----

----

**MANAGEMENT’S DISCUSSION & ANALYSIS – FISCAL 2016**

This Management’s Discussion and Analysis  (MD&A) was prepared by management as at February 22, 2017, and was reviewed  and approved by the Board of Directors on February 22, 2017. The following  discussion of performance, financial condition and future prospects should be  read in conjunction with the audited annual consolidated financial statements  of Nevsun Resources Ltd. and notes thereto for the year ended December 31,  2016. All references in this MD&A to “Nevsun” or the “Company” include  Nevsun Resources Ltd. and each of its wholly and partially owned subsidiaries  on a consolidated basis, unless otherwise stated. The information provided  herein supplements but does not form part of the financial statements.  This  discussion covers the year and the subsequent period up to the date of issue  of this MD&A.  Unless otherwise noted, all dollar amounts are stated in thousands  of United States dollars, except per ounce, per tonne, per pound, per litre  and per share data.  Information on risks associated with investing in the Company’s  securities as well as information about mineral resources and reserves under  National Instrument 43-101 are contained in the Company’s most recently filed  Annual Information Form which is available on the Company’s website at www.nevsun.com  or on SEDAR at www.sedar.com. 

| **Contents** |
|--------------|

| Business of the Company.                                                   | 2  |
|----------------------------------------------------------------------------|----|
| 2016  annual highlights.                                                   | 3  |
| Acquisition  of Reservoir Minerals Inc.                                    | 3  |
| BMSC  mineral properties acquisition.                                      | 4  |
| 2017 Objectives.                                                           | 5  |
| Operating review.                                                          | 7  |
| Results  of operations for the year ended December 31, 2016.               | 7  |
| Results  of operations for the fourth quarter 2016.                        | 11 |
| Selected  annual financial information.                                    | 12 |
| Selected  quarterly financial information.                                 | 14 |
| Reconciliation  of realized metal prices.                                  | 16 |
| Liquidity  and capital resources.                                          | 16 |
| Commitments  and contractual obligations.                                  | 17 |
| Off-balance  sheet arrangements.                                           | 17 |
| Contingency.                                                               | 17 |
| Outstanding  share data.                                                   | 18 |
| Financial  instruments and risk management                                 | 18 |
| Proposed  transactions.                                                    | 20 |
| Use  of judgements and estimates in applying critical accounting policies. | 20 |
| Disclosure  controls and procedures.                                       | 23 |
| Internal  control over financial reporting.                                | 23 |
| Changes  in internal control over financial reporting.                     | 23 |
| Limitations  of controls and procedures.                                   | 23 |
| Accounting  changes and recent accounting pronouncements.                  | 24 |
| Quality  assurance.                                                        | 24 |
| Non-GAAP  performance measure.                                             | 24 |
| Additional  information and risk factors.                                  | 26 |
| Forward  looking statements.                                               | 26 |
| NYSE  MKT corporate governance.                                            | 27 |
| Cautionary  note regarding preparation of reserves and resources.          | 27 |

----

 

2

| **Business of the Company** |
|-----------------------------|

Nevsun is  a leading diversified mid-tier base metals company headquartered in  Vancouver, British Columbia, Canada.   Nevsun’s common shares trade on the  TSX and the NYSE MKT LLC, under the trading symbol “NSU”. The Company’s three  principal assets are its ownership interest in the Timok Project, a high-grade  copper-gold development project in Serbia, its Bisha Mine in Eritrea, and its  strong balance sheet with approximately $200 million in cash and no debt.

The Timok Project Upper Zone  was the key asset acquired as part of the acquisition of Reservoir Minerals  Inc. (“Reservoir”) on June 23, 2016. The Company’s primary focus is to bring  the Timok Project into production in an expedient, safe and well-designed  manner. Key 2017 milestones include the delivery of a pre-feasibility study,  obtaining the necessary permits to begin the exploration decline in Q4 2017,  and advancing land acquisition and permitting activities in order to rapidly  advance production.

The Bisha Mine is a Volcanogenic Massive Sulfide (“VMS”)  deposit which has been in production since February 2011. The first phase of  the mine included gold production from February 2011 to June 2013, which  allowed for an early payback of pre-production capital and funding of the  copper phase expansion. Commissioning of the copper flotation plant at the  Bisha Mine commenced in late June 2013 and commercial production was achieved  in December 2013. Mining copper ore from the supergene phase ceased during Q2  2016. Commissioning of the zinc plant commenced in early June 2016 and  commercial production was achieved on October 1, 2016. During the primary  phase, the Bisha Mine will produce both zinc and copper in concentrate. The  Bisha Mine has an existing reserve of nine years as of December 31, 2015. Additional  nearby possible satellite-feed VMS deposits and targets, and a large  prospective extension of the existing Bisha mine land package acquired in  2016, all have the potential to extend the existing mine life for many more  years. 

  The Bisha Mine is owned by an  Eritrean registered corporation, Bisha Mining Share Company (“BMSC”). Nevsun  is a 60% shareholder of BMSC, with the remaining 40% ownership in BMSC owned by  the State-owned Eritrean National Mining Corporation (“ENAMCO”). BMSC is  governed under the terms of a shareholder agreement between Nevsun and  ENAMCO. Under Eritrean mining law, the State of Eritrea initially held a 10%  free carried interest in BMSC. In October 2007, ENAMCO agreed to purchase an  additional 30% interest in BMSC. On December 12, 2007, BMSC was granted a 20  year mining license for the Bisha Mine, and on July 6, 2012, a 10 year mining  license was granted for the Harena property, where a satellite VMS deposit  exists. BMSC acquired additional mineral exploration license areas and holds  the two exploration licenses (Tabakin and New Mogoraib) in close proximity to  the Bisha Mine. The exploration licenses, which cover 814 square kilometres,  include potential satellite VMS deposits of Hambok, Ashelli and Aderat.

The ownership structure of  Timok is described below under Acquisition of Reservoir. 

----

 

3

| **2016 annual highlights** |
|----------------------------|

-  Continued first    quartile safety performance at Bisha;
-  Completed the    acquisition of Reservoir, which included the high-grade copper-gold Timok    Project;
-  Advanced the Timok    Project Upper Zone pre-feasibility study with commencement of a major    drilling program and technical studies;
-  Completed the    acquisition of significant additional exploration licenses in the Bisha    District;
-  Delivered the Bisha    zinc expansion project on time and under budget;
-  Successfully    commissioned the Bisha zinc expansion circuit, declared commercial production    on October 1, 2016, and produced 90.2 million pounds of zinc in concentrate;
-  Sold 90,000 gold    equivalent ounces from stockpiles;
-  Supergene copper    production of 55.8 million pounds at a C1 cash cost (1)  of $1.04    per payable pound sold;
-  Generated earnings    per share attributable to Nevsun shareholders of $0.04, and $80 million in    operating income; and
-  Paid quarterly    dividend of $0.04 per share and implemented a dividend reinvestment plan. 

(1)  C1 cash cost per pound is  a non-GAAP measure – see page 24 of this MD&A for discussion of non-GAAP  measures. 

|                                                                 |   | 2016   |   |   | 2015   |   |   | Q4 2016 |   |   | Q4 2015    |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|------------|--------|
| Revenues (millions)                                                  | $      | 230.7  |   | $      | 356.9  |   | $      | 36.2    |   | $      | 65.4       |   |
| Operating income (loss)  (millions)                                  |   | 80.5   |   |   | 92.7   |   |   | (4.9    | )      |   | 5.8        |   |
| Net income (loss) (millions)                                         |   | 31.1   |   |   | 45.9   |   |   | (8.5    | )      |   | 0.8        |   |
| Net income (loss) attributable  to Nevsun shareholders (millions)    |   | 11.4   |   |   | 22.8   |   |   | (7.4    | )      |   | (0.7       | )      |
| Basic earnings (loss) per  share attributable to Nevsun shareholders |   | 0.04   |   |   | 0.11   |   |   | (0.05   | )      |   | (0.01      | )      |
| Working capital  (millions)                                          |   | 201.1  |   |   | 462.1  |   |   | 201.1   |   |   | 462.1      |   |
|                                                                 |   |   |   |   |   |   |   |    |   |   |       |   |
| Copper price realized,  per payable pound sold                       | $      | 2.13   |   | $      | 2.32   |   | $      | -       |   | $      |  1.98 |   |
| Zinc price realized, per  payable pound sold                         |   | 1.17   |   |   | -      |   |   | 1.17    |   |   | -          |   |
| C1 cash cost per payable  copper pound sold(1)                       |   | 1.04   |   |   | 1.31   |   |   | -       |   |   | 1.59       |   |
| C1 cash cost per payable  zinc pound sold(1)                         |   | 1.06   |   |   | -      |   |   | 1.06    |   |   | -          |   |

|   | (1) | C1 cash cost per pound is a non-GAAP measure –   see page 24 of this MD&A for discussion of non-GAAP measures and page 7   of this MD&A, Cash Costs, for explanation of per-unit costs. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Acquisition of Reservoir  Minerals Inc.** |
|---------------------------------------------|

On June  23, 2016, the Company completed the acquisition of 100% of the outstanding  common shares of Reservoir. The acquisition was completed under a plan of  arrangement pursuant to an arrangement agreement dated April 22, 2016, as  amended on June 16, 2016 (the “Arrangement Agreement”). Under the terms of  the Arrangement Agreement, each issued and outstanding common share and  restricted share unit of Reservoir were exchanged for two Nevsun common  shares plus CAD$2.00 in cash. The Arrangement Agreement included $135,000 of  funding to Reservoir (via a private placement for 19.9% of the issued shares  of Reservoir and an unsecured loan).  The $135,000 of funding allowed  Reservoir to exercise its right of first offer (“ROFO”) with Freeport-McMoRan  Exploration Corp (“Freeport”) on May 3, 2016. After exercising the ROFO,  Reservoir had increased its ownership in the Upper Zone of the Timok Project  to 100% and in the Lower Zone to 60.4%. Upon completion of the plan of  arrangement on June 23, 2016, current Nevsun and Reservoir shareholders own  approximately 67% and 33% of the Company, respectively. The total purchase  price for the acquisition was $512,554.  Full details of the transaction can  be found in Note 6 of the annual consolidated financial statements for the year  ended December 31, 2016. 

----

 

4

  The acquisition of Reservoir  and its principal asset, the high-grade Timok Project located in eastern  Serbia near the Bor Mining and Smelting complex, is the culmination of a  long-term strategic objective of the Company to grow through merger and  acquisition (“M&A”) transactions. The transaction fits the Company’s  M&A criteria of a transformative, high quality, copper and gold project  in a different geography. Based on the Company’s due diligence and long-term  commodity price expectations, the transaction is expected to generate a  strong return for the Company’s shareholders. Additional benefits of the  transaction include significant exploration potential in Serbia and the  addition of Freeport and Rio Tinto plc as strategic partners. 

