++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ A consolidation of the share count WILL happen soon June 17 is the AGM. The consolidation will be announced at that time. No one knows the ratio yet. I am hoping for a minimum of 20:1 thus the fully dilluted share count goes from about 2.3 billion to 115 million. Recnt article on copper demand: https://www.miningnewsnorth.com/story/2021/04/30/in-depth/a-supercharged-surge-in-copper-prices/6790.html?m=true%C2%A0
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A repeat of my synopsis on NCU for those who are new: NCU was almost bankrupt with $2.50 to $3.00 copper
Last year, with copper was in the $2.60 to $3.00 range and Covid had shut the mine down, NCU was almost broke.
NCU's all in cost is $1.86 (AISC) which at $2.80 copper meant NCU would have made only $0.94 cash-flow per pound but even this was not to occur for a while.
At todays prices, with the mine headed toward full commercial underground production, NCU will be cash-flowing $2.54 (at $4.40 copper.)
That is more than 2.7 X the cash-flow.
Additionally the asset value of the open pit is hugely increased at these prices. A lot more resource can be brought into the model
The Corporate Presentation numbers use $3.20 as a long term copper price. I think it is easy to see how $3.20 is no longer relevant.
Corporate Presentation:
https://nevadacopper.com/site/assets/files/4209/2021-03-ncu-cp.pdf
NCU is finally coming into full underground production this summer and the first stope (2.2% copper) is a few days away from being accessed for mining.
My numbers for the Combined underground and future open pit:
At $4.00 copper, 2.2 billion shares and 70,000 tpd open pit:
70,000 TPD X .005 copper equivalent X 88% recovery X 2000 pounds per ton X 365 days per year = 225 million pounds copper, plus another 65 million pounds from underground =
290 million pounds X ~ $2.00 profit (at $4.00 copper) = $580,000,000 free cash-flow
$580 million p/year cash flow X5 multiple = $3.15 billion / 2.2 billion shares = $1.32 USD p/s
$580 million p/year cash flow X6 multiple = $3.78 billion / 2.2 billion shares = $1.58 USD p/s
$580 million p/year cash flow X7 multiple = $4.41 billion / 2.2 billion shares = $1.84 USD p/s
$580 million p/year cash flow X8 multiple = $5.04 billion / 2.2 billion shares = $2.10 USD p/s
$580 million p/year cash flow X9 multiple = $5.67 billion / 2.2 billion shares = $2.37 USD p/s
$580 million p/year cash flow X10multiple = $6.3 billion / 2.2 billion shares = $2.63 USD p/s
Converted to Canadian = $1.66 to $3.30 per share
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At $4.50 copper, 2.3 billion fully diluted shares and 70,000 TPD open pit:
70,000 tpd X .005 copper equivalent X 88% recovery X 2000 pounds per ton X 365 days per year = 225 million pounds plus 65 million pounds from underground = 290 million pounds X ~ $2.50 profit = $725,000,000 free cash-flow per year.
$0.725 billion p/year cash flow X5 multiple = $3.63 billion / 2.3 billion shares = $1.58 USD p/s
$0.725 billion p/year cash flow X6 multiple = $4.35 billion / 2.3 billion shares = $1.89 USD p/s
$0.725 billion p/year cash flow X7 multiple = $5.08 billion / 2.3 billion shares = $2.21 USD p/s
$0.725 billion p/year cash flow X8 multiple = $5.80 billion / 2.3 billion shares = $2.52 USD p/s
$0.725 billion p/year cash flow X9 multiple = $6.53 billion / 2.3 billion shares = $2.84 USD p/s
$0.725 billion p/year cash flow X10multiple =$7.25 billion / 2.3 billion shares = $3.15 USD p/s
$1.96 CAD to $3.91 CAD per share
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At $5.00 copper, 2.3 billion fully diluted shares and 70,000 TPD
70,000 tpd X .005 copper equivalent X 88% recovery X 2000 pounds per ton X 365 days per year = 225 million pounds, plus 65 million pounds from underground = 290 million pounds X ~ $3.00 profit = $870,000,000 free cash-flow per year.
