Why 2021 NCU buyers stay strong NCU bankruptcy risk is now GONE.
This alone accounts for a 50% to 100% possible increase to share price to catch up to NAV a bit.
Using a conservative figure of 65 million pounds per annum and taking a baseline copper price at last $0.14 financining of
The 65 million pounds per annum (after ramp up) is 5000 TPD X .018% underground copper x 2000 pounds per ton X 364 days = 65 million pounds.
At 65 million pounds per annum and a price at last financing in July of $0.14 when copper was $2.95 we we now have copper at $3.71 or $0.76 higher than before, thus $0.76 X 65m pounds X 8 C/F multiple = $395 million divided bt shares out = $0.26 + $0.14 = $0.40 as a share price today.
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NCU... Cash-Flow an updated look for 2021
The NCU NI 43-101 is almost 2 yrs old so the corporate presentation (necessarily) uses older copper prices
I have been making my own extrapolations based (mainly) on recent copper prices which now look to be sustainable for years to come.
Points about NCU focussing on the underground portion:
Throughout 2019 copper prices declined about $0.75 per pound.from around $3.00 to about $2.25 (March of 2020) This was the first major hit to the share price because the NI 43-101 assumed an average price of $3.00.
Quote: "Consensus prices per the 2019 NI 43-101 Tech Report : US$2.83 – 3.20/lb Cu"
Covid shut the mine down as it was about to start in March when copper was about $2.25 and NCU dropped to $0.24
The share price continued to decline and only in June did it have a small pop back to the $0.20 area... presumably because copper increased to the $2.75 area, thus making the mine very viable again (costs $1.89 underground thus leaving $0.86 per pound net profit.)
Then more cash was needed to get to positive cash-flow and support debt obligations (thus the now infamous dilution / refinacing at a about $0.14)
Shareholders bailed on mass with tax loss season impending and covid doom and gloom in the air leaving the share price to hit it's 2020 lows.
Both copper the outlook and pricing are now hugely improved and this effects everything. NCU is effected more than most because going from almost broke to very profitable has a much bigger leverage effect than going from profitable to more profitable.
Since the life saving July financing NCU's marginal profit is over 70% greater now (see calculations below.)
In the time that the copper price went up the mine build out also progressed amazingly well. The mill is tested to run great at 'name plate" of 5000 TPD and the underground hoisting and ore crushing was sucessfully comissioned... a shout out to the new CEO and the NCU team.
NCU's hedging is relatively small and applies to only the first 6 months of 2021 leaving the vast majority of first few years completely open to the new copper prices.
Earlier in the year there had been the danger of punitive financing cost or another dilution but the last couple of news releases confirm this is no longer a worry anymore as banks are willing to lend (likely more funds than are needed) at LIB +4.9% ... this is a very big vote of confidence.
Despite all the troubles NO insider selling has occured for 10 years and insiders hold a lot of stock cumulatively, with Pala / Iorich holding about 60% at an average price that is greater than $0.55 ... as I have noted several times.
There also exists a little mentioned but large upside in the undergroud resource. It consists of an additional 29 million tons of 1.09% copper that is way down in the "inferred" catagory.
Drilling can now be effected from underground at a lower cost than surface down drilling (as I understand it.) This means the resource can be greatly expanded. Extraplolating from the NI 43-101 as presented in the Corporate Presentation I get an under ground cost of about $45 per ton. At current copper prices that 1.09% ore is worth about $75 per ton, which gives about $30 a ton of gross profit = 67% profit. This may also increase as more definition drilling is accomplished in the underground.
For the new NCU buyers:
My target price remains $0.45 to $0.60 in mid to end of 2021 given copper at an average of $3.40 to $3.50
Some reasons I own NCU shares:
- Fallout from Covid shut down depressed the price dramatically
- First new in 10 yrs USA copper producer
- Copper demand guy is POTUS
- Copper already running up ahead of expectations
- Big leverage to copper price gain
- New mill passed to run at design of 5000 tpd
- Trading at 0.36 0.42 0.6 X book value
- Full copper production next 6 to 12 weeks
- Hedged only about 25% over next 12 months
- Covid uncertainty reduced with vaccine roll out
- No insider selling for 10 yrs
- Consolidation = marginable and institutions can buy (I prefer 40:1)
- Banks willing to lend at reasonable rates (interbank rate + 4.9%)
- Highly experienced CEO with 3,500,000 share rights which align him with us.
Risk include:
- Problems with the mine plan leading to more cost
- Copper price dropping a lot
- Mine accidents
- Covid shut down that requires more funding
Interpretation of 2020 share price collapse:
Covid hit and the mine was shut down. It was bad timing in terms of funds to get production up and running. Cash was not there and it looked like another dilution was to happen
Selling came in with very little buying support. Then the situation changed for the better yet investors were scared.
Insider average costs:
Pala / Iorich 60% owner > $0.55
NCU director Nutter > $0.32
NCU director Albanese > $ 0.41
NCU director Brown > $0.31
NCU chairman Gill > $0.21
NCU senior VP Joseph > $.32
NCU director Cochrane > $0.67
Two methods to asses a new share price:
First method
Take NCU's $1.89 cost per pound from the last presentation.
Subtract cost from price of copper then = $2.95 - $1.89 = $1.06 profit then.
Compare to now: $3.70 copper - $1.89 cost = $1.81 profit now
The increase in profit is over 70% ($1.81 - $1.06 = $0.75 divided by the $1.06 = .707 or 70%)
Second method
Take NCU Corporate presentation numbers = $80,000,000 annual cash-flow, divide by $1.31 ($1.31 is $3.20 in the presentation minus $1.89 cost) = 61 million pounds of copper per year.
Sub in your own numbers and then post your share valuation
Take copper price now (minus $3.20 )= $________X 61 million pounds = addition to the yearly cash flow above what Pala had to base his purchases on (Example $0.40 X 61 million = $24.4 million)
Multiply the $24.4 million X your cashflow muliple number. (Example $24.4m X 8 = $195 m)
Take the $195 m and divide by shares out of 1.5b (Example $195 m / 1.5b = $0.13)
In this example add the $0.13 to the previous share price (Example Pala's $0.55 + $0.13 = $0.68 or a lower number like $0.27 (half of Pala) $0.27 + $0.13 = $0.40
In any case $0.20 per share comes out a steal compared to $0.68 or $0.40.
https://nevadacopper.com/site/assets/files/4190/ncu_october_2020
_final.pdf
DYODD
Cheers,
Notgnu,
(NCU, some REITS, TOT, NWHM)