  The Timok Project is focused on  the Cukaru Peki (“Timok”) deposit, which includes the high-grade Upper Zone  (characterized by massive and semi-massive sulphide mineralization) and the  Lower Zone (characterized by porphyry-style mineralization). The Upper Zone  has an extremely high copper and gold content consisting of 1.7 million  tonnes of indicated resources grading 13.5% copper and 10.4 grams per tonne  (“g/t”) gold and 35.0 million tonnes of inferred resources grading 2.9%  copper and 1.7 g/t gold. 

  The Timok Project is a joint  venture between the Company and Freeport. The Company is the operator of the  Timok Project until the occurrence of certain events and will advance the  development of both the Upper Zone and the Lower Zone. The Company will fund  100% of the Upper Zone development costs and will sole fund the first $20,000  of agreed Lower Zone work. The Company and Freeport will fund additional  Lower Zone work based on their respective ownership interests in the Lower  Zone. After delivery of a feasibility study on either the Upper Zone or the  Lower Zone, Freeport will increase its ownership in the Lower Zone to 54% and  the Company will own 100% of the Upper Zone and 46% of the Lower Zone. The  Company and Freeport will be entitled to their pro rata share of the economic  benefits of the Lower Zone and the Company will be entitled to 100% of the  economic benefits of the Upper Zone. Through December 31, 2016, the Company  has incurred $3,035 of Lower Zone work. 

| **BMSC mineral properties  acquisition** |
|------------------------------------------|

On June 29, 2016, BMSC acquired  additional mineral exploration license areas, increasing its exploration  licensed area to 814 square kilometres, from the previous 41 square  kilometres. The new exploration area consists of two licenses, the 184 square  kilometer Tabakin exploration license, surrounding the existing BMSC mining  licenses and 630 square kilometer New Mogoraib exploration license, which  combines new and previously relinquished property and the former Mogoraib  River license. 

  The Tabakin exploration license  includes the area between the Bisha and Harena mining licenses. BMSC will be  permitted to hold the area covered by the Tabakin exploration license for ten  years before any partial relinquishments. The New Mogoraib exploration  license will be subject to a relinquishment regime for exploration licenses  (three years of no relinquishment, followed by two one-year renewals with a  25% annual area reduction beginning after year three). 

  Nevsun funded its 60% share of  these newly acquired exploration licenses by way of a $22,578 reduction in  the amount receivable from ENAMCO. As part of this transaction, Nevsun will  no longer charge interest on the remaining receivable. This receivable  originally arose in 2011 when ENAMCO agreed to a $254,000 purchase price for  the acquisition of an additional 30% interest in BMSC. 

----

 

5

| **2017  Objectives** |
|----------------------|

-  Maintain top quartile safety performance
-  Timok Upper Zone    Copper-Gold Project       -  Deliver        pre-feasibility study in September 2017, with an initial reserve
  -  Obtain necessary        permits and begin decline development in Q4 2017
  -  Rapidly advance        overall project to production in 2021 
-  Bisha Zinc-Copper    Mine       -  Produce 200 to 230        million pounds of zinc 
  -  Produce 10 to 20        million pounds of copper
  -  Monetize 10,000 gold        equivalent ounces from stockpiles 
-  Exploration       -  Complete 130,000        metres of budgeted exploration and development drilling
  -  Update Bisha resource        and reserve in Q2 2017 including indicative underground study 
-  Continue paying quarterly dividend at the new    rate of $0.01 per share 

***Timok Copper-Gold Project***

******The Company expects to invest $45 million at the Timok  Upper Zone Project during 2017. The pre-feasibility study remains on budget  and on time for delivery in September 2017. There has been significant  progress toward the other key 2017 milestone, commencing the decline in Q4  2017. The Company has completed approximately half of the required decline  permitting obligations to-date and will begin the tendering process for the  decline construction during Q2 2017. Other key Upper Zone activities,  including the Environmental Impact Assessment (“EIA”) and land acquisition,  are progressing well. Keeping the Upper Zone on track for production in 2021  is the Company’s top priority.

 For Timok Lower Zone porphyry exploration, drilling the  planned approximate 60,000 metre, $20 million program continues. Expenditure  in 2017 is estimated at $17 million. Freeport-McMoRan, the joint venture  partner on the Lower Zone project, continues to work with Nevsun to design  and execute the program. 

***Bisha Zinc-Copper Mine***

******The Company expects to produce 200 to 230 million pounds  of zinc in zinc concentrate and 10 to 20 million pounds of copper in copper  concentrate during 2017 by processing 2.4 million tonnes of primary ore with  zinc and copper feed grades of 6.0% and 1.0%, respectively. As previously  disclosed, Bisha was in Q4 2016 able to produce a bulk concentrate (“bulk  con”) in the copper circuit but was unable to consistently produce a saleable  copper concentrate. However there has been more recent success in producing a  saleable concentrate in early 2017 after various plant modifications and  procedural changes, and progressive learnings from the recent geo-metallurgy  program over the past 4 to 5 months. While no definitive sustainable solution  has been achieved as yet, the ongoing test work by Bisha management and two  separate external specialist companies continues to facilitate improvements  in the overall approach to processing the variable ore that has been  encountered thus far during the primary phase. Progressive improvements in  copper concentrate production are expected throughout the year which allows  for some upside and Bisha will plan in future years to produce the  feasibility levels of copper and zinc concentrates. The Company’s objective  remains to achieve 40 to 50 million pounds of annual copper in concentrate  production during 2018 and beyond. 

  During 2017, the Company expects zinc and copper  recoveries in both circuits to average 70% and 60% respectively during months  where bulk concentrate is being produced in the copper circuit and about 75%  each during months when saleable copper concentrate is produced in the copper  circuit. The above production guidance assumes a minimum of three months and  a maximum of six months of saleable copper concentrate production.  

----

 

6

  When a saleable copper concentrate is not being produced  in the copper circuit, the Company continues to be able to produce bulk con.  The bulk con contains zinc grades of between 30-40% and copper grades of  between 5-10%. The Company has been able to sell the bulk con at attractive  terms despite a modest payable rate for copper of between 25-35% due to the  current beneficial zinc market. The concentrate being produced in the zinc  circuit contains zinc grades of between 40-50% and copper grades of between  2-5%. The combination of zinc and copper along with low levels of other  impurities has made both concentrates very desirable in the current tight  zinc concentrates market.

 The Company will continue the program of direct shipping  its remaining higher grade precious metal ore stockpiles in the first half of  2017. The Company estimates that there remain approximately 30,000 tonnes of  these ore stockpiles at grades ranging between 8 to 14 g/t gold and 100 to  400 g/t silver. 

  The Company estimates C1 cash cost of $0.70 to $0.90 per  payable pound of zinc and $0.90 to $1.10 per payable pound of copper on a  co-product basis. C1 cash costs determined on a co-product basis require  common costs to be allocated to each concentrate. The method to allocate common  costs is based on the ratio of payable production volume, multiplied by  budgeted metals prices. Until a saleable copper concentrate is consistently  produced, the zinc co-product costs will remain high, due to a greater share  of the cost allocation. 

  Direct sales of stockpiled higher grade precious metal  ore will not be treated as by-product revenue and have not been included in  the calculation of the 2017 cash cost guidance. 

  The updated geo-metallurgy drilling results from 2016  continue to be analyzed and will be reflected in an updated Mineral Reserves  estimate for Bisha which is expected to be released in late Q2 2017. The new  associated 43-101 technical report is expected to include an updated Scoping  study for potential underground mining at Bisha. 

  Sustaining capital at Bisha is estimated at $26 million  for 2017 including $11 million for a tailings dam lift, $10 million for  exploration and continued work on the underground feasibility study. 

***Exploration Plans***

******The Company is planning to drill over 130,000 metres  during 2017 across three countries. Approximately 90,000 metres will be  drilled in Serbia at the Timok Upper Zone, the Timok Lower Zone and Tilva,  the latter two which are joint ventures with Freeport-McMoRan and Rio Tinto,  respectively. Another 40,000 metres of exploration drilling is planned in  Eritrea. Another critical activity to be completed in Eritrea during Q1 2017  is the completion of an airborne geophysical (“VTEM”) survey to identify  shallow greenfield targets on the expanded Bisha exploration licenses.  

----

 

7

| **Operating review**                           |
|------------------------------------------------|
| Key  operating information – Bisha Mine: |

|                                                       |   | 2016      |   |   | 2015       |   |   | Q4 2016   |   |   | Q4 2015   |   |
|------------------------------------------------------------|--------|-----------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|
| Mining                                                     |   |           |   |   |            |   |   |           |   |   |           |   |
| Ore mined, tonnes(1)                                       |   | 3,643,000 |   |   | 3,150,000  |   |   | 670,000   |   |   | 841,000   |   |
| Waste mined, tonnes                                        |   | 9,367,000 |   |   | 10,654,000 |   |   | 2,445,000 |   |   | 1,952,000 |   |
| Strip ratio, (using  tonnes)                               |   | 2.6       |   |   | 3.4        |   |   | 3.6       |   |   | 2.3       |   |
| Processing  – Supergene Ore                          |   |      |   |   |       |   |   |      |   |   |      |   |
| Ore  milled tonnes(2)                                      |   | 1,055,000 |   |   | 1,929,000  |   |   | -         |   |   | 574,000   |   |
| Copper  feed grade, %                                      |   | 2.8       |   |   | 3.9        |   |   | -         |   |   | 3.1       |   |
| Recovery,  % of copper                                     |   | 85.2      |   |   | 82.6       |   |   | -         |   |   | 84.1      |   |
| Copper  concentrate grade, %                               |   | 22.2      |   |   | 23.6       |   |   | -         |   |   | 22.4      |   |
| Copper  in concentrate produced, millions of pounds        |   | 55.8      |   |   | 135.9      |   |   | -         |   |   | 33.0      |   |
| Copper  in concentrate produced, tonnes                    |   | 25,300    |   |   | 61,600     |   |   | -         |   |   | 14,900    |   |
| Payable  copper in concentrate sold, millions of pounds(2) |   | 58.6      |   |   | 138.5      |   |   | -         |   |   | 26.7      |   |
| Payable  copper in concentrate sold, tonnes(2)             |   | 26,500    |   |   | 62,800     |   |   | -         |   |   | 12,100    |   |
| Payable  gold in concentrate sold, ounces                  |   | 10,700    |   |   | 24,200     |   |   | -         |   |   | 5,300     |   |
| Payable  silver in concentrate sold, ounces                |   | 425,000   |   |   | 1,251,000  |   |   | -         |   |   | 189,000   |   |
| Processing  – Primary Ore                            |   |      |   |   |       |   |   |      |   |   |      |   |
| Ore milled, tonnes                                         |   | 1,223,000 |   |   | -          |   |   | 579,000   |   |   | -         |   |
| Zinc feed grade, %                                         |   | 5.7       |   |   | -          |   |   | 5.7       |   |   | -         |   |
| Copper feed grade, %                                       |   | 0.9       |   |   | -          |   |   | 0.8       |   |   | -         |   |
| Recovery, % of zinc (3)                                    |   | 58.8      |   |   | -          |   |   | 63.6      |   |   | -         |   |
| Zinc concentrate grade,  %                                 |   | 40.0      |   |   | -          |   |   | 38.8      |   |   | -         |   |
| Zinc in concentrate  produced, millions of pounds(4)(5)    |   | 90.2      |   |   | -          |   |   | 46.5      |   |   | -         |   |
| Zinc in concentrate  produced, tonnes(4)(5)                |   | 40,900    |   |   | -          |   |   | 21,100    |   |   | -         |   |
| Payable zinc in  concentrate sold, millions of pounds(6)   |   | 56.4      |   |   | -          |   |   | 35.2      |   |   | -         |   |
| Payable zinc in  concentrate sold, tonnes(6)               |   | 25,600    |   |   | -          |   |   | 16,000    |   |   | -         |   |