$0.87 billion p/year cash flow X5 multiple = $4.35 billion / 2.3 billion shares = $1.89 USD p/s
$0.87 billion p/year cash flow X6 multiple = $5.22 billion / 2.3 billion shares = $2.27 USD p/s
$0.87 billion p/year cash flow X7 multiple = $6.09 billion / 2.3 billion shares = $2.65 USD p/s
$0.87 billion p/year cash flow X8 multiple = $6.96 billion / 2.3 billion shares = $3.03 USD p/s
$0.87 billion p/year cash flow X9 multiple = $7.83 billion / 2.3 billion shares = $3.40 USD p/s
$0.87 billion p/year cash flow X10multiple =$8.70 billion / 2.3 billion shares = $3.78 USD p/s
$2.36 CAD to $4.72 CAD per share
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Current underground mine as a stand alone after ramp up:
65 million pounds per year x $2.44 ($4.30 - $1.86 = $2.44)
Free cash-flow of about $159 million USD per year at a conservative, low 5 X cash-flow multiple =
$793 million, divided by 1.8 billion shares = $0.44 USD = $0.55 CAD
OPEN PIT (valued as not yet developed:)
IRR (7.5% discounted) of 40% (extrapolated from NCU's Oct 2020 presentation)
NPV of $2.1 b/ 1.8 b shares = $1.17 (then discounted 75% by me) = $0.29 USD = $0.36 CAD
Total share price:$0.55 plus $0.36 = $0.91 CAD today.
Reasons I own NCU:
The future open pits are now highly economic and are relatively high grade
First in 10 yrs new USA copper producer
Future open pits have gold and silver credits not pre sold in any stream deal
The future open pits are permitted to 70,000 tpd
Copper demand is running beyond the price assumptions in the 43-101 study
The new mill is successfully ramping up to it's 5000 tpd capacity (prob ~50% now)
Trading at 0.8 X book value
Full copper production 3 rd quarter 2021
Minimally hedged and rolling off
Covid uncertainty is reduced with vaccine roll outs
No insider selling for 10 yrs despite past issues
Banks lending now at reasonable rates
Highly experienced CEO with 3,500,000 share rights which align him with us.
A mining friendly jurisdiction with plenty of experience labour available
Future full US listing anticipated later this year thus bringing in a new buyers
A share consolidation is coming in June 2021 which will help allow institutional buying and possibly allow the stock to be marginable
A lot of expansion drilling will be coming so decades more resource will ba added
Potential risks include:
Problems with the mine plan leading to more cost
Copper price dropping a lot
Mine accidents
Another Covid shut down
Interpretation of the 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 ~40 % owner > $0.51 (calculated as of January financing)
NCU director Nutter > $0.32 (calculated as of Dec 2020)
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
NCU: Some history on the underground portion:
Throughout 2019 copper prices declined about $0.75 per pound, from ~$3.00 to ~ $2.25 (March of 2020) This was the first major hit to the share price. 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 just when start up production was about to occur. Copper ~$2.25 at the time. NCU dropped to $0.24
The share price continued to decline and only in June 2020 did it have a small pop back to the $0.20 area, presumably because copper went to ~$2.75 thus making the mine viable again (all in cost of $1.89 underground, leaving $0.86 per pound net profit.)
Cash was needed to get to positive cash-flow and support debt obligations thus the now infamous dilution and refinancing at a about net $0.14
Shareholders bailed on mass with the tax loss season and covid doom in the air, leaving the share price to hit 2020 lows of ~$0.07 to $0.10
Since then both the copper price and importantly, the outlook for copper, have improved markedly. This affects everything. NCU is affected more than most because going from almost bankrupt, to having a very profitable outlook, creates a larger leverage effect than going from profitable to more profitable (as is the case with other low hedged, mid sized copper mines)
Since the life saving July 2020 financing NCU's marginal profit is now 250% of what it was then ($2.14 vs $0.86 p/pound) Note: the $2.14 today is based on $4.00 copper, minus $1.86 AISC
During the time copper prices went up the mine build progressed amazingly well. The mill was tested to run great at 'nameplate" of 5000 TPD and the underground hoisting and ore crushing have successfully been commissioned... 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 the copper open to the new higher copper prices.
The recent financing converted another big piece of debt to equity so the balance sheet is in great shape.
