Nevada Copper models open-pit expansion at Pumpkin Hollow

VANCOUVER — Markets have become hesitant towards projects with large development costs, so many companies are contemplating mine development that allows for smaller initial operations that are later expanded. For Vancouver-based Nevada Copper (TSX: NCU) and its Pumpkin Hollow copper project in Yerington, Nev., that means starting with a lower-cost underground mine before transitioning to a full-blown, open-pit operation.

Nevada Copper released a feasibility study nearly a year ago that outlined a US$330-million underground operation at Pumpkin Hollow that would operate at 5,900 tonnes per day and produce 75 million lb. copper in concentrate annually over its first five years. On Oct. 3 the company unveiled the second phase of its build-out plan, which adds a 63,500-tonne-per-day open-pit operation for US$924 million.

“It is our view that cash flows from [stage one] will enhance the available financing alternatives for the much larger open-pit operation, which, once built, will transform Nevada Copper to a mid-tier copper producer,” president and CEO Giulio Bonifacio says. “We are extremely pleased with these results, as it further confirms that the Pumpkin Hollow project will support an economically robust, large copper mine built on a staged basis, which is unlike any other copper project currently in construction.”

If Nevada Copper can finance both stages, it would produce 285 million lb. copper, 45,000 oz. gold and 1.1 million oz. silver annually in its first five years, which would generate US$500 million in operating cash flow at US$2.75 per lb. copper prices.

In-pit reserves jumped by 29% when compared to a hybrid open-pit, underground feasibility study Nevada Copper released last year, and stand at 497 million proven and probable tonnes grading 0.38% copper, 0.04 gram gold per tonne and 1.4 grams silver per tonne. Pumpkin Hollow’s reserves were boosted by 44,000 metres of drilling, which also resulted in mine-plan improvements due to the merging of the North and South pits.

Open-pit production is estimated to reach 197 million lb. copper annually in its first 10 years, with mine life pegged at 22 years.

Nevada Copper enjoys a lot of infrastructure benefits in Nevada. The company will need to contract 10 km of 120 kV power lines to tap into a nearby substation for US5.5¢ per kilowatt hour. An 8 km access road will connect the site to Highway 95, with concentrates shipped by a rail load-out facility on the Union Pacific tracks.

Milling infrastructure will consist of a conventional concentration circuit, including a semi-autogenous grinding (SAG) mill and secondary ball-mill grinding and copper sulphide flotation. Final copper concentrate will be produced at an average grade of 25.5% copper and contain payable gold and silver. Copper production costs — including site-operating costs, copper smelter charges and concentrate transport — are pegged at US$1.69 per lb. for the first 10 years, net of gold and silver credits, and excluding royalties.

Under Nevada Copper’s baseline scenario — which pegs metal prices at US$3.33 per lb. copper, US$1,376 per oz. gold and US$23.07 per oz. silver — Pumpkin Hollow’s open pit would carry a US$1.2-billion after-tax net present value (NPV) at a 5% discount rate, along with a 17.9% internal rate of return (IRR) and a 4.3-year payback period. Assuming metal prices are bumped to US$3.71 per lb. copper, US$1,550 per oz. gold and US$30.50 per oz. silver, the operation would carry a US$1.8-billion after-tax NPV, 22.9% IRR and 3.5-year payback.

Nevada Copper also needs permitting. The company has full permits in place for its underground operation — which is under construction and expected to a hit a production target in mid-2015 — but will need more regulatory approvals before building its open pit.

Nevada Copper is negotiating with the City of Yerington to complete a federal land transfer, which would overrule the Bureau of Land Management (BLM), since all claims at Pumpkin Hollow would report to the State of Nevada. If the company is successful, permitting for Pumpkin Hollows’ open-pit would be slated for mid-2014, with initial production planned for 2016. The timeline would otherwise be delayed due to more stringent BLM requirements.

Nevada Copper reported working capital of US$55 million at the end of June, and signed a US$200-million loan and off-take agreement with RK Mine Finance in early April. The company has traded within a 52-week window of $1.80 to $4.02, and closed at $2.10 at press time. Nevada Copper has 80.5 million shares outstanding for a $169-million market capitalization.