| (1) | Ore tonnes mined for the year ended December 31, 2016 included no   oxide ore (2015 – 240,000), 902,000 tonnes of supergene ore (2015 – 2,064,000)   and 2,741,000 tonnes of primary ore (2015 – 846,000). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The supergene phase of the Bisha mine ceased on June 2, 2016. |
|-----|---------------------------------------------------------------|

| (3) | This represents the overall combined zinc recovery from both the   copper and zinc flotation circuits. Copper recovery for both circuits   averaged 41.2% in Q3 2016 and 60.7% in Q4 2016. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The Company as of yet has not been able to produce a commercially   saleable copper concentrate due to metallurgical challenges when processing   variable primary ore. The by-product revenues from copper, gold and silver in   the zinc concentrates have not been material during 2016. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | The zinc in concentrate inventory at December 31, 2016 was   approximately 20.4 million pounds. |
|-----|-------------------------------------------------------------------------------------------------|

| (6) | Of the 56.4 million pounds (25,600 tonnes) of payable zinc in   concentrate sold in 2016, 22.6 million pounds (10,200 tonnes) consisted of   commercial-stage zinc production, all of which took place in Q4 2016. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Results of operations for the  year ended December 31, 2016** |
|-----------------------------------------------------------------|

***Operating income***

******The  Company generated operating income of $80.5 million in 2016, a 13% decrease  from operating income of $92.7 million generated in 2015. Despite the Company  being in the pre-commercial production phase of the zinc expansion plant for  four months during 2016, the Company generated substantial operating income  of $53.4 million from the sales of direct shipped ore (“DSO”) containing  approximately 90,000 gold equivalent ounces, and $36.4 million from sales of copper  concentrate from supergene ore. Production and sales of zinc concentrate from  primary ore led to an operating loss of $5.3 million during the fourth  quarter. Operating income in 2016 was also negatively impacted by a $1.9  million provision recorded against materials and supplies inventory, and a  $2.1 million provision recorded against ore stockpiles whose book value  exceeded its net realizable value. Operating income in 2015 of $92.7 million was  comprised of $83.8 million generated from the sales of copper concentrate  from supergene ore and $16.9 million generated from sales of DSO. These  contributions to operating income were offset by an obsolescence provision of  $5.3 million recorded against materials and supplies inventory, and a  provision of $2.7 million recorded against ore stockpiles. 

----

 

8

***Production and sales***

******The Company produced 55.8 million pounds of copper in  concentrate through the processing of supergene ore in 2016 by milling 1,055,000  tonnes of ore averaging 2.8% copper and recovery of 85.2%. The processing of  supergene ore ceased in June 2016, at which time the Company began the  commissioning of the zinc expansion plant and processing of primary ore. In  2015, 135.9 million pounds of copper in concentrate were produced by  processing 1,929,000 tonnes of supergene ore averaging 3.9% copper and  recovery of 82.6%. The processing of supergene ore in 2015 spanned the full  year.

The Company produced 90.2 million pounds of zinc in  concentrate through the processing of primary ore in 2016 by milling  1,223,000 tonnes of ore averaging 5.7% zinc. From the start of commissioning  in June 2016 through the end of the year, the Company saw continual  improvement in the overall zinc recovery percentage and the overall zinc  concentrate grade, which averaged 58.8% and 40.0% for 2016, respectively.  Based on the performance during the month of September, the Company declared that  the zinc plant had achieved commercial production for accounting purposes on  October 1, 2016 as the plant was operating in the manner intended by  management as at that date. A modification to the mine production schedule to  allow for accelerated access to primary ore in the Bisha main pit for the  second half of 2016 was made during Q2 2016 which led to a lower strip ratio for  2016. The strip ratio increased to 3.6 during the latter half of the year,  which is in line with the modified mine plan targeting primary ore. The  Company expects that most of Bisha mine’s current fleet of mobile equipment will  be able to meet the increased demand in material movement in the mine’s  revised mine plan for future years. 

***Cash costs***

  Supergene cash costs per payable copper pound sold for 2016  were $1.04 as compared to $1.31 in 2015. Operating and selling costs per  payable pound sold of $1.23 in 2016 were lower than 2015, where operating and  selling costs were $1.45 per payable pound sold. Treatment and refining  charges during 2016 were lower by $0.03 per pound or 9% as compared to 2015.  The decrease in C1 cash cost per payable pound sold in 2016 is largely the  result of a low strip ratio, ongoing cost cutting and containment efforts,  and lower fuel prices combined with higher mill throughput. The input price  for fuel in 2016 was $0.49 per litre versus $0.74 per litre in 2015.

 Offsetting lower operating costs for 2016 were lower by-product  revenue credits of $0.34 per payable pound sold, which were $0.11 or 24% less  than those in 2015. In 2015, by-product revenue benefitted from a one-time  sale of precious metals concentrate which contributed $11,833, net of treatment  and refining charges and operating selling expenses, to the reduction of C1  cash costs.

  C1 cash costs per payable zinc pound in zinc concentrate  sold for 2016 were $1.06. These cash costs are not reflective of future cash  costs as the Company experimented significantly with ore blend, residence time  and reagent mix throughout Q4 2016 in connection with the efforts to improve  the production of copper concentrate in the copper circuit. The Company  expects cash costs per payable zinc pound sold to improve in 2017 primarily  through higher sustained zinc recovery rates and on the expectation of copper  concentrate production. In months where copper concentrate is produced, cash  costs are allocated to both copper and zinc pounds, whereas in months with no  copper production, cash costs are allocated entirely to zinc.

----

 

9

***Stockpiled materials***

At the end of the year,  there were four distinct types of stockpiled material –  2,500,000  tonnes of primary ore, inclusive of boundary layer material,  40,000 tonnes of supergene ore, 130,000 tonnes of  oxide ore, and 400,000 tonnes of pyrite sand material. 

The 2,500,000 tonnes of primary ore include an estimated  2,300,000 tonnes of boundary layer material. The boundary layer material had  been intended to be either processed in a blended manner with in-pit fresher  primary ore through both the existing copper flotation plant followed by the  new zinc flotation plant, and/or processed via an alternative method based on  future planned boundary material processing studies commencing later this year.  The Company has decided to segregate and stockpile all boundary primary  material for future processing pending these technical investigations.

 The Company continues to find discreet but smaller zones  of supergene ore. The Company intends to stockpile all supergene ore until such  time that there is a sufficient amount to undertake a specific campaign of  processing supergene ore through the plant (ideally one to two months of  production).

 The stockpiled oxide ore consists of 30,000 tonnes of material containing  high grades of gold and silver which is expected to be monetized in the first  half of 2017. The remaining 100,000 tonnes of oxide ore is expected to be  processed at the end of the mine life through a re-commissioning of the  existing carbon-in-leach plant.

The pyrite sand material consists of approximately 10,000 tonnes of high  grade material, and 390,000 tonnes of lower grade material. Further study is  required to determine the most economic method of monetizing the lower grade stockpiled  pyrite sand.

|            | Total     | Current | Non-current |
|-----------------|-----------|---------|-------------|
| Primary ore     | 2,500,000 | 200,000 | 2,300,000   |
| Supergene ore   | 40,000    | -       | 40,000      |
| Oxide ore       | 130,000   | 30,000  | 100,000     |
| Pyrite sand ore | 400,000   | -       | 400,000     |

***Exploration***

*Bisha  and Harena*

**The sustainability and growth of the Bisha operation is  dependent on finding extensions to the known deposits and discovering new  deposits that could ultimately be processed at the Bisha facilities. In June  2016, BMSC increased its exploration holdings in the immediate Bisha mine  area from 41 square kilometres to 814 square kilometres with improved time  frames before legislated area reduction requirements begin. Greater access to  additional high-priority targets and increased time to evaluate results is a  key element to the Company’s organic growth strategy to deliver shareholder  value through exploration.    

  For 2016, a total of 44,210 metres were completed  property wide in 91 holes. 43 holes (20,595 metres) were drilled at Bisha (21  within the pit and 22 outside of the pit), 36 holes (15,645 metres) were  completed on the Mogoraib River license (28 Asheli, 5 Shabyt, 2 Railway, 1  Bisha Village), 8 holes were drilled at Harena (6,080 metres) and 4 holes  (1,890 metres) were completed on the Tabakin license.    

During  Q4 2016, the Company spent $2,718 to fund 8,452 metres of exploration diamond  drilling (19 holes), ground and borehole geophysical surveying and other  geological work. Areas of focus were to the immediate south of the Bisha main  pit, the Harena deposit and the Mogoraib River License at Asheli, Shabyt,  Railway and the Bisha Village.  Planning  and permitting was finalized for a VTEM survey  which  began in February 2017 over all the new exploration ground that  has not previously been surveyed.

----

 

10

  In the immediate Bisha Main deposit area, a total of 5  holes (1,780 metres) were completed in Q4 2016, evaluating potential sites  for future waste rock dumps and on the newly acquired Tabakin license  immediately to the south of Bisha, where one hole (421 metres) was completed.  At Harena, 2,257 metres of drilling was competed in 3 holes. This drilling  was focused on continuing to define the down dip extension of the deposit  which remains open. On the Mogoraib River license, a total of 10 holes (3,994  metres) were completed. Drilling was concluded at the Shabyt target and  additional drilling was completed at the Asheli deposit. A maiden resource  for Asheli is expected to be included in the annual resource update scheduled  to be released in Q2 2017. Targets on new ground acquired in Q2 at the  Railway prospect and at the Bisha Village were also drilled.    

*Timok Project*

**In Q4 2016, the in-fill drilling program continued  targeting the Upper Zone at Cukaru Peki. This drilling is designed to  increase the confidence of the mineral resource as part of the ongoing  pre-feasibility study. A total of 12,247 metres of drilling has been  completed in 21 holes to-date, as part of a 30,000 metre in-fill drill  program. In addition, 4,581 metres of drilling in 12 holes has been completed  to test areas of proposed portal access, tailings facilities and other  geotechnical sites.

Drilling also continued in the Lower Zone in part, to  fulfill an obligation to Freeport. A total of 7,090 metres have been  completed in 5 other holes as part of the $20 million, approximate 60,000  metre commitment.    

