Levack restart puts Magna on two-mine path

Magna Mining (TSX: NICU; US-OTC: MGMNF) has approved a $70-million (US$49 million) restart of its Levack nickel-copper mine near Sudbury, Ont., targeting commercial production by mid-2028.

Thursday’s preliminary economic assessment values Levack, about 400 km north of Toronto, at $227 million after tax using a 7% discount rate. That’s less than half Desjardins analyst Bryce Adams’ $497-million estimate at comparable metal prices, although he sees a stronger production plan for the mine’s contact nickel zones.

“The Contact Zone plan is stronger than we modelled, but the PEA excludes R2 which we view as strong future optionality,” Adams wrote in a Thursday note. R2 is a copper and precious-metals discovery that hasn’t yet been included in a resource estimate.

Levack is to join Magna’s producing McCreedy West mine as the company builds a multi-mine business around Sudbury’s existing infrastructure. Adams views the restart as a positive step despite the valuation gap. The execution risk remains: Magna approved the investment without a feasibility study or mineral reserves demonstrating economic viability.

Magna’s Toronto-listed shares rose 0.4% to $2.42 on Thursday afternoon, having touched $1.88 and $3.94 over the past 12 months. The company has a market capitalization of about $758 million.

Capital bridge

Initial capital of $70.1 million exceeds Adams’ $44-million forecast. The estimate covers spending from January through June 2028 and includes $12.6 million in contingency, according to the study.

Magna expects $55.9 million in operating cash flow before commercial production and $5.6 million in refundable tax credits to reduce its net cash outlay by the end of the ramp-up to $8.6 million. Those offsets don’t reduce the initial capital bill, and the credits remain subject to eligibility requirements.

The company ended June with $40 million in cash and equivalents before Alpayana invested $140 million for a 20% stake last month. Magna can cover Levack’s initial capital from its balance sheet, Adams said.

The PEA forecasts a 92% after-tax internal rate of return. Adams retained a speculative buy rating and $5 share-price target.

Production plan

Levack would produce an annual average of 12.9 million payable lb. copper, 10.9 million lb. nickel and 21,400 oz. platinum, palladium and gold combined over 7.3 years, according to the study.

The plan calls for mining 5.75 million short tons at about 2,140 tons per day. Operating costs average $157.80 per ton processed, with another $168 million in sustaining capital over the commercial production period.

The base case assumes US$5.10-per-lb. copper, US$8 nickel and US$3,600-per-oz. gold. Applying average September metal prices increases the after-tax net present value to $313.6 million.

Brown fields

Levack last operated in 2018. Much of its infrastructure has been maintained because it provides secondary access for McCreedy West and nearby mines, Magna said.

Restart work includes rehabilitating underground workings and equipment, refurbishing the production hoist and loading pocket, and establishing access and drilling platforms. Magna plans to ship material to third-party mills in Sudbury.

Higher-grade copper and precious-metals zones would supply the early production that underpins the projected ramp-up cash flow.

Resource risk

Levack’s updated indicated resource contains 7.8 million tons grading 1.12% copper and 1.48% nickel, holding about 175 million lb. copper and 231 million lb. nickel. Another 5.83 million tons inferred grades 1.27% copper and 1.41% nickel, containing about 148 million lb. copper and 164 million lb. nickel.

The PEA uses only part of that resource, including 2.1 million tons classified as inferred. Restarting without a feasibility study increases the risk of technical and economic failure, Magna says.

Three underground rigs are testing R2. Further drilling and resource conversion could extend mine life and improve the economics, Adams said.

Magna expects underground development and surface construction to accelerate over the coming months. A prefeasibility study for Crean Hill, another planned Sudbury restart, is expected this month.