Base Metals Energy Exclusive Interviews Junior Mining Nevada Copper

Andrew Hecht – Copper Fundamentals and Stock Pick

Nevada Copper As We Head Into 2022

  • Copper reached a new high in 2021
  • Higher highs are on the horizon in 2022 for three critical reasons
  • A favorable jurisdiction in Nevada- Momentum build and the value proposition is improving
  • Two groups in the know have made significant investments
  • The shares continue to offer value, risk-reward favors the upside for Nevada Copper

The leading stock market indices have been bumpy over the past weeks. The prospects for higher interest rates and taxes in 2022, new COVID-19 variants, inflation at the highest level in decades, and other factors have created uncertainty, which tends to cause indigestion in the stock market. However, many leading stocks remain near or at record highs.

Copper is a bellwether commodity that many market participants look to for clues about the health and wellbeing of the global economy. Copper’s nickname is Dr. Copper because it tends to move higher during economic expansion and lower when the global economy contracts. In May 2021, copper rose to its highest price in history when nearby COMEX futures rose to just shy of $4.90 per pound, and LME forwards moved to over $10,700 per ton for the first time. Over the past year, copper has taken on a new role, increasing the demand side of its fundamental equation. The red nonferrous metal is a critical requirement for decarbonization, leading Goldman Sachs to call copper “the new oil.”

In the world of commodities, higher prices and growing demand lead to more production. However, the global copper market faces a challenge as it will take years for new supplies to come to market, creating deficits that push the price higher. While copper corrected since the May high, the price remained around $4.40 per pound level as of December 24.  

Locating value in the US stock market is not easy these days. Nevada Copper Corp. (NEVDF) is a promising emerging US producer. Two seasoned commodity groups recently invested in NEVDF, seeing tremendous value in the burgeoning producer.

Copper reached a new high in 2021 Copper closed 2020 at the $3.52 per pound level on the nearby COMEX futures contract and $7,757 per ton on the three-month LME forwards.

Source: CQG

The chart highlights COMEX copper futures move to a high of $4.8985 in May. With the active month March contract at the $4.40 level on December 24, the price moved 25% higher in 2021 with only one week until 2022.

Source: LME

Three-month copper forwards rose to a high of $10,724.50 in 2021 and was at the $9,568 level on December 24, 23.35% higher than at the end of 2020.

While copper is closing 2021 below the year’s high, the trend remains bullish with impressive gains since the end of last year.

Higher highs are on the horizon in 2022 for three critical reasons

Three reasons support higher highs and new all-time peaks in the copper market in 2022 and beyond:

  • Copper is critical for electric vehicles (EVs), wind turbines, and other clean energy initiatives. The red metal is a crucial ingredient for decarbonization, making the fundamental equation’s demand-side grow.
  • It takes eight to ten years to bring new copper production online from exploration to output. Copper is still in the early phases of expanding global production, with the leading mining companies scrambling to find new ore deposits. As demand increases, supplies will struggle to keep pace over the coming years.
  • Inflationary pressures will continue to rise, putting upward pressure on all commodities, and copper is no exception. At the latest December FOMC meeting, the US central bank forecast a 0.90% Fed funds rate for 2022 and a 1.60% rate for 2023. Even if inflationary pressures recede, real interest rates are likely to remain negative, which is bullish for raw material prices in the coming years.

Copper faces an almost perfect bullish storm for the coming years. Goldman Sachs’s forecast of $15,000 per ton by 2025 would put nearly COMEX futures over the $6.80 per pound level. While higher prices will encourage more production, existing mines cannot keep pace with the rising demand.

Chile is the world’s leading copper producer. The recent election of Gabriel Boric, a 35-year-old former student activist who carries a new generation’s socialist dreams to the presidential palace, threatens Chile’s capitalist economy fueled by copper output. Taxes are likely to rise along with wages and addressing climate change could cause a new wave of regulations that weigh on copper output over the coming years. Moreover, the new Chilean government could move to nationalize copper mines, which would impact output and efficiency. The bottom line is that a supply-demand deficit in the global copper market is likely to widen over the coming years, putting upward pressure on the red nonferrous metal’s price.

A favorable jurisdiction in Nevada- Momentum build and the value proposition is improving

The world’s leading copper producers are searching the globe for new reserves and output. Australian mining giant BHP recently said it is considering a challenging Democratic Republic of Congo copper project. The DRC is notorious for political and regulatory issues.

