Duluth Metals’ Nokomis economic, despite low metal prices

A preliminary economic assessment for Duluth Metals’ (DM-T, DM.U-T) enormous poly-metallic Nokomis deposit in Minnesota confirms higher production rates and positive economics even at today’s low metal prices.  

The scoping study has confirmed that the deposit can support a 40,000 tonne per day mining operation over a range of metal prices.

The Nokomis deposit is in the heart of the Duluth mining camp in northeastern Minnesota. The entire complex – about 25 miles long and 3 miles wide — hosts one of the world’s largest undeveloped repositories of copper, nickel and platinum group metals, including the world’s third largest accumulation of nickel sulphides. 

“It doesn’t have the grades of Norilsk or Sudbury but it’s huge in size,” Henry Sandri, Duluth’s president and chief executive, told a group of investors and analysts last month at the Second Americas Nickel Conference in Rio de Janeiro. “We’ve drilled out half the property so we think we’re going to get bigger.”

The Nokomis scoping study estimated that average annual production would be about 181.7 million lbs. copper; 42.3 million lbs. nickel; 783,000 lbs. cobalt; 157,000 oz. palladium, 69,000 oz. platinum and 25,000 oz. gold.

About 41% of revenues would come from copper, 39% from nickel, 1% from cobalt and 19% from platinum, palladium, and gold.

Consultants Scott Wilson Roscoe Postle Associates used three different economic cases for the preliminary economic assessment.

The first was a low metal price case scenario of US$1.55 per lb. copper; US$4.90 per lb. nickel; US$10.00 per lb. cobalt; US$795 per oz. platinum; US$295 per oz. palladium; and US$600 per oz. gold. 

The second employed a base price case of US$1.75 per lb. copper; US$7.00 per lb. nickel; US$10.00 per lb. cobalt; US$1,100 per oz. platinum; US$350 per oz. palladium and US$600 per oz. gold.

The third used a market price case (as of Jan. 13, 2008) of US$3.31 per lb. copper, US$12.70 per lb. nickel, US$47 per lb. cobalt, $1,559 per oz. platinum, US$376 per oz. palladium, US$895 per oz. gold.

Under those scenarios, Nokomis would yield a 16.2% internal rate of return in the low metal case scenario, a 23% internal rate of return in the second case scenario and a 41.4% internal rate of return in the market price case, the study found.

Payback on pre-production capital expenditure of US$1.3 billion, including a contingency of US$174 million, would take six years in the low metal case, four years in the base case, and two years in the market price case.

Total undiscounted pre-tax operating cash flow would come to about US$6.6 billion in the low metal price case; US$9.9 billion in the base case and US$22.7 billion in the market price case scenario.

“This 40,000 tonne per day study highlights the scalability of the Nokomis deposit and its potential to be one of the world’s low cost producers,” Christopher Dundas, Duluth’s chairman, said in a prepared statement. “In this environment of extremely low metal prices, we are encouraged at how the Nokomis business model holds together.”            

The Duluth mining complex also has access to significant infrastructure, the company’s management points out.

“We’re close to the iron range [and] there’s US$4 billion worth of infrastructure already in place,” Sandri said in his presentation at the Second Americas Nickel Conference.

“We don’t need to go through large infrastructure build-up. I’ve worked in 183 countries and very few of them do you walk in and find all this infrastructure facing you.”

Duluth Metals is trading at about 30¢ per share. Over the last year it has traded between 22¢ and $3.40 per share.

The company has 80.35 million shares outstanding.