Duluth Metals, PolyMet, Western Copper May Lure Suitors, CIBC Analyst Says

September 14, 2010

Duluth Metals Ltd., Polymet Mining Corp. and Western Copper Corp. are the smaller Toronto Stock Exchange-listed copper companies most attractive to potential suitors, Canadian Imperial Bank of Commerce said.

The so-called junior mining companies, which have yet to begin production, topped a list of more than 160 companies when ranked by attributes including share price and the size, quality and likely production cost of their assets, Ian Parkinson, a CIBC analyst, wrote in a note to clients yesterday.

The stocks are "sure to gain attention from foreign interests or mid-tier producers looking to improve their long- term growth profile," Parkinson wrote.

Copper-project developers are likely to draw interest from sovereign funds in "resource hungry developing countries," especially China, as well as from base-metal producers, Parkinson wrote. China consumes 39 percent of the world's copper production and has 6.3 percent of the world's reserves, he said.

"There's a definite shortage of copper looming," said F. Dale Corman, Western Copper's chief executive officer. "There's a limited number of large deposits that are in the range the big mining companies are interested in. I expect to see a lot of people walking through our doors."

China Railway Construction Corp. and Tongling Nonferrous Metals Group Holdings Co. bought Canada's Corriente Resources Inc. in August for C$679 million ($662 million). Another Canada- based company, Northern Peru Copper Corp., went to China Minmetals Corp. and Jiangxi Copper Co. for C$455 million in March.

Highest Grade

Duluth Metals, which owns 60 percent of the Nokomis Project in Minnesota, has the highest-grade copper among the 25 companies in Parkinson's shortlist of potential acquisition targets. The company, based in Toronto, also ranks third in the size of its resources and has the third-lowest likely cash cost per pound according to CIBC's calculations.

Antofagasta Plc bought the other 40 percent of the Nokomis Project in June.

Polymet, which also plans to mine in Minnesota, would have the lowest cash costs among the companies in the survey, Parkinson wrote. It also would have the most production per dollar of capital expenditures.

Western Copper, with projects in British Columbia and northern Canada, ranks in the top five in seven of the 12 categories CIBC used to rate the companies in the survey, including market value relative to required initial capital.

The fourth- and fifth-ranked copper-industry companies on Parkinson's list have already attracted interest from producers.

Terrane Metals Corp. agreed in July to be acquired by Thompson Creek Metals Co. for about C$650 million. Augusta Resource Corp. said last month that HudBay Minerals Inc. has agreed to boost its stake in the company to as much as 13.6 percent.