The release of a prefeasibility study estimating that its Twin Metals copper-nickel-platinum group metals joint-venture project would cost US$2.8 billion to build sent Duluth Metals (TSX: DM; USOTC: DULMF) shares tumbling by more than 25%.
While Twin Metals’ price tag is high, the study does show the 60%-owned, long-life project in northeastern Minnesota’s Duluth Complex has positive, if not particularly robust, economics.
The prefeasibility study projects that at an underground mine processing rate of 50,000 short tons per day (18.3 million tons per year), Twin Metals would have a 30-year mine life and a payback period of 6.4 years.
Over its three-decade mine life, the project would produce 5.8 billion lb. copper, 1.2 billion lb. nickel, 1.5 million oz. platinum, 4 million oz. palladium, 1 million oz. gold and 25.2 million oz. silver.
At an 8% discount rate, Twin Metals has a pre-tax net present value (NPV) of US$1.4 billion, or US$753 million after taxes. The internal rate of return (IRR) stands at 13.6% before taxes, or 11.4% after taxes. While initial capital costs are estimated at US$2.8 million, life-of-mine capital costs are pegged at US$5.4 billion.
On the plus side, Duluth highlights Twin Metals’ low anticipated cash costs of US76¢ per lb. copper, net of all byproduct credits, or US$1.64 per lb. copper equivalent. The company also notes the project shows strong operating margins of US$36.54 per ton.
The study uses base-case metals prices of US$3.50 per lb. copper; US$9.50 per lb. nickel; US$1,300 per oz. gold; US$1,680 per oz. platinum; US$815 per oz. palladium; and US$21.50 per oz. silver.
The mining method would be a combination of post-pillar cut-and-fill and long-hole stoping. The mill would produce both copper and nickel concentrates that would have combined recoveries of: 93.7% for copper; 62.2%, nickel; 78%, gold; 74.8%, palladium; 63.1%, platinum; and 76.9%, silver.
Mineralization 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.
Duluth’s 40% partner at Twin Metals, Chilean miner Antofagasta (LSE: ANTO), has shown some reticence towards the project of late: In early July, Antofagasta opted to keep its stake at 40% rather than increasing it to 65%.
At the time, the move was seen as telegraphing iffy economics for Twin Metals, as it came just weeks before the prefeasibility study was due out.
Since then, the joint venture’s management team has been restructured. With operatorship transferred to Duluth, the company now has three members on the JV’s technical committee and board, while Antofagasta has two.
Duluth now has six months to exercise an option to buy Antofagasta’s interest in Twin Metals by paying back the company’s sunk costs, estimated at US$220 million, as well as a US$10-million bridge loan advanced by the major.
If it chooses not to buy Antofagasta’s stake, Duluth will still have to pay back the bridge loan, plus accrued and unpaid interest, in either cash or shares.
Duluth has hired its financial advisor Barclays to help it review its corporate options.
On the news on Aug. 20, Duluth’s stock dropped by 11¢ to 31¢ — a new 52-week low — on trading volume of 500,000 shares before recovering somewhat to 34¢. The company has 136.8 million shares outstanding and has traded as high as $1.46 in the past 12 months, and had fallen further to 26¢ at press time.
Does the NPV really decline from 1.4B to just $800,000. Is that a typo? $800M?
Thank you Tynan for spotting that error. It’s been corrected to US$753 million.