|   | **NEVSUN RESOURCES LTD.**

Consolidated Financial Statements            Years ended December 31, 2012 and 2011            (Expressed in United States dollars) |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING**

The accompanyingconsolidated financial statements of Nevsun Resources Ltd. are theresponsibility of management.

The consolidatedfinancial statements have been prepared in accordance with InternationalFinancial Reporting Standards as issued by the International AccountingStandards Board.  These statements include amounts that are based onmanagement’s best estimates and judgments.  Management has determined suchamounts on a reasonable basis in order to ensure that the consolidatedfinancial statements are presented fairly, in all material respects. Management is also responsible for ensuring that financial information usedelsewhere in annual filings is consistent with that in the financialstatements.

The Companymaintains a system of internal control in order to provide management withreasonable assurance that the financial information is relevant, reliable andaccurate and that the Company’s assets are appropriately accounted for andadequately safeguarded.

The Board ofDirectors is responsible for ensuring that management fulfills itsresponsibilities for financial reporting and internal control, and exercisesthis responsibility through the Audit Committee.  The Audit Committeeconsists of three directors all of whom are independent.  This Committeemeets periodically with management, as well as the external auditors, tosatisfy itself that each party is properly discharging its responsibilities,and to review the quarterly and annual consolidated financial statements andsubmit them to the Board of Directors; review the adequacy of the system ofinternal controls; review any relevant accounting, financial and securityregulatory matters; recommend the appointment of external auditors; and approvethe scope of the internal and external auditors' audit and non-auditwork.  

The Company’sauditors, KPMG LLP, Registered Public Accountants, appointed by theshareholders, conduct an examination in accordance with Canadian generallyaccepted auditing standards and standards of the Public Company AccountingOversight Board (United States) to allow them to express their opinion on thefinancial statements.  The auditors have full and free access to the AuditCommittee and their reports are included herein.

*“Cliff T. Davis”*

Cliff T. DavisChief Executive Officer

*“Fausto Taddei”*

Fausto TaddeiChief Financial Officer

March 20, 2013

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|   | **KPMG LLP      Chartered Accountants**      PO Box 10426 777 Dunsmuir Street      Vancouver BC V7Y 1K3      Canada | Telephone  (604)  691-3000Fax              (604)  691-3031Internet     www.kpmg.ca |
|--------|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM**

 To the Shareholders and Directors of Nevsun Resources Ltd.

 We have audited the accompanying consolidated financial statements of Nevsun Resources Ltd., which comprise the  consolidated balance sheets as  at December 31, 2012 and December 31, 2011, and the consolidated statements of comprehensive income,  changes in equity, and cash flows for the years then ended, and notes,  comprising a summary of significant accounting policies and other explanatory  information.

*Management's Responsibility  for the Consolidated Financial  Statements*

 Management is responsible for the preparation and fair presentation of  these consolidated financial  statements in accordance with International Financial Reporting Standards as  issued by the International Accounting Standards Board, and for such internal  control as management determines is necessary to enable the preparation of  consolidated financial  statements that are free from material misstatement, whether due to fraud or  error.

*Auditors’ Responsibility*

 Our responsibility is to express an opinion on these consolidated financial statements based on our  audits. We conducted our audits in accordance with Canadian generally accepted  auditing standards and the standards of the Public Company Accounting Oversight  Board (United States). Those standards require that we comply with ethical  requirements and plan and perform the audit to obtain reasonable assurance  about whether the consolidated financial  statements are free from material misstatement.

 An audit involves performing procedures to obtain audit evidence about  the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our  judgment, including the assessment of the risks of material misstatement of the  consolidated financial  statements, whether due to fraud or error. In making those risk assessments, we  consider internal control relevant to the entity's preparation and fair  presentation of the consolidated financial  statements in order to design audit procedures that are appropriate in the  circumstances. An audit also includes evaluating the appropriateness of  accounting policies used and the reasonableness of accounting estimates made by  management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in  our audits is sufficient and appropriate to provide a basis for our audit  opinion. 

|   | KPMG LLP is a Canadian limited liability partnership and a member  firm of the KPMGnetwork of independent member firms affiliated with KPMG International  Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| *Nevsun Resources Ltd.       Page 2* |
|--------------------------------------|

*Opinion*

 In our opinion, the  consolidated financial  statements present fairly, in all material respects, the consolidated financial  position of the Company as at December 31, 2012 and  December 31, 2011, and its consolidated  financial performance and its consolidated cash flows for the years then  ended, in accordance with International Financial Reporting Standards as issued  by the International Accounting Standards Board.

*Other Matter*

We also have audited, in accordance with the  standards of the Public Company Accounting Oversight Board (United States), the  Company’s internal control over financial reporting as of December 31,  2012, based on the criteria  established in Internal Control - Integrated Framework issued by the Committee  of Sponsoring Organizations of the Treadway Commission (COSO), and our  report dated March 20, 2013 expressed an  unqualified opinion on the effectiveness of the internal control over financial  reporting. 

  Chartered Accountants 

March 20, 2013  Vancouver, Canada

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|   | **KPMG LLP      Chartered Accountants**      PO Box 10426 777 Dunsmuir Street      Vancouver BC V7Y 1K3      Canada | Telephone  (604)  691-3000      Fax              (604)  691-3031      Internet     www.kpmg.ca |
|--------|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**REPORT OF INDEPENDENT REGISTERED   PUBLIC ACCOUNTING FIRM**

 To the Shareholders  and Board of Directors of Nevsun Resources Ltd.

We have audited  Nevsun Resources Ltd.’s (the "Company") internal control over  financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by  the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for  maintaining effective internal control over financial reporting and for its  assessment of the effectiveness of internal control over financial reporting,  included in the accompanying Management’s Report on Internal Controls Over  Financial Reporting. Our responsibility is to express an opinion the Company's  internal control over financial reporting based on our audit.

 We conducted our  audit in accordance with the standards of the Public Company Accounting  Oversight Board (United States). Those standards require that we plan and  perform the audit to obtain reasonable assurance about whether effective  internal control over financial reporting was maintained in all material  respects. Our audit included obtaining an understanding of internal control  over financial reporting, assessing the risk that a material weakness exists,  and testing and evaluating the design and operating effectiveness of internal  control based on the assessed risk. Our audit also included performing such  other procedures as we considered necessary in the circumstances. We believe  that our audit provides a reasonable basis for our opinion.

 A company's  internal control over financial reporting is a process designed to provide  reasonable assurance regarding the reliability of financial reporting and the  preparation of financial statements for external purposes in accordance with  generally accepted accounting principles. A company's internal control over  financial reporting includes those policies and procedures that (1) pertain to  the maintenance of records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the company; (2)  provide reasonable assurance that transactions are recorded as necessary to  permit preparation of financial statements in accordance with generally  accepted accounting principles, and that receipts and expenditures of the  company are being made only in accordance with authorizations of management and  directors of the company; and (3) provide reasonable assurance regarding  prevention or timely detection of unauthorized acquisition, use, or disposition  of the company's assets that could have a material effect on the financial  statements.

|   | KPMG LLP is a Canadian limited liability partnership and a member  firm of the KPMGnetwork of independent member firms affiliated with KPMG International  Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| *Nevsun Resources Ltd.   Page 2* |
|----------------------------------|

Because of its  inherent limitations, internal control over financial reporting may not prevent  or detect misstatements. Also, projections of any evaluation of effectiveness  to future periods are subject to the risk that controls may become inadequate  because of changes in conditions, or that the degree of compliance with the  policies or procedures may deteriorate.

 In our opinion, the  Company maintained, in all material respects, effective internal control  over financial reporting as of December 31, 2012, based on the criteria established in Internal  Control—Integrated Framework issued by the Committee of Sponsoring  Organizations of the Treadway Commission (COSO).

 We also have audited, in accordance with Canadian generally accepted  auditing standards and in accordance with the standards of the Public  Company Accounting Oversight Board (United States), the consolidated balance  sheets as at December 31, 2012 and December 31, 2011, and the consolidated  statements of comprehensive income, changes in equity and cash flows for the  years then ended, and our report dated March 20, 2013 expressed an unqualified opinion on those consolidated  financial statements.

 Chartered Accountants 

March  20, 2013  Vancouver,  Canada

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| **NEVSUN RESOURCES LTD.**      Consolidated Balance Sheets      (Expressed  in thousands of United States dollars) |
|--------------------------------------------------------------------------------------------------------------------|

|                                                                     | Note   |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------------------------------------------------------------------------|--------|--------|--------------------|--------|--------|--------------------|--------|
|                                                                     |   |   |               |   |   |               |   |
| **Assets**                                                               |   |   |               |   |   |               |   |
|                                                                     |   |   |               |   |   |               |   |
| Current assets                                                           |   |   |               |   |   |               |   |
|      Cash and cash equivalents                  | 7      | $      | 396,404            |   | $      | 347,582            |   |
|      Accounts receivable and prepaids           | 8      |   | 27,870             |   |   | 20,490             |   |
|      Inventories                                | 9      |   | 45,864             |   |   | 32,099             |   |
|      Due from non-controlling interest          | 10     |   | -                  |   |   | 11,137             |   |
|                                                                     |   |   | 470,138            |   |   | 411,308            |   |
| Non-current assets                                                       |   |   |               |   |   |               |   |
|      Due from non-controlling interest          | 10     |   | 63,130             |   |   | 84,312             |   |
|      Mineral properties, plant and equipment    | 11     |   | 340,428            |   |   | 279,606            |   |
|                                                                     |   |   | 403,558            |   |   | 363,918            |   |
| Total assets                                                             |   | $      | 873,696            |   | $      | 775,226            |   |
|                                                                     |   |   |               |   |   |               |   |
| **Liabilities and equity**                                               |   |   |               |   |   |               |   |
|                                                                     |   |   |               |   |   |               |   |
| Current liabilities                                                      |   |   |               |   |   |               |   |
|      Accounts payable and accrued liabilities   | 12     | $      | 18,130             |   | $      | 24,651             |   |
|      Dividends payable                          | 13     |   | 9,949              |   |   | 10,013             |   |
|      Income taxes payable                       |   |   | 43,615             |   |   | 103,670            |   |
|                                                                     |   |   | 71,694             |   |   | 138,334            |   |
|                                                                     |   |   |               |   |   |               |   |
| Non-current liabilities                                                  |   |   |               |   |   |               |   |
|      Deferred income taxes                      | 14(c)  |   | 20,704             |   |   | 16,187             |   |
|      Provision for mine closure and reclamation | 15     |   | 18,013             |   |   | 13,233             |   |
|                                                                     |   |   | 38,717             |   |   | 29,420             |   |
| Total liabilities                                                        |   |   | 110,411            |   |   | 167,754            |   |
|                                                                     |   |   |               |   |   |               |   |
| Equity                                                                   |   |   |               |   |   |               |   |
|      Share capital                              | 16     |   | 404,960            |   |   | 409,305            |   |
|      Share-based payments reserve               |   |   | 13,145             |   |   | 11,736             |   |
|      Retained earnings                          |   |   | 201,698            |   |   | 76,383             |   |
|      Equity attributable to Nevsun shareholders |   |   | 619,803            |   |   | 497,424            |   |
|                                                                     |   |   |               |   |   |               |   |
| Non-controlling interest                                                 | 10     |   | 143,482            |   |   | 110,048            |   |
| Total equity                                                             |   |   | 763,285            |   |   | 607,472            |   |
| Total liabilities and equity                                             |   | $      | 873,696            |   | $      | 775,226            |   |
| Commitments and contingencies (notes 12, 23, 29)                    |   |   |               |   |   |               |   |

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

| Approved on behalf of the Board:     |
|--------------------------------------|
| ***“Robert J. Gayton”*** |   | Director |   | ***“R. Stuart Angus”*** |   | Director |
| Robert J. Gayton                     |   |   |   | R. Stuart Angus |   |   |

