Duluth Metals Ltd (TSX: DM) announced today it has signed a binding heads of agreement with Antofagasta PLC (LSE: ANTO) on a joint venture development of the large scale Nokomis copper-nickel-PGM project in northeast Minnesota, US.
Duluth will contribute the Nokomis project and approximately 5,000 acres in the Duluth complex for a 60 percent interest in the joint venture, with Antofagasta to acquire an initial 40 percent interest. Antofagasta holds the option to acquire an additional 25 percent of Nokomis from Duluth at an exercise price calculated on the net asset value which will be determined by the bankable feasibility study.
Antofagasta will provide US$130 million in direct funding to the project for its 40 percent interest in the joint venture. Thereafter, if Antofagasta elects to proceed with the further funding of the project and to maintain its 25 percent Option, Antofagasta will disproportionately fund 65 percent of the joint venture expenditures and Duluth will fund 35 percent.
Additionally, Antofagasta has agreed to provide Duluth with up to US$30 million in additional funding to cover Duluth's share of subsequent project expenditures, which will ultimately be repayable in cash, Duluth shares or offset against the 25 percent option exercise price. Antofagasta will also subscribe to a private placement of Duluth shares for approximately US$11.6 million.
The combination of the initial funding commitment, private placement and incremental funding from Antofagasta ensures that up to US$227 million of funding will be available to advance the project with Antofagasta involvement, before any additional funding would be required from Duluth. Antofagasta has also committed to pursue project financing, on a common basis with Duluth in respect of the large development capital cost financing requirements of the project.
Duluth said tha capital cost requirements for the project are currently estimated to be US$1.3 billion.
"Nokomis is an excellent deposit and we are very pleased to enter into this agreement with Duluth," Marcelo Awad, CEO of Antofagasta Minerals SA, was cited as saying. "This is a large deposit that has the potential to become one of the world's premier low-cost copper-nickel producers. We are looking forward to working with Duluth to advance this very promising project."
Duluth expects development activities at Nokomis to proceed on an accelerated basis, and anticipates pre-feasibility and bankable feasibility studies to be completed within 36 months.
Antofagasta's funding and financing commitments are subject to certain terms and conditions, including the execution of a definitive participation and shareholder agreement. Duluth anticipates these conditions to be satisfied during the second quarter of 2010.
Duluth will complete the private placement of 6 million shares of its common stock, or approximately 7 percent of outstanding shares, to Antofagasta at a price of C$2.00 per share, resulting in gross proceeds to the company of C$12 million.
"The private placement provides immediate liquidity, on very attractive terms to Duluth," said Dundas. "This funding will allow Duluth to accelerate on all fronts."
Located in northeast Minnesota, Nokomis is an underground, copper-nickel sulphide deposit. In size, the total resource is comparable to the Sudbury Basin and Voisey's Bay, among the world's largest copper-nickel-PGM mining complexes.
Currently the NI 43-101 compliant Nokomis deposit contains 550 million tonnes of indicated resources grading 0.639 percent copper, 0.2 percent nickel, 0.66 grams per tonne PGM (platinum-palladium-gold) for a copper equivalent grade of 1.51 percent, plus an additional 274 million tonnes of inferred resources grading 0.632 percent Cu, 0.207 percent Ni and 0.685 grams per tonne PGM for a CuEq grade of 1.53 percent.
When in operation, Nokomis could produce up to 40,000 tonnes of ore per day, based on an initial 22-year mine life. This estimate is based on utilizing only approximately one-third of the currently identified resource, with 40 percent of the Nokomis property yet to be explored.
Antofagasta Minerals is one of the world's largest copper producers. Its activities are mainly concentrated in Chile where it owns and operates three copper mines with a total production of more than 478,000 tonnes of copper per annum. Its principal mining assets include the Los Pelambres, El Tesoro and Michilla mines and the Esperanza and Antucoya projects in Chile and the Reko Diq joint venture in Pakistan.
Disclosure: The author holds no positions in the company