Despite the troubles in the past there has been no insider selling 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 $0.51.
An additional 83 million tons of ore may be available underground because it is extremely economic at plus $4.00 copper.
More drilling will be done to confirm the size and grade of this ore body and it may easily increase.
The current "measured and indicated" category is 54 million tons at 1.39% copper and the "Inferred" is 29 million tons at 1.09% copper. (these are in addition to the 13 years [24 million tons] of 1.6% that we are about to start mining.)
Taken together there is another approximately 60 million tons of about 1.2% copper in the measured / indicated category (also subject to more drilling expansion) to provide an additional 27 years of mill feed using 6000 tons per day.
The math is: 60 millon ton / 6,000 tpd / 365 days a year = 27 years.
The grade is (about) 1.2% copper averaged
So, 6000 tpd X 365 days per year x .012 grade X .9 recovery X 2000 p per ton = 47 m pounds of copper per year for additional 27 years above the first 13 years.
At $4.20 copper ($2.24 p pound free cash-flow) X 47 m pounds = $105 m per year underground
So this = 27 years of $105 m per year, beyond the first 13 years of $159 USD million per year ($4.30 copper.) (see above calculation.)
Corporate presentations:
https://nevadacopper.com/site/assets/files/4190/ncu_october_2020_final.pdf
https://nevadacopper.com/site/assets/files/4209/2021-03-ncu-cp.pdf (Newer Presentation)
Robert Pavich Video (last 10 minutes)
https://www.youtube.com/watch?v=hk_WhFu7FlA&feature=emb_logo
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Summary of key NCU news releases:
2013, Sept 9: (copper~$3.30)
>>>Final permit for underground mine build, plus loan financing.
2013, Nov 14: (copper~$3.20)
>>>Stand alone open pit feasibility study filed using $2.75 copper
2014, Dec 15: (copper~$2.75)
>>>Land bill passed by Senate and House of Reps
2015, May 28: (copper~$2.45)
>>>Feasibility results. Mine life increased by 5 years.
>>>A description of economic results using 3 base case scenarios for copper.
2015, June 1 - July 15: (copper~$2.25)
>>>Three more positive drill result releases, including 400’ of 1% copper.
2015, Aug 17: (copper~$2.25)
>>>Full permit for open pit is obtained
2015, Aug 21: (copper~$2.25)
>>>BLM conveys 10,000 acres of land to NCU.
2015, Sept 10 & Nov 3: (copper~$2.20)
>>>Two more sets of positive drill results
2016, June 9: (copper~$2.15) $4.8 million raised at $0.60.
>>>Total shares NCU shares outstanding = 88 million
2017, May 23: (copper~$2.55)
>>>Private placement with Pala at 10% premium to the market = $0.66 for 3.7 million shares.
>>>Total NCU shares outstanding = 93 million
2017, Dec 17 and 2018, Jan 12: (copper~$3.20)
>>>Construction financing and debt restructuring
2018, Feb 26: (copper~$3.20)
>>>Restart of underground mine construction after the raising of more funds.
2018, March 5: (copper~$3.10)
>>>$128 million from Pala for an additional 256 million shares. $0.50 each
2018, May 15: (copper~$3.05)
>>>Open pit extension drill results including 42 metres of 2% copper
2018, July 17: (copper~$2.75) Additional equity financing. $108 million, $0.60 per share;
>>>Total NCU shares outstanding = 660 million
2018, Sept 6: (copper~$2.60)
>>>$70 million received in exchange for (underground only) Au & Ag metal stream.
2018, Sept 10: (copper~$2.65)
>>>PEA received for the open pit using $3.20 long term copper.
2018, Nov 13: (copper~$2.75)
>>>Announcement to update technical report to include new info and PEA
2019, Feb 22: (copper~$2.75)
>>>Announcement of 5,700 additional acres staked for exploration, thereby expanding the Pumpkin Hollow property by 32%
2019, April 16: (copper~$2.90)
>>>New open pit PFS study published with updated numbers ($3.20 long term copper price is used)
2019, May 16: (copper~$2.70)
>>>$40 million combined private placement and public share sale $.040
2019, Dec 16: (copper~$2.80)
>>>Copper production commenced and ramp up to full 5000 tpd is expected by mid 2020.
