Copper Supply Far From Secure, Production Costs Rising
It’s widely known that average copper grades have been falling for decades. The conventional wisdom is that the average grade from producing mines is down from about 1.0% to roughly 0.60%. That trend is likely to persist. Labor, energy, water, legal, local populations, compliance and environmental challenges and costs are up, resulting in the time from discovery to production nearly doubling since the year 2000. This suggests that a number of mid-tier and major base metals players could be looking at acquisitions to offset ongoing depletion. As I hope to demonstrate, Nevada Copper (NCU.TO) (NEVDF) leads the pack in this regard.
An example of what’s going on in the copper space can be found by highlighting Chile’s Escondida mine, operated by BHP. According to reports,
“the project includes construction of a seawater desalination plant and the piping and electrical infrastructure needed to transport water to the mine, 114 miles away and 10,170 feet above sea level.” More astonishing, according to an April, 2015 FT article, “…Chile State-owned Codelco, plans to spend $25bn over the next five years just to maintain current production…”
Time is Approaching for Potential Suitors of Nevada Copper to Step Up
Everyone agrees that Nevada is a safe and attractive jurisdiction. The same can no longer be said about Peru. That country’s rankings have collapsed as chronicled in the 2014 Fraser Institute Mining Index. In 4 categories Nevada ranked on average # 6 out of roughly 125 countries/territories. By contrast, Peru ranked # 33. Why pick on Peru? It was the 4th largest copper producer in 2014.
Also in the top 10; China, the DRC, Russia and Zambia. So much for security of supply! Half of the top 10 are in unstable countries (my opinion only). Compare those with others in the top 10, the U.S., Canada, Mexico, Chile and Australia. With this in mind, it may be no surprise that I believe Nevada Copper is reaching a critical stage where a number of acquirers might be circling.
Nevada Copper’s flagship Pumpkin Hollow project is a high-grade Iron Oxide Copper Gold deposit within a porphyry copper district located in Nevada, not in a some scary country. As it stands, the combined 1 & 2 Stages represent a highly attractive, large, long life asset. The company’s upcoming Integrated Feasibility Study, “IFS,” has the potential to both expand reserves and resources and enhance the combined grade. The identified proven and probable reserves approximately 5 billon pounds of copper, plus gold and silver at a copper equivalent grade of 0.49%. This is a solid grade for a new entrant and compared to many depleting mines.