Meanwhile, the US remains a friendly mining environment, and Nevada is a state that supports the industry and is mineral-rich.

Nevada Copper (NEVDF) is an emerging producer with a lot going for it these days. The company mines copper in Nevada in the USA, and the Canadian Fraser Institute ranks the state as the world’s #1 mining jurisdiction. In 2021, momentum has been building for NEVDF:

  • Underground mine operation improvements have resulted in 100% growth in development rates.
  • New equipment in the second half of 2021 has accelerated development.
  • An operational efficiency plan took effect in the second half of 2021 and is forecasted to increase output in H1, 2022.

To put more meat on the bone, in a December 21 press release, the company provided updates on its Pumpkin Hollow underground mine project:

  • Nevada Copper is on track to advance over 1,100 lateral equivalent feet of development in December 2021.
  • Development is running at the highest rate for 2021, with December nearly 50% higher than November and almost 100% above the level in August 2021.
  • New equipment should enhance further development and growth in January 2022.
  • Ventilation fan infrastructure should be completed in Q1 2022.
  • Mining of the Sugar Cube, the first high-grade area in the East North Zone of the underground mine, is on schedule for Q1 2022.

In December, CEO Randy Buffington said, “We are on track to complete 1,100 feet of lateral development this month, which puts the Company in a position to mine the first stope of high-grade Sugar Cube as planned next month.

Accelerated development increases NEVDF’s value proposition:

  • The current enterprise value is less than the value of the company’s machinery and equipment.
  • NPV at current prices is close to the US $3 billion level.
  • The company will be cash-flow positive in 2022.
  • Open-pit mining development will accelerate in 2022.

The company’s prospects are compelling, leading two influential groups to invest in NEVDF.

Two groups in the know have made significant investments

Solway Investment Group is a private international mining and metals group with headquarters in Switzerland. Solway specializes in nickel production with mines and smelting plants in Guatemala, Ukraine, Russia, Indonesia, and Macedonia. The group has over 5,000 employees, is expanding its focus in battery metals, and recently invested US$30 million for a 10% stake in Nevada Copper.

Mercuria Energy Group Ltd. is a multinational commodity trading company active in global energy, metals, and agricultural markets. The company dates back to 2004 when two ex-Phibro executives, Marco Dunard and Daniel Jaeggi departed after Citigroup sold Phibro to Occidental Petroleum. The company recently closed an oversubscribed $2.2 billion multi-year secured borrowing base credit facility with a collection of international financial institutions. Mercuria is one of the world’s leading and growing commodities trading companies, with core exposure in energy. Mercuria’s goal is a 50% portfolio in renewable energy over the coming five years and invested US$30 million for a 10% stake in Nevada Copper.

Solway and Mercuria are top organizations in the international commodities business, with tentacles reaching across the globe. Both companies put their capital up as they see the compelling potential for Nevada Copper’s properties and business plan.

The shares continue to offer value, risk-reward favors the upside for Nevada Copper

Nevada Copper shares remain inexpensive at the end of December 2021. Aside from the Solway and Mercuria investments, insider buying is another bullish sign for the company. After a recent blackout period, CEO Randy Buffington purchased 200,000 shares, and the company’s directors have been buyers of the shares. Nevada Copper shares (NEVDF) peaked at $2.40 value in May when copper prices reached the high at nearly $4.90 per pound. Copper closed around the $4.40 level on December 23, and NEVDF shares having fallen dramatically in early December hitting yearly lows, could be a golden opportunity for investors that see the same potential as Solway and Mercuria.

Source: Barchart

The chart shows that NEVDF shares corrected to a low of 38.78 cents on October 1 as nearby copper futures moved to test the $4 per pound level. At 53.0 cents per share on December 23, Nevada Copper had a $236.328 million market cap.

Development companies are risky businesses as their future depends on delivering from their mines. The backing of two well-established commodities trading and investment companies, insider buying, and accelerated progress are positive signs for the company as we head into 2022.

New copper production is scarce, and mining companies are scouring the globe for new reserves. Nevada copper’s location, proven and probable reserves, management, progress, and investors bode well for the company’s future. Further progress could transform NEVDF from an emerging producer to a takeover candidate or established producer as the world’s leading miners are hungry for output. Risk is always a function of reward with any investment. At 53.0 cents per share, NEVDF’s potential compensates for the risk.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.