2

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| **NEVSUN RESOURCES LTD.**      Consolidated Statements of Comprehensive Income       (Expressed in thousands of United States dollars, except per share amounts)        Years ended December 31, 2012 and 2011 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                         | Note   |   | 2012     |   |   | 2011     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
|                                                                                                                                         |   |   |     |   |   |     |   |
| Revenues                                                                                                                                     | 17     | $      | 566,039  |   | $      | 547,770  |   |
| Cost of sales                                                                                                                                |   |   |     |   |   |     |   |
|      Operating expenses                                                                                             | 18     |   | (103,432 | )      |   | (76,812  | )      |
|      Royalties                                                                                                      |   |   | (27,898  | )      |   | (27,283  | )      |
|      Depreciation and depletion                                                                                     |   |   | (29,035  | )      |   | (25,892  | )      |
| Operating income                                                                                                                             |   |   | 405,674  |   |   | 417,783  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Administrative expenses                                                                                                                      | 19     |   | (8,261   | )      |   | (14,471  | )      |
| Finance income                                                                                                                               | 20     |   | 3,956    |   |   | 4,913    |   |
| Finance costs                                                                                                                                | 21     |   | (624     | )      |   | (2,334   | )      |
| Income before taxes                                                                                                                          |   |   | 400,745  |   |   | 405,891  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Income taxes                                                                                                                                 | 14(a)  |   | (154,049 | )      |   | (155,857 | )      |
| Net income                                                                                                                                   |   |   | 246,696  |   |   | 250,034  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Other comprehensive income (loss), net of  tax                                                                                               |   |   |     |   |   |     |   |
|      Reclassification adjustment for realized gain  on sale of available-for-sale investment included in net income |   |   | -        |   |   | (1,166   | )      |
|      Unrealized gain on available-for-sale  investment                                                              |   |   | -        |   |   | 458      |   |
| Comprehensive income                                                                                                                         |   | $      | 246,696  |   | $      | 249,326  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Net income attributable to:                                                                                                                  |   |   |     |   |   |     |   |
|      Nevsun shareholders                                                                                            |   | $      | 145,262  |   | $      | 147,065  |   |
|      Non-controlling interest                                                                                       |   |   | 101,434  |   |   | 102,969  |   |
|                                                                                                                                         |   | $      | 246,696  |   | $      | 250,034  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Comprehensive income attributable to:                                                                                                        |   |   |     |   |   |     |   |
|      Nevsun shareholders                                                                                            |   | $      | 145,262  |   | $      | 146,357  |   |
|      Non-controlling interest                                                                                       |   |   | 101,434  |   |   | 102,969  |   |
|                                                                                                                                         |   | $      | 246,696  |   | $      | 249,326  |   |
|                                                                                                                                         |   |   |     |   |   |     |   |
| Earnings per share attributable to Nevsun shareholders:                                                                                      | 16(f)  |   |     |   |   |     |   |
|      Basic                                                                                                          |   | $      | 0.73     |   | $      | 0.74     |   |
|      Diluted                                                                                                        |   | $      | 0.72     |   | $      | 0.73     |   |

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

3

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| **NEVSUN RESOURCES LTD.**      Consolidated Statements of Cash Flows      (Expressed in thousands of United States dollars)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                               | Note         |   | 2012     |   |   | 2011    |   |
|----------------------------------------------------------------------------------------------------|--------------|--------|----------|--------|--------|---------|--------|
| Cash provided by (used in)                                                                         |         |   |     |   |   |    |   |
| Operating                                                                                          |         |   |     |   |   |    |   |
| Net income                                                                                         |         | $      | 246,696  |   | $      | 250,034 |   |
| Items not involving the use of cash                                                                |         |   |     |   |   |    |   |
|      Accretion on reclamation liability                                   | 15           |   | 612      |   |   | 509     |   |
|      Depreciation and depletion                                           |         |   | 29,045   |   |   | 25,892  |   |
|      Income taxes                                                         |         |   | 154,049  |   |   | 155,857 |   |
|      Share-based payments and stock appreciation  rights                  | 16(c), 16(d) |   | 996      |   |   | 8,897   |   |
|      Interest income on due from non-controlling  interest                | 10           |   | (3,677   | )      |   | (3,625  | )      |
|      Interest expense on advances from  non-controlling interest          | 10           |   | -        |   |   | 1,681   |   |
|      Gain on sale of available-for-sale investment                        |         |   | -        |   |   | (1,166  | )      |
| Changes in non-cash operating capital                                                              |         |   |     |   |   |    |   |
|      Accounts receivable and prepaids                                     |         |   | (7,381   | )      |   | (14,960 | )      |
|      Inventories                                                          |         |   | (12,999  | )      |   | (20,595 | )      |
|      Accounts payable and accrued liabilities                             |         |   | (3,940   | )      |   | (560    | )      |
|      Income taxes paid                                                    | 14(b)        |   | (209,586 | )      |   | (36,000 | )      |
|                                                                                               |         |   |     |   |   |    |   |
| Net cash provided by operating activities                                                          |         |   | 193,815  |   |   | 365,964 |   |
| Investing                                                                                          |         |   |     |   |   |    |   |
|      Proceeds on sale of available-for-sale  investment                   |         |   | -        |   |   | 1,232   |   |
|      Proceeds on pre-production gold sales                                | 11           |   | -        |   |   | 48,613  |   |
|      Expenditures on plant and equipment – gold  phase              |         |   | (13,148  | )      |   | (33,717 | )      |
|      Expenditures on plant and equipment – copper  phase            |         |   | (62,053  | )      |   | (24,050 | )      |
|      Expenditures on exploration and evaluation                           |         |   | (11,263  | )      |   | (6,105  | )      |
|      Changes in non-cash working capital related to  investing activities |         |   | (1,627   | )      |   | 2,400   |   |
|                                                                                               |         |   |     |   |   |    |   |
| Net cash used in investing activities                                                              |         |   | (88,091  | )      |   | (11,627 | )      |
| Financing                                                                                          |         |   |     |   |   |    |   |
|      Dividends paid to Nevsun shareholders                                | 13           |   | (19,989  | )      |   | (5,935  | )      |
|      Distribution to non-controlling interest                             | 10           |   | (68,000  | )      |   | -       |   |
|      Receipt of purchase price settlement from  non-controlling interest  | 10           |   | 34,223   |   |   | 26,490  |   |
|      Interest received on due from non-controlling  interest              | 10           |   | 1,773    |   |   | 598     |   |
|      Principal and interest paid on loan from  non-controlling interest   | 10           |   | -        |   |   | (4,103  | )      |
|      Repayment of advances from non-controlling  interest                 | 10           |   | -        |   |   | (74,995 | )      |
|      Interest paid on advances from non-controlling  interest             | 10           |   | -        |   |   | (6,414  | )      |
|      Issuance of common shares, net of issue costs                        | 16           |   | 1,363    |   |   | 7,459   |   |
|      Repurchase and cancellation of common shares                         | 16(b)        |   | (6,272   | )      |   | -       |   |
|                                                                                               |         |   |     |   |   |    |   |
| Net cash used in financing  activities                                                        |         |   | (56,902  | )      |   | (56,900 | )      |
| Increase in cash and cash equivalents                                                              |         |   | 48,822   |   |   | 297,437 |   |
| Cash and cash equivalents, beginning of year                                                       |         |   | 347,582  |   |   | 50,145  |   |
| Cash and cash equivalents, end of year                                                             |         | $      | 396,404  |   | $      | 347,582 |   |
| Supplemental cash flow information (note 22)                                                       |         |   |     |   |   |    |   |

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

4

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| **NEVSUN RESOURCES LTD.**      Consolidated Statements of Changes in Equity      (Expressed in thousands of United States dollars)      Years ended December 31, 2012 and 2011 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                    |   | Number of  shares  (note 16) |   | Share capital  (note 16) |   | Share-based  payments  reserve |   | Accumulated other  comprehensive  income |   | Retained  earnings   (deficit) |   | Equity attributable to Nevsun  shareholders |   | Non-controlling  interest |   | Total   equity |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|--------------------------|--------|--------------------------------|--------|------------------------------------------|--------|-------------------------------------|--------|---------------------------------------------|--------|---------------------------|--------|---------------------|
| December 31, 2010                                                                                       |   | 196,488,322                  | $      | 390,658                  | $      | 10,056                         | $      | 708                                      | $      | (194,675)                           | $      | 206,747                                     | $      | (3,915)                   | $      | 202,832             |
| Exercise of stock options                                                                               |   | 2,510,300                    |   | 7,459                    |   | -                              |   | -                                        |   | -                                   |   | 7,459                                       |   | -                         |   | 7,459               |
| Exercise of stock appreciation  rights                                                                  |   | 1,256,093                    |   | 8,451                    |   | -                              |   | -                                        |   | -                                   |   | 8,451                                       |   | -                         |   | 8,451               |
| Transfer to share capital on  exercise of options                                                       |   | -                            |   | 2,737                    |   | (2,737)                        |   | -                                        |   | -                                   |   | -                                           |   | -                         |   | -                   |
| Activation of stock appreciation  rights                                                                |   | -                            |   | -                        |   | (3,213)                        |   | -                                        |   | (9,716)                             |   | (12,929)                                    |   | -                         |   | (12,929)            |
| Share-based payments                                                                                    |   | -                            |   | -                        |   | 7,630                          |   | -                                        |   | -                                   |   | 7,630                                       |   | -                         |   | 7,630               |
| Other comprehensive loss                                                                                |   | -                            |   | -                        |   | -                              |   | (708)                                    |   | -                                   |   | (708)                                       |   | -                         |   | (708)               |
| Partial disposition of subsidiary  to non-    controlling interest, net of tax (note 10) |   | -                            |   | -                        |   | -                              |   | -                                        |   | 149,657                             |   | 149,657                                     |   | 10,994                    |   | 160,651             |
| Income for the year                                                                                     |   | -                            |   | -                        |   | -                              |   | -                                        |   | 147,065                             |   | 147,065                                     |   | 102,969                   |   | 250,034             |
| Dividends declared (note 13)                                                                            |   | -                            |   | -                        |   | -                              |   | -                                        |   | (15,948)                            |   | (15,948)                                    |   | -                         |   | (15,948)            |
| December 31, 2011                                                                                       |   | 200,254,715                  | $      | 409,305                  | $      | 11,736                         | $      | -                                        | $      | 76,383                              | $      | 497,424                                     | $      | 110,048                   | $      | 607,472             |
| Exercise of stock options                                                                               |   | 460,700                      |   | 1,545                    |   | -                              |   | -                                        |   | -                                   |   | 1,545                                       |   | -                         |   | 1,545               |
| Transfer to share capital on  exercise of options                                                       |   | -                            |   | 382                      |   | (382)                          |   | -                                        |   | -                                   |   | -                                           |   | -                         |   | -                   |
| Repurchase and cancellation of  shares                                                                  |   | (1,732,600)                  |   | (6,272)                  |   | -                              |   | -                                        |   | -                                   |   | (6,272)                                     |   | -                         |   | (6,272)             |
| Share-based payments                                                                                    |   | -                            |   | -                        |   | 1,791                          |   | -                                        |   | -                                   |   | 1,791                                       |   | -                         |   | 1,791               |
| Income for the year                                                                                     |   | -                            |   | -                        |   | -                              |   | -                                        |   | 145,262                             |   | 145,262                                     |   | 101,434                   |   | 246,696             |
| Dividends declared (note 13)                                                                            |   | -                            |   | -                        |   | -                              |   | -                                        |   | (19,947)                            |   | (19,947)                                    |   | -                         |   | (19,947)            |
| Distribution to non-controlling  interest (note 10)                                                     |   | -                            |   | -                        |   | -                              |   | -                                        |   | -                                   |   | -                                           |   | (68,000)                  |   | (68,000)            |
| December 31, 2012                                                                                       |   | 198,982,815                  | $      | 404,960                  | $      | 13,145                         | $      | -                                        | $      | 201,698                             | $      | 619,803                                     | $      | 143,482                   | $      | 763,285             |

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

5

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **1.** | **Nature of business** |
|--------|------------------------|

|   | Nevsun Resources Ltd. and its subsidiaries  (collectively, Nevsun or the Company) are in the mineral property  exploration, development, extraction and processing business in Africa. The  Company’s principal operation is the Bisha Mine, held via the Eritrean registered  corporation, Bisha Mining Share Company (BMSC or the Bisha Mine), in which  Nevsun has a 60% interest. Nevsun is incorporated in Canada and maintains  its head office and registered office at Suite 760 – 669 Howe Street,  Vancouver, British Columbia, Canada, V6B 0C4. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Nevsun achieved commercial production at the Bisha Mine  on February 22, 2011. As of that date, the Company commenced recording  income related to revenues from metals sales and the costs incurred to  produce those revenues in profit or loss. Prior to February 22, 2011, the  Company capitalized proceeds from gold sales and the related costs to produce  those revenues to construction-in-progress. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company’s continuing operations and the underlying  value and recoverability of amounts shown for its mineral properties, plant  and equipment are dependent upon continuing profitable production or proceeds  from the disposition of its mineral property interests. Future profitable  production is primarily dependent on the quality of ore resources, future  metals prices, operating and environmental costs, fluctuations in currency  exchange rates, political risks and varying levels of taxation. While the  Company actively tries to manage these risks, certain of these factors are  beyond its control. The Company has not entered into derivative financial  instruments to manage foreign exchange or commodity price exposure. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.** | **Basis of preparation** |
|--------|--------------------------|

|   | (a) | Statement  of compliance |
|--------|-----|--------------------------|

|   | These consolidated financial statements have been  prepared in accordance with International Financial Reporting Standards  (IFRS) as issued by the International Accounting Standards Board (IASB). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Approval  of the financial statements |
|--------|-----|---------------------------------------|

|   | The consolidated financial statements of Nevsun for the  year ended December 31, 2012 were reviewed by the Audit Committee and  approved and authorized for issue by the Board of Directors on March 20, 2013. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies** |
|--------|------------------------------------------------|

|   | The accounting policies set out below  have been applied consistently for all periods presented in these  consolidated financial statements, and have been applied consistently by the  Company and its subsidiaries. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** ** | (a) | Basis  of measurement |
|------------|-----|-----------------------|

| ** ** | These consolidated financial statements have been  prepared on a historical cost basis except that liabilities for cash settled  share-based payment arrangements are measured at fair value. In addition  these consolidated financial statements have been prepared using the accrual  basis of accounting. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** ** | (b) | Currency  translation |
|------------|-----|-----------------------|

| ** ** | The functional and reporting currency of the Company and  its subsidiaries is the United States dollar. Transactions in currencies  other than the functional currency are recorded at the rate of exchange  prevailing on the date of the transaction. Monetary assets and liabilities  that are denominated in foreign currencies are translated at the rate  prevailing at each reporting date. Non-monetary assets and liabilities  denominated in foreign currencies that are measured at fair value are  retranslated to the functional currency at the exchange rate at the date the  fair value was determined. Non-monetary items that are measured at  historical cost in a foreign currency are translated at the exchange rate on  the date of the transaction. Foreign currency translation differences are  recognized in profit or loss. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

