----

----

**MANAGEMENT’S DISCUSSION & ANALYSIS – FISCAL 2013**

This MD&A was prepared by  management as at March 11, 2014, and was reviewed and approved by the Board  of Directors.  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. (the Company or Nevsun) and  notes thereto for the year ended December 31, 2013.  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 and per share data.  Additional  information relating to the Company, including the Company’s Annual  Information Form, which will be filed prior to March 31, 2014, is available  at www.sedar.com.

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

| Forward looking statements.                                      | 2  |
|------------------------------------------------------------------|----|
| Business of the Company.                                         | 2  |
| 2013 annual highlights.                                          | 2  |
| Outlook for 2014.                                                | 3  |
| Highlights of the Bisha Mine.                                    | 4  |
| Operating review.                                                | 5  |
| Selected annual financial information.                           | 7  |
| Results of operations.                                           | 7  |
| Selected quarterly financial information.                        | 8  |
| Fourth quarter 2013 review.                                      | 9  |
| Liquidity and capital resources.                                 | 9  |
| Commitments and contractual obligations.                         | 10 |
| Off-balance sheet arrangements.                                  | 10 |
| Contingencies.                                                   | 10 |
| Outstanding share data.                                          | 11 |
| Financial instruments and risk management                        | 11 |
| Proposed transactions.                                           | 13 |
| Critical accounting policies and estimates.                      | 13 |
| Disclosure controls and procedures.                              | 15 |
| Changes in internal control over financial  reporting.           | 15 |
| Limitations of controls and procedures.                          | 16 |
| Changes in accounting standards including initial adoption.      | 16 |
| Related party transactions.                                      | 18 |
| Quality assurance.                                               | 18 |
| Risk factors.                                                    | 18 |
| NYSE MKT corporate governance.                                   | 26 |
| Cautionary note regarding preparation of reserves and resources. | 26 |

----

 

2

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

*This report contains forward-looking  statements within the meaning of the United States Private Securities  Litigation Reform Act of 1995 and applicable Canadian securities legislation  concerning anticipated developments in the Company’s continuing and future operations  in Eritrea and in the putative class action lawsuit, 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 gold 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 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,” “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  more fully described under the Section titled “Risk Factors” below.*

*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.*

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

The principal business of Nevsun is  the operation of the 60%-owned Bisha Mine in Eritrea, located in northeast Africa.   

The Company’s significant exploration and development  projects include the development of the Bisha Mine zinc flotation circuit, exploration  of the Northwest Zone, which is a potential satellite deposit to Bisha, and  exploration of the Mogoraib River license area, including the Hambok mineral  resource.

Nevsun is listed for trading on  both the Toronto Stock Exchange (TSX) and the NYSE MKT LLC (NYSE MKT) under  the symbol NSU.

| **2013 annual highlights** |
|----------------------------|

-     Exceeded 15 million hours    without a lost time injury 
-  Completed the copper expansion    project on-time and under budget 
- Achieved commercial production    of copper plant on schedule
-  Produced 48 million pounds of    copper in concentrate against guidance of 30 to 50 million pounds
-  Produced 92,000 ounces of gold    in doré plus 20,000 equivalent ounces in precious metals concentrate 
-  Revenues of $155,698, with    average realized gold price per ounce of $1,471
-  Net income of $29,254
- Increased annualized dividend by    40% to $0.14 per share 
-  Maintained strong balance sheet with approximately $420,000 in    working capital

----

 

3

| **Outlook for  2014** |
|-----------------------|

2014  Objectives

Maintain top quartile safety  performance at Bisha operations 

-     Execute on social and environmental    commitments 
-  Produce 180 – 200 million pounds    of copper
-  Achieve C1 cash costs in    industry lowest quartile (1) 
-   Obtain expanded exploration    rights and continue generative exploration in Eritrea 
-     Update mineral resources and    reserves estimate for Bisha area deposits 
-     Continue paying peer leading    dividends 

| (1) | C1 is a non-IFRS measure and includes mine site operating and  general and administrative costs, freight, treatment and refining charges,  less by-product credits. Non-IFRS measures do not have a standardized meaning  prescribed by International Financial Reporting Standards (IFRS) and are,  therefore, unlikely to be comparable to similar measures presented by other  companies. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Corporate Social Responsibility

Nevsun expects that Bisha Mining Share  Company (BMSC) will maintain top quartile safety performance at its  Bisha operations and maintain lost time injury rates that are less than the North  American mining industry average. Nevsun expects that BMSC will continue to  enhance corporate social responsibility program initiatives to reflect  evolving international standards.

Operations

BMSC, Nevsun’s 60%-owned Eritrean  registered subsidiary that operates the Bisha Mine, will enjoy its first full  year of copper concentrate production in 2014 after announcing the start of  commercial production in December 2013. 

  BMSC plans to produce between 180 and 200 million pounds  of copper in concentrate in 2014 through processing of approximately  2,100,000 tonnes of ore from Bisha Main pit averaging about 4.6% copper feed  grade.  With such high grade ore, the C1 cash cost of producing a tonne of  concentrate is expected to be in the lowest quartile worldwide. Based on the  mine plan, the copper will be contained in approximately 280,000 tonnes of  concentrate, at approximately 30% copper grade. Continued plant optimisation  and increased transport logistical efficiency will remain top priorities. 

  In addition to the above copper production, the Company  has considerable additional metal value held in stockpiles that has yet to be  monetized. This includes 6,500 tonnes of precious metals concentrate  containing about 7,000 ounces of gold with high silver content that it  intends to blend with its regular copper concentrate so as to heighten the  value of the combined product. The Company has also mined and stockpiled over  100,000 tonnes of oxide ore at over 6 g/t Au containing over 20,000 ounces of  gold, and 200,000 tonnes of pyrite sand ore that contains approximately  55,000 ounces of gold with significant silver content. The Company is  exploring alternative methods and when to best monetize these stockpiles.

Exploration

In 2013, the Company spent $15,720 to fund 28,835 meters  of exploration diamond drilling (124 holes), geotechnical and metallurgical  diamond drilling (10 holes), trenching, data evaluation and mineral resource  estimation at the Bisha Operation.  No drilling was completed during Q4.  In  Q4, work focussed on completing a new resource update for the Hambok deposit  and a maiden resource estimate for the Northwest Zone.  These new resources  were part of the revised BMSC mineral reserve and mineral resource update  released in February 2014. 

  Bisha Mine Area Exploration:

  In 2013, the Company renewed exploration drilling in the  immediate Bisha Mine area and by year end had completed 6,223 meters of  drilling in 23 holes.  This work highlighted at least three areas where  additional drilling is warranted: (1) the Guardian Hill, (2) adjacent and  southwest of Bisha, and (3) northwest of Bisha.  Drilling southwest of Bisha  began in early 2014.

----

 

4

Northwest Zone: 

  On January 6, 2014, final assay results were reported  from the 220 hole, 18,892 meter resource definition and expansion drilling  program completed in 2013 at the Northwest Zone. Work on the maiden open pit  constrained resource estimate was prepared and released as part of the  updated BMSC mineral reserve and mineral resource estimate in February 2014. 

  The Northwest Zone was discovered in 2003 by the diamond  drilling of an airborne electromagnetic anomaly located approximately 2  kilometers northwest of the Bisha plant facilities. Follow-up ground  geophysics, soil sampling and drilling from 2004 to 2006 defined a 600 meter  long zone of massive and stringer sulphide mineralization. Further work was  deferred while the Bisha deposit was being prepared for mining. A program of  in-fill drilling was started in late 2011 designed to fully delineate the  open-pit potential. This drill program has now been completed and has  successfully extended the mineralization an additional 400 meters in strike  length. 

  The mineralized system at the Northwest Zone is  extensive and resource expansion opportunities remain to the north, south and  at depth. In July 2013, four holes were drilled beneath the central and  northern portions of the deposit. This drilling demonstrated that the  mineralized system continues to depth and appears to be thickening to the  south where further drilling is warranted. In addition, to the east there is  a parallel zone of mineralization that is only defined by limited drilling.

Hambok Deposit and Mogoraib River License Exploration: 

  Hambok is located on the Mogoraib River Exploration  License that was acquired in October 2012.  During 2013, an application was  submitted to the Eritrean Ministry of Mines (MoM) to extend the Mogoraib  license for one year.  This application was successful after a mandated 25%  reduction in area was defined.  The Mogoraib River License now consists of  73.1 square kilometers valid until July 2014 whereupon a successive annual  renewal application will be submitted to the MoM. 

  Hambok represents potential additional mill feed as a  copper-zinc massive sulphide mineral deposit located 16 kilometers southwest  of the Bisha plant facilities.  A new open pit constrained mineral resource  estimate for Hambok was released in February 2014.  Future work will focus on  exploring favourable mineralization trends to the immediate north and south  of Hambok. 

  In addition, preliminary analysis of historical data  across the Mogoraib River license has highlighted a number of primary targets  of interest for additional exploration.  Two of the areas have not been  drilled previously and one area has seen only limited drilling with positive  results.  Further evaluation of these targets will occur in 2014.

Other Expansion Plans

BMSC will advance its zinc expansion project through  2014, with a target start-up in H1 2016.  The engineering, procurement and  construction management (EPCM) contractor has been appointed, initial  commitments for long-lead items will be made in Q2 2014 and civil works have commenced  along with detailed design. Capital cost for the zinc project will be more  closely estimated during H1 2014.  

The Company continues to review opportunities to acquire  other gold and copper assets.

| **Highlights of  the Bisha Mine** |
|-----------------------------------|

The Bisha Mine is a gold, copper and zinc deposit that  is projected to have a strong economic return over the remaining eleven year  mine life.  Nevsun is a 60% shareholder in BMSC, which owns and operates the  Bisha Mine.  The remaining 40% interest is held by the Eritrean National  Mining Corporation (ENAMCO) and is referred to as the non-controlling  interest herein.  The top layer of the deposit was gold oxide material lying  at surface that allowed an early payback of gold phase capital and allowed  for funding of the copper phase expansion.  Mining of the gold oxide phase was  completed for the most part at the end of Q2 2013.  The copper flotation plant  achieved commercial production in late 2013 and development of the zinc  flotation circuit, which is expected to be online in late H1 2016, is  underway. The Bisha Mine has the full support of the Eritrean Government,  whose senior representatives assist Nevsun in expediting development and  operations.

