Nonprofit, nonpartisan journalism. Supported by readers.


Birch Lake mining venture showcases its El Dorado — and stock price tumbles

Chile’s Antofagasta seems to be cooling to the prospect of mining on the edge of the Boundary Waters.

Last week we all got our first look at official projections of how the Twin Metals Minnesota copper/nickel mine at the edge of the Boundary Waters might proceed, and the numbers were frankly impressive:

  • $2.8 billion in capital investments to get TMM’s mines and processing facilities started, and another $2.6 billion in capital outlays over the first 10 years of  operation.
  • A payback period on those expenditures of not quite six and a half years, thanks to a combination of favorably low production costs and a revenue stream estimated to flow at more than $12 billion in that first decade.
  • Metals production, over the 30 years that this phase might run, of  5.8 billion pounds of copper, 1.2 billion pounds of nickel, 1.5 million ounces of platinum, 4 million ounces of palladium, 1 million ounces of gold, and 25.2 million ounces of silver.

All in all, “one of the most compelling greenfield copper-nickel development projects in the world,” poised to be “one of the world’s great 21st century mines” — fortuitously situated to take advantage of low production costs, a ready work force with mining experience to fill an anticipated 850 jobs, and access to Great Lakes shipping. All in “a state that supports the mining industry.”

Those are the words of Kelly Osborne, CEO of Duluth Metals, the Canadian company that owns a majority of Twin Metals Minnesota, and you might think they would be music to investors’ ears.

Especially since this time they accompanied release of a securities-trading document, known as a pre-feasibility study, prepared by independent analysts under contract to Duluth Metals and filed with Canadian regulators.

But … not so much.

33 cents, a 52-week low

As reported by Minnesota Public Radio’s Dan Kraker, who had the best of fairly cursory coverage locally,

Duluth Metals’ stock price tumbled 23 percent to $.33 a share by the end of trading Wednesday [the day of the announcement]. During a conference call to announce the report, investors appeared to have some concerns over the company’ s ability to raise the capital needed to finance the project. They also raised questions about Antofagasta’ s decision last month not to increase its ownership stake in Twin Metals.

That sent me looking to mining and investment publications for further perspective and boy, did I find some.

The Northern Miner, published from Toronto, reported that “Wednesday’s tumble of 11 cents, to 31 cents a share, took it to a new 52-week low, far below its high-water mark of $1.46 for the previous 12 months.”

(The discrepancy with MPR’s figures reflects the fact that Duluth Metals is traded on both American and Canadian exchanges; I checked both the Toronto Stock Exchange and NASDAQ on Monday and found that Duluth Metals’ shares had fallen a few cents further still.)

The Northern Miner appraises the TMM project’s overall, lifetime economic profile as “positive, if not particularly robust.” And it had the clearest analysis I’ve seen yet of how the TMM project may be affected in the fairly short term by cooling enthusiasm at Antofagasta, the Chilean conglomerate with interests in some of the mines that make Chile the world’s largest copper producer by far.

TMM is a joint venture of Antofagasta and Duluth Metals, and in early July, when Antofagasta had an option to increase its ownership share from 40 percent to 65 percent, it took a pass. After describing the executive reshuffling that ensued, The Northern Miner looks to a future that seems just a mite cloudier than last week’s projections from Duluth Metals:

Duluth now has six months to exercise an option to buy Antofagasta’s interest by paying back the company’s sunk costs, estimated at US$220 million, as well as a US$10 million bridge loan advanced by the major.

If it chooses not to buy Antofagasta’s stake, Duluth will still have to pay back the bridge loan, plus accrued and unpaid interest, in either cash or shares. Duluth has hired financial advisor Barclays to help it conduct a strategic review of its options.

All of which may have something to do with why last week’s draft of the pre-feasibility study for the TMM project, initially promised for June or July release — accounts varied on the date — was a bit late in coming. (The full document is due within 45 days of last week’s announcement.)

Where to park the tailings

I looked in vain for a reference in Duluth Metals’ release as to the estimated volume of crushed-rock tailings that will have to be contained during the mine’s operation — with peak operations handling 50,000 tons of rock per day, 18.3 million tons per year — and stored more or less permanently after the mine closes.

However, I did see a clearer statement than I’d detected previously on where the waste will end up: About half will be put back into the underground mine, the other half  held in a “surface facility” southwest of Babbitt. The mine and other operations, of course, remain in the BWCA watershed, near the South Kawishiwi River.

This puts the tailings pond and its long-term potential to create acid drainage across the Laurentian Divide and into the watershed of the St. Louis River, draining toward Lake Superior, not the watershed containing the Boundary Waters Canoe Area Wilderness and Voyageurs National Park.

This will not mollify most who oppose precious-metals mining in the north woods on environmental grounds, but it could lower the regulatory thresholds awaiting Twin Metals’ actual operating plan, which is still probably at least  two years out.

Especially if the NorthMet project proposed by PolyMet Mining Corp. for the Babbitt area — much smaller in scale, lifespan, employment potential and other respects, and much further ahead in the environmental review and permitting process — manages to secure regulatory approvals first.

Despite Duluth Metals’ assessment of Minnesota as mining-friendly, the regulatory road the TMM project will have to travel is considered “difficult” by the writers at Seeking Alpha, a crowd-sourced publisher that covers financial markets from the “buy side” of investors and industry experts rather than analysts working on the “sell side.”

