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TABLE OF CONTENTS Jul 14 - 20, 2014 Volume 100 Number 22 - 0 comments

Antofagasta's cooling stokes uncertainty for Duluth's Twin Metals

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Antofagasta (LSE: ANTO) has decided not to increase its ownership in the Twin Metals joint-venture project with Duluth Metals (TSX: DM; US-OTC: DULMF), just weeks before the scheduled completion of a prefeasibility study on the large copper–nickel–platinum group metals project.

The Chilean copper miner owns 40% of the project in Minnesota and is forgoing its option to earn another 25% interest. The option was triggered by the project’s advancement, as the partners draw closer to delivering a bankable feasibility study. Duluth owns 60% and will now become the joint venture’s operator.

A prefeasibility study on the Twin Metals joint-venture project is due by the end of July.

On the news, CIBC World Markets mining analyst Tom Meyer lowered his 12- to 18-month price target for Duluth to 40¢ from $1, and reduced his rating to “sector underperformer” from “sector performer.” Meyer noted that the announcement was unexpected.

“The way forward for Duluth is unclear at this time,” Meyer wrote in a client note. “We strongly believe the project has merit, but our view is informed only by the limited disclosures since the 2009 scoping study. The timing of Antofagasta’s departure ahead of the public release of the prefeasibility also gives us pause.”

Shortly after it broke the news about Antofagasta, Duluth announced that it has engaged Barclays to review its alternatives.

While a now out-of-date preliminary economic assessment returned positive economics at low metal prices for a $1.3-billion, 40,000-tonne-per-day operation at Twin Metals (then named “Nokomis”), the prefeasibility will look at a 50,000-tonne-per-day underground mine at a cost that could climb above $2 billion.

As well as becoming project operator, Duluth will now have three members on the Twin Metals joint-venture technical committee and board, while Antofagasta will retain two.

Duluth could exercise its buy-back option to acquire Antofagasta’s 40% interest by paying back the major’s sunk costs — estimated at US$220 million — plus a US$10-million bridge loan it received from the major.

If it does not exercise the option within six months, it will have to pay back the bridge loan, plus accrued and unpaid interest, in either cash or shares.

A resource update in April outlined a billion pounds in nickel and copper hosted in four deposits at Twin Metals: Spruce, Maturi, Maturi Southwest and Birch Lake.

Using a 0.3% copper cut-off grade, measured resources total 295 million tonnes grading 0.63% copper, 0.2% nickel, 0.148 gram platinum per tonne, 0.345 gram palladium and 0.084 gram gold. Indicated resources add 977 million tonnes grading 0.56% copper, 0.18% nickel, 0.159 gram platinum, 0.357 gram palladium and 0.084 gram gold.

Inferred resources add another 1.3 billion tonnes grading 0.47% copper and 0.16% nickel.

Meyer noted that the details of the forthcoming prefeasibility will be important in assessing the value proposition remaining in Duluth shares, and that a near-term recovery in the company’s share price is unlikely until the study highlights are released and funding plans are clarified.

CIBC estimates that Duluth’s cash position is $8 million.

Duluth shares recently traded at 57¢ in a 52-week range of 52¢ to $1.50. The company has 136.8 million shares outstanding.

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A core sample from Duluth Metals and Antofagasta's Twin Metals copper-nickel-PGM project in Minnesota.  Credit: Duluth Metals
A core sample from Duluth Metals and Antofagasta's Twin...

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