structure, and physical (including optical) properties ofminerals. Specific studies within mineralogy include the processes of mineralorigin and formation, classification of minerals, their geographicaldistribution, as well as their utilization. |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| mineral reserve: | The economicallymineable part of a measured mineral resource or indicated mineral resourcedemonstrated by at least a preliminary feasibility study.  This study mustinclude adequate information on mining, processing, metallurgical, economic andother relevant factors that demonstrate, at the time of reporting, thateconomic extraction can be justified.  A mineral reserve includes dilutingmaterials and allowances for losses that may occur when the material is mined. |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| probable mineral reserve: | The economically mineablepart of an indicated mineral resource and, in some circumstances, a measuredmineral resource demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, processing,metallurgical, economic, and other relevant factors that demonstrate, at thetime of reporting, that economic extraction can be justified. |
|---------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| proven mineral reserve: | The economicallymineable part of a measured mineral resource demonstrated by at least apreliminary Feasibility Study.  This study must include adequate information onmining, processing, metallurgical, economic, and other relevant factors thatdemonstrate, at the time of reporting, that economic extraction is justified. |
|-------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The terms“mineral reserve”, “proven mineral reserve”, “probable mineral reserve”,“measured mineral resource”, “indicated mineral resource” and “inferred mineralresource” used in this Annual Information Form are Canadian mining terms asdefined in accordance with NI 43-101 under the guidelines set out in the CIM’sDefinition Standards on Mineral Resources and Mineral Reserves adopted by theCIM Council, as those definitions may be amended from time to time by CIM (the“CIM Standards”). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Under SEC Industry Guide 7, a mineral “reserve” isdefined as a part of a mineral deposit which could be economically and legallyextracted or produced at the time the mineral reserve determination is made, where:*

-  A “final” or “bankable” feasibility study is required to meetthe requirements to designate reserves;   
-  A historic three year average price is to be used in any reserveor cash flow analysis to designate reserves; and   
- To meet the “legal” part of the reserve definition, theprimary environmental analysis or document should have been submitted togovernmental authorities.

*Mineral reserves are categorized as follows on thebasis of the degree of confidence in the estimate of the quantity and grade ofthe deposit.*

*Information contained or incorporated by reference inthis report concerning descriptions of reserves under Canadian standards maynot be comparable to similar information made public by U.S. companies subjectto reporting and disclosure requirements of the SEC. Under SEC Industry Guide7, proven or measured reserves are defined as reserves for which (a) quantityis computed from dimensions revealed in outcrops, trenches, workings or drillholes; (b) grade and/or quality are computed from the results of detailedsampling and (c) the sites for inspection, sampling and measurement are spaced soclosely and the geographic character is so well defined that size, shape, depthand mineral content of reserves are well established.*

*Under SEC Industry Guide 7, probable or indicated reservesare defined as reserves for which quantity and grade and/or quality arecomputed from information similar to that of proven reserves (as defined underSEC Industry Guide 7), but the sites for inspection, sampling, and measurementare further apart or are otherwise less adequately spaced. The degree ofassurance, although lower than that for proven mineral reserves, is high enoughto assume continuity between points of observation.*

| mineral resource: | A concentration or occurrence of diamonds, natural solid inorganic material, ornatural solid fossilized organic material including base and precious metals,coal and industrial minerals in or on the earth’s crust in such form andquantity and of such a grade or quality that it has reasonable prospects foreconomic extraction. The location, quantity, grade, geological characteristicsand continuity of a mineral resource are known, estimated or interpreted fromspecific geological evidence and knowledge. |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| inferred mineral resource: | That part of a mineral resource for which quantity and grade or qualitycan be estimated on the basis of geological evidence and limited sampling andreasonably assumed, but not verified, geological and grade continuity. Theestimate is based on limited information and sampling gathered throughappropriate techniques from locations such as outcrops, trenches, pits,workings and drill holes. |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| indicated mineral resource: | That part of a mineral resource for which quantity, grade or quality,densities, shape and physical characteristics can be estimated with a level ofconfidence sufficient to allow the appropriate application of technical andeconomic parameters, to support mine planning and evaluation of the economicviability of the deposit. The estimate is based on detailed and reliableexploration and testing information gathered through appropriate techniquesfrom locations such as outcrops, trenches, pits, workings and drill holes thatare spaced closely enough for geological and grade continuity to be reasonablyassumed. |
|-----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| measured mineral resource: | That part of a mineral resource for which quantity, grade or quality,densities, shape, physical characteristics are so well established that theycan be estimated with confidence sufficient to allow the appropriateapplication of technical and economic parameters, to support productionplanning and evaluation of the economic viability of the deposit. The estimateis based on detailed and reliable exploration, sampling and testing informationgathered through appropriate techniques from locations such as outcrops,trenches, pits, workings and drill holes that are spaced closely enough toconfirm both geological and grade continuity. |
|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*While the terms “mineral resource,” “measured mineralresource,” “indicated mineral resource,” and “inferred mineral resource” arerecognized and required by Canadian regulations, they are not defined termsunder SEC Industry Guide 7. As such, information contained or incorporated byreference in this report concerning descriptions of mineralization andresources under Canadian standards may not be comparable to similar informationmade public by U.S. companies subject to the reporting and disclosurerequirements of the SEC. “Inferred mineral resources” have a great amount ofuncertainty as to existence and a great uncertainty as to economic and legalfeasibility. It can not be assumed that all or any part of an “inferred mineralresource” will ever be upgraded to a higher category. Investors are cautionednot to assume that any part or all of mineral deposits in these categories willever be converted into mineral reserves***.**

| mineralization: | Ananomalous occurrence of metal or other commodity of value defined by any methodof sampling (surface outcrops, drill core, underground channels). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| multiple indicator kriging: | The probability in thedistribution of values using deciles that are transformed to 1, if equal orless than the value or 0, if greater than the value, used to determine theaverage of a group of values. |
|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ore: | Rock,generally containing metallic or non-metallic materials, which can be mined andprocessed at a profit. |
|------|------------------------------------------------------------------------------------------------------------|

| pyrite: | Aniron sulphide mineral (FeS2), the most common naturally occurring sulphidemineral. |
|---------|--------------------------------------------------------------------------------------|

| reserve: | see“mineral reserve” |
|----------|----------------------------------|

| resource: | see“mineral resource” |
|-----------|-----------------------------------|

| ROM (Run of mine): | Material from a mine thathas not been crushed or screened. |
|--------------------|------------------------------------------------------------|

| sphalerite: | Zinc sulphide mineral(Zn Fe)S. |
|-------------|--------------------------------|

| strike: | Thedirection, or bearing from true north, of a vein or rock formation measured ona horizontal surface. |
|---------|--------------------------------------------------------------------------------------------------------|

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| sulphide (sulfide): | Acompound of sulphur (sulfur) and some other metallic element. |
|---------------------|----------------------------------------------------------------|

| supergene: | A word suggestingan origin literally “from above”. It is used almost exclusively for processesinvolving water, with or without dissolved material, percolating down from thesurface. Typical supergene processes are solution, hydration, oxidation,deposition from solution, reactions of ions in solution with ions in existingminerals (replacement or enrichment). |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| tailings: | Gangueminerals extracted from ore through various mineral processes and deposited inan enclosed ground storage area. |
|-----------|----------------------------------------------------------------------------------------------------------------------|

| trenching: | The mechanicalor human excavation of ground material to expose material below surface. |
|------------|----------------------------------------------------------------------------------------|

| UTM: | The UniversalTransverse Mercator coordinate system. |
|------|-----------------------------------------------------|

| VMS: | Volcanic hostedmassive sulphides. |
|------|-----------------------------------|

| WGS84: | The WorldGeodetic System, 1984. |
|--------|---------------------------------|

**Reporting Currency**

**All dollar amounts are expressed in United Statesdollars unless otherwise indicated. **The Company’s quarterly and annualfinancial statements are presented in United States dollars.

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**ITEM 1.             CORPORATE STRUCTURE**

**1.1               Name and Incorporation**

The head office of NevsunResources Ltd. (“Nevsun” or the “Company”) is located at 800-1075 WestGeorgia Street, Vancouver, British Columbia, V6E 3C9 and the Company’s registeredand records office is located at 1000‐840 Howe Street, Vancouver,British Columbia, V6Z 2M1.

The Company was incorporated in British Columbia under the*Companies Act* (British Columbia) on July 19, 1965, originally underthe name of Hogan Mines Ltd. Since inception the Company has undergone fourname changes until December 19, 1991 when it adopted the name of NevsunResources Ltd. The Company is now governed by the *Business Corporations Act*(British Columbia).

**1.2               Intercorporate Relationships**

The following diagram explains the intercorporaterelationships among the Company and its subsidiaries; the name and place ofincorporation of each subsidiary; and the percentage of ownership by theCompany of each subsidiary.

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**ITEM 2.  GENERAL DEVELOPMENT OF THE BUSINESS**

**2.1Three Year History**

Nevsun is a gold and base metal mining and explorationcompany.  Its major achievement in the past three fiscal years was thecommencement of commercial production at its Bisha mine in Eritrea (the “BishaProject” or “Bisha”) early in 2011 with a strong safety record and substantialcash flow at year-end. The most significant activities impacting the Companyduring the three year period ended December 31, 2011 were:

|   | 1. | The production of 379,000 ounces of gold in 2011, Bisha’s first year ofoperation. |
|--------|----|-----------------------------------------------------------------------------------------|

|   | 2. | The Company declared its first two semi-annual dividends which were paid to shareholders in July 2011 and January 2012. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Thestart of civil works in June 2011 in preparation for construction of the secondphase copper plant. |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | 4. | Theadoption of a shareholder rights plan and subsequent ratification byshareholders at a Special Meeting in November, 2011. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Finalizationof the 30% purchase of Bisha Mining S.C. by the Eritrean National MiningCorporation (“ENAMCO”) in August, 2011. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | During2011 the successful completion of another phase of significant exploration anddevelopment drill programs at the Bisha Main Zone and hanging wall copper zoneadjacent to Bisha. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | In March 2011, a resource and reserve re-statement (effective date January 2011) of gold, copper, zinc and silver at Bisha. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|   | 8. | In2010, commencement of resource expansion drilling at the Harena deposit, 9 kmsouthwest of Bisha. |
|--------|----|----------------------------------------------------------------------------------------------------|

|   | 9. | InAugust 2010, the buy-out of a 1.5% Bisha net smelter return royalty. |
|--------|----|------------------------------------------------------------------------|

|   | 10. | In March 2010, thecommencement of pre-strip mining at Bisha. |
|--------|-----|--------------------------------------------------------------|

|   | 11. | In February 2010, theclosing of a Cdn$117 million non-brokered private placement to provide fundingto complete the Bisha construction, in lieu of debt facilities previouslyarranged. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12. | In December 2009, impositionof United Nations Security Council sanctions on Eritrea, thereby casting doubton the availability of the 2009 debt facilities. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 13. | In July 2009, theannouncement of debt facilities for the Bisha project totaling$235 million followed in October 2009 by the announcement of the closing of aCdn$32.8 million non-brokered private placement.  The debt facilitieswere never drawn. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 14. | In early 2009 the earlystages of Bisha construction with SENET (PTY) Ltd. of South Africa (“SENET”)and the placement of orders for critical equipment. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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On February 7, 2012, the Company announced that based on actual production data from 2011, it had reconciled its 2011 ore control model with the January 2011 mineral resource model at Bisha and concluded that the resource estimate used for mine planning over-estimated gold in portions of the Bisha Main oxide mineralization. Accordingly, the ounces to be produced in 2012 are likely to be approximately half of what the Company was previously expecting based upon the January 2011 mineral resource model.  An updated Mineral Resource and Mineral Reserve estimate and associated technical report is expected to be produced in mid-2012.  In March 2012 a class action lawsuit was commenced against the Company and certain of its executive officers.  See “Item 8. Legal Proceedings and Regulatory Actions”.

On March 19, 2012 the Company announced a share repurchase program whereby it may purchase up to 4,009,408 of its outstanding common shares.  The share repurchase program was prompted by the Company’s belief that its current market price is not reflective of the underlying value of its business.

Other changes which may significantly impact the Company in2012 include the planned continuation of copper phase development and potentialacquisitions or exploration programs in other areas.

The Company is managed from its Canadian head office wherea small team of professional staff provide direction and support for theCompany’s foreign operations.

**2.2 Significant Acquisitions andDispositions**

During 2011 the Company was not involved in anysignificant acquisitions or dispositions. 

**ITEM 3. DESCRIPTION OF THE BUSINESS**

**3.1 General**

| The Company is a Canadian mineral resource company engaged, through its subsidiaries, in the acquisition, exploration, development and production of mineral properties. Currently the Company’s portfolio consists of the Bisha Property located in Eritrea, North-East Africa with gold, silver and base metal (copper and zinc) mineral resources and mineral reserves.  Bisha is owned by Bisha Mining S.C. (BMSC), held 60% by the Company and 40% by ENAMCO, and began commercial production of gold in February 2011.  Base metal production is forecast to begin in 2013. |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|

**Sales of Gold and Base Metals**

The Company recorded revenues of $547.8 million on sales of 369,900  ounces of gold in 2011. Since the Bisha Mine commenced operations in 2011, there are no comparative results for revenues in 2010.  There are numerous purchasers of gold and base metals, therefore the Company is not dependent upon any one purchaser.  Current production from Bisha is in the form of doré bars (gold and silver) which are flown from the Bisha site to the capital city of Asmara, and then shipped by air to refiners in Europe and Canada. Bisha is not scheduled to have sales of base metal concentrates until mid-2013. 

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**Methods of Production**

The Bisha Property uses an owner-operated mining fleet and standard carbon-in-leach (CIL) processing facilities to initially process the gold oxide cap by traditional cyanide leaching.  Upon completion of processing the gold oxide cap, the Company will process supergene and primary ores by flotation to extract copper and zinc.  The current mine life is estimated to be 13 years less one year of depletion, and the Company will announce around mid-2012 a mineral resource and mineral reserve expansion based upon its drill program of year 2011.  The Company also expects to further expand its mineral resources to further extend the Bisha mine life by additional drilling in the Northwest Zone during 2012.

**Skill and Knowledge**

The Bisha Property uses an owner-operated mining fleet and standard carbon-in-leach (CIL) processing facilities to initially process the gold oxide cap by traditional cyanide leaching.  Upon completion of processing the gold oxide cap, the Company will process supergene and primary ores by flotation to extract copper and zinc.  The current mine life is estimated to be 13 years less one year of depletion, and the Company will announce around mid-2012 a mineral resource and mineral reserve expansion based upon its drill program of year 2011.  The Company also expects to further expand its mineral resources to further extend the Bisha mine life by additional drilling in the NW depositNorthwest Zone during 2012.

**Employees**

At December 31, 2011, the Company had 8 employees inCanada, 751 full-time employees in Eritrea and another 179 casual or part-timestaff in Eritrea.

**Corporate SocialResponsibility**

The Company’s objective is to generate sustainableprosperity through its business operations, which means respecting the safetyand health of its employees, protecting the environment, respecting the humanrights of its employees and the residents of the communities in which it operates,and contributing to the sustainable development of those communities.  TheSocial, Environmental, Health and Safety (“SEHS”) Committee established by theCompany’s board of directors oversees the Company’s efforts in meeting these objectives.

