Nevada Copper tops up coffers with Red Kite loan

VANCOUVER — Things continue to roll along for Vancouver-based Nevada Copper (NCU-T) at its development-stage Pumpkin Hollow iron-oxide copper gold project 13 km southeast of the picturesque town of Yerington, Nevada. With a busy year ahead, which will include an updated feasibility study and underground infrastructure construction, the company moved to solidify its capital position with a US$200 million loan facility and concentrate off-take agreement with RK Mine Finance (Red Kite).

The loan allows Nevada Copper to move ahead with a first phase of development that will focus on an underground operation at its East deposit, which measures approximately 600 metres by 360 metres and consists of flat-lying to gently dipping, bedding-controlled, stacked, mineralized zones within the limestone of the regional Mason Valley Formation at depths of between 427 metres to 670 metres.

Nevada Copper released a feasibility study that modelled a smaller-scale underground operation in mid-December, which cut upfront capital costs when compared to a larger hybrid scenario that contemplated both an underground and open-pit mine, as well as allowed the company to de-risk its permitting process by potentially operating solely on private state land. 

The underground mine plan zeroes in on a higher-grade deposit that totals 25 million proven-and-probable tonnes grading 1.49% copper, 0.23 gram gold per tonne and, 4.8 grams silver per tonne for 820 million lbs. contained copper, 221,000 oz. contained gold, and 4.7 million oz. contained silver.

According to Nevada Copper’s study its first phase would run at roughly 5,900 tonnes per day and carry a US$329 million price tag. The operation would produce around 75 million lbs. of copper in concentrates annually over its first five years, and features a US$309 million pre-tax net present value and 28.6% internal rate of return at an 8% discount rate.

Under terms of the loan agreement, Nevada Copper received US$36 million upon closing, which gives the company roughly US$65 million in treasury to continue its current shaft sinking activities, commence detailed engineering and secure long lead time equipment.

An additional US$15 million will be advanced pending the receipt of key State permits that are expected during the second quarter. Nevada Copper is also awaiting the outcome of the Lyon County Economic Development and Conservation Act, which would transfer roughly 40-sq.km of federal lands to the City of Yerington to facilitate development at Pumpkin Hollow. Red Kite would advance another US$10 million assuming the legislation is passed.

The final US$139 million — or US$149 million assuming passage of the land bill is delayed — will be advanced on the completion of certain other project milestones, including completion of a 670 metre production-scale shaft.

The Red Kite agreement also features a concentrate off-take component, wherein Nevada Copper will sell life-of-mine copper concentrate production from its Eastern deposits — including the East and E2 underground zones — equal to the amount advanced under the loan as a percentage of the US$200 million principal amount. Red Kite’s off-take does not include any rights to future copper concentrate production from Nevada Copper’s open-pit deposits, which include the North and South zones that hold 336 million proven-and-probable tonnes grading 0.43% copper, 0.05 gram gold, and 1.62 grams silver.

“[This financing] further validates and provides independent confirmation that [Pumpkin Hollow] will support a low-risk, and economically robust, copper mine,” commented president and CEO Giulio Bonifacio, pointing out that the loan will satisfy 100% of Nevada Copper’s capital requirements in 2013. “Another compelling feature of this financing is that it will allow [us] the flexibility to move forward on funding the larger open-pit operation by way of precious metal stream, project debt, concentrate off-take and/or strategic partnership without restriction as the Red Kite transaction is specific to the underground operation only.”

Surface facilities at Nevada Copper’s East shaft are almost complete, with commissioning expected sometime in April. Shaft sinking is scheduled to continue through the year, as the company aims for a commercial production target in 2015. Bonifacio stated that additional development capital — likely through a combination of precious metal streams, subordinated debt, and equity — will be required in 2014.

Shares of Nevada Copper have taken a dip over the past four weeks, dropping roughly 28% or $1.03 to $2.70 per share, as copper prices have fallen around 6.7% since the end of February, from a high of US$3.60 per lbs. to US$3.36 per lbs. at the time of writing. Nevada Copper has 80 million shares outstanding for a $218 million press-time market capitalization.