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Sky high PGM prices spark exploration

June 1, 2008
by Heidi Ulrichsen
In: Exploration with 0 Comments

Northern Ontario is never going to become a leading producer of platinum group metals (PGMs), but the region’s output may eventually increase to the point that it “can’t be ignored by the rest of the world,” according to an executive at a northwestern Ontario palladium mine.

Dave Passfield, vice-president of operations at North American Palladium Ltd.’s Lac des Iles mine, said soaring PGM prices have spurred on more exploration for PGMs in Northern Ontario, which could eventually lead to more production.

In May 2003, the price for an ounce of palladium stood at US $150. The prices have risen slowly over the past five years, but spiked dramatically earlier this year, reaching a record high of US $588 in February.

By April, palladium prices had dropped somewhat, hovering around US $430.

Platinum prices also spiked earlier this year. In May 2003, platinum sold for US $602, but reached a record high in February 2008 of US $2,276. At press time, the price wavered between US $1,900 and $2,000.

Lac des Iles, the only mine in the north focusing primarily on PGMs, has increased production in recent years to take advantage of the high prices.

The deposit, located 85 km north of Thunder Bay, was discovered in 1963. It wasn’t developed until 1993, when Madeleine Mines Ltd. (which later became North American Palladium) opened a 2,500 tonne per day open pit mine.

In 2001, the open pit mine was expanded, and a new mill was constructed. In 2006, a new underground mine was opened on the site.

It now produces five per cent of the world’s palladium supply.

Production increased at the facility by 34 per cent in 2006, after the opening of the underground mine, and 21 per cent in 2007, bringing the total amount of ore currently mined to 14,000 tonnes per day. Another five per cent increase in production is expected in 2008.

“We have increased production, and we’re hitting it at the right time too, when we’re starting to see metal prices go up,” said Passfield.

Palladium accounts for about 47 per cent of the mine’s output, and platinum 16 per cent. Nickel, copper and gold are also extracted from the mine, along with the other, rarer PGMs – ruthenium, rhodium, osmium and iridium.

Although the current mine plan for Lac des Iles sees the open pit mine only lasting until early 2009, and the underground mine to late 2010, management is examining the feasibility of extending the life of the mine, Passfield said.

“With the higher metal prices, we’re evaluating whether it’s possible to do another pushback in the pit walls. That would add another two to three years of life to the open pit,” he said.

“We’re just completing the scoping study on what we call the offset zone, which is really an extension of the underground mine. That would potentially add another six to eight years on the underground mine.”

South Africa

The recent rise of PGM prices is partly due to an electricity crisis in South Africa, where the majority of PGMs are mined, said Victor Flores, senior mining analyst at HSBC Securities USA Inc.

The demand for power in South Africa has outstripped capacity, and the state-owned electrical utility company, Eskom, has been limiting the mining industry to 90 per cent of its normal power consumption, forcing production to slow down, he said.

“Eskom has basically gone to the mining industry and said ‘We can’t generate enough power for the country’s needs, so we’re going to cut off the mining industry instead of residential users’,” said Flores, who presented the outlook for PGMs at the 2008 PDAC convention in March.

“The utility, faced with a situation where they can’t meet the demand for electricity, has had to decide who they are going to cut off.”

Other major production areas for PGMs are Norilsk, Russia and Stillwater, Montana, he said. Northern Ontario produces about six per cent of the world’s supply of PGMs, said Flores.

The Russians have stated they cannot increase production to help make up for what would normally be produced in South Africa, he said.

PGMs are dense, durable and have catalytic properties. High PGM prices are also related to their primary use as catalytic converters in vehicles, said Flores.

Catalytic converters are devices used to reduce the toxicity of emissions from internal combustion engines, he said. As developing countries are becoming more concerned about emissions from vehicles, there is a larger demand for catalytic converters, said Flores.

Platinum is also found in catalysts used in the refining of crude oil, reforming, and other processes used in the production of high-octane gasoline and aromatic compounds for the petrochemical industry, he said.

Jewelry made of platinum is also popular because it is highly resistant to wear and tarnish.

Sudbury Basin

Besides the Lac des Iles Mine, the other major source of PGMs in Northern Ontario is the Sudbury Basin, where Xstrata Nickel and Vale Inco produce PGMs as by-products.

Platinum is an extremely rare metal, occurring at only 0.003 parts per billion in the earth’s crust.

The Sudbury Basin, created by a meteorite impact 1.85 billion years ago, was filled with melted rock, and high levels of  nickel, copper, platinum, palladium, gold and other metals settled in great concentrations.