*Other Rakita Properties*

**Drilling was also conducted on the Jasikovo – Durlan  Potok (1,712 metres in 3 holes) and Leskovo – Jasikovo (1,391 metres in 3  holes) exploration properties.    

*Tilva (100% Rio Tinto Funded)*

**Rio Tinto provided funding for the drilling of 2 holes  (2,094 metres) on the Tilva Njagra property and 2 holes (2,683 metres) on the  Coka Kupjatra property, as well as geological, geophysical and geochemical  surveys. These properties are subject to an earn-in agreement with Rio Tinto.

*Balkan Exploration and Mining*

**Drilling took place at the Bobija project with 950  metres in 11 holes.    

***Timok Project update***

******Since closing the Reservoir acquisition on June  23, 2016, the Company has been ramping up the Upper Zone PFS work. The  PFS-related activities are moving forward quickly with a target completion of  September 2017. Subject to successful submissions and in-country approvals, an  exploration decline to access the Upper Zone is planned to begin in Q4 2017.  The Company plans to commence this decline as early as possible to fast track a  Feasibility Study (“FS”) while ensuring timely receipt of mining permits. The Company  estimates expenditures of $45 million for all Upper Zone related activities  through the end of 2017.  The Upper Zone PFS program, since July 2016, has completed 16,935 metres of  drilling with a further 17,587 metres of drilling designed to upgrade the  existing mineral resource and 16,695 metres designed for technical work which  includes geotechnical, tailings management, and hydrology and metallurgical  studies.

  In addition, the Company has continued drilling on the  Lower Zone deposit. The work program will entail approximately 60,000 metres  of drilling through late 2017 into Q1 2018, intended to further define higher  grade areas and further expand mineralization. Initial funding of this work  is expected to be $20 million. Since July 2016, 7,090 metres of drilling have  been completed and two additional drills will soon be mobilized to site. This  program is being designed and executed by the Company in conjunction with its  joint venture partner Freeport.

The Company has commenced a land acquisition program and  started its planning for a social and environmental impact assessment.

----

 

11

***Reserves and resources***

 The Company is currently working on updating the mineral  resource and reserve for Bisha and anticipates publishing the results along  with an updated Bisha technical report in late Q2 2017. The Company anticipates  publishing a Timok pre-feasibility study in September 2017 with an updated  mineral resource and reserve.    

***Corporate Social Responsibility***    

  The Company plans to issue its  2016 annual CSR report in April 2017. On May 26, 2016, the Company issued its  2015 CSR report which can be found on the Company’s website at: http://nevsuncsr.com/home/reporting/.  The Company continues with its transparent approach to operations and  contributions to the communities and reporting of funds paid to the State of  Eritrea in the form of taxes and royalties.    

***Dividends***

 The Company declared on December 9, 2016, the fourth  quarterly dividend of 2016 of $0.04 per share which totaled $12,053. Dividends  declared in 2016 total $40,060, a sixth consecutive year of increased  dividend declarations (2015 – $31,959; 2014 – $28,928; 2013 – $27,873; 2012 –  $19,947; 2011 – $15,948) since the start of commercial production at the  Bisha Mine in early 2011. 

  In September 2016, the Company implemented a Dividend  Reinvestment Plan (“DRIP”) which allows shareholders to purchase additional  common shares of the Company at a 3% discount to fair market value by  reinvesting their cash dividends. Approximately 13% of common shareholders  elected to participate in the DRIP for the Q3 2016 dividend.  Accordingly,  the Company paid dividends of $10,476 in cash and $1,590 in common shares  (564,044 shares) in October 2016. Approximately 12% of common shareholders  elected to participate in the DRIP for the Q4 2016 dividend. Accordingly, the  Company paid dividends of $10,562 in cash and $1,537 in common shares  (465,369 shares) in January 2017. 

| **Results of operations for the  fourth quarter 2016** |
|--------------------------------------------------------|

Results from operations for both Q3 and Q4 were unusual  as the Bisha Mine zinc phase was in the commissioning stage during all of Q3.  Production costs during commissioning and all sales of concentrates produced  during commissioning were capitalized. Accordingly, neither Q3 nor Q4 were  considered normal or fully commercial as product sales in Q4 included  inventories produced during the commissioning stage. 

***Operating income***

******The Company incurred an operating loss of $4.9  million during Q4 2016 versus $5.8 million of operating income during Q4 2015.  The Q4 2016 operating loss was driven by the efforts to resolve the lack of  copper concentrate production in the copper circuit, in addition to fewer than  planned shipments during Q4 2016. The Company only recognized revenue on 22.6  million payable pounds of zinc and approximately 10,000 gold equivalent ounces during  Q4 2016. The Company had approximately 20.4 million pounds of zinc in finished  goods at December 31, 2016 (which have been sold in January 2017). There was  $3.7 million of operating income during Q4 2016 generated from the sales of DSO.  This quarterly operating income related to DSO sales was lower than prior  quarters as there were fewer  gold  equivalent ounces sold, as the material sold during Q4 2016 was  lower grade than in prior quarters. The Company also recorded a $1.9 million  provision for slow-moving materials and supplies inventory  and a  $2.1 million provision against ore stockpiles whose book value exceeded net realizable  value. Q4 2015 operating income of $5.8 million included $10.9 million of sales  of DSO, offset by an operating loss incurred on copper sales, largely as a  result of intermittent power supply issues which impacted the mill’s operating  capacity. Approximately $4.9 million of costs directly  attributable to the production and sale of pre-commercial production  concentrates were capitalized, net of related sales receipts, to the overall  capital cost of the zinc plant.

***Production and sales***

******Since  the declaration of commercial production on October 1, 2016, the Bisha Mine  produced 46.5 million pounds of zinc in concentrate during Q4 2016 by  processing approximately 579,000 tonnes of ore averaging 5.7% zinc. The mine  achieved zinc concentrate grades of 38.8% and overall zinc recovery of 63.6%.  The Company sold 35.2 million payable pounds of zinc in zinc concentrate, 22.6  million pounds of which were produced after the declaration of commercial  production during 2016  and are included in  operating income. No comparable statistics for zinc production  exist for Q4 2015 as the Company was producing copper in copper concentrate  from the processing of supergene ore.

----

 

12

***Cash costs***

******Cash costs per payable zinc pound sold in Q4 2016 were  $1.06. The Company has provided guidance for 2017 of a cash cost per payable  zinc pound sold from $0.70 to $0.90, reflecting higher anticipated zinc  recovery rates, less proportionate production of bulk concentrate in favour  of zinc concentrate, and offset partially by a greater strip ratio.

| **Selected annual financial information** |
|-------------------------------------------|

The following annual  financial information for the years ended December 31, 2016, 2015, and 2014,  were prepared in accordance with International Financial Reporting Standards  (IFRS). 

  Fiscal years ended: 

| In US $000s (except per  share data)                                    |   | December 31, 2016 |   |   | December 31, 2015 |   |   | December 31, 2014 |   |
|-------------------------------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
| Revenues                                                                | $      | 230,705           |   | $      | 356,872           |   | $      | 555,012           |   |
| Operating income                                                        |   | 80,482            |   |   | 92,713            |   |   | 295,337           |   |
| Net  income for the year                                                |   | 31,090            |   |   | 45,873            |   |   | 166,565           |   |
|                                                                    |   |              |   |   |              |   |   |              |   |
| Net  income attributable to Nevsun shareholders                         | $      | 11,353            |   | $      | 22,794            |   | $      | 93,394            |   |
| Earnings per share attributable to Nevsun shareholders  – basic   |   | 0.04              |   |   | 0.11              |   |   | 0.47              |   |
| Earnings  per share attributable to Nevsun shareholders – diluted |   | 0.04              |   |   | 0.11              |   |   | 0.47              |   |
|                                                                    |   |              |   |   |              |   |   |              |   |
| Cash                                                                    | $      | 199,256           |   | $      | 434,340           |   | $      | 442,418           |   |
| Working  capital                                                        | $      | 201,113           |   | $      | 462,142           |   | $      | 519,980           |   |
| Total  assets                                                           | $      | 1,309,162         |   | $      | 1,004,120         |   | $      | 986,686           |   |
| Total  non-current liabilities                                          | $      | 104,664           |   | $      | 104,163           |   | $      | 91,102            |   |
| Dividends  declared, per share                                          | $      | 0.16              |   | $      | 0.16              |   | $      | 0.145             |   |

The following variances  result when comparing operations for the year ended December 31, 2016, with  the prior year (in US$000s, except per pound and per ounce data). 

***Revenues***

******The Company’s revenues for the year ended December 31,  2016, of $230,705 (2015 – $356,872) are comprised of zinc concentrate sales  of $26,567 (2015 – $nil), zinc concentrate by-product sales of $1,358 (2015 –  $nil), copper concentrate sales of $125,046 (2015 - $320,797), copper  concentrate by-product sales of $19,934 (2015 - $61,891), and other revenue  of $78,415 (2015 - $21,537), net of zinc concentrate treatment charges of  $2,678 (2015 – $nil) and copper concentrate treatment and refining charges of  $17,937 (2015 - $47,353). Other revenue consists of sales of 100,000 tonnes  of high-grade precious metal DSO directly to buyers, net of pricing and  quantity adjustments recognized on those sales. Revenues for the year ended  December 31, 2016, included sales of 22.6 million payable pounds of zinc  (2015 – nil) at an average realized price of $1.17 per pound (2015 – $nil)  and 58.6 million payable pounds of copper (2015 – 138.5 million pounds) at an  average realized price of $2.13 per pound (2015 - $2.32). Zinc concentrate  revenue for the year ended December 31, 2016 includes $106 (2015 – $nil) of  provisional and final pricing and physical quantity adjustments, while copper  concentrate revenue for the year ended December 31, 2016, includes  positive  adjustments of $601 (2015 – net of charges of $33,415). 

***Operating expenses***

******The Company recorded operating expenses for the year  ended December 31, 2016, of $103,442 (2015 - $200,890).  The Company incurred  $72,245 in operating expense related to the supergene copper phase, which ceased  in June 2016, and $31,017 in operating expense related to zinc production  subsequent to the declaration of commercial production on October 1, 2016.  The Company also capitalized $41,205 in operating expenses directly  attributable to the production of pre-commercial zinc concentrate. Included  in operating expense for the year was a charge of $1,919 related to an  obsolescence provision taken on materials and supplies inventory for  slow-moving and obsolete items (2015 – $5,373 related to a provision for  slow-moving and obsolete inventory, as well as adjustments to freight cost  estimates), and a charge of $2,130 (2015 – $2,686) related to an obsolescence  provision taken against ore stockpiles whose book value exceeded net  realizable value. 

----

 

13

***Royalties***

******The Company incurs a 3.5% royalty on the sale of base  metals and a 5% precious metals royalty on the sale of gold and silver. For  the year ended December 31, 2016, royalty expenses of $11,454 (2015 - $18,176)  were recorded. Royalties are payable at the time concentrate shipments leave  the mine, which precedes the revenue recognition point. 

