Nevada Copper (TSX: NCU) (OTC: NEVDF) (FSE: ZYTA) (“Nevada
Copper” or the “Company”) is pleased to provide an
update on planned restart activities at its Pumpkin Hollow
underground copper mine (the “Underground Mine”) and developments
with respect to the proposed financing package that was previously
announced in the Company’s news release dated August 25, 2022 (the
“Prior Announcement”). The financing is expected to provide up to
US$93 million of liquidity to the Company in order to support the
restart and ramp-up of the Underground Mine (the “Restart Financing
Package”).
Randy Buffington, President &
CEO, commented: “These past few weeks the team has been
focused on ensuring that we are prepared for the restart of
underground operations. We have made significant progress in
developing the plans, recruiting the people and implementing the
systems necessary to derisk the restart. We have attracted several
key technical positions and built the initial underground team to
be able to execute on the first critical projects, primarily the
remaining two dike crossings required to access the EN zone. We
believe that taking a careful, phased approach to restarting the
mine removes some of the bottlenecks the operation has faced in the
past and will facilitate a rapid ramp-up to nameplate capacity once
the mill restarts in mid-2023. We are looking forward to completing
the capital projects and bringing the underground mine up to full
operations so that we can turn our attention to development of the
large open pit project. I continue to appreciate the ongoing
commitment and support of our team and key stakeholders as we work
diligently to close this financing and get back to operations.”
Operations and Mine Planning Activities
Update
As previously announced, the Company has
advanced planning for the restart of operations at its Underground
Mine. The Company engaged a third-party consulting firm, John Wood
Group plc, to complete a mine plan focusing on accessing the
larger, higher-grade stopes in the East North Zone (EN Zone). The
mine plan has been completed with an optimized stoping sequence
that brings value forward in the life of mine and derisks the
restart by advancing development activities and building
significant underground inventory ahead of restarting the mill in
mid-2023. Included in the mine plan are updated operating costs,
which are not expected to be materially different from previous
estimates as they have not been significantly impacted by
inflationary pressures.
The restart plan, as envisaged, will be executed
in three phases following the closing of the Restart Financing
Package:
Phase 1 – Completion of the
remaining two dike crossings and certain capital projects,
workforce development
Phase 2 – Underground stope and
inventory development
Phase 3 – Stope mining and mill
start-up
In September, the Company entered Phase 1 by
reinitiating development activities with one mining crew focused on
completing the second dike crossing. It is anticipated that the
crossing will be completed and well advanced beyond the geological
dike feature within the next 30 days, at which time the crew will
move onto the third and final dike crossing. In addition, the
Company is preparing to issue bid packages to interested
development contractors to perform underground development
activities and for completion of the remaining capital projects,
including: (i) coarse ore bin 2; (ii) vent shaft stripping and
surface fans installation; and (iii) Geho dewatering system.
In early 2023, the Company plans to begin rapid
development with the use of a development contractor to advance
into the higher-grade stopes of the EN Zone and build significant
underground ore inventory. The Company will continue to recruit
additional underground personnel to prepare for stope mining in the
second quarter of 2023. With a significant stockpile of ore on
surface and underground inventory expected to be built up, the mill
is planned to start up in the third quarter of 2023.
Restart Financing Package Update
As disclosed in the Prior Announcement, the key
components of the Restart Financing Package are as follows:
- Equity
Investments (US$40 million): Pala Investments Limited (“Pala”), the
Company’s largest shareholder, and Mercuria Energy (“Mercuria”), a
significant shareholder of the Company, are each expected to
provide US$20 million in exchange for common shares of the Company
(“Common Shares”). Pala has already advanced US$13.5 million of
such funding to the Company.
- Stream and
Royalty Financing (US$30 million): Triple Flag Precious Metals
Corp. (“Triple Flag”) is expected to increase its existing net
smelter returns royalty on the Company’s open pit project from 0.7%
to 2% for a purchase price of approximately US$26.2 million,
subject to a full buyback of the increased royalty percentage. In
addition, Triple Flag is expected to accelerate the approximately
US$3.8 million remaining to be funded under the Company’s existing
metals purchase and sale agreement with Triple Flag.
- KfW Facility
Extension (US$15 million committed): The Company’s senior credit
facility (the “KfW Facility”) with KfW IPEX-Bank GmbH (“KfW”) is
expected to be amended to provide for a new tranche of up to US$25
million, of which Pala, Triple Flag and Mercuria would commit the
first US$15 million as a backstop.