----

 

5

| **Operating review** |
|----------------------|

| Key operating information  – Bisha Mine: |
|------------------------------------------------|

|                           |   | Q4 2013   |   |   | Q3 2013   |   |   | Q2 2013   |   |   | Q1 2013   |   |   | 2013      |   |   | Q4 2012   |   |   | 2012      |   |
|--------------------------------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|
| Oxide ore mined, tonnes(1)     |   | 77,000    |   |   | 217,000   |   |   | 425,000   |   |   | 468,000   |   |   | 1,187,000 |   |   | 426,000   |   |   | 1,591,000 |   |
| Supergene ore mined, tonnes    |   | 456,000   |   |   | 342,000   |   |   | -         |   |   | 7,000     |   |   | 805,000   |   |   | -         |   |   | -         |   |
| Waste mined, tonnes            |   | 2,664,000 |   |   | 2,802,000 |   |   | 1,647,000 |   |   | 1,925,000 |   |   | 9,038,000 |   |   | 2,602,000 |   |   | 8,677,000 |   |
| Strip ratio, (using tonnes)(2) |   | 5.0       |   |   | 5.0       |   |   | 3.9       |   |   | 4.1       |   |   | 4.5       |   |   | 6.1       |   |   | 5.5       |   |
| Copper phase prestrip, tonnes  |   | -         |   |   | -         |   |   | -         |   |   | -         |   |   | -         |   |   | -         |   |   | 1,220,000 |   |

| Processing – copper:                         |   |    |   |   |    |   |   |   |   |   |   |   |   |    |   |   |   |   |   |   |   |
|----------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| Tonnes milled                                      |   | 401,000 |   |   | 366,000 |   |   | -      |   |   | -      |   |   | 767,000 |   |   | -      |   |   | -      |   |
| Copper feed grade, %                               |   | 5.1     |   |   | 2.5     |   |   | -      |   |   | -      |   |   | 3.9     |   |   | -      |   |   | -      |   |
| Recovery, % of copper                              |   | 79.7    |   |   | 59.5    |   |   | -      |   |   | -      |   |   | 73.5    |   |   | -      |   |   | -      |   |
| Copper in concentrate produced, millions of pounds |   | 36.0    |   |   | 12.0    |   |   | -      |   |   | -      |   |   | 48.0    |   |   | -      |   |   | -      |   |
| Copper in concentrate sold, millions of pounds(3)  |   | 30.6    |   |   | -       |   |   | -      |   |   | -      |   |   | 30.6    |   |   | -      |   |   | -      |   |
| Copper price realized, per pound                   | $      | 3.20    |   |   | -       |   |   | -      |   |   | -      |   | $      | 3.20    |   |   | -      |   |   | -      |   |

| Processing – gold:           |   |   |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
| Tonnes milled                      |   | -      |   |   | -      |   |   | 455,000 |   |   | 432,000 |   |   | 887,000 |   |   | 447,000 |   |   | 1,807,000 |   |
| Gold grade (g/t)                   |   | n/a    |   |   | n/a    |   |   | 2.75    |   |   | 4.14    |   |   | 3.43    |   |   | 3.85    |   |   | 6.21      |   |
| Recovery, % of gold                |   | n/a    |   |   | n/a    |   |   | 79.8    |   |   | 79.0    |   |   | 79.4    |   |   | 84.3    |   |   | 85.8      |   |
| Gold in doré, ounces produced |   | 1,500  |   |   | 13,300 |   |   | 34,900  |   |   | 42,300  |   |   | 92,000  |   |   | 46,000  |   |   | 313,000   |   |
| Gold ounces sold                   |   | 1,200  |   |   | 17,800 |   |   | 36,200  |   |   | 41,500  |   |   | 96,700  |   |   | 53,400  |   |   | 320,700   |   |
| Gold price realized per ounce      | $      | 1,246  |   | $      | 1,323  |   | $      | 1,374   |   | $      | 1,592   |   | $      | 1,471   |   | $      | 1,709   |   | $      | 1,671     |   |

| (1) | Q4 2013 Includes 62,000 tonnes of pyrite sand  ore and 15,000 tonnes of oxide ore. |
|-----|------------------------------------------------------------------------------------|

| (2) | In previous disclosures, strip ratio was  calculated using bank cubic metres (BCMs). As supergene ore density is nearly  double that of previous oxide ore density and haul trucks are limited by  tonnage, it is more appropriate to report strip ratio now by tonnes of waste  to ore rather than by BCMs of waste to ore. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Copper in concentrate sold in Q4 2013 was all related to the  pre-commercial production period.  As a result, the proceeds associated with  these sales are offset against pre-commercial production capital costs and  are not recorded as revenues. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

In December 2013, the Bisha Mine  exceeded 15 million man hours without a lost time injury. 

  2013 was a transition year that saw the  wind-down of the oxide ore gold phase and decommissioning of the gold  carbon-in-leach (CIL) circuit and commissioning of the copper flotation plant,  which achieved commercial production on December 1, 2013.  

  Overall, more material was mined in Q4  2013 compared to Q4 2012.  Mined ore tonnage for Q4 2013 of 533,000, which  included 62,000 tonnes of pyrite sand and 15,000 tonnes of oxide material  that were stockpiled and set aside for future processing, blending or direct  sale, increased from the 426,000 tonnes mined in Q4 2012. Mined waste tonnage  for Q4 2013 of 2,664,000 was roughly equal to the 2,602,000 tonnes in the  same quarter of 2012.  In previous disclosures, strip ratio was calculated  using bank cubic metres (BCMs). As supergene ore density is nearly double  that of previous oxide ore density and haul trucks are limited by tonnage, it  is more appropriate to report strip ratio now by tonnes rather than earlier  use of BCMs.

Improvements in primary excavator and  haul truck availabilities and new equipment, allowed the operation to begin  to catch up on waste stripping that fell behind in the first half of 2013.   The Company also changed its blasting practices in light of difficult ground  conditions in Q4.  While waste stripping targets for 2013 were not met, the  shortfall in waste movement is not expected to affect 2014 copper ore  production.  

  Q4 2013 processing results are not  comparable to the Q4 2012 results due to the shut-down and decommissioning of  the CIL plant and the commissioning and ramp-up to commercial production of  the copper flotation circuit.  In the second half of 2013 the Company was  processing supergene ore from the Bisha main pit to produce a copper  concentrate that is sold to smelters and traders.  From Q3 to Q4 2013, the  copper feed grade improved from 2.5% to 5.1% and copper recoveries improved  from 59.5% to 79.7%, respectively.

----

 

6

During 2013 the Company produced 97,000  tonnes of concentrate containing 48 million pounds of copper, of which 63,000  tonnes of concentrate containing 36 million pounds of copper were produced in  Q4.  It also shipped 62,000 tonnes of concentrate containing 31 million  pounds of copper to customers from the Massawa port.  All of the 2013  concentrate sales were in the fourth quarter and were of copper concentrate  produced during the pre-commercial production period.  As a result, proceeds  associated with those sales are not recorded as revenue but are offset against  capitalized pre-commercial production operating costs.  

  While the Company continues to further  optimize the copper flotation plant, the main focus of the operation remains  on ensuring land concentrate transport keeps up with the copper concentrate  production.

As to gold processing in the first half  of 2013, the Company milled 887,000 tonnes of oxide ore with an average grade  of 3.4 grams per tonne and 79% recoveries to produce 77,200 ounces of gold.   The Company produced a further 14,800 ounces of gold in the second half of  2013 as part of the decommissioning and clean out of the CIL plant for a  total of 92,000 ounces in the year.  The Company sold 96,700 ounces during  the year at an average realized price of $1,471/oz.  

  The reduction in ounces sold in the three and twelve months  ended December 31, 2013, from those sold in the comparative periods from the  prior year, results from the wind down and decommissioning of the gold phase,  whereas in 2012, the Company was in full gold operation. In prior periods, the  Company disclosed the cash cost per ounce of gold sold, a non-GAAP measure.  As the CIL plant was decommissioned during Q3 2013, the gold recovered and  sold during the second half of 2013 had an unusually low cash cost per ounce  sold that is not comparable to previous periods when the Company was in full  operation.  As a result of the lack of comparability of the figures, the  Company has not disclosed the cash cost per ounce for the three and twelve months  ended December 31, 2013, and for the comparative periods.

New mineral resource and mineral reserve estimates

No later than March 31, 2014, the  Company will file a Canadian National Instrument 43-101 compliant technical  report, with an effective date of December 31, 2013, with respect to the  mineral resources and reserves estimates for the Bisha and Harena deposits  and will also include mineral resources estimates for the Northwest and  Hambok deposits for the first time.  Using a Net Smelter Return (NSR)  cut-off of US$39.55 per tonne, the updated Bisha Main probable mineral  reserve estimate consists of supergene copper ore of 7.4 million tonnes  grading at 3.57% copper, 0.61 g/t gold and 27 g/t silver and primary  copper-zinc ore of 18.4 million tonnes grading at 1.02% copper, 5.66% zinc,  0.68 g/t gold and 46 g/t silver.

Copper phase development  

The Company concluded its copper phase  development in late 2013.  The copper expansion was well under the $125,000  budget, as total capital before any offsets for pre-commercial production  operating costs and sales was $106,187, including the copper plant, port  facilities and concentrate container transport and handling equipment.  Sales  of pre-commercial production copper concentrate were offset against capitalized  pre-commercial production operating and selling costs.

Zinc phase development

The target start-up date of the zinc  expansion has been moved back to H1 2016 due to the additional supergene ore  identified in the recent mineral reserve update.  BMSC will advance its zinc  expansion project through 2014.  As of the date of this report, the EPCM  contractor has been appointed, initial commitments for long-lead items will  be made in Q2 2014 while some civil works and detailed design has commenced.  Capital cost for the zinc project will be more closely estimated during H1 2014.