***Depreciation and depletion***

******During the year ended December 31, 2016, depreciation  and depletion of $35,327 (2015 - $45,093) was recorded. The decrease in  depreciation is the result of $12,845 of depreciation having been capitalized  as part of the pre-commercial production phase of the zinc expansion plant.  Prior to capitalization, year-over-year depreciation is similar as a result  of depreciation being mostly calculated on the basis of ore tonnes mined. 

***Loss in equity investment***

******As Nevsun held a significant influence in Reservoir from  April 25, 2016 to June 22, 2016, the Company accounted for its interest in  Reservoir during this time using the equity method. The total loss incurred  by Reservoir during this equity-accounted period approximated $9,845, of  which Nevsun’s interest was $1,862. The significant increase in Reservoir’s  general and administration expenses during this period versus its prior  quarters were due to costs related to the transaction with Nevsun.  Transactions costs of $8,155, consisting of investment banking fees from two  separate advisors, legal fees, and other costs, were expensed by Reservoir  prior to its acquisition by Nevsun. 

***Administrative  ***

******Administrative costs comprising head office costs  including salaries and employee benefits, share-based payments, business  development and other general administrative expenses for the year ended  December 31, 2016, were $19,213, up from $13,595 in the year ended December  31, 2015.  Salaries and employment benefits, including share-based payments  and long-term incentive compensation, increased from $8,490 for the year  ended December 31, 2015 to $13,815 for the year ended December 31, 2016. The  increase is predominantly the result of an increase in long-term incentives,  which is tied to the value of the Company’s share price. The increase in  long-term incentive in 2016 is driven by two factors – an improved share  price and a third tranche of long-term incentives being issued in accordance  with the Company’s compensation strategy. Other administrative expenses increased  from $3,375 during the year ended December 31, 2015, to  $4,877 during the  year ended December 31, 2016, largely as a result of additional recruiting  expenses related to the recently appointed new directors and the recently  announced CEO search. Business development costs decreased from $1,730 for  the year ended December 31, 2015 to $521 for the year ended December 31,  2016. The decrease is the result of a reduction in business development  activity during the second half of 2016 versus the prior year. 

***Finance costs ***

******Finance costs for the year ended December 31, 2016 total  $1,944 and are comprised entirely of accretion expense related to the  Company's reclamation liability. Finance costs of $1,536 for the year ended  December 31, 2015 were also comprised entirely of accretion expense. 

***Finance income ***

******Finance income for the year ended December 31, 2015,  totals $3,515 (2015 – $3,210) and is comprised primarily of interest accrued  on amounts receivable from the non-controlling interest of $898 (2015 – $2,197),  interest earned on cash and cash equivalent balances of $1,330 (2015 – $761)  and interest earned on a loan to Reservoir during the equity-accounted investment  period of $872 (2015 – $nil). 

***Income taxes  ***

******Income tax expense for the year ended December 31, 2016,  of $29,888 (2015 - $34,919) was comprised of current income tax expense of $31,331  (2015 - $26,394), and deferred income tax recovery of $1,443 (2015 – expense  of $8,525), both related to the BMSC mining operations.

----

 

14

| **Selected quarterly financial  information** |
|-----------------------------------------------|

Selected consolidated  financial information from continuing operations for the most recent eight  quarters (unaudited) are presented below. The financial results from Q1 2015  through Q2 2016 reflect periods in which the Bisha Mine was engaged in full  commercial copper concentrate production through the processing of supergene  ore. Starting at the end of Q2 2016, the commissioning phase of the zinc  flotation plant began. Costs directly attributable to the production of zinc  concentrate incurred during this phase, which is defined by the processing of  primary ore, were capitalized until commercial production was declared and  sales of commercially produced material commenced in Q4 2016.   

| In US  $000s (except per share data)                                           |   | **2016  4th** |   |   | **2016  3rd** |   |   | **2016  2nd**   |   |   | **2016  1st** |   |
|--------------------------------------------------------------------------------|--------|---------------|--------|--------|---------------|--------|--------|-----------------|--------|--------|---------------|--------|
| Revenues                                                                       | $      | 36,187        |   | $      | 22,920        |   | $      | 79,165          |   | $      | 92,433        |   |
| Operating  income (loss)                                                       |   | (4,901        | )      |   | 17,542        |   |   | 34,907          |   |   | 32,934        |   |
| Net  income (loss) for the period                                              |   | (8,457        | )      |   | 5,987         |   |   | 17,976          |   |   | 15,584        |   |
|                                                                           |   |          |   |   |          |   |   |            |   |   |          |   |
| Net  income (loss) attributable to Nevsun shareholders                         |   | (7,423        | )      |   | 1,663         |   |   | 9,612           |   |   | 7,501         |   |
| Earnings  (loss) per share attributable to Nevsun shareholders – basic   |   | (0.05         | )      |   | 0.01          |   |   | 0.04            |   |   | 0.04          |   |
| Earnings  (loss) per share attributable to Nevsun shareholders – diluted |   | (0.05         | )      |   | 0.01          |   |   | 0.04            |   |   | 0.04          |   |
|                                                                           |   |          |   |   |          |   |   |            |   |   |          |   |
| In US $000s (except per share data)                                            |   | **2015  4th** |   |   | **2015  3rd** |   |   | **2015    2nd** |   |   | **2015  1st** |   |
| Revenues                                                                       | $      | 65,444        |   | $      | 70,016        |   | $      | 104,240         |   | $      | 117,172       |   |
| Operating  income                                                              |   | 5,822         |   |   | 5,693         |   |   | 38,617          |   |   | 42,581        |   |
| Net  income for the period                                                     |   | 832           |   |   | 2,842         |   |   | 19,165          |   |   | 23,034        |   |
|                                                                           |   |          |   |   |          |   |   |            |   |   |          |   |
| Net  income (loss) attributable to Nevsun shareholders                         |   | (679          | )      |   | 1,448         |   |   | 9,447           |   |   | 12,578        |   |
| Earnings  (loss) per share attributable to Nevsun shareholders – basic   |   | (0.01         | )      |   | 0.01          |   |   | 0.05            |   |   | 0.06          |   |
| Earnings (loss) per share attributable  to Nevsun shareholders – diluted |   | (0.01         | )      |   | 0.01          |   |   | 0.05            |   |   | 0.06          |   |

The following variances result when comparing operations  for the three months ended December 31, 2016, with the prior year (in US  $000s, except per ounce and per pound data):  

***Revenues  ***

******The Company’s Q4 2016 revenues of $36,187 (Q4 2015 - $65,444)  are comprised of zinc concentrate sales of $26,567 (2015 – $nil), zinc  concentrate by-product sales of $1,358 (2015 – $nil), positive copper  concentrate adjustments of $221 (Q4 2015 – downward adjustments of $7,249),  copper concentrate sales of $nil (Q4 2015 – $52,698), negative copper  concentrate by-product adjustments of $92 (Q4 2015 – by-product revenue of $7,456)  and other revenue of $10,842 (Q4 2015 – $13,782), net of zinc concentrate  treatment charges of $2,678 (2015 – $nil) and copper concentrate treatment  and refining charges of $31 (Q4 2015 - $8,492). Revenues included sales of  22.6 million payable pounds of zinc (Q4 2015 – nil) at an average realized  price per payable pound of $1.17 and no copper sales (Q4 2015 – 26.7 million  payable pounds sold, average realized price of $1.98 per pound). Zinc  concentrate sales include $106 (2015 – $nil) of provisional and final pricing  adjustments. 

----

 

15

***Operating expenses***

******The Company recorded operating expenses of $31,017 in Q4  2016 (Q4 2015 - $44,483). The decrease from Q4 2015 is primarily the result  of higher concentrate inventory at year-end in 2016 versus 2015 due to ocean  vessel unavailability leading to one bulk con parcel scheduled for shipment  in December 2016 being delayed into early January 2017, and from general cost  containment and efficiency efforts made at the mine during late 2015 through  the end of 2016. Included in operating expense for Q4 2016 was a charge of $1,919  related to an obsolescence provision taken on materials and supplies  inventory for slow-moving and obsolete items (Q4 2015 – $nil), and a charge  of $2,130 related to an obsolescence provision taken against ore stockpiles  whose book value exceeded net realizable value (Q4 2015 – $2,686).

***Royalties***

******The Company incurs a 3.5% royalty on the sale of base  metals and a 5% precious metals royalty on the sale of gold and silver. In Q4  2016, royalty expenses of $1,940 (Q4 2015 - $4,374) were recorded. In Q4 2016,  the Company incurred lower royalties as compared to Q4 2015 as a result of  having incurred lower sales in the 2016 period as discussed above. Royalties  are payable at the time concentrate shipments leave the mine, which precedes  the revenue recognition point. 

***Depreciation and depletion***

******In Q4 2016 depreciation and depletion of $8,131 (Q4 2015  - $10,765) was recorded. Depreciation is primarily calculated using the  units-of-production method using ore tonnes mined. Depreciation was higher in  Q4 2015 as compared to Q4 2016 as a result of higher ore tonnes mined in that  period. 

***Administrative***

Administrative costs in Q4 2016 were $5,900 up from $3,507  in Q4 2015. Salaries and employee benefits including share-based payments and  long-term incentive compensation increased from $2,206 in Q4 2015 to $4,388  in Q4 2016. The increase is predominantly the result of an increase in  long-term incentives, which is tied to the value of the Company’s share  price. The increase in long-term incentive in 2016 is driven by two factors –  an improved share price and a third tranche of long-term incentives being  issued in accordance with the Company’s compensation strategy. Business  development expenses were $215 for Q4 2016 as compared to $457 in Q4 2015,  reflecting a decrease in activity subsequent to the Reservoir transaction.  Other administrative costs increased from $844 in Q4 2015 to $1,297 in Q4 2016,  largely as a result of additional recruiting expenses related to the recently  appointed new directors and the recently announced CEO search. 

***Finance costs***

******Finance costs in Q4 2016 of $486 are comprised entirely  of accretion expense on the Company's reclamation liability. Finance costs of  $384 recorded during Q4 2015 also related only to accretion expense on the  Company's reclamation liability. 

***Finance income***

******Finance income for Q4 2016, totals $465 (Q4 2015 – $973)  and consists of $209 (Q4 2015 – $347) earned on cash and cash equivalent  balances, and $257 (Q4 2015 – $277) related to other sources. In Q4 2015,  $570 was recorded on amount due from non-controlling interest, with no  comparable amount being recorded in Q4 2016. 

***Income taxes***

******Income tax recovery for Q4  2016 of $2,365 (Q4 2015 – expense of $2,072) is comprised of current income  tax recovery of $2,000 (Q4 2015 – expense of $7,350), and deferred income tax  recovery of $365 (Q4 2015 – recovery of $5,278), both related to the BMSC  mining operations. 