- Deferrals under
Senior Project Facility and Working Capital Facility (expected to
be at least US$8 million): KfW is expected to defer three interest
payments under the KfW Facility. Concord Resources Limited is
expected to defer interest and principal payments under the
Company’s working capital facility.
Under the Restart Financing Package, Pala is
expected to consolidate approximately US$73 million of the
indebtedness currently owing to Pala by the Company into an amended
or new debt instrument (the “Pala Debt Instrument”), which
indebtedness would be convertible into Common Shares.
Please see the Prior Announcement for additional
details regarding the Restart Financing Package.
Nevada Copper reminds shareholders that the
terms of the Restart Financing Package are currently non-binding
and closing is subject to, among other things, finalization of the
specific terms thereof, negotiation and execution of definitive
documentation and the satisfaction of various regulatory
requirements. The Company and its key financing partners intend to
enter into definitive documents in respect of and close the Restart
Financing Package concurrently on or about October 5, 2022 (the
“Closing Date”). The closing of the Restart Financing Package will
be subject to the approval of the Toronto Stock Exchange (the
“TSX”).
As disclosed in the Prior Announcement, there
can be no assurance that binding agreements will be entered into or
completed (or the required regulatory approvals obtained) on terms
satisfactory to the Company and within the required timeframe, or
at all. In addition, there can be no assurance that the Company
will be able to raise the further funding to supplement the Restart
Financing Package that will be required to complete the restart and
ramp-up process. The Company expects the costs of the restart and
ramp-up process to be in the range of US$70 million-US$75 million.
In addition, the Company needs to satisfy and/or defer various
outstanding vendor payables. Together these costs and payables are
expected to exceed the amount of the Restart Financing
Package. As a result, the Company continues to evaluate other
additional financing options, including a public offering.
The Company intends to use the available
proceeds from the Restart Financing Package of approximately
US$71.5 million (representing the US$93 million of liquidity less
US$13.5 million already advanced by Pala and less US$8 million
in deferrals under the KfW Facility and the Company’s working
capital facility) to fund ramp-up costs (approximately US$15.7
million to fund capital expenditures and approximately US$29.1
million to fund operating costs), vendor payments (approximately
US$23.5 million) and for general corporate purposes, such as
overhead (approximately US$3.2 million).
If the Restart Financing Package is not
completed, absent other financing, the Company will not be able to
continue carrying on business in the ordinary course and may need
to pursue proceedings for creditor protection. The Company’s
creditors may also seek to commence enforcement action, including
realizing on their security over the Company’s assets.
Potential Maximum Dilution in Respect of the Restart
Financing Package
Pala currently owns 167,759,110 Common Shares,
representing approximately 37% of the outstanding Common Shares on
a non-diluted basis. Mercuria currently owns 48,700,000 Common
Shares, representing approximately 11% of the outstanding Common
Shares on a non-diluted basis.
Pala is expected to fund its equity investment
of US$20 million by the cancellation of approximately US$13.5
million in short-term debt advanced to the Company by Pala as
interim financing and by the payment of approximately US$6.5
million on the Closing Date. The Pala Equity Investment will be at
a subscription price equal to a 15% discount to the five-day volume
weighted average price (the “VWAP”) of the Common Shares on the TSX
as of the trading day prior to the Closing Date (the “Equity
Subscription Price”). By way of illustration, if the closing of the
Pala Equity Investment occurred on September 23, 2022,
120,088,496 Common Shares would be issued to Pala using a 15%
discount to the five-day VWAP of C$0.266 and then converting such
VWAP into U.S. dollars using the Bank of Canada exchange rate on
September 23, 2022 of C$1.00=US$0.7369 (the “Illustrative Equity
Subscription Price”). In addition, approximately US$1.665 million
of guarantee and other fees will be satisfied by the issuance of
Common Shares to Pala at the Equity Subscription Price. Based on
the Illustrative Equity Subscription Price, this will result in an
additional 9,999,655 Common Shares being issued to Pala. The
transactions described in this paragraph together with the Pala
Debt Instrument are referred to as the “Pala Equity Investment”
herein.
