Antofagasta opts out of Twin Metals
REGIONAL—Chilean mining giant Antofagasta has announced it will not exercise its option to purchase a controlling stake in Twin Metals Minnesota, which is working toward opening a copper-nickel and precious metals mine near Ely.
The company, last Thursday, confirmed that it was terminating its option, which will leave Duluth Metals with a 60 percent stake in the Twin Metals project.
In a statement issued by Antofagasta last Thursday, CEO Diego Hernandez said the company would be pursuing projects “with the highest value and lowest risks within our portfolio.”
Antofagasta will, for now, retain a 40 percent share of Twin Metals, which was created as a joint venture with Duluth Metals, although the company’s decision to terminate its option does give Duluth Metals the option of buying out Antofagasta’s sunk costs, for approximately $220 million Canadian.
That’s unlikely to happen given Duluth Metal’s currently available cash, which was $12.1 million Canadian as of March 31. Assuming Duluth Metals declines to buy out Antofagasta, the company will need to repay a $12.3 million bridge loan, either in cash or Duluth Metals stock.
The announcement comes less than a month before Twin Metals is expected to release its pre-feasibility study, which should provide investors and the public with their most detailed plan to date about how the company plans to develop the mineral resources it currently controls, and how much it will cost. Twin Metals officials have previously put the price tag on the project at upwards of $2.5 billion.
The news has been widely viewed as a setback for Duluth Metals and its Twin Metals project, and the company’s stock was down 13.6 percent on the day of the announcement. It’s since fallen further, to just 49 cents per share, close to a record low for the company within the past year.
Even so, Duluth Metals officials put a positive face on the news, and shifted focus to the upcoming release of the pre-feasibility study.
“We believe the highlights of the pre-feasibility technical report to be published later this month will showcase the strengths of the [Twin Metals] project, namely a great mineral resource in a mining-friendly jurisdiction with much of the required infrastructure existing to support a large scale mining operation,” said Kelly Osborne, President and CEO of Duluth Metals. The project team has done a great job towards completing the study and we look forward to advancing the project through its next phase of activity.”
The decision by Antofagasta was not entirely unexpected. The publicly-traded company has been under pressure from some shareholders who were concerned that the Twin Metals project was too costly an investment, given the risks inherent in establishing a new mine.
At the company’s May 21 annual meeting, Antofagasta Board Chair Jean-Paul Luksic told shareholders that the company would be refocusing its investments on redevelopment of existing mining operations. “We seek only to invest in projects that we expect to offer strong returns. Currently we are focused on brownfields projects as they help control the growth of unit costs across our operations and allow us to take full advantage of our substantial mineral resources, while generating strong returns,” Luksic said. Referring to Twin Metals, Luksic noted that the project has significant reserves and is a world-class deposit in terms of size. “It also faces technical and environmental challenges which we believe will be overcome, but not until at least the end of this decade,” he said.
Twin Metals has established a prominent presence in the Ely area in recent years. It’s built a large base of operations and headquarters to oversee its continued exploration work along the northernmost flank of the Duluth Complex, a very large, low-grade mineral deposit that’s known to contain copper-nickel, as well as platinum group metals and cobalt. The company has identified several richer deposits all located near the Kawishiwi River, about ten miles south of Ely. In their most recent public comments, company officials have indicated that mining would likely be done underground.