Nevada Copper tops up coffers with Red Kite loan

VANCOUVER — Things are rolling 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, Nev.

Nevada Copper has a busy year ahead, with a feasibility study to update and underground infrastructure to build. Paving the way for that work, the company has arranged a US$200-million loan and concentrate off-take agreement with RK Mine Finance (Red Kite).

Nevada Copper is moving ahead with a first-phase of development that will focus on an underground operation at its East deposit.
The deposit measures 600 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 and 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 an underground and open-pit mine. The company can also de-risk its permitting process by potentially operating on private state land.

The underground mine plan zeroes in on a higher-grade deposit of 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 contained lb. copper, 221,000 contained oz. gold and 4.7 million contained oz. silver.

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

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

Another US$15 million will be advanced pending 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 40 sq. km of federal lands to the City of Yerington and 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 if the land bill’s passage were to be delayed)would be advanced for other project milestones, including completion of a 670-metre, production-scale shaft.

The Red Kite agreement features a concentrate off-take component, whereby Nevada Copper would 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,” president and CEO Giulio Bonifacio says, 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 restrictions, 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 in April.
Shaft sinking is scheduled throughout the year, as the company aims for a commercial production target in 2015.

Bonifacio says that additional development capital — likely through a combination of precious metal streams, subordinated debt and equity — will be required in 2014.

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