Strong copper demand underpins New Century’s Mt Lyell plan

The past and the present are colliding at Mt Lyell – a once great Australian copper mine, which is in the process of being brought back to life by a small company which could be significantly undervalued.

New Century Resources (ASX: NCZ), which has failed to impress with its restoration effort at another old mine, the Century zinc project in Queensland, is taking on the challenge of reviving Mt Lyell on the west coast of Tasmania.

With a history dating back to the 1890s, Mt Lyell has made headlines for more than 130 years, for the right and wrong reasons.

In the early 1940s, Mt Lyell was a critical supplier of the copper needed in armaments, but it was also a prolific polluter in its early days with acid-rich waters flowing off the mine and effectively killing all life in the King and Queen rivers.

Brought back into production by a series of owners in the 1980s and 90s, which largely fixed the pollution issues, the mine was forced to duck in and out of mothballs by low copper prices. The metal was trading at just US75 cents a pound as recently as 20 years ago.

Today’s copper market

The copper market today is very different thanks to surging demand for batteries and renewable power and while the copper price has flattened recently at around US$4.20/lb that is still historically high and US$1/lb more than in the middle of last year.

China’s early reopening after its economy damaging Covid lockdowns has sparked a significant uplift in demand for most metals, with copper leading the way thanks to another price-driving factor – what looks to be an extreme shortage.

A metal which as recently as 2011 saw eight weeks of spare supply in warehouses, copper today is down to 12-days of inventory with that number threatened by civil unrest in major copper producing countries such as Peru, and by government threats to close mines in other countries over tax disputes, including Panama.

Big miners prioritise copper

All of the big miners have copper at the top of their investment lists, led by BHP (ASX: BHP), which is acquiring OZ Minerals (ASX: OZL), and Rio Tinto (ASX: RIO), which is investing in Mongolia and the US.

New Century’s proposal for the redevelopment of Mt Lyell will not make a dent in the global copper market, but with a relatively modest pre-production capital cost estimate of $279 million and a target of 27,000 tonnes of copper per annum (and 16,000 ounces of gold) for the first 10-years after a restart, the planned revival is starting to attract interest.

The Tasmanian Government has welcomed the proposed revival eight-years after the mine was last worked by the Indian company, Vedanta Resources, which has signed an option to sell Mt Lyell to New Century on a staggered payment basis and an ongoing royalty on future copper production.

Reviving Mt Lyell

New Century’s plan, which was updated last week in a pre-feasibility study is to produce copper at a life-of-mine cost of US$1.89/lb – attractively less than the current copper price.

The next move is a full feasibility study which is expected to be completed in the September quarter and if the numbers still look good a development decision can be expected by the end of the year with first production in mid-2025.

The key numbers in the proposed redevelopment of Mt Lyell are for annual mining of between 2.4-and-3Mt at a grade of 1.14% copper, plus gold as a useful by-product.

Investors initially reacted positively to the release of the pre-feasibility study lifting New Century’s share price by 30% from $0.81 to a peak earlier this week of $1.06 – before a slide back to $0.95 which values the stock at about $125 million.

Because of its modest size and perhaps because zinc tailings retreatment has been less successful than planned, New Century has received minimal coverage by banks and brokers.

The zinc situation was made worse on Tuesday when the company said it was reviewing the Century tailings operation with the aim of lowering costs and boosting production.

Analyst forecast

One broker which loves the Mt Lyell story is Shaw and Partners which told clients last week that New Century could be undervalued by as much as 300% with its shares, trading at $0.91, potentially heading up to $3.60.

Even if the stock gets to $1.80, half the Shaw forecast, New Century’s share price could theoretically double over the next 12 months.

Hurdles have to be cleared by New Century including the completion of a full feasibility study into the redevelopment of Mt Lyell, as well as raising the required development capital, while managing the cost blow-out at its zinc tailings project.

But those challenges need to be seen against the copper price, which looks to be poised for a sustained upward move as Chinese copper demand accelerates under the influences of government stimulus spending.

New Century chief executive, Robert Cooper, said in a statement when releasing the pre-feasibility result that Mt Lyell compared favourably with many current copper operations and had a resource size which would allow significant scale and mine life.

“With an initial 25-year life-of-mine and an overall resource base greater than 1Mt of copper and almost 1Moz of gold, this project is transformational for our company,” Mr Cooper said.