----

 

7

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

The  following annual financial information for the years ended December 31, 2013,  2012, and 2011, were prepared in accordance with IFRS.

| Fiscal years ended |
|--------------------|

| In US $000s  (except per share data)                                          |   | December 31, 2013(2) |   |   | December  31, 2012 |   |   | December 31, 2011(1) |   |
|-------------------------------------------------------------------------------|--------|----------------------|--------|--------|--------------------|--------|--------|----------------------|--------|
| Revenues                                                                      | $      | 155,698              |   | $      | 566,039            |   | $      | 547,770              |   |
| Operating  income                                                             |   | 71,395               |   |   | 405,674            |   |   | 417,783              |   |
| Net income for the year                                                       |   | 29,254               |   |   | 246,696            |   |   | 250,034              |   |
|                                                                          |   |                 |   |   |               |   |   |                 |   |
| Net income attributable to Nevsun shareholders                                | $      | 12,857               |   | $      | 145,262            |   | $      | 147,065              |   |
| Earnings per share attributable to Nevsun  shareholders – basic         |   | 0.06                 |   |   | 0.73               |   |   | 0.74                 |   |
| Earnings per share attributable to Nevsun  shareholders – fully diluted |   | 0.06                 |   |   | 0.72               |   |   | 0.73                 |   |
|                                                                          |   |                 |   |   |               |   |   |                 |   |
| Total assets                                                                  | $      | 870,860              |   | $      | 873,696            |   | $      | 775,226              |   |
| Total long term financial liabilities                                         | $      | 53,802               |   | $      | 38,717             |   | $      | 29,420               |   |
| Dividends declared, per share                                                 | $      | 0.14                 |   | $      | 0.10               |   | $      | 0.08                 |   |

| (1) | Gold commercial operations  commenced 2011. The 2011 figures reflect operating results from February 22,  2011, the date commercial production commenced at the Bisha Mine, to December  31, 2011. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Copper commercial operations  commenced December 1, 2013.  The 2013 figures only reflect gold phase  operating results. |
|-----|------------------------------------------------------------------------------------------------------------------------------|

Explanations of  variations from 2012 to 2013 are contained below.

| **Results of  operations** |
|----------------------------|

The Company produced gold doré from its oxide ore  reserves from January until approximately mid-June 2013.  In July the  decision was made to cease CIL operations and move to full copper flotation  commissioning.  Commercial production of the flotation plant was achieved in  late Q4 2013.  During the year ended December 31, 2013, all gold doré sales  were recorded as revenues, along with the associated costs of production.   All costs associated with pre-commercial operating and selling costs were deferred  and offset against copper concentrate sales.  

  Management was active in evaluating business development  opportunities throughout the year.  Activities include extensive technical  due-diligence on several copper and gold assets, including several site  visits. 

  The following variances result when comparing operations  for the year ended December 31, 2013, with the year ended December 31, 2012  (in US $000s, except per ounce data).  Explanations for variances for  revenues, operating expenses, royalties and depreciation and depletion can be  principally attributed to there being only six months of commercial gold  operations in 2013 compared to a full year in 2012.  Refer to the audited annual  consolidated financial statements.

Revenues:  The Company’s revenues for  2013 of $155,698 (2012 – $566,039) are comprised of revenues on gold sales of  $142,241 (2012 - $535,945) and revenues on by-product silver sales of $13,457  (2012 - $30,094).  Gold revenues included sales of 96,700 ounces of gold (2012  – 320,700 ounces) at an average realized price of $1,471 per ounce (2012 –  $1,671 per ounce).  These average realized prices per ounce of gold sold compare  to the average market price per ounce (London PM Fix) of $1,411 for 2013 and  $1,669 for 2012.  Included in revenues are silver by-product revenues for 2013  from sales of 507,935 ounces of silver (2012 – 962,000 ounces) at an average  realized price of $24.63 per ounce (2012 – $31.28 per ounce).

Operating expenses:  The Company’s 2013  operating expenses were $62,848 (2012 – $103,432).  Operating expenses  decreased in 2013 due to six months of gold commercial operations, including  wind-down in Q2, compared to a full year of commercial operations in 2012.

----

 

8

Royalties:  The Company incurs a 5%  precious metals royalty on gold and silver doré sales.  In 2013 royalty  expenses of $8,070 (2012 – $27,898) were recorded on gold and silver sales.

Depreciation and depletion:  In 2013, depreciation  and depletion of $13,385 (2012 – $29,035) was recorded.

Administrative:  Administrative costs for  2013 were $14,537 (2012 – $8,261), up $6,276 from 2012.  The increase is due primarily to a $2,135  increase in non-cash share-based payments expenses resulting from the timing,  issuance and vesting of options issued in 2012 and 2013.  In 2013, there was  also an increase in non-cash stock appreciation rights expense of $1,097, as compared  to 2012, resulting from an increase in the Company’s share price, which resulted  in an increase in the stock appreciation rights liability.  The increases in  share-based payment expenses and stock appreciation rights were in addition  to increases in business development costs of $934, salaries and benefits of  $1,989 and legal fees of $319. Corporate salaries and employee benefits rose from $3,566 in the year  ended December 31, 2012, to $5,555 in the year ended December 31, 2013,  reflecting the addition of four new senior executives, recruitment fees and  increases in salaries and wages.  The increase in business development  expenses reflects the Company’s expanded efforts to identify, evaluate and  conduct due diligence on potential acquisitions.  Other administrative  expenses increased $121 from $3,772 in the year ended December 31, 2012, to $3,893  in the year ended December 31, 2013.

Income taxes:  Income tax expense for  2013 of $30,186 (2012 – $154,049) is comprised of current income tax expense  of $20,702 (2012 – $149,532) related to the BMSC mining operations at an  effective rate of 38% and deferred income tax expense of $9,484 (2012 – $4,517).

Net income:  Net income for 2013 was $29,254  (2012 – $246,696) of which $16,397  (2012 – $101,434) is attributable  to non-controlling interest and $12,857 (2012 – $145,262) is attributable to Nevsun shareholders.

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

Selected consolidated  financial information from continuing operations for the most recent eight  quarters, prepared in accordance with IFRS, are presented below:

| In US $000s (except per  share data)                                           |   | **2013  4th** | ** ** | ** ** | **2013  3rd** | ** ** | ** ** | **2013  2nd** | ** ** | ** ** | **2013  1st** |   |
|--------------------------------------------------------------------------------|--------|---------------|------------|------------|---------------|------------|------------|---------------|------------|------------|---------------|--------|
| Revenues                                                                       | $      | 4,000         |       | $          | 25,783        |       | $          | 54,785        |       | $          | 71,130        |   |
| Operating income                                                               |   | 587           |       |       | 12,980        |       |       | 20,049        |       |       | 37,779        |   |
| Net income (loss) for  the period                                              |   | (4,860        | )          |       | 4,306         |       |       | 10,305        |       |       | 19,503        |   |
|                                                                           |   |          |       |       |          |       |       |          |       |       |          |   |
| Net income (loss)  attributable to Nevsun shareholders                         |   | (4,212        | )          |       | 1,170         |       |       | 5,274         |       |       | 10,625        |   |
| Earnings (loss) per  share attributable to Nevsun shareholders – basic   |   | (0.03         | )          |       | 0.01          |       |       | 0.03          |       |       | 0.05          |   |
| Earnings (loss) per  share attributable to Nevsun shareholders – diluted |   | (0.03         | )          |       | 0.06          |       |       | 0.03          |       |       | 0.05          |   |

| In  US $000s (except per share data)                                       |   | **2012  4th** | ** ** | ** ** | **2012  3rd** | ** ** | ** ** | **2012  2nd** | ** ** | ** ** | **2012  1st** |   |
|----------------------------------------------------------------------------|--------|---------------|------------|------------|---------------|------------|------------|---------------|------------|------------|---------------|--------|
| Revenues                                                                   | $      | 98,944        |       | $          | 169,992       |       | $          | 147,713       |       | $          | 149,390       |   |
| Operating income                                                           |   | 59,893        |       |       | 125,482       |       |       | 109,671       |       |       | 110,628       |   |
| Net income for the  period                                                 |   | 35,432        |       |       | 75,636        |       |       | 66,865        |       |       | 68,763        |   |
|                                                                       |   |          |       |       |          |       |       |          |       |       |          |   |
| Net income attributable  to shareholders                                   |   | 20,245        |       |       | 44,211        |       |       | 39,568        |       |       | 41,238        |   |
| Earnings per share  attributable to Nevsun shareholders – basic(1)   |   | 0.10          |       |       | 0.22          |       |       | 0.19          |       |       | 0.21          |   |
| Earnings per share attributable to Nevsun shareholders  – diluted(1) |   | 0.10          |       |       | 0.22          |       |       | 0.19          |       |       | 0.20          |   |

| (1) | Total earnings per share attributable to Nevsun shareholders  for the four quarters of 2012 when added together do not agree to the annual  figures due to rounding differences. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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9

Explanations of  variations from Q4 2012 to Q4 2013 are contained below.

| **Fourth quarter  2013 review** |
|---------------------------------|

During the three months ended December 31, 2013, the  Company achieved commercial production of the copper flotation plant and  completed decommissioning the CIL plant.  All concentrate sales in the quarter  were of material produced during the pre-commercial production period.  As a  result, proceeds associated with those sales are not recorded as revenue but  are offset against capitalized pre-commercial production operating costs.   There was a final sale of precious metals doré that was recorded as revenue.   In addition, the Company sold one tonne of high-grade pyrite sand ore to a  smelter and recorded it as revenue.  

The following variances result when comparing operations  for the three month period ended December 31, 2013, with the same period of  the prior year (in US $000s, except per ounce data).  All of the variances  for revenues, operating expenses, royalties and depreciation and depletion  are attributable to the Company having a full quarter of gold operations in  Q4 2012 compared to being in a pre-commercial copper concentrate production  state for most of Q4 2013:

Revenues:  The Company’s Q4 2013  revenues were $4,000, compared to Q4 2012’s $98,944. Q4  2013 gold revenues included sales of 1,200 ounces of gold  (Q4 2012 – 53,400 ounces) at an average realized price of $1,246 per ounce  (Q4 2012 – $1,709 per ounce).

