I am hoping for 20:1 thus fully dilluted share count goes from 2.3 billion to 115 million.
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Reasons I own NCU:
Future open pits have gold and silver credits not pre sold in any stream deal
Future open pits are already permitted to allow 70,000 tpd production
Copper running way beyond the $3.20 price assumptions in the NI-43-101
The new mill is successfully ramping up to 5000 tpd capacity (prob ~50% now)
Full copper production 3rd quarter 2021
Minimal hedges roll off soon
Covid uncertainty reduced now with vaccines out
No insider selling for 10 yrs despite past issues
Banks lending 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
A share consolidation to be announced June 30 2021 = institutional buying and margin
Expansion drilling underway, so decades more resources will be added
Potential risks include:
Problems with the mine plan leading to more cost
Copper price dropping a lot
Mine accidents
Another Covid shut down
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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.
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Insider average share cost:
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
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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.
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Additional 83 million tons of ore likely available underground.
More drilling will be done to confirm the size and grade of this ore body and it may easily increase and is very ecenomic at $4.00 copper price.
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 average
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 $4.70 copper ($2.84 p pound free cash-flow) X 47 m pounds = $133 m per year underground
Total additional = 27 more years of $133 m US per year, beyond the first 13 years of $184 million USD per year
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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
Robert Pavich Video (last 10 minutes is best)
https://www.youtube.com/watch?v=hk_WhFu7FlA&feature=emb_logo
New video feature CEO Mike C.
https://www.youtube.com/watch?v=vIEmMHVZefA
==================================================================
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 with three 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)
>>>Pala P.P. 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 expected by mid 2020.
>>>65 m pounds p/ye projected from underground. Cost = $1.86 (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 =273 million shares, ~ 36% of shares outstanding.
>>>New float is roughly 758 million shares
2020, April 6: (copper~$2.25)
>>>Covid necessitates a shutdown of the newly completed mill
>>>Underground work continues at reduced pace.
2020, July 31: (copper~$2.85)
>>>Equity sale completed. 667 million shares including the over-allotment
>>>This raises $100 million to pay down debt and cover expenses.
>>>New share price is about $0.14 after backing out about $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 total = 1.7 billion. Warrants will bring in about $100m
2021, March 18: (copper~$4.05);
>>>Some 5% ore is encountered in ‘development’ area on route to the new stopes
>>>Expect “grade increases” in combining weeks as stopes are accessed
>>>Hoist is tested to run at 5,000 TPD matching the tested mill capacity
>>>Electrical upgrades mostly completed (due to change in first stope to mine)
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.
2021, May 17 (copper ~$4.70)
>>>Mike announces we will be at about 3,000 tpd by the end of q2 (June 30)
>>>Progress slowed a little as cautious progress is made through water bearing dike
>>>Covid has slowed the delivery of the Large surface fans so 5,000 tpd mid q4
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A majority of the investment in proving and building this new mine came from shares issued at much higher prices, during a time when the copper outlook was anemic and copper was below $3.00.
Now is the right time to accumulate. Earnings will, of course still be negative for a year but cash-flow will come fast with copper over $3.50
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Another way to look at it
Work backwards from q4 full 5000 tpd:
Mid Q4 = full 5000 tons per day which at $4.50 copper is $160 million /yr free cash-flow.
- $160 million X 6.3 multiple = $1 billion divided by 1.8 billion shares = $0.55 p/s
- add value for a permitted open pit which is an easy $0.25 to $0.40 to me
Discount back to today, less than 6 months from 5,000 tpd
Buying today at 30 cents would be a 150 %, 6 month return.
NCU is stil on sale at a huge discount.
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Barrick CEO on copper as a strategic metal for the portfolio
https://www.bnnbloomberg.ca/investing/video/barrick-gold-ceo-says-copper-is-a-fantastic-strategic-asset~1907821
Long term copper supply / demand articles:
https://aheadoftheherd.com/copper-con/
https://www.kitco.com/commentaries/2021-05-19/Running-on-MT-peak-copper.html
https://www.mining.com/new-bull-chart-for-30000-copper-price-porphyries-nearly-mined-out/
=================================================For a comparison of how the change in the price of copper effects each project:
| | Ivanhoe KK | Profit up since $2.50 copper | | Nevada Copper | Profit up since $2.50 copper |
| All in cost and % mine profit | $1.15 | | | $2.03 | |
| | ======= | ====== | | ====== | ===== |
| Cash-flow at $2.50 | $1.35 / 117 % | 0 % | | $0.43 / 21 % | 0 % |
| Cash-flow at $3.00 | $1.85 / 161 % | 37 % | | $0.97 / 48 % | 128 % |
| Cash-flow at $3.50 | $2.35 / 204 % | 74 % | | $1.43 / 70 % | 233 % |
| Cash-flow at $4.00 | $2.85 / 248 % | 112% | | $1.97 / 97% | 362 % |
| Cash-flow at $4.50 | $3.35 / 291% | 149% | | $2.43 / 120 % | 471 % |
| Cash-flow at $5.00 | $3.85 / 335 % | 186% | | $2.97 / 146 % | 595 % |
======================================================= Please note: This post is for discussion purposes only and not meant as advice to buy or sell. Ivanhoe (IVN) baseline of comparison (reworked version) to understand NCU:
I use IVN as a comparison because it is low priced relative to future free cash-flow. Ivanhoe suffers a discount for being in the DRC. Both mines are 3 or 4 years until full production free cash flow.
IVN only owns 40% of KK and KK is about 85% of IVN’s total value that includes 3 more properties.
I am now using a larger $1.2 billion future cost to build the NCU open pit.
To this I add $600 million EV to arrive at $1.8 billion future EV for NCU versus $8.5 billion EV for IVN adjusted to the KK mine only.
| Based on copper production about 4 years from now | IVN 40% owned DRC | | NCU 100% owned USA |
| IVN 500,000 tonnes (copper study group avg est.) Adjusted to 40%`owned | 440 million pounds | 220 million (prob more now since video) + 70 million underground | 290 million pounds |
| IVN av cost $1.15 all in cost | $3.45 C/F | NCU av cost $2.00 all in | $2.60 C/F |
| Long term avg annual free cash flow using $4.60 copper | $1.52 billion | | $750 million |
| IVN E/V adjusted to KK only | $8.5 billion | NCU EV adjusted to incl the open pit | $1.8 billion |
| IVN E/V divided by 2 to equalize free cash flow between IVN and NCU | $4.25 billion | NCU E/V is only 42% of IVN before discounting for DRC risk (see next line) | $1.8 billion |
| DRC 30 year risk adjustment is to say that the $4.25 b E/V would be $5.3 b if the KK mine were in the USA instead | $5.3 billion | NCU is currently trading at 33.9% the risk adjusted price of IVN | $1.8 billion |
| This means IVN is 3 times more expensive on future C/F basis | | | |
What this comparison tells me is that Investors in IVN are willing to pay 3 times as much per share for future cash flow versus buying shares in NCU.
There is no doubt that estimated share value and cash flow is always decoupled from what buyers are actually willing to pay.