Resource News

Analyst Chris Krueger shares his thoughts on PolyMet Mining, a Canadian resource company that’s focused on developing its wholly owned, advanced-stage NorthMet copper-nickel-precious metals project in Minnesota.

Chris Krueger, CFA, is a senior research analyst at Lake Street Capital Markets who covers consumer-related companies, as well as the mining sector. Prior to joining Lake Street, Chris was a senior research analyst at Northland Capital Markets, where he covered consumer-related companies, mining companies and special situations. Previously, he was with Miller Johnson Steichen Kinnard, and with Dougherty & Company. In 2011, Chris received a Wall Street Journal “Best on the Street” analyst award. Chris received a BS degree from the University of Minnesota. He is a CFA charterholder.

In the interview below, Krueger shares his thoughts on PolyMet Mining (TSX:POM,NYSEMKT:PLM), a Canadian resource company that’s focused on developing its wholly owned, advanced-stage NorthMet coppernickel-precious metals project in Minnesota.

RIN: PolyMet’s NorthMet copper-nickel project is part of the Duluth Complex, which I’ve heard is rich in metals. Can you talk a little about the region and past mining activity there?

CK: The Duluth Complex is possibly the world’s largest untapped resource of copper, nickel and platinum-group metals, with multi-billion tons of resources estimated to be worth more than $1 trillion, a number that continues to rise as more exploratory drilling occurs. It is located in the Ely-Hoyt Lakes region of Northeastern Minnesota, north of Duluth.

Statistics from the Minnesota Department of Natural Resources indicate that more than 1,900 diamond drill holes totaling over 754,591 feet have been drilled to explore the Duluth Complex for copper and nickel deposits. This has been going on since 1951, or over 60 years. This drilling has resulted in the outline of at least 10 disseminated copper-nickel deposits over a 22-mile strike length. These deposits have a combined estimated resource of 4.4 billion tons. This is considered to be a “world-class resource” that has garnered interest from several mining companies due to its massive volumes of contained copper and nickel, as well as other metals.

The Duluth Complex cuts across the eastern end of the Mesabi Iron Range, where mining activity has occurred since the late 1800s. At first the region was mined for high-grade natural hematite iron ore, but as the hematite iron ore became largely depleted, the region began mining taconite, a lower-grade, silica-rich magnetite ore.

RIN: I’ve also heard that though they are plentiful, the metals in the Duluth Complex are difficult and expensive to extract. How does PolyMet plan to get around those barriers? What has made it economic to extract those metals now?

CK: There are three main factors that have made the Duluth Complex economically viable once again. First, the prices of the various commodities contained in the ore, such as copper, nickel, cobalt, gold, platinum, palladium and silver, have increased significantly over historical levels, leading to a much better market for selling the commodities.

Second and thirdly, new and updated technologies exist that allow the commodities to be extracted from the ore, even if the ore is low grade. The new technology PolyMet is considering in Phase II of its project is called the hydromet process. In addition, advances in standard flotation process design allow much higher concentrate grades to be produced, either for the hydromet process or for direct sale on the market. So the combination of higher prices for the commodities, lower mining costs and advances in processing technology have made the nickel-copper deposits of the Duluth Complex economically viable.

RIN: There have been some environmental concerns about NorthMet — are they related to the above difficulties? How is the company addressing those concerns?

CK: The company has been going through the environmental approval process for almost a decade, and it appears that the Final Environmental Impact Statement (FEIS) will finally be published in the coming months. It will incorporate the environmental concerns of various entities and how PolyMet intends to protect the area’s land, water, air and more.

RIN: What will be the next steps for the company after the FEIS is completed?

CK: The State of Minnesota’s Department of Natural Resources stated in the fall of 2014 that its goal is to complete the FEIS by the spring of 2015. After this occurs, permitting should occur in the following six months.

RIN: The team at PolyMet clearly believes strongly in NorthMet, as does shareholder Glencore (LSE:GLEN). Overall does the company have something good going on?

CK: Yes, this mining project could be a game changer for the Duluth Complex and for PolyMet. It is expected to have a long mining life and provide a significant number of high-paying jobs in an economically stressed area. In addition, other companies in the region have significant resources that could gain approval. PolyMet’s management team has improved in recent years and I think it will be successful.

RIN: In brief, what’s your stance on the outlook for copper and nickel? Forecasts for both metals seem fairly mixed lately.

CK: In the longer term, I believe demand for copper and nickel will remain strong and that commodity pricing will gradually increase overall, although there are always near-term fluctuations. For centuries, base metals such as copper and nickel have provided the materials for many of the planet’s most basic needs. They are used in structures such as homes and skyscrapers, in tools such as farming equipment and cooking utensils and for providing the means for electric power generation and transmission.

World copper consumption has risen steadily throughout history, and especially over the past 150 years. Underdeveloped countries have seen overall living standards rise, which has resulted in an increase in copper consumption per capita. Per capita consumption in underdeveloped countries is expected to rise 10- or 15-fold to levels that occur in developed countries like the United States, Japan and Europe. The United States has always been a large producer and consumer of copper, but it has come to the point that it is no longer self sufficient and is now a net importer of copper. We believe Minnesota’s copper deposits in the Duluth Complex are perhaps the largest currently undeveloped copper resource in the United States.

Nickel is an important critical and strategic metal for the United States, since the country currently imports all of its nickel supplies. The main use of nickel is in an alloy of nickel and steel, also known as stainless steel. Stainless steel has a variety of applications where strength and corrosion resistance are required, ranging from scalpels and other medical instruments to armor plate. It is used in the chemical industry where resistance to caustics or saline solutions is required, such as in hospital and kitchen equipment, aircraft engines, gas and power plant turbines, hard facing of construction equipment parts and many other industrial and consumer applications.

Right now the world is in a situation of rapidly increasing use of stainless steel and other nickel applications, especially in the developing world, and this has created a major shortage of nickel in world markets. This has resulted in supply shortages and rapidly rising prices. We believe Duluth Complex ores represent the only known major potential source of nickel in the United States.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: PolyMet Mining is a client of the Investing News Network. This interview was conducted as part of the company’s paid advertising campaign and is paid-for content.

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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