TORONTO (miningweekly.com) – For a company that had no producing assets for much of last year, Canada's North American Palladium (NAP) is all set for a very different 2010.
The precious-metals miner will restart its flagship Lac des Iles (LDI) palladium operation in Ontario by midyear, and recently achieved commercial production at the newly-acquired Sleeping Giant gold mine, in Quebec.
There are plans under way to extend the life and significantly reduce costs at LDI and CEO Bill Biggar says he and his team are “actively” looking for gold projects to buy.
Biggar, a former Barrick executive, joined the company as CEO on October 1, 2008, and announced the closure of LDI less than a month later, as falling palladium prices had left the operation running well below breakeven.
In hindsight, the decision to put the mine on care and-maintenance was the right one, Biggar said in an interview at the company's Toronto head office.
“We would have lost probably $75-million or thereabouts had we continued operating.”
Since then, prices for palladium, which is used mainly in emissions-reducing autocatalysts, have clambered back up – reasonably steadily for much of 2009, but at a quicker pace in the last couple of weeks, especially after the launch a week ago of new platinum and palladium-backed exchange-traded funds in the US.
The palladium price has increased about 13% since the new year began and, at Friday's price of around $453/oz, palladium has now rebounded some 176% from its fourth-quarter 2008 low of $164/oz.
Despite the quick run-up in prices over the last few weeks, Biggar believes the gains are rooted in fundamentals and should be sustainable.
He expects to see prices in the $450/oz to $500/oz range in 2010.
“And then I think into next year, when global vehicle production should be back above where it was in 2008, I think there is a case for it to move up to $600/oz.”
Russia is the biggest producer of palladium, followed by South Africa. In North America, the only primary producers are US-based Stillwater Mining, with its two Montana operations, and NAP.
Constrained supply, as automotive demand in emerging economies continues to rise, will help underpin platinum-group metal prices, Biggar said.
Tightening emissions controls, coupled with new technology that allows palladium to be substituted in more autocatalysts for higher-priced platinum, also bode well for the metal.
At LDI, the mine will restart production of underground ore in the second quarter, likely around May 1.
The plan is to continue mining at the Roby deposit until it is depleted in about two years, when NAP will be ready to move on to its new high-grade Offset zone by 2012.
Until then, output from the Roby zone will be about 140 000 oz/y of palladium, Biggar said.
The current mine uses a ramp system, but NAP's plans for the Offset zone include building a raise-bore shaft to surface, which would result in significantly lower operating costs.
“Now that we've had some exploration success and we know we've got a big enough resource and a long enough life, we are going to put a shaft in,” Biggar said.
“And that's going to make us a very low cost producer of palladium.”
The company is still scoping the size of the shaft, but it will likely be at least 5 000 t/d, which would imply palladium production of around 250 000 oz/y once it starts operation in 2012.
GOING FOR GOLD
After about 16 years as a single-mine palladium producer, NAP announced in 2009 that it was making the jump into gold, in a move to diversify and gain critical mass.
The company bought Cadiscor Resources, which owned the former Iamgold mine Sleeping Giant, as well as some other projects in Quebec.
NAP has since restarted Sleeping Giant, and declared commercial production from January 1. The mine is expected to produce 50 000 oz/y of gold.
In the medium term, Biggar is targeting annual gold production levels of around 250 000 oz, which would make NAP a respectable mid-sized producer of the yellow metal.
Between Sleeping Giant and the other development projects, the company is calculating an eventual 100 000 oz/y from the Cadiscor assets, and the rest will likely come from acquisitions.
“We are actively looking,” Biggar confirmed.
Quebec will obviously be the first port of call, but beyond that the focus will be on Peru, Chile and Mexico.
Potential targets must be either in producing or near-production, and with gold as the primary metal, he said.
As far as platinum-group metal growth is concerned, Biggar is happy to focus on organic potential at LDI for now.
But the company does keep an eye on juniors like Marathon PGM Corp, that are exploring in the region.
“At some point, we have this huge 15 000 t/d mill, and if we go underground we are only going to have 5 000 t/d to 7 000 t/d which means excess capacity.
“So there's an obvious fit there.”
Shares in NAP slid 2,34% on Friday, to C$4,60 apiece by 15:59 in Toronto. The stock has more than doubled in the last year.