Nevada Copper Corp T.NCU

Nevada Copper open pit to come = big now!

[Notgnu]

NCU time lines as layed out in the 43-101 mine plan, and older promotional material, is delayed by approximately one year. 

In terms of the preent share price of $0.16 the NCU market is attributing almost zero value to the open pit property and investments in it thus far. This is easily illustrated by looking at the current discount to NAV (0.57 x NAV)

The millions of dollars spent by NCU on drilling out the (relatively high grade) open pit projects (hard rock core retrieval drilling costs about $200 per meter) and all the engineering gone into creating the 43-101 along with pit shell design is not being priced in. The value of the full permitting, which is also huge isn't priced in.

Just look at the years of consulting and lobbying and meetings with community and environmental scoping and permits that are required to be able to get permission for a new huge open pit project most anywhere in the world.

The open pit and permit have a hugely leveraged value to metal prices. When copper was looking played out the entire asset was arguably just a money pit.

With the new copper, green energy, EV, grid build thesis the long term outlook and current pricing of this asset is way under valued (IMO of course.)

Taking the open pit as a stand alone project, as distinct from the underground for now  I see it this way: (I will re-paste my basic, underground thesis below also.)

1. A lot of money and years have gone into drilling and scoping the project.
2. More adjacent land has been aquired but not yet drilled.
3. The main pits also have not been fully drilled because resources were redirected to getting the underground mine built and producing (as is just starting to happen now.)
4. The underground mine, though separate, has overlapping infrastructure that hugely benefits advancing the open pit... everything from roads, power, offices and staff on site.
5. The open pit was designed using (predominately) a $3.20 long term copper price
6. Point 5 is huge and below is why:

I have read through (skimmed some and triple read other areas) the NI 43-101 and in the end I confirmed that it is quite reasonable to just extrapolate from the summary of the open pit project as presented on the website here: 

https://nevadacopper.com/projects/open-pit-development/

What I am doing is averaging the two mill capacities build outs that are stated thus we get about 56,000 tons per day for 17 to 18 years. (This, as noted above, could also easlily be greatly expanded with more drilling.) 

Take the stated free cash-flow average over the life of the mine (which uses $3.20 copper, $1325.00 gold and $20.00 silver) and apply your own, new, long term numbers. 

Working backward the NCU numbers seem to me to average the copper, after recovery losses and blending and all else at about .39% of all rock mined. So:

1. 56,000 tons per day X .0039 = 218.4 tons per day of copper
2. 218.4 tons X 2000 pounds per ton = 436,800 pounds per day of copper
3. 436,800 pounds X 365 days per year = 159,432,000 pounds of copper per year
4. Confirm number by muliplying let's call it 160 million pounds by the previous $1.17 of cash-flow (that is $3.20 price used minus $2.07 for ALL IN COST... including all machines, labour, interest charges, leases etc etc) and get $187,200,000 per year of free cash flow... quote from company  "Annual free cash flow3 Avg cashflow $180Mpa of 17 steady state years"
5. Now take my new metal price assumptions (put in your own) and get 160 million pounds of copper per year (averaged over 17++ years) =
6. 160 million pounds X $3.60 - $2.07 cost = $1.57 free cash-flow = $251,200,000 per year (plus increase gold and silver price... for athers to work out as it is about 10% of overall metal values)
7. Or try copper at $3.85 and get $1.78 free cash flow X 160 million pounds per year = $284,800,000 per year!
8. Now try Goldman Sach's $4.50 copper in two years from now = 160,000,000 pounds per year X $2.43 = $388,800,000 per year plus extra gold and silver for 17 ++ years!

Then the next step is to try company valuations at different copper prices and different valuation multiples and then divide by 1.7 Billion shares:

1. $3.60 copper at 3x multiple = $251 million x 3 = $.44 per share, open pit only.
2. $3.60 copper at 5X multiple = $251 million x 5 = $.74 per share, open pit only.
3. $4.50 copper at 3X multiple = $388 million x 3 = $.68 per share, open pit only.
4. $4.50 copper at 5X multiple = $388 million x 5 = $1.14per share, open pit only.