----

 

16

| **Reconciliation  of realized metal prices** |
|----------------------------------------------|

|                                                                                                          |   | Zinc                            |   |   | Copper                    |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------|--------|
| In  U.S. $000s (except pounds of payable metals and per payable pound data)                                   |   | 2016                            |   |   | 2015                      |   |   | 2016 |   |   | 2015 |   |
| Total concentrate sales                                                                                       | $      | 26,567                          |   | $      | -                         |   | $ | 125,046 |   | $ | 320,797 |   |
| Add (less):                                                                                                   |   |                            |   |   |                      |   |   |   |   |   |   |   |
|      Provisional and final  pricing and quantity losses (gains) on concentrate sales |   | (106                            | )      |   | -                         |   |   | (601 | ) |   | 33,415 |   |
| Concentrate  sales, before pricing adjustments                                                                | $      |   26,461              |   | $      | -                         |   | $ | 124,445 |   | $ | 354,212 |   |
| Pounds  of payable metal sold (millions)(1)                                                                   |   | 22.6                            |   |   | -                         |   |   | 58.6 |   |   | 138.5 |   |
| Realized  price per payable pound sold, before pricing adjustments                                            | $      |   1.17                |   | $      | -                         |   | $ | 2.12 |   | $ | 2.56 |   |
| Provisional  and final pricing and quantity adjustments per payable pound sold                                | $      |   0.00                |   | $      | -                         |   | $ | 0.01 |   | $ | (0.24 | ) |
| Realized  price per payable pound sold                                                                        | $      |   1.17                |   | $      | -                         |   | $ | 2.13 |   | $ | 2.32 |   |
| LME average price per pound(2)(3)                                                                             | $      |   1.14                |   | $      | -                         |   | $ | 2.15 |   | $ | 2.48 |   |
|                                                                                                          |   |                            |   |   |                      |   |   |   |   |   |   |   |
|                                                                                                          |   | Zinc                            |   |   | Copper                    |   |
| In U.S. $000s (except  pounds of payable copper and per payable pound data)                                   |   |  Q4 2016    |   |   |   Q4 2015  |   |   | Q4 2016 |   |   |  Q4 2015  |   |
| Total concentrate sales                                                                                       | $      | 26,567                          |   | $      |  -                   |   | $ | - |   | $ | 52,698 |   |
| Add (less):                                                                                                   |   |                            |   |   |                      |   |   |   |   |   |   |   |
|      Provisional and final pricing and quantity losses  (gains) on concentrate sales |   | (106                            | )      |   | -                         |   |   | - |   |   | 7,249 |   |
| Concentrate sales, before  pricing adjustments                                                                | $      | 26,461                          |   | $      |  -                   |   | $ | - |   | $ | 59,947 |   |
| Pounds of payable metal sold  (millions)(1)                                                                   |   | 22.6                            |   |   | -                         |   |   | - |   |   | 26.7 |   |
| Realized price per payable  pound sold, before pricing adjustments                                            | $      | 1.17                            |   | $      |  -                   |   | $ | - |   | $ | 2.25 |   |
| Provisional and final  pricing and quantity adjustments per payable pound sold                                | $      | 0.00                            |   | $      |  -                   |   | $ | - |   | $ | (0.27 | ) |
| Realized price per payable  pound sold                                                                        | $      | 1.17                            |   | $      |  -                   |   | $ | - |   | $ | 1.98 |   |
| LME average price per pound                                                                                   | $      | 1.14                            |   | $      |  -                   |   | $ | - |   | $ | 2.20 |   |

| (1) | Of the 56.4 million pounds (25,600 tonnes) of payable zinc in   concentrate sold in 2016, 22.6 million pounds (10,200 tonnes) consisted of commercial-stage   zinc production, all of which took place in Q4 2016. The above tables exclude   pre-commercial production material sold. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The LME average price per copper pound for 2016 is presented only on a   nine-month basis through September 30, 2016 as the Company sold copper in   copper concentrate for the first three quarters of 2016 only. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The LME average price per zinc pound for 2016 is presented only on a   three-month basis through December 31, 2016 as the Company sold zinc in zinc   concentrate during Q4 2016 only. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Liquidity and  capital resources** |
|--------------------------------------|

The Company’s cash and cash  equivalents at December 31, 2016, were $199,256 (December 31, 2015 –  $434,340). Working capital, including cash and cash equivalents, was  approximately $201,113. 

  During the year ended  December 31, 2016, cash generated from operating activities before  income taxes paid was $71,134, compared to $142,095 in the prior year. The  Company paid $26,626 in income taxes for the year ended December 31, 2016  (2015 - $21,790). 

----

 

17

  The Company used $247,393 in investing activities in the  year ended December 31, 2016 (2015 – $84,365), comprised predominantly of  $205,064 (2015 – $nil) used to fund the acquisition of Reservoir, net of cash  acquired on the completion of the transaction. The Company also spent $42,915  on mineral properties, plant and equipment in the year ended December 31,  2016 (2015 - $85,439), comprised of $13,240 on the zinc expansion project  (2015 – $48,202), $6,886 on sustaining capital (2015 – $25,859), $1,321 (2015  – $4,691) on mineral properties and $9,322 (2015 – $6,687) on exploration and  evaluation at Bisha, and $12,146 on exploration and evaluation at the Timok  Project and smaller projects in Serbia and Macedonia. These expenditures were  net of increases in non-cash working capital of $8,813 (2015 – $1,074). The  Company also incurred $42,540 of pre-commercial production zinc phase costs  (2015 – $nil), offset by $34,313 (2015 – $nil) in pre-commercial production  sales receipts. 

  The Company used $32,199 in its financing activities in  2016, compared to $44,018 in the prior year. During the year ended December  31, 2016, the Company paid dividends to Nevsun shareholders of $34,407 (2015  - $31,954), and distributed $16,000 to the non-controlling interest (2015 – $19,000).  The Company also received $17,500 (2015 – $6,500) in repayments of amounts  due from the non-controlling interest. 

| **Commitments and contractual obligations** |
|---------------------------------------------|

As of  December 31, 2016, the Company had the following contractual obligations:  

| In U.S. $000s                                     |   | Total   |   |   | Less than1 year |   |   | 1-3 years |   |   | 3-5 years |   |   | Over 5 years |   |
|---------------------------------------------------|--------|---------|--------|--------|-----------------|--------|--------|-----------|--------|--------|-----------|--------|--------|--------------|--------|
| Purchase commitments and  contractual obligations | $      | 64,107  |   | $      | 64,107          |   | $      | -         |   | $      | -         |   | $      | -            |   |
| Mine closure and  reclamation                     |   | 59,076  |   |   | 298             |   |   | -         |   |   | -         |   |   | 58,778       |   |
| Minimum operating lease  payments                 |   | 2,306   |   |   | 2,306           |   |   | -         |   |   | -         |   |   | -            |   |
| Total contractual obligations                     | $      | 125,489 |   | $      | 66,711          |   | $      | -         |   | $      | -         |   | $      | 58,778       |   |

The Company also has an environmental bond to cover  remediation liabilities for Bisha in the amount of $30,000 at a cost of 1%  per annum.

The above table includes the Company’s  estimated obligation for mine closure and reclamation following completion of  mining activities at the Bisha Mine and is based on the level of known  disturbance at the reporting date, known legal requirements and estimates  prepared by Management with input from a third party specialist. The  undiscounted amount of the estimated obligation for reclamation and closure  of the operations, adjusted for estimated inflation of 3%, is approximately $59,076.  While the Company has recorded the fair value for the mine closure and reclamation  obligation using a pre-tax discount rate of 5.01%,  the amounts reflected in the above table represent the undiscounted amounts  estimated at the time of payment. Ongoing reclamation costs incurred as part  of normal mining operations are expensed as incurred. 

| **Off-balance sheet arrangements** |
|------------------------------------|

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

| **Contingency** |
|-----------------|

*Legal Claims*

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

----

 

18

*Contractual dispute with Canaccord*

  Canaccord Genuity Corp.  (“Canaccord”) was an advisor to Reservoir in connection with the transaction  described in note 6 to the Company’s consolidated financial statements (the  “Transaction”).

In March 2016, Canaccord and Reservoir entered into an  advisory agreement to evaluate third party funding arrangements which related  to the potential exercise by Reservoir of a right of first refusal (“ROFO”)  under its joint venture agreement with Freeport. Canaccord was paid a fee of  $1,000 for providing financial advisory services in connection with  Reservoir’s exercise of the ROFO. 

  In early April 2016,  Canaccord and Reservoir entered into a new advisory agreement regarding a  potential acquisition of control of Reservoir (the “April Advisory  Agreement”). Canaccord has filed a Notice of Claim in the British Columbia  Supreme Court regarding the fees under the April Advisory Agreement.  Canaccord initially demanded an advisory fee of CAD$11,658 (the “Transaction  Fee”) and has subsequently increased its claim for a Transaction Fee to  CAD$14,670, which would represent approximately 3.0% of the overall  transaction value of approximately CAD$482,000 based on the closing price of  the Company’s shares (CAD$4.70), the last trading day prior to the date of  announcement of the Transaction. 

On September 12, 2016, Reservoir filed a Reply  to the Notice of Claim to dispute the Transaction Fee demanded by Canaccord on  the basis that, among other things, it is not determined in accordance with the  terms of the April Advisory Agreement.  Reservoir has paid to Canaccord the  sum of CAD$6,047 (which includes a transaction fee of CAD$5,617 and a second  fairness opinion fee of $100, taxes and expenses). Reservoir believes that this  constitutes all fees that Canaccord is entitled under the April Advisory  Agreement.

  No provision has been  recorded in the Company’s consolidated financial statements as the outcome of  this claim is not determinable. 

| **Outstanding share data** |
|----------------------------|

As of February 22,  2017, the Company had 301,869,593 shares and 9,176,433  options issued and outstanding. 

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

The following describes the use of  financial instruments and types of risks that the Company is exposed to and  its objectives and policies for managing such risks: 

***Market risk***

*******Price risk*

**The Company is, or will be, subject to price risk from  fluctuations in market prices of zinc, copper, gold and silver. With respect  to metals in concentrate, there is a time lag between the time of initial  payment on shipment and final settlement pricing, and changes in the price of  zinc, copper, gold and silver during this period impact the Company’s  revenues and working capital position. The Company’s policy is not to hedge  base metal concentrate sales. Accordingly, as at December 31, 2016, and as of  the date of this MD&A, the Company has not entered into any hedge  contracts or other financial arrangements to minimize its commodity price  risk. 

  Sales of zinc and copper concentrates are recognized on  a provisional pricing basis when risks and rewards transfer and the rights  and obligations of ownership pass to the customer, which usually occurs on  shipment. However, the final pricing for the product sold and purchased is  not determined at that time as it is contractually linked to market prices at  a subsequent date. These arrangements have the characteristics of a  derivative instrument as the value of the related receivables will vary as  the price for the underlying commodity varies in the metal markets. These  pricing adjustments result in gains in a rising price environment and losses  in a declining price environment and are recorded as a change in revenue at  each balance sheet date and at final settlement. 