6

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

| ** ** | (c) | Basis  of consolidation |
|------------|-----|-------------------------|

|   | These consolidated financial statements include  the accounts of the Company and its subsidiaries.  Subsidiaries are entities controlled by the  Company.  Control is the power to govern  the financial and operating policies of an entity so as to obtain benefits from  its activities.  All intercompany  transactions and balances are eliminated on consolidation.  For partially owned subsidiaries, the  interest attributable to non-controlling shareholders is reflected in  non-controlling interest.  Adjustments to  non-controlling interests are accounted for as transactions with owners and adjustments  that do not involve the loss of control are based on a proportionate amount of  the net assets of the subsidiary. |
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|   | Significant subsidiaries of Nevsun Resources Ltd. are as  follows: |
|--------|--------------------------------------------------------------------|

|   |   |                            |                      |                | Nevsun’s  effective interest |
|--------|--------|---------------------------------|---------------------------|---------------------|------------------------------------|
|   |   | Name                            | Country of  incorporation | Principal  activity | (%)                                |
|   |   |                            |                      |                |                               |
|   |   | Nevsun (Barbados) Holdings Ltd. | Barbados                  | Holding company     | 100                                |
|   |   | Nevsun Africa (Barbados) Ltd    | Barbados                  | Holding company     | 100                                |
|   |   | Nevsun Resources (Eritrea) Ltd. | Barbados                  | Holding company     | 100                                |
|   |   | Bisha Mining Share Company      | Eritrea                   | Mining              | 60                                 |

| ** ** | (d) | Revenue  recognition |
|------------|-----|----------------------|

|   | Revenue from the sale of goods is measured at the fair  value of the consideration received or receivable. Revenue is recognized  when persuasive evidence, usually in the form of an executed sales agreement,  of an arrangement exists, indicating there has been a transfer of risks and  rewards of ownership to the customer, no further work or processing is  required by the Company, the quantity and quality of the goods has been  determined with reasonable accuracy, the price can be measured reliably, and  collectability is probable. For gold and silver sales, this is generally on  receipt of a shipment by a refiner. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Earnings  per share |
|--------|-----|---------------------|

|   | Earnings per share calculations are  based on the weighted average number of common shares outstanding during the  period. Diluted earnings per share is calculated using the treasury stock  method. The weighted average number of common shares outstanding for the  calculation of diluted earnings per share assumes all in-the-money stock  options and stock appreciation rights are exercised at the beginning of the  period and that the proceeds to be received on their exercise are used to  repurchase common shares at the average market price during the period. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | Cash  and cash equivalents |
|--------|-----|----------------------------|

|   | Cash and cash equivalents are comprised  of cash on deposit with banks and highly liquid short-term investments having  maturities at the date of purchase of 90 days or less. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | Inventories |
|--------|-----|-------------|

|   | Inventories are valued at the lower of cost and net  realizable value, on a weighted average cost basis. Average costs are  calculated by reference to the cost levels experienced in the current month  together with those in opening inventory. Cost for raw materials and  supplies is purchase price and freight, and for partly processed and finished  goods is the cost of production. For this purpose, the costs of production  include: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | fuel, power,  labour costs, materials and contractor expenses which are directly  attributable to the extraction and processing of ore; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | the depreciation of  mineral properties and plant and equipment used in the extraction and  processing of ore; and |
|--------|------|--------------------------------------------------------------------------------------------------------------------|

|   | (iii) | production overheads. |
|--------|-------|-----------------------|

7

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

|   | (g) | Inventories (continued) |
|--------|-----|-------------------------|

|   | Work-in-progress inventory includes ore stockpiles and  other partly processed material. Stockpiles represent ore that has been  extracted and is available for further processing. Quantities are assessed  primarily through surveys and assays. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | Mineral  properties, plant and equipment |
|--------|-----|------------------------------------------|

|   | (i) | Exploration  and evaluation |
|--------|-----|-----------------------------|

|   | Once the legal rights to explore an  area have been secured, expenditures on exploration and evaluation activities  are capitalized to exploration and evaluation, and are included within  mineral properties, plant and equipment. Costs incurred prior to the  Company obtaining the legal rights are expensed. Exploration  expenditures relate to the initial search for deposits with economic  potential and to detailed assessments of deposits or other projects that have  been identified as having economic potential. Obligations for removal  and restoration as a result of undertaking the exploration and evaluation are  capitalized. Management reviews the carrying value of capitalized  exploration costs at least annually. The review is based on the Company’s  intentions for development of the undeveloped property. Subsequent recovery  of the resulting carrying value depends on successful development or sale of  the undeveloped project. If a project does not prove viable, all  irrecoverable costs associated with the project net of any impairment  provisions are written off. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | Development |
|--------|------|-------------|

|   | When economically viable reserves have  been determined and the decision to proceed with development has been  approved, exploration and evaluation assets are first assessed for  impairment, then reclassified to construction-in-progress or mineral  properties. The expenditures related to development and  construction are capitalized as construction-in-progress and are included  within properties, plant and equipment. Costs associated with the  commissioning of new assets incurred in the period before they are operating  in the way intended by management, are capitalized. Development expenditure  is net of the proceeds of the sale of metals from ore extracted during the  development phase. Interest on borrowings related to the construction and development  of assets are capitalized until substantially all the activities required to  make the asset ready for its intended use are complete. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The costs of removing overburden to  access ore are capitalized as pre-production stripping costs and are included  within mineral properties, plant and equipment. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | When developed or constructed assets are operating in  the way intended by management, construction-in-progress costs are  reclassified to mineral properties or plant and equipment. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | Plant  and equipment |
|--------|-------|----------------------|

|   | Plant and equipment is carried at cost, less accumulated  depreciation and accumulated impairment losses. Cost comprises the fair  value of consideration given to acquire or construct an asset and includes  the direct charges associated with bringing the asset to the location and  condition necessary for putting it into use, along with the future cost of  dismantling and removing the asset. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | When parts of an item of plant and  equipment have different useful lives, they are accounted for as separate  items, i.e. major components, of plant and equipment. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The cost of major overhauls of parts of  plant and equipment is recognized in the carrying amount of the item if it is  probable that the future economic benefits embodied within the part will flow  to the Company, and its cost can be measured reliably. The carrying amount  of the replaced part is derecognized. The costs of the routine servicing of  plant and equipment are recognized in profit or loss as incurred. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

8

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

|   | (h) | Mineral  properties, plant and equipment (continued) |
|--------|-----|------------------------------------------------------|

|   | (iv) | Depreciation |
|--------|------|--------------|

|   | Mineral properties, plant and equipment associated with  mining operations are depreciated over the estimated useful lives of the  assets, either on a units-of-production basis or declining balance basis at  rates of 20% to 30% per annum, as appropriate. All other equipment is  depreciated over the estimated useful life of the assets using the declining  balance method at rates of 20% to 30% per annum, as appropriate.  Depreciation methods and useful lives are reviewed at each reporting date and  adjusted as required. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (v) | Stripping  costs in the production phase |
|--------|-----|------------------------------------------|

|   | Where production stripping activity does not result in  inventory produced, but does provide improved access to the ore body, the  costs are deferred when the stripping activity meets the following criteria:  (1) it is probable the Company will be the future beneficiary of the  stripping activity; (2) the Company can identify the component of the ore  body for which access has been improved; and (3) the costs relating to the  stripping activity associated with that component can be measured reliably.  Deferred stripping costs are capitalized to mineral properties or  construction-in-progress and are depreciated on a units-of-production basis  over the expected useful life of the identified component of the ore body to  which access has been improved as a result of the stripping activity. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | Impairment  of non-financial assets |
|--------|-----|-------------------------------------|

|   | Non-financial assets are evaluated at  least annually by management for indicators that carrying value is impaired  and may not be recoverable. When indicators of impairment are present, the  recoverable amount of an asset is evaluated at the level of a cash generating  unit (CGU), the smallest identifiable group of assets that generates cash  inflows that are largely independent of the cash inflows from other assets or  groups of assets. The recoverable amount of a CGU is the greater of the  CGU’s fair value less costs to sell and its value in use. An impairment loss  is recognized in profit or loss to the extent the carrying amount exceeds the  recoverable amount. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In calculating recoverable amount, the  Company uses discounted cash flow techniques to determine value in use when  it is not possible to determine fair value either by quotes from an active  market or a binding sales agreement. The determination of discounted cash  flows is dependent on a number of factors, including future metal prices, the  amount of reserves, the cost of bringing the project into production,  production schedules, production costs, sustaining capital expenditures, and  site closure, restoration and environmental rehabilitation costs and the  discount rate used. Additionally, the reviews take into account factors such  as political, social and legal, and environmental regulations. These factors  may change due to changing economic conditions or the accuracy of certain assumptions  and, hence, affect the recoverable amount. The Company uses its best efforts  to fully understand all of the aforementioned to make an informed decision  based upon historical and current facts surrounding the projects. Discounted  cash flow techniques require management to make estimates and assumptions  concerning reserves and expected future production revenues and expenses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (j) | Reserve  estimates |
|--------|-----|--------------------|

|   | The Company estimates its ore reserves and mineral  resources based on information compiled by Qualified Persons as defined in  accordance with Canadian Securities Administrators National Instrument 43-101*Standards for Disclosure of Mineral Projects*(NI 43-101). Reserves  are used in the calculation of depreciation, impairment assessment and for  forecasting the timing of payment of mine closure, reclamation and  rehabilitation costs. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | There are numerous uncertainties inherent in estimating  ore reserves, and assumptions that are valid at the time of estimation may  change significantly when new information becomes available. Changes in the  forecasted prices of commodities, exchange rates, production costs or  recovery rates may change the economic status of reserves and may,  ultimately, result in the reserves being restated. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

9

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

|   | (k) | Provision  for mine closure and reclamation |
|--------|-----|---------------------------------------------|

|   | The Company records a liability based  on the best estimate of costs for site closure and reclamation activities  that the Company is legally or constructively required to remediate. The  liability is recognized at the time environmental disturbance occurs and the  resulting costs are capitalized to the corresponding asset. The provision  for mine closure and reclamation liabilities is estimated using expected cash  flows based on engineering and environmental reports prepared by third-party  industry specialists and discounted at a pre-tax rate  specific to the liability. The capitalized amount is depreciated on the same  basis as the related asset. The liability is adjusted for the accretion of  the discounted obligation and any changes in the amount or timing of the  underlying future cash flows. Significant judgments and estimates are  involved in forming expectations of the amounts and timing of future closure  and reclamation cash flows. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Additional disturbances and changes in mine closure and reclamation  estimates are accounted for as incurred with a change in the corresponding  capitalized cost. Costs of rehabilitation projects for which a provision has  been recorded are recorded directly against the provision as incurred, most  of which are incurred at the end of the life of mine. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (l) | Financial  instruments |
|--------|-----|------------------------|

|   | (i) | Financial  assets |
|--------|-----|-------------------|

|   | The Company initially recognizes loans  and receivables on the date that they originate. All other financial assets  are recognized initially on the trade date, which is the date that the  Company becomes a party to the contractual provisions of the instrument. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company classifies its financial  assets in the following categories: loans and receivables and  available-for-sale. The classification depends on the purpose for which the  financial assets were acquired. Management determines the classification of  financial assets at recognition. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Loans and receivables |
|--------|-----------------------|

|   | Loans and receivables are  non-derivative financial assets with fixed or determinable payments that are  not quoted in an active market. They are classified as current assets or  non-current assets based on their maturity date. Loans and receivables are  initially recognized at fair value and subsequently carried at amortized cost  less any impairment. Loans and receivables are comprised of cash and cash  equivalents and trade and other receivables. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Available-for-sale financial assets |
|--------|-------------------------------------|

|   | Available-for-sale (AFS) financial  assets are non-derivative financial assets that are either designated as  available-for-sale or not classified in any of the other financial asset  categories. AFS financial assets are recognized initially at fair value plus  any directly attributable transaction costs. Subsequently, they are measured  at fair value. Changes in the fair value of AFS financial assets other than  impairment losses are recognized as other comprehensive income and classified  as a component of equity. AFS assets include investments in listed equity of  other entities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Management assesses the carrying value  of AFS financial assets at least annually and any impairment charges are  recognized in profit or loss. When financial assets classified as  available-for-sale are sold, the accumulated fair value adjustments  recognized in other comprehensive income are included in profit and loss. |
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10

