Nevada Copper Corp NEVDQ

Paradigm Capital: Buy rating and $5.00 target price for NCU

[shakerman640]

According to Paradigm Capital:

https://personal.crocodoc.com/7OLXYWE

Nevada Copper Corporation

Stock Rating: Buy

12‐Month Target: $5.00 (previously $6.00)

Updated Integrated Feasibility Study Imminent

Investment Thesis. Nevada Copper is advancing the 100%-owned Pumpkin Hollow Copper-Gold Project through to production. We believe Pumpkin Hollow is one of the most attractive new copper development projects due to its location in a low-risk and mining-friendly jurisdiction, its compelling economics and its expansion potential. A cornerstone debt financing package has recently been negotiated that materially lowers the financing risk of the project. We believe the remaining initial capital funding for the Phase 1 mine is likely to be secured in 2015 with minimal equity dilution. A successful start-up of the Stage 1 u/g mine will transition the company to producer status and should reduce financing difficulties for the larger Stage 2 o/p mine.

Event

We are updating our outlook for Nevada Copper and the Pumpkin Hollow project. For the past year, the company has been progressing construction of the underground mine at Pumpkin Hollow, but at a reduced pace. However, we believe the pace of progress is poised to increase on the heels of several value-enhancing and de-risking events since the beginning of the year.

Details

De‐Risking of Pumpkin Hollow Has Continued:

- Construction Progress on the Stage 1 Underground Mine: A major milestone was achieved earlier this year with the production shaft reaching the 1,900-foot main haulage level. Lateral development in support of first production has commenced.

- Federal Land Conveyance to Be Completed in Q3/15: The long-awaited land transfer became law on Dec. 22/14, and is currently progressing through final documentation. With this land conveyance, the remaining permitting risk for the larger and more valuable Stage 2 open-pit mine is materially reduced.

- Red Kite Debt Facility Re‐Negotiated: Terms for the $200M debt facility with Red Kite have been modified, extending the loan until 2020.

Integrated Development Scenario Back on Table and Potential Catalyst: With the successful passage of the Land Transfer bill, full permits for both the underground and open-pit mines are now expected in Q3/15.

- With open-pit permits expected this year, management is re-visiting a potential integrated open pit and underground development option. The results of the updated Bankable Feasibility Study (BFS) are expected by May 28.

- Our preliminary estimates for an integrated development plan project the potential improved capital efficiencies to add 5–10% to our current NAV, all things being equal.

Financial Position: Nevada Copper currently has $22M of unrestricted cash and short-term debt of $14M. Additional long-term debt commitments totaling $134M have been secured, leaving an ~$80–$100M funding gap to complete the Phase 1 underground mine. We expect management to move swiftly to secure the remaining funding, likely by mid-summer.

Conclusion

We have updated our financial forecast and valuation to reflect our revised project timeline forecast for first production from the underground mine to occur in late 2016, followed by production from the open pit in late 2018. We continue to value the Pumpkin Hollow project under a staged development scenario, pending the outcome of the integrated feasibility study and funding options available to the company. Our revised NAV10% for the company is C$5.10/sh (was $6.67/sh), and our new target is C$5.00 (was $6.00). Nevada Copper continues to be valued attractively, with the current enterprise value equating to < $0.03/lb of proven and probable reserves, or <$0.02/lb of measured and indicated resources. We maintain our Buy recommendation.