The long term supply/demand outlook for copper has probably never been more robust than it is now; much of global copper supply is currently derived from aging mines with declining ore grades while global economic growth (particularly from emerging market economies) and demand from electric vehicle production is just beginning to surge.
The global copper market is just beginning to move into an undersupplied situation and it will likely take a move back up to at least the $3.50-$4.00 range to be able to once again reach a long term equilibrium. Goldman Sachs recently raised its 12-month price forecast for copper to US$8,000/tonne (US$3.63/lb), while stating that “the markets where technology hasn’t substantially shortened the supply cycle, and where cost are rising, (i.e. copper) have the greatest long-term upside in prices.”
Large scale permittable projects in safe jurisdictions are becoming increasingly hard to come by and we have been recently reminded of the politics of mining with Freeport-McMoran’s Grasberg Project in Indonesia and labor strikes in the large Chilean copper mines which punctuated much of 2017.
Northisle Copper & Gold’s North Island Project is a massive project that spans more than 50km from end to end at the north end of Vancouver Island and has been unjustifiably forgotten about by the market. At current market prices (C$.11) NCX shares are priced at pennies (two pennies to be exact) on the dollar compared to a recent PEA analysis which illustrated a C$550 base case project value using an 8% discount rate and fairly conservative metals prices ( US$3.10/lb copper, US$1300/oz gold):
Considering the C$1.344 billion capital cost the North Island Project clearly needs robust metals prices to move forward into production, however, when asked what copper price NCX needs to really put the pedal to the floor NCX CEO Jack McClintock emphatically replied “$3.50.”
$3.50+ copper is a stone’s throw away and NCX shares look particularly attractive considering the enormous valuation gap between NCX’s current market valuation and the potential value which would be unlocked by a positive production decision. Even an upward revaluation to 10% of its NPV(8) would make NCX shares a 5-bagger from current levels (development stage projects typically trade at roughly 10%-20% of the NPV outlined in their respective PEAs depending upon various project risks).
In order to bridge this valuation gap NCX is committed to a multi-pronged approach to advance the North Island Project in 2018:
Planning to add a director with a business strategy/marketing background.
Sign a farm-out JV on NCX’s lower priority east side of the North Island Project (this would come in the form of an exploration expenditure commitment in return for a ~50% interest on a portion of the North Island Project) – this would be a significant positive because it would be a strong vote of confidence in the North Island Project as well as allowing NCX to complete more exploration work on the property than would have otherwise been possible.
NCX summer exploration program focused on a high level alteration zone at the Red Dog Deposit and expansion of the Hushamu Deposit to the south.
Continuing to improve the relationship with the three First Nations groups in the area, this includes community outreach meetings to help educate and familiarize the First Nations groups with the North Island Project and its long term economic implications for the community.
When asked about what he would say to people who believe the North Island Project will never be permitted, CEO McClintock was not shy in his response:
“It’s easier to permit a copper project at the north end of Vancouver Island than it is to permit one in Arizona. The north end of Vancouver Island is a resource based economy, not a tourist area. It’s really logging, fishing, and mining. This is also a jurisdiction which has a straight-forward permitting process and as long as you follow that process you’re going to get your permits. You also have to remember that this is really a brownfields development, mining only stopped here in the late-1990s and this is still considered an active mining area.”
McClintock says that NCX will carry out its summer exploration program beginning in May by drilling several targets which have been identified at the Red Dog Deposit. This exploration program has the objective of following up on promising targets which were identified during the 2016/17 exploration programs and should be able to be completed for less than C$250,000.
To put it simply, at this point NCX is a 2+ billion pound call option on copper with a gold kicker. Over its estimated 22 year mine life the North Island Project is estimated to produce 82 million pounds of copper per year at an average cash cost of US$.88 per pound. It doesn’t take a rocket scientist to be able to figure out that this will be a very lucrative operation once it moves into production, it simply becomes a question of being able to justify the capex outlay required to build a mine. There is also the possibility of starting with a smaller scale mining operation which would require a much smaller initial capital outlay.
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