Nevada Copper unveils restart and US$93M financing plan for Pumpkin Hollow

Nevada Copper (TSX: NCU; US-OTC: NEVDF) plans to restart and ramp up its Pumpkin Hollow underground mine in Nevada and has agreed to non-binding terms with lenders for up to US$93 million. 

The restart plan involves de-bottlenecking and completing critical capital projects and building up stope ore inventory in order to achieve a more efficient ramp up once the mill restarts, as well as reducing cash burn, the company says. 

The company suspended most mining activities at Pumpkin Hollow, which was still in the ramp up stage, in July. That followed a decrease in mining activity in June, after the company experienced poor ground conditions in the main ramp to the East South Zone in May. Those conditions delayed access to planned stopes and required additional drilling and geotechnical mitigation work.

Components of the current work program include completing a second dike crossing during the third quarter and the final dike crossing by the end of the year, starting to stope the higher grade East North mining zone in the second quarter of 2023, and restarting the mill in the third quarter of next year. 

If all goes to plan, Nevada Copper says, underground production will ramp up to hoisting rates of about 3,000 tons per day in the third quarter of 2023 and increase to 5,000 tons per day in the fourth quarter of the year. 

The restart will also involve changes to the company’s arrangements with the underground mining contractor to improve performance and ultimately to transition some mining activities to Nevada Copper itself. 

Under the terms of its financing package, Nevada Copper has agreements with its senior lender KfW IPEX-Bank (KfW); its working capital provider Concord Resources Ltd.; its largest shareholder, Pala Investments, and another shareholder Mercuria Energy; and Triple Flag Precious Metals (TSX: TFPM), its stream and royalty partner. 

Breaking the US$93 million financing down into its parts, Pala and Mercuria will each pony up US$20 million in exchange for common shares of the company and KfW will amend its senior credit facility to provide for a new tranche of up to US$25 million, of which Pala, Mercuria and Triple Flag would commit the first US$15 million as a backstop. 

Triple Flag will increase its existing net smelter returns royalty on the company’s open pit project development from 0.7% to 2% for a purchase price of US$26.2 million (subject to a full buyback of the increased royalty percentage.) Triple Flag would also accelerate the US$3.8 million remaining to be funded under Nevada Copper’s existing metals purchase and sale agreement. 

Finally, KfW would defer three interest payments under its facility and Concord would defer interest and principal payments under its working capital facility. 

Under the agreement, Triple Flag and Mercuria will each have the right to nominate a director and a representative on the board’s technical committee. 

Challenging ramp-up

“The Pumpkin Hollow underground mine has been challenged with its ramp-up, and with the proposed financing package, we are hopeful the operation will be able to deliver into its designed potential,” mining analyst Rene Cartier, who covers Triple Flag for BMO, commented in a research note to clients. “We have moderated our near-term production expectations for the underground mine, and slightly pushed out development of the open pit.

“While some investors [in Triple Flag] may not view the increased exposure in Pumpkin Hollow favourably, this may be offset by turnaround prospects. However, given the existing open-pit encumbrance, and the transaction structure, we wouldn’t be surprised to see a buyback exercised,” Cartier added. 

The Pumpkin Hollow underground mine, and its open pit development project (which it is advancing through a prefeasibility study update), are about 13 km southeast of Yerington, and about a one and a half-hour drive southeast of Reno. 

Over the last year, Nevada Copper has traded in a range of 20¢ and $1.22 per share and at press time in Toronto was trading at 35¢. The company has about 449 million common shares outstanding for a market cap of about $157 million.