NorthIsle Copper & Gold (NCX) - Higher Grade Zone Copper 4x PEA

NorthIsle Copper and Gold Inc. is a Canada-based mineral exploration company. It is engaged in the exploration and development of the North Island Project on Vancouver Island. NorthIsle Copper and Gold currently own one of the most promising copper-gold porphyry deposits in Canada. Located on northern Vancouver Island, the North Island Project’s access to pre-existing infrastructure in a mining-friendly community makes it one of the most attractive copper development stories in Canada.

Matt Gordon caught up with Sam Lee, President, and CEO, NorthIsle Copper, and Gold Inc., along with Mike Gentile, a strategic investor. 

Mr. Lee was appointed to the role of President and CEO of NorthIsle Copper and Gold in October 2020. Over the past 2 decades, he has advised some of the most prominent M&A (Mergers and Acquisitions), equity, and debt transactions in the international and Canadian global mining industry, totaling over $100Bn in value. During this period, he worked in major resource markets including Toronto, Sydney, and Vancouver, where he led various strategic initiatives for CIBC (Canadian Imperial Bank of Commerce) World Markets. Most recently, he was the Managing Director and Head of CIBC’s Vancouver Mining Group. His educational credentials include a Bachelor’s degree in Applied Science, Faculty of Engineering from the University of Toronto. He was a graduate of the Lassonde Mineral Engineering Program. Mr. Lee is also a CFA charter holder. 

Mr. Gentile is a strategic investor. He has built up his position in NorthIsle Copper and Gold up to 9.9% interest on a partially diluted basis. Mike has over 20 years of investment management experience. He has been an active strategic investor in the metals and mining sector for the past 3 years. He plays an active role in transforming and reinvigorating high-potential exploration companies through 19.99% ownership stakes, board appointments, or strategic advisory roles. In August 2021, Mike became a Founding Partner and PM at Bastion Asset Management. He currently serves as a Strategic Advisor to Arizona Metals, and a Director for Northern Superior Resources, Roscan Gold, Solstice Gold, and Radisson Mining. He graduated from the John Molson School of Business (Concordia University) in 2003 with Great Distinction. Mike is a CFA Charter Holder.

Company Overview

NorthIsle Copper and Gold Inc is a junior resource company committed to the development of the North Island Project. This project is a 38,000-hectare block of mineral titles 100% owned by NorthIsle. The company was founded in 2011 and is headquartered in Vancouver, Canada. The company’s flagship asset is the North Island Project on Vancouver Island. It is listed on the Toronto Stock Exchange (TSX-V: NCX). NorthIsle Copper and Gold recently completed an updated PEA (Preliminary Economic Assessment) for its wholly-owned North Island Project and is advancing towards a pre-feasibility study.

NorthIsle Copper and Gold has a very large copper-gold porphyry system that has been defined by a Preliminary Economic Assessment. It has an NPV (Net Present Value) of $1.1Bn at $3.25 copper. The project has an estimated 153Mlbs of yearly copper equivalent production for 22 years. As per the company, this underpins the valuation of a very large 50km system that features a high-grade gold zone. It is located 2km north of the company’s property in British Columbia. 

The Gold Market

The Gold market has observed significant price jumps in recent times. In fact, at one point, gold was trading above $2,050. According to Mr. Gentile, the commodity markets have also observed significant price surges recently. Mike has been investing heavily in the markets for several years now. He had forecasted that the Federal Reserve would have a hard time raising rates substantially. This was before the stock markets started rolling over and the Russia-Ukraine conflict. The market expects 7 planned rate hikes, with the Federal Reserve’s pricing at one point being telegraphed before the war broke out. 

It appears that the gold market is reacting to the war in Ukraine as a flight to safety, but at the same time, there is an underbid. There seems to be a much stronger undercurrent for gold that is structurally sustainable for the long term. There are estimations that the spikes in commodities along with the supply chain and commodity issues will continue, regardless of how long it takes to resolve the Ukraine conflict. As a result, more inflation will be created.

