Nevada Copper looks ripe for the buying, GMP says

VANCOUVER — The political landscape has shifted in a good way for junior Nevada Copper (TSX: NCU) at its Pumpkin Hollow iron oxide copper gold deposit 13 km southeast of the town of Yerington, Nev.

On Dec. 22 U.S. President Barack Obama signed into law a congressional bill authorizing the conveyance of federal land to the Yerington municipality, which includes the company’s planned footprint for a open-pit and underground mine.

The U.S. Senate and House of Representatives initially passed the land bill on Dec. 15, which set the stage for Nevada Copper to expedite the open-pit phase of its proposed development. The company’s plans include a fully permitted, 5,900-tonne-per-day underground mine that is in construction, and a nearby 63,500-tonne-per-day open-pit addition in the advanced permitting phase.

The open-pit component has a US$927-million capital cost and is expected to produce on average 172 million lb. copper per year over a 22-year mine life.

Nevada Copper has locked down a water-service agreement with Yerington to supply both stages of the project, and plans to use the land-use development agreement for both mine and adjacent commercial and industrial development within six months.

The key document from Nevada regulators — namely the water pollution control permit — has been approved for both the underground and open-pit stages, while the reclamation and air-quality permits have been issued for the underground and require modification for the open-pit facilities.

The key for Nevada Copper is that once Pumpkin Hollow lies within Yerington limits, the project will be governed by the development agreement with the city, and there will be no more need for a Lyon County special-use permit. All open-pit state permits are expected to be complete in mid-2015, which would trigger a construction decision.

“The land transfer is now law,” president and CEO Giulio Bonifacio said in the release. “[We have] already begun to advance the much-larger open-pit project on an accelerated basis. In anticipation of enactment, the company had already initiated preparation of an updated and optimized feasibility study, finalization of state permits and preparation of the development agreement with the city.”

According to GMP Securities analyst Ian Parkinson the land transfer bill is a “total game changer for Nevada Copper.” GMP has a “buy” recommendation on the company along with a $5-per-share price target.

Parkinson calls Nevada Copper’s open pit a “world-class project located in an ideal jurisdiction, with existing infrastructure.” He adds that the deposit has a clear path to permitting with local community and political support, and no environmental concerns or land-use conflicts.

Parkinson says Nevada Copper’s open-pit project is a “moderate capital expenditure, low-risk project with a clear path to construction, and that “the company is at an attractive juncture for acquisition by a number of majors, given its near construction and pre-financing stage.”

Nevada Copper is targeting first production from its underground mine in early 2015. The US$329-million operation is expected to crank out 759 million lb. copper, 220,800 oz. gold and 4.7 million oz. silver over a 12-year mine life.

Annual production is pegged at 74.6 million lb. copper in concentrate over the first five years, with operating cash flow estimated at US$149 million per year, assuming US$2.75 per lb. copper.

Meanwhile, Pumpkin Hollow’s open-pit operation is slated to produce 221 million lb. copper in concentrate per year over its first five years. According to a 2012 feasibility study, the development features a US$726-million after-tax net present value at an 8% discount rate, along with a 17.9% internal rate of return.

Nevada Copper reported that it would reassess its development plans after the land-use bill, and noted that “a large, fully permitted open-pit project and adjacent high-grade underground mine located entirely on private ground in Nevada is unprecedented for a junior copper developer.” The company  aims to optimize the project’s production profile and drop its unit production costs.

Nevada Copper shares have traded within a 52-week range of $1.15 to $2.83, and jumped 9%, or 13¢ after the news, en route to a $1.48-per-share close at press time. 

Nevada Copper reported a US$13-million cash balance, and has 80 million shares outstanding for a $119-million press-time market capitalization.

In late August the company closed a US$20-million bridge loan with private equity firm Pala Investments. The initial term is four months, with up to two more two-month extensions. 

The loan can be drawn in US$5 million tranches, and through November Nevada Copper has borrowed US$10 million.