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

|   | (l) | Financial instruments (continued) |
|--------|-----|-----------------------------------|

|   | (ii) | Financial  liabilities |
|--------|------|------------------------|

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

|   | Other financial liabilities are classified as current or  non-current based on their maturity date. Financial liabilities include  trade accounts payable, other payables, liability associated with stock  appreciation rights and loans. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (m) | Share capital |
|--------|-----|---------------|

|   | Common shares are classified as  equity. The Company records proceeds from share issuances net of issue costs  and any tax effects. When share capital recognized as equity is repurchased,  the amount of the consideration paid, which includes directly attributable  costs, net of any tax effects, is recognized as a deduction from equity.  Common shares issued for consideration other than cash are valued based on  their market value on the date of issuance. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (n) | Income  taxes |
|--------|-----|---------------|

|   | Current tax is the expected tax payable or receivable on  the taxable income or loss for the year, using tax rates enacted or  substantively enacted at the reporting date, and any adjustment to tax  payable in respect of previous years. The Company uses the balance sheet  method of accounting for deferred income taxes. Under the balance sheet  method, deferred tax assets and liabilities are recognized for the future tax  consequences attributable to differences between the financial statement  carrying amounts of existing assets and liabilities and their respective tax  bases. Deferred tax is not recognized for temporary differences on the  initial recognition of assets or liabilities in a transaction that is not a  business combination and that affects neither accounting nor taxable profit  or loss. Deferred tax assets and liabilities are measured using substantively  enacted tax rates expected to apply to taxable income in the years in which  those temporary differences are expected to be recovered or settled. Deferred tax assets also result from unused loss carried forward, resource  related pools and other deductions. A deferred tax asset is  recognized for unused tax losses, tax credits and deductible temporary  differences to the extent that it is probable that future taxable profits  will be available against which they can be utilized. Deferred tax assets  are reviewed at each reporting date and are reduced to the extent that it is  no longer probable that the related tax benefit will be realized. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In  determining the amount of current and deferred tax the Company takes into  account the impact of uncertain tax positions and whether additional taxes and  interest may be due.  The Company believes  that its accruals for tax liabilities are adequate for all open tax years based  on its assessment of many factors, including interpretations of tax law and  prior experience.  This assessment relies  on estimates and assumptions and may involve a series of judgments about future  events.  New information may become  available that causes the Company to change its judgment regarding the adequacy  of existing tax liabilities.  Such  changes to tax liabilities will impact tax expenses in the period that such a  determination is made. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred tax assets and liabilities are  offset if there is a legally enforceable right to offset current tax  liabilities and assets, and they relate to taxes levied by the same tax  authority on the same taxable entity, or on different tax entities, but they  intend to settle current tax liabilities and assets on a net basis or their  tax assets and liabilities will be realized simultaneously. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

11

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Summary of significant accounting policies (continued)** |
|--------|------------------------------------------------------------|

|   | (o) | Share-based  payments |
|--------|-----|-----------------------|

|   | The Company has a stock option plan that is  described in note 16(c).  Share-based payments to employees are  measured at the grant date fair value of the instruments issued and amortized  over the vesting periods.  Share-based  payments to non-employees are measured at the grant date fair value of the  goods or services received or the fair value of the equity instruments issued  if it is determined the fair value of the goods or services cannot be reliably  measured, and are recorded at the date the goods or services are received.  The amount recognized as an expense is  adjusted to reflect the number of awards expected to vest.  The offset to the recorded cost is to  share-based payments reserve.   Consideration received on the exercise of stock options is recorded as  share capital and the related share-based payments reserve is transferred to  share capital.  Charges for options that  are forfeited before vesting are reversed from share-based payment  reserve.  For those options that expire  or are forfeited after vesting, the recorded value is transferred to retained  earnings. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (p) | Stock  appreciation rights |
|--------|-----|----------------------------|

|   | Stock appreciation rights (SARs) allow the holder to  receive cash or common shares of the Company in the amount of the underlying  value of the associated stock option. When the holder has the option of  settling in cash or shares, the SAR is recorded at the fair value of the debt  component of the SAR while assigning nil value to the equity component.  Changes to the fair value of the liability are recognized in profit or loss.    Where the holder elects to take common shares instead of  cash, the value of the related liability is transferred directly to retained  earnings; where the holder elects to settle SARs in cash instead of common  shares, the value of the related liability is extinguished when the cash is  paid. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **4.** | **Changes in accounting standards** |
|--------|-------------------------------------|

|   | The  following accounting standards that may be relevant to the Company have been  introduced or revised by the IASB: |
|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | (a) | Consolidation |
|--------|-----|---------------|

|   | In May 2011, the IASB issued IFRS 10 –*Consolidated  Financial Statements* (IFRS 10), which supersedes SIC 12 – *Consolidation  – Special Purpose Entities* and the requirements relating to consolidated  financial statements in IAS 27 – *Consolidated and Separate Financial  Statements*. IFRS 10 is effective for annual periods beginning on or after  January 1, 2013, with earlier application permitted. IFRS 10 establishes  control as the basis for an investor to consolidate its investees and defines  control as an investor’s power over an investee with exposure, or rights, to  variable returns from the investee and the ability to affect the investor’s  returns through its power over the investee. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In addition, the IASB issued IFRS 12 –*Disclosure of  Interests in Other Entities* (IFRS 12) which combines and enhances the  disclosure requirements for the Company’s subsidiaries and associates. The  requirements of IFRS 12 include enhanced reporting of the nature of risks  associated with the Company’s interests in other entities, and the effects of  those interests on the Company’s consolidated financial statements. IFRS 12  is also effective for annual periods beginning on or after January 1, 2013,  with early adoption permitted. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company does not anticipate the application of IFRS  10 and IFRS 12 to have a significant impact on its consolidated financial  statements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

12

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **4.** | **Changes in accounting standards (continued)** |
|--------|-------------------------------------------------|

|   | (b) | Financial  instruments |
|--------|-----|------------------------|

|   | The IASB intends to replace IAS 39 –*Financial  Instruments: Recognition and Measurement* (IAS 39) in its entirety with  IFRS 9 – *Financial Instruments* (IFRS 9) in three main phases. IFRS 9  will be the new standard for the financial reporting of financial instruments  that is principles-based and less complex than IAS 39. In November 2009 and  October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which  addressed the classification and measurement of financial assets and  financial liabilities. IFRS 9 requires that all financial assets be  classified as subsequently measured at amortized cost or at fair value based  on the Company’s business model for managing financial assets and the  contractual cash flow characteristics of the financial assets. Financial  liabilities are classified as subsequently measured at amortized cost except  for financial liabilities classified as at fair value through profit and  loss, financial guarantees and certain other exceptions. In response to  delays to the completion of the remaining phases of the project, on December  16, 2011, the IASB issued amendments to IFRS 9 which deferred the mandatory  effective date of IFRS 9 from January 1, 2013, to annual periods beginning on  or after January 1, 2015. The amendments also provided relief from the  requirement to restate comparative financial statements for the effects of  applying IFRS 9. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company is currently evaluating the impact the final  standard is expected to have on its consolidated financial statements. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Fair  value measurement |
|--------|-----|-------------------------|

|   | In May 2011, the IASB issued IFRS 13 -*Fair  Value Measurement* (IFRS 13) as a single source of guidance for all fair value  measurements required by IFRS to reduce the complexity and improve  consistency across its application. The standard provides a definition of  fair value and guidance on how to measure fair value as well as a requirement  for enhanced disclosures. IFRS 13 requires that when using a valuation  technique to measure fair value, the use of relevant observable inputs should  be maximized while unobservable inputs should be minimized. IFRS 13 is  effective for annual periods beginning on or after January 1, 2013, with  early adoption permitted. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company does not anticipate the application of IFRS  13 to have a significant impact on its consolidated financial statements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Critical judgments in applying accounting policies** |
|--------|--------------------------------------------------------|

|   | The critical judgments that the  Company’s management has made in the process of applying the Company’s  accounting policies, apart from those involving estimations (note 6), that have the most significant effect on  the amounts recognized in the Company’s consolidated financial statements are  as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Commercial  production |
|--------|-----|------------------------|

|   | Costs incurred to construct and develop  mineral properties, plant and equipment are capitalized until the assets are  brought into the location and condition necessary to be capable of operating  in the manner intended by management. Proceeds from mineral sales  realized during this period are offset against costs capitalized. Depletion  of capitalized costs for mineral properties and related plant and equipment  begins when operating levels intended by management have been reached. The  results of operations of the Company during the periods presented in these  audited consolidated financial statements have been impacted by management’s  determination that the Bisha Mine reached the operating levels intended by  management on February 22, 2011. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

13

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Critical judgments in applying accounting policies (continued)** |
|--------|--------------------------------------------------------------------|

|   | (b) | Economic  recoverability and probability of future economic benefits of exploration,  evaluation and development costs |
|--------|-----|------------------------------------------------------------------------------------------------------------------------|

|   | Management has determined that exploration drilling,  evaluation, development and related costs incurred which have been  capitalized are economically recoverable. Management uses several criteria in  its assessments of economic recoverability and probability of future economic  benefit including geologic and metallurgic information, history of conversion  of mineral deposits to proven and probable reserves, scoping and feasibility  studies, accessible facilities, existing permits and life of mine plans. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Functional  currency |
|--------|-----|----------------------|

|   | The functional currency for each of the Company’s  subsidiaries is the currency of the primary economic environment in which the  entity operates. The Company has determined the functional currency of each  entity is the US dollar. Assessment of functional currency involves certain  judgements to determine the primary economic environment and the Company  reconsiders the functional currency of its entities if there is a change in  events and conditions which determined the primary economic environment. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **6.** | **Key sources of estimation uncertainty** |
|--------|-------------------------------------------|

|   | The preparation of consolidated  financial statements requires that the Company’s management make assumptions  and estimates of effects of uncertain future events on the carrying amounts  of the Company’s assets and liabilities at the end of the reporting period. Actual  results may differ from those estimates as the estimation process is  inherently uncertain. Actual future outcomes could differ from present  estimates and assumptions; potentially having material future effects on the  Company’s consolidated financial statements. Estimates are reviewed on an  ongoing basis and are based on historical experience and other facts and  circumstances. Revisions to estimates and the resulting effects on the  carrying amounts of the Company’s assets and liabilities are accounted for  prospectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The significant assumptions about the  future and other major sources of estimation uncertainty as at the end of the  reporting period that have a significant risk of resulting in a material  adjustment to the carrying amounts of the Company’s assets and liabilities  are as follows: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Impairment  of mineral properties, plant and equipment |
|--------|-----|--------------------------------------------------------|

|   | The Company considers both external and internal sources  of information in assessing whether there are any indications that mineral properties,  plant and equipment are impaired. External sources of information the Company  considers include changes in the market, economic and legal environment in  which the Company operates that are not within its control and affect the  recoverable amount of mineral properties, plant and equipment. Internal  sources of information the Company considers include the manner in which  mineral properties, plant and equipment are being used or are expected to be  used and indications of economic performance of the assets. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In determining the recoverable amounts of the Company’s  mineral properties, plant and equipment, the Company’s management makes  estimates of the discounted future after-tax cash flows expected to be  derived from the Company’s mineral properties using an appropriate discount  rate. Reductions in metal price forecasts, increases in estimated future  costs of production, increases in estimated future non-expansionary capital  expenditures, reductions in the amount of recoverable reserves, resources,  and exploration potential, and/or adverse current economics can result in a  write-down of the carrying amounts of the Company’s mineral properties, plant  and equipment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Operating  expenses and costing of work-in-progress inventory |
|--------|-----|---------------------------------------------------------------|

|   | In determining operating expenses recognized in the  Consolidated Statements of Comprehensive Income, the Company’s management  makes estimates of quantities of ore on stockpiles and in process and the  recoverable gold in this material to determine the cost of finished goods  sold during the period. Changes in these estimates can result in a change in  operating expenses in future periods and carrying amounts of inventories. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

