The following interview of Nevada Copper’s (NCU.TO) (NEVDF) CEO & President Giulio Bonifacio was conducted by email and phone in the week end March 19, 2015. The views expressed herein are those of Mr. Bonifacio. The author, Peter Epstein, had no prior or existing relationship with Nevada Copper. Peter Epstein does own shares of the company.
EQ: Can you provide a description of Nevada Copper Corp. ($NCU) for readers not familiar with the story?
EQ: Could you touch upon the highlights of Nevada Copper’s last two press releases before I delve more deeply?
Epstein: Let me start by saying both press releases are important, demonstrating the ongoing de-risking of the company. The February 10 press release offered a detailed update of our progress. Highlights are that the passage of the Yerington land bill was signed into law by President Obama on December 19. Binding agreements were executed with the City of Yerington to allow for land conveyance from the City to Nevada Copper. This is extremely important because it will consolidate the entire Project on privately held land so that no Federal activities will be needed, just State permitting. Receipt of all State permits for our open pit operation are expected by June.
With the passage of the Land Bill and receipt of permits, the previously announced Stage Two Open Pit optimization and updated Feasibility Study (see November 4, 2014 News release) is being modified to allow for the inclusion of high grade supplemental mill feed from our East and E2 underground deposits. The results of which will lead to an, “Integrated Feasibility Study.” The February 26 press release announced the achievement of another significant major milestone at our Pumpkin Hollow project, reaching the 1,900 foot main haulage level at its 24-foot diameter concrete-lined production sized shaft. This gives us essential information about the subsurface ground conditions and most importantly we will now move towards a 8,000 meter development drilling program by way of underground drill stations that will commence in early May. This drilling will further test the open extent of the underground deposits and further improve an already high grade profile. Drilling of the underground deposits was suspended in early 2011 in view of the then proven and probable reserve and desire to more effectively and efficiently drill the underground deposits from underground upon accessing the main haulage level.
Again, State permitting for the open pit mining operation will be achieved by mid-2015.
EQ: Can you explain the recently announced intention of delivering an Integrated Feasibility Study?
Epstein: By integrated we mean using a single process facility which would reduce overall cap-ex by eliminating the need for a separate smaller mill. This would allow for synergies and economies of scale with respect to tailings management, permitting, ore stacking and electrical infrastructure, among other things. Integrated also means higher grade in the initial years from the inclusion of underground copper ore averaging about 1.5%-2.0%.
Since we expect to receive permits by mid 2015, we are exploring the idea of reorienting our engineering work on the open pit feasibility study towards a single, large 70,000 tons/day concentrator with dual sources of mill feed. This Integrated Feasibility Study contemplates replacing the staged project (6,500 tons/day Stage One underground project followed by a 70,000 tons/day Stage Two open pit project). Instead, in an Integrated approach, mill feed would comprise an average of 63,500 tons/day of open pit ore blended with 6,500 tons/day of our high grade ore from the Eastern underground deposits.
This is an exciting development which is the result of achieving the landmark passage of the Land Bill, especially as a number of strategic and financial parties have indicated their interest and desire to participate in the Integrated operation. We think the interest we’re receiving in this regard is a vote of confidence in our Pumpkin Hollow project as well as further evidence of the de-risking of our company.
EQ: As you said, Nevada Copper has completed the sinking of the shaft at Pumpkin Hollow. It’s been reported that the company will move forward with 800 feet of lateral development? What’s the goal here?
Epstein: Yes, Nevada Copper is moving forward with approximately 800 feet of lateral development at the 1,900 foot main haulage level and construction of drill stations for purposes of locating and expanding high grade ore to enhance our already high grade profile. A very important step as this will enhance our ability to mine higher grade ore in the early years of production. The lateral development will also establish key work areas for future development and provide for future access to the East ore zones. Of course it will also extend and expand our deposit.
EQ: In an integrated Feasibility scenario, how large would the Pumpkin Hollow project be compared to existing or emerging projects?
Epstein: That’s a good question. In my opinion, an Integrated scenario could result in a substantial new copper producer by North American standards. Estimated production of up to 130,000 to 140,000 tonnes/yr (~280 to 300 million lbs/year) of copper annually in the earlier years. We believe that pulling forward production and mining higher grade copper in the early years could materially improve our project economics. Having said that, we need to see the results of the study before jumping to conclusions.
EQ: Roughly speaking, how big a change could these initiatives have on project economics?
Epstein: Early access to the highest grade ore for the longest period possible would be huge. That’s why Integrating the underground drill program could have a big payoff. We are optimistic and internally we believe that the integrated plan looks promising. All I can say beyond that is we eagerly await the Integrated report results.
EQ: Some CEO’s are happy to voice their opinions on future commodity prices, others are content to say, no one can really know. Do you have an opinion?