Operating expenses:  The Company  recorded operating expenses for Q4 2013 of $2,521 (Q4 2012 - $28,230).  The  low amount of operating expenses in Q4 is a result of the operation being in  a pre-commercial production state through November 30, 2013.

Royalties:  The Company incurs a 5%  precious metals and 3.5% base metals royalty on metals sales.  In Q4 2013  royalty expenses of $320 (Q4 2012 - $4,964) were recorded on 1,200 ounces of gold  and silver sales (Q4 2012 – 53,400 ounces).

Depreciation and depletion:  In Q4 2013,  depreciation and depletion of $572 (Q4 2012 - $5,857)  was recorded. Depreciation is primarily calculated  using the units-of-production method with gold ounces produced and ore tonnes  mined as the basis for the calculation.

Administrative:  Administrative costs,  comprising head office salaries, professional fees, share based payments  expense and other general and administrative expenses in Q4 2013, were $4,577 and were comparable to the  administrative costs of $3,145 in Q4 2012.

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

The Company’s cash and cash  equivalents at December 31, 2013, were $302,724 (December 31, 2012 – $396,404).   The Company is confident this cash, along with ongoing operating cash flows,  will be sufficient to meet its ongoing operating and capital requirements.

During the year ended December 31,  2013, the Company generated $15,590 in cash flows from operating activities  (year ended December 31, 2012 – generated $193,815).  The difference in year-over-year  operating cash flows arises principally from lower production due to winding  down the gold phase in 2013 and to the $60,484 in income taxes the Company  paid in 2013 (2012 – paid $209,586).  Of the income tax payments made in 2012,  $114,409 related to the 2011 fiscal year and the balance was on account of  installments for the 2012 fiscal year.

The Company used $85,858 in investing activities in 2013  (2012 – used $88,091).  In 2013, the Company used $117,741 (2012 – used $75,201)  in mineral properties, plant and equipment and $15,720 (2012 – used $11,263) in  exploration work. The Company received $71,255 in receipts on copper  concentrate sales during the pre-commercial production period.  During 2013 the Company loaned $16,750 (2012 – $nil) to  non-controlling interest.

----

 

10

The Company used $23,412 in its financing activities in 2013  (2012 – used $56,902).  During 2013, the Company paid  dividends to shareholders of $23,880 (2012 – $19,989).  During 2012, the  Company distributed $68,000 to non-controlling interest and received payments  from non-controlling interest, as partial payment on the sale of 30% of the  Bisha Mine, of $34,223.  In 2012, the Company spent $6,272 to repurchase and  cancel 1,732,600 common shares.  No such repurchases and cancellations were  made in 2013.  In 2013, the Company received $468 (2012 – received $1,363)  from the issuance of common shares related to the exercise of stock options.

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

As of  December 31, 2013, the Company had the following contractual obligations:

| In US  $000’s                               |   | Total  |   |   | Less  than  1 year |   |   | 2-3  years |   |   | 4-5  years |   |   | Over 5  years |   |
|---------------------------------------------------|--------|--------|--------|--------|--------------------|--------|--------|------------|--------|--------|------------|--------|--------|---------------|--------|
| Purchase  commitments and contractual obligations | $      | 15,406 |   | $      | 15,406             |   | $      | -          |   | $      | -          |   | $      | -             |   |
| Mine  closure and restoration                     |   | 37,000 |   |   | 280                |   |   | 1,400      |   |   | 945        |   |   | 34,375        |   |
| Minimum  operating lease payments                 |   | 5,345  |   |   | 4,722              |   |   | 623        |   |   | -          |   |   | -             |   |
| Total contractual obligations                     | $      | 57,751 |   | $      | 20,408             |   | $      | 2,023      |   | $      | 945        |   | $      | 34,375        |   |

The Company also has an environmental  bond to cover remediation liabilities for Bisha in the amount of $15,000 at a  cost of 1% per annum. 

  The above table includes the Company’s estimated obligation  for mine closure and restoration 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 a third  party specialist.  Based on the specialist’s conclusions, the undiscounted  amounts of the estimated obligations for restoration and closure of the  operations, adjusted for estimated inflation of 3%, are approximately $37,000.  While the Company has recorded the fair value for  the mine closure and restoration obligation using a pre-tax discount rate of 4.63%, 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.

| **Contingencies** |
|-------------------|

Two putative class actions were filed in the United  States District Court for the Southern District of New York, on March 13,  2012, and March 28, 2012, respectively, naming the Company and certain  officers of the Company as defendants (hereafter the U.S. Actions).  The  plaintiffs assert claims under Sections 10(b) and 20(a) of the Securities  Exchange Act of 1934, based on alleged misrepresentations and omissions  relating to the amount of gold reserves at the Bisha Mine.  The plaintiffs purport  to bring suit on behalf of all purchasers of the Company's publicly traded  securities between March 31, 2011 and February 6, 2012.  Plaintiffs seek  unspecified damages, interest, costs and attorneys' fees on behalf of the  putative class.  By order of court, the two cases have been consolidated, and  a consolidated amended complaint was filed on August 21, 2012. The  consolidated amended complaint expanded the purported class period to run  from March 28, 2011, until February 6, 2012, and asserted alleged  misrepresentations and omissions relating the Bisha Mine’s “strip ratio”  throughout 2011, the omission of “material negative trends”, allegedly in  violation of a disclosure duty under U.S. Regulation S-K, and the departure  of certain senior executives at the Bisha Mine.  On September 20, 2012, the  Company filed a motion to dismiss all claims against the Company and its  officers. On September 27, 2013, the Court granted in part and denied in part  the motion to dismiss. The parties thereafter agreed to suspend the  litigation pending a settlement mediation of the case, in which the parties  will seek to voluntarily resolve the case without further litigation. On  October 22, 2013, the district court ordered that further legal proceedings  would be suspended until February 28, 2014. A mediation was held on December  9, 2013, and the parties were unable to settle the case at that time.  Thereafter, plaintiffs moved the court to lift the stay, and on February 4,  2014, the court granted the motion.  Defendants filed their answer to the  Complaint on February 28, 2014. A pre-trial conference is scheduled on April  10, 2014. The parties are continuing to discuss settlement of the U.S. case,  as part of a global settlement of both the U.S. case and the Canadian case  described below.

----

 

11

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

On October 2, 2013, the plaintiffs  filed their motion for class certification and for leave to proceed with a  claim under Part XXIII.1 of the Ontario Securities Act. The hearing of these  motions has not yet been scheduled.

It is not possible at this time to estimate the ultimate  outcome of the US and Canadian Actions, or the costs associated with the  defense of the cases, which are subject to future rulings in the cases.   The Company believes the allegations are without merit and will  vigorously defend itself in these actions. The claims in the cases have been  tendered for coverage under the Company’s directors and officers insurance  policies. Management believes that the insurance  available under such policies will be adequate to cover any costs incurred by  the Company in connection with the defense of the cases.

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

As of March 11, 2014, the Company  had 199,347,802 shares and 11,218,500 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: 

  Credit risk 

  Financial instruments that potentially  subject the Company to credit risk consist of cash and cash equivalents,  trade receivables, and due from non-controlling interest.  In order to manage  credit risk, the Company deposits cash and cash equivalents kept in highly  liquid instruments with high credit quality financial institutions.  Such  instruments are managed by independent financial managers with ultimate  oversight by the Company.  Given the strong credit ratings of these institutions,  management does not expect any counterparty to fail to meet its obligations.  Additionally, a high percentage of the funds are maintained in accounts  outside of Africa.   

  As at December 31, 2013, the Company’s  credit risk related to the recovery of trade accounts receivable included  receivables of $43,632 related to copper concentrate and precious metals doré  sales due from six customers.

Copper concentrate sales started in the  fourth quarter of 2013 and are subject to credit risk related to trade  receivables 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 intends to  maintain separate and sufficient insurance and will require 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, 2013, totaled $11, to be a significant  risk.

The Company is also subject to credit  risk related to due from non-controlling interest, which at December 31,  2013, was $83,194.  Due from non-controlling interest is collected from cash  flow from the Bisha Mine that would otherwise be distributed to ENAMCO in  accordance with its share ownership.  Management expects that cash flow will  be sufficient to allow collection in full from 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.

----

 

12

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, 2013, of approximately $420,000, together  with future cash flows from operations, is sufficient to support the  Company’s operations and expansion plans.

Market  risk 

  Price risk:  The Company is, or will  be, subject to price risk from fluctuations in market prices of gold, copper  and other metals.  As discussed above in respect of 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 gold, copper and other metals  during this period impact the Company’s revenues and working capital  position.  The Company’s policy is not to hedge precious metals doré or base  metal concentrate sales.  Accordingly, as at December 31, 2013, 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 copper concentrate are  recognized on a provisional pricing basis when risks and rewards, transfers  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.

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 US dollars, certain of the Company’s  costs will be incurred in other currencies, namely the Eritrean nakfa,  Canadian and Australian dollars, Euro and South African rand.  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, 2013, net financial liabilities denominated  in Canadian dollars are $1,846, South African rand are $134, Australian  dollars are $195 and Euros are $186.  A 10% strengthening of the US dollar  against these currencies at December 31, 2013, with all other variables held  constant, would have resulted in an estimated gain on the Canadian dollar  denominated net financial liabilities of $185, an estimated gain on South  African rand denominated net financial liabilities of $13, an estimated gain  on the Australian dollar denominated net financial liabilities of $19, and an  estimated gain on the Euro denominated net financial liabilities of $19.  As  a result, management does not consider currency risk to be significant.

  Interest rate risk:  Interest rate risk  is the risk that the fair values and future cash flows of the Company will  fluctuate because of changes in market interest rates.  The Company is not  exposed to interest rate risk on any outstanding borrowings, but is exposed  to interest rate risk on amounts due from non-controlling interest.  A 1%  increase or decrease in the interest earned from amounts due from  non-controlling interest is estimated to be $660 and would result in a  nominal increase or decrease in the Company’s after-tax net income. 

  Fair value versus carrying amounts: The  carrying amount of financial assets and liabilities carried at amortized cost  is a reasonable approximation of fair value.

----

 

13

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

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

| **Critical accounting  policies and estimates** |
|-------------------------------------------------|

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.

