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Antofagasta makes C$96m all-cash Duluth Metals bid

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Chilean copper giant Antofagasta will officially become a US copper-nickel miner if a proposed friendly all-cash C$96 million (US$84.63m) deal to acquire all of Toronto’s Duluth Metals is approved by shareholders in January.

Antofagasta and Duluth Metals had been 40%/60% partner in the C$2.77 billion (US$2.44b) Twin Metals Minnesota underground mining project located in the Duluth Complex mining district near Ely, Minnesota, at the end of the Mesabi Iron Range. The region is believed to hold one of the world’s largest untapped resource of copper, nickel, PGM and other precious metals, valued as much as US$100 billion.

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Ironically, earlier this year, Antofagasta officials had declared they weren’t interested in increasing their ownership in the project. At the time, Duluth Metals could have bought a 40% stake in the project for C$220 million (US$206 million), which was what Antofagasta had spent on the joint venture.

Nevertheless, Antofagasta has made an all-cash offer for all of the issued and outstanding Duluth shares at a price of C$.045 per share. As a part of the agreement, Antofagasta has agreed to fund the liquidity requirements of Duluth with a private placement of C$2.3 million (US$2.03m) through to the closing of the deal. Payment of a bridge loan has been extended by 12 months.

In a statement Monday, Antofagasta CEO Diego Hernandez said, “The acquisition of Duluth provides 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.”

A pre-feasibility study completed last month and filed with SEDAR estimated the underground mine would yield 5.8 billion pounds (2,638,835 metric tons) of copper, 1.2 billion pounds (544,310 t) of nickel, 1.5 million ounces of platinum (46 t), 4 million ounces of palladium (124 t), 1 million gold ounces (31 t) and 25 million silver ounces (777 t).

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Duluth Metals had hopes of finding a buyer for its 60% ownership stake in Twin Metals and potentially for its buyback rights for Antofagasta’s share of the JV. The other option would have been for Duluth to obtain project financing and go forward with the development of Twin Metals with Antofagasta as a partner.

However, during a conference call Monday with analysts and shareholders, Duluth Executive Chairman Christopher Dundas said, “These are challenging times. The Duluth board has considered all alternatives and believe that this transaction is in the best interest of Duluth shareholders in the context of world markets.”

One skeptical shareholder quizzed Dundas, stating he had bought the stock at C$1 per share. However, Dundas observed the Duluth share price had dipped to a 52-week low of C$0.07 cents on Halloween. Therefore, Dundas reasoned, “this offer at 45-cents/sh carries a significant premium.”

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Nevertheless, another shareholder observed that, under US law, during a bid for a company, dissenting shareholders are permitted to request an independent valuation of Duluth Metals. Dundas responded that RBC Capital Markets has been retained to do a formal independent valuation.

Antofagasta already owned 10.4% of Duluth’s common shares prior to the deal and the London-based company has also entered into a lockup agreement with all of Duluth’s officers and directors and Wallbridge Mining Company for a total of 10.9% of Duluth’s common shares.

Dundas assured shareholders and analysts that Antofagasta believes in the Twin Metals project and “they believe in northern Minnesota as an attractive market” and would keep project permitting and development on schedule.

If another offer is made by a third party prior to shareholder approval of the deal sometime in early January, Antofagasta has the option of matching the offer. If it chooses not to, Duluth has to pay a termination fee of C$3.5 million ($3.085m) to Antofagasta.

The Twin Metals Minnesota project is expected to generate 850 permanent jobs and 3,500 construction jobs. However, environmental groups are worried about the project because of its proximity to the Boundary Waters Canoe Area Wilderness. The region’s watershed ultimately flows into Lake Superior.

Currently there are eight active taconite mines in the Mesabi Iron Range and two projects in development. Twin Metals is located at the eastern end of the range.