We visited Nevada Copper’s (NCU.TO) Pumpkin Hollow project at the end of April to get a better understanding of the project. Robert McKnight (Executive Vice President & CFO) and Greg French (VP Exploration and Project Development) were available to guide us around and answer all our questions.
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The city of Yerington is very supportive
The first thing we always look at is whether or not the locals actually like mining. The city of Yerington is renowned for its farming grounds where onions and lettuce are grown, and farming and mining don’t always go hand in hand.
This doesn’t seem to be a problem at all for the Pumpkin Hollow project as the majority of the (only 3,000) inhabitants of Yerington are most definitely pro-mining. Yerington’s mayor, George Dini, is one of the projects strongest supporters and has publicly confirmed his support as the hundreds of direct and indirect jobs that will be created at Pumpkin Hollow could be a huge boost for the current 10% unemployment rate (see image) in Lyon County (which has approximately 40,000 inhabitants).
Yerington also has quite a strong mining culture as the large Anaconda copper mine meant a huge economic boost for the city in the second half of the previous century. The large tailings and waste dumps still are a silent witness of the mining activity around Yerington, and the large 250 meter deep open pit can now still be visited. During a 25 year mine life, the Anaconda mine produced in excess of 1.7 billion pounds of copper, emphasizing Yerington’s connection with copper mining.
The 2015 Exploration program is already paying off
As you already know, Nevada Copper has kicked off its 2015 exploration season wherein it’s planning to conduct a drill program on surface and underground. The surface drill program has already started and as of today, no less than five drill rigs are on site.
One of the main purposes of the surface drill program is the attempt to connect both the north pit and the south pit with each other in an updated mine plan. The company has already proven the ore zones are connected (see image), and now the main question is whether or not it makes sense to combine both North and South pits to one large super pit.
Should Nevada Copper’s drill program be successful, the entire pit structure will have to be re-thought as there’s definitely the potential to further merge the two separate pits to one very large pit while adding mineable pounds of copper and lowering the strip ratio which will further improve already robust economics.
The main question is obviously whether or not the rocks in between both pits contains economic mineralization that would allow both pits to be combined. The first few assay results already look very encouraging as NCU already reported intercepts of 62 meters containing 0.29% copper-equivalent, almost 104 meters of 0.26% CuEq and 89 meters of 0.44% CuEq.These grades are well above the estimated internal cutoff used for purposes of the feasibility study currently in progress.
Whilst these holes aren’t indicating bonanza grade mineralization, they do confirm the mineralization seems to be continuous between the north and the south pit. If both pits could be further merged, additional synergies could be unlocked as the strip ratio will decline and waste material will be upgraded to ‘ore’, very likely resulting in an increase of the average grade.
These are obviously just preliminary results and we’re expecting a steady news flow throughout the next several months as Nevada Copper has budgeted for a 23,000 meter drill program. Additionally, VP Greg French has confirmed us the underground drill program is still scheduled to commence in May by way of underground drill stations. As we already explained before, we’re quite excited about the underground drill program as this could potentially result in finding and confirming higher grade copper zones that might be earmarked for prioritized production which will further improve the economics.
The integrated feasibility study
Nevada Copper’s consultants are also finalizing the ‘integrated feasibility study’. One of Nevada Copper’s potential partners requested this study to see if it would make more sense to combine the underground and open pit production into one general mine plan instead of considering both parts to operate independently from each other.
The integrated study will be based on a combined throughput of 70,000 short tons per day of which 6,500 short tons will be contributed by the underground mine. However, we do expect the ratio of underground higher grade tonnes to go up as the capacity of the hoist is approximately 8,000 short tons per day. Should Nevada Copper be able to keep its waste mining below the 1,500 tpd mark, the remaining capacity of the hoist could be filled with ore.
The results of this integrated feasibility study should be published by the end of May and this will be another important step for the Pumpkin Hollow project.