Every $10 increase in the price of oil is equivalent to about a 25 basis point rate hike increase. Oil has gone up by $50 in the past 2 months, which has led to an effective 125 base point rate increase. The Federal Reserve is scheduled to conduct a meeting next week. It needs to address the pain points of the consumers that are suffering from the ongoing real-time commodity price increases. It is expected that the Federal Reserve will try to aggressively hike rates. 

Both problems cannot be addressed simultaneously without a quick economic recession. Mr. Gentile anticipates that the Federal Reserve might have to back down. It might go ahead with the rate hike in March, however, it will be very difficult to implement the 7 hikes that were planned 2 months ago. In fact, even implementing 5 hikes could pose a challenge. These hikes would need to be curtailed and this is where gold would approach a slowdown or a recession. In case the Federal Reserve continues this path as planned, it will lead to a very bullish run for gold because there would be a need for some stimulus to reverse course quickly. 

Meanwhile, other commodities such as nickel and palladium will continue to be affected as long as the sanctions and disruptions last. At the same time, gold will get bigger in terms of a macro unwind due to the hawkishness of the Federal Reserve. 

Currently, the market is observing a lot of rotation. Bitcoin, for instance, is proving to be a flight of safety instead of a store of value. Bitcoin had started falling in January, even before the war broke out. As soon as the markets started rolling over, Bitcoin began acting like a four-time leveraged ETF. This development has had a positive impact on gold. 

According to Mr. Gentile, the market is moving very close to a recession, and the probability is increasing by the day. Each day that the current situation continues, it becomes more difficult. Investors are rotating out of the high-prospect sectors like tech, where stocks are trading at 60x sales. They are selling their Bitcoin and rotating it into gold and other precious metals. There was little-to-no ownership in this sector until 2-3 months ago.

The aggressiveness of the Federal Reserves’ hawkish rate-hiking bias will determine the path investors would take. If the hikes are implemented as planned, it would lead to a recession, posing a huge risk for the market. However, if the Federal Reserve starts getting more dovish in its approach, it could serve as a cushion to the market, which in turn, would stabilise the current situation. 

Implications of The Russia-Ukraine Conflict

The ongoing conflict between Ukraine and Russia has led to the creation of a highly complex geopolitical web. Western powers have desisted from engaging in the war. However, economic warfare is ongoing, which can potentially lead to a severe economic collapse. 

There was recent news that President Biden is in talks for cutting off Russian crude. The United States has spent the last 5 years attacking crude, all domestic oil and gas production, and now, they are considering a cut-off of one of the largest oil suppliers in the world to its domestic economy. This can lead to a massive jump in prices, where crude might end up at $200/barrel. The economic impacts are as terrifying as the physical impacts of the war in terms of the consequences. 

Even if the war situation is quickly resolved, it will take a long time for Russia to be welcomed back to the commodities trading table. The crude side of the equation is too severe to ignore from an economic standpoint. Furthermore, the sanctions will create difficulty in sourcing the supply of palladium, platinum, and nickel alloys. This is because Russia has a big grip on these metals. As a result, the flows will head to the east. Due to the conflict, the structural prices of the commodities will be much higher. These massive spikes will drop over time as the fear decreases, but structurally, the market will face major headwinds. 

It is important to note that although EVs (Electric vehicles) are great from a green perspective, the bridging period should be taken into consideration. This is because the green energy transition projects carry billions of dollars in CapEx (Capital Expenditure), and can have a 5-10 year development timeline. This is why the transition should be gradual, because until the shift to green energy is complete, Europe would still need an ongoing supply of oil and gas. 

In North America, the government has been big on mandates, greenhouse gas emissions, and accords. However, the government hasn’t considered the commodities needed to achieve these goals. Advanced permitting, economic incentives for increasing production, and the improvement of port logistics are some of the measures that can help create a domestic supply of these metals. 

These steps would help North America become energy independent. Oil energy independence is important, but in order to achieve critical battery metals or critical commodities independence on a local level, the ownership of these commodities will play a major role. 

A lot of insourcing would be needed, which may break the log jam. The government would need to ease up the permitting process for EVs to allow the development of a domestic supply chain. This would require significant collaboration between the government and the producers. 

