Duluth JVs With Antofagasta At Nokomis

It’s not very often that a junior Canadian explorer hooks a South American mining giant with a promising deposit — especially when the major has a market cap of US$16 billion. But when it happens, the news rocks the stock.

Toronto-based Duluth Metals’ (DM-T) joint-venture agreement with Chile’s Antofagasta (ANTO-L), one of the world’s largest copper producers, sent the junior’s shares surging 50.93%, or $1.09, to close at $3.23 per share on Jan. 14, with 5.5 million shares changing hands. (Duluth was trading at a low of 14¢ a share in March 2009.)

The partnership will accelerate the development of the Nokomis deposit, a copper-nickel-platinum group metals project in northeastern Minnesota. With the combination of Antofagasta’s expertise in planning, building and operating large mines, and the US$227 million in financing it brings to the table, Duluth believes a pre-feasibility study and a bankable feasibility study can be finished within the next 36 months.

Duluth asserts that its Nokomis deposit is comparable in size to the Sudbury basin in northern Ontario or Voisey’s Bay in Labrador, two of the world’s largest nickel-copper mining complexes.

When in operation, the large deposit, which has the potential to become one of the world’s premier low-cost copper-nickel producers, could produce up to 40,000 tonnes of ore per day based on an initial 22-year mine life, according to Duluth. Its estimate is based on using only about one-third of the identified resource, with 40% of the Nokomis property yet to be explored.

Despite discovering the deposit three years ago, Duluth has already assessed that the underground copper-nickel sulphide deposit contains an indicated resource of 550 million tonnes grading 0.639% copper, 0.200% nickel, 0.660 gram combined platinum-palladium-gold per tonne, for a copper equivalent grade of 1.51%.

Nokomis has an additional 275 million tonnes of inferred resources grading 0.632% copper, 0.207% nickel, 0.685 gram platinum- palladium-gold, for a copper- equivalent grade of 1.53%.

Under its agreement with Antofagasta, Duluth contributes the Nokomis project and about 5,000 acres in the Duluth mining complex for a 60% stake in the joint venture, with Antofagasta taking an initial 40% interest. In exchange for its 40%, Antofagasta will contribute US$130 million in direct funding.

Antofagasta has the option to acquire an additional 25% of Nokomis from Duluth at an exercise price calculated on a pro rata share of one times the net asset value, which will be set by the bankable feasibility study.

If Antofagasta decides to proceed with further funding of the project and to maintain its 25% option, it will disproportionately fund 65% of the joint-venture’s expenditures and Duluth will fund 35%.

In addition, Antofagasta has agreed to give Duluth up to US$30 million to cover the junior’s share of subsequent project expenditures, which will be repayable in cash, Duluth shares, or offset against the 25% option exercise price.

Antofagasta has also agreed to subscribe to a private placement of Duluth shares for about $12 million (US$11.6 million) — providing immediate liquidity on attractive terms, Duluth says.

The junior will issue 6 million shares or about 7% of its total shares to Antofagasta at a price of $2 per share. (Duluth will retain 100% of its roughly 15,000 acres of grassroots exploration assets in the Duluth Complex.)

The partnership provides three key benefits, Christopher Dundas, Duluth’s chairman, said in a statement. First, it “delivers near and longer-term project development financing that we expect will be sufficient to bring the project to production.” Second, the copper major has made a “commitment to arrange project financing for the large capital cost requirements, which are projected to be US$1.3 billion,” and third, Antofagasta brings “outstanding execution capability and mitigates execution risk.”

Antofagasta owns three copper mines in Chile with total production of more than 478,000 tonnes of copper a year.

Its principal assets are the Los Pelambres, El Tesoro and Michilla mines, and the Esperanza and Antucoya projects in Chile. plus the Reko Diq joint-venture in Pakistan.

Antofagasta’s Esperanza project is expected to add around 200,000 tonnes of copper and 230,000 oz. gold to annual production from 2011. It also has exploration programs in the Sierra Gorda district of Chile, as well as elsewhere in Latin America, and Europe and Africa.