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Study: Twin Metals mine near Ely would be profitable

David Oliver, project manager for Duluth Metals, holds a core sample showing a polymetallic deposit from an exploration area east of the Kawishiwi River in northern Lake County in 2010. )File / News Tribune)

Duluth Metals released the results of a “pre-feasibility” study on its proposed underground copper mine near Ely on Wednesday, saying the project has substantial reserves, would have a low cost of production and could turn a solid profit.

The report underscores the potential of the company’s proposed Twin Metals mine to produce billions of dollars’ worth of minerals over several decades.

The report said the proposed mine would take about three years to build at a cost of $2.8 billion and eventually would employ about 850 people mining about 50,000 tons per day.

“We think this project compares very well to other copper development projects in the world,” Christopher Dundas, Duluth Metals executive chairman, said in a conference call with mining industry analysts Wednesday morning.

Dundas said the mine’s hallmark is ample ore reserves and low production costs when compared with mines worldwide. The mine is predicted to produce valuable minerals for at least 30 years — including an estimated 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.

“We think this is a great position to build from,” Dundas said, adding that he believes the project eventually will grow in scale, and in profit margin, when a final “bankable” feasibility study is completed in coming years.

The report predicts the mine would have $12.1 billion in revenue over the first 10 years, and profits would pay off the cost of building the mine in just 6.4 years.

“The foundations of the (Twin Metals) project are its tremendous mineral resource, technically sound engineering and test work, strong operating margins, and location in a state that supports the mining industry,” said Kelly Osborne, Duluth Metals president and chief executive officer, adding that company has worked hard to take advantage of the “world-class infrastructure in Northeast Minnesota.”

Osborne said the mine site, nine miles southeast of Ely near the Kawishiwi River, offers easy access to the electrical grid, railroads, good highways, a “workforce that’s familiar with mining” and a Great Lakes port within 90 miles.

“All of that infrastructure has been taken advantage of” as the project has advanced, Osborne said. “Minnesota is, we believe, a great state to build a mine. … It has a tremendous history on the Iron Range. And we believe Minnesota is a great place to build one of the world’s great 21st century mines.”

Osborne also said that every effort has been made to minimize the mine’s environmental impact, including mine surface configurations, underground operations, backfilling, tailings disposal and more. “Every phase of the project we’ve looked at … it’s all been to minimize impact to the environment,” Osborne said.

The project has been criticized by environmental groups for its location, abutting the Boundary Waters Canoe Area Wilderness, and the possibility that mine runoff or unforeseen disasters could pollute the region’s pristine waters.

Critical questions Analysts on Wednesday asked critical questions about the company’s beleaguered stock price, noting the Toronto-based firm’s low cash on hand with no sign of any income. Analysts also noted a likely difficult road ahead for Duluth Metals to secure lenders and investors to finance the project — from an upcoming final feasibility study to environmental review and construction costs.

But company officials said they remain confident that investors will warm to the project simply because of the huge underground assets.

Duluth Metals stock dropped about 9 cents per share Wednesday to a 52-week low of about 30 cents, down from the 52-week high of $1.46.

The company has been analyzing mineral samples from dozens of test drill sites across the 40,000 acres to which it holds mineral rights, both north and south of Minnesota Highway 1. Duluth Metals also has been collecting environmental data in the mine area for several years but has not begun any formal environmental review process, nor has the company applied for any state permits. Those efforts could still be several years away.

Mara Strazdins, Duluth Metals’ vice president of investor relations, told the News Tribune that the company doesn’t have a timetable for when the final feasibility study will be completed. She said the next steps are a detailed engineering, economic and environmental assessment and a “formal Mine Plan of Operation to submit for environmental permitting. The bankable feasibility study will be started after that.”

Wednesday’s report comes about a month after Chilean-based mining giant Antofagasta announced it is pulling back on its investment in the proposed Twin Metals mine. The company said it was declining its option to buy an additional 25 percent of Twin Metals, which it jointly owns with Duluth Metals, and that it also was “evaluating its options with respect to its continued 40 percent interest” in Twin Metals and its relationship with Duluth Metals.

Antofagasta will continue to own 40 percent of Twin Metals for now, with Duluth Metals owning 60 percent of what would be Minnesota’s largest-ever underground mine and one of the state’s first copper-nickel projects.

Twin Metals was formed in 2010 to develop the Ely-area mine when Antofagasta paid $130 million for its 40 percent interest in the project

The Twin Metals project would incorporate several apparently rich deposits north and south of Minnesota Highway 1, near the Kawishiwi River and Birch Lake areas. While the mine would be in the BWCAW watershed, the company said it plans to process the ore in developed areas to the south, in the Lake Superior watershed.