As per Mr. Gentile, well-situated, quality projects such as NorthIsle Copper and Gold’s operations should get recognition and support from the market and the government to allow accelerated project development. The commodities market is giving the price signal, indicating that the projects need to move faster in order to cater to the growing needs of the future. 

Investor Relations

Mike Gentile along with Pierre Beaudoin recently made a $1.9M private placement in NorthIsle Copper and Gold. The former is an existing shareholder with significant holdings in the company. Mike’s philosophy is to seek buildable mines and assets that have a strong potential, early in the project’s lifecycle. He focuses on $20M-$50M market cap companies that have high mine-building potential. These assets can go to a $500M-$1Bn market cap over time. 

Mike was an early investor in NorthIsle Copper and Gold. During that time, copper was trading at $3, which made it unlikely that a $1Bn corporate project would be developed. However, it was the project’s exploration upside that caught his interest. The company had a good PEA along with a solid project that had the potential to build copper at $4. The strong exploration upside would dramatically change the project economics, which in turn would push the production cost even lower. This project had the possibility to turn into a $2.5 or even $2 copper project, leading to the initial interest. 1.5 years after the initial investment, the copper market price jumped to $3.5-$4, while the company stock remained stagnant. 

Following this, Mike tapped into his network and approached mine builders that were well-known in the industry. He entered discussions with Pierre Beaudoin, the CEO of Silvercrest Mining. Pierre recognized the potential of NorthIsle’s project as it had a great jurisdiction, existing infrastructure including power, and roads. Furthermore, the project was located close to Port Hardy, which negated the need for building a camp to house the workers. The project also had a deep water port 45km away. The region also had a BHP-owned copper-gold mine which had a lot of existing infrastructure. 

Usually, in projects located at a higher elevation, the infrastructure development can blow the CapEx (Capital Expenditure) out of proportion. However, since this project had the existing infrastructure, it needed fairly limited definition, and as a result, the scope of the project only had slight changes. In terms of CapEx, this project is higher in cost than investment-worth other billion-dollar porphyry projects. 

The exploration upside made it possible to drive the NAV or the project upside higher whilst providing more cost control over the CapEx. All these factors made it a buildable asset in a very good tier-1 jurisdiction. 

NorthIsle was trading at a $50M market cap, which is 5% of the NPV (Net Present Value). According to Mike, a project of this potential should be trading at 30%-50% of the NPV. Mike saw the quality of the project and the significant stock appreciation potential that the market had yet to recognize. 

The Northwest Expo discovery made by the NorthIsle Copper and Gold team served as a game-changer. This discovery is a 50km wide porphyry district with limited exploration. The current PEA is defined from Hushamu, the main deposit. Notably, the Northwest Expo discovery was made 1.5 months ago, and it carried 4x-5x higher grades than the existing deposit in the PEA. The grades made it a potential 1Moz+ high-grade, very high margin starter pit which would provide a quick payback. This discovery significantly de-risked the project and would help pay for the ongoing expenses. 

At $3 copper, project funding would have seemed unlikely. However, following the super cycle for commodities, the copper demand increased. At $4-$5 copper, this became a high-quality, buildable project. The project is highly likely to be built during a copper upcycle, but the Northwest Expo discovery served as a game-changer. This is because it offers 1Moz gold with very-high margins in the project’s front end. This allows for a dramatic reduction in payback while increasing the cash flow upfront. As a result, the project is competitive in a $3 copper world and has the potential to attract tier-1 companies. 

The North Island project has favourable economics and a massive scale. It offers the district-level exploration possibility where more high-grade pods can be found over time. NorthIsle Copper and Gold’s current Indicated resources stand at 4Moz gold. In the Inferred category, the company has 2.4Moz gold. It is important to note that these resource estimations exclude the Northwest Expo zone where the company has found grades over 1g/t within the porphyry through 8-9 drill holes. Generally, the average gold grades in copper-gold porphyry systems are around 0.4g/t-0.5g/t. This indicates that the Northwest Expo zone is a high-grade porphyry system spread across a 50km district with limited exploration so far. 