14

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **6.** | **Key sources of estimation uncertainty (continued)** |
|--------|-------------------------------------------------------|

|   | (c) | Deferred  stripping costs |
|--------|-----|---------------------------|

|   | In determining whether stripping costs incurred during  the production phase of a mineral property relate to reserves and resources  that will be mined in a future operating period and therefore should be  capitalized, the Company estimates whether it is probable the future economic  benefit associated with the stripping activity will flow to the Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Where production stripping activity does not result in  inventory produced, but does provide improved access to the ore body, the  costs are deferred when the stripping activity meets the following: (1) it is  probable the Company will be the future beneficiary of the stripping  activity; (2) the Company can identify the component of the ore body for  which access has been improved; and (3) the costs relating to the stripping  activity associated with that component can be measured reliably. Deferred  stripping costs are capitalized to mineral properties, plant and equipment  and are depreciated on a units of production basis. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Estimated  recoverable gold ounces and ore reserve tonnes |
|--------|-----|-----------------------------------------------------------|

|   | The carrying amounts of the Company’s mineral properties,  plant and equipment are depleted based on recoverable gold ounces and ore  reserve tonnes. Changes to estimates of recoverable gold ounces, ore reserve  tonnes and depletable costs, including changes resulting from revisions to  the Company’s mine plans and changes in metals prices forecasts, can result  in a change to future depletion rates and impairment analysis. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Estimated  mine closure and reclamation costs |
|--------|-----|-----------------------------------------------|

|   | The Company’s provision for mine closure and reclamation  cost obligations represents management’s best estimate of the present value  of the future cash outflows required to settle the liability which reflects  estimates of future costs, inflation, movements in foreign exchange rates and  assumptions of risks associated with the future cash outflows, and the  applicable risk-free interest rates for discounting the future cash outflows.  Changes in the above factors can result in a change to the provision  recognized by the Company. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Changes to mine closure and reclamation cost obligations  are recorded with a corresponding change to the carrying amounts of related mineral  properties, plant and equipment for the period. Adjustments to the carrying  amounts of related mineral properties, plant and equipment can result in a  change to future depletion expense. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | Income  taxes |
|--------|-----|---------------|

|   | In assessing the probability of realizing income tax  assets recognized, management makes estimates related to expectations of future  taxable income, applicable tax opportunities, expected timing of reversals of  existing temporary differences and the likelihood that tax positions taken will  be sustained upon examination by applicable tax authorities. In making its  assessments, management gives additional weight to positive and negative  evidence that can be objectively verified. Estimates of future taxable income  are based on forecasted income from operations and the application of existing  tax laws in each jurisdiction. Forecasted income from operations is based on  life of mine projections internally developed and reviewed by management.  Weight is attached to tax planning opportunities that are within the Company’s  control, and are feasible and implementable without significant obstacles. The  likelihood that tax positions taken will be sustained upon examination by  applicable tax authorities is assessed based on individual facts and  circumstances of the relevant tax position evaluated in light of all available  evidence. Where applicable tax laws and regulations are either unclear or  subject to ongoing varying interpretations, it is reasonably possible that  changes in these estimates can occur that materially affect the amounts of  income tax assets recognized. At the end of each reporting period, the Company  reassesses unrecognized income tax assets. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

15

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **7.** | **Cash and cash equivalents** |
|--------|-------------------------------|

|   |                |   | December 31,2012 |   |   | December 31,  2011 |   |
|--------|---------------------|--------|------------------|--------|--------|--------------------|--------|
|   | Cash                | $      | 64,404           |   | $      | 284,582            |   |
|   | Short-term deposits |   | 332,000          |   |   | 63,000             |   |
|   |                | $      | 396,404          |   | $      | 347,582            |   |

|   | Cash and cash equivalents deposited with financial  institutions located outside of Africa at December 31, 2012 equal $376,129  (December 31, 2011 - $339,869). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **8.** | **Accounts receivable and prepaids** |
|--------|--------------------------------------|

|   |                |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|---------------------|--------|--------------------|--------|--------|--------------------|--------|
|   | Trade receivables   | $      | 4,736              |   | $      | 3,470              |   |
|   | Advances to vendors |   | 20,808             |   |   | 15,408             |   |
|   | Prepaid expenses    |   | 1,829              |   |   | 923                |   |
|   | VAT receivable      |   | 289                |   |   | 251                |   |
|   | Other receivables   |   | 208                |   |   | 438                |   |
|   |                | $      | 27,870             |   | $      | 20,490             |   |

| **9.** | **Inventories** |
|--------|-----------------|

|   |                   |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   | Materials and supplies | $      | 36,950             |   | $      | 23,101             |   |
|   | Work-in-progress       |   | 6,368              |   |   | 6,777              |   |
|   | Finished goods         |   | 2,546              |   |   | 2,221              |   |
|   |                   | $      | 45,864             |   | $      | 32,099             |   |

|   | Depreciation of $1,526 is included in work-in-progress  and finished goods inventories at December 31, 2012 (December 31, 2011 – $764). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| **10.** | **Due from non-controlling interest** |
|---------|---------------------------------------|

|   | The  Company’s principal operation, the Bisha Mine, is held via the Eritrean  registered corporation, BMSC, in which Nevsun has a 60% interest. The  non-controlling interest in BMSC is held by the State owned Eritrean National  Mining Corporation (ENAMCO). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In October  2007, the Company entered into an agreement with ENAMCO whereby the State  increased its interest in BMSC by 30%, to add to its 10% free carried  interest provided by Eritrean mining legislation, resulting in a total  participation of 40%. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Purchase  price settlement: |
|--------|-----------------------------|

|   | During August 2011 the  Company finalized its arrangements with ENAMCO for the purchase of the 30%  participating interest in BMSC. After the parties mutually engaged  independent expert valuation advice, the parties agreed to a purchase price  of $253,500, resulting in a gain to the Company, net of income taxes, of $149,657.  The gain, net of income taxes, was recorded directly to retained earnings in the  third quarter of 2011 as it represented a change in Nevsun’s interest in a  subsidiary that did not result in a change in control. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

16

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **10.** | **Due from non-controlling interest (continued)** |
|---------|---------------------------------------------------|

|   | The  resulting amount receivable from ENAMCO bears interest at 12 month US dollar  LIBOR plus 4% and the receivable and interest is collected from cash flow  from the Bisha Mine that would otherwise be distributed to ENAMCO in  accordance with its share ownership. Interest of $3,677 has been accrued on  this receivable and recorded for the year ended December 31, 2012, as finance  income (year ended December 31, 2011 - $3,625). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company  collected $34,223 of the purchase price receivable and $1,773 of related interest  during the year ended December 31, 2012. The Company collected $26,490 of  the purchase price receivable and $598 of related interest during the year  ended December 31, 2011. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2011 the Company’s subsidiary repaid all  shareholder advances that had been received in connection with the  development of the Bisha Mine, including those advances provided by ENAMCO. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During the year ended December 31, 2012, the Company distributed  $68,000 to the non-controlling interest. |
|--------|------------------------------------------------------------------------------------------------------------|

|   |                                                         |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|--------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   | Current asset –  due from non-controlling interest     | $      | -                  |   | $      | 11,137             |   |
|   | Non-current  asset – due from non-controlling interest |   | 63,130             |   |   | 84,312             |   |
|   | Due from non-controlling interest                            | $      | 63,130             |   | $      | 95,449             |   |

|   |                                                                     |   |    |   |   | Equity (deficit)  attributable to  non-  controlling interest |   |   | Due from (to)  non-controlling  interest |   |
|--------|--------------------------------------------------------------------------|--------|---------|--------|--------|---------------------------------------------------------------|--------|--------|------------------------------------------|--------|
|   | Provisional  purchase price payment (deferred credit)                    |   |    |   | $      | -                                                             |   | $      | (25,000                                  | )      |
|   | Loan to Nevsun  from non-controlling interest                            |   |    |   |   | -                                                             |   |   | (20,000                                  | )      |
|   | Advances to BMSC  from non-controlling interest                          |   |    |   |   | -                                                             |   |   | (74,995                                  | )      |
|   | Interest on  advance to BMSC from non-controlling interest               |   |    |   |   | -                                                             |   |   | (4,132                                   | )      |
|   | Cumulative share  of losses                                              |   |    |   |   | (3,915                                                        | )      |   | -                                        |   |
|   | December 31,  2010                                                       |   |    |   |   | (3,915                                                        | )      |   | (124,127                                 | )      |
|   |                                                                     |   |    |   |   |                                                          |   |   |                                     |   |
|   | 2011 activity:                                                           |   |    |   |   |                                                          |   |   |                                     |   |
|   | Nevsun payment  on loan from non-controlling interest                    |   |    |   |   | -                                                             |   |   | 3,261                                    |   |
|   | Disposition of  interest in BMSC                                         |   |    |   |   |                                                          |   |   |                                     |   |
|   | Purchase price                                                           | $      | 253,500 |   |   | -                                                             |   |   | 253,500                                  |   |
|   | Less carrying  amount                                                    |   | (10,994 | )      |   | 10,994                                                        |   |   | -                                        |   |
|   | Less income  taxes settled                                               |   | (92,849 | )      |   | -                                                             |   |   | (92,849                                  | )      |
|   | Net gain to  retained earnings                                           | $      | 149,657 |   |   |                                                          |   |   |                                     |   |
|   |                                                                     |   |    |   |   |                                                          |   |   |                                     |   |
|   | Interest on  advances to BMSC by non-controlling interest                |   |    |   |   | -                                                             |   |   | (2,282                                   | )      |
|   | BMSC repayment  of interest and advances from non-controlling interest   |   |    |   |   | -                                                             |   |   | 81,409                                   |   |
|   | Accrued interest  on purchase price                                      |   |    |   |   | -                                                             |   |   | 3,625                                    |   |
|   | Principal and  interest received by Nevsun from non-controlling interest |   |    |   |   | -                                                             |   |   | (27,088                                  | )      |
|   | Share of income  for the year                                            |   |    |   |   | 102,969                                                       |   |   | -                                        |   |
|   | December 31,  2011                                                       |   |    |   |   | 110,048                                                       |   |   | 95,449                                   |   |
|   |                                                                     |   |    |   |   |                                                          |   |   |                                     |   |
|   | 2012 activity:                                                           |   |    |   |   |                                                          |   |   |                                     |   |
|   | Accrued interest  on purchase price                                      |   |    |   |   | -                                                             |   |   | 3,677                                    |   |
|   | Principal and  interest received by Nevsun from non-controlling interest |   |    |   |   | -                                                             |   |   | (35,996                                  | )      |
|   | Share of income  for the year                                            |   |    |   |   | 101,434                                                       |   |   | -                                        |   |
|   | Distribution to non-controlling interest                                 |   |    |   |   | (68,000                                                       | )      |   | -                                        |   |
|   | December 31, 2012                                                        |   |    |   | $      | 143,482                                                       |   | $      | 63,130                                   |   |