Mercuria is expected to fund its equity
investment of US$20 million in two tranches. The first tranche of
US$10 million will be paid on the Closing Date. The second tranche
of US$10 million will be deposited into escrow on the Closing Date
and will be released upon the satisfaction or waiver of certain
conditions. These conditions include the completion of certain
steps in the ramp-up process that the Company expects to achieve
before the end of 2022. The first tranche of the Mercuria Equity
Investment will be at a subscription price equal to the Equity
Subscription Price. The second tranche of the Mercuria Equity
Investment will be at a subscription price equal to a 15% discount
to the five-day VWAP of the Common Shares on the TSX as of the
trading day prior to the applicable date of closing. By way of
illustration, if the closing of both tranches of the Mercuria
Equity Investment occurred today, 120,088,496 Common Shares
would be issued to Mercuria using the Illustrative Equity
Subscription Price.
In connection with the Mercuria Equity
Investment, Mercuria is expected to receive Common Share purchase
warrants of the Company (the “Warrants”). Each Warrant will entitle
Mercuria to, subject to satisfying certain vesting conditions,
acquire one Common Share at an exercise price equal to a 20%
premium to the Equity Subscription Price. The Warrants will vest,
from time to time, in conjunction with the conversion of the Pala
Debt Instrument, thereby providing Mercuria with an ability to
maintain its pro rata shareholding interest. The vesting of 50% of
the Warrants will also be subject to the vesting condition that the
second tranche of the Mercuria Equity Investment has closed. The
Warrants will expire upon maturity of the Pala Debt Instrument. By
way of illustration, if all Warrants vested and were exercised
today, 119,205,651 Common Shares would be issued to Mercuria
assuming the illustrated conversion of the Pala Debt Instrument
described below. The transactions described in the foregoing two
paragraphs are referred to as the “Mercuria Equity Investment”
herein (the Mercuria Equity Investment together with the Pala
Equity Investment are referred to herein as the “Equity
Investments”).
Pala is expected to consolidate approximately
US$73 million of the indebtedness currently owing to Pala by the
Company into the Pala Debt Instrument. The loans outstanding to be
consolidated into the Pala Debt Instrument would include (i) the
total of approximately US$53 million outstanding under the existing
credit agreement entered into by Pala and the Company in November
2021; and (ii) US$20 million that was advanced to the Company under
a promissory note in June and July 2022. In connection with the
entering of the Pala Debt Instrument, a 4% fee on the US$20 million
amount referred to above will be payable to Pala and capitalized as
additional principal under the Pala Debt Instrument. Amounts owing
under the Pala Debt Instrument would be convertible into Common
Shares, at Pala’s option, at a conversion price equal to a 20%
premium to the Equity Subscription Price. By way of illustration,
if all amounts owing under the Pala Debt Instrument were converted
today, 374,402,808 Common Shares would be issued to Pala using
a 20% premium to the Illustrative Equity Subscription Price.
Based on the above illustrations, the number of
Common Shares that will be issued as a result of the Equity
Investments is set out below, assuming the conversion in full of
the Pala Debt Instrument and the exercise in full of the
Warrants:
|
Total Number of Common
Shares currently held |
Total Number of Common Shares that will be held after the
Equity Investments excluding
conversion of the Pala Debt Instrument and exercise of the
Warrants |
Total Number of Common Shares that will be held after the
Equity Investments including
conversion of the Pala Debt Instrument and exercise of the
Warrants |
% of Common Shares currently
owned relative to Common Shares
currently outstanding |
% of Common Shares owned relative to
Common Shares outstanding after the Equity
Investments excluding conversion
of the Pala Debt Instrument and exercise of the
Warrants |
% of Common Shares owned relative to
Common Shares outstanding after the Equity
Investments including conversion
of the Pala Debt Instrument and exercise of the
Warrants |
Pala |
167,759,110 |
297,847,261 |
672,250,069 |
37.41% |
42.63% |
56.39% |
Mercuria |
48,700,000 |
168,788,496 |
287,994,147 |
10.86% |
24.16% |
24.16% |
The total number of Common Shares to be issued
pursuant to the Equity Investments (excluding conversion of the
Pala Debt Instrument and exercise of the Warrants) is 250,176,647,
which represents approximately 56% relative to the number of Common
Shares currently issued and outstanding. The total number of Common
Shares to be issued pursuant to the Equity Investments (including
conversion of the Pala Debt Instrument and exercise of the
Warrants) is 743,785,105, which represents approximately 166%
relative to the number of Common Shares currently issued and
outstanding.