While not a member of the Extractive IndustriesTransparency Initiative (EITI), the Company supports the goals of fiscal transparencyand governance and has taken the approach of disclosing  payments made togovernments in countries in which it operates, whether or not the hostgovernment is a member of EITI. 

Social responsibility

The Company recognizes that its activities have thepotential to impact the human rights of individuals affected by its businessoperations.  As such, the Company seeks to integrate human rights bestpractices into its business processes and conducts itsbusiness within a framework that promotes worker and community health andsafety, environmental protection, community involvement, community benefits andquality of life for employees and their families.  Some of the Company’s socialresponsibility commitments include:

- actively promoting understanding by allemployees of the culture, language and history of the communities, regions andcountries in which it operates;
- working to protect cultural heritage resourcespotentially affected by the Company’s activities;
- conducting activities in a manner that respectstraditional-use rights, cultures, customs and social values;
- promoting job equity and equal access toemployment opportunities for women;
- building capacity by sharing environmental andsocial experiences and solutions with local communities and regional andnational governments;
-  actively consulting with local communities toidentify and resolve environmental and social issues;

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- procuring materials, goods and services in amanner that enhances local benefits and protects against unethical practicessuch as child labour and forced labour;
- establishing social responsibility  performancecriteria; and
- monitoring and reporting performance to seniormanagement through periodic audits.

Health and Safety

The Company recognizes that the safety andsecurity of its employees and the communities in which it operates is anintegral part of its business.  As to safety, the long-term goal is foremployees of the Company to operate injury free, regardless of what role theyperform.  

To achieve its health and safetyobjectives, the Company is training employees to work in a safe and responsiblemanner, carrying out risk assessments for all construction and operationalactivities, ensuring that health and safety performances comply with relevantlegislation and regulation,  adhering to local laws as well as internationalstandards on law enforcement in securing its operations, particularly thosethat relate to the use of force, carrying out risk assessments in relation tosecurity issues at each of its project sites, ensuring that security is managedin a way that respects and protects human rights, avoids creating conflict andaddresses security threats in as peaceful a way as possible and assisting thelocal community in health awareness activities.

Environment

The Company is committed to achieving the higheststandards of environmental responsibility in its operations and compliance withall applicable regulations and laws.  

The Company is committed to:

- complying with all host country environmentallaws and regulations together with industry best practice standards, orwhichever is the more stringent of the two;
- ensuring the necessary resources are provided tosupport and implement the company’s environmental policy;
- continual improvement in environmentalperformance by developing environmental indicators, monitoring and auditingperformance, and by implementing corrective actions where needed;
- reporting externally on environmentalperformance and encouraging dialogue with employees, local communities andother stakeholders to promote environmental awareness;
- including environmental performance criteria indecisions on promotions, salary increases and awarding contracts;
- applying the principles of BAT (Best AvailableTechnology) to environment management;
-  reducing, re-using and recycling resources andimplementing proper waste management practices;
- training, motivating and ensuring that allemployees adhere to environmental protection and pollution prevention policies;
- incorporating an emergency preparedness andresponse system into standard operating practices; and
- monitoring and reporting on performance to seniormanagement through periodic audits.

**3.2 Risk Factors**

The operations of the Company arehighly speculative due to the high-risk nature of its business in the miningindustry. The risks below are not the only ones facing the Company. Additionalrisks not currently known to the Company, or that the Company currently deemsimmaterial, may also impair 

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- 6 -

the Company’s operations. If any of the followingrisks actually occur, the Company’s business, financial condition and operatingresults could be adversely affected.

**Commodity price risk.**  The profitability of theCompany’s operations will be dependent upon the market price of mineral andmaterials commodities. The Company does not enter into any commodity hedgingand accordingly is fully exposed to price risk.  The price of gold and othermetals can and has experienced volatile and significant price movements overshort periods of time, and is affected by numerous factors beyond the controlof the Company, including international economic and political trends,expectations of inflation or deflation, currency exchange fluctuations(specifically, the U.S. dollar relative to other currencies), interest rates,global or regional consumption patterns, speculative activities and increasedproduction due to improved mining and production methods.  The supply of anddemand for metals are affected by various factors, including political events,economic conditions and production costs, and governmental policies.

Mineral reserve calculations and life-of-mine plans usingsignificantly lower metal prices could result in material write-downs of theCompany’s investment in mining properties and increased amortization,reclamation and closure charges.  In addition to adversely affecting theCompany’s mineral reserve estimates and its financial condition, decliningcommodity prices can impact operations by requiring a reassessment of thefeasibility of a particular project. Such a reassessment may be the result of amanagement decision or may be required under financing arrangements related toa particular project. Even if the project is ultimately determined to beeconomically viable, the need to conduct such a reassessment may causesubstantial delays or may interrupt operations until the reassessment can becompleted.

The Bisha Mine’s power generation plant and mobileequipment fleet are diesel fueled.  As fuel costs are a significant componentof the Company’s operating costs, changes in the price of diesel could have asignificant effect on its operating costs.

**Share price risk.**  The market price of a publiclytraded stock, particularly a junior resource issuer like the Company, isaffected by many variables not directly related to the success of the Company,including the market for all junior resource sector shares, the breadth of thepublic market for the stock, and the attractiveness of alternative investment. The effect of these and other factors on the market price of the common sharesof the Company on the exchanges on which the common shares are listed suggeststhat the share price will be volatile.  In the previous eight quarters, betweenJanuary 1, 2010 and December 31, 2011 the Company’s shares traded in a rangebetween Cdn $2.02 and Cdn $7.33.

**Exploration, development and operating risks.** Mining operations generally involve a high degree of risk.  The Company’soperating mine in Eritrea is subject to all the hazards and risks normallyassociated with mineral production, including damage to or destruction of plantand equipment, unexpected geologic formations, pit collapse, injury or lifeendangerment, environmental damage, fire, equipment failure or structuralfailures, such as retaining walls or tailings dams, potentially resulting inenvironmental pollution and consequent liability.  The payment of suchliabilities may have a material, adverse effect on the Company’s financialposition.  

The exploration for and development of mineral depositsinvolves significant risks, which even a combination of careful evaluation,experience and knowledge may not eliminate. While the discovery of an ore body mayresult in substantial rewards, few properties that are explored are ultimatelydeveloped into producing mines. There is no certainty that expenditures made bythe Company towards the search and evaluation of mineral deposits will resultin discoveries or future development.

Major expenses may be required to locate and establishadditional mineral reserves.  It is impossible to ensure that the explorationor development programs planned by Nevsun will result in additional profitablecommercial mining operations. Whether a mineral deposit will be commerciallyviable depends

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on a number of factors, some of which are: the particularattributes of the deposit, such as size, grade and proximity to infrastructure;metal prices that are highly cyclical; and government regulations, includingregulations relating to prices, taxes, royalties, land tenure, land use,importing and exporting of minerals and environmental protection. The exacteffect of these factors cannot be accurately predicted, but the combination ofthese factors may result in Nevsun not receiving an adequate return on investedcapital.

The marketability of natural resources that may beacquired or discovered by the Company will be affected by numerous factorsbeyond its control.  These factors include market fluctuations, the proximityand capacity of natural resource markets and processing equipment, andgovernment regulations, including regulations relating to prices, taxes,royalties, land tenure, land use, importing and exporting of minerals andenvironmental protection.  The exact effect of these factors cannot beaccurately predicted, but the combination of these factors may result in theCompany not receiving an adequate return on invested capital.

**Putative class action and litigation risk.**  InMarch 2012, a putative class action complaint was filed against the Company andcertain of its officers in the United States District Court for the SouthernDistrict of New York.  The case is captioned Craig F. Piazza v. NevsunResources Ltd., Clifford T. Davis, Peter J. Hardie, and Scott Trebilcock(S.D.N.Y. Case No. 12-cv-1845).  The complaint alleges that the defendants areliable under the U.S. federal securities laws because certain statements madeby the defendants were materially false and/or misleading, for failure todisclose certain matters regarding the gold reserves and operations at theBisha mine.  The complaint seeks unspecified damages, including interest,reasonable costs, including attorneys’ fees, and such equitable relief as thecourt may deem proper, but does not state an amount of alleged damages.  TheCompany believes the allegations in the complaint are without merit and intendsto defend against them vigorously. There is a risk this lawsuit could result insubstantial costs to the Company, divert management’s attention and resourcesfrom the Company’s operations and negatively affect the Company’s public imageand reputation.  There is no assurance that similar claims will not be madeunder Canadian securities laws.  Any other litigation could result insubstantial costs and damages and divert management’s attention and resources. 

**Foreign operation and political risk.**  The Companyconducts operations through foreign subsidiaries with financial assets inBarbados and mining operations in Eritrea, and substantially all of its assetsare held in such entities.  While the Company believes that the politicalclimate of these countries and strong government support in Eritrea provide afavourable environment for its operations, there is no guarantee against anyfuture political or economic instability in these countries or neighbouringcountries which might adversely affect the Company.  

Political unrest in Egypt, Libya, Syria, Yemen, SaudiArabia, Somalia and other countries in the region has had an impact on investorconfidence with companies operating in northern Africa, including Eritrea, eventhough no direct effect is evident or anticipated in the operations at Bisha orcommunications with the Eritrean government.  In addition, intervention by theinternational community through organizations such as the United Nations couldaffect the political risk of operating in Eritrea. In December 2009 the UnitedNations Security Council (UNSC) imposed sanctions on Eritrea related to an armsembargo, which in itself has had no direct impact to the Bisha Project, exceptto cause some uncertainty as to how UN member states may continue to deal withthe country. In December 2011 the UNSC provided additional sanctions guidanceto member states.  Effects of the sanctions may include limitations on thetransfer of cash or other assets between the parent corporation and suchentities, or among such entities, which could restrict the Company’s ability tofund its operations efficiently and to repatriate cash.  

Other risks the Company faces in operating in foreignjurisdictions include terrorism, hostage taking, military repression, extremefluctuations in currency exchange rates, high rates of inflation, labourunrest, the risks of war or civil unrest, expropriation and nationalization,renegotiation or nullification of existing concessions, licenses, permits andcontracts, illegal mining, changes in taxation policies, restrictions onforeign exchange and repatriation, and changing political conditions, currencycontrols and governmental

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regulations that favour or require the awarding ofcontracts to local contractors or require foreign contractors to employcitizens of, or purchase supplies from, a particular jurisdiction.

All or any of these factors, limitations, or theperception thereof  could impede the Company’s activities, result in theimpairment or loss of part or all of the Company’s interest in the properties,or otherwise have an adverse impact on the Company’s valuation and stock price.

**Infrastructure risk.**  Mining, processing anddevelopment activities depend, to some degree, on adequate infrastructure.Reliable roads, bridges, power sources and water supply are importantdeterminants that affect capital and operating costs.  Unusual or infrequentweather phenomena, sabotage, government or other interference in themaintenance or provision of such infrastructure could adversely affect theCompany’s operations, financial condition and results of operations. 

The Company will be dependent upon adequate portfacilities to be developed for the shipping of copper and zinc concentrates toits future customers.  The planned port facilities are to be developed by theState of Eritrea and, accordingly, risks associated with availability ofadequate port facilities are beyond the control of the Company.  There are noassurances that adequate port facilities will be developed in time.

**Key executive risk.**  The Company is to a largedegree dependent on the services of key executives and senior personnel.  Dueto the relatively small size of the Company, the loss of these persons or theCompany’s inability to attract and retain executives and personnel with thequalifications necessary to operate the business successfully may adverselyaffect its business and future operations.

**Expatriate and third-party nationals skills risk.** The Company’s Eritrean operations are the first modern commercial miningoperation in that jurisdiction.  As a result, the Company is reliant onattracting and retaining expatriate and third-party nationals with miningexperience to staff key operations and administration management positions. The Company’s inability to attract and retain personnel with the skills andexperience to manage the operation and train and develop staff, due to theintense international competition for such individuals, may adversely affectits business and future operations.

**Labour risk.**  The Company is dependent on itsworkforce to extract and process minerals, and is therefore sensitive to alabour disruption of the Company's mining activities. The Company endeavours tomaintain good relations with its workforce in order to minimize the possibilityof strikes, lock-outs and other stoppages at its work sites.  Relations betweenthe Company and its employees may be impacted by changes in labour relationswhich may be introduced by, among other things, employee groups, unions, andthe relevant governmental authorities in whose jurisdictions the Companycarries on business.

**Reserve and resource estimate risk.**  The figuresfor reserves and resources presented in this document and contained in theCompany’s continuous disclosure documents filed on SEDAR (www.sedar.com) andEDGAR (www.sec.gov) are estimates, and no assurance can be given that theanticipated tonnages and grades will be achieved or, in the case of reserves,that the indicated level of metallurgical recovery will be realized.  Actual reservesmay not conform to geological, metallurgical or other expectations, and thevolume and grade of ore recovered may be below the estimated levels.  Marketfluctuations in the price of mineral commodities or increases in the costs torecover minerals may render the mining of ore reserves uneconomical and requirethe Company to take a write-down of the asset or to discontinue development orproduction.  Moreover, short-term operating factors relating to the reserves,such as the need for orderly development of the ore body or the processing ofnew or different ore grades, may cause a mining operation to be unprofitable inany particular accounting period.    

There are numerous uncertainties inherent in estimatingquantities of mineral reserves and resources, including many factors that arebeyond the Company’s control.  The estimates are based on various assumptions relatingto metal prices and exchange rates during the expected life of production,mineralization of the area to be mined, the projected cost of mining, and theresults of additional planned

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development work.  Actual future production ratesand amounts, revenues, taxes, operating expenses, environmental and regulatorycompliance expenditures, development expenditures and recovery rates may varysubstantially from those assumed in the estimates.  Any significant change inthese assumptions, including changes that result from variances betweenprojected and actual results, could result in material downward or upwardrevision of current estimates.

**Production risk.**  As is typically the case with themining industry, no assurances can be given that future mineral productionestimates will be achieved. Estimates of future production for the Company’smining operations are derived from the Company’s mining plans.   Theseestimates and plans are subject to change.  The Company cannot give anyassurance that it will achieve its production estimates.  The Company’s failureto achieve its production estimates could have a material and adverse effect onthe Company’s future cash flows, results of operations, production cost,financial condition and prospects.  The plans are developed based on, amongother things, mining experience, reserve estimates, assumptions regardingground conditions, hydrologic conditions and physical characteristics of ores(such as hardness and presence or absence of certain metallurgicalcharacteristics) and estimated rates and costs of production.  Actualproduction may vary from estimates for a variety of reasons, including risksand hazards of the types discussed above, and as set out below, including:

- mining dilution;
- accidents;
- equipment failures;
- natural phenomena such as inclement weatherconditions, floods,  droughts, rock slides and earthquakes;
- encountering unusual or unexpected geologicalconditions;
- changes in power costs and potential powershortages;
- shortages of principal supplies needed foroperations;
- strikes and other actions by labour; and
- regulatory restrictions imposed by governmentagencies.

Such occurrences could, in addition to stopping ordelaying mineral production, result in damage to mineral properties, injury ordeath to persons, damage to the Company’s property or the property of others,monetary losses and legal liabilities.  These factors may also cause a mineraldeposit that has been mined profitably in the past to become unprofitable. Estimates of production from properties not yet in production or fromoperations that are to be expanded are based on similar factors (including, insome instances, feasibility studies prepared by the Company’s personnel andoutside consultants) but it is possible that actual operating costs andeconomic returns will differ significantly from those currently estimated.  Itis not unusual in new mining operations or mine expansion to experienceunexpected problems during the startup phase.  Delays often can occur in thecommencement of production.

