Since our last update on Nevada Copper (NCU.TO), the US House of Representatives has voted unanimously in favor of the land change bill, which would speed up the permitting process for Nevada Copper’s second phase of the Pumpkin Hollow project in Nevada.
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The approval of the land change bill and where to go from here
In just the second week after the summer recess, the land change bill was brought on the floor for a vote in the House of Representatives. As this bill wasn’t a controversial proposal and as it was backed by the two main parties, it wasn’t a surprise to have it approved, but it definitely was a very nice surprise to see it unanimously being approved. This will very likely strengthen its case in the Senate which now has to vote on the proposed bill as well.
It’s still unclear when the vote in the Senate will take place but as both the Democrats and Republicans are still supporting this bill, we continue to expect the Senate vote to occur before year’s end where after the President of the USA will probably sign the bill within a few weeks after the vote in the Senate. This means we are targeting to see the final approval for the land bill change in early Q1 2015.
Once the President has signed off on the bill, the land transfer process will be started, whereby the Bureau of Land Management will transfer the ownership of the Pumpkin Hollow area to the city of Yerington. This is a process which will likely take several months, and we anticipate the final transfer to be completed by the end of H1 2015.
An update on Phase One of Pumpkin Hollow
As you know, the construction activities have already been started at the underground portion of the Pumpkin Hollow project. The shaft sinking is continuing at a rate of 7 feet per day and is more than half way its planned depth (it should be around 1400 ft by now. The shaft should be completed before the end of the year, and we have the impression the Nevada Copper team is looking forward to the lateral development of the underground project. This will allow the company to get some underground drill stations in which could further increase the confidence in the underground resource estimate. On top of that, it will be much cheaper to drill and outline the higher-grade zones which could be prioritized for production.
Keep in mind the first phase of the Pumpkin Hollow project will have an average output of 75 million pounds of copper during the first five years of its mine life, based on an average grade of 1.77% copper. Should Nevada Copper be able to have a mill feed of in excess of 2% in the first few years, the output will be higher and the costs will be lower, resulting in a higher IRR and NPV for the project. Long story short, we are very interested in the results of an underground drill program, as this will allow Nevada Copper to prioritize the high-grade zones which could improve the economics of the underground mine.
An update on the financing efforts
Nevada Copper still needs to fund a part of the underground mine before the construction activities could be completed. Fortunately, as the project has been substantially de-risked, the company has several options. It all comes down to the question of which debt/equity ratio will be possible to complete the construction. Another equity contribution will very likely be needed, but as the mine will also produce a relatively substantial amount of gold and silver (respectively 24,000 ounces and 340,000 ounces per year), a streaming agreement is definitely a viable option.
The company is aiming to have a definitive financing solution in place before year’s end, and we would like to emphasize once again that the management team holds a substantial stake in the company, so a minimal dilution is in their best interest as well. Even though the company isn’t facing any liquidity issues as its main shareholder Pala Investments has committed to a bridge loan (and would very likely have no problem to extend and increase this loan), we have the impression the market is betting against Nevada Copper. As we are confident CEO Giulio Bonifacio and his team will have the project fully financed before the end of this year, we wouldn’t dare to bet against them.
Conclusion
The unanimous approval of the land change bill is an important milestone for Nevada Copper as there’s now plenty of evidence that both major political parties in Washington are standing behind the bill. As such, we consider the senate approval merely a question of ‘when’ it will happen, instead of ‘if’ it will happen.
Meanwhile, the shaft sinking is going according to plan and should be ready before the end of the year, which is also the planned time to get the financing rounded up.
After reaching a share price of C$2.82/share, which was almost twice the share price we initiated coverage on Nevada Copper, the company’s share price has been sliding. At the current price of C$1.63/share, the downside risk is minimal, and the upside potential is very high, leading to a very favorable risk/reward ratio. Nevada Copper is a company you should buy and forget about for the next three years, before harvesting your profits. Keep in mind the after-tax NPV5% of both projects is approximately C$15/share (using a copper price of just $2.75/lbs). Even if the share count would increase by 50% to 120M shares, Nevada Copper is still trading at less than 20% of its after-tax NPV.
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Disclosure: Nevada Copper Corp. is a sponsoring company. Please see our disclaimer for current positions.