17

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **11.** | **Mineral properties, plant and equipment** |
|---------|---------------------------------------------|

|   | Year ended December 31, 2012                      |   | Exploration  and evaluation |   |   | Construction-  in-progress |   |   | Mineral  properties |   |   | Plant and  equipment |   |   | Total   |   |
|--------|---------------------------------------------------|--------|-----------------------------|--------|--------|----------------------------|--------|--------|---------------------|--------|--------|----------------------|--------|--------|---------|--------|
|   | **Cost**                                          |   |                        |   |   |                       |   |   |                |   |   |                 |   |   |    |   |
|   | December 31, 2011                                 | $      | 8,158                       |   | $      | 25,202                     |   | $      | 29,630              |   | $      | 248,893              |   | $      | 311,883 |   |
|   |      Additions           |   | 11,263                      |   |   | 62,053                     |   |   | -                   |   |   | 17,323               |   |   | 90,639  |   |
|   |      Disposals           |   | -                           |   |   | -                          |   |   | -                   |   |   | (28                  | )      |   | (28     | )      |
|   |      Transfers           |   | (11,112                     | )      |   | -                          |   |   | 9,058               |   |   | 2,054                |   |   | -       |   |
|   | December 31, 2012                                 |   | 8,309                       |   |   | 87,255                     |   |   | 38,688              |   |   | 268,242              |   |   | 402,494 |   |
|   | **Accumulated depreciation**                      |   |                        |   |   |                       |   |   |                |   |   |                 |   |   |    |   |
|   | December 31, 2011                                 |   | -                           |   |   | -                          |   |   | 1,818               |   |   | 30,459               |   |   | 32,277  |   |
|   |      Charge for the year |   | -                           |   |   | -                          |   |   | 1,805               |   |   | 28,005               |   |   | 29,810  |   |
|   |      Disposals           |   | -                           |   |   | -                          |   |   | -                   |   |   | (21                  | )      |   | (21     | )      |
|   | December 31, 2012                                 |   | -                           |   |   | -                          |   |   | 3,623               |   |   | 58,443               |   |   | 62,066  |   |
|   | Net book value  December 31, 2012                 | $      | 8,309                       |   | $      | 87,255                     |   | $      | 35,065              |   | $      | 209,799              |   | $      | 340,428 |   |

|   | Year ended December 31, 2011                            |   | Exploration  and evaluation |   |   | Construction-  in-progress |   |   | Mineral  properties |   |   | Plant and  equipment |   |   | Total   |   |
|--------|---------------------------------------------------------|--------|-----------------------------|--------|--------|----------------------------|--------|--------|---------------------|--------|--------|----------------------|--------|--------|---------|--------|
|   | **Cost**                                                |   |                        |   |   |                       |   |   |                |   |   |                 |   |   |    |   |
|   | December 31, 2010                                       | $      | 2,053                       |   | $      | 263,886                    |   | $      | -                   |   | $      | 26,459               |   | $      | 292,398 |   |
|   |      Additions                 |   | 6,105                       |   |   | 24,050                     |   |   | -                   |   |   | 37,946               |   |   | 68,101  |   |
|   |      Pre-production gold sales |   | -                           |   |   | -                          |   |   | -                   |   |   | (48,613              | )      |   | (48,613 | )      |
|   |      Disposals                 |   | -                           |   |   | -                          |   |   | -                   |   |   | (3                   | )      |   | (3      | )      |
|   |      Transfers                 |   | -                           |   |   | (262,734                   | )      |   | 29,630              |   |   | 233,104              |   |   | -       |   |
|   | December 31, 2011                                       |   | 8,158                       |   |   | 25,202                     |   |   | 29,630              |   |   | 248,893              |   |   | 311,883 |   |
|   | **Accumulated  depreciation**                           |   |                        |   |   |                       |   |   |                |   |   |                 |   |   |    |   |
|   | December 31, 2010                                       |   | -                           |   |   | -                          |   |   | -                   |   |   | 3,780                |   |   | 3,780   |   |
|   |      Charge for the year       |   | -                           |   |   | -                          |   |   | 1,818               |   |   | 26,682               |   |   | 28,500  |   |
|   |      Disposals                 |   | -                           |   |   | -                          |   |   | -                   |   |   | (3                   | )      |   | (3      | )      |
|   | December 31, 2011                                       |   | -                           |   |   | -                          |   |   | 1,818               |   |   | 30,459               |   |   | 32,277  |   |
|   | Net book value  December 31, 2011                       | $      | 8,158                       |   | $      | 25,202                     |   | $      | 27,812              |   | $      | 218,434              |   | $      | 279,606 |   |

|   | The Company’s  properties are located in western Eritrea, a country located in north-eastern  Africa. The mineral properties include the Bisha Mine, the Harena mining  license and the Mogoraib River exploration license. The Bisha Mine consists  of a 39 km2 mining agreement area that is inclusive of a 16.5 km2 mining  license. The mining license for the gold-silver-copper-zinc Bisha Mine was  granted in 2008 for an initial period of 20 years. The Harena mining license  is a 7.5 km2, 10 year license that was conditionally granted, pending final  approval of application materials by the Ministry of Energy and Mines of  Eritrea. The Mogoraib River exploration license is 97.4 km2 and expires on  July 3, 2013. The Company is seeking an extension to the Mogoraib  River exploration license. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

18

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **11.** | **Mineral properties, plant and equipment (continued)** |
|---------|---------------------------------------------------------|

|   | Development of the Bisha Mine  commenced in early 2008, commissioning commenced in the fourth quarter of  2010 and commercial production was achieved in the first quarter of 2011. As  a result, the Company transformed into an operating mining company and  allocated construction-in-progress amounts to appropriate categories of mineral  properties, plant and equipment and commenced depreciating based on their  useful lives. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Mining commenced on the Harena  mining license in the fourth quarter of 2012. |
|--------|-------------------------------------------------------------------------------|

|   | Costs classified as mineral properties represent  historic exploration, evaluation and development costs at the Bisha Mine and  Harena mining license. Construction-in-progress at December 31, 2012, and  2011, represent costs associated with the copper phase expansion at the Bisha  Mine. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **12.** | **Accounts payable and accrued liabilities** |
|---------|----------------------------------------------|

|   |                   |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   | Trade accounts payable | $      | 5,675              |   | $      | 6,014              |   |
|   | Accrued royalties      |   | 4,964              |   |   | 8,528              |   |
|   | Accrued liabilities    |   | 7,491              |   |   | 10,109             |   |
|   |                   | $      | 18,130             |   | $      | 24,651             |   |

|   | The Company incurs a 5% precious metals royalty payable  to the State of Eritrea. Total royalties paid to the State of Eritrea as of  March 19, 2013, are $57,611. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **13.** | **Dividends** |
|---------|---------------|

|   | On May 15, 2012, the Company declared   a dividend of $0.05 per share for shareholders of record on June 30, 2012.   Dividends of $9,976 were paid on July 16, 2012. On November 15, 2012, the   Company declared a $0.05 per share dividend for shareholders of record on   December 31, 2012. Dividends of $9,949 were paid on January 15, 2013. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On May 18, 2011, the Company declared   a dividend of $0.03 per share for shareholders of record on June 30, 2011.   Dividends of $5,935 were paid on July 15, 2011. On November 21, 2011, the   Company announced an increased semi-annual dividend of $0.05 per share for   shareholders of record on December 31, 2011. Dividends of $10,013 were paid   on January 16, 2012. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **14.** | **Income taxes** |
|---------|------------------|

|   | (a) | Income tax expense |
|--------|-----|--------------------|

|   | Income tax expense was recorded for income earned in the  period February 22, 2011, to December 31, 2011, and for the year ended  December 31, 2012. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |                        |   | December 31,  2012 |   |   | December 31,2011 |   |
|--------|--------|-----------------------------|--------|--------------------|--------|--------|------------------|--------|
|   |   | Current income tax expense  | $      | (149,532           | )      | $      | (150,209         | )      |
|   |   | Deferred income tax expense |   | (4,517             | )      |   | (5,648           | )      |
|   |   | Income tax expense          | $      | (154,049           | )      | $      | (155,857         | )      |

19

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **14.** | **Income taxes (continued)** |
|---------|------------------------------|

|   | (b) | Reconciliation of income taxes |
|--------|-----|--------------------------------|

|   | A  reconciliation of the income tax expense to the amount calculated using the  Company’s statutory tax rate is as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                 |   | December 31,2012 |   |   | December 31,  2011 |   |
|--------|--------|----------------------------------------------------------------------|--------|------------------|--------|--------|--------------------|--------|
|   |   | Income tax expense at statutory rate of 25.0%  (2011 – 26.5 %) | $      | (100,186         | )      | $      | (107,561           | )      |
|   |   | Tax effect of:                                                       |   |             |   |   |               |   |
|   |   | Difference in tax rates of foreign  jurisdictions(1)                 |   | (52,431          | )      |   | (46,881            | )      |
|   |   | Other                                                                |   | (1,432           | )      |   | (1,415             | )      |
|   |   |                                                                 | $      | (154,049         | )      | $      | (155,857           | )      |

|   | (1) The  Eritrean statutory mining income tax rate is 38%. |
|--------|------------------------------------------------------------|

|   | The Company commenced payment of quarterly income tax  instalments in Eritrea in the fourth quarter of 2011. In the year ended  December 31, 2012, the Company paid $209,586 of income tax (year ended  December 31, 2011 - $36,000). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Recognized deferred tax assets and liabilities |
|--------|-----|------------------------------------------------|

|   | The tax effects of temporary differences that give rise  to deferred tax assets and liabilities are as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------|

|   |   |                                     |   | December 31,  2012 |   |   | December 31,2011 |   |
|--------|--------|------------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|   |   | Deferred tax assets                      |   |               |   |   |             |   |
|   |   | Losses carried forward                   | $      | 1,766              |   | $      | 3,261            |   |
|   |   | Mineral properties, plant and equipment  |   | 259                |   |   | 1,379            |   |
|   |   |                                     |   | 2,025              |   |   | 4,640            |   |
|   |   | Deferred tax  liabilities                |   |               |   |   |             |   |
|   |   | Mineral properties, plant and  equipment |   | (22,729            | )      |   | (20,827          | )      |
|   |   |                                     |   | (22,729            | )      |   | (20,827          | )      |
|   |   | Net deferred tax  liabilities            | $      | (20,704            | )      | $      | (16,187          | )      |

|   | (d) | Unrecognized  tax losses and tax assets |
|--------|-----|-----------------------------------------|

|   | At December 31, 2012, the Company has available losses  for income tax purposes in Canada totaling approximately $35,754 (2011 -  $30,959) and losses carried forward in foreign jurisdictions of approximately  $5,687 (2011 - $5,869) which, if not utilized to reduce income in future  periods, expire through 2027. The benefits of these available tax losses and  tax assets have not been recognized. Access to the losses carried forward in  the future may be restricted. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred tax assets have not been recognized in respect  of the following items: |
|--------|----------------------------------------------------------------------------------|

|   |   |                                    |   | December 31,  2012 |   |   | December 31,2011 |   |
|--------|--------|-----------------------------------------|--------|--------------------|--------|--------|------------------|--------|
|   |   | Mineral properties, plant and equipment | $      | 953                |   | $      | 930              |   |
|   |   | Tax losses carried forward              |   | 9,576              |   |   | 8,252            |   |
|   |   |                                    | $      | 10,529             |   | $      | 9,182            |   |

| **15.** | **Provision for mine closure and reclamation** |
|---------|------------------------------------------------|

|   |                       |   | December 31,  2012 |   |   | December 31,2011 |   |
|--------|----------------------------|--------|--------------------|--------|--------|------------------|--------|
|   | Balance, beginning of year | $      | 13,233             |   | $      | 11,650           |   |
|   | Accretion                  |   | 612                |   |   | 509              |   |
|   | Additional liability       |   | 4,168              |   |   | 1,074            |   |
|   | Balance, end of year       | $      | 18,013             |   | $      | 13,233           |   |

20

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **15.** | **Provision for mine closure and reclamation (continued)** |
|---------|------------------------------------------------------------|

|   | The Company’s provision for mine closure and reclamation  consists of costs accrued based on the current best estimate of mine closure  and reclamation activities that will be required at the Bisha and Harena sites  upon completion of mining. These activities include costs for earthworks,  including land re-contouring and re-vegetation, water treatment and  demolition. The Company’s provision for future site closure and reclamation  costs is based on the level of known disturbance at the reporting date, known  legal requirements and estimates prepared by a third party specialist. It is  not currently possible to estimate the impact on operating results, if any,  of future legislative or regulatory developments. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2012 estimates prepared by the third party  specialist were updated to include the Harena mining license area as well as  increases in cost estimates for certain reclamation activities. These  updates increased the provision for mine closure and reclamation by $4,168. Management  used a pre-tax discount rate of 4.84% and an inflation factor of 3.0% in  preparing the Company’s provision for mine closure and reclamation. Although  the ultimate amount to be incurred is uncertain, based on development, legal  requirements and estimated costs as at December 31, 2012, the undiscounted  inflation-adjusted liability for provision for mine closure and reclamation  is estimated to be approximately $29,600 (December 31, 2011 – $25,100). The  cash expenditures are expected to occur over a period of time extending  several years after the Bisha Mine’s and Harena’s projected closure. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **16.** | **Share capital** |
|---------|-------------------|

|   | (a) | Authorized  share capital consists of an unlimited number of common shares without par  value. |
|--------|-----|------------------------------------------------------------------------------------------------|

|   | (b) | On March 19, 2012, the Company announced a common share repurchase program  in accordance with the rules of the Toronto Stock Exchange. The program  allowed for the purchase of up to 4,009,408 common shares of the Company.  The purchases were authorized to commence no earlier than March 26, 2012, and  continued until September 26, 2012. In total the Company repurchased  1,732,600 common shares for a cost of $6,272. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Stock options |
|--------|-----|---------------|

|   | The Company’s ability to grant stock  options under its former stock option plan (the Former Plan) expired April  27, 2012. A new stock option plan (the New Plan) was approved by  shareholders at a Special Meeting on September 5, 2012. The Former Plan will  remain in existence until all outstanding options have been exercised,  cancelled or otherwise expired. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In accordance with the Company’s intention to reduce the  cost of an equity based plan to shareholders, the New Plan is more  restrictive than the Former Plan in the number of shares which can be issued  (maximum 6.75% of issued and outstanding shares, versus 10% in the Former  Plan) and the length of time before expiry (5 years, versus 10 years in the  Former Plan). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has recorded the fair value of all options  granted using the Black-Scholes model. Share-based payment costs are  amortized over vesting periods ranging between 6 and 24 months. During 2012,  share-based payments costs were calculated using the following weighted  average assumptions: expected life of option 2.3 years (2011 – 1.8 years),  stock price volatility 64% (2011 – 69%), dividend yield 2.4% (2011 – 0.5%),  and a risk-free interest rate yield of 1.0% (2011 – 1.2%). The fair value is  particularly impacted by the Company’s stock price volatility. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The year ended December 31, 2012, included $1,791 (2011  - $7,630) in share-based payment costs related to stock options, $740 (2011 -  $6,642) of which were presented in administrative expenses, $1,051 (2011 – $712)  in operating expenses and $nil (2011 - $276) capitalized to mineral properties,  plant and equipment. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