So it is easy to see that the open pit is highly leveraged to metal price assumptions (please note I did not bother to add in increased silver / gold prices... That is a DIY :-)))

Good luck to all,
We have a winner here IMO
As always: DYODD

Cheers, 
Notgnu

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Repost of previous underground (current mine) thesis:

For our new NCU buyers...

Some Notgnu information

NCU bankruptcy risk is now GONE due to copper price increase and the latest financing news 

This alone accounts for a 50% to 100% possible increase to share price. Still only trading at .57 X Book vlaue

 

My target price remains at $0.45 to $0.60 by mid to end of 2021 (assuming copper stays in at least the $3.40 to $3.50 range 

 

Some reasons I own NCU shares:

 

• First in 10 yrs new USA copper producer 
• The future open pits are now highly economic and are relatively high grade
• Future open pits have some gold and silver (not sold in any stream deal)
• The future open pits are already permitted and may be spec'd at 70,000 tpd

• Copper demand running beyond the price assumptions in the feasability study

• The new mill is sucessfully ramping up to it's 5000 tpd capacity (prob 50% now)
• Trading at 0.57 X book value
• Full copper production next 6 to 12 weeks
• Hedged only about 25% over next 12 months
• Covid uncertainty is reduced with vaccine roll outs
• No insider selling for 10 yrs despite past issues

• Banks lending now at reasonable rates (interbank rate + 4.9%)
• 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, with simultaneous share consolidation which will allow margin and institutional buying

 

Risk include:
 

• Problems with the mine plan leading to more cost
• Copper price dropping a lot
• Mine accidents
• Another Covid shut down 
• Oustanding lawsuits (I thhink they will be settled and are of minimal concern)

 

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            > $0.51 (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

 

A calculation example with copper at $3.64

 

Take NCU's $1.89 cost per pound from the last presentation. 
 

Subtract cost from price of copper = $1.75 profit before taxes.

Multiply by 61,000,000 pounds per year (underground only)and after full 5000 tpd) = $106,750,000 per year 

Multiply by 5X cash-flow multiple = $533,750,000

Divide by 1.7 B shares out = $0.31 per share 

Add the value you would attribute to the future open pit (already permitted and significantly delineated by previous drilling and engineering studies) at $3.50 to $5.00 copper, mineable over the next 20 to 30 years (my valuation is $0.15 to $0.20 for that asset alone) and get a this year price of $0.46 to $0.61 per share.

 

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Some 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 just as it was about to start up production in March. Copper was about $2.25 at the time 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 (all in cost of $1.89 underground, leaving $0.86 per pound net profit.)
 

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 with covid doom and gloom in the air, leaving the share price to hit it's 2020 lows.
 

Since then both copper the outlook and the price are have improved greatly and this effects everything. NCU is effected more than most because going from almost bankrupt, to having a very profitable outlook, creates a much bigger leverage effect than going from merely profitable to more profitable (as is the case with other low hedged copper mines)
 

Since the life saving July financing NCU's marginal profit is over 70% greater now (see calculations below.)
 

During the time copper prices went up the mine build progressed amazingly well. The mill was tested to run great at 'name plate" of 5000 TPD and the underground hoisting and ore crushing have sucessfully been 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 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.
 

There also exists a little mentioned but large upside in the underground resource. It consists of an additional 72 million tons of 1.2% copper that is way down in the indicated and inferred catagories which would be good for an additional 39 years (above the first 5 years) of underground mining at 5000 tons per day.

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 underground cost of about $45 per ton. At current copper prices that 1.2% ore is worth about $87.60 per ton, which gives about $42 a ton of gross profit = 95% gross profit. This resource, and possibly the grade, may also increase as more definition drilling is accomplished in the underground.

 

 

https://nevadacopper.com/site/assets/files/4190/ncu_october_2020

_final.pdf

 

The following video link lines up with my own thesis on NCU  .. that there is a big disconnect between price and value... his approach to calculating that is a little different than mine but the outcome is similar. If you do not want to watch it all then at least watch from minute 26 to minute 36.


https://www.youtube.com/watch?v=hk_WhFu7FlA

Cheers,
Notgnu
(NCU, NWHM)

DYODD

 

Cheers,
Notgnu,