----

 

19

*Fuel price risk*

**Fuel consumption comprises a  significant portion of the Company’s operating expenses and the Company is  therefore subject to fuel price risk on fluctuations of the market price of  diesel. Based on an estimated 40 million litres of diesel fuel used annually,  a $0.10 change in the price per litre of fuel would have a $4.0 million  impact on earnings. 

*Currency risk*

**Currency risk is the risk that the fair values or future  cash flows of the Company’s financial instruments will fluctuate because of  changes in foreign exchange rates. Exchange rate fluctuations may affect the  costs that the Company incurs in its operations. The Company’s functional  currency is the United States dollar, and while metals sales are in U.S.  dollars, certain of the Company’s costs will be incurred in other currencies,  namely the Eritrean nakfa, Canadian and Australian dollars, Euro, South  African rand, and Serbian and Macedonian dinars. Additionally, the Company  also holds cash and cash equivalents that are denominated in currencies that  are subject to currency risk. Accounts receivable and other current and  non-current assets not denominated in US dollars relate to goods and services  taxes, income taxes and value-added taxes.  

  The Eritrean nakfa is directly tied to the US dollar. At  December 31, 2016, net financial assets (liabilities) denominated in Canadian  dollars are $(8,221), South African rand are $(156), Australian dollars are $(87),  Euros are $(133), Serbian dinars are $(3,628) and Macedonian dinars are $174.  A 10% strengthening of the U.S. dollar against these currencies at December  31, 2016, with all other variables held constant, would have resulted in an  estimated gain on the Canadian dollar denominated net financial liabilities  of $822, an estimated gain on South African rand denominated net financial liabilities  of $16, an estimated gain on the Australian dollar denominated net financial  liabilities of $9, an estimated gain on the Euro denominated net financial  liabilities of $13, an estimated gain on the Serbian dinar denominated net  financial liabilities of $363 and an estimated loss on the Macedonian dinar  denominated net financial assets of $17. As a result, management does not  consider currency risk to be significant. 

***Credit risk***

******Financial  instruments that potentially subject the Company to credit risk consist of cash  and cash equivalents, trade receivables, advances to vendors, loan receivable and  due from non-controlling interest. In order to manage credit risk, the Company maintains  its cash and cash equivalent deposits in chequing and demand deposit accounts  with well-regarded financial institutions with high credit ratings. The quality  of these institutions provides management with a high level of confidence that  its counterparties will not fail to meet their obligations. Additionally, a  high percentage of the funds are maintained in accounts outside of Africa. 

As at December 31, 2016, the Company’s credit  risk related to the recovery of trade accounts receivable, including receivables  of $3,338 related to concentrate and DSO sales due from  three  customers. 

  Zinc and copper concentrate sales are subject to credit  risk on trade receivables resulting from the sale of metals in concentrate. The  Company tries to limit credit risk exposure on sales of concentrate by selling  its product to large, international purchasers with high credit ratings, and  requiring purchasers to issue letters of credit with high credit quality  financial institutions to support such purchases. Additionally, the Company maintains  separate and sufficient insurance and requires the transporters of its concentrates  to carry sufficient insurance to prevent loss during transportation. 

The Company does not consider credit risk associated  with the recovery of value added taxes (VAT) and other receivables, which at  December 31, 2016, totaled $1,562, to be a significant risk. 

  The Company is also subject to credit risk related to  due from non-controlling interest, which at December 31, 2016, was $5,000.  Due from non-controlling interest is collected from ENAMCO with collection  terms determined by cash flow from the Bisha Mine with a guarantee from the  State of Eritrea. Management expects that cash flow will be sufficient to  allow collection in full from the non-controlling interest and, as a result,  credit risk on exposure on due from non-controlling interest is not considered  to be a significant risk. 

----

 

20

***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.  This approach includes a rigorous planning and budgeting process, which is  reviewed and updated on a regular basis, to help determine the funding  requirements to support the Company’s current operations and expansion and  development plans and by managing its capital structure.

  In the opinion of  management, the working capital at December 31, 2016, of $201,113, together  with future cash flows from operations, is sufficient to support the  Company’s operations and expansion plans. 

***Fair value versus carrying amounts***

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

| **Proposed transactions** |
|---------------------------|

The Company continually reviews opportunities for  growth, however, there are no proposed asset or business acquisitions or  dispositions currently under offer. 

| **Use of judgements and  estimates in applying critical accounting policies** |
|-------------------------------------------------------------------------------|

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

***Judgements***

  The critical judgements that the Company’s management  has made in the process of applying the Company’s accounting policies, apart  from those involving estimation uncertainty, that have the most significant  effect on the amounts recognized in the Company’s consolidated financial  statements are as follows: 

*Achievement of commercial production*

  Costs incurred to construct and develop mineral  properties, plant and equipment, including directly attributable costs of  testing, are capitalized until the assets are brought into the location and  condition necessary to be capable of operating in the manner intended by  management. Net proceeds from the sale of metals produced 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 years presented in these consolidated financial  statements have been impacted by management’s determination that the Bisha  Mine reached the operating levels intended by management with regards to  copper production from supergene ore on December 1, 2013, and zinc production  from primary ore on October 1, 2016. 

*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. 

*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. 

----

 

21

*Indicators of impairment*

  Judgement is required in assessing whether certain  factors would be considered an indicator of impairment. Potential indicators  of impairment must be evaluated in conjunction with many factors, including  current and forecast economic conditions, internal projections and other  factors which may indicate whether there is an indicator of impairment  present, and accordingly, whether impairment testing is required. Management  has determined that there were no indicators of impairment as at December 31,  2016. 

*Reservoir transaction as an acquisition of an asset*

  The Company has determined that the acquisition of  Reservoir constitutes the acquisition of an asset, rather than the  combination of businesses. This decision required management to make certain  qualitative considerations with respect to whether or not the acquired  company is capable in its acquired state of producing economic outputs.  Management concluded that this was not the case. 

*Fair value of assets and liabilities acquired in the  Reservoir transaction*

  Management relied upon multiple sources of information  in order to allocate value to the assets and liabilities acquired as part of  the transaction with Reservoir. The information was considered in the context  of management’s intentions with the various properties acquired in order to  allocate value accordingly. 

*Significant influence over Reservoir*

  On April 25, 2016, the Company announced that it had  subscribed to a private placement with Reservoir for a 19.99% ownership  stake. The Company exercised judgement in determining that it held  significant influence over Reservoir, which allowed for the Company to  account for the investment using the equity method. The Company maintained  this accounting treatment until Nevsun acquired the remaining outstanding  shares of Reservoir on June 23, 2016. 

***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: 

*Reserve and resource estimates including life of mine  plan*

  The Company estimates its ore reserves and mineral  resources based on information compiled by experts. Reserves are used in the  calculation of depreciation, impairment assessment and for forecasting the  timing of payment of mine closure, reclamation and rehabilitation costs.

An updated Mineral Resource and Mineral Reserve estimate  and associated technical report on the Bisha Property and a pre-feasibility  study on the Timok Project are expected to be completed in June 2017 and  September 2017, respectively.  These studies may or may not contain material  scientific and technical information that differs from that contained in the  current technical reports on the Bisha property and the Timok Project,  respectively. As a result, readers are cautioned that the Company’s current  estimates of its ore reserves and mineral resources may change.

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.

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

----

 

22

*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 year. Adjustments to the  carrying amounts of related mineral properties, plant and equipment can  result in a change to future depletion expense. 

*Fair value of embedded derivative*

  The value of trade receivables from the sale of  concentrate and direct shipping ore is measured using quoted forward market  prices as at the balance sheet date that correspond to the settlement date of  the provisional pricing period for the estimated metals contained within the  concentrate or ore.  Fluctuations in the underlying market prices of copper,  zinc, gold and silver, metal content and concentrate weight can cause  significant changes to the ultimate final settlement value of the receivables  and the final revenue recorded can vary significantly as a result. 

*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.

Importance is given 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. 

*Share-based payments*

  The factors affecting share-based payments include  estimates of when stock options might be exercised and the stock price  volatility.  The timing for exercise of options is out of the Company’s  control and will depend, among other things, upon a variety of factors  including the market value of Company shares and financial objectives of the  holders of the options.  The Company has used historical data to determine  volatility in accordance with Black-Scholes modeling, however future  volatility is inherently uncertain and the model has its limitations.  While  these estimates can have a material impact on the share-based payments  expense and hence, results of operations, there is no impact on the Company’s  financial condition or liquidity. 

----

 

23

| **Disclosure controls and  procedures** |
|-----------------------------------------|

The Company’s management, with the participation of the  Chief Executive Officer and Chief Financial Officer, is responsible for  establishing and maintaining the Company’s disclosure controls and  procedures. Disclosure controls and procedures are designed to provide  reasonable assurance that information required to be disclosed in the  Company’s annual filings, interim filings and other reports filed or  submitted is recorded, processed, summarized and reported, within the  appropriate time periods and is communicated to senior management, including  the Chief Executive Officer and Chief Financial Officer on a timely basis so  that the appropriate decisions can be made regarding public disclosures.

The Chief Executive Officer and Chief Financial Officer,  after participating with the Company’s management in evaluating the  effectiveness of the Company’s disclosure controls and procedures have  concluded that as of December 31, 2016, the Company’s disclosure controls and  procedures were effective. 

| **Internal control over financial reporting** |
|-----------------------------------------------|

The Company’s management, with the participation of the  Chief Executive Officer and Chief Financial Officer, is responsible for  establishing and maintaining adequate internal control over financial  reporting. The 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 IFRS. The Company’s internal control over  financial reporting includes those policies and procedures that: 

-     pertain to the maintenance of records that, in    reasonable detail, accurately and fairly reflect the transactions and    dispositions of assets of the Company;
-  provide reasonable assurance that transactions    are recorded as necessary to permit preparation of financial statements in    accordance with IFRS, and that the Company’s receipts and expenditures are    being made only in accordance with authorizations of management and the    Company’s directors; and
- 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    Company’s consolidated financial statements.

 The Company’s management, with the  participation of the Chief Executive Officer and Chief Financial Officer,  assessed the effectiveness of the Company’s internal control over financial  reporting using the criteria set forth in the *Internal Control –  Integrated Framework* (2013) issued by the Committee of Sponsoring  Organizations of the Treadway Commission. Based on this assessment,  management concluded that the Company’s internal control over financial  reporting was effective as of December 31, 2016.

| **Changes in internal control  over financial reporting** |
|-----------------------------------------------------------|

Other than internal controls adopted or implemented as  part of the Reservoir acquisition, there have been no changes  in the Company’s internal control over financial reporting during the year  ended December 31, 2016, that have materially affected, or are reasonably  likely to materially affect, the Company’s internal control over financial  reporting. 

| **Limitations of controls and  procedures** |
|---------------------------------------------|

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

----

 

24

| **Accounting changes and recent  accounting pronouncements** |
|--------------------------------------------------------------|

In January 2016, the IASB announced its new leasing  standard, IFRS 16. The new standard will eliminate the current dual accounting  model for lessees, which distinguishes between on-balance sheet finance  leases and off-balance sheet operating leases. The new standard will,  instead, present a single on-balance sheet accounting model that is similar  to current finance lease accounting. The new standard will take effect for  fiscal years starting on or after January 1, 2019. The Company expects the  new standard to result in some leases that are currently accounted for under  the operating lease method being added to the balance sheet. Such  adjustments, however, are not yet quantifiable as the Company’s assets under  lease may be different at the time of standard implementation. 