21

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **16.** | **Share capital (continued)** |
|---------|-------------------------------|

|   | (c) | Stock options (continued) |
|--------|-----|---------------------------|

|   |   |                                   |   | Number of options |   |   | Weighted averageexercise price (CAD) |   |
|--------|--------|----------------------------------------|--------|-------------------|--------|--------|-------------------------------------------|--------|
|   |   | Outstanding, December 31, 2010         |   | 10,348,500        |   | $      | 2.79                                      |   |
|   |   | Granted                                |   | 3,650,000         |   |   | 5.62                                      |   |
|   |   | Exercised                              |   | (2,510,300        | )      |   | 2.93                                      |   |
|   |   | Exercised as stock appreciation rights |   | (2,400,000        | )      |   | 1.96                                      |   |
|   |   | Forfeited                              |   | (260,000          | )      |   | 5.69                                      |   |
|   |   | Outstanding, December 31, 2011         |   | 8,828,200         |   |   | 4.06                                      |   |
|   |   | Granted                                |   | 2,865,000         |   |   | 4.21                                      |   |
|   |   | Exercised                              |   | (460,700          | )      |   | 2.96                                      |   |
|   |   | Forfeited                              |   | (375,000          | )      |   | 5.82                                      |   |
|   |   | Outstanding, December 31, 2012         |   | 10,857,500        |   | $      | 4.08                                      |   |

|   |   | Type                 | Range of exercise  price (CAD) |   |   | Number of options |   |   | Average remaining  life in years |   |
|--------|--------|----------------------|--------------------------------|--------|--------|-------------------|--------|--------|----------------------------------|--------|
|   |   | Vested (exercisable) | $1.35 - 1.70                   |   |   | 600,000           |   |   | 1.2                              |   |
|   |   | Vested (exercisable) | $3.14 - 4.81                   |   |   | 4,750,000         |   |   | 2.4                              |   |
|   |   | Vested (exercisable) | $5.58 - 6.34                   |   |   | 2,307,500         |   |   | 3.2                              |   |
|   |   | Unvested             | $4.27 - 4.81                   |   |   | 2,915,000         |   |   | 4.8                              |   |
|   |   | Unvested             | $5.58 - 6.34                   |   |   | 285,000           |   |   | 3.8                              |   |
|   |   | Total                | $1.35 - 6.34                   |   |   | 10,857,500        |   |   | 3.2                              |   |

|   | The weighted average share price of the Company on the  dates options were exercised in 2012 was CAD $5.31 (2011 – CAD $6.18). The  weighted average price of options exercisable at the end of the year was CAD  $3.92 (December 31, 2011 – CAD $3.52). The majority of options vest over a  service period of one or two years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Stock appreciation  rights |
|--------|-----|----------------------------|

|   | In August 2011, 3,090,000 SARs associated with  previously issued options were activated. These SARs allow for settlement in  common shares of the Company or cash at the option of the holder. Of these,  2,400,000 were exercised in September 2011 in exchange for $2,912 cash and  1,256,093 common shares of the Company, at a total value of $11,363. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In December 2011, a further 6,000,000 SARs associated  with previously issued options were activated. These SARs allow only for  settlement in common shares of the Company and thus there is no liability  associated with these SARs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In November 2012, 1,016,000 cash-settled SARs were  granted with no attachment to stock options. |
|--------|--------------------------------------------------------------------------------------------------|

|   | At December 31, 2012, $1,804 (December 31, 2011 -  $2,727) was recorded in accounts payable and accrued liabilities to account  for the liability associated with cash-settled SARs and SARs which may be  settled in cash at the option of the holder. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During the year ended December 31, 2012, the Company  recorded a credit of $795 against administrative expenses related to changes  in the fair value of the stock appreciation rights during the year (2011 –  expense of $1,543). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Shares  reserved for issuance (fully diluted) |
|--------|-----|-----------------------------------------------|

|   |   |                                                               |   | Number of shares |   |
|--------|--------|--------------------------------------------------------------------|--------|------------------|--------|
|   |   | Issued and fully paid at December 31, 2012                         |   | 198,982,815      |   |
|   |   | Reserved for options and SARs  (note 16(c)(d))                     |   | 10,857,500       |   |
|   |   | Shares reserved for issuance (fully diluted) at December 31,  2012 |   | 209,840,315      |   |

22

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **16.** | **Share capital (continued)** |
|---------|-------------------------------|

|   | (f) | Earnings per share |
|--------|-----|--------------------|

|   | The calculations of  earnings per share is based on the following data: |
|--------|-------------------------------------------------------------------------|

|   |   |                                                                                                       |   | December  31, 2012 |   |   | December  31, 2011 |   |
|--------|--------|------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   |   | Net income attributable to Nevsun  shareholders                                                            | $      | 145,262            |   | $      | 147,065            |   |
|   |   | Effect of dilutive securities:                                                                             |   |               |   |   |               |   |
|   |   | Change in stock appreciation rights liability                                                              |   | (795               | )      |   | -                  |   |
|   |   | Diluted net income attributable to Nevsun  shareholders                                                    |   | 144,467            |   |   |               |   |
|   |   | Weighted average number of common shares  outstanding for the purpose of basic earnings per share (000s)   |   | 199,664            |   |   | 198,053            |   |
|   |   | Dilutive options and SARs                                                                                  |   | 1,347              |   |   | 2,764              |   |
|   |   | Weighted average number of common shares outstanding  for the purpose of diluted earnings per share (000s) |   | 201,011            |   |   | 200,817            |   |
|   |   | Earnings per share (in $’s)                                                                          |   |               |   |   |               |   |
|   |   | Basic                                                                                                      | $      | 0.73               |   | $      | 0.74               |   |
|   |   | Diluted                                                                                                    | $      | 0.72               |   | $      | 0.73               |   |

|   | Basic earnings per share is computed by dividing the net  income or net income attributable to Nevsun shareholders by the weighted  average number of common shares outstanding during the year. Diluted  earnings per share reflects the potential dilution of outstanding stock  options in the weighted average number of common shares outstanding during  the year, if dilutive. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **17.** | **Revenues** |
|---------|--------------|

|   |         |   | December 31,2012 |   |   | December 31,2011 |   |
|--------|--------------|--------|------------------|--------|--------|------------------|--------|
|   | Gold sales   | $      | 535,945          |   | $      | 543,153          |   |
|   | Silver sales |   | 30,094           |   |   | 4,617            |   |
|   | Revenues     | $      | 566,039          |   | $      | 547,770          |   |

23

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **18.** | **Operating expenses** |
|---------|------------------------|

|   |                            |   | December 31,  2012 |   |   | December 31,2011 |   |
|--------|---------------------------------|--------|--------------------|--------|--------|------------------|--------|
|   | Materials and  supplies         | $      | 69,330             |   | $      | 59,688           |   |
|   | Salaries and  employee benefits |   | 25,428             |   |   | 15,821           |   |
|   | Share-based  payments           |   | 1,051              |   |   | 712              |   |
|   | Contractors                     |   | 7,511              |   |   | 3,944            |   |
|   | Change in  inventories          |   | 83                 |   |   | (6,419           | )      |
|   | Other                           |   | 29                 |   |   | 3,066            |   |
|   |                            | $      | 103,432            |   | $      | 76,812           |   |

| **19.** | **Administrative expenses** |
|---------|-----------------------------|

|   |                            |   | December 31,2012 |   |   | December 31,2011 |   |
|--------|---------------------------------|--------|------------------|--------|--------|------------------|--------|
|   | Salaries and  employee benefits | $      | 3,566            |   | $      | 2,477            |   |
|   | Share-based  payments           |   | (55              | )      |   | 8,186            |   |
|   | Other                           |   | 4,750            |   |   | 3,808            |   |
|   |                            | $      | 8,261            |   | $      | 14,471           |   |

| **20.** | **Finance income** |
|---------|--------------------|

|   |                                           |   | December 31,2012 |   |   | December 31,2011 |   |
|--------|------------------------------------------------|--------|------------------|--------|--------|------------------|--------|
|   | Interest on due  from non-controlling interest | $      | 3,677            |   | $      | 3,625            |   |
|   | Gain on sale of  available-for-sale investment |   | -                |   |   | 1,166            |   |
|   | Other                                          |   | 279              |   |   | 122              |   |
|   |                                           | $      | 3,956            |   | $      | 4,913            |   |

| **21.** | **Finance costs** |
|---------|-------------------|

|   |                                         |   | December 31,2012 |   |   | December 31,2011 |   |
|--------|----------------------------------------------|--------|------------------|--------|--------|------------------|--------|
|   | Accretion of  reclamation liability          | $      | 612              |   | $      | 509              |   |
|   | Interest on due  to non-controlling interest |   | -                |   |   | 1,681            |   |
|   | Other                                        |   | 12               |   |   | 144              |   |
|   |                                         | $      | 624              |   | $      | 2,334            |   |

| **22.** | **Supplemental cash flow information** |
|---------|----------------------------------------|

|   |                                                                                                                            | Note   |   | December 31, 2012 |   |   | December 31, 2011 |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|   | Non-cash  investing and financing transactions                                                                                  |   |   |              |   |   |              |   |
|   |      Dividends declared, paid after year end                                                           | 13     | $      | 9,949             |   | $      | 10,013            |   |
|   |      Reclassification of share-based payments reserve to share capital  upon  exercise of options |   |   | 382               |   |   | 2,737             |   |
|   |      Depreciation capitalized to mineral properties, plant and equipment                               | 11     |   | -                 |   |   | 705               |   |
|   |      Share-based payments capitalized to mineral properties, plant and  equipment                      | 16(c)  |   | -                 |   |   | 276               |   |
|   |      Closure and reclamation increase in mineral properties, plant and  equipment                      | 15     |   | 4,168             |   |   | 1,074             |   |
|   |      Interest capitalized to mineral properties, plant and equipment                                   | 10,11  |   | -                 |   |   | 601               |   |
|   |      Stock appreciation rights liability settled with common shares                                    | 16(d)  |   | -                 |   |   | 8,451             |   |
|   |      Partial disposition of subsidiary recorded directly to retained  earnings                         |   |   |              |   |   |              |   |
|   |      Due from non-controlling interest                                                                 | 10     |   | -                 |   |   | (253,500          | )      |
|   |      Amounts related to non-controlling interest                                                       | 10     |   | -                 |   |   | 41,739            |   |
|   |      Income taxes                                                                                      | 10     | $      | -                 |   | $      | 92,849            |   |