TSX Financial Hardship Exemption
Nevada Copper has applied to the TSX, pursuant
to the provisions of Section 604(e) of the TSX Company Manual, for
a “financial hardship” exemption from the requirements to obtain
shareholder approval of components of the Restart Financing Package
on the basis that, absent the Restart Financing Package the Company
is in serious financial difficulty due to the lack of available
cash and funding resources. Moreover, the Company is currently in
default under its various credit facilities and the Company’s
metals purchase and sale agreement with Triple Flag. The Restart
Financing Package, including the Equity Investments, are designed
to improve the Company’s financial situation. The entry into of
each of the definitive agreements required in respect of the
Restart Financing Package will occur concurrently. The application
was approved by the Special Committee (as defined below) who has
determined that the transactions discussed herein are reasonable
for Nevada Copper in the circumstances. Under the policies of the
TSX, on the basis that the Restart Financing Package was determined
to be subject to the provisions of Section 607 of the TSX Company
Manual for private placements, components of the Restart Financing
Package would have required shareholder approval by the Company due
to: (a) the number of Common Shares (including the Common Shares
issuable upon the conversion of the Pala Debt Instrument and upon
exercise of the Warrants) issuable in connection with the Restart
Financing Package is in excess of 25% of the number of Common
Shares outstanding; (b) the number of Common Shares to be issued to
insiders (assuming conversion of the Pala Debt Instrument and
exercise Warrants) is greater than 10% of the number of Common
Shares outstanding; and (c) the consideration (being the Equity
Investments) to be received by insiders is greater than 10% of the
Company’s market capitalization. The Restart Financing Package will
not materially affect control of the Company given Pala’s existing
level of ownership in the Company.
The board of directors of the Company (the
“Board”) has formed a special committee (the “Special Committee”)
consisting of members of the Board who are independent of Pala,
Mercuria and management of the Company, to consider the proposed
terms of the Restart Financing Package, including the terms of the
Equity Investments. The Special Committee has meet continuously
throughout the negotiation of the proposed terms of the Restart
Financing Package.
Nevada Copper expects that as a consequence of
its financial hardship application, the TSX will conduct a remedial
delisting review of the Company. Although Nevada Copper believes
that it will be in compliance with all continued listing
requirements of the TSX upon the closing of the Restart Financing
Package, no assurance can be provided as to the outcome of such
review or continued qualification for listing on the TSX. There can
be no assurance that the TSX will accept the application for the
use of the financial hardship exemption from the requirement to
obtain shareholder approval described above.
The Equity Investments will be related party
transactions of the Company for purposes of Multilateral Instrument
61-101 – Protection of Minority Security Holders in Special
Transactions (“MI 61-101”) and are subject to the formal valuation
and minority approval requirements thereof, unless an exemption is
available. It is the intention of the Company to rely on the
financial hardship exemption provided for in Sections 5.5(g) and
5.7(e) of MI 61-101.
Qualified Person
The technical information and data in this news
release has been reviewed by Steven Newman, Registered Member –
SME, Vice President, Technical Services for Nevada Copper, who is a
non-independent Qualified Person within the meaning of NI
43-101.
About Nevada Copper
Nevada Copper (TSX: NCU) is a copper producer
and owner of the Pumpkin Hollow copper project. Located in Nevada,
USA, Pumpkin Hollow has substantial reserves and resources
including copper, gold and silver. Its two fully permitted projects
include the high-grade Underground Mine and processing facility,
which is now in the production stage, and a large-scale open pit
project, which is advancing towards feasibility status.
Randy BuffingtonPresident &
CEO
For additional information, please see the
Company’s website at www.nevadacopper.com, or contact:
Tracey Thom | Vice President,
IR and Community Relationstthom@nevadacopper.com+1 775 391 9029
Cautionary Language on Forward Looking
StatementsThis news release contains “forward-looking
information” and “forward-looking statements” within the meaning of
applicable Canadian securities laws. All statements in this news
release, other than statements of historical facts, are
forward-looking statements. Such forward-looking information and
forward-looking statements specifically include, but are not
limited to, statements that relate to the completion of the funding
package described above, including the terms and timing thereof,
the plans and requirement for supplementary financing and the
expected amounts thereof, regulatory requirements, the Company’s
“financial hardship” exemption application, the use of proceeds
from the Restart Financing Package, creditor protection
proceedings, mine planning, the execution of the mine restart plan
and expected development schedule, and the expected costs of the
restart and ramp-up process. There can be no assurance that the
Restart Financing Package will close or that the cost estimates or
allocation thereof will be accurate.
