Duluth Metals puts puzzle together with Franconia acquisition

Vancouver – In a significant land consolidation, Duluth Metals (DM-T) has reached an agreement to acquire Franconia Minerals (FRA-T) in a $77 million deal.

A map of the two companies’ claims shows obvious synergies, with Franconia’s land package filling the holes between Duluth’s in northern Minnesota. The merger will give Duluth a contiguous 10,000-hectare land package that encompasses four established nickel-copper deposits, three of which also host platinum group mineralization.

Duluth has agreed to pay either 90¢ or issue 0.328 of a Duluth share for each Franconia share, to a maximum cash output of $38 million and maximum share output of 13.8 million. The deal marks a 48.4% premium to Franconia’s 20-day volume-weighted average trading price of 61¢.

The deal will also involve South American powerhouse Antofagasta (ANTO-L), Duluth’s 40% joint venture partner in the company that owns the large Nokomis deposit, Twin Metals Minnesota. To maintain its 40% interest in Twin Metals, which will actually be acquiring the Franconia properties, Antogfagasta will provide $30 million towards the Franconia deal.

In acquiring Franconia, Twin Metals secures Franconia’s 70% interest in the Birch Lake, Maturi and Spruce Road deposits that are included in the Birch Lake joint venture.

An August report on Birch Lake established an indicated resource of 176.8 million tonnes grading 0.53% copper, 0.17% nickel, 0.01 gram cobalt, 0.24 gram platinum per tonne, 0.52 gram palladium per tonne and 0.12 gram gold per tonne, which all together work out to about a 1.12% copper equivalent. The deposit also hosts 40 million inferred tonnes at slightly lower grades.

The Maturi deposit, sitting roughly 5 km northeast of Birch Lake and adjacent to Duluth’s Nokomis deposit, hosts 119.9 million inferred tonnes grading 0.67% Co, 0.25% Ni, 0.02% Co, 0.25 gram Pd, 0.09 gram Pt and 0.04 gram Au from a 2006 estimate. Roughly 8 km northeast of Maturi, with the Nokomis deposit in between, Spruce Road hosts an underground resource of 124.4 million inferred tonnes grading 0.59% Co and 0.21% Ni and an open pit resource of 367 million tonnes.

The Nokomis deposit will, however, continue to be the flagship deposit for the joint venture. As of a 2009 estimate, Nokomis hosts 550 million indicated tonnes grading 0.64% Co, 0.2% Ni, and 0.66 gram total precious metals, plus 274 million inferred tonnes grading 0.63% Co, 0.21% Ni and 0.69 total precious metals.

Christopher Dundas, chairman and CEO of Duluth, said in a conference call that the deal should create significant synergies in infrastructure and mine-life benefits thanks to having a large contiguous deposit.

“The planners are going to have a field day looking at this mega-deposit,” said Dundas.

Franconia’s board of directors has unanimously approved the deal, though representing only 3.8% of outstanding shares. The deal has a $3 million break fee.

As part of the deal, though not dependent on it going through, Duluth has agreed to a $2.5 million, 3.9 million share private placement in Franconia, representing 5.3% of outstanding shares. Antofagasta will pay $1 million of the cost and in turn Duluth will give it 40% of the newly acquired shares.

A deal that sees Antofagasta subscribing for 7.6 million shares of Duluth is, however, depended on the deal being approved. If the acquisition goes through, Antofagasta will pay $2.63 per share for $20 million in proceeds to Duluth.

Franconia’s share price closed up 20¢ at 82¢ on 4.8 million shares traded, a new 52-week high. The company has 83 million shares outstanding.

Duluth Metals’ share price closed down 8¢ at $2.72 on just over 600,000 shares traded. The company has 103 million shares outstanding.