This can serve as proof of evidence that the company has found extremely high gold grades across a 50km geological interpretation and alteration. GT Gold is also operating in this region. At present, 33% of the NorthIsle’s revenue is coming from gold, while copper accounts for 62%. 

In the near term, the company will assess the project from an economic perspective. This will help the company determine whether it’s a starter pit, a low capital intensity project, or a high IRR (Internal Rate of Return) project that produces 100,000oz for the next 10 years. Currently, the company is focused on building the resource base around the project and understanding the implications of the various alternatives. 

A highlight feature of the project is that it works for every part of the cycle. For instance, if gold is trading at $1,600-$1,700, it would match the needs of the investors that are seeking a low capital intensity, high return environment. 

On the copper side of the equation, it is one of the top 10 projects in the world that is not currently owned by a major. The recent resource definition indicates a 5Bn lbs copper equivalent resource. 

Notably, the company’s share price has doubled since September last year. Being a very big copper project with a massive gold credit, this project offers a lot of optionality. The project features a clean concentrate with little arsenic and a low presence of deleterious elements. The existing infrastructure along with the strong support from the First Nation groups make it a high-prospect asset. The company is looking to advance a participation agreement with the First Nation groups in the near future. This agreement will further dispel the area that can’t be mined on the island. 

The project offers the flexibility to pull at any point in the cycle. The company is currently in a cycle where the gold and copper prices are sustained at an attractive level. It anticipates that base metal producers and gold producers will have an insatiable demand for copper and gold. 

The Northwest Expo discovery appeals to the less aggressive mindset. This is because it carries a higher grade and offers a lot of options to add to the current project. This, in turn, has the potential to generate a higher IRR with lower capital intensity while serving as an add-on to the larger deposit. 

The company will focus on the cycle where it can get the most value out of its exploration and development dollars. Currently, it is looking to advance the project as quickly as possible while gaining a better understanding of the Northwest Expo and Pemberton Hills areas located on the company’s property. 

Financing Considerations

NorthIsle Copper and Gold has a $70M current market cap with a $1Bn+ CapEx project. There are no royalties or streams on this property, and as a result, it is not unencumbered. The higher metal prices paired with a strong demand for a buildable project that has a good IRR (Internal Rate of Return) makes it easier to advance the project without massive dilution. 

It is common knowledge that royalties and streamers have been extremely aggressive in the past 3-4 months. The royalty companies target later-stage development projects, giving a 4%-9% cost of capital. This allows for low-cost capital to build development projects. 

For NorthIsle’s project, a 100% stream comes out to 100,000oz recoverable gold per year for 22 years over the course of the mine’s life. At a $1,650 gold price with $400 in ongoing payments, this project would be a $1.2Bn upfront payment stream. 

The company isn’t planning streaming on the entire project. However, there are considerations for a stream or royalty financing in the future. From a copper perspective, this is a medium-intensity project, while on the gold side, this project has a slightly higher capital cost than the norm. 

It is rare to see a copper project with such low delirious elements and high premium concentrates. Over the last 20 years, it is evident that off-takers, smelters, and traders usually target premium copper concentrates, and moly-concentrates by aggressively chasing projects as the partners bring in a very low cost of capital. 

It is important to note that many of the projects that were bigger than NorthIsle’s have been financed as part of the last cycle by way of off-take, smelter, and trade agreements where partners came in. This is a tried and true structure that has demonstrated success in the past for projects that are much larger than the $1.1Bn CapEx. 

Most of these agreements are usually done at the Feasibility or Pre-Feasibility stage. This is why the company is looking to advance its project as quickly as possible. The environment for the traders, smelters, and off-takers has become highly competitive. The new market entrants are coming to the market for targeting early-stage projects, generating interest in PEA (Preliminary Economic Assessment) studies.

From an economic perspective, the company isn’t looking to raise additional capital. This is because it already has access to multiple capital sources that include additional strategic investors and organisations that are aligned with the company's collective objectives. It is important to note that the company’s management team comprises large shareholders. 