At Vale Inco, 90 per cent of revenues are generated from nickel, and the other 10 per cent is split between copper and PGMs.

But with the development of copper and PGM-rich deposits on the footwall of the Sudbury Basin, precious metals are becoming more important to the company, said Alex Henderson, manager of business planning and mines technical services at the company’s Sudbury operations.

“We’re still early into the stages of understanding what the PGM opportunities are in the Sudbury Basin,” he said.

“If I were a real optimist, I’d say we could become a major producer of these metals, but if I were a realist, I would say we need another 10 years of exploration before we begin to answer that.”

Henderson compares the Sudbury Basin to the layers of an onion. The original nickel-copper deposits within the Basin, which were found 100 years ago, are still being mined, he said.

About 20 years ago, geologists realized the importance of the footwall of the Sudbury Basin, which is rich in copper and PGMs, said Henderson.

There is also a theory that even richer deposits of PGMs exist further into the footwall, but so far, they haven’t been found, he said.

Meanwhile, both Vale Inco and Xstrata are proceeding with several mining projects on the footwall.

Two mid-tier mining companies are also getting in on the action. FNX Mining Company Inc. is currently operating two former Falconbridge mines in the Sudbury footwall – McCreedy West Mine and Levack Mine.

The company is also currently developing its Podolsky property and drilling at the Levack Mine Footwall Deposit.

First Nickel Inc. is operating the Lockerby Mine, a former Falconbridge Mine in the footwall, and has another footwall property called Premiere Ridge, where a feasibility study for a mine was recently completed.

River Valley

There are also plenty of junior mining companies combing Northern Ontario for new PGM deposits.

One of the most active companies has been Pacific Northwest Capital Corp., which, in partnership with South African platinum mining giant Anglo Platinum, has drilled 550 holes on its property in the River Valley area near Sudbury since 1999.

Pacific Northwest will be spending another $2 million of its $5 million exploration budget in River Valley and other Ontario properties.

The mineral in the largest abundance on the River Valley property is palladium, followed by copper and gold.

Because palladium prices have only recently spiked, it wasn’t economically feasible to develop the property, said Harry Barr, president and CEO of the company.

“It’s a lower-grade bulk mineable project, and it is very dependent on palladium prices,” he said.

Pacific Northwest has hired an engineering company to see what it would take to make mining the property economically viable.

The consultants will be looking into where the richest resources have been found so far, and whether the company should be drilling elsewhere on its property, or drill deeper, he said.

Both the footwall of the Sudbury Basin and the River Valley area have been extremely popular areas for PGM exploration, said Dan Farrow, acting district geologist for northeastern Ontario with the Ministry of Northern Development and Mines.

Last year, there were about 60 individuals and companies prospecting for PGMs in the area, he said.

But PGM exploration is not confined to the Sudbury Basin. Noront Resources made one of the most exciting discoveries of 2007 at its Double Eagle project in the James Bay Lowlands, and it is rich in platinum and palladium.

Brian Atkinson, regional resident geologist for the Timmins region with the Ministry of Northern Development and Mines, said there are also many other companies searching for PGMs in the Timmins-James Bay area.

“You can see by the companies that are looking for it that there is interest in platinum and palladium. The fact that it’s $2,000 an ounce stimulates exploration activity. It’s exciting.”

One example he gives is Tres-Or Resources Ltd., which is currently putting high hopes on its Mann township platinum/palladium property, located 47 kilometres northeast of Timmins.

Preliminary work carried out on the Mann property has uncovered in-situ PGMs along the Frederick House River, along with nickel-copper sulphides.

PGM exploration is also popular in northwestern Ontario, although it isn’t without controversy.

Platinex Inc., a junior mining company drilling for PGMs in the northwest, has been in the news recently because of a standoff with the Kitchenuhmaykoosib Inninuwug First Nation.

The company complained that members of the community were interfering with the company’s exploration program, and received a court injunction to allow drilling to go ahead.

When six community members blocked access to the property, they were held in contempt of court, and are currently serving six months in jail.

Mark Smyk, regional resident geologist with the Thunder Bay North District, said one of the more promising companies exploring for PGMs in his area is Richview Resources Inc.

The company is the sole owner of the past-producing Thierry Mine, adjacent to the town of Pickle Lake, and is drilling at the site to find PGMs, base metals and gold.

Another company looking for PGMs in northwestern Ontario is Landore Resources Ltd. It is drilling at its Junior Lake property, located approximately 235 kilometres northeast of Thunder Bay, said Smyk.

While the search for and production of PGMs in Northern Ontario has been on the increase in recent years, Flores said the north will never outstrip the platinum mines of South Africa.


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