24

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **23.** | **Commitments** |
|---------|-----------------|

|   | As  of December 31, 2012 the Company had the following contractual obligations: |
|--------|---------------------------------------------------------------------------------|

|   |                                              |   | Total  |   |   | Less than 1  year |   |   | 2-3 years |   |   | 4-5 years |   |   | Over 5 years |   |
|--------|---------------------------------------------------|--------|--------|--------|--------|-------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|--------------|--------|
|   | Purchase commitments and contractual  obligations | $      | 35,534 |   | $      | 35,534            |   | $      | -         |   | $      | -         |   | $      | -            |   |
|   | Minimum operating lease payments                  |   | 4,348  |   |   | 4,348             |   |   | -         |   |   | -         |   |   | -            |   |
|   | Total contractual obligations                     | $      | 39,882 |   | $      | 39,882            |   | $      | -         |   | $      | -         |   | $      | -            |   |

|   | The Company has arranged an annually  renewable environmental bond for the Bisha Project for $7,500 at a cost of 1%  per annum. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

| **24.** | **Segment  information** |
|---------|--------------------------|

|   | The Company conducts its business as a single operating  segment being the mining business in Africa. All mineral properties and  equipment are situated in Africa. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **25.** | **Financial instruments and risk management** |
|---------|-----------------------------------------------|

|   | Financial instruments are agreements  between two parties that result in promises to pay or receive cash or equity  instruments. The Company classified its financial instruments as follows:  cash and cash equivalents and accounts receivable are classified as loans and  receivables and measured at amortized cost; short-term investments as  available-for-sale and measured at fair value; accounts payable and accrued  liabilities as other financial liabilities and measured at amortized cost. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has exposure to the  following risks from its use of financial instruments:  - credit risk,
- liquidity risk, and
- market risk. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | This note presents information about  the Company’s exposure to each of the above risks, the Company’s objectives,  procedures and processes for measuring and managing risk, and the Company’s  management of capital. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Board of Directors has overall  responsibility for the establishment and oversight of the Company’s risk  management framework. The Company’s risk management procedures are  established to identify and analyze the risks faced by the Company. The  Company, through its training and management standards and procedures, aims  to develop a disciplined and constructive control environment in which all  employees understand their roles and obligations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company’s Audit Committee oversees  how management monitors compliance with the Company’s financial risk  management procedures and processes and reviews the adequacy of the risk  management framework in relation to the risks faced by the Company. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Credit  risk |
|--------|-----|--------------|

|   | Credit risk is the risk of financial loss to the Company  if a counterparty to a financial instrument fails to meet its contractual  obligations, and arises principally from the Company’s receivables and its  investment securities. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | Cash  equivalents |
|--------|-----|-------------------|

|   | The Company limits its exposure to  credit risk by only investing in highly liquid securities and only with  counterparties that have a strong credit rating. Given these high credit  ratings, management does not expect any counterparty to fail to meet its  obligations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

25

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **25.** | **Financial instruments and risk management (continued)** |
|---------|-----------------------------------------------------------|

|   | (a) | Credit  risk (continued) |
|--------|-----|--------------------------|

|   | (ii) | Accounts  receivable |
|--------|------|----------------------|

|   | The Company’s accounts receivable are  due primarily from the refineries that the Company sells gold and silver to.  Management does not expect these counterparties to fail to meet their  obligations. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | Due from non-controlling interest |
|--------|-------|-----------------------------------|

|   | Due from non-controlling interest is collected from  cash flow from the Bisha Mine that would otherwise be distributed to ENAMCO in  accordance with its share ownership.  Management expects that Bisha Mine  cash flow will be sufficient to allow collection from non-controlling interest. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | Exposure  to credit risk |
|--------|------|--------------------------|

|   | The carrying amount of financial assets  represents the maximum credit exposure. Cash and cash equivalents held by  the Company have contractual maturities of less than 90 days. The maximum  exposure to credit risk at the reporting date was: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |                               |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|--------|--------|------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   |   |   | Cash and cash  equivalents         | $      | 396,404            |   | $      | 347,582            |   |
|   |   |   | Due from  non-controlling interest |   | 63,130             |   |   | 95,629             |   |
|   |   |   | Accounts  receivable               |   | 5,233              |   |   | 4,159              |   |
|   |   |   |                               | $      | 464,767            |   | $      | 447,370            |   |

|   | The Company does not have accounts receivable  that it considers impaired or otherwise uncollectible. |
|--------|-------------------------------------------------------------------------------------------------------|

|   | (b) | Liquidity  risk |
|--------|-----|-----------------|

|   | Liquidity risk is the risk that the Company will not be  able to meet its financial obligations as they fall due. The Company’s  approach to managing liquidity is to ensure, as far as possible, that it will  always have sufficient liquid funds to meet its liabilities when due, under  both normal and stressed conditions, without incurring unacceptable losses or  risking damage to the Company’s reputation. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Typically the Company ensures that it has sufficient  cash on hand to meet expected operational expenses including the servicing of  financial obligations, if any; this excludes the potential impact of extreme  circumstances that cannot reasonably be predicted, such as natural disasters. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The contractual financial liabilities of the Company as  of December 31, 2012, equal $18,130 (December 31, 2011 - $24,651). The  undiscounted cash flows of the liabilities are equal to their contractual  amounts. All of the liabilities presented as accounts payable and accrued  liabilities are due within ninety days of December 31, 2012. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Market  risk |
|--------|-----|--------------|

|   | Market risk is the risk that changes in market prices,  such as foreign exchange rates, commodity prices, interest rates and equity  prices will affect the Company’s income or the value of its holdings of  financial instruments. The objective of market risk management is to manage  and control market risk exposures within acceptable parameters, while  optimizing the return on capital. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (i) | Currency  risk |
|--------|-----|----------------|

|   | The Company’s functional currency is  the United States dollar (USD). The Eritrean nakfa (ERN) is directly tied to  the USD and, accordingly, is not a currency risk in terms of the functional  currency. The Company is exposed to currency risk on settlements of purchases  that were denominated in currencies other than the functional currency. The  currency exposures are primarily to Canadian dollar (CAD) and South African  rand (ZAR). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

26

----

 
| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **25.** | **Financial instruments and risk management (continued)** |
|---------|-----------------------------------------------------------|

|   | (c) | Market risk (continued) |
|--------|-----|-------------------------|

|   | (i) | Currency risk |
|--------|-----|---------------|

|   | The following is a break-down of financial assets and liabilities  denominated in foreign currencies to which the Company is exposed: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |                                      |   | December  31, 2012 |   |
|--------|--------|--------|-------------------------------------------|--------|--------------------|--------|
|   |   |   |                                      |   | CAD                |   |   | ZAR |   |
|   |   |   | Cash and cash  equivalents                |   | 223                |   |   | 2,010 |   |
|   |   |   | Accounts  receivable                      |   | 295                |   |   | 20,318 |   |
|   |   |   | Payables and  accruals                    |   | (2,662             | )      |   | (2,066 | ) |
|   |   |   | Net financial assets  (liabilities)       |   | (2,144             | )      |   | 20,262 |   |
|   |   |   | USD foreign  exchange rate                |   | 0.99               |   |   | 8.47 |   |
|   |   |   | Balance sheet  exposure in equivalent USD | $      | (2,165             | )      | $ | 2,392 |   |

|   |   |   |                                     |   | December  31, 2011 |   |
|--------|--------|--------|------------------------------------------|--------|--------------------|--------|
|   |   |   |                                     |   | CAD                |   |   | ZAR |   |
|   |   |   | Cash and cash  equivalents               |   | 1,015              |   |   | 4,411 |   |
|   |   |   | Accounts receivable                      |   | 78                 |   |   | 7,667 |   |
|   |   |   | Payables and  accruals                   |   | (2,992             | )      |   | (13,158 | ) |
|   |   |   | Net financial liabilities                |   | (1,899             | )      |   | (1,080 | ) |
|   |   |   | USD foreign  exchange rate               |   | 1.02               |   |   | 8.12 |   |
|   |   |   | Balance sheet exposure in equivalent USD | $      | (1,862             | )      | $ | (133 | ) |

|   | Currency risk sensitivity analysis |
|--------|------------------------------------|

|   | A 10 percent strengthening of the US  dollar against the above currencies at December 31 would have decreased net  income by the amounts shown below. A 10 percent weakening of the US dollar  against the above currencies would have had an equal and opposite effect.  This analysis assumes that all other variables, in particular interest rates,  remain constant: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   | 2012   |   | Gain (loss) |   |
|--------|--------|--------|--------|--------|-------------|--------|
|   |   |   | CAD    | $      | 196         |   |
|   |   |   | ZAR    |   | (217        | )      |
|   |   |   |   |   |        |   |
|   |   |   |   |   |        |   |
|   |   |   | 2011   |   | Gain (loss  | )      |
|   |   |   | CAD    | $      | 170         |   |
|   |   |   | ZAR    |   | 12          |   |

|   | (ii) | Price  risk |
|--------|------|-------------|

|   | The Company is subject to price risk  fluctuations in market prices of gold and silver and the profitability of the  Company’s operations is highly correlated to the market prices of these  metals. Historically gold and silver prices have fluctuated widely and  are affected by numerous factors outside the Company’s control. The  Company has not hedged any of its precious metals sales. As at December  31, 2012, the Company's trade receivables are not exposed to commodity price  risk, as final metal prices for these sales have been determined. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | Interest  rate risk |
|--------|-------|---------------------|

|   | Interest rate risk arises on interest  accruing on the due from non-controlling interest balance (note 10). |
|--------|-------------------------------------------------------------------------------------------------------------|

27

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **25.** | **Financial instruments and risk management (continued)** |
|---------|-----------------------------------------------------------|

|   | (d) | Fair  value versus carrying amounts |
|--------|-----|-------------------------------------|

|   | The carrying amount of financial assets and liabilities  carried at amortized cost is a reasonable approximation of fair value. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

| **26.** | **Capital   management** |
|---------|--------------------------|

|   | The Board’s policy is to maintain a  strong capital base so as to maintain investor, creditor and market  confidence and to sustain future development of the business. The capital of  the Company consists of equity attributable to Nevsun shareholders and  amounts related to non-controlling interest. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company manages its capital  structure and makes adjustments in light of the changes in its economic  environment and the risk characteristics of the Company’s assets. To  effectively manage the Company’s capital requirements, the Company has in  place a planning, budgeting and forecasting process to help determine the  funds required to ensure the Company has the appropriate liquidity to meet  its operating and growth objectives. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **27.** | **Key management personnel compensation** |
|---------|-------------------------------------------|

|   | Key  management personnel compensation is as follows: |
|--------|-------------------------------------------------------|

|   |                                        |   | December 31,  2012 |   |   | December 31,  2011 |   |
|--------|---------------------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|   | Short-term employee benefits                | $      | 3,515              |   | $      | 2,725              |   |
|   | Share-based  payments                       |   | 981                |   |   | 6,022              |   |
|   | Total key management personnel compensation | $      | 4,496              |   | $      | 8,747              |   |

| **28.** | **Related party transactions** |
|---------|--------------------------------|

|   | Except for those transactions with the non-controlling  interest disclosed in note 10, there were no material transactions with  related parties during the years ended December 31, 2012 and 2011. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **29.** | **Contingencies** |
|---------|-------------------|

|   | Putative  class action complaints |
|--------|-----------------------------------|

|   | Two putative class actions were filed in the United  States District Court for the Southern District of New York, on March 13,  2012, and March 28, 2012, respectively, naming the Company and certain  officers of the Company as defendants (hereafter the US Actions). The  plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities  Exchange Act of 1934, based on alleged misrepresentations and omissions  relating to the amount of gold reserves at the Bisha Mine. The plaintiffs  purport to bring suit on behalf of all purchasers of the Company's publicly  traded securities between March 31, 2011, and February 6, 2012. Plaintiffs  seek unspecified damages, interest, costs and attorneys' fees on behalf of  the putative class. By order of court, the two cases have been consolidated,  and a consolidated amended complaint was filed on August 21, 2012. The  consolidated amended complaint expanded the purported class period to run  from March 28, 2011 until February 6, 2012 and asserted alleged  misrepresentations and omissions relating the Bisha Mine’s “strip ratio”  throughout 2011, the omission of “material negative trends”, allegedly in  violation of a disclosure duty under U.S. Regulation S-K, and the departure  of certain senior executives at the Bisha Mine. On September 20, 2012, the  Company filed a motion to dismiss all claims against the Company and its  officers. The legal briefing of that motion was completed on November 7, 2012,  and the Company is awaiting a ruling from the courts. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

28

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| **NEVSUN RESOURCES LTD.**      Notes to Consolidated Financial Statements      (Expressed in thousands of United States dollars, unless otherwise stated)      Years ended December 31, 2012 and 2011 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **29.** | **Contingencies (continued)** |
|---------|-------------------------------|

|   | A putative class action also was filed  in the Ontario Superior Court of Justice on July 12, 2012, naming the Company  and certain officers of the Company as defendants (hereafter the Canadian  Actions). The plaintiff’s Statement of Claim asserts claims for (i)  violation of certain provisions of the Ontario Securities Act, as well as the  equivalent statutes of other provinces; (ii) negligent misrepresentation; and  (iii) vicarious liability of the Company, based on alleged misrepresentations  and omissions relating to the amount of gold reserves, and the grade of the  mineable gold reserves, at the Bisha Mine. The plaintiffs purport to bring  suit on behalf of all purchasers of the Company’s publicly traded securities  between March 31, 2011, to and including February 6, 2012, including  purchasers of the Company’s stock on the Toronto and American Stock Exchanges.  The plaintiffs amended their claim on February 13, 2013, to add further  detail to their factual allegations. The Canadian Actions are based on  essentially the same set of facts and the same alleged misrepresentations as  the U.S. Actions. The plaintiff seeks damages in the sum of $100 million plus  interest and costs, on behalf of the putative class. The Canadian Actions  are expected to proceed more slowly than the US Actions, due to differences  between US and Canadian procedural rules. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | It is not possible at this time to  estimate the ultimate outcome of the US and Canadian Actions. The  Company believes the allegations are without merit and will vigorously defend  itself in these actions. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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