**Need for additional reserves risk.**  Given thatmines have limited lives based on proven and probable mineral reserves, theCompany must continually replace and expand its reserves at its mines.  Thelife-of-mine estimates included in the Company’s continuous disclosuredocuments filed on SEDAR are subject to adjustment.  The Company’s ability tomaintain or increase its annual production of gold and other commodities willbe dependent in significant part on its ability to bring new mines intoproduction and to expand reserves at existing mines.  The Bisha Mine has anestimated 12 year mine life remaining.

**Permitting risk.**  The Company’s operations aresubject to receiving and maintaining permits from appropriate governmentalauthorities.  The Company has not yet received the permits to develop andproduce minerals from the Harena deposit.  The Company’s 2012 forecastproduction assumes that such permits will be obtained and the Harena depositwill contribute to 2012 production.  There is no assurance that delays will notoccur in connection with obtaining all necessary renewals of permits

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for theexisting operations, additional permits for any possible future changes tooperations, or additional permits associated with new legislation. Prior to anydevelopment on any of its properties, the Company must receive permits fromappropriate governmental authorities. There can be no assurance that theCompany will obtain or continue to hold all permits necessary to develop orcontinue operating at any particular property.  Any failure to obtain ormaintain requisite permits could have a material adverse effect on the Companyand its future production.

**Construction and start-up of new mines and mineexpansion.**  The success of construction projects, plant expansions and thestart-up of new mines by the Company is subject to a number of factorsincluding the availability and performance of engineering and constructioncontractors, mining contractors, suppliers and consultants, the receipt ofrequired governmental approvals and permits in connection with the constructionof mining facilities and the conduct of mining operations, includingenvironmental permits, price escalation on all components of construction andstart-up, the underlying characteristics, quality and unpredictability of theexact nature of mineralogy of a deposit and the consequent accurateunderstanding of dore or concentrate production, the successful completion andoperation of ore passes and conveyors to move ore and other operationalelements. Any delay in the performance of any one or more of the contractors,suppliers, consultants or other persons on which the Company is dependent inconnection with its construction activities, a delay in or failure to receivethe required governmental approvals and permits in a timely manner or onreasonable terms, or a delay in or failure in connection with the completionand successful operation of the operational elements in connection with newmines could delay or prevent the construction and start-up of new mines asplanned. There can be no assurance that current or future construction andstart-up plans implemented by the Company will be successful.

**Environmental risk.**  The Company’s operations aresubject to environmental regulations promulgated by the government of Eritrea. Environmental legislation provides for restrictions and prohibitions on spills,releases or emissions of various substances produced in association withcertain mining industry operations, such as seepage from tailings disposalareas that could result in environmental pollution.  A breach of suchlegislation may result in the imposition of fines and penalties.  Environmentallegislation is evolving in general in a manner that means standards andenforcement, fines and penalties for non-compliance are becoming morestringent.  Environmental assessments for projects carry a heightened degree ofresponsibility for companies, directors, officers and employees.  The cost ofcompliance with changes in government regulations has the potential to reducethe profitability of operations.  The Company intends to fully comply with allenvironmental regulations in the countries in which the Company has operations andcomply with prudent international standards.

The Company adopted the IFC Social and EnvironmentalPerformance Standards of April 2006 and developed its management plansaccordingly.  The plans have been subject to review by the host country, aswell as part of an extensive due diligence by international bankers who at onetime were considered for funding.  The social and environmental plans have beenimplemented and have subsequently been audited by an independent third party.Staff training and engagement with local authorities, as well as significantemployment from both local and other in-country sources are key elements of theCompany’s social and environmental management.  Department heads for both HumanResources and Environment are experienced professionals with a solidunderstanding of local requirements as well as IFC Performance Standards.  TheCompany continues to place significant emphasis on all social and environmentalimpacts of its operations.

Environmental hazards may also exist on the properties onwhich the Company holds interests that are unknown to the Company at presentand that have been caused previous to the Company receiving title to theproperties.

Failure to comply with applicable laws, regulations andpermitting requirements may result in enforcement actions, including ordersissued by regulatory or judicial authorities causing operations to cease or becurtailed, and may include corrective measures requiring capital expenditures,installation 

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of additional equipment, or remedial actions. Parties engaged inmining operations, including the Company, may be required to compensate thosesuffering loss or damage by reason of the mining activities and may have civilor criminal fines or penalties imposed for violations of applicable laws orregulations.

Amendments to current laws, regulations and permitsgoverning operations and activities of mining companies, or more stringentimplementation thereof, could have a material adverse impact on the Company andcause increases in exploration expenses, capital expenditures or productioncosts, reduction in levels of production at producing properties, orabandonment or delays in development of new mining properties.

**Currency risk.**  At present all of the Company’sactivities are carried on outside of Canada and are subject to risks associatedwith fluctuations of the rate of exchange of foreign currencies.  The UnitedStates dollar (USD) is the Company’s functional currency, exposing the Companyto risk on any fluctuations of the USD with other currencies to which theCompany is exposed, which are primarily the European euro (EUR), Canadiandollar (CAD), British pound (GBP) and South African rand (ZAR).

**Funding risk.**  Historically, the Company hasfinanced its activities through the sale of equity capital.  The sale of metalsfrom Bisha currently provides and is expected to continue to provide revenuefrom operations, which the Company expects will be sufficient to fund itsfuture needs.  However, factors which may impact cash flows include changes inmetal prices, taxes, operating costs, capital expenditures or other unexpectedoccurrences such as slowdown or stoppage of operations.  Failure to obtainsufficient financing to continue operations if such needs arise may adverselyaffect the Company’s business and financial position. Should the Companyrequire additional funding for exploration, development, operations,acquisitions or other activities, there is no assurance that sources offinancing will be available on acceptable terms or at all.  

**Counterparty risk.**  The Company is exposed tovarious counterparty risks including, but not limited to: (i) financialinstitutions that hold the Company’s cash and cash equivalents; and (ii)companies that have payables to the Company, including dore customers andnon-controlling interest.  

**Insurance and uninsured risks.**  Although theCompany maintains insurance to protect against certain risks in such amounts asit considers to be reasonable, its insurance will not cover all the potentialrisks associated with a mining company’s operations. Nevsun may also be unableto maintain insurance to cover these risks at economically feasible premiums.Insurance coverage may not continue to be available or may not be adequate tocover any resulting liability.  

Production at the Company’s mine involves the use of toxicmaterials. Should toxic materials leak or otherwise be discharged from thecontainment system then the Company may become subject to liability forclean-up work that may not be insured. While the Company intends to preventdischarges of pollutants into the ground water and the environment, it may beunsuccessful and may become subject to liability for hazards that it may not beinsured against.  Losses from these events may cause the Company to incur significantcosts that could have a material adverse effect upon its financial performanceand results of operations.

**Land title risk.**  The acquisition of title tomineral properties is a very detailed and time-consuming process. Title to, andthe area of, mineral concessions may be disputed.  Although the Companybelieves it has taken reasonable measures to ensure proper title to itsproperties, there is no guarantee that title to any of its properties will notbe challenged or impaired.  Third parties may have valid claims underlyingportions of the Company’s interests, including prior unregistered liens,agreements, transfers or claims, including indigenous land claims, and titlemay be affected by, among other things, undetected defects.  In addition, theCompany may be unable to operate its properties as permitted or to enforce itsrights with respect to its properties.

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**Competition risk.**  The mining industry is intenselycompetitive in all of its phases and the Company competes with many companies possessinggreater financial and technical resources than itself.  There is intensecompetition in the mining industry for mineral rich properties that can bedeveloped and produced economically, the technical expertise to find, develop,and operate such properties, the labour to operate the properties, and thecapital for the purpose of funding such properties.  Many competitors not onlyexplore for minerals, but conduct refining and marketing operations on a globalbasis.  Such current and future competition may result in the Company beingunable to acquire desired properties.

**Write-downs and impairments risk.**  Mining andmineral interests are the most significant assets of the Company and representcapitalized expenditures related to the development of mining properties andrelated plant and equipment and the value assigned to exploration potential onacquisition.  The costs associated with mining properties are separatelyallocated to exploration potential, reserves and resources and include acquiredinterests in production, development and exploration-stage propertiesrepresenting the fair value at the time they were acquired.  The values of suchmineral properties are primarily driven by the nature and amount of orebelieved to be contained or potentially contained, in properties to which theyrelate.

The Company reviews and evaluates its mining interests forimpairment at least annually or when events or changes in circumstancesindicate that the related carrying amounts may not be recoverable, which becomesmore of a risk in the global economic conditions that exist currently.  Animpairment is considered to exist if the total estimated future undiscountedcash flows are less than the carrying amount of the assets.  An impairment lossis measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on expected future production, commodityprices, operating costs and capital costs.  There are numerous uncertaintiesinherent in estimating mineral reserves and mineral resources.  Differencesbetween management’s assumptions and market conditions could have a materialeffect in the future on the Company’s financial position and results ofoperation.

In addition, with a weaker global economy, there is alarger risk surrounding inventory levels.  The assumptions used in thevaluation of work-in process inventories by the Company include estimates ofgold contained in the ore stock piles, crushed ore piles, processing plantcircuits, and an assumption of the gold price expected to be realized when thegold is recovered.  If these estimates or assumptions prove to be inaccurate,the Company could be required to write-down the recorded value of itswork-in-process inventories, which would reduce the Company’s earnings andworking capital.

**Derivatives risk.**  In the future the Company mayuse certain derivatives products to manage the risks associated with changes ingold prices, silver prices, interest rates, foreign currency exchange rates andfuel prices.  The use of derivative instruments involves certain inherent risksincluding, among other things: (i) credit risk — the risk of default on amountsowing to the Company by the counterparties with which Company has entered intosuch transaction; (ii) market liquidity risk — risk that the Company hasentered into a derivative position that cannot be closed out quickly, by eitherliquidating such derivative instrument or by establishing an offsettingposition; and (iii) unrealized mark-to-market risk — the risk that, in respectof certain derivative products, an adverse change in market prices forcommodities, currencies or interest rates will result in the Company incurringan unrealized mark-to-market loss in respect of such derivative products.

**Acquisitions and integration risk.**  From time totime, the Company examines opportunities to acquire additional mining assetsand businesses.  Any acquisition that the Company may choose to complete may beof a significant size, may change the scale of the Company’s business and operations,and may expose the Company to new geographic, political, operating, financialand geological risks.  The Company’s success in its acquisition activitiesdepends on its ability to identify suitable acquisition candidates, negotiateacceptable terms for any such acquisition, and integrate the acquiredoperations successfully with those of the Company. 

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Any acquisition would be accompanied by risks.  Forexample, a material ore body may prove to be below expectations; the Companymay have difficulty integrating and assimilating the operations and personnelof any acquired companies, realizing anticipated synergies and maximizing thefinancial and strategic position of the combined enterprise, and maintaininguniform standards, policies and controls across the organization; theintegration of the acquired business or assets may disrupt the Company’s ongoingbusiness and its relationships with employees, customers, suppliers andcontractors; and the acquired business or assets may have unknown liabilitieswhich may be significant. 

In the event that the Company chooses to raise debtcapital to finance any such acquisition, the Company’s leverage will beincreased. If the Company chooses to use equity as consideration for suchacquisition, existing shareholders may suffer dilution.  Alternatively, theCompany may choose to finance any such acquisition with its existingresources.  There can be no assurance that the Company would be successful inovercoming these risks or any other problems encountered in connection withsuch acquisitions.

**Governmental regulation risk.**  The Company’smineral exploration, development and production activities are subject tovarious laws governing prospecting, development, production, taxes, labourstandards and occupational health, mine safety, toxic substances, environmentalprotection and preservation, and other matters.  No assurance can be providedthat the Company will be successful in its efforts to comply with allapplicable rules and regulations, no assurance can be given that new rules andregulations will not be enacted or that existing rules and regulations will notbe applied in a manner that could limit or curtail production or development ofthe Company’s properties.  Amendments to current laws and regulations governingthe operations and activities of the Company or more stringent implementationthereof could have a material adverse effect on the Company’s business,financial condition and results of operations.

**Dividend policy risk.**  The Company has establisheda dividend policy providing for a dividend yield that is consistent with theyield of comparable companies’ dividend rates and will be reviewed on aperiodic basis and assessed in relation to the growth of the operating cashflows of the Company.

Payment of any future dividends will be at the discretionof the Company’s board of directors after taking into account many factors,including the Company’s operating results, financial condition, comparabilityof the dividend yield to peer gold companies and current and anticipated cashneeds.  There can be no assurance that the Company will continue to paydividends at the current yield or at all.

**3.3               Mineral Properties:  Bisha, Eritrea**

The Company has one material mineral property located inEritrea, the Bisha property.  Unless otherwise stated, the technical andscientific information included in this Annual Information Form concerningBisha is derived from the independent technical report titled “Nevsun ResourcesLimited, Bisha Polymetallic Operation, Eritrea, Africa NI 43-101 TechnicalReport” prepared by representatives of AMEC Americas Limited (“AMEC”) effectiveJanuary 1, 2011 and updated March 29, 2011, (the “2011 Technical Report”).  Theauthors of the 2011 Technical Report are independent “qualified persons” withinthe meaning of NI 43-101.  The information included herein is also based on theassumptions, qualifications and procedures which are set out in the 2011Technical Report.  For a complete description of assumptions, qualificationsand procedures associated with the following information, reference should bemade to the full text of the 2011 Technical Report which is available forreview on SEDAR under the profile for the Company located at the followingwebsite:  www.sedar.com.

Commissioning of the plant at Bisha commenced in October2010.  Commercial production at Bisha was achieved in February, 2011.

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**Project Description andLocation**

The Bisha Property is located 150 km west of Asmara,43 km southwest of the regional town of Akurdat, and 50 km north ofBarentu, the regional or Zone Administration Centre of the Gash-Barka District,in Eritrea, East Africa.  Current onsite project infrastructure includes; anopen pit,  process plant, tailings and waste rock storage facilities, offices,maintenance and laboratory facilities, fuel storage areas, on-site power plantand an airstrip.

The property area contains the Bisha deposit, which is alarge precious metal (Au) and base metal rich (Cu, Zn) VMS deposit, as well astwo satellite deposits, known as the “NW Zone” and the “Harena Zone”.  A mininglicense, valid for 20 years, was issued for the project during 2008 covering a16.5 square kilometer area (which includes the deposit known as the “Bisha MainZone” deposit and the “NW Zone” deposit) within a mining agreement area of 39square kilometres (the “Mining License”).  The Company retains a continuousexploration license of 53 square kilometers, including the Harena deposit (the“Exploration License”).  The Bisha Property is located at approximate latitude15°28'N and longitude 37°27'E.  The UTM coordinates (WGS84) of the centre of theBisha Property are 1,711,000 N and 334,500 E (UTM Zone 37).  The ExplorationLicense is valid until May 09, 2012 with a right of renewal upon applicationand a minor fee and a mandatory annual relinquishment of a minimum of 25% ofthe license area.  The Company intends to apply for renewal.

The annual rental fee for the Exploration Licence is53,200 Nakfa, and the annual licence renewal fee is 6,000 Nakfa (about US$3,500and US$400 respectively).

The Mining License and the Exploration License are held byBMSC.