Epstein: We follow the major producers statements on future copper prices and, “consensus” prices decks that we see from the research community. We agree with many pundits and industry participants that the copper price will be higher than it is today. We concur with many others that copper is likely to be comfortably above $3/lb, in 2016 and beyond this level as we move to 2017. Below $3/lb there’s zero incentive to bring new copper production online. [Note: copper is up 11% from its January low and has outperformed gold by 15% in the past 60 days–Source Kitco.]
EQ: Could you sell or farm out any properties not connected with Pumpkin Hollow?
Epstein: No, Pumpkin Hollow is our sole asset. However, we might be able to do something with our Iron Ore/Magnetite by-product as a future revenue source. While I can’t reveal details, we have been in serious discussions with a substantial steel player on our iron resource. Please also note that the staged approach allows for a significant growth profile should we move Pumpkin Hollow to production on this basis so effectively one project two mines. With that said and in view of the landmark passage of the land bill the integrated profile is clearly of significance in terms of what it represents both in size, future growth and jurisdiction which is one of best mining locations worldwide.
EQ: How advanced are discussions with prospective partners for the Pumpkin Hollow project? Is interest coming from strategic, financial, streaming/royalty hedge fund and private equity sources?
Epstein: We have been in discussions with all of the above types of funding parties for quite some time. Discussions are progressing nicely, with parties at various stages of due diligence. As I mentioned earlier the impetus to engage in the Integrated Feasibility Study came partly from us, but also from some of these interested parties.
EQ: Nevada Copper’s stock is up 28% since the beginning of February and the copper price is up 10%. Are more investors are, “getting it?”
Epstein: Absolutely, slowly but surely the investment communities are finally getting that Nevada Copper will be a fully permitted project of significant size in an ideal safe mining jurisdiction in one of the best mining States in the U.S. Further, we have infrastructure, no currency risk and all the community and political support possible.
EQ: Can you please give readers a snapshot of your capital structure, especially your cash balance?
Epstein: Sure. We have 80.5 million shares outstanding and US$ 36 million of cash as of December 31. We have 7.6 million options at an average strike price of C$ 2.25 per share, so we have 88 million shares fully-diluted. [Note: March 19 share price was C$ 1.73 for a market cap of C$ 139 million].
EQ: It’s been Management’s goal for the 2015 underground drill program is to find 2%-3% Copper equivalent grades. What would that do for the overall underground grade?
Epstein: We want to identify additional high grade 3%+ ore blocks for early production and incorporate those prospective intersections into our production plans as the underground deposits are high grade and several drill intercepts have returned value greater than 5%.
EQ: How important is the company’s 20,000 meter surface drill campaign, is it largely infill drilling or step out drilling?
Epstein: I’m glad you asked that. It’s both…and it will provide continued news flow in which we can update stakeholders along the way. The leverage in our project is in the open pits. We think that this drill program could add significant size and grade which we hope could lead to a re-rating of our valuation. This by no means takes away from the 8,000 meters of drilling we are doing underground, which will add size and grade. In fact, this could be very high grade ore, which would really benefit our operations in the early years.
EQ: To the extent that you feel Nevada Copper is undervalued, why might that be?
Well, every CEO believes his or her stock is undervalued! For early stage companies, under or over valuation is really hard to call. For us, we can’t be entirely sure why our advanced stage, development company is undervalued. There may be misconceptions on our land bill and our permitting progress. Or, concern over how we will fund our company through to initial production. We have relatively low daily trading volume in our stock, which could hinder institutional investment. Having said that, our under-valuation comes at a time when many peers are also undervalued. Recent weakness in copper prices has not helped our cause. We have six sell-side analysts covering us with price targets ranging I believe from about $2.5 to $5 per share. I see no reason why our stock couldn’t get into that range this year. Although to be clear, that’s not a prediction on my part.
As we close the gap with producing companies and de-risk our project even more, we think that our current valuation of C$ 0.03 per proven reserve pound in the ground will increase. Consolidation in our sector has frequently been done at valuations of more like C$ 0.10 – C$ 0.15 per proven reserve pound in the ground. There’s plenty of room for that spread to narrow.
EQ: Are there any misconceptions about Nevada Copper that you would like to address?
Epstein: We already touched upon that. I would add that I hope investors know that Nevada Copper should be fully permitted for our large open pit project in the short term. Perhaps some don’t comprehend that we have a project with significant size and grade, especially if our Integrated Feasibility comes in with strong economics. I would remind investors that Pumpkin Hollow is located in one of the safest and best jurisdictions on the planet. I would point out that among the top 10 copper producing countries, there’s China, Russia and the DRC, not to mention one of the worlds’ largest copper mines owned by Freeport-McMoRan in Indonesia that’s been in the news lately. In fact, I would much rather be in Nevada than Chile or Peru, two other top 10 producing countries.
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