In preparing the consolidated financial  statements in accordance with IFRS, management is required to make estimates  and assumptions that affect the reported amounts of assets, liabilities,  revenues and expenses.  These estimates involve considerable judgment  and are, or could be, affected by significant factors that are out of the  Company’s control.  Actual results could differ from those estimates.  Management reviews its estimates and assumptions on an ongoing  basis using the most current information available.  Revisions to estimates  and the resulting effects on the carrying values of the Company’s assets and  liabilities and are accounted for prospectively.

Critical judgments in the  application of accounting policies:

Information about critical judgments and estimates in  applying accounting policies that have the most significant effect on the  amounts recorded in the financial statements are as follows:

Commencement of commercial production:   Prior to reaching operating levels intended by management, costs incurred are  capitalized as part of the costs of related mining properties and proceeds  from mineral sales are offset against those capitalized costs.  Depletion of  capitalized costs for mining properties begins when operating levels intended  by management have been reached.  Management considers several factors in  determining when a mining property has reached the operating levels intended  by management. The results of operations of the Company during the periods  presented in the audited consolidated financial statements have been impacted  by management’s determination that its Bisha Mine reached the operating  levels intended by management on December 1, 2013.

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 U.S. dollar.  Assessment  of functional currency involves certain judgments 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. 

  Capitalization of exploration and  evaluation 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.   During the year, the Company capitalized a total of $15,720 (2012 - $11,263)  of exploration and evaluation expenditures.

Assets’ carrying values and  impairment charges:  The Company’s recoverability evaluation of its mineral  properties, plant and equipment is based on market conditions for minerals,  underlying mineral resources associated with the assets and future costs that  may be required for ultimate realization through mining operations or by  sale.  The Company is in an industry that is exposed to a number of risks and  uncertainties, described below under Risk Factors.  Bearing these risks in  mind, the Company has assumed historical world commodity prices will be  achievable, as will costs used in studies for construction and mining  operations.  The Company has relied on mineral resource and reserve reports  by independent engineers on the Bisha Property in Eritrea.  All of these  assumptions are potentially subject to change, out of the Company’s control  and such changes are not readily determinable.  Accordingly, there is always  the potential for a material adjustment to the value assigned to mineral  properties, plant and equipment.

----

 

14

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

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

Key sources of estimation  uncertainty:

Information about assumptions and  estimation uncertainties that have a significant risk of resulting in a  material adjustment are as follows:  

Mine closure and restoration costs:  The Company has an  obligation to reclaim its property after the minerals have been mined from  the site.  As a result, the Company has recorded a liability for the best  estimate of the reclamation and closure costs it expects to incur.  The  Company has estimated applicable inflation and discount rates as well as  expected reclamation and closure time frames.  To the extent that the  estimated reclamation costs change, such changes will impact future accretion  recorded and depreciation.

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.

Classification of current and non-current portion of due  from non-controlling interest:  In determining the classification of current  and non-current portion of due from non-controlling interest, the Company  makes estimates of the future after-tax cash flows expected to be derived  from the Bisha mining operation.  Reductions in metal price  forecasts, increases in estimated future costs of production, increases in  estimated future expansionary and non-expansionary capital expenditures could  result in a change in the classification of the current and non-current  portions of the due from non-controlling interest.  

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

  Deferral of stripping costs:  In  determining whether stripping costs incurred during the production phase of a  mineral property relate to reserves and resources that will be mined in a  future operating period and therefore should be capitalized, the Company  makes estimates.  Where production stripping activity does not result in  inventory produced, but does provide improved access to the ore body, the  costs are deferred when the stripping activity meets the following: (1) it is  probable the Company will be the future beneficiary of the stripping activity;  (2) the Company can identify the component of the ore body for which access  has been improved; and (3) the costs relating to the stripping activity  associated with that component can be measured reliably.  Deferred stripping  costs are capitalized to property, plant and equipment and are depreciated on  a units-of-production basis.

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

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15

Trade receivables: The value of  copper concentrate trade receivables is based on the spot market price of  copper as at the balance sheet date. Fluctuations in the underlying market  price of copper can cause significant changes to the ultimate final  settlement value of the receivables and 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 cash flows from operations and the application of existing tax  laws in each jurisdiction. Forecasted cash flows from operations are based on  life of mine projections internally developed and reviewed by management.  Weight is attached to tax planning opportunities that are within the  Company’s control, and are feasible and implementable without significant  obstacles. The likelihood that tax positions taken will be sustained upon  examination by applicable tax authorities is assessed based on individual  facts and circumstances of the relevant tax position evaluated in light of  all available evidence. Where applicable tax laws and regulations are either  unclear or subject to ongoing varying interpretations, it is reasonably  possible that changes in these estimates can occur that materially affect the  amounts of income tax assets recognized. At the end of each reporting period,  the Company reassesses unrecognized income tax assets.  

Contingencies:  Due to the nature of  the Company’s operations, various legal, tax or other matters can be  outstanding from time to time. In the event that management’s estimate of the  future resolution of these matters changes, the Company will recognize the  effects of the changes in its consolidated financial statements on the date  such changes occur.  Refer to Contingencies in this MD&A.

| **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 the end of the period covered by this  report, the Company’s disclosure controls and procedures were effective.

| **Changes in 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 andprocedures 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.

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16

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*(1992)  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 appropriately designed  and operating effectively as of December 31, 2013.

BMSC, began selling copper concentrates  for the first time during the year ended December 31, 2013.  A new copper  concentrate sales tracking and reporting system was implemented at BMSC to  record, process and report this new business process.  The Company updated  its internal controls over financial reporting, as necessary, to accommodate  modifications to its business and financial reporting procedures in  connection with this new business process and system implementation.  As at  December 31, 2013, BMSC’s assets constituted approximately 55% of the  Company’s total assets.   

$112,916 in copper concentrate sales  were recorded in the pre-commercial operating period.   

Other than the concentrate sales system  implementation at BMSC and the processing of concentrate sales, no other  changes in internal controls over financial reporting occurred during the  quarter ended December 31, 2013 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 judgments  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.

| **Changes in accounting standards  including initial adoption** |
|-----------------------------------------------------------------|

The following accounting standards were  adopted by the Company in 2013:

(a)           Lease arrangements

Leases that transfer substantially all  of the benefits and risks incidental to the ownership of property to the  Company are accounted for as finance leases. Assets under finance lease are  originally capitalized at the lower of the fair market value of the leased  property and the net present value of the minimum lease payments. Each lease  payment is allocated between the finance lease obligation and finance charge.  The plant and equipment acquired under finance lease is depreciated over the  shorter of the asset’s useful life and the lease term. All other leases are  accounted for as operating leases wherein rental payments are expensed as  incurred. Where a lease is prepaid, the obligation is offset against the  prepayment. 

  The Company enters into arrangements  that are in substance leasing arrangements and are accounted for in  accordance with this policy.

KPMG LLP, the Company's Independent Registered Public Accountants, have audited the annual consolidated financial statements of the Company for the year ended December 31, 2013, and have also issued a report on the internal controls over financial reporting based on the criteria established in the Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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17

(b)         Consolidation

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

In addition, the IASB issued IFRS 12 –*Disclosure  of Interests in Other Entities*(IFRS 12) which combines and enhances the  disclosure requirements for the Company’s subsidiaries and associates. The  requirements of IFRS 12 include enhanced reporting of the nature of risks  associated with the Company’s interests in other entities, and the effects of  those interests on the Company’s consolidated financial statements.  

  The adoption of IFRS 10 and IFRS 12 has  not had a significant impact on the Company’s consolidated financial  statements.

(c)         Fair value measurement

In May 2011, the IASB issued IFRS 13 –*Fair Value Measurement*(IFRS  13) as a single source of guidance for all fair value measurements required  by IFRS to reduce the complexity and improve consistency across its  application. The standard provides a definition of fair value and guidance on  how to measure fair value as well as a requirement for enhanced disclosures.   IFRS 13 requires that when using a valuation technique to measure fair value,  the use of relevant observable inputs should be maximized while unobservable  inputs should be minimized.   The adoption of IFRS 13 has not had a  significant impact on the Company’s consolidated financial statements.

Accounting standards issued by the IASB  but not yet effective:

(a)         IFRS 9 Financial instruments

The IASB intends to replace IAS 39 –*Financial  Instruments: Recognition and Measurement*(IAS 39) in its entirety with  IFRS 9 –*Financial Instruments*(IFRS 9) in three main phases. IFRS 9  will be the new standard for the financial reporting of financial instruments  that is principles-based and less complex than IAS 39. In November 2009 and  October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which  addressed the classification and measurement of financial assets and  financial liabilities. IFRS 9 requires that all financial assets be  classified as subsequently measured at amortized cost or at fair value based  on the Company’s business model for managing financial assets and the  contractual cash flow characteristics of the financial assets. Financial  liabilities are classified as subsequently measured at amortized cost except  for financial liabilities classified as at fair value through profit and  loss, financial guarantees and certain other exceptions. In  November 2013, IFRS 9 was amended to include guidance on hedge accounting and  to allow entities to early adopt the requirement to recognize changes in fair  value attributable to changes in the entity’s own credit risk, from financial  liabilities designated under the fair value option, in OCI, without having to  adopt the remainder of IFRS 9. In July 2013, the IASB tentatively decided to  defer the mandatory effective date of IFRS 9. The IASB agreed that the  mandatory effective date should no longer be annual periods beginning on or  after January 1, 2015, but rather be left open pending the finalization of  the impairment and classification of measurement requirements. 

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

(b)         IFRIC 21 Levies

In May 2013, IASB issued IFRIC 21 –*Levies*(IFRIC  21), which sets out the accounting for an obligation to pay a levy that is  not income tax.  The interpretation addresses what the obligating event is  that gives rise to pay a levy and when it should a liability be recognized. 

  The Company does not anticipate the application of IFRIC  21 to have a significant impact on its consolidated financial statements.

