Integrated Feasibility Study for Nevada Copper’s Pumpkin Hollow Cuts Out ~$300 Million in Capex Requirements

Nevada Copper (TSX:NCU) has hit a number of important milestones at its Pumpkin Hollow project in Nevada over the past year, and on Thursday it reached another one with the release of an updated feasibility study for the project.  

Previously, Nevada Copper put out separate feasibility studies for its Stage 1 underground and Stage 2 open-pit mines at Pumpkin Hollow. That’s because Stage 1 could be permitted under state regulations under a shorter timeline, while Stage 2 was subject to federal regulations.

However, in December, the US Senate approved a key land swap that put Stage 2 under state jurisdiction. Nevada Copper now expects to move ahead more quickly with Stage 2, and has updated an earlier feasibility study that integrates both stages of the project as a result.

By the numbers

The most recent study contemplates a 63,500-ton-per-day open-pit mine and a 6,500-ton-per-day underground operation, both feeding into a single 70,000-ton-per-day concentrator. Pumpkin Hollow is expected to produce 4.5 billion pounds of copper, 512,000 ounces of gold and 15.6 million ounces of silver over its 23-year mine life. Average life-of-mine C1 production costs are set at $1.73 per pound of payable copper ($1.49 per pound in years one to five).

Overall, Pumpkin Hollow will garner $1.07 billion in initial capital costs, including contingencies, for after-tax net cash flow of $2.6 billion and a NPV of approximately $1.1 billion. The project features an after-tax IRR of 15.5 percent with a payback period of 4.9 years. Those numbers are for a base-case price scenario of $3.15 per pound copper, $1,200 per ounce gold and $18 per ounce silver, but Nevada Copper has also provided low- and high-price scenarios of $2.85 and $2.75 copper, respectively.

Reactions

The market reacted well to those results. Nevada Copper’s share price gained 3 cents on the back of Thursday’s news to trade at $1.90, with trading volumes over three times the daily average for the company.

Nevada Copper’s president and CEO, Giulio Bonifacio, has expressed positivity about the report, noting that significant engineering and design changes have been incorporated since the original integrated study was published in 2012.

“Our base case feasibility results provides cumulative after-tax net cash flow of $2.6 billion demonstrating that the Pumpkin Hollow project provides investors with a low-risk copper mine with an initial mine life of 23 years with further upside,” he states in Thursday’s release.

Bonifacio also points out that the project has been significantly de-risked through the passage of the land swap in US Congress and the commissioning of a production-sized shaft at its underground operations. Sinking of the shaft reached what will be the primary production level for the mine (1,900 feet), an achievement that was duly noted by Joseph Gallucci of Dundee Capital Markets as an important de-risking event when it occurred back in February. The analyst said at the time that Nevada Copper had “become an M&A target,” and that, based on last year’s acquisition of Augusta Resource by Hudbay Minerals (TSX:HBM), the company would have an implied takeover valuation between $2.23 and $5.53 per share.

On Thursday, Gallucci maintained his “buy” rating and $3 price target for Nevada Copper, noting that the integrated approach will reduce capex requirements by about $300 million for the construction of a smaller mill. He also said the company “has choices” and that it “maintains the flexibility to advance the Pumpkin Hollow project with the original staged approach or the new integrated approach.”

Timing it right

Nevada Copper still has to secure additional financing for Pumpkin Hollow, but it states in Thursday’s release that, assuming financing can be locked down by Q3, things could start moving by the second half of the year. Mill ramp up is anticipated to take place in early 2018. That’s around when most analysts and market watchers are expecting the copper market to shift into deficit.

Certainly, while the copper price was sitting  at about $2.77 per pound on Thursday, a number of large mining companies have shared their positivity on the red metal as of late, while several analysts see the copper price rising higher in the medium term. For example, Stefan Ioannou of Haywood Securities told Resource Investing News back in early March that Haywood’s long-term price copper price forecast is $3.25 per pound, and that he “wouldn’t be surprised to see even a $4 copper price between now and, say, 2020.”

For now, investors will continue to watch Nevada Copper as it moves forward with Pumpkin Hollow. “With the Integrated Feasibility Study results in hand, and permits expected shortly, we will move to assess project financing alternatives and advance discussions currently underway,” said Bonifacio. “We will continue to assess our financing options with respect to both the Integrated Project as well as the fully-permitted Stage 1 underground operation and will determine the optimal development strategy upon receipt the final permits for the Integrated Project, which are expected in Q3 2015.”

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.

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Dundee: Nevada Copper ‘Has Become an M&A Target’