Site visit: Nevada Copper rolling Pumpkin Hollow forward

YERINGTON, NEVADA — For the townsfolk of Yerington, Nevada Copper’s (TSX: NCU; US-OTC: NEVDF) plan to begin production next year at its Pumpkin Hollow copper mine has been 40 years in the making.

The waste dumps left by Anaconda Mining Co. after it shut copper operations in 1978 still loom large over this town in Nevada’s Mason Valley, not far from Lake Tahoe and the California state line.

There have been a few dashed hopes of a revival during the intervening decades in this region of the state, where mining dates back to the late 1800s.

But next year the town of little over 3,000 people — who are proud of the fact that it’s the only place in the world called Yerington — will see the opening of a new mine, which within five years could eclipse the area’s heydays in size and scope.

Pumpkin Hollow sits 13 km down a road lined by farms — row upon row of irrigated onions planted with down-to-the-centimetre precision — that sustained Lyon County during the lean years.

The deposit was first discovered by US Steel in 1959 using airborne magnetics, and if this was 2011, Pumpkin Hollow may well have been a magnetite mine.

The Pumpkin Hollow deposit is within the Yerington copper porphyry district located in Nevada’s Walker Lane mineralized belt. The deposit is a high-grade iron ore-copper-gold chalcopyrite-magnetite skarn on the flanks of the copper-producing Yerington batholith.

Vancouver-based Nevada Copper acquired the property in 2005. After extensive study and drilling in the ensuing years it came close, but never quite made the decision, to build a mine — to the chagrin of many locals.

What’s different this time around?

The copper price trades today where it did in 2006, after all. And many industry watchers were unnerved by the metal’s precipitous price drop in mid-2018.

But Nevada Copper is a different entity, and Pumpkin Hollow is in a new jurisdiction.

Nevada Copper has been transformed corporately since a US$380-million recapitalization at the end of 2017 led by Pala Investments — the firm behind another recent high-profile reboot: Cobalt 27 Capital.

Other big-name investors are JP Morgan, BlackRock, Capital Group, CIBC and Red Kite.

In April, Nevada Copper president and CEO Matt Gili was recruited from Barrick Gold to join Nevada Copper, after having been in charge of the gold giant’s Cortez complex in Nevada.

Gili joins other industry heavyweights, including chairman Stephen Gill, from Pala; Tom Albanese, former Rio Tinto CEO; Capital Group’s Ernie Nutter; and Raffaele Genovese, ex-Glencore, who all came on board in the past year.

The last new copper mine in the country to go into production — Freeport-McMoRan’s Safford mine in Arizona — was over a decade ago. As for Nevada, you have to go back to 2004, when Poland’s KGHM restarted the historic Robinson mine.

“The number-one success factor for a new mine is the involvement of executives and management on-site,” Gili says during a tour of the project. “You don’t build a mine within budget and on-time from a remote corporate head office.”

Before Barrick, Gili served as chief operating officer of Rio Tinto’s large Oyu Tolgoi copper-gold mine in Mongolia.

You only have to listen to him recount his years in Mongolia — the long drives across the desert and the feasts of boiled mutton and camel’s milk he has enjoyed — to know that Gili is a hands-on guy.

But working in Nevada is far more comfortable than toiling in the Gobi Desert. And a tight labour market in the U.S. means a company needs to offer a bit more to entice new workers.

Reno is little more than an hour’s drive from Pumpkin Hollow and is fast shaking its reputation as Las Vegas’ poor cousin. Reno has an influx of tech workers escaping Silicon Valley’s high cost of living, in favour of an industrial hub anchored by carmaker Tesla’s lithium battery gigafactory.

A recovering copper price helped Nevada Copper green-light construction of its new mine, but it was a unique agreement with the local community that laid much of the groundwork for Pumpkin Hollow’s current phase of development.

The mine is being built on private land. In 2015, after a four-year process, just over 10,000 acres (40.5 sq. km) of federal land was transferred to the city of Yerington, and sold to Nevada Copper.

