Disappointing resultsFinally a thorough MD&A, with thoroughly disappointing results. Why?
- Development rates are still very low. 3000 feet of development in Q1 2022 is a 25% improvement on Q4 2021. But it is an improvement on a dismal result in Q4 2021. The key metric for mines that are scaling up is development rates. 3000 feet in Q1 2022 is still very low.
- Bad ground in the dyke is slowing development rates. Development is hampered by the second dyke crossing. Development is going to stay low until they have finished all of the dyke crossings. Clearly, the have not figured out how to get through the dykes. Water is only part of the issue here. The dykes have very poor ground conditions.
- We killed a scoop. A sidewall failure in a stope resulted in the loss of a remote scooptram. Decoded, what does this mean…A stope is a large excavation, perhaps 70-90 feet tall, and horizontal dimensions of a similar size. To get all of the ore out, a remote scooptram has to enter the stope. This is a normal practice. There is nobody in the LHD, just in case a wall failure occurs. In this case, a wall did fall onto the scoop. Basically, the scoop is irrecoverably lost. It is also likely that any ore remaining in the stope has to be abandoned. They don’t want to risk squashing another scoop. So lots of ore is lost and one of the key LHDs in the mine is gone. This is a million dollar piece of equipment they have to replace. Hopefully it was insured.
- Mine planning problem. The sidewall failure is concerning. In the November 2020 update, they announced that initial stopes were being reduced in size due to a geotechnical review. This is concerning. To have a sidewall failure in one of the first stopes in the mine is rare. It suggests that the designed stopes are still too big. There are hints in the MD&A that they are rethinking the mine planning, i.e. smaller stopes.
- Low recoveries. I am not concerned about the low recoveries. The concentrator is designed for higher grade stope ore. Most of the material being batched through the concentrator is low grade development ore. Low recoveries are temporary and no great surprise.
- Moving goal posts. In this MD^A, they are suggesting 3000 tpd in Q2 2022. Q1 2022 was supposed to be 3000 tpd, instead they got 95,300 in Q1, or 1060 tpd. The lack of development and stope failures is hurting production. They have shown no ability to reach 3000 tpd. Getting 3000 tpd in Q2 is very unlikely. The MD&A says they will get to 4500-5000 tpd in Q4 on page 4 and 4500-5000 tpd in Q3 on page 7. C'mon guys, pick your lie and stick with it. BTW, in the April 2021 update, they expected 5000 tpd in Q3 2021. Let’s be honest, they have no idea when they will hit full production.
- Double bolting. The company’s ground support strategy is to install friction bolts as primary reinforcement. Pretty much everybody in the US and Australia does this. However, afterwards permanent bolts are installed. Pretty much nobody in the world does this. Basically, in the long term, the friction bolts are not good enough for the ground conditions. Furthermore, “the company has hired a dedicated bolting crew to focus on installing permanent bolts, which is expected to be completed in Q3 2022”. What this means is that they need to rebolt lots of old development. This is going to cost millions of dollars. The inference here is that poor ground conditions in the mine is a widespread problem.
- Ventilation fans. They are on-site. They may be running in Q2 2022, but with low development rates and low ore production, not sure they really need the improved ventilation until Q3 or Q4.
- The pit. New drilling is expected to start in Q2 2022. New orebody model probably in 2023. Proper feasibility study probably finished in 2024, followed by a production decision. The good news is there is no need for pit financing dilution in 2022.
2022 is going to be another disappointing year. In my opinion, full production no earlier than H1 or H2 2023. 6500 tpd, unlikely.
Nevada Copper is definitely for the long term investor.
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