In October 2007 the Government of Eritrea indicated itsstrong support for the Bisha Project and for the development of a new andstrong mining sector in Eritrea through its purchase of a 30% paidparticipating interest through ENAMCO. The purchase price and settlement forthe 30% interest was determined during 2011, as disclosed in the notes to theCompany’s annual financial statements. The shareholder structure of the BMSC is60% Nevsun and 40% ENAMCO; with the ENAMCO shareholding comprising a 30% paidparticipating interest and a 10% free participating interest as provided by thecountry’s mining legislation.  In December 2007 BMSC concluded a miningagreement with the Government of the State of Eritrea containing all the normalprovisions governing the future development and operations for the BishaProject, including all substantive requirements of international financialinstitutions. 

Royalties payable include an Eritrean Government royaltyof 5% of precious metal net smelter return (NSR) and 3.5% of base metal NSR.

**Accessibility, Climate, Local Resources, Infrastructure& Physiography**

Eritrea is located above the Horn of Africa on thecontinent’s east coast, between Sudan to the north and west, and Ethiopia andDjibouti to the south.  Eritrea has an area of 124,320 km2 anda 1,151 km long coastline on the Red Sea, which separates the country fromSaudi Arabia and Yemen.

The country is divided into three main geographicalzones:  (1) the fertile and intensively farmed mountainous central plateau thatvaries from 1,800 to 3,000 metres above sea level (“masl”); (2) theeastern escarpment and coastal plain which are mainly desert, and (3) semi-aridwestern lowlands. The Bisha Property is located in the western lowlands.

Eritrea has no year-round rivers and the climate istemperate in the mountains and hot in the lowlands.  The weather is usuallysunny and dry, with the short or “belg” rains occurring between February toApril and heavy or “meher” rains beginning in late June and ending in mid-September.

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Asmara, the capital, is located at about 2,300 masl(7,500 ft.) and is serviced by regular international flights includingflights out of Frankfurt, Cairo, Sanaa and Jeddah. There is a good network ofpaved roads connecting Asmara with the major regional centres of Keren,Massawa, Assab, Adi Quala and Barentu.  Power generation from the Hirgigo plantnear Massawa supplies electrical power to Asmara and other major regionalcentres.  Landline telephone service is available from larger towns and cellularservice is available in Asmara and surrounding towns, including Keren. Accessto the Bisha Property is by paved road from Asmara to Akurdat, a distance byroad of 181 km.  From Akurdat access is via a 52 km all-weather unpavedroad, a portion of which is undergoing paving upgrade.

Comprehensive medical services are found in the largertowns with rudimentary medical clinics available in the smaller villages. Schools are located in most villages.

Under the terms of the Mining Agreement, BMSC has the exclusiveright of land use in the Mining License Area that is granted within the MiningAgreement Area.  This right is subject to the acquisition and settlement of anythird-party land-use rights by payment of compensation and/or relocation at theexpense of BMSC, in accordance with Eritrean Government Proclamation No.68/1995, “Proclamation to Promote the Development of Mineral Resources and theMining Agreement”.

BMSC holds all the necessary permits to support a miningoperation.  For the mining operations, grant of the mining lease providespermission to construct and operate the Bisha mine.  A permit has been grantedfor use of water from the Mogoraib River and for the construction of a waterdiversion dyke.  

**Exploration**

Nevsun has no record of any previous exploration or miningactivities on the property or surrounding areas prior to 1998. InJune 1998, Nevsun signed the Bisha Area Prospecting Licence Agreement withthe State of Eritrea that was converted to the Exploration Licence in June 1999covering an area of 49 km2, later expanding to an area of224 km2 in 2003. From 1998 to 1999, exploration activitiesconsisted of reconnaissance-scale geological mapping, multi-element streamsediment sampling, ground geophysical surveys and limited “orientation” soilsampling, which showed the Bisha Gossan Zone to be highly anomalous in leadwith significant values of copper, zinc and silver. Grab samples of the gossanreturned anomalous gold values ranging up to 30.4 g/t Au.  

Work was suspended between 1999 until late 2002 due to theborder war with Ethiopia.

In November 2002, Nevsun completed a diamond-drillingprogram of six holes totalling 811m at the Bisha Property to test thegeophysical and geochemical anomalies at the gossan outcrop area.  The drillingwas sufficient to confirm the presence of a VMS deposit overlain by a supergenecopper-enriched zone and a gold-enriched gossan cap.

Two phases of diamond drilling were completed in 2003 fora total of 18,619m in 141 holes. Additional work conducted during this programincluded mapping, geochemical sampling, trenching, geophysics (airborne andground), metallurgical test work, petrographic work and bulk densitymeasurements.

Further diamond drilling (163 holes totalling28,879m), RC drilling (33 holes totalling 1,814m) and core/RC combinationholes (9 holes totalling 592m) were completed between January and June2004.  Additional work completed during this program included geophysicalsurveys, mapping, geochemical sampling, petrographic work, bulk densitymeasurements, geotechnical work, environmental baseline work, and metallurgicaltest work.

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- 16 -

During 2005, Nevsun completed diamond drilling of 135 holes in three zones (86 holes in Bisha Main Zone, 22 holes in the NW Zone, 27 holes in the Harena Zone totalling 18,053m).  The Bisha Main Zone drilling included 20 geotechnical and 8 metallurgical drill holes, drilled to provide further information on the deposit for use in the feasibility study on the Bisha Property dated November 15, 2006 (the “Bisha Feasibility Study”).   The mineral resource and mineral reserve contained in this study was updated in the March 2011 Technical Report prepared by AMEC.

In 2006, 8 diamond drill holes (1,680m), including onedeep drill hole at the Bisha Main Zone, three drill holes at the Bisha hangingwall copper zone and 4 drill holes at the NW Zone satellite deposit werecompleted.  These holes were not included in the database used for mineral resourceestimation in the Bisha Feasibility Study.

In 2007 additional ground geophysical (gravity) surveyswere performed on new target areas within the Exploration License which werefollowed up in 2008 with mechanical trenching/pitting and geological mapping.

In 2009, 29 diamond drill holes (3,578m) were completed inthe Bisha Main Zone and in the Harena Zone.  The Bisha Main Zone drillingconsisted of 9 geotechnical holes to provide additional information for the pitdesign and 3 metallurgical holes, drilled to collect additional samples fordesigning the copper phase of the mill.  Harena Zone drilling consisted of 17infill holes drilled at 50m spacings to better define the mineralization. Anadditional ground gravity survey was also performed on the Exploration Licenseto the southwest of the Harena Zone.

In June-July 2010, 13 diamond drill holes (1,918m) weredrilled to test gravity targets within the Exploration License.  No significantmineralization was intersected.  During this program an additional 6metallurgical holes were drilled in the Bisha Main Zone to collect additionalsamples for designing the copper phase of the mill.  In November-December 2010,34 diamond drill holes (2448m) were drilled to infill the Harena Zone to reducethe drill hole spacing to 12.5m x 25m and 25m x25m.  This infill drilling wasfocused on defining the oxide and supergene mineralization.

In 2011, 167 diamond drill holes (33,788m) were drilled to definition and infill drill areas of known mineralization for resource expansion as well as for metallurgical and geotechnical studies and exploration.  At the Bisha Main Zone, 41 holes (15,950m) were drilled to infill drill the primary zone portion of the deposit currently classified as inferred resources in order provide additional confidence in the understanding of the mineralization in this area with the goal of upgrading the classification from inferred to indicated resources. As well, 3 holes (1,572m) were drilled to test the depth extents of the primary zone in the southern portion of the deposit. In addition to these exploration drill holes throughout the Bisha Main Zone, 6 holes (695m) were drilled for further geotechnical studies and 2 holes (180m) for supplementary supergene metallurgical test work. For the hanging wall copper zone that lies immediately west of the Bisha Main Zone, 82 holes (9,421m) were drilled in this western extension of the supergene in order to outline this expanded mineral resource.  These hanging wall copper exploration drill holes were drilled in 2 phases to define the mineralized area and infill with sufficient spacing to support mineral resource estimation.  At Harena, 4 holes (603m) were drilled for geotechnical studies, 2 holes (182m) were drilled for metallurgical studies and 5 holes (859m) were drilled to test coincident gravity/EM/soil geochemical anomalies 300m southwest along strike from the Harena deposit.  No significant mineralization was encountered.  In the NW Zone, 22 holes (4,325m) were drilled as part of an infill drill program and this will continue in 2012. The 2011 work described above was completed after the cut-off date for data to be included the March 2011 Technical Report and therefore was not included in the report or the mineral resource estimate, however the data has been compiled and will be included in the upcoming mineral resource and reserve estimate and subsequent technical report. 

**Geology and Mineralization**

Mineralization found to date within the Project is typicalof precious and base metal-rich volcanogenic massive sulphide (VMS) deposits.

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- 17 -

Eritrea is divided into several north or northeasttrending Proterozoic terranes, which are separated by major crustal sutures. The Nacfa Terrane comprises low-grade metamorphosed calc-alkaline volcanics andsediments, and hosts base metal mineralization in the region surrounding thecity of Asmara, and in the Gash-Barka district, including the Bishapolymetallic mineralization.

The VMS deposits at Bisha are hosted by a tightly andcomplexly folded, intensely foliated, bimodal sequence of generally weaklystratified, predominantly tuffaceous metavolcanic rocks.  Felsic lithologiesappear to directly host the mineralization, predominate overall, and form thehanging wall stratigraphy.  A significant component of mafic metavolcanic rocksoccurred in the more obviously bimodal footwall, which is exposed mainly to theeast of the known mineralized zones.

The Bisha Main Zone deposit extends for over 1.2 kmalong a north-trending strike, and has been folded (and overturned, dipping tothe west) into an antiform so that there are two western and one easternlenses.  The thickness of the lenses is variable from 0 m to 70 m.  Theprimary sulphide zone is below the weathering zone.  The massive sulphidelenses can locally exceed 70 m in true thickness and show typicalcopper-rich bases and zinc-rich tops.  

Deep weathering has affected Bisha Main Zone lenses thatoccur in low-lying areas by removing most of the sulphide and producinghigh-grade supergene blankets enriched in gold, silver, and copper inparticular.  The gossan zone can vary in composition from highly siliceous andsomewhat ferruginous to a massive goethite–hematite–jarosite gossan.  The depthof oxidation appears to be on the order of 30 m to 35 m in outcrop areas,but is variable in sand-covered areas.  

The oxidation of the massive sulphides generated strongacid solutions that have progressively destroyed the sulphides and host rock. A horizon of extremely acid-leached material or “soap” has developed betweenthe oxide and supergene/primary domains.

The Harena deposit has been traced over a strike length of400 m, and is interpreted to be a northwest-dipping, tabular massive sulphidebody, closed off by drilling to the northwest, but open to the southeast.  Hostrocks to the Harena deposit are a bimodal, hydrothermally-altered suite ofbasalts and rhyolite-dacite volcanics.  Surficial weathering processes haveproduced three distinct zones of mineralization.  These include a surfaceoxide/gossan overlaying a secondary supergene horizon, which grades into aprimary massive sulphide horizon at depth.  The gossanous horizon containsfrequently anomalous levels of gold and silver.  Oxide and sulphide mineralizedzones are approximately 400 m in length and vary in thickness between 5 mand 15 m.  

Additional prospects are known within the Project area;the most advanced is the Northwest (NW) Zone, located approximately 1.5 kmnorth of the Bisha Main Zone.

**Drilling**

Drilling on the Project has been undertaken in a number ofcore and one RC campaign from 2002 to December, 2011.  Drilling comprised atotal of 692 drill holes (112,668 m), of which 659 were core drill holes(110,571 m) and 33 were RC drill holes (2,097 m).  Drill programs have beencompleted primarily by contract drill crew, supervised by Nevsun geologicalstaff.  

A total of 356 drill holes support mineral resourceestimation at the Bisha Main Zone.  Much of the massive sulphide mineralizationin the Bisha Main Zone has been well defined by drilling patterns of 25 mspaced holes on sections spaced 12.5 or 25 m apart.  This densitydecreases with depth on the deepest portions of the primary mineralization. The deposit remains open at depth in the south, with the deepest intersectionsobtained to date returning long lengths of medium- to high-grade zincmineralization

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- 18 -

Core was logged for geological and geotechnicalparameters, and photographed.  Drill collar locations have been verified bysurvey.  Down-hole surveys were not performed for the first 20 drill holes onthe Project while all subsequent drilling has been down-hole surveyed usingacid tests, Sperry-Sun Single-Shot and Reflex instrumentation.

Average drill core recoveries are 71% in the oxides, 71%in the breccia, 61% in the “soap” lithological unit, 91% in the supergenedomain, and 98% in the primary sulphides.  As most of the low core-recoveryassays were associated with the gold-rich oxidized portion of the deposit, adecision was made to remove all of the assays with core recoveries of less than60% from the database that supported oxide Mineral Resource estimation.

RC samples were 2 m in length.  The maximum core samplelength is 12.00 m (only within wall rock away from mineralized intervals)and the minimum is 0.15 m.  Within the zones of mineralization, sampleslengths are generally between 1.00 m and 3.00 m.  Sample intervals aredetermined based upon mineralogical and lithological contacts.  

Mine grade control consists of one-metre RC samplesweighing approximately 6 kg which are split in-pit and submitted to the on-sitelaboratory for sample preparation. Where RC drilling is not possible, rip linesampling is used.  The rip lines are spaced 10 m apart, reach approximately 1mdepth with 4-6 kg samples collected every 2 m.

**Sampling and Analysis**

Sampling programs at the Bisha Property included drillcore samples, RC samples and various geochemical samples, which included:surface rock chip, trench, auger, pit, soil, and stream sediment sampling.Nevsun established detailed logging, sample collection, and sample preparationprotocols for core and RC sampling, and implemented procedures for thecollection of geotechnical data.

All trench, rock chip and geochemical samples, includingsoil and auger, stream sediment, pit and termite mound samples collected duringthe drilling program conducted between February and June 2003 (the “2003 PhaseI Program”) were shipped to the Horn of Africa Preparation Laboratory, in Asmara,which provided preparation services for Genalysis Laboratory Services Pty(Genalysis) of Maddington, Australia.  The preparation laboratory produced pulpsamples that were subsequently shipped to Genalysis in Australia for analysis. Following the 2003 Phase I Program, geochemical and rock chip samples wereshipped to ALS Chemex Ltd. (ALS Chemex), in Vancouver, Canada.

The primary laboratory used by Nevsun for analytical workon the drilling programs was ALS Chemex.  Nevsun used the laboratory for bothsample preparation and analyses from the initiation of the first drill programin 2002.  During the 2002 and 2003 Phase I Program samples were shipped ashalf-core from the Bisha camp to Asmara and forwarded to ALS Chemex inVancouver.  After establishing a sample preparation facility, designed andinstalled by ALS Chemex, at camp in September 2003, Nevsun sent coarse crushedand split material (-2 mm) forcore, RC, and rock samples to ALS Chemex for subsequent pulverization andanalyses.  All assay data contained in the database for mineral resourceestimation was assayed by ALS Chemex.

Both ALS Chemex and Genalysis are registered with theInternational Organization for Standardization (“ISO”) and are internationallyrecognized facilities.  ALS Chemex is registered to ISO 9001:2000 for the“provision of assay and geochemical analytical services” by BSI QualityRegistrars.  The National Association of Testing Authorities Australia hasaccredited Genalysis, following demonstration of its technical competence, tooperate in accordance with ISO/IEC 17025 (1999), which includes the managementrequirements of ISO 9002:1994.  The facility is accredited in the field ofChemical Testing for the tests, calibrations and measurements that are shown inthe Scope of Accreditation issued by the NationalAssociation of Testing Authorities, Australia. 