Forward-looking statements and information
include statements regarding the expectations and beliefs of
management. Often, but not always, forward-looking statements and
forward-looking information can be identified by the use of words
such as “plans”, “expects”, “potential”, “is expected”,
“anticipated”, “is targeted”, “budget”, “scheduled”, “estimates”,
“forecasts”, “intends”, “anticipates”, or “believes” or the
negatives thereof or variations of such words and phrases or
statements that certain actions, events or results “may”, “could”,
“would”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements or information should not be read as
guarantees of future performance and results. They are subject to
known and unknown risks, uncertainties and other factors which may
cause the actual results and events to be materially different from
any future results, performance or achievements expressed or
implied by such forward-looking statements or information.
Such risks and uncertainties include, without
limitation, those relating to: requirements for additional capital
and no assurance can be given regarding the availability thereof;
the outcome of discussions with creditors and vendors; potential
creditor protection proceedings; the ability of the Company to
complete the ramp-up of the Underground Mine within the expected
cost estimates and timeframe; the impact of COVID-19 on the
business and operations of the Company; the state of financial
markets; history of losses; dilution; adverse events relating to
milling operations, construction, development and ramp-up,
including the ability of the Company to address underground
development and process plant issues; ground conditions; cost
overruns relating to development, construction and ramp-up of the
Underground Mine; loss of material properties; interest rate
increases; global economy; limited history of production; future
metals price fluctuations; speculative nature of exploration
activities; periodic interruptions to exploration, development and
mining activities; environmental hazards and liability; industrial
accidents; failure of processing and mining equipment to perform as
expected; labour disputes; supply problems; uncertainty of
production and cost estimates; the interpretation of drill results
and the estimation of mineral resources and reserves; changes in
project parameters as plans continue to be refined; possible
variations in ore reserves, grade of mineralization or recovery
rates from management’s expectations and the difference may be
material; legal and regulatory proceedings and community actions;
accidents; title matters; regulatory approvals and restrictions;
increased costs and physical risks relating to climate change,
including extreme weather events, and new or revised regulations
relating to climate change; permitting and licensing; dependence on
management information systems and cyber security risks; volatility
of the market price of the Company’s securities; insurance;
competition; hedging activities; currency fluctuations; loss of key
employees; other risks of the mining industry as well as those
risks discussed in the Company’s Management’s Discussion and
Analysis in respect of the year ended December 31, 2021 and the
quarter ended March 31, 2022 and in the section entitled “Risk
Factors” in the Company’s Annual Information Form dated March 31,
2022. The forward-looking statements and information contained in
this news release are based upon assumptions management believes to
be reasonable, including, without limitation: no adverse
developments in respect of the property or operations at the
project; no material changes to applicable laws; the ramp-up of
operations at the Underground Mine in accordance with management’s
plans and expectations; no worsening of the current COVID-19
related work restrictions; reduced impacts of COVID-19 going
forward; the Company will be able to obtain sufficient additional
funding to complete the ramp-up, no material adverse change to the
price of copper from current levels; and the absence of any other
factors that could cause actions, events or results to differ from
those anticipated, estimated or intended.
The forward-looking information and statements
are stated as of the date hereof. The Company disclaims any intent
or obligation to update forward-looking statements or information
except as required by law. Although the Company has attempted to
identify important factors that could cause actual actions, events,
or results to differ materially from those described in
forward-looking information and statements, there may be other
factors that could cause actions, events or results not to be as
anticipated, estimated or intended. Specific reference is made to
“Risk Factors” in the Company’s Management’s Discussion and
Analysis in respect of the year ended December 31, 2021 and the
quarter ended March 31, 2022 and “Risk Factors” in the Company’s
Annual Information Form dated March 31, 2022, for a discussion of
factors that may affect forward-looking statements and information.
Should one or more of these risks or uncertainties materialize,
should other risks or uncertainties materialize or should
underlying assumptions prove incorrect, actual results and events
may vary materially from those described in forward-looking
statements and information. For more information on the Company and
the risks and challenges of its business, investors should review
the Company’s filings that are available at www.sedar.com.
The Company provides no assurance that
forward-looking statements and information will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements or
information. Accordingly, readers should not place undue reliance
on forward-looking statements or information.
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