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| **Related party transactions** |
|--------------------------------|

Except for those transactions with the non-controlling  interest disclosed in this MD&A, there were no material transactions with  related parties during the years ended December 31, 2013, and 2012.

| **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.

| **Risk factors** |
|------------------|

The business and operations of the  Company are highly speculative due to the high-risk nature of its business in  the mining industry, including but not limited to the acquisition, financing,  exploration, development, operation and production of metals at its mining  properties. The risks below, some of which are summarized elsewhere in this  Report, are not the only ones facing the Company. Additional risks not  currently known to the Company, or that the Company currently deems  immaterial, may also impair the Company’s operations. If any of the following  risks actually occur, the Company’s business, financial condition and  operating results could be adversely affected.

**Commodity price risk.** Revenue and profitability of the Company’s operations will be  dependent upon the market price of mineral and materials commodities.  The  Company’s revenues are substantially attributable to the sale of copper  concentrate and other metals.  Prices of copper, gold and other metals are  key performance drivers for the Company and fluctuations in the prices of  these commodities can have a significant impact on the Company’s operations  and financial performance.  The Company does not enter into any commodity  hedging and accordingly is fully exposed to price risk.  The price of copper,  gold, and other metals can and has experienced volatile and significant price  movements over short periods of time, and is affected by numerous factors  beyond the control of the Company, including international economic and  political trends, expectations of inflation or deflation, currency exchange  fluctuations (specifically, the U.S. dollar relative to other currencies),  interest rates, global or regional consumption patterns, speculative  activities and increased production due to improved mining and production  methods.  The supply of and demand for copper, gold and other metals are  affected by various factors, including political events, economic conditions,  competition, production costs, and governmental policies.  If the market  price of copper, gold or other metals falls significantly from its current  level, the production and ongoing mine development at Bisha or any other  project of the Company may be rendered uneconomic and the production or development  at Bisha or any other project may be suspended or delayed.  In addition, if  the market price of copper or gold were to drop and the prices realized by  the Company on copper concentrate and other metals gold sales were to  decrease significantly and remain at this level for a significant period of  time, profitability of the Company and cash flow would be negatively  affected.

Mineral reserve calculations and  life-of-mine plans using significantly lower metal prices could result in  material write-downs of the Company’s investment in mining properties and  increased amortization, reclamation and closure charges.  In addition to  adversely affecting the Company’s mineral reserve estimates and its financial  condition, declining commodity prices can impact operations by requiring a  reassessment of the feasibility of a particular project. Such a reassessment  may be the result of a management decision or may be required under financing  arrangements related to a particular project. Even if the project is  ultimately determined to be economically viable, the need to conduct such a  reassessment may cause substantial delays or may interrupt operations until  the reassessment can be completed.

  The Bisha Mine’s power generation plant  and mobile equipment fleet are diesel fueled.  As fuel costs are a  significant component of the Company’s operating costs, changes in the price  of diesel could have a significant effect on its operating costs and  adversely affect profitability. Energy prices can be affected by numerous  factors beyond the Company’s control, including global and regional supply  and demand, political and economic conditions and applicable governmental  policies.

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**Exploration, development and operating  risks.** Mining operations generally involve a  high degree of risk.  The Company’s operating mine in Eritrea is subject to  all the hazards and risks normally associated with mineral production,  including damage to or destruction of plant and equipment, unexpected  geologic formations, pit collapse, injury or life endangerment, environmental  damage, fire, equipment failure or structural failures, such as retaining  walls or tailings dams, potentially resulting in environmental pollution and  consequent liability.  The Company may also be unable to effectively manage  the sulphide rich reactive ground as it affects blasting and continuous ore  supply and experience unplanned detonations resulting from reactive[1]  ground or experience a failure of drilling, processing and mining equipment  or unanticipated costs and downtimes due to optimizing the copper floatation  plant and its operating facilities.   These costs, downturns and other risks  can have a material, adverse effect on the Company’s operating costs and results,  its operations and financial position.

The exploration for and development of  mineral deposits involves significant risks, which even a combination of  careful evaluation, experience and knowledge may not eliminate. While the  discovery of an orebody may result in substantial rewards, few properties  that are explored are ultimately developed into producing mines. There is no  certainty that expenditures made by the Company towards the search and  evaluation of mineral deposits will result in discoveries or future  development.  Whether a mineral deposit will be commercially viable depends  on a number of factors, which include, among other things, the interpretation  of geological data obtained from drill holes and other sampling techniques,  feasibility studies (which include estimates of cash operating costs based  upon anticipated tonnage and grades of ore to be mined and processed), the  particular attributes of the deposit such as size, grade and metallurgy,  expected recovery rates of metals from the ore, proximity to infrastructure  and labour, the cost of water and power, anticipated climatic conditions,  cyclical metal prices, fluctuations in inflation and currency exchange rates,  higher input commodity and labour costs, and government regulations,  including regulations relating to prices, taxes, royalties, land tenure, land  use, importing and exporting of minerals, and environmental protection.

Major expenses may be required to  locate and establish additional mineral reserves.  It is impossible to ensure  that the exploration or development programs planned by Nevsun will result in  additional profitable commercial mining operations. The exact effect of these  factors cannot be accurately predicted, but the combination of these factors  may result in Nevsun not receiving an adequate return on invested capital.   The Company significantly relies on the analyses performed by its Qualified  Persons to estimate resources and reserves, and such estimates may be subject  to material risks and uncertainties.

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

**Foreign operation and political  risks.** The Company conducts operations in  Eritrea through foreign subsidiaries with financial assets in Barbados and  Eritrea, and substantially all of its assets are held in such entities.   While the Company believes that the political climate of these countries and  strong government support in Eritrea provide a stable environment for its  operations, there is no guarantee against any future political, or economic  instability in these countries or neighbouring countries which might  adversely affect the Company.   

  Political  unrest in Egypt, Libya, Syria, Yemen, Saudi Arabia, Somalia, South Sudan, Sudan  and other countries in the region has had an impact on investor confidence  with companies operating in northern Africa, including Eritrea, even though  no direct effect is evident or anticipated in the operations at Bisha or  communications with the Eritrean government.  New government regulations in  Canada, the United States or other countries in which the Company operates  adversely affect the Company’s future business and operations.  In addition,  intervention by the international community through organizations such as the  United Nations could affect the political risk of operating in Eritrea. In  December 2009 the United Nations Security Council (UNSC) imposed sanctions on  Eritrea related to an arms embargo, which in itself has had no direct impact  to the Bisha Project, except to cause some uncertainty as to how UN member  states may continue to deal with the country. In December 2011 the UNSC  provided additional sanctions 

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[1] Reactive  ground is a term to describe ground in which an exothermic chemical reaction  between sulphides (in this case pyrite, which is an iron sulphide) contained in  rock at Bisha and the ammonium nitrate contained in explosives may take place.

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20

guidance to member states.  Effects of the  sanctions could impact the Company’s ability to operate efficiently.  There  are also unresolved tensions between Ethiopia and Eritrea and the possibility  of future armed conflicts between Ethiopia and Eritrea by rebel groups or  otherwise which could affect or interfere with continued operations at Bisha.

Other risks the Company may face in  operating in foreign jurisdictions include unforeseen government actions, terrorism,  hostage taking, military repression, extreme fluctuations in currency  exchange rates, high rates of inflation, labour unrest, the risks of war or  civil unrest, expropriation and nationalization, renegotiation or  nullification of existing concessions, licenses, permits and contracts,  illegal mining, changes in taxation policies, restrictions on foreign  exchange and repatriation, and changing political conditions, currency  controls, export controls, and governmental regulations that favour or  require the awarding of contracts to local contractors or require foreign  contractors to employ citizens of, or purchase supplies from, a particular  jurisdiction or other events. 

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

**Infrastructure risk. **Mining, processing and development activities depend, to some  degree, on adequate infrastructure. Reliable roads, bridges, power sources  and water supply are important determinants that affect capital and operating  costs.  Disruption or curtailment of access to or maintenance of such  infrastructure or supplies, be it due to inclement weather, wear and tear, or  other reasons, could have an adverse material impact on ability to service  and operate due to higher costs or business interruption. Unusual or infrequent  weather phenomena, sabotage, government or other interference in the  maintenance or provision of such infrastructure could adversely affect the  Company’s operations, financial condition and results of operations.

**Transportation risk. **Delivery to the mine operation of required operating consumables  and fuel as well as delivery to the various smelters of mine produced  concentrates is most often subject to third party contractors, be it land  transport in country or sea freight to and from the ocean port.  To a large  extent there are many factors outside the control of the Company which can  adversely affect the delivery of these key consumables or the export of these  metal concentrates ranging from elevated transport costs to significant  delays or temporary stoppage in product movement. The Company may be unable  to achieve transport logistical efficiencies in the transportation of copper  concentrate from the mine site to port.  Of particular concern is the performance  of the transport contractor responsible for land delivery of copper  concentrates from mine gate to the port of Massawa. There remains a risk that  the contractor will not be able to transport the required volume of  concentrate due to various factors such as an inadequate number of trucks, poor  maintenance of those trucks, or an inadequate number of trained drivers to  operate the trucks.  In addition, there may be difficulties in chartering  marine bulk carriers into Massawa in a timely manner to transport concentrate  from the port of Massawa to overseas customers.  There is also a risk of  piracy with respect to marine transport in and around the Gulf of Aden and  the risk that the port of Massawa could become inaccessible in the event of  piracy, military conflict or political unrest.  Any interruption in the  delivery chain from mine site to customers could both halt mine process plant  production due to limited storage capacity for concentrates (as well as risks  associated with build-up of concentrate stocks exposed to the elements)  leading to business interruption losses, and could also breach terms and  conditions of offtake agreements some of which may specify required  quantities of concentrate over set time periods. These factors could have a  material impact on results of the operation and associated revenues and  costs.

**Key executive risk. **The Company is to a large degree dependent on the services of  key executives and senior personnel.  The loss of these persons or the  Company’s inability to attract and retain executives and personnel with the  qualifications necessary to operate the business successfully may adversely  affect its business and future operations.  The Company competes with  numerous other companies for the recruitment and retention of qualified  executives and employees.

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

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21

**Labour risk. **The Company is dependent on its workforce to extract and process  minerals, and is therefore sensitive to a labour disruption of the Company's  mining activities or changes to laws. The Company endeavours to maintain good  relations with its workforce in order to minimize the possibility of strikes,  lock-outs and other stoppages at its work sites.  Relations between the  Company and its employees may be impacted by changes in labour relations  which may be introduced by, among other things, employee groups, unions, and  the relevant governmental authorities in whose jurisdictions the Company  carries on business.