This helped the company operate under the auspices of the Nevada Division of Minerals, speeding up the permitting process and giving Yerington direct benefits under the state’s profit-share scheme.

The innovative arrangement was the brainchild of Nevada Copper’s vice-president for environment and external relations, Timothy Dyhr, and Yerington’s city managers.

Dyhr, who has worked all over the world, including as BHP Billiton’s environment chief for copper, says approvals and permit decisions that would once take six months or more  now take weeks.

“The project still adheres to all environmental regulations. We’re cutting red tape, not corners,” Dyhr says.

Another innovation Gili is bringing to construction of Pumpkin Hollow is the use of engineering, procurement and construction (EPC) contracts.

With EPCs, contractors are responsible for completion of a project at a fixed cost.

EPC contracts are used extensively in Africa, Australia and other parts of the mining world. And with investors concerned over budget blowouts and delays, they are gaining traction in the Americas.

“With EPCs the upfront negotiations are brutal, but after you shake hands, you execute together,” Gili says, adding that with more traditional contracts where the construction phase is managed together, the opposite is true: “Negotiation is the easy part, and the fighting is during execution.

“It’s not material or labour costs that make projects go over budget, it’s delays. With EPCs everything is worked out beforehand. It’s a good thing for the industry, it forces discipline.”

After a US$70-million streaming deal for gold and silver from the deposit with financiers Triple Flag and a second public offering, the project is fuelled to the finish for a capital outlay of US$197 million.

That’s a miserly sum for a 5,000-tonne-per-day underground mine that will produce 60 million lb. copper (27,000 tonnes) per year during the first five years of operations, as well as 9,000 oz. gold and 173,000 oz. silver.

The board gave the green light for full-scale construction at the end of August, and all indications are that Nevada Copper will meet its target to reach first production in the fourth quarter of 2019.

Nevada Copper has contracted Sedgman and Cementation for the project, and the 40 workers on-site will grow to 150 in the coming months. The underground mine will eventually have a workforce around 300.

The first phase of the underground mine has a 13.5-year mine life and will generate US$80-million cash per year on average, Nevada Copper reckons.

There is scope for expansion underground, but the company has much more ambitious plans for Pumpkin Hollow.

During the visit, the company released a preliminary economic assessment for a huge open pit on the property.

A 37,000-tonne-per-day, open-pit operation with a US$592-million price tag could expand eight years later to a daily 70,000 tonnes for US$447 million. Over the 20-year life, production is an anticipated 167 million lb. (75,000 tonnes) per year and net sale revenues, over US$10 billion.

Together with the underground mine, this would likely catapult Pumpkin Hollow’s ranking in terms of copper production to number three in the U.S., behind only Morenci and Bingham Canyon, given that the proposed Rosemont and Resolution mines in Arizona are stuck in permitting.

Elsewhere in the district, where firms including Quaterra, Mason Resources and others are advancing projects, resources totalling more than 33 billion lb. copper have been identified. That’s material Nevada Copper could one day feed its mill.

But Nevada Copper already has plenty on its hands. In a reserve estimate calculated in November 2017 for an integrated underground and open-pit operation, total proven and probable reserves in the North and South open pits and the Eastern underground deposits stood at 572 million tons of ore grading 0.44% copper, 0.001 oz. gold per ton and 0.48 oz. silver per ton for a contained 5 billion lb. copper, 762,000 oz. gold and 27.7 million oz. silver. 

Gili says construction of an open-pit operation at Pumpkin Hollow could start in 2020 or earlier, and finish two years later, and the company “is committed not to return to equity markets.”

One-third of the capital outlay to build an open pit at Pumpkin Hollow would come from cash flows from the underground mine, another from a streaming deal and the last US$200 million through debt.

The open pit has always been on the drawing board, but a phased approach to development shifts the focus to “project value and economic returns, rather than chasing scale.”

This strategy increases the chances of the open-pit complex being built, and 650 direct jobs created.

For the people of Yerington, that is likely a priority.

— Frik Els is editor of The Northern Miner’s sister company MINING.com, where  a version of this article first appeared in September.