>>>65 million copper / year is projected from underground at cost $1.86 AISC (all in sustaining cost)
2019, Dec 17: (copper~$2.80)
>>>Pala announces buying shares in the public market at $0.29 per share
>>>Pala’s total of the financing is ~ 273 million shares, ~ 36% of all the shares outstanding.
>>>The new float is roughly 758 million shares outstanding
2020, April 6: (copper~$2.25)
>>>Covid necessitates a shutdown of the newly completed mill
>>>Underground work continues at a reduced pace.
2020, July 31: (copper~$2.85) Equity sale completed of 667 million shares, including the over-allotment
>>>This raises $100 million to pay down debt and cover ongoing expenses.
>>>The new price per share works out to about net $0.14 after backing out an allowance for $0.02 per warrant attached.
2020, Aug 24: (copper~$2.95)
>>>Production is restarted
>>>Commissioning of hoist, vent shaft and underground crushing continues
2020, Oct 15: (copper~$3.05)
>>>Mike Ciricillo is brought on board as CEO. Mike “...was previously the Head of Copper Industrial Operations for Glencore Plc, where he oversaw Glencore’s worldwide copper assets…”
2021, Jan 29: (copper~$3.55)
>>>Equity financing; 230 million shares issued at $0.16 for proceeds of $38 million.
>>>Pala takes down an additional 80 million shares as a part of a debt to equity trade.
>>>New share base of about 1.7 billion and a lot of warrants will bring cash in at an average of $0.21
2021, March 18: (copper~$4.05);
>>>Some 5% ore is encountered in the ‘development’ area while working toward the new stopes
>>>Expect “grade increases” in combining weeks as stopes are accessed
>>>The hoist is tested and able to run at 5,000 TPD matching with the tested mill capacity
>>>Electrical upgrades in the areas where mining was redirected to have been mostly completed.
2021, April 21: (copper ~ $4.25):
>>>We are a few days away from the first stope to start extracting 2.2% copper
>>>Ventilation upgrades are progressing well
>>>Batch production is running very well at intermittant bursts of 4,700 tpd as development (and soon) new stope ore is being mined.
Ventilation remains the primary constraint to increased production but some intermediate solutions (before arrival of the big surface fans) are being enacted.
A majority of the investment in proving up and building this mine came from shares issued at much higher prices and while the copper outlook was anemic and copper was trading below $3.00.
Now is the right time to accumulate. Earnings will, of course still be negative for a year but cash-flow cometh soon and with copper over $3.50 the longer term profit will be immense and will pay this asset off very quickly, including the cost of building the (permitted) open pit portion.
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Barrick CEO on copper as strategic
>>> NCU is permitted!
https://www.bnnbloomberg.ca/investing/video/barrick-gold-ceo-says-copper-is-a-fantastic-strategic-asset~1907821
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NCU 2021 start up production and cash flow est. (note: underground only)
2nd quarter: April, May, June:
Average blended grade of 1.3% copper
Average mining and milling rate 3000 tpd
Average $4.20 copper
Hedge portion of 2.1 m pounds
Production above the hedge (3000 tpd X 1.3% copper X 90 days X 2000 p per ton X 90% recovery = 6.3 m pounds, minus hedged amount = 4.2 m pounds
4.2 m pounds X $2.24 = $9.4 m plus about $2.25 m (hedge) = $11.6 m free cash-flow
3rd quarter: July, Aug, Sept:
Blended grade of 1.6%, 4,500 tpd, $4.30 copper, remaining hedge of 1,000,000 pounds
Production above the hedge of (4500 tpd X 1.6% copper X 90 days X 2000 p per ton X 90% recovery = 13 m pounds, minus the hedge = 12 m pounds
12 m X $2.44 per pound (after all in cost) = $29 m, plus about $1m from the hedge
= $30 m free cash-flow
4th quarter: Oct, Nov, Dec:
Grade 1.9%, 5,000 tpd, no hedge, $4.40 copper
5000 X 1.9% copper X 90 days X 90% recovery = 15.4 m pounds copper
15.4 m X $2.54 per pound = $39 m free cash-flow
Then in 2022 and beyond (underground only)
Annualized free cash-flow of $156 m
Cheers,
Notgnu