Operating troubles hold back Nevada Copper

Shares of Nevada Copper (TSX: NCU) traded at their lowest value this year after the company revealed in its annual report that the ramp-up of its Pumpkin Hollow underground copper mine in Nevada continued to struggle in the first quarter of 2022.

The company said it had lost a scoop due to a stope's sidewall failure in its underground mine earlier this year.

"As a result, the company was not able to process the ore expected in the quarter. According to the company's public filings, this impacted productivity, required the rental of a replacement, and necessitated a larger than expected make-whole payment under the working capital facility," according to the company's public filings.

Located about 12 kilometres southeast of Yerington, the mine is forecast to produce an average of 50 million lb. copper per year over a 13-year mine life at all-in sustaining costs (AISCs) of US$1.86 per lb. in the first five years.

The Pumpkin Hollow copper mine in Nevada. Credit: Nevada Copper Corp.

Based on a 2019 prefeasibility study, an additional open-pit operation could contribute an average of 163 million lb. copper annually over a 19-year mine life at AISCs of US$2.03 per lb. The capital cost for the permitted project is pegged at US$672 million.

Scotiabank analyst Orest Wowkodaw described the company's latest update as "a negative" and has revised its 12-month target for Nevada Copper to $0.80 from $0.85 per share. In a research note to clients, he wrote that the poor ground conditions at the project "appear to be a growing concern."

"Nevada Copper now anticipates the operation achieving throughput rates (ore and waste) of up to 3,000 tonnes per day in the current quarter and 4,500 to 5,000 tonnes per day by year-end. This compares negatively to the previous guidance of 4,500 to 5,000 tonnes per day by early in the third quarter," said Wowkodaw.

According to Scotiabank data, Nevada Copper exited the December quarter with cash in the bank of US$52 million and a markedly improved net debt position of US$142 million (compared with net debt of US$255 million at the end of the September quarter) driven by a US$93 million equity raise. Nevada Copper generated negative free cash flow (FCF) of US$38 million in the last quarter of 2021 and US$157 million in the full year.

"Given our lower operating outlook and our negative FCF forecasts of US$73 million in 2022 and US$29 million in 2023, balance sheet risks remain elevated," he cautioned.

At press time in Toronto, Nevada Copper closed at 62 ? per share, down 9 ? or 12.67% within a 52-week trading range of 49 ? and $3.15. The company has 445.9 million common shares outstanding for a market capitalization of $276.4 million.