----

 

- 19 -

In 2009 the Company switched from ALS Chemex in Vancouverto ALS Chemex in Romania in order to save on shipping costs and to speed upturn-around times for getting analytical results. This proved to be of nobenefit so the Company switched back to ALS Chemex in Vancouver in 2010. Foradditional metallurgical testing the Company has used Mintek, Maelgwyn, ALSChemex and SGS Laboratories, South Africa.

Sample programs included insertion of blank, duplicate andStandard Reference Material (SRM) samples.  The QA/QC program results do notindicate any significant problems with the analytical programs that wouldpreclude use of the data.

The initial process of data verification for the Project was performed by Nevsun, and by external consultancies contracted by Nevsun staff.  During the Feasibility Study, and as part of the checks on data for this, and previous technical reports, AMEC reviewed drilling and other exploration and project data.  AMEC also submitted independent samples for verification of mineralization tenor at the Project.

The run-of-mine laboratory was established by SGS MineralServices, who trained BMSC staff as operators

A detailed description of the sampling methods and qualitycontrol procedures are described in the Company’s 2011 Technical Report filedon SEDAR (www.sedar.com). 

**Security of Samples**

The chain-of-custody for core samples collected and beingshipped from site is as follows:

- Core is transported to the Bisha camp by Bisha personneland placed in the core logging area.
- The logging and sample preparation area and theBisha camp is within a fenced and guarded compound.
- Core samples are crushed and sub-sampled.
- Prepared samples are placed in sealed barrels.
- Each barrel has a list of samples written on theoutside of the container.
- A sample submission form accompanies eachbarrel.
- Barrels are transported to Asmara incompany-owned vehicles arranged by Nevsun.

The sample barrels are submitted to the Eritrean Ministryof Energy and Mines for inspection and submission to customs, a customs seal isplaced on the barrels and they are shipped via air transport directly to ALSChemex.

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- 20 -

**MineralResource Estimate**

The 2005 mineral resource model  was reviewed and updated using long term metal prices in 2011 by David Thomas, P.Geo.  Mr Thomas is the “qualified person” within the meaning of NI 43-101 for the Mineral Resource estimate. 

The original geological interpretation was completed by Nevsun based on lithologic, mineralogic and alteration features logged in drill core.  The overall interpretation at the Bisha Property changed little since the initial mineral resource estimate in 2004 and subsequent 2005 mineral resource model.  The deposit has been subdivided into six mineralized domains:  breccia, oxide, acid, supergene, primary Zn, and primary.  Some of the domain contacts have been revised relative to the 2004 interpretation based on new drill hole information or revised interpretations.  The general sizes of the domains and their positions relative to each other are consistent with the initial interpretations.

A 3D geological model was prepared in Gemcom® software to outline the six mineralized domains.  The resource model prepared in 2005 used ordinary kriging for grade interpolation.  The 2005 Bisha mineral resource estimate was based on 347 diamond and 9 reverse circulation pre-collar diamond drill holes covering a strike length of 1,200m and to depths varying from surface to 380m.

The classified Bisha mineral resource estimate from the 2011 Technical Report, prepared by AMEC, is summarized within a constraining optimized pit shell by domain at marginal breakeven cut-off grades in Table 1-1.  These mineral resources were defined  using a gold price of $1,170/oz, silver at $18.20/oz, copper at $2.76/lb, and zinc at $1.05/lb. After the resource modelling was completed, the model was condensed to three zones each of which required a different recovery treatment process.  The upper breccia, oxide, and acidified domains were combined into an “Oxide Zone”.  The supergene domain became the “Supergene Zone”, and the two primary domains were combined into the “Primary Zone”.  The resulting zones were then examined to determine the potential for selective mining of each zone and a series of pit phases were created to sequence the pit.  A dilution factor was added to the mineralization based on the zones and their grades in each block.

The 2011 mineral resource estimate provided by AMEC iscompliant with CIM Definition Standards for Mineral Resources and MineralReserves as required by NI 43-101.

The Company intends to produce a subsequent mineralresource and mineral reserve update in mid-2012 reflective of the new drillprogram completed in 2011, while accounting for the new insights gained from ayear’s worth of production and corresponding metal reconciliation workcollected in 2011 and analysed in Q1 2012.

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- 21 -

| **Table 1 - 1                 Bisha Mineral Resource Estimate – Effective    Date January 1, 2011 (David Thomas, P.Geo.)**

**THIS MINERAL RESOURCE ESTIMATE IS CURRENTLY BEING UPDATED FOR      PLANNED RELEASE MID 2012, WITH ADJUSTMENTS APPLIED AS DETERMINED FROM RECENT      ORE RECONCILIATIONS AND RESOURCE MODEL INVESTIGATIONS (SEE FEBRUARY 07 2012    PRESS RELEASE)** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Category** | **Zone**            | **NSR  Cut-Off** | **Tonnes  ('000 t)** | **Au  (g/t)** | **Ag  (g/t)** | **Cu  (%)** | **Pb  (%)** | **Zn  (%)** | **Au  ('000 oz)** | **Ag  ('000 oz)** | **Cu  ('000 lb)** | **Pb  ('000 lb)** | **Zn  ('000 lb)** |
|--------------|---------------------|------------------|----------------------|---------------|---------------|-------------|-------------|-------------|-------------------|-------------------|-------------------|-------------------|-------------------|
| Measured     | Oxides              | $29.03           | 735                  | 6.43          | 28.37         | 0.11        | 0.71        | 0.11        | 152               | 670               | 1,838             | 11,518            | 1,706             |
|         | Supergene  Cu       | $26.57           | 854                  | 0.77          | 43.33         | 4.98        | 0.16        | 0.24        | 21                | 1,189             | 93,796            | 3,081             | 4,490             |
|         | Primary             | $26.68           | 535                  | 0.76          | 50.72         | 0.86        | 0.33        | 7.68        | 13                | 872               | 10,088            | 3,900             | 90,557            |
|         | Subtotal  Measured  |             | 2,124                | 2.72          | 40.01         | 2.26        | 0.40        | 2.07        | 186               | 2,732             | 105,722           | 18,499            | 96,753            |
| Indicated    | Oxides              | $29.03           | 3,671                | 7.56          | 32.46         | 0.08        | 0.55        | 0.07        | 893               | 3,832             | 6,767             | 44,544            | 5,816             |
|         | Supergene  Cu       | $26.57           | 6,830                | 0.73          | 30.74         | 3.75        | 0.10        | 0.10        | 160               | 6,751             | 564,024           | 14,385            | 15,503            |
|         | Primary             | $26.68           | 17,224               | 0.71          | 43.34         | 0.95        | 0.19        | 5.12        | 393               | 23,999            | 362,493           | 71,679            | 1,944,427         |
|         | Subtotal  Indicated |             | 27,726               | 1.62          | 38.79         | 1.53        | 0.21        | 3.22        | 1,446             | 34,582            | 933,284           | 130,608           | 1,965,747         |
| Measured     | Oxides1,8           | $29.03           | 4,406                | 7.38          | 31.78         | 0.09        | 0.58        | 0.08        | 1,045             | 4,502             | 8,605             | 56,062            | 7,522             |
| +            | Supergene  Cu       | $26.57           | 7,684                | 0.73          | 32.14         | 3.88        | 0.10        | 0.12        | 181               | 7,941             | 657,820           | 17,466            | 19,993            |
| Indicated    | Primary             | $26.68           | 17,759               | 0.71          | 43.56         | 0.95        | 0.19        | 5.20        | 406               | 24,871            | 372,581           | 75,579            | 2,034,984         |
|         | Subtotal  M+I       |             | 29,849               | 1.70          | 38.88         | 1.58        | 0.23        | 3.14        | 1,632             | 37,314            | 1,039,006         | 149,107           | 2,062,500         |
| Inferred     | Oxides              | $29.03           | 44                   | 3.46          | 21.93         | 0.02        | 0.06        | 0.02        | 4.86              | 31                | 21                | 56                | 18                |
|         | Supergene  Cu       | $26.57           | 197                  | 0.48          | 22.09         | 1.97        | 0.05        | 0.03        | 3.06              | 140               | 8,537             | 210               | 120               |
|         | Primary             | $26.68           | 10,330               | 0.66          | 48.38         | 0.90        | 0.24        | 5.80        | 218.39            | 16,068            | 203,942           | 54,065            | 1,320,452         |
|         | Subtotal  Inferred  |             | 10,570               | 0.67          | 47.78         | 0.91        | 0.23        | 5.67        | 226.32            | 16,239            | 212,500           | 54,330            | 1,320,590         |

**Note**: Mineral Resources are inclusive of Mineral Reserves

| **Table 1 - 2               Bisha Oxide Stockpile Inventory Effective  January 1, 2011** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Category**                                                                                                                                              | **Zone** | **Tonnes** | **Au  (g/t)** | **Au   (oz)** |
| Measured                                                                                                                                                  | Stockpile | 197,235 | 3.64 | 23,111 |

Notes

|   | 1. | As announced in the Company’s news release dated February 7, 2012, theCompany has reconciled its 2011 ore control model with the January 2011 mineralresource estimate at Bisha, based on actual production data from 2011, and hasconcluded that the resource estimate used for mine planning over-estimated goldin portions of the Bisha Main oxide mineralization. This will be factored intothe new mineral resource estimate expected in mid-2012. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Mineral resources that are not mineral reserves do not have demonstratedeconomic viability. |
|--------|----|---------------------------------------------------------------------------------------------|

|   | 3. | Mineral Resources are inclusive of Mineral Reserves and do not includeexternal dilution. |
|--------|----|------------------------------------------------------------------------------------------|

|   | 4. | A Lerchs–Grossmann pit shell was used to constrain the Mineral Resourcesto assess reasonable prospects of eventual economic extraction.  The shellgeneration parameters are as follows: gold price of $1,170/oz, silver price of$18.20/oz, copper price of $2.76/lb, and zinc price of $1.05/lb.  Metallurgicalrecoveries by ore type are 87% Au and 36% Ag for oxide mineralization reportingto dore, 56% Au, 54% Ag and 88% Cu for supergene mineralization reporting to Cuconcentrate, 36% Au, 29% Ag and 85% Cu for primary copper mineralizationreporting to copper concentrate, and 9% Au, 20% Ag and 83.5% Zn for primaryzinc mineralization reporting to zinc concentrate.  The mining cost was$1.57/t, plus $0.01/t/5m bench below the reference elevation of 560m.  Thetotal ore based costs (process, G&A and stockpile rehandle) are $29.03/tfor oxide, $26.57/t for supergene and $26.68/t for primary ores.  Overall pitslopes varied from 43 to 55.5 degrees in rock and 18.5 degrees in overburden. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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- 22 -

|   | 5. | The NSR block values used the above metal prices and recoveries, plusappropriate smelter terms, royalties and transportation costs. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | Rounding as required by reporting guidelines may result in apparentsummation differences between tonnes, grade and contained metal content |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Tonnage and grade measurements are in metric units.  Contained gold andsilver ounces are reported as troy ounces, contained copper, lead and zincpounds as imperial pounds |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | This does not include depletion of the oxide that occurred in 2011.There is a risk that the density assumption in the remaining oxide material maynot be representative of the oxide deposit as a whole, or that the drillsamples used in the estimate may not be representative of the grade of thedeposit.  These are risks common to all deposits, but it would appear there isa higher risk in light of the information gained during production of theoxide. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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- 23 -

**Mi****neral Reserves**

The proven mineral reserves and probable mineral reservesat the Project have been classified in accordance with the 2010 CIM DefinitionStandards for Mineral Resources and Mineral reserves, whose definitions are incorporatedby reference in NI 43-101.  

Mineral reserves were defined  using a gold price of $1,015/oz,silver at $15.85/oz, copper at $2.40/lb, and zinc at $0.92/lb.

The Bisha mineral reserves are shown in Table 1 - 3. 

| **Table 1 - 3               Proven and Probable Reserves,    Effective Date: January 1, 2011, Jay Melnyk, P.Eng.**

**THIS MINERAL RESERVE    IS CURRENTLY BEING UPDATED FOR PLANNED RELEASE MID 2012, WITH AN UPDATED LIFE    OF MINE PLAN TO BE BASED ON THE UPCOMING RESOURCE MODEL UPDATE (SEE FEBRUARY    7, 2012 PRESS RELEASE)** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Ore  Type**                                  | **Ore****(kt)** | **Au  (g/t)** | **Ag  (g/t)** | **Cu  (%)** | **Zn  (%)** |
|------------------------------------------------|-----------------|---------------|---------------|-------------|-------------|
| *Oxide (above $29.03/t NSR cut-off)*      |            | **            |          |        |        |   |   |
| Proven                                         | 933             | 5.75          | 21.90         |        |        |
| Probable                                       | 3,719           | 7.39          | 31.48         |        |        |
| Sub-Total  Combined1                           | 4,651           | 7.06          | 29.56         |        |        |
| *Supergene (above $26.57/t NSR cut-off)*  |            | **            |          |        |        |   |   |
| Proven                                         | 844             | 0.80          | 43.47         | 4.92        |        |
| Probable                                       | 6,537           | 0.77          | 31.29         | 3.77        |        |
| Sub-Total  Combined                            | 7,382           | 0.78          | 32.68         | 3.90        |        |
| *Primary (above $26.68/t NSR cut-off)*    |            | **            |          |        |        |   |   |
| Proven                                         | 521             | 0.78          | 52.51         | 0.91        | 8.09        |
| Probable                                       | 15,759          | 0.72          | 44.12         | 0.97        | 5.31        |
| Sub-Total  Combined                            | 16,279          | 0.72          | 44.40         | 0.97        | 5.40        |
| Total  Proven                                  | 2,298           | 2.80          | 36.77         | 2.07        | 1.98        |
| Total  Probable                                | 26,015          | 1.69          | 39.09         | 1.55        | 3.26        |
| **Total  Combined**                            | **28,313**      | **1.78**      | **38.90**     | **1.60**    | **3.15**    |

Notes to accompany Mineral Reserve Table:

|   | 1. | As announced in the Company’s news release dated February 7, 2012, theCompany has reconciled its 2011 ore control model with the January 2011 mineralreserve estimate at Bisha, based on actual production data from 2011, and hasconcluded that the mineral resource estimate used for mine planningover-estimated gold in portions of the Bisha Main oxide mineralization.  Inaddition to 2011 mine depletion, the new mineral reserve estimate will bederived from the new mineral resource estimate expected in mid-2012. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Mineral Reserves are defined within a mine plan, with pit phase designsguided by Lerchs–Grossmann (LG) pit shells, generated using a gold price of$825/oz, silver at $12.50/oz, copper at $2.00/lb, and zinc at $0.75/lb andconsidering diluted Measured and Indicated mineral resources. Metallurgicalrecoveries by ore type are 87% Au and 36% Ag for oxide mineralization reportingto dore, 56% Au, 54% Ag and 92% Cu for supergene mineralization reporting to Cuconcentrate, 36% Au, 29% Ag and 85% Cu for primary copper mineralizationreporting to copper concentrate, and 9% Au, 20% Ag and 83.5% Zn for primaryzinc mineralization reporting to zinc concentrate.  The mining cost was$1.46/t, plus $0.01/t/5m bench below the reference elevation of 560m.  The totalore based costs (process, G&A and stockpile rehandle) are $29.03/t foroxide, $26.57/t for supergene and $26.68/t for primary ores.  Overall pitslopes varied from 43 to 55.5 degrees in rock and 18.5 degrees in overburden. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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- 24 -

|   | 3. | Reserves are reported within the above mentioned pit phase designs,using an NSR grade item, where the marginal cut-off is the ore based coststated above. After completion of the pit designs, the NSR was recalculatedusing a gold price of $1,015/oz, silver at $15.85/oz, copper at $2.40/lb, andzinc at $0.92/lb.  Recoveries used for the NSR calculation are as above withthe exception of the supergene copper recovery which was reduced from 92% to88% based on recent metallurgical testwork. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Proven oxide Mineral Reserves are inclusive of 197 kt at 3.64 g/t Au instockpile as of January 1, 2011, but since depleted during 2011. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Tonnages are rounded to the nearest 1,000 tonnes, grades are rounded totwo decimal places. |
|--------|----|--------------------------------------------------------------------------------------------|

|   | 6. | Rounding as required by reporting guidelines may result in apparent summationdifferences between tonnes, grade and contained metal content |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Tonnage and grade measurements are in metric units. |
|--------|----|-----------------------------------------------------|

|   | 8. | The originally planned life of mine strip ratio is 4.16 but will beupdated when the new Mineral Reserve is completed around mid-2012.Reconciliation from 2011 data has shown an increased strip ratio for the oxideportion than what was predicted and while these are inherent risks in minerreserve estimation, all insights gleaned from this reconciliation work will beapplied to the new Mineral Reserve to be released around mid-2012. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The Bisha open pit mining operation features a single pitconsisting of nine internal phases.  The first three phases target the oxideore, phases 4 to 6 target the Supergene ore, and phases 7 to 9 target theprimary ore. The mine, after the first year of depletion in 2011, has anestimated life of approximately 12 years at the originally planned millthroughputs of 2.0 Mt/a for oxide, 2.4 Mt/a for supergene and 2.4 Mt/a forprimary materials.  Pre-stripping of the oxide area began in mid-2010, with oredelivery to the ROM crusher pad beginning in July 2010.  

