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Nevada Copper has now further de-risked its Pumpkin Hollow project, and for Joseph Gallucci of Dundee Securities, that means the company could now be a target for M&A.
On Wednesday, Nevada Copper announced that shaft sinking at its Stage 1 Pumpkin Hollow underground mine has reached 1,900 feet, or what will be the main haulage level of the mine. Completion of that milestone was delayed from the company’s initial estimate; however, Nevada Copper states that it was still “delivered within an acceptable timeframe” considering its move to forego a temporary sinking hoist arrangement and instead build a production-sized hoist and permanent headframe for its operations.
Shares of the company gained just under 10 percent, or $0.14, on the news to trade at $1.58 on Thursday. Trading volumes were around 50 percent higher than normal, with 90,000 shares trading hands compared to a daily average of 65,000.
Gallucci also believes that the sinking of the shaft to the main production level of the mine is “a significant milestone” for the company. With the recent passage of the Yerington land bill, the Stage 2 open-pit mine at Pumpkin Hollow is also set for an accelerated permitting path, and the analyst points out in a report that Nevada Copper expects to receive permits for the project by the end of Q2 2015.
“We believe that with the permitting and shaft sinking being derisked, NCU has become an M&A target,” Gallucci’s note reads. Looking at last year’s acquisition of Augusta Resource by Hudbay Minerals (TSX:HBM), the analyst suggests that Nevada Copper has an “implied takeover valuation ranging from $2.23 – $5.53/share.”
Gallucci notes in his report that the current net asset value that Dundee’s price target is based on still considers Nevada Copper’s original staged mine plan approach. He explains that the new mine plan will cut out additional capex requirements and will push production forward during the mine’s early years. Dundee is planning to provide an update when a new, integrated feasibility study is completed for the project.
To be sure, Gallucci does admit that Nevada Copper still needs financing for the Stage 1 underground mine at Pumpkin Hollow. With capex of $328 million for Stage 1, he believes the company will still need between $128 million and $277 million, depending on whether or not it draws down the remainder of its facility with Red Kite. However, he lists a number of avenues that the company may pursue, and his note is positive overall.
The analyst is maintaining his “buy” rating for Nevada Copper and has given the company a $3 target price. Granted, that’s come down from the $5 target price he had for the company back at the start of December, but it’s still nearly double the company’s closing share price on Thursday.
Considering that the copper price has fallen roughly 40 cents over the past three months (although it’s picked up slightly recently and several market watchers have positive medium- to long-term outlooks), that target is certainly nothing to shake a stick at.
Going forward, Nevada Copper will continue to sink the shaft at Pumpkin Hollow to 2,050 feet, eventually reaching 2,150 feet. Lateral development will also begin at the 1,900-foot level, establishing key work areas for future development. Interestingly, the company also plans to commence 26,000 feet of underground drilling in April — drilling was put on hiatus in 2011 in light of proven and probable mineral reserves being outlined at that time.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Nevada Copper is a client of the Investing News Network. This article is not paid-for content.
Related reading:
Nevada Copper Gets Refreshed Financing Agreement for Pumpkin Hollow