Nevada Copper Corp NEVDQ

NCU buy recommendation from Cormark Securities...

[NickSmithNSC]

CormarkSecurities
InvestmentSummary
Copper Supply Issues Coming To The Fore
As we and many others have stated over the past few years, the copper market isheaded for a period of sustained undersupply as demand levels recover at a timewhen the pipeline of shovel ready projects remains constrained. As such copperprices are expected to remain high to ration demand to available supply whileencouraging new development. While many suggest the recent surge in prices ispurely speculative, and it may well be in the near term, we expect inventoriesto approach zero in 2011. This should force prices to remain robust and perhapsmove to previously unthinkable levels for a prolonged period.
 
The strength in copperis two-fold. First, copper consumption is expected to remain
strong on the back of continued strong demand from emerging markets as theycontinue with their industrialization and urbanization push. This is expectedto see global demand for copper grow 3.5-4.5% pa, in line with the historicalgrowth rates. This demand is expected to be driven by China, a rising India andlikely a slow but steady recovery in the rest of the world. Secondly, as demandremains strong, supply continues to underwhelm.
 
Given our current growthprofile, this implies annual copper supply growth needs of between 650,000 and850,000 t before taking into account the well-documented head grade declines atmany of the world’s largest operations and operational disruptions of varioussorts that can be expected in the coming years. As such, we believe theindustry needs a pipeline of projects to add around 1.0 MMt of supply per annumgoing forward. Based upon our supply demand outlook, this is near impossibleprior to 2015 at the earliest and then we will need multiple years of supply growthto refill the inventory levels. As such prices should remain high during thisperiod.
 
M&APicking Up Steam As Companies Look For Supply
In response to this rising supply need we have witnessed an increase in thepace of M&A activity corporate and sovereign funds look to secure hardassets for the future. We do not expect this trend to change in 2011 as minerslook to deploy capital and target new growth opportunities. In this report wehave reviewed the relative merits of various development projects and havecommenced formal coverage on four new names which have assets of scale tobecome major development projects and potentially M&A targets. Based uponthe most recent transactions, the old rule of thumb of
.05/lb in the groundremains appropriate; however, buyers seem to be more aggressive and are notnecessarily waiting for complete project de-risking. We have tried to rank andvalue these projects not only by a straight per pound in the ground approachbut also using DCF based valuations of what an acquirer would pay.
 
Nevada Copper (NCU-T) Nevada Copper is moving forwardwith the development of the Pumpkin Hollow copper project located in Nevada.The company is currently reviewing underground and open pit developmentscenarios which could see a mine producing on average of 200 MM lbs of copperper annum at a net cash cost of $1.29/lb. The company is currently updating thevarious development plans to determine the most value accretive and timelydevelopment route due to certain permitting issues. The company is wellfinanced and supported by a major shareholder. We are initiating coverage witha Buy (S) recommendation and a target price of C$6.00. Our target reflects 0.8xour DCF based NAV.