The mining method is conventional selective open pitmining, with mining rates (ore plus waste) of approximately 22 kt/d during theoxide phase.  Mining rates increase to a peak of just under 50 kt/d later inthe mine life as deeper primary mineralization is mined with higher stripratios.

**Operations**

To December 31, 2011, the Bisha Mine has produced 379,000ounces of gold, including 35,000 ounces during the commissioning phase early in2011.  Cash on hand increased to US $347 million at December 31, 2011.

| **Table 1 - 4** |
|-----------------|

|                  | **Q1 2011** | **Q2 2011** | **Q3 2011** | **Q4 2011** | **YTD 2011** |
|-----------------------|-------------|-------------|-------------|-------------|--------------|
| Tonnes  milled        | 461,000     | 444,000     | 446,000     | 455,000     | 1,806,000    |
| Recovery,  % of gold  | 88%         | 89%         | 88%         | 88%         | 88%          |
| Gold  ounces produced | 75,000      | 93,000      | 110,000     | 101,000     | 379,000      |

The Bisha Mine operated in excess of plan for gold processrecovery and feed grade and was below plan for milling while maintainingplanned gold production rates throughout the year. 

As part of the ordinary course of business, Nevsun hasreconciled its 2011 ore control model with the January 2011 mineral resourcemodel and mineral reserve estimate at Bisha, based on actual production datafrom 2011, and has concluded that the resource estimate used for mine planningover-estimated gold in portions of the Bisha Main oxide mineralization byapproximately 1.2 to 1.3 million ore tonnes. This change represents a reductionof approximately 4% in Bisha’s original total reserve tonnage which was 28.3million tonnes (Table 1.3). 

----

 

- 25 -

Company staff and a newly appointed independentengineering firm have conducted thorough investigations of the oxide part ofthe deposit and identified the issues that likely have contributed to theover-estimation.  One of the likely causes for the over-estimation of gold wasthe poor drill core recovery from the original exploration holes in the oxideportion of the deposit.  This had two negative impacts on contained metalestimation in the oxide portion of the orebody.  One impact of poor corerecovery was that it led, in part, to a biased estimate of the rock’s specificgravity.  The bulk densities used to construct the 2005 Mineral Resource modelwere based on measurements taken of solid pieces of drill core and it ispossible these bulk densities did not take into account pores and voids infriable and broken material, much of which was probably not recovered duringdiamond drilling. The specific gravity of the oxide appears to have beenover-estimated by as much as 25 to 30 percent in some areas. The other impactof poor drill core recovery was the exclusion of any metal (gold) assays fromthose portions of the drill holes where core recovery was less than 60%.  Therip-line samples (actual mining ore control data from 2011) demarcated barrenand mineralized (0.3 g/t Au cutoff) zones. These barren zones occur within theoxide zone of the Mineral Resource model and if the samples with less than 60percent core recovery had been used, it might have been possible to delineate(and exclude) this barren material from the resource model. In addition, thedrill assay composites that were used in the oxide portion of the Bisha Main mineralresource estimate had a coefficient of variation of 1.85. This indicated a highlyskewed distribution that is typical of gold deposits. Local high-gradecomposites (5 to 10 g/t Au) were averaged in with the lower-grade composites inthe Mineral Resource estimation which generated resource model block gradesthat were often above the 0.3 g/t cutoff grade used in mining operations tosegregate ore and waste. These factors lead to what is often termed gradesmearing of high grades into what were ‘low grade’ or ‘zero grade’ portionswhich was compounded by the lack of grade sub-domaining within the resourcemodel.

A new mineral resource block model is being constructedfor use in the determination of a new mineral resource and mineral reserveestimate and will follow the same methodologies used for the current estimationas outlined in the March 29, 2011 NI 43-101 Technical Report; however, theissues noted above that may have contributed to the over-estimation will beadjusted.  These adjustments will use newly collected pit sample bulk densityresults and production data from the past year of mining to apply amendeddensity values to the ore types to cater for the perceived specific gravitybias as well as considering better constrained ore and waste boundaries asrevealed in current pit exposures. The results for this are expected in mid-year2012.

**MetallurgicalTestwork and Process Plant Design**

The Bisha Property mineral resource contains three oretypes: the gold and silver bearing oxide cap, underlain by the secondary coppermineralized supergene ore, which is in turn underlain by the primary ore withchalcopyrite (Cu) and sphalerite (Zn) mineralization.

The metallurgical performances of the three ore types correspondingwith the January 2011 mineral reserves are summarized in Table 1 - 5.  

| **Table 1 - 5               Expected Metallurgical   Performance of the Three Ore Types** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               | **%Au    Recovery** | **%Ag    Recovery** | **%Cu    Grade** | **%Cu Recovery** | **%Zn     Grade** | **%Zn    Recovery** |
|------------------------------------|---------------------|---------------------|------------------|------------------|-------------------|---------------------|
| Bullion  from Oxide Ore            | 87                  | 36                  | -                | -                | -                 | -                   |
| Cu  Concentrate from Supergene Ore | 56                  | 54                  | 30               | 88               | -                 | -                   |
| Cu  Concentrate from Primary Ore   | 36                  | 29                  | 25               | 85               | 3.9               | 2.1                 |
| Zn  Concentrate from Primary Ore   | 9                   | 20                  | 0.3              | 3                | 55                | 83.5                |

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- 26 -

The three ores will require different processingtechniques and equipment.  The current plan is to mine and process each zone insuccession starting with the oxide zone which was mined in part already during2011.  When the oxide ore is exhausted later in Q1 2013, the supergene oreprocess equipment should be ready to start commissioning no more than a fewmonths following the gold plant being placed on care and maintenance.  Thiswill allow a manageable transition from processing the oxide ore to theprocessing of the supergene ore.  Based upon the recent gold reconciliation andthe subsequent lower production forecast for 2012 announced on February 7,2012, it is expected that there will be a manageable short term non-productionhiatus between exhaustion of the oxide ore currently being processed in thegold carbon-in-leach (CIL) plant and the hot commissioning of the supergenesulphide ore to be processed through the copper flotation plant in Q2 2013. Similarly, before the supergene ore is exhausted, the additional equipmentrequired to process the primary ore will be installed and commissioned topermit a smooth transition from supergene to primary ore.   No interruption toproduction is anticipated to be required for this latter transition fromsupergene ore to primary ore.

The oxide ore is currently processed by cyanide leachingand the supergene and primary ores will be processed by flotation.  Thecrushing, grinding and tailing systems will be common for the three plants.  Inthe first two years of production, gold and silver is recovered by adsorptionon carbon, stripped and recovered and then melted into doré bars and flown torefiners.  Production of copper concentrate is expected to begin mid-2013, withsignificant quantities for 2014-2015, and smaller quantities in 2016-2023. Zinc concentrate production occurs only in 2016-2023.  Concentrate will betransported to a concentrate storage and load-out facility at the port ofMassawa where it will be off-loaded and conveyed into the holding sheds forstorage prior to loading onto ocean freighters for shipment to smelters.

**Copper Plant Phase II Update**

Starting with the copper production phase in 2013, theCompany plans to increase ore tonnage throughput by 20%.  The basic engineeringfor the copper phase expansion was completed during 2011 and detailedengineering is nearing completion for constructing the copper flotationcircuits taking into account this planned increase.  Construction of the copperphase commenced in 2011.

An engineering, procurement, construction and management(“EPCM”) contract awarded to SENET, the same company which built the goldplant, has progressed well for much of the engineering and procurement work.  Pipingand instrument drawings have been progressed to “Issued for Design” status toprogress detailed engineering.  Earthworks and civil drawings are in theprocess of being issued to site for the civil works while structural steelworkand tank / platework drawings are also in the process of being issued to therespective fabricators. Certified drawings for all major process equipment iscomplete. All major process critical and long lead orders have been placed. Thefirst shipment containing flotation cells are expected to arrive on site byearly April 2012 and ex-works manufacture of the concentrate thickener andcyclones is complete.

On site, earthworks and terracing is complete and civilfoundations for the rougher flotation, reagent make-up and concentratethickener areas are underway. The Tower Crane erection is complete. The totalcommitments for the execution phase to the end of February 2012 amount to $ 47million, with actual expenditures at around $ 29 million.  Forecastexpenditures to complete the copper phase plant at the end of February 2012remain around $ 70 million. 

Mine life was extended as a result of increased reservesannounced in March 2011 and together with the impact of increased throughput,this had resulted in an estimated life of mine of 13 years, excluding anypotential extensions that may result from the 2011 drill programs designed tofurther expand mineral resources and mineral reserves. This mineral resourcesand mineral reserve update along with an updated Life of Mine plan is expectedto be released along with a technical report in mid-2012.

----

 

- 27 -

**MineWaste and Water Management**

Waste rock from the open pit is being placed in dumpsadjacent to the pit.  Waste rock with acid rock drainage potential is placed toallow drainage flow by gravity into the open pit for closure.  Duringoperation, all waste dump drainage will be intercepted and used as mill processwater or disposed in the tailings impoundment.  The original waste rock dumpplan, defined in the Bisha Feasibility Study and Social and EnvironmentalImpact Assessment (“SEIA”), was revised during 2009 to locate the waste rockdumps to the south of the open pit.  This revision was undertaken to minimisethe environmental impact, to optimise mine operations and to permit, ifeconomically feasible, the later exploitation of a copper zone identifiedsubsequent to the Bisha Feasibility Study and lying to the west of thecurrently defined open pit.  

Tailings generated from the processes is stored in animpoundment located in an area that provides the best available storagecharacteristics in terms of embankment construction requirements.  Subsequentto the Bisha Feasibility Study, management decided to relocate the tailingsimpoundment to a more appropriate site adjacent to the plant site and toinstall an impermeable plastic (HDPE) liner within the basin. The additionalcost has been included in capital cost updates below.  The tailings isthickened at the mill to reclaim as much water as possible for re-use in themineral processing and cyanide is destroyed prior to pumping to the tailingsimpoundment.  Applicable SEIA revisions accounting for the changes in theproject have been completed and approved by the Eritrean Ministries.

Surface water flow in the project area is non-existent formuch of the year; however, river and stream flow can be significant duringprecipitation events.  A diversion system will divert the Fereketatet rivercourse, upstream (southeast) of the project, and away from the open pit.  

**Infrastructure**

The major infrastructure includes electrical power supply,and a well farm for freshwater supply.  Electrical power is by a containeriseddiesel generating plant supplied and operated by a reputable internationalcontractor through a rental contract. 

Freshwater is supplied from groundwater produced from acombination of a well field located approximately 1.5 km southeast of theprocess plant site and another well field located approximately 6.5 kmsoutheast of the process plant along the base of the slope of the adjacentmountain range.  

A port site for the storage and loading of copper and zincconcentrate, produced from the later 2nd (copper) and 3rd(zinc and copper) phases of project development is planned at the Port ofMassawa. The site is of sufficient draught and has a recently constructedwarehouse that is large enough to handle both futurecopper and zinc concentrates, although modifications would be required. Thepier facilities and loading infrastructure is planned to be completed by mid2013. 

**Socioeconomic andEnvironmental Assessment and Approval**

The environmental assessment phase of this projectcommenced with baseline studies in 2004.  The Terms of Reference for theproject SEIA was approved by the Eritrean Ministry of Energy and Mines in March2006 and the SEIA was completed in December 2006.  During 2009 the Companycompleted an update report which augmented the 2006 SEIA and addressed therevisions to the configuration of the project that had occurred since the BishaFeasibility Study.  The project social and environmental management plans wereextended to capture the additional details of the project resulting from theadvancement of engineering and development and to ensure full compliance withthe Eritrean National Standards, and the 2006 International Finance CorporationPerformance Standards as applied to the Equator Principles. The Companycontinues to consult and work closely with government ministries

----

 

- 28 -

on matterspertaining to social and environmental aspects and will continue to do sothrough the life of the mine.  There have been no material adverse social orenvironmental impacts identified.

**Exploration &Development**

Development of the project commenced in2008.

At 2010 year-end plant construction wascomplete.  The first gold pour took place in late December 2010.  Commercialproduction was declared in February 2011. 

The mine life was originally modeled forthirteen years prior to commencement of operations, however the Bisha deposithas been drilled to depths lower than the 200 meter currently modeled pit andmineralization has been identified as low as 380 meters and open beyond thatdepth.  Accordingly it is the intention of the Company to further identify andquantify resources beyond the current pit with the goal of extending the lifeof mine well beyond thirteen years, with the new mineral resource and mineralreserve estimate to be announced by mid 2012.

In addition, further exploration work isplanned in the area to explore new targets within the 53 square kilometerExploration License adjacent to the 39 square kilometer mining agreement area. The Exploration License includes the already identified Harena Zone depositwhich was subject to an infill diamond drill program during the fourth quarterof 2010, the results of which were announced by news release in March 2011.  A resourceestimate has been completed on the Harena Zone deposit and a mining study wascompleted to support a Mining License application which was submitted to theEritrean Ministry of Mines in December 2011.  The associated reserve for Harenawill be included in the mid-2012 Reserve update.  The Company anticipates theissuance of the Mining License in Q2 2012.

**ITEM 4. DIVIDENDS**

The Company declared its first cash dividend of US$0.03per share in May, 2011, which was paid to shareholders of record at the closeof business on June 30, 2011.  The second dividend was declared in November,2011 for US$0.05 per share to shareholders of record at December 31, 2011, givingshareholders an accumulated annual dividend of US$0.08 for a total payment ofUS$15,947,885.