**Mineral reserve and mineral resource  estimate risk. **The tabulated data for mineral  reserves and mineral resources presented in figures in this document and  contained in the Company’s continuous disclosure documents filed on SEDAR (www.sedar.com) and EDGAR (http://www.sec.gov/edgar.shtml) are  estimates generated by Qualified Persons, and no assurance can be given that  the anticipated tonnages and grades will be achieved or, in the case of  reserves, that the indicated level of metallurgical recovery will be realized.   Actual reserves may not conform to geological, metallurgical or other  expectations, and the volume and grade of ore recovered may be below the  estimated levels.  Market fluctuations in the price of mineral commodities or  increases in the costs to recover minerals may render the mining of ore  reserves uneconomical and require the Company to take a write-down of the  asset or to discontinue development or production.  Moreover, short-term  operating factors relating to the reserves, such as the need for orderly  development of the ore body or the processing of new or different ore grades,  may cause a mining operation to be unprofitable in any particular accounting  period.

There are numerous uncertainties  inherent in estimating quantities of mineral resources and reserves,  including many factors that are beyond the Company’s control.  The estimates  are based on various assumptions relating to metal prices and exchange rates  during the expected life of production, mineralization of the area to be  mined, the projected cost of mining including costs of fuel and other  critical operating consumables, and the results of additional planned  development work.  Actual future production rates and amounts, revenues,  taxes, operating expenses, environmental and regulatory compliance  expenditures, development expenditures and recovery rates may vary  substantially from those assumed in the estimates.  Any significant change in  these assumptions, including changes that result from variances between  projected and actual results or any assumptions in the historical resource  estimates turn out to be incorrect, incomplete or flawed in any respect or  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,  could result in material downward or upward  revision of current estimates.

**Production risk. **As is typically the case with the mining industry, no assurances  can be given that future mineral production estimates will be achieved.  Estimates of future production for the Company’s mining operations are  derived from the Company’s mining plans.   These estimates and plans are  subject to change, including changes based on actual mining results at  various phases of the mining operations.  The Company cannot give any  assurance that it will achieve its production estimates.  The Company may not  be able to effectively manage potential deleterious elements contained within  the ore to ensure continued saleability of concentrates produced at projected  costs.  The Company may not be able to effectively manage the combination of  oxidation of ore stocks coupled with in pit water inflow which may adversely  affect flotation and quality of concentrates produced. There is a further  risk that the potential reactive nature of the ore and waste with high pyrite  (sulphides) content and its reactivity with ammonium nitrate contained in  explosives will have a negative impact on ore and waste blasting efficiencies  and result in increased costs.  Any process plant adjustments or  modifications to further optimise and improve operating efficiencies could  result in significant capital expenditures and have an impact on process  plant productivity or result in a temporary shutdown to rectify the issues.  TheCompany’s failure to effectively manage these and other matters and to achieve  its production estimates could have a material and adverse effect on the  Company’s future cash flows, results of operations, production cost,  financial condition and prospects.  The plans are developed based on, among  other things, mining experience, reserve estimates, assumptions regarding  ground conditions, hydrologic conditions and physical characteristics of ores  (such as hardness and presence or absence of certain metallurgical or  mineralogical characteristics) and estimated rates and costs of production,  and include assumptions derived by geological block models developed by the  Qualified Person in consultation with Company personnel.  Actual production  may vary from such estimates for a variety of reasons, including risks and  hazards of the types discussed above, and as set out below, including: 

-  greater mining dilution than expected affecting geological    grades and material movement;
- accidents;
-  mobile and fixed plant equipment failures; 

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22

-  natural phenomena such as inclement weather conditions, floods,    droughts, rock slides and earthquakes; 
-  unforeseen geotechnical structures and faults leading to pit    wall failures and production delays;
-  adverse chemical nature and potential acidity and amount of    in-pit water; 
- unexpected or higher than anticipated occurrence of deleterious    elements in the ore such as arsenic, selenium and tellurium impacting    subsequent concentrate quality; 
- higher than expected oxidation of in-pit ore stocks adversely    impacting flotation characteristics and subsequent concentrate quality;
-  encountering unusual or unexpected mineralogy conditions    including reactive sulphide rock with ammonia nitrate based explosives    adversely affecting blasting procedures and productivity;
- changes in power costs and potential power shortages;
-  shortages of principal supplies (fixed components, parts and    consumables) needed for operations;
- strikes and other actions by labour;
-  unanticipated costs, delays or downtime due to maintenance or    further required optimisation of the process plant and operation facilities;    and
-  regulatory restrictions imposed by government agencies. 

  Such occurrences could, in addition to  stopping or delaying mineral production or impacting quality and saleability  of metal concentrates, result in damage to mineral properties, injury or  death to persons, damage to the Company’s property or the property of others,  monetary losses and legal liabilities.  These factors may also cause a  mineral deposit that has been mined profitably in the past to become  unprofitable.  Estimates of production from properties not yet in production  or from operations that are to be expanded are based on similar factors  (including, in some instances, feasibility studies prepared by the Company’s  personnel and outside consultants) but it is possible that actual operating  costs and economic returns will differ significantly from those currently  estimated.

**Need for additional reserves risk. **Given that mines have limited lives based on proven and probable  mineral reserves, the Company must continually replace and expand its  reserves at its mines.  The life-of-mine estimates included in the Company’s  continuous disclosure documents filed on SEDAR and EDGAR are subject to  adjustment.  The Company’s ability to maintain or increase its annual  production of gold, copper and other commodities will be dependent in  significant part on its ability to bring new mines into production and to  expand reserves at existing mines.  The Bisha Mine has an estimated 11 year  mine life remaining.

**Permitting risk. **The Company’s operations and future development are subject to  receiving and maintaining permits from appropriate governmental authorities  and the granting of new exploration and other licenses and permits.  There is  no assurance that delays will not occur in connection with obtaining all  necessary renewals of existing permits for current operations or exploration  tenements, or for additional permits for any possible future changes to  operations or applications for new exploration tenements, or additional  permits associated with new legislation. Prior to any development on any of  its properties, the Company must receive permits from appropriate governmental  authorities. There can be no assurance that the Company will obtain or  continue to hold all permits necessary to develop or continue operating at  any particular property.  Any failure to obtain or maintain requisite permits  could have a material adverse effect on the Company and its future  production.

**Putative class action and litigation  risk. **The Company and certain of its directors  and officers is party to legal proceedings, which, if decided adversely to  the Company or any of its directors or officers, may have a material effect  on the financial or business position or prospects of the Company.  Investors  are urged to read the description of the pending legal proceedings set out  under the heading, Contingencies.  Any litigation could result in substantial  costs and damages and divert management’s attention and resources.

**Risks related to the construction,  plant expansion, transition to zinc phase at Bisha, optimisation of current  process plant, and start-up of new mining operations or mining phases. **The success of construction projects, plant expansions and their  optimisation, the transition to primary production at Bisha or the start-up  of new mines by the Company is subject to a number of factors including the  availability and performance of engineering and construction contractors,  mining contractors, suppliers and consultants, the receipt of required  governmental approvals and permits in connection with the construction of  mining facilities and the conduct of mining operations, including  environmental permits, price escalation on all components of construction,  plant expansion, transition to primary production or start-up of new mines,  the underlying characteristics, quality and unpredictability of the exact  nature of mineralogy and metallurgy of a deposit and the consequent accurate  understanding of doré or concentrate 

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production, the successful completion  and operation of conveyors to move ore and other operational elements. Any  delay in the performance of any one or more of the contractors, suppliers,  consultants or other persons on which the Company is dependent in connection  with its construction, expansion or transition activities or start-up of new  mines, a delay in or failure to receive the required governmental approvals  and permits in a timely manner or on reasonable terms, or a delay in or  failure in connection with the completion and successful operation of the  construction or operational elements could delay or prevent the construction  projects, plant expansions, the transition to supergene or primary production  at Bisha as planned, or the start-up of new mines. There can be no assurance  that current or future construction projects, plant expansions, the transition  to supergene production at Bisha as planned or the start-up of new mines by  the Company will be successful.

**Environmental risk. **Production at the Company’s mine involves the use of toxic  materials. Should toxic materials leak or otherwise be discharged from the  containment system then the Company may become subject to liability for  clean-up work that may not be insured. While the Company intends to prevent  discharges of pollutants into the ground water and the environment, it may be  unsuccessful and may become subject to liability for hazards that it may not  be insured against. Losses from these events may cause the Company to incur  significant costs that could have a material adverse effect upon its  financial performance and results of operations. 

  The Company’s operations are subject to  environmental regulations promulgated by the government of Eritrea.   Environmental legislation provides for restrictions and prohibitions on  spills, releases or emissions of various substances produced in association  with certain mining industry operations, such as seepage from tailings  disposal areas that could result in environmental pollution.  A breach of  such legislation may result in the imposition of fines and penalties.   Environmental legislation is evolving in general in a manner that means  standards and enforcement, fines and penalties for non-compliance are  becoming more stringent.  Environmental assessments for projects carry a  heightened degree of responsibility for companies, directors, officers and employees.   The cost of compliance with changes in government regulations has the  potential to reduce the profitability of operations.  The Company plans to  devote significant time and resources to meeting the goal of complete  compliance with all environmental regulations in the countries in which the  Company has operations and comply with prudent international standards.

  Environmental hazards may also exist on  the properties on which the Company holds interests that are unknown to the  Company at present and that have been caused previous to the Company  receiving title to the properties.

Failure to comply with applicable laws,  regulations and permitting requirements may result in enforcement actions,  including orders issued by regulatory or judicial authorities causing  operations to cease or be curtailed, and may include corrective measures  requiring capital expenditures, installation of additional equipment, or  remedial actions. Parties engaged in mining operations, including the  Company, may be required to compensate those suffering loss or damage by  reason of the mining activities and may have civil or criminal fines or  penalties imposed for violations of applicable laws or regulations.

