Investors with an appetite for good mining stories should not restrict themselves to the UK market. Any decent stockbroker will let you buy overseas-listed shares. Canadian equity markets in particular are rich in resource stocks.

One company that catches our eye is Toronto-listed Duluth Metals (DM:TSX) which has a potentially significant share price catalyst on the horizon. Buy at C$2.41 ahead of exploration news in the next few months which could trigger a new rally in the £190 million cap.

Asset rich

US-based Duluth owns 60% of the Twin Metals copper, gold and palladium project in Minnesota in a joint venture with FTSE 100 miner Antofagasta (ANTO). It is a giant polymetallic structure and one of the largest platinum and gold resources outside of South Africa. The asset contains 13.7 billion pounds of copper, 4.4 billion pounds of nickel, 5.6 million ounces of platinum, 12.6 million ounces of palladium and three million ounces of gold in the indicated resource category.

There is a further 11.8 billion pounds of copper, four billion pounds of nickel, 3.5 million ounces of platinum, 7.6 million ounces of palladium and 1.7 million ounces of gold in the inferred resource category. These are chunky numbers which keep getting bigger as exploration progresses. ‘Environmental permitting (is) a risk, but the huge economic potential of the asset will be hard to ignore in a region where mining is already prevalent,’ says investment bank Liberum.

The published resource represents a mere 11% of the Twin Metals property, implying there is significant upside potential for finding more material. Indeed, 98% of all drill holes to date have hit mineralisation, claims Kit Tatum, Duluth’s vice president for business development.

Research group Edison says the scale of the resource indicates potential for larger milling capacity options than the present range of 40,000 tonnes to 80,000 tonnes per day. ‘An increase in the potential project scale should represent a material increase to the project valuation,’ it comments. ‘A substantial higher-grade geological sub-unit has been identified that should allow mine plan optimisation to further enhance the project’s net present value.’

A pre-feasibility study should be completed in the middle of 2013. Antofagasta is providing $130 million of funding over three years to advance the project towards a bankable feasibility study. It envisages an underground mine and the use of a hydro-metallurgical process to recover the base and precious metals from the bulk copper-nickel concentrate.

Duluth owns 100% of the exploration ground along the eastern side of the Twin Metals land. It is this property that will be the subject of drill results in early 2013. Tatum says Duluth’s geologists are confident the northern section could be the feeder dike responsible for the formation of the mineralisation in Twin Metals. The company therefore believes this exploration land could be of even greater quality than the area under the Antofagasta venture. Positive results could send the share price soaring. There is no guarantee of success, so you must consider this a high-risk investment.

London calling

Antofagasta does not have any rights to get first dibs on this exploration ground. The only rights under the present agreement is for the large cap to have the ability to buy an additional 25% of Twin Metals after completing a bankable feasibility study. Tatum reckons such a cash injection at this stage would give Duluth funds to contribute towards its share of development costs, thereafter using Antofagasta’s balance sheet to help bring the mine into production.

Duluth is actively considering listing its shares in London. Shares understands this could happen in mid-2013. The London market is crying out for an emerging mid-cap copper/polymetallic play and we would expect significant interest in Duluth from UK-based institutional investors. One option is to spin out the 100%-owned exploration assets into their own-listed vehicle.

Duluth Metals BUY
(DM:TSX) C$2.41

Stop loss: C$1.93

» INVESTMENT CASE

• High-quality mining asset

• Cash-rich joint venture partner

• Near-term share price catalyst

Business: Metals exploration

» Vital stats

Market value: £190.4 million

Prospective PE Dec 2013: n/a

Prospective PE Dec 2014: n/a

1-month relative strength: -3.6%

1-year relative strength: 3.1%

Prospective dividend yield: n/a