In our recent article on Duluth Metals (OTCPK:DULMF) we stated that "The delays in publishing results from the PFS are cause for concern". This assessment has been confirmed by the company's August 20 news release, which highlights headline results of the Twin Metals draft preliminary feasibility study, or PFS.
While some of the published results appear attractive at first sight we note the base case post-tax NPV (8%) of $750M, unfavorably contrasted by the required initial capital requirements of $2.77kB. A low base case IRR of 11.4% and a pay-back period of 7.2 years further explain the recent decision by Antofagasta (OTC:ANFGF) to cancel the option to acquire more equity of the project development JV.
Judging from currently available information we believe that Duluth Metals will have difficulties finding a new partner for the continuation of the development of the Twin Metals project. The company has got a little over four months left to buy back Antofagasta's share of the project at sunk cost which we would view as a pre-requisite for any new partner entering the development JV. The market appears to be sharing our concerns judging from the share price which dropped by 22% on the day.
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