The forgotten potential upside: magnetite
There’s one additional thing the Nevada Copper management team doesn’t really like to talk about because it doesn’t want to draw the attention away from the copper story, but we would like to highlight it anyway. Pumpkin Hollow isn’t just another copper system, it also contains a lot of iron ore that could be mined, processed and sold. We’re not saying Pumpkin Hollow could be another major IOCG (Iron Oxide Copper Gold) system like Olympic Dam in Australia, but recovering and selling the magnetite could be a boost for the project economics.
As you might remember, Pumpkin Hollow also contains in excess of half a billion tonnes of iron ore at an average grade of approximately 30% Fe. No studies have been conducted yet, but if the iron ore could be upgraded to a saleable product (60-62% Fe or higher), the bottom line of Pumpkin Hollow might be impacted as the capex to put a separation plant on the property will be minimal, and the incremental operating cost will be marginal as the ore will have to be mined anyway.
The current benchmark price for iron ore containing 62% Fe is approximately $55/t and even if you’d deduct a $20/t transportation cost (even though there’s a rail link nearby) and a $15/t production cost, a potential iron ore kicker could add as much as $40M per year in net revenue, based on a 2 million tonnes per year operation. At a 3M tpa operation and a $30/t margin, the impact on the cash flow could be even higher at $90M per year.
We would like to emphasize again that the potential iron ore production is based on our own conceptual ideas and it’s in no way an official guidance from Nevada Copper’s management team as the iron ore is not included in any economic study. Nevada Copper has also recently entered into recently executed a Memorandum of Understanding (“MOU”) with a large multi-national steel producer to assess opportunities to exploit the large Pumpkin Hollow iron resource.
The assessments would include drill sampling, mine planning, engineering studies and metallurgical work. These studies will determine if a byproduct magnetite (iron oxide) stream from the copper tailings at a future Pumpkin Hollow concentrator would be suitable as feed for downstream iron ore processing for use in steelmaking. Other work would focus how mining plans could be modified to deliver additional magnetite in the copper concentrator feed while minimizing loss of copper.
Magnetite recovery circuits are not uncommon at copper operations which contain magnetite in their mill feed. Examples are the Candelaria IOCG mine in Chile operated by Lundin Mining and Glencore’s Earnest Henry mine in Australia.
Could the current resource estimate be just the tip of the iceberg?
Pumpkin Hollow already contains in excess of 5 billion pounds of copper which in itself already makes the project a very impressive copper project, but there might be more. Several years of drilling at the project did define large ore bodies, but what the market seems to be forgetting is that the so-called feeder zone of this mineralized system has NOT been found yet.
This means that the resources at Pumpkin Hollow could be much larger than anticipated and it’s also a reason why we are really looking forward to the underground drill program. There are only two potential options here, as either the current mineralized area has shifted off the feeder zone (which could be found a few miles away), or the feeder zone could simply be somewhere at depth. The upcoming underground drill program could reveal some interesting pointers on defining or finding a potential feeder zone.
We also talked to another geologist (without any affiliation with Nevada Copper) in Nevada with decades of experience and he confirmed our thoughts the Pumpkin Hollow project could be much larger than anticipated. We don’t expect the potential feeder zone to be found this year or next year, but it’s certainly something to keep in mind and there’s no doubt Nevada Copper will use some of the operating cash flow to continue its exploration activities at the Pumpkin Hollow land package.
Conclusion
Nevada Copper is doing a good job in advancing the Pumpkin Hollow project and the upcoming integrated feasibility study will be an important milestone to decide how to further develop Pumpkin Hollow. The project managers at the project seem to be running a very well-organized ship and fortunately the copper price finally started to cooperate as the price per pound is slowly moving back to the $3-mark.
We’re looking forward to NCU’s integrated feasibility study and will obviously release an in-depth update once the NI43-101 technical report will have been filed.
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Disclosure: Nevada Copper Corp. is a sponsoring company. Please see our disclaimer for current positions.