Not because of vigorous regulation, mind you, but because of potent challengers and unpredictable politics. Earlier this month, Seeking Alpha suggested that investors “should prepare for a prolonged process” if the TMM project reaches the permitting stage, because

Numerous NGOs are fighting the project predominantly on environmental grounds, and local politics are split on the project as well. So much so that Minnesota Democrats decided against debating the support of non-ferrous mining development in Minnesota at the state party political platform to avoid acrimonious confrontation … .

‘Brownfields’ gain favor

But finances were a more immediate concern. Finding a replacement partner for Antofagasta “will be no easy task,” Seeking Alpha suggests, because “capital-intensive large bulk mining projects have fallen out of favor in recent times, and several other comparable projects have also come on the market.”

(Indeed, according to a report at on Antofagasta’s annual shareholder meeting in May, the Chilean conglomerate is among the world’s mining companies that have decided on a consolidation strategy of getting more copper out of existing “brownfield” mines and less from new, “greenfield” operations like the TMM project, because of lower capital costs. A full text of the Antofagasta’s chairman’s remarks, including his expectation that the TMM project couldn’t clear regulatory hurdles before the end of the decade, is available from the London Stock Exchange.)

Therefore, opines Seeking Alpha, “Duluth Metals does not seem to be in a strong position to negotiate a way out of the current situation.”

It won’t be long before we can see if they’re right.

Comments (3)

  1. Submitted by Steve Titterud on 08/26/2014 - 11:34 am.

    Antofagasta’s reluctance makes you wonder whether…

    …Duluth Metals and TMM are really telling the whole story. After all, what are they going to do without a very big partner ??

    If you were an investor, wouldn’t the fact Antofagasta is taking a pass on the project cause you to be concerned with putting your money into it ??

    For one thing, it would cause me to wonder whether those fabulous metals production numbers are made of whole cloth.

    Thanks for staying on top of the current mining issues, Ron. We count on you to help us stay informed !!

  2. Submitted by Lori Andresen on 08/26/2014 - 02:56 pm.

    PolyMet/Teck/Twin Metals mine

    First PolyMet – Permitting PolyMet is the path to permitting the other sulfide mining projects.

    The permitting of PolyMet changes the economics of the other sulfide mining projects, as well as “lowering the regulatory threshold”.

    The “surface facility” that Duluth Metals describes that would be located in the Lake Superior watershed, would most likely be PolyMet’s mine tailings basin. PolyMet officials have said that using the former LTV processing plant and tailings basin saves them several hundreds of millions of dollars in capital costs and hastens the permitting process. If PolyMet / Teck Cominco/Twin Metals (and Rio Tinto in the Mississippi watershed) joined forces, the economics and regulatory path would greatly improve for all of the projects.

    Massive PolyMet/Teck/Twin Metals mine – threatens Minnesota’s Arrowhead Region

    The Twin Metals project near the Boundary Waters proposes to put their mine waste in the Lake Superior basin under the pretense of protecting the Boundary Waters. Putting toxic mine waste from the projects near the Boundary Waters, into the Lake Superior basin under the misguided premise that it will protect the BWCA, is foolish. If we allow this to happen, both the Lake Superior and Rainy River (Boundary Waters) watersheds would be greatly harmed and polluted.

    It is expected that if PolyMet is permitted, it will merge or joint venture with nearby copper-nickel sulfide mining projects, such as the Twin Metals and Teck Cominco properties. PolyMet is only being permitted for 1/3 of its processing plants capacity – leaving room for future large scale sulfide mining expansions and partnerships.

    “Nearby PolyMet Mining has strong ties with Glencore , and perhaps this trading and mining giant could be interested in picking up another project for a song, perhaps by facilitating a merger between the two juniors, which would consolidate the whole region into just one entity.”

    Found here:

  3. Submitted by Elanne Palcich on 08/28/2014 - 01:55 pm.

    pre-feasibility study

    Antofagasta pulled out because an underground mine as proposed by TMM is too costly.
    The part of the deposit that is the highest grade is the Maturi Deposit on Spruce Road. This would be an open pit mine.
    Which leads to PolyMet. If PolyMet gets permitted, its 2/3 excess crushing capacity can be used by other companies.
    It would also be easy for other companies to hop onto an already permitted tailings basin. Even if that tailings basin (the one used by the bankrupt LTV mining company and purchased by PolyMet) is considered unstable, and is currently leaching into the watershed. All tailings basins are designed to leach so that water pressure doesn’t build up and collapse the dike wall. Which is what happened at Mt. Polley, and also what happened at HibTac in 2012, creating a 1,000 foot long crack in the dike.
    The companies want to increase their profits by reducing costs. Yet our politicians fall for the jobs propaganda over and over again. The millions spent on mining exploration could be used to attract other clean businesses instead.
    And PolyMet is not a small operation. Its wetland destruction would be the largest single loss in the history of the Army Corp. Any mine operation that results in 99% waste rock leaves behind a huge footprint. Only the mining propagandists want us to believe that mining operations are just a blip on the landscape.
    I also want to raise an ethical question. Is the Rainy River watershed (BWCA) more valuable than the Lake Superior watershed? If clean water is of great importance to all of us–humans, wildlife, waterfowl, wild rice, fish, etc.–then how is it ok to pollute any watershed and degrade our water for future generations?
    Ron, while I like your articles, you seem to want to avoid this issue.

Leave a Reply