NorthIsle Copper and Gold made an exception by issuing a half warrant for Mike Gentile and Pierre Beaudoin. This is because the company has a comfort level and trust with both shareholders. Mike’s strategic investment and involvement with Arizona mining is a highly relevant precedent for the company. 

The North Island project has historical resources that are currently under-appreciated in the market. Mike has used his network to help the market understand the project’s value proposition which has gone up by almost a factor of 10 in the last year and a half. The company isn’t looking to issue additional half warrants as it believes that they act as a cap on the stock. The exception was made because both Mike and Pierre are long-term investors with allied interests. 

Targets 2022 and Beyond 

NorthIsle Copper and Gold is fully-financed to advance the project. However, it is facing delays in assay results for the majority of the work carried out in 2021. The assays for the northwest zones 2 and 3, Red Dog, and south McIntosh are still pending. South McIntosh is an area adjacent to Hushamu, which the company believes to be an extension of Hushamu. The company is also awaiting assay results on the infill drilling that was initiated at Hushamu. A major portion of the 2021 drilling has already been done, the company is simply looking for the assay backlog to be cleared, an issue that has become common in the industry. In 2022, the company is focused on developing a resource around the Northwest Expo project to demonstrate its potential. 

Pemberton Hills is a massive area that has attracted a lot of the company’s shareholders. In the past, this project was a joint venture with Freeport. The project is a 3.5km by 1.5km area. In 2021, the company drilled the lithocap in the Pemberton Hills area, however, it wasn’t able to get through the lithocap within 1,000m. This demonstrates that the system is massive and the thickness and size of the lithocap is extraordinary. 

The company anticipates that either the lithocap is tilted or the system is tilted towards the valley. In case the deposit coincides with the end of the lithocap, the company might be able to intercept it at the valley level, which is located at a 700m-800m depth. The company has plans to continue the IP (Induced Polarization) and mapping to support its thesis. Pemberton Hills could be a game-changing asset for the company. 

NorthIsle Copper and Gold’s next priority would be to conduct infill drilling around Hushamu. This will enable it to move the project into a Pre-Feasibility Study. In addition to the infill drilling, the company is also looking to expand the core centre to higher-grade zones. 

Notably, BHP was looking to initially mine this zone. This was the pre-Escondida timeline where BHP was looking to take the higher grade and truck it 25km away to its mill for processing. NorthIsle is confident that Hushamu features high grades. As part of its infill program, the company is looking to expand this zone significantly. 

The company also has plans to advance its metallurgy at the Northwest Expo discovery and the project at large. The Northwest Expo discovery features gold around pyrite. As a result, even a 50% recovery provides 100,000oz of recoverable gold annually for 22 years. In the past, BHP was targeting 70% recoveries and found that higher-gold grades directly correlate to better recoveries. 

The gold grades at the Northwest Expo are 1g/t, which is 5 times higher than BHP’s Island Copper project. NorthIsle Copper and Gold is targeting a 70%-80% gold recovery at the Northwest Expo Discovery. This will serve as a key component for the project’s value appreciation. At the same time, it will showcase that the system is holistically a very attractive opportunity to chase in 2022. 

The company is close to establishing a participation agreement with its First Nation partners. This will aid the company in the permitting process. The project is located in a highly industrial part of the island. The northern end of the island has 2 major mines. The constituents and the First Nation communities in the area are focused on the forestry industry. The participation agreement will serve as a bridge to the company’s IBA (Impact Benefit Assessment), which will help change people’s mindset toward the project. 

Project De-risking

Project de-risking has 3 major elements, the project itself, the people, and the financing. A market upcycle would help the project’s upside returns significantly. Controlling the cycle along with the 3 major elements can provide up to 20x-30x returns on investment. 

In order to de-risk the project, the company is focused on geology. Having a buildable mine is key to mitigating risk. The company has a highly-experienced board that comprises wealthy, experienced mining investors. A large portion of these investors are second-generation mining entrepreneurs. The company’s existing team brings added credibility to the project. A buildable economic proposition along with proper financing can significantly reduce the project risk. Lastly, finding ways to advance the project through non-dilutive ways will have a major impact on the stock price.

To find out more, go to the NorthIsle Copper and Gold website