The Company intends to continue to pay a semi-annualdividend as cash flow permits, the amount to be decided by the Company’s boardof directors.

**ITEM 5.  DESCRIPTION OF CAPITAL STRUCTURE**

The Company has authorized capital of an unlimited numberof common shares without par value, 200,470,415 of which are issued andoutstanding at the date of this AIF.  All shares in the capital of the Companyare of the same class.  The holders of common shares are entitled to dividends,if, as and when declared by the board of directors, to one vote per commonshare at meetings of the shareholders of the Company and, upon liquidation, toshare equally in such assets of the Company as are distributable to the holdersof common shares.

The Company also has 8,787,500 stock options outstandingin accordance with its Stock Option Plan, of which 7,492,500 are vested; eachvested option is exercisable for one common share of the Company.  No warrantsare outstanding. 

At January 1, 2011 and December 31, 2011,9,300,332 and 11,197,272 stockoptions, respectively, were available for grant, but not yet granted, pursuantto the Company’s stock option plan.

----

 

- 29 -

The Company has not asked for, and is not aware of anystability or provisional ratings on the Company’s securities set by anyapproved rating organization.

**ITEM 6. MARKET FOR SECURITIES**

**6.1 Market for Securities**

The Company’s common shareshave traded on the Toronto Stock Exchange (“TSX”) since March 8, 1996 andon the NYSE Amex LLC (“NYSE Amex”) since January 12, 2005.  During the 2011 financialyear, the closing price of the Company’s stock on the TSX ranged from Cdn$4.59to Cdn$7.34, with monthly trading volume on the TSX ranging from 6.3 millionshares in February to 13.3 million shares in March, with an average monthlyvolume of 10.1 million shares on TSX plus 14.5 million shares on NYSE Amex, fora total average monthly volume of 24.6 million shares.  There are no seasonaltrends to fluctuations in volume or trading price.  The monthly high/low tradingprices and closing prices on the TSX and monthly volume for 2011 is as follows:

|               | **Common Shares** |
|--------------------|-------------------|
| **CDN  $**    | **High****($)**   | **Low****($)** | **Close****($)** | **Volume  (million)** |
| January            | 7.49              | 5.18 | 5.98 | 11,650,342 |
| February           | 6.41              | 5.32 | 5.46 | 6,336,948 |
| March              | 6.15              | 4.53 | 5.50 | 13,299,564 |
| April              | 6.64              | 5.37 | 6.16 | 8,017,943 |
| May                | 6.29              | 4.79 | 6.22 | 9,905,741 |
| June               | 6.36              | 5.25 | 5.84 | 8,891,997 |
| July               | 6.28              | 5.43 | 5.47 | 6,780,213 |
| August             | 6.99              | 4.84 | 6.71 | 11,172,769 |
| September          | 7.22              | 5.13 | 5.28 | 12,769,961 |
| October            | 5.72              | 4.41 | 5.26 | 11,452,982 |
| November           | 6.27              | 5.02 | 6.02 | 11,855,650 |
| December           | 6.14              | 5.05 | 5.66 | 9,643,384 |

**ITEM 7. DIRECTORS AND OFFICERS**

**7.1 Name, Occupation and Security Holding**

The following table sets forth, for each director and officer of the Company as of the date of this AIF, the name, municipality of residence, office, periods of service and the principal occupations in which each director and executive officer of the Company has been engaged during the immediately preceding five years.  Each director of the Company holds office until the next annual general meeting of the shareholders of the Company or until his successor is duly elected or appointed, unless his office is earlier vacated in accordance with the articles of the Company or he becomes disqualified to act as a director.  Each executive officer is appointed by the Board of Directors.

----

 

- 30 -

| **Name,   Municipality Of Residence and Position Held**                                          | **Principal   Occupation for the Past Five Years**                                                                                                                                                                           | **Director   Since** | **Number   & Percentage of Shares Held** |
|--------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|----------------------------------------------|
| R.  Stuart Angus(1)(3)(5)(6)  Vancouver, British  Columbia  Chairman and Director                | Business  advisor to the mining industry from January 2006 to present.                                                                                                                                                       | January  2003        | 402,392  (<1%)                            |
| Clifford  T. Davis  Vancouver, British Columbia  President, Chief Executive Officer and Director | President  and Chief Executive Officer of the Company from August 2008.  Executive Vice  President from 2005 – 2008 and Chief Financial Officer of the Company from  2002 to 2008.                                | December  1997       | 1,603,319  (<1%)                          |
| Anthony  J. Ferguson  Sydney, Australia  Director                                                | Senior  executive and Chairman of Global Natural Resources for Macquarie Capital,  Macquarie Group Limited, in Australia from 2006 to February 2012                                                                          | March  2012          | 0                                            |
| Robert  J. Gayton(1)(2)(5)(6)  West Vancouver, British Columbia  Director                        | Financial  Consultant since 1994.                                                                                                                                                                                            | November  2003       | 62,470  (<1%)                             |
| Gary  E. German(1)(2)(3)(4)(5)  Toronto, Ontario  Director                                  | Independent  Director and Advisor  for international resource companies 2005 to  the present and President, Old Saw Mill Investments Inc from Jan 2009.                                                            | April  1996          | 291,794  (<1%)                            |
| Gerard  E. Munera(1)(2)(3) (5)  Greenwich, Connecticut  Director                                 | Managing  Director, Synergex Group, investment holding company; Executive Chairman,  Arcadia Inc., manufacturer of building parts, since 1995.                                                                               | April  1996          | 502,618  (<1%)                            |
| Peter  J. Hardie  Maple Ridge, British Columbia  Chief Financial Officer                         | CFO of  the Company from August 2008; Controller and Sr. Accountant of the Company  from 2005 to 2008.                                                                                                                       | N/A                  | 2,000(<1%)                                |
| Scott  Trebilcock  VP Business Development & Investor Relations                              | VP  Business Development & IR with the Company since September 2010; VP  Business Development, Nautilus Minerals from September 2007 to September 2010;  Manager, PRTM Management Consultants, Boston MA from 2001-2007. | N/A                  | 0                                            |

----

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| **Name,      Municipality Of Residence and Position Held**            | **Principal      Occupation for the Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                       | **Director      Since** | **Number      & Percentage of Shares Held** |
|-----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|-------------------------------------------------|
| Frazer  W. Bourchier  North Vancouver, BC  Chief Operating Officer(4) | COO of the Company from January  2012; VP Business Development & Technical Services with Silver Wheaton  Corp from January 2010 to January 2012; Consultant for Aurizon Mines Oct-Dec  2009; VP Operations & Business Development, Intrepid Mines Ltd., January  2008-September 2009; General Manager  Business Development, Emperor Mines  Ltd., April 2007 – December 2007 and General Manager of Emperor’s Vatukoula  Mine from August 2006 – March 2007. | N/A                     | 0                                               |

| 1. | Member of the Governance Committee |
|----|------------------------------------|

| 2. | Member of the Audit Committee |
|----|-------------------------------|

| 3. | Member of the Human Resources Committee |
|----|-----------------------------------------|

| 4. | Member of the Social Environment, Health & Safety Committee |
|----|-----------------------------------------------------------------|

| 5. | Member of Special Committee |
|----|-----------------------------|

| 6. | Member of the Litigation Committee |
|----|------------------------------------|

As of March 28, 2012, the directors and executive officers of the Company, as a group, beneficially owned directly or indirectly, or exercised control or direction over 2,864,593 common shares or approximately 1.4% of the issued and outstanding common shares of the Company.  The same directors and executive officers, as a group, have been granted and currently hold options to purchase up to 6,830,000 shares of the Company, 1,650,000 of which were granted in 2011.

**7.2 Cease Trade Orders, Bankruptcies, Penalties orSanctions**

Certain directors or executive officersof the Company are, at the date of this AIF, or have been within the 10 years before the date of this AIF, a director, chiefexecutive officer or chief financial officer of a company that: 

(a) was subject to a cease trade or similar order, or an order that deniedthe relevant company access to any exemption under securities legislation, thatwas in effect for a period of more than 30 consecutive days (an “Order”) thatwas issued while the director or executive officer was acting in the capacityas director, chief executive officer or chief financial officer, or

(b) was subject to an Order that was issued after the director or executiveofficer ceased to be a director, chief executive officer or chief financialofficer and which resulted from an event that occurred while that person wasacting in the capacity as director, chief executive officer or chief financialofficer, 

details of which are described as follows:

|   | i. | Robert Gayton was a director and officer ofNewcoast Silver Mines Ltd. at the date of a Cease Trade Order issued by theBritish Columbia Securities Commission on September 30, 2003 and by the AlbertaSecurities Commission on October 31, 2003 for failure to file financialstatements.  The orders were revoked on October 23, 2003 and March 25, 2004respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | ii. | R. Stuart Angus is a director of Wildcat Silver Corporation (“Wildcat”),which requested and received notice from the British Columbia SecuritiesCommission of the issuance of a management cease trade order (the “MCTO”) onOctober 30, 2007 in connection with the late filing of its annual auditedconsolidated financial statements for the fiscal year ending June 30, 2007. Wildcat’s failure to make the filing within the required time frame was due tothe need to clarify potential foreign tax obligations relating to anacquisition it made.  The required filing was made on January 7, 2008 and theMCTO was revoked on January 8, 2008. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

One director of the Company has been, within the 10 yearsbefore the date of the AIF, a director or executive officer of a company that,while that person was acting in that capacity, or within a year of that personceasing to act in that capacity, became bankrupt, made a proposal under anylegislation relating to bankruptcy or insolvency or was subject to orinstituted any proceedings, arrangement or compromise with creditors or had areceiver, receiver manager or trustee appointed to hold its assets, details ofwhich are as follows:

|   | i. | Gerard E. Munera resigned from the board of SiVault Systems Inc. onOctober 10, 2006; in July of 2007, SiVault Systems Inc. started bankruptcyproceedings. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

No director or executive officer of the Company, orshareholder holding a sufficient number of securities of the Company to affectmaterially the control of the Company has, within the 10 years before the dateof this AIF, become bankrupt, made a proposal under any legislation relating tobankruptcy or insolvency, or was subject to or instituted any proceedings,arrangement or compromise with creditors, or had a receiver, receiver manageror trustee appointed to hold the assets of the director, executive officer orshareholder.

No director or officer of the Company, orto the Company’s knowledge, a shareholder holding a sufficient number ofsecurities of the Company to affect materially the control of the Company, has 

(a) been subject to any penalties or sanctionsimposed by a court relating to securities legislation or by a securitiesregulatory authority or has entered into a settlement agreement with asecurities regulatory authority; or

(b) been subject to any other penalties or sanctionsimposed by a court or regulatory body that would likely be considered importantto a reasonable investor in making an investment decision.  

**7.3 Conflicts of Interest**

There are no existing or potentialmaterial conflicts of interest between the Company or a subsidiary of theCompany and a director or officer of the Company or a subsidiary of theCompany. 

**7.4 Audit Committee**

The Company has a separately-designatedstanding audit committee in accordance with CSA National Instrument 52-110Audit Committees and with Section 3(a)(58)(A) of the United States SecuritiesExchange Act of 1934, as amended.

**(1)     ****Terms of Reference**

The Board has adopted terms of referencefor the Audit Committee which sets out the committee’s mandate, composition,responsibilities and duties.  A copy of the Terms of Reference is attached tothis AIF as Schedule “A”.

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- 33 -

**(2)     ****Independent Advice & Funding**

The Audit Committee shall have the authority to determinethe appropriate funding for the ordinary administrative expenses of the AuditCommittee.  In addition, the Audit Committee may, in its sole discretion,retain, at the expense of the Company, and determine the compensation to bereceived by, such legal, financial or other advisors or consultants as it maydeem necessary or advisable in order to properly and fully perform its dutiesand responsibilities hereunder.    

**(3)   Composition of the Audit Committee**

The Audit Committee has three members,all of whom are independent and financially literate.  An outline of eachmember’s relevant education and experience follows:

Robert J. Gayton, Chairman

Mr. Gayton is a Chartered Accountant with a Ph.D Businessfrom the University of California (1973).  He is a director and audit committeechairman of a number of companies, including Western Copper Corp., AmerigoResources Ltd. and B2Gold.  Mr. Gayton is a current member of the Institute ofChartered Accountants of B.C.  From 1976-1987 he was a partner with theaccounting firm Peat Marwick Mitchell in Mississauga, Coquitlam and Vancouver.Mr. Gayton has shown that he has a clear understanding of the relevantaccounting principles, internal controls and procedures for financialreporting, and the relevant experience preparing, auditing, analyzing andevaluating financial statements and their associated complex issues.

The Audit Committee has determined that Mr. Gayton is anaudit committee financial expert within the meaning of the rules promulgated bythe SEC and that Mr. Gayton is independent within the meaning of the NYSE AmexCompany Guide.

Gary E. German

Mr. German hasover thirty five years of senior management and executive positions in globalresource projects and companies, including the provision of strategic andcorporate finance direction and international commodity brokerage operations.Previously he was Managing Director, Corporate Finance Group (resources),Kingsdale Capital Corp. (02-03), and prior to this Chairman of the FinanceCommittee and Senior Advisor to the President-CEO of Ma'aden, the Kingdom ofSaudi Arabia's mineral resource development corporation. Mr. German is agraduate of the University of Toronto (Bachelor of Applied Science, IndustrialEngineering) and the University of Western Ontario (Diploma, InternationalManagement). 

Gerard E. Munera

Mr. Munera, a US citizen, is Managing Director of SynergexGroup LLC, an investment holding company, and Executive Chairman of Arcadia Inc.,a manufacturer of building products.  He has served on the Audit Committees ofthree public company boards and has a diverse background which includesengineering, economics, sales, finance, operations, mining and metals. Histenures have included Chief Financial Officer or Chief Executive Officer ofseveral mining and metals companies, including 20 years with Pechiney, first asCFO and then as CEO of their Argentine subsidiary, then as CEO of their USsubsidiary Howmet Aluminum and then as Senior Vice President of their FerroAlloys, Uranium and Carbon businesses in several international locations, allof which included detailed financial involvement with the company.  Mr. Munerawas also CEO of Union Miniere for five years and CEO of Minorco USA forthree years.

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- 34 -

**(4)   Pre-Approval Policies and Procedures**

The Audit Committee has adopted policiesand procedures for the engagement of non-audit services, described as follows:

The Company and its subsidiaries will not engage itsexternal auditor KPMG LLP (“KPMG”) to carry out any non-audit services that aredeemed inconsistent with an auditor’s independence (“Prohibited Service”).  TheAudit Committee will consider the pre-approval of permitted services to beperformed by the external auditor in each of the following broad categories: 

|   | Audit Services, Audit RelatedServices, Tax Services, as well as Compliance Services, Tax Planning Services,Commodity Tax Services, Executive Tax Services. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Other Services |
|--------|----------------|

|   | Valuation Services, InformationTechnology Advisory and Risk Management Services, Actuarial Services, Forensicand Related Services, Corporate Recovery Services, Transaction Services,Corporate Finance Services, Project Risk Management Services, OperationalAdvisory and Risk Management Services, Regulatory and Compliance Services |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

For permitted services the following pre-approval policieswill apply:

A.    Audit Services

The Audit Committee will pre-approve all Audit Servicesprovided by KPMG through the Audit Committee’s recommendation to shareholdersat the Company’s annual meeting, of KPMG as the Company’s external auditor and throughthe Audit Committee’s review of KPMG’s annual Audit Plan.  