Amendments to current laws, regulations  and permits governing operations and activities of mining companies, or more  stringent implementation thereof, could have a material adverse impact on the  Company and cause increases in exploration expenses, capital expenditures or  production costs, reduction in levels of production at producing properties,  or abandonment or delays in development of new mining properties.

**Currency risks. **At present all of the Company’s activities are carried on  outside of Canada and are subject to risks associated with fluctuations of  the rate of exchange of foreign currencies.  The United States dollar (USD)  is the Company’s functional currency, exposing the Company to risk on any  fluctuations of the USD with other currencies to which the Company is  exposed, which are primarily the Canadian dollar (CAD), South African rand  (ZAR), and the Eritrea Nakfa (ERN).  While only a small portion of the Bisha  Mine’s operating expenses are denominated in ERN, a re-valuation or  de-pegging of this currency to the USD could expose the Company to additional  currency risk.

**Funding risks. **The exploration, development, operations, acquisitions or other  activities may require substantial additional financing.  Failure to obtain  sufficient financing may result in delaying or indefinite postponement of  exploration, development, operations, acquisitions or other activities of the  Company including a loss of property interest.  Historically, the Company has  financed its activities through the sale of equity capital and through  cash-flow from operations.  The sale of metals from Bisha currently provides  and is expected to continue to provide revenue from operations, which the  Company expects will be sufficient to fund its future needs. Factors which  may impact cash flows include changes in metal prices, taxes, operating  costs, marketability of copper concentrate, gold and other metals from  operations, capital expenditures or other unexpected occurrences such as  unanticipated costs,

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 delays, times, slowdown or stoppage of operations.   Failure to obtain sufficient financing to continue operations if such needs  arise may adversely affect the Company’s business and financial position.  Should the Company require additional funding for exploration, development,  operations, acquisitions or other activities, there is no assurance that  sources of financing will be available on acceptable terms or at all.

**Counterparty risks. **The Company is exposed to various counterparty risks including,  but not limited to: (i) financial institutions that hold the Company’s cash  and cash equivalents; (ii) companies that have payables to the Company,  including copper concentrate and doré customers and non-controlling interest;  and (iii) insurance providers.  As a result, the Company may become exposed  to credit-related losses in the event of non-performance by such  counterparties.

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

**Land title risk. **The acquisition of title to mineral properties is a very  detailed and time-consuming process. Title to, and the area of, mineral  concessions may be disputed.  Although the Company believes it has taken  reasonable measures to ensure proper title to its properties, there is no  guarantee that title to any of its properties will not be challenged or  impaired.  Third parties may have valid claims underlying portions of the  Company’s interests, including prior unregistered liens, agreements,  transfers or claims, including indigenous land claims, and title may be  affected by, among other things, undetected defects.  In addition, the  Company may be unable to operate its properties as permitted or to enforce  its rights with respect to its properties.

**Competition risks. **The mining industry is intensely competitive in all of its  phases and the Company competes with many companies possessing greater  financial and technical resources than itself.  There is intense competition  in the mining industry for mineral rich properties that can be developed and  produced economically, the technical expertise to find, develop, and operate  such properties, the labour to operate the properties, and the capital for  the purpose of funding such properties.  Many competitors not only explore  for minerals, but conduct refining and marketing operations on a global  basis.  Such current and future competition may result in the Company being  unable to acquire desired properties.    The Company is also subject to risks  associated with a hostile takeover of the common shares of the Company or  other unsolicited attempts to acquire control of the Company.

**Write-downs and impairments risk. **Mining and mineral interests are the most significant assets of  the Company and represent capitalized expenditures related to the development  of mining properties and related plant and equipment and the value assigned  to exploration potential on acquisition.  The costs associated with mining  properties are separately allocated to exploration potential, reserves and  resources and include acquired interests in production, development and  exploration-stage properties representing the fair value at the time they  were acquired.  The values of such mineral properties are primarily driven by  the nature and amount of ore believed to be contained or potentially  contained, in properties to which they relate.

The Company reviews and evaluates its  mining interests for impairment at least annually or when events or changes  in circumstances indicate that the related carrying amounts may not be  recoverable, which becomes more of a risk in the global economic conditions  that exist currently.  An impairment is considered to exist if the total  estimated future undiscounted cash flows are less than the carrying amount of  the assets.  An impairment loss is measured and recorded based on discounted  estimated future cash flows.  Future cash flows are estimated based on  expected future production, commodity prices, operating costs and capital  costs.  There are numerous uncertainties inherent in estimating mineral  reserves and mineral resources.  Differences between management’s assumptions  and market conditions could have a material effect in the future on the  Company’s financial position and results of operation.

  In addition, with a weaker global  economy, there is a larger risk surrounding inventory levels.  The  assumptions used in the valuation of work-in process inventories by the  Company include estimates of copper, gold and other metals contained in the  ore stock piles, crushed ore piles, processing plant circuits, and an  assumption of the copper and gold price and other metal prices expected to be  realized when the copper, gold and other metals are recovered.  If these  estimates or assumptions prove to be inaccurate, the Company could be  required to write-down the recorded value of its work-in-process inventories,  which would reduce the Company’s earnings and working capital.

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**Derivatives risk. **In the future the Company may use certain derivatives products  to manage the risks associated with changes in gold prices, silver prices,  interest rates, foreign currency exchange rates and fuel prices.  The use of  derivative instruments involves certain inherent risks including, among other  things: (i) credit risk — the risk of default on amounts owing to the Company  by the counterparties with which Company has entered into such transaction;  (ii) market liquidity risk — risk that the Company has entered into a  derivative position that cannot be closed out quickly, by either liquidating  such derivative instrument or by establishing an offsetting position; and  (iii) unrealized mark-to-market risk — the risk that, in respect of certain  derivative products, an adverse change in market prices for commodities,  currencies or interest rates will result in the Company incurring an  unrealized mark-to-market loss in respect of such derivative products.

**Acquisitions and integration risk. **The Company continues to examine opportunities to acquire  additional mining assets and businesses.  Any acquisition that the Company  may choose to complete may be of a significant size, may change the scale of  the Company’s business and operations, and may expose the Company to new  geographic, political, operating, financial and geological risks.  The  Company’s success in its acquisition activities depends on its ability to  identify suitable acquisition candidates, negotiate acceptable terms for any  such acquisition, and integrate the acquired operations successfully with  those of the Company. 

  Any acquisition would be accompanied by  risks.  For example, a material ore body may prove to be below expectations;  the Company may have difficulty integrating and assimilating the operations  and personnel of any acquired companies, integrating internal controls over  financial reporting of such acquired companies, identifying and mitigating  any potential domestic or foreign liabilities, including potential  liabilities due to foreign anti-corruption laws, realizing anticipated  synergies and maximizing the financial and strategic position of the combined  enterprise, and maintaining uniform standards, policies and practices across  the organization; the integration of the acquired business or assets may  disrupt the Company’s ongoing business and its relationships with employees,  customers, suppliers and contractors; and the acquired business or assets may  have unknown liabilities which may be significant. 

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

**Governmental regulatory risks. **The Company’s mineral exploration, development and production  activities are subject to various laws governing prospecting, development,  production, taxes, labour standards and occupational health, mine safety,  toxic substances, environmental protection and preservation, and other  matters.  No assurance can be provided that the Company will be successful in  its efforts to comply with all existing rules and regulations, that new rules  and regulations will not be enacted, or that existing rules and regulations  will not be modified in a manner that could limit or curtail production or  development of the Company’s properties.  All such rules and regulations  governing the operations and activities of the Company could have a material  adverse effect on the Company’s business, financial condition and results of  operations.

**Share price risk. **The market price of a publicly traded stock is affected by many  variables not directly related to the success of the Company, including the  market for all resource sector shares, the breadth of the public market for  the stock, and the attractiveness of alternative investments.  The effect of  these and other factors on the market price of the common shares of the  Company on the exchanges on which the common shares are listed suggests that  the share price will be volatile.  In the previous eight quarters, between  January 1, 2012 and December 31, 2013 the Company’s shares traded in a range  between Cdn $2.71 and Cdn $6.82.

**Dividend policy risks. **The Company has established a dividend policy that has  considered the long-term sustainability of cash fows and will be reviewed on  a periodic basis and assessed in relation to the growth of the operating cash  flows of the Company. 

  Between January 1, 2012 and December  31, 2013, the Company paid semi-annual dividends.  Payment of any future  dividends will be at the discretion of the Company’s board of directors after  taking into account many factors, including the Company’s operating results,  financial condition, comparability of the dividend yield to peer gold  companies and current and anticipated cash needs.  There can be no assurance  that the Company will continue to pay dividends at the current rate or at  all.

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**Conflicts of interest. **Certain of the directors and officers of the Company also serve  as directors and/or officers of other companies involved in natural resource  exploration and development and consequently there exists the possibility for  such directors and officers to be in a position of conflict. Any decision  made by any of such directors and officers involving the Company will be made  in accordance with their duties and obligations to deal fairly and in good  faith with a view to the best interests of the Company and its shareholders.  In addition, each of the directors is required to declare and refrain from  voting on any matter in which such directors may have a conflict of interest  in accordance with the procedures set forth in the Business Corporations Act  (British Columbia) and other applicable laws.

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

The Company’s common shares are listed  on NYSE MKT, which was previously the American Stock Exchange.  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** |
|----------------------------------------------------------------------|

This MD&A uses the terms “reserves”  and “resources” and derivations thereof.  These terms have the meanings set  forth in 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 (CIM Standards). NI 43-101 and CIM  Standards differ significantly from the requirements of the United States  Securities and Exchange Commission (the SEC). Under SEC Industry Guide 7,  mineralization may not be classified as a “reserve” unless the determination  has been made that is “part of a mineral deposit which could be economically  and legally extracted or produced at the time of the reserve  determination”. In addition, the term “resource”, which does not equate to  the term “reserve”, is not recognized by the SEC and the SEC’s disclosure  standards normally do not permit the inclusion of information concerning  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.  Accordingly, information concerning descriptions of mineralization and  resources contained in this Management’s Discussion and Analysis may not be  comparable to information made public by US domestic companies subject to the  reporting and disclosure requirements of the SEC.

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