Tracker - May 18, 2021: What's Next for Northwest Copper Corp?
Northwest Copper Corp is the result of two former KRO Favorites, Serengeti Resources Inc and Sun Metals Corp, which merged on March 5, 2021 on terms where Serengeti undertook a 2:1 rollback and Sun Metals merged with the resulting company on a 0.215 NWST share for 1 Sun Metals share. Serengeti was continued as a Fair Spec Value rated 2021 Favorite at $0.39 on December 31, 2020 which adjusted to a $0.78 cost base after the merger. Northwest Copper Corp was upgraded to a Good Spec Value rated 2021 Favorite at $0.80 on May 17, 2021 following the publication of an updated resource estimate for the Stardust project which more than doubled the Canyon Creek resource with the help of the 421 Zone discovered in 2018. (See SVR Overview Tracker May 17, 2021 for a description of the synergies created by the merger.)
The new Stardust resource of 7,806,100 tonnes of copper, gold and silver mineralization had a rock value of $193/t, much more than needed for underground mining, with an in situ value of USD $1.5 billion which was less than needed for a standalone operation. This contrasts with the adjacent Kwanika project whose copper-gold-silver Central zone has an open pittable resource of 110.3 million tonnes with a rock value of $37/t and an underground mineable zone of 203.6 million tonnes with a rock value of $44/t with a combined in situ value of USD $13 billion. While that is likely worth developing as a standalone mine at current high copper and gold prices, the uncertainty about long term metal prices would be an obstacle.
The new strategy is to deliver a PEA in Q1 of 2022 for a 15,000 tpd milling-flotation facility that will be fed high grade Stardust ore initially blended with Central Zone open pit ore and eventually with Central Zone underground block-caved ore. NWST initiated a 7,200 m drill program in May 2021 designed to infill drill the high grade underground core of the Central Zone and test some satellite targets to the south. While the infill drilling will not yield market moving results, discovery of additional near surface copper-gold porphyry mineralization would boost the market by extending the period that the mill can be fed lower cost open pit mined ore. Apart from the PEA which will reveal the cost structure of the combined operation and an optimal schedule for the dual ore feeds, the other milestone in 2021 ahead of the Kwanika-Stardust PEA will be metallurgical confirmation of a single flow-sheet for the processing facility.
An additional milestone will be a deal with Daewoo to acquire its diluting 33% interest in Kwanika for cash and/or stock so that NWST owns 100% of both deposits. With $21 million working capital and a $13 million budget proposed for 2021, NWST should be able to achieve a $1.50-$2.00 valuation for the Kwanika-Stardust project based on 146.4 million fully diluted if the PEA clears the hurdles of after-tax NPV exceeding CapEx and a minimum IRR of 20%.
While Kwanika-Stardust is an advanced copper-gold project which offers exposure to copper and gold price trends, both of which are positive in Q2 of 2021 with reasons to believe they will remain so well into 2022, the bluesky resides in the drill ready East Niv copper-gold porphyry prospect which has a style and scale similar to the Red Chris deposit owned by Newcrest and Imperial Metals. A 2,700 m drill program will begin in July and can be expanded to operate until the end of October if drilling yields a discovery.
Although Sun Metals was headed by Mark O'Dea, he let marketing strategy be set by Steve Robertson and Don McInnes who adopted a rearview disclosure policy where shareholders were only told what happened 6 weeks ago, which in 2020 with covid-related delays turned into 8-12 weeks. When it comes to discovery exploration plays the market wants to know what the drill plan is at the start, and as results are received updates on what is still in the works. If a junior is to spend money on exploration targets it must make the process entertaining to shareholders. Mark O'Dea is in charge of the merged company and Peter Bell is the new CEO, but it remains to be seen if the disclosure strategy for exploration drilling has indeed changed into the form needed to generate anticipatory speculation.
The Good Spec Value rating is contingent on Northwest Copper allowing the market to participate as spectators in the wildcat drilling of East Niv and letting the market run if a discovery hole is pulled. A major discovery at East Niv could support a future price target in the $3-$6 range in addition to what is attributable to Kwanika-Stardust. It will likely be August before NWST will be in a position to report how the East Niv drilling is working out, about the time that a $13 million financing done at $0.80-$1.10 comes free trading. This financing included no warrants but $10 million was done as regular flow-thru and charity flow-thru. NWST has $800,000 budgeted for mapping and data compilation at the combined Lorraine-Top Cat project but it will not be drill ready until 2022. NWST has no plans for the other projects because it does not see size potential in their target footprints. That sort of language opens the possibility that Northwest Copper may acquire other advanced BC copper projects to build its geographically focused copper-gold brand.