  In May 2014, the IASB issued the final revenue standard,  IFRS 15 - Revenue From Contracts With Customers, which will replace IAS 18 -  Revenue, among other standards that do not currently affect the Company. The  new standard becomes effective for fiscal years beginning on or after January  1, 2018. The standard contains a single model that applies to contracts with  customers and two approaches to recognizing revenue: at a point in time or  over time. The Company intends to adopt IFRS 15 in its financial statements  for the annual period beginning January 1, 2018. The Company does not expect  the standard to have a material impact on the financial statements. 

  In July 2014, the IASB published IFRS 9 – Financial  Instruments: Recognition and Measurement, which replaces IAS 39, the existing  guidance of the same name. IFRS 9 includes revised guidance on the  classification and measurement of financial instruments, including a new  expected credit loss model for calculating impairment on financial assets,  and the new general hedge accounting requirements. It also carries forward  the guidance on recognition and derecognition of financial instruments from  IAS 9.

 IFRS 9 is effective for annual reporting periods  beginning on or after January 1, 2018, and the Company intends to adopt the  new standard for the annual period beginning on that date. The Company does  not expect the standard to have a material impact on the financial  statements. 

| **Quality assurance** |
|-----------------------|

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

| **Non-GAAP  performance measure** |
|-----------------------------------|

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

C1 cash cost per  payable pound

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

By-product credits are an important factor in  determining the C1 cash costs per pound. The Company produces by-product  metals, gold and silver, incidentally to zinc and copper production  activities, and in some instances copper metal as a by-product where the  principal product is zinc metal in concentrate. Gold and silver are  considered to be by-products as they represent less than 20% of revenues from  concentrate sales during 2016 and 2015, and in instances where copper is  considered to be a by-product, it represents less than 10% of revenue  recognized on the related sale. The cash cost per payable pound will vary  depending on the volume of by-product credits and the relative price of the  by-products. The C1 cash cost per payable pound is calculated by dividing the  total costs, net of the by-product credits, by payable pounds of metal sold.  The calculation method is consistent on a period to period basis for purposes  of meaningful comparison. 

----

 

25

|                                                                                    |   | Zinc   |   |   | Copper    |   |
|-----------------------------------------------------------------------------------------|--------|--------|--------|--------|-----------|--------|
|                                                                                    |   |        |   |   | 2016      |   |   |  |   |   | 2015 |   |   |  |   |   | 2016 |   |   |  |   |   | 2015 |   |
| C1  cash cost per payable pound (U.S. $000s, except per pound amounts)                  |   | Total  |   |   | perpound  |   |   | Total |   |   | perpound |   |   | Total |   |   | perpound |   |   | Total |   |   | perpound |   |
| Pounds  of payable metal sold (millions)                                                |   |        |   |   | 22.6      |   |   |  |   |   |  |   |   |  |   |   | 58.6 |   |   |  |   |   | 138.5 |   |
| Operating  expenses and selling costs                                                   | $      | 31,017 |   | $      | 1.37      |   | $ | - |   | $ | - |   | $ | 72,425 |   | $ | 1.24 |   | $ | 200,890 |   | $ | 1.45 |   |
| Add:                                                                                    |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Concentrate  treatment and refining charges               |   | 2,678  |   |   | 0.12      |   |   | - |   |   | - |   |   | 17,937 |   |   | 0.31 |   |   | 47,353 |   |   | 0.34 |   |
| Less:                                                                                   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Concentrate  by-product credits                           |   | (1,358 | )      |   | (0.06     | )      |   | - |   |   | - |   |   | (19,934 | ) |   | (0.34 | ) |   | (61,891 | ) |   | (0.45 | ) |
|      Selling  costs not related to concentrate sales           |   | (4,419 | )      |   | (0.19     | )      |   | - |   |   | - |   |   | (9,746 | ) |   | (0.17 | ) |   | (4,834 | ) |   | (0.03 | ) |
|      Provisions  recorded not related to commercial zinc phase |   | (4,049 | )      |   | (0.18     | )      |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Total C1 cash cost                                                                      | $      | 23,869 |   | $      | 1.06      |   | $ | - |   | $ | - |   | $ | 60,682 |   | $ | 1.04 |   | $ | 181,518 |   | $ | .31 |   |
|                                                                                    |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   | Zinc   |   |   | Copper    |   |
|                                                                                    |   |   |   |   | Q4 2016   |   |   |   |   |   | Q4 2015 |   |   |   |   |   | Q4 2016 |   |   |   |   |   | Q4 2015 |   |
| C1  cash cost per payable pound (U.S. $000s, except per pound amounts)                  |   | Total  |   |   | per pound |   |   | Total |   |   | per pound |   |   | Total |   |   | Per  pound |   |   | Total |   |   | Per  pound |   |
| Pounds  of payable metal sold (millions)                                                |   |   |   |   | 22.6      |   |   |   |   |   | - |   |   |   |   |   | - |   |   |   |   |   | 26.7 |   |
| Operating  expenses and selling costs                                                   | $      | 31,017 |   | $      | 1.37      |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 44,483 |   | $ | 1.66 |   |
| Add:                                                                                    |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Concentrate  treatment and refining charges               |   | 2,678  |   |   | 0.12      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 8,492 |   |   | 0.32 |   |
| Less:                                                                                   |   |   |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Concentrate  by-product credits                           |   | (1,358 | )      |   | (0.06     | )      |   | - |   |   | - |   |   | - |   |   | - |   |   | (7,456 | ) |   | (0.28 | ) |
|      Selling  costs not related to concentrate sales           |   | (4,419 | )      |   | (0.19     | )      |   | - |   |   | - |   |   | - |   |   | - |   |   | (2,963 | ) |   | (0.11 | ) |
|      Provisions  recorded not related to commercial zinc phase |   | (4,049 | )      |   | (0.18     | )      |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Total C1 cash cost                                                                      | $      | 23,869 |   | $      | 1.06      |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 42,556 |   | $ | 1.59 |   |

----

 

26

| **Additional information and risk factors** |
|---------------------------------------------|

Additional information relating to the Company,  including risk factors, is discussed in the Company’s 2016 Annual Information  Form and other filings available on the Company’s website at www.nevsun.com and on SEDAR at www.sedar.com. The Company’s 2016 Annual  Information Form was filed on February 23, 2016. 

| **Forward looking statements** |
|--------------------------------|

This Management’s Discussion and Analysis contains  statements and information concerning anticipated developments in the  Company’s continuing and future operations, the adequacy of the Company’s  financial resources and financial projections.  Forward-looking statements  include, but are not limited to, statements concerning or the assumptions  related to estimates of capital and operating costs, the timing, nature and  extent of future copper and zinc production, expanding exploration licenses,  the estimation of mineral reserves and resources, methodologies and models  used to prepare resource and reserve estimates, the realization of mineral  reserve estimates, the conversion of mineral properties to reserves and  resources, the potential to expand resources, reserves and mine life, future  exploration budgets, plans, targets and work programs, capital expenditures  including land acquisition and objectives, anticipated timing of grant of  permits, mining and development plans and activities, construction and  production targets and timetables, grades, processing rates, life of mine,  net cash flows, metal prices, exchange rates, reclamation costs, results of  drill programs, dividend plans and policy, litigation matters, integration or  expansion of operations, requirements for additional capital, government  regulation of mining operations, environmental risks, political risks and  uncertainties, unanticipated reclamation expenses, and other events or  conditions that may occur in the future. 

  Forward-looking statements are frequently, but not  always, identified by words such as “expects,” “anticipates,” “believes,”  “hopes,” “intends,” “estimates,” “potential,” “possible,” “budget” and  similar expressions, or statements that events, conditions or results “will,”  “may,” “could” or “should” occur or be achieved.  Information concerning the  interpretation of drill results and mineral resource and reserve estimates  also may be deemed to be forward-looking statements, as such information  constitutes a prediction of what mineralization might be found to be present  if and when a project is actually developed, and in the case of mineral  reserves, such statements reflect the conclusion based on certain assumptions  that the mineral deposit can be economically exploited. 

  Forward-looking statements are statements about the  future and are inherently uncertain, and actual achievements of the Company  or other future events or conditions may differ materially from those  reflected in the forward-looking statements due to a variety of risks, uncertainties  and other factors including, without limitation, the risks that: (i) any of  the assumptions in the historical resource estimates turn out to be  incorrect, incomplete, or flawed in any respect; (ii) the methodologies and  models used to prepare the resource and reserve estimates either  underestimate or overestimate the resources or reserves due to hidden or  unknown conditions, (iii) exploration activities or the mine operations are  disrupted or suspended due to acts of god, internal conflicts in the country  of Eritrea or Serbia, unforeseen government actions or other events; (iv) the  Company experiences the loss of key personnel; (v) the Company’s operations  or exploration activities are adversely affected by other political or  military, or terrorist activities; (vi) the Company becomes involved in any  material disputes with any of its key business partners, suppliers or  customers; (vii) the Company is subjected to any hostile takeover or other  unsolicited attempts to acquire control of the Company; (viii) the Company is  subject to any adverse ruling in any of the pending litigation to which it is  a party; (ix) the timing and success of improving the quality of the copper  circuit product by resolving the metallurgical challenges from the variable ore  materials being processed to produce concentrate from the copper circuit; (x)  the effect on resource or reserve estimates due to the possible inability to  resolve the metallurgical challenges on the variable ore materials being  processed on a timely basis or at all; and other risks more fully described  in the Company’s Annual Information Form for the fiscal year ended December  31, 2016 and the Company’s and Reservoir Minerals Inc.’s Management  Information Circulars dated May 18, 2016 with respect to the proposed  arrangement between Reservoir and Nevsun, which are incorporated herein by  reference. 

----

 

27

  Although the Company has attempted to identify important  factors that could cause actual results to differ materially from those  contained in forward-looking statements, there may be other factors that  cause results not to be as anticipated, estimated or intended. The Company’s  forward-looking statements are based on the beliefs, expectations and  opinions of management on the date the statements are made and the Company  assumes no obligation to update such forward-looking statements in the  future, except as required by law.  There can be no assurance that such  statements will prove to be accurate, as actual results and future events  could differ materially from those anticipated in such statements. For the  reasons set forth above, investors should not place undue reliance on  forward-looking statements. 

| **NYSE MKT corporate governance** |
|-----------------------------------|

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

| **Cautionary note regarding preparation   of reserves and resources** |
|-----------------------------------------------------------------------|

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

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

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

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

----

 

28

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

----