Nova Copper: Anticipate Infusion Of Capital Within Next Year

NovaCopper (NCQ) has two principal properties, Arctic and Bornite. It released a new Preliminary Economic Assessment (PEA) on the Arctic deposit on 30 July 2013, which reviewed the case for an open-pit mine. The decision on open-pit or underground mining is expected by year end-2013. An estimated US$718m would be the required capex to take the project fully into production.

New PEA
The proposed Arctic mine would have annual output of 125Mlb of copper, 152Mlb of zinc and 24Mlb of lead, with a 12-year mine life and an estimated cash cost of US$0.62/lb of payable copper after by-product credits. Based on the PEA, Arctic would be in the lowest cost quartile of copper producers.

Ownership
NCQ entered into an agreement with NANA Regional Corporation on 19 October 2011 to develop the Ambler Mining District of north-west Alaska. The agreement provided for exploration and development of the high-grade polymetallic belt. NCQ paid NANA US$4m in cash and agreed to make efforts to train and employ NANA shareholders. If NCQ proceeds with developing a mine, NANA can either exercise a non-transferrable back-in right to acquire 16-25% of that specific property or receive a net proceeds royalty equal to 15% of the proceeds realised by NCQ, after NCQ has recouped its investment in the project plus a 9% return. If NANA exercises its back-in right, it will have to pay the pro rata costs incurred by NCQ to that point and fund its share of future capital spending.

Resource
NCQ’s Arctic property has an indicated resource of 3.1bnlb CuE and an inferred resource of 0.4bnlb CuE. Bornite has an indicated resource of 0.19bnlb CuE and an inferred resource of 3.3bnlb CuE. We believe NCQ will spend an additional US$10m to upgrade its inferred resources to indicated resources at Arctic.

Finance: Additional capital required
NCQ had US$16m in cash as of 9 July with no debt. Management budgeted to spend US$10m on exploration and its PEA in 2013 (some of which has already been spent in the first half), and expects to have US$9m in cash at year end. We believe NCQ will raise additional capital within the next six to 12 months.

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