Antofagasta to buy Duluth Metals

VANCOUVER — Chilean copper miner Antofagasta (LSE: ANTO; US-OTC: ANFGY) and Toronto-based explorer Duluth Metals (TSX: DM; US-OTC: DULMF) are joint-venture partners in the Twin Metals Minnesota copper-nickel-cobalt-platinum-palladium-gold-silver project in northeastern Minnesota. But taking advantage of a recent sharp decline in Duluth’s stock price, Antofagasta is now offering to buy Duluth outright and assume full ownership of the asset. The friendly, 45¢-per-share all-cash bid will cost Antofagasta $96 million and includes the cost of paying off Duluth’s convertible debt.

The bid represents a 284% premium to the 20-day moving average price of Duluth’s shares through Oct. 31.

Antofagasta already owns 10.4% of Duluth’s 136.7 million shares, and has secured the support of Wallbridge Mining (TSX: WM, FWB: WC7), which owns 10.1 million Duluth shares. Wallbridge will also sell half its stake to Antofagasta right away on Nov. 10 at the bid price.

In early October Duluth had lined up a $5-million financing with Industrial Alliance Securities, but this has now been scrapped.

In a conference call, Duluth executive chairman Christopher Dundas said his board believes the transaction is “in the best interest of Duluth shareholders in the context of world markets.”

Duluth CEO Kelly Osborne similarly noted in a release that the deal is a “significant premium” during a “difficult period in the mining industry.”

Under the Twin Metals Minnesota joint venture, Duluth is operator and holds 60% of the project, with Antofagasta holding the rest.

The 130 sq. km project is located in the Duluth complex near the town of Ely, on the northern edge of Minnesota’s iron range. Duluth describes the complex as holding one of the “world’s largest undeveloped copper, nickel and platinum group metal deposits.”

Antofagasta will also gain control over Duluth’s 162 sq. km of exploration assets next door.

Antofagasta’s enthusiasm in the Twin Metals Minnesota project was called into question in early July when the miner failed to exercise an option to buy another 25% interest in the project. Antofagasta CEO Diego Hernandez noted at the time that Antofagasta was focused on “prioritizing projects with the highest value and lowest risks.”

Fast forward to November, and Hernandez describes the acquisition of Duluth as providing Antofagasta with “a long-term option to develop a large polymetallic resource in a stable and proven mining region … we believe that the Duluth Complex is an attractive deposit and upon closing of the offer we will commence the process of re-evaluating the project’s design, while also continuing with the permitting activities.”

Antofagasta has a strong focus on copper mining, and earned US$660 million on US$6 billion in revenue last year. The company says it could provide the financial backing needed to further develop Twin Metals Minnesota.

CIBC World Markets analyst Tom Meyer wrote on Nov. 4 that the agreement is “positive for Duluth shareholders, as the company’s cash position was extremely challenged.”

BMO Capital Markets analyst Edward Sterck commented that “the net cash impact on Antofagasta from the acquisition is negligible, but it does provide the company with control of a relatively advanced project in a safe mining jurisdiction.”

Under a prefeasibility study released in late August, a mine at Twin Metals would carry a price tag of US$2.8 billion, and feature an after-tax net present value of US$753 million and an internal rate of return of 11.4%.

Mineralization just in the “proven and probable reserve” category at Twin Metals totals 527 million tons (478 million tonnes) grading 0.59% copper, 0.19% nickel, 0.154 gram platinum per tonne and 0.349 gram palladium in the Maturi and Maturi SW deposits.