B.    Pre-Approval of Audit Related, Tax and OtherNon-Audit Services

Periodically (e.g. annually), the Audit Committee willupdate a list of pre-approved services that are recurring or otherwisereasonably expected to be provided.  

The Audit Committee will be subsequentlyinformed at least annually of the services on the attached list forwhich the auditor has been actually engaged.

Any additional requests for pre-approvalwill be addressed on a case-by-case specific engagement basis as described in(C) below.  

C.    Approval of Additional Services

The Company employee making the request will submit therequest for service to the CFO.  The request for service should include adescription of the service, the estimated fee, a statement that the service isnot a “Prohibited Service” and the reason KPMG is being engaged.

Serviceswhere the aggregate fees are estimated to be less than or equal to $25,000.

Recommendations, in respect of each engagement, will besubmitted by the CFO to the Chairman of the Audit Committee for considerationand approval.  The full Audit Committee will subsequently be informed of theservice at its next meeting.  The engagement may commence upon approval of theChairman of the Audit Committee.

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Services where theaggregate fees are estimated to be greater than $25,000.

Recommendations, in respect of each engagement, will besubmitted by the CFO to the full Audit Committee for consideration andapproval, generally at its next meeting or at a special meeting called for thepurpose of approving such services.  The engagement may commence upon approvalof the full Committee.

**(5) External Auditor Fees**

All dollar amounts in this section areexpressed in Canadian currency.

The following table sets forth the aggregate fees billed tothe Company for the years ended December 31, 2011 and 2010 by KPMG:  

|                             | **Year ended****December 31,   2011** | **Year ended December 31, 2010** |
|----------------------------------|-------------------------------------------------|---------------------------------------|
| Audit FeesAudit-related  fees(1) | 438,80091,500                                   | 219,988   32,500            |
| Tax Fees(2)                      | 14,086                                          | 38,855                                |
| Total                            | 544,386                                         | 291,343                               |

|   | 1. | Audit related fees were comprised of services related to the Company’stransition from Canadian GAAP to IFRS during 2010, as well as quarterly reviewfees in 2010 and 2011. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Fees billed for tax services for review of annual returns and otherminor tax advisory matters, all in accordance with the pre-approval policies ofthe Audit Committee. None of the servicesrelated to the “Audit-related Fees” or the “Tax Fees” described above wasapproved by the Audit Committee pursuant to the waiver of pre-approved provisionsset forth in the applicable rules of the SEC. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM 8. LEGAL PROCEEDINGS AND REGULATORY ACTIONS**

A putative class action complaint was filed against the Company and certain of its executive officers in March 2012 in the United States District Court for the Southern District of New York, alleging liability under the U.S. federal securities laws on the basis that certain statements made by the defendants were materially false and/or misleading, for failure to disclose certain matters regarding the gold reserves and operations at the Bisha mine. The complaint seeks unspecified damages, including interest, reasonable costs, including attorneys’ fees, and such equitable relief as the court may deem proper. It is not possible at this time to estimate the ultimate outcome of such action.  The Company believes the allegations are without merit and will vigorously defend itself.

**ITEM 9.  INTEREST OF MANAGEMENT AND OTHERS IN TRANSACTIONS**

No director, officer or other insider of the Company, norany associate or affiliate of any director, officer or other insider has participatedin, directly or indirectly, nor had any material interest in, any materialtransaction of the Company in the most recently completed financial year or anyof the three preceding financial years.

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**ITEM 10. TRANSFER AGENTS AND REGISTRARS**

The Company’s registrar and transfer agent isComputershare Investor Services Inc., located in Vancouver, British Columbia.

**ITEM 11. MATERIAL CONTRACTS**

There were no material contracts other than in theordinary course of business entered into during 2011 and no such contracts fromprior years having continuing effect. 

**ITEM 12. NAMES AND INTERESTS OF EXPERTS**

The March 29, 2011 NI 43-101 TechnicalReport for the Bisha Project which is referenced in this AIF was prepared bythe following qualified individuals as representatives of AMEC AmericasLimited, managed through its Vancouver, Canada office.  

Jay Melnyk, P.Eng.formerly a Principal MiningEngineer, AMEC Americas Limited, (at the time of preparation of the March 29,2011 NI 43-101 Technical Report for the Bisha Project, but now with anindependent consulting firm).

David Thomas, P.Geo., Principal Geologist, AMEC Americas Limited

Alexandra Kozak,P.Eng., formerly Manager, Process Engineering, AMEC Americas Limited, (at the time ofpreparation of the March 29, 2011 NI 43-101 Technical Report for the BishaProject, but now with a mining company).

VikramKhera, P.Eng. Financial Analyst, AMEC Americas Limited 

To the best of the knowledge of the Company, AMEC AmericasLimited and the “designated professionals” (as such term is defined in Form51-102F2) thereof hold less than a 1% interest in the outstanding securities ofthe Company.

KPMG is the auditor for the Company and has audited theannual financial statements of the Company for the year ended December 31, 2011. KPMG have confirmed that they are independent with respect to the Companywithin the meaning of the Rules of Professional Conduct of the Institute ofChartered Accountants of British Columbia.

**ITEM 13. ADDITIONAL INFORMATION**

**13.1 Additional Information**

|   | 1. | Additionalinformation relating to the Company, may be found by using the System forElectronic Document Analysis and Retrieval (“SEDAR”) on the internet at www.sedar.com or the SEC EDGAR filing system athttp://www.sec.gov/edgar/searchedgar/webusers.htm. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 2. | Additional information including directors' andofficers' remuneration and indebtedness, principal holders of the Company'ssecurities and options to purchase securities is contained in the Company'sinformation circular for its most recent annual meeting of shareholders thatinvolves the election of directors. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Additional financial information is alsoprovided in the Company's audited consolidated financial statements andMD&A for its most recently completed financial year, copies of which may befound on SEDAR or EDGAR, or be obtained by contacting the Company at: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

NevsunResources Ltd.Suite 800 – 1075 West Georgia StreetVancouver, BC V6E 3C9Tel: 604-623-4700 or Toll-free 1-888-600-2200Email: contact@nevsun.com

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**SCHEDULE“A”**

**NEVSUNRESOURCES LTD.AUDIT COMMITTEE TERMS OF REFERENCE**

The Audit Committee is appointed by the Board of Directorsto: 

|   | i. | ensure the Company has in place an effective system of internal controlsover financial reporting which meets high standards of quality and integrityand complies with legal and regulatory requirements, and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ii. | monitor the performance, independence and qualification of the Company’sindependent auditor. |
|--------|-----|----------------------------------------------------------------------------------------------------|

**Composition**

The Audit Committee shall consist of at least threemembers of the Board of Directors.  Each member of the Audit Committee shall be“independent” of the Company within the meaning of all applicable legal andregulatory requirements, and each such member must not have participated in thepreparation of the Company’s financial statements, or that of the Company’ssubsidiaries, at any time during the three years prior to becoming a member ofthe Audit Committee (except in the circumstances, and only to the extent,permitted by all applicable legal and regulatory requirements).  Each member ofthe Audit Committee shall also be “financially literate”, which means that heor she must have the ability to read and understand a set of financialstatements that present a breadth and level of complexity of accounting issuesthat are generally comparable to the breadth and complexity of the issues thatcan reasonably be expected to be raised by the Company’s financial statements. In addition, at least one member of the Audit Committee shall be a “financialexpert” within the meaning of the rules and forms adopted by the U.S.Securities and Exchange Commission and shall be financially sophisticated, inthat he or she has past employment experience in finance or accounting,requisite professional certification in accounting, or any other comparableexperience or background which results in the individual's financialsophistication, including but not limited to being or having been a chiefexecutive officer, chief financial officer, other senior officer with financialoversight responsibilities (except in the circumstances, and only to theextent, permitted by all applicable legal and regulatory requirements).

**Responsibilities**

|   | 1. | Theoverall responsibilities of the Audit Committee are to: |
|--------|----|------------------------------------------------------------|

|   | 2. | assistthe Board of Directors and Management with meeting their responsibilities withrespect to financial reporting; |
|--------|----|---------------------------------------------------------------------------------------------------------------------|

|   | 3. | bedirectly responsible for (i) the selection of an external auditor to beproposed for election as the external auditor of the Company, (ii) theoversight of the work of the of the Company’s external auditor, (iii) theretention of the Company’s external auditor, and (iv) fixing the compensationof the external auditor of the Company, subject to the grant by theshareholders of the authority to do so, if required; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | ensurethat at all times there are direct communication channels between the AuditCommittee and the Company’s external auditor; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------|

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|   | 5. | ensurethe independence of the Company’s external auditor, including ensuring receiptfrom the external auditor of a formal written statement delineating allrelationships between the external auditor and the Company and activelyengaging in dialogue with the external auditor with respect to any disclosedrelationships or services that may impact the objectivity and independence ofthe external auditor; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | periodicallyreview and report to the Board of Directors whether Management has designed andimplemented an effective system of internal controls over financial reportingfor reviewing and reporting on the Company’s financial statements; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | reviewand report to the Board of Directors on all financial statements (includinginterim financial statements) prepared by the Company and enhance thecredibility and objectivity of all financial reports; and |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | otherwisereview the Company’s compliance with regulatory and statutory requirements asthey relate to financial statements, taxation matters and disclosure of relatedmaterial facts. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Duties**

For the purposes of fulfilling its responsibilities, theAudit Committee will:

|   | 1. | schedulemeetings to take place on a regular basis; |
|--------|----|----------------------------------------------------|

|   | 2. | affordan opportunity periodically to the external auditor and to senior Management tomeet separately with the Audit Committee, and when required,   meetindependently of the external auditor and Management; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | keepminutes of all meetings of the Audit Committee; |
|--------|----|-----------------------------------------------------|

|   | 4. | periodicallyreport the results of the reviews undertaken and any associated recommendationsto the Board of Directors; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------|

|   | 5. | selectan external auditor to be proposed by Management to the shareholders forelection by the shareholders as the external auditor for the Company, reviewand approve the terms of the external auditor's engagement and determine theappropriateness and reasonableness of the proposed audit fees and any unpaidfees; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | reviewand evaluate the qualifications, performance and independence of the leadpartner of the external auditor, discuss with Management the timing and processfor implementing the rotation of the lead audit partner and the reviewingpartners of the external auditor, and other issues related to a change of theexternal auditor and the planned steps for an orderly transition; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | obtainconfirmation from the external auditor that it will report directly to theAudit Committee; |
|--------|----|--------------------------------------------------------------------------------------------------|

|   | 8. | obtainconfirmation from the external auditor that it will report in a timely matterto the Audit Committee all critical accounting policies and practices to beused, all alternative accounting policies and practices, the ramifications ofeach of such accounting policy and practice and the accounting policy andpractice preferred by the external auditor, for the financial information ofthe Company within applicable International Financial Reporting Standards(IFRS), which have been discussed with Management; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 9. | obtainconfirmation from the external auditor that it will provide a copy of allmaterial written communications between the external auditor and Managementincluding, without limitation, any Management letter or schedule of unadjusteddifferences; |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10. | review and approve theCompany’s hiring policies regarding partners, employees and former partners andemployees of the present and any former external auditor of the Company; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 11. | review all reportableevents, including disagreements, unresolved issues and consultations, asdefined in National Instrument 51-102 of the Canadian SecuritiesAdministrators, on a routine basis; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12. | review and pre-approve anyand all engagements for non-audit services to be provided to the Company or toany of its subsidiaries by the Company’s external auditor or any affiliates ofthe external auditor, together with estimated fees, and review and approve theaudit plan with the external auditor and with Management; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 13. | review with Management andwith the external auditor any  proposed changes in major accounting policies,the presentation and impact of significant risks and uncertainties and keyestimates and judgments of Management that may be material to financialreporting; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 14. | assist in the preparation ofany internal control report by Management, which provides that Management isresponsible for establishing and maintaining an adequate control structure andprocedures for financial reporting by the Company, assessing the effectivenessof such control structure and procedures and ensuring that the external auditorof the Company, if required by governing legislation or regulation, attest toand report on the assessment of such control structure and procedures byManagement; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 15. | assist the Chief ExecutiveOfficer and the Chief Financial Officer of the Company in their assessment ofthe effectiveness of the Company’s internal control over financial reportingand in determining whether there has been any material change in the Company’sinternal control over financial reporting which has materially affected orcould materially affect such internal control subsequent to the date of theevaluation; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 16. | assist the Chief ExecutiveOfficer and the Chief Financial Officer of the Company in identifying andaddressing any significant deficiencies or material weaknesses in the design oroperation of the Company’s internal control over financial information and anyfraud, whether or not material, that involves Management or other employees whohave a significant role in the Company’s internal control over financialreporting; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 17. | question Management and theexternal auditor regarding significant financial reporting issues discussed duringthe fiscal period and the method of resolution; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 18. | review any problemsexperienced by the external auditor in performing the audit, including anyrestrictions imposed by Management or significant  accounting issues to whichthere was a disagreement with Management; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 19. | review audited annualfinancial statements, in conjunction with the report of the external auditor,and obtain an explanation from Management of all significant variances betweencomparative reporting periods; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 20. | review the post-audit orManagement letter, containing the recommendations of the external auditor andManagement’s response and subsequent follow up to any identified weaknesses; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 21. | review all interim unauditedfinancial statements before release to the public; |
|--------|-----|--------------------------------------------------------------------------------|

|   | 22. | review all public disclosuredocuments containing audited or unaudited financial information before release,including any prospectus, the annual report, the annual information form andManagement’s discussion and analysis; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 23. | ensure that the Companydiscloses in the periodic reports of the Company, as appropriate, whether atleast one member of the Audit Committee is a “financial expert” within themeaning of the rules and forms adopted by the U.S. Securities and ExchangeCommission; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 24. | ensure that all non-auditservices provided by the external auditor are approved by or on behalf of theAudit Committee and are disclosed in the periodic reports of the Company; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 25. | ensure that each annualreport and, to the extent required by any applicable legal or regulatoryrequirement, any quarterly report of the Company includes disclosure withrespect to all material off-balance sheet transactions, arrangements,obligations (including contingent obligations) and other relationships of theCompany with unconsolidated entities which may have a current or future effecton the Company in accordance with all applicable legal and regulatoryrequirements; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 26. | ensure that all financialstatements and other financial information, including pro forma financialinformation, included in any report filed by the Company with any regulatoryauthority or contained in any public disclosure or press release of the Companyis presented in a manner which does not contain a material misstatement oromission and reconciles the pro forma information contained therein to IFRS,and which otherwise complies with all applicable legal and regulatoryrequirements; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 27. | review the evaluation ofinternal control by the external auditor, together with Management’s responses; |
|--------|-----|---------------------------------------------------------------------------------------------------------------|

|   | 28. | review the appointments ofthe chief financial officer and any key financial executives involved in thefinancial reporting process; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------|

|   | 29. | establish procedures for (i)the receipt, retention and treatment of complaints regarding accounting,internal accounting controls, or auditing matters, and (ii) the confidential,anonymous submission by employees of concerns regarding questionable accountingor auditing matters; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 30. | annually assess the adequacyof the above Terms of Reference; and |
|--------|-----|------------------------------------------------------------------|

|   | 31. | annually evaluate the AuditCommittee’s performance. |
|--------|-----|-----------------------------------------------------------|

----