Since 1915, the Northern Miner weekly newspaper has chronicled Canada’s globally significant mining sector.
Price spike and exploration success aid turnaround at Lac des Iles
Few mines have endured a rockier road to production than Lac des Iles, Canada’s only primary platinum group metals (PGMs) mine. It is no understatement to say that many viewed its construction as the epitome of industry folly. It is no secret that many thought the maverick mine would never meet expectations. And given the track record since operations began, in the fall of 1994, it is no surprise that, until recently, skeptics mostly had it right.
Lac des Iles had more problems and produced more red ink than most mines, but it also had unrealized potential, and believers who saw the opportunity to prove the skeptics wrong. One of them was Keith Minty, president of North American Palladium (PDL-T), who launched a major exploration effort aimed at expanding the operation, situated near Thunder Bay, Ont. Corporate house-cleaning also took place under his guidance, which better-positioned the company to take advantage of the recent spike in PGM prices. Another major priority was a technical review aimed at improving mining and processing operations.
Lac des Iles is now firmly out of red and into the black, but that is only one of several reasons why The Northern Miner has chosen Keith Minty as its “Mining Man of the Year” for 2000. If mines are made rather than found, he deserves credit for helping Lac des Iles take its rightful place in Canadian mining history.
PGM mines are often a technical challenge for operators, which makes the turnaround at Lac des Iles a remarkable accomplishment. It is one of only two primary producers in North America, the other being the Stillwater mine in Montana. Demand for PGMs is at an all-time high, primarily driven by their use in anti-smog devices in automobiles, yet supply from traditional sources in Russia has been unstable. Palladium prices have shot from US$131 per oz. in 1995 to more than US$900 this year, while platinum now trades at more than US$600 per oz. PGMs, once described as the metals of the future, are finding that their future is now.
Newsletter writer Jim Dines, who flashed a buy signal on palladium in late 1995, when it was US$131 per oz., believes markets will remain strong. “You can’t just dig a hole and find palladium, and its incredible scarcity is demonstrated by the fact that there are only two primary producers of the metal in all of North and South America.”
Mines must be found before they can be made, and, by all accounts, finding Lac des Iles was a challenge. The first documented exploration in the region took place in the 1950s by Matawin Mines, headed by John Brodie. The company was looking for nickel-copper deposits, and saw potential for this in areas underlain by ultramafic rocks. Brodie staked the claims and then enlisted the help of renowned consultant Fred Jowsey to define drill targets. Five holes were drilled in 1958 to test the best conductors at the northern end of Lac des Iles. While no base metal deposits were found, Jowsey was sufficiently impressed to write a letter to prospector Walter Baker, suggesting he visit the area.
In the early 1960s, Jowsey grubstaked a prospecting syndicate consisting of Baker, George Moore and Bruce Arnott to examine the area, which was still unmapped. They began work in June 1963. On their first traverse, the prospectors found low-grade, copper-nickel mineralization hosted in ultra-basic rocks that were different from those elsewhere in the property.
Samples from the “Baker showing” were collected and sent out for assaying for nickel and copper. Baker included a note instructing the lab to pay close attention to the bead, in case PGMs were present. They were. Subsequent prospecting defined a body of mafic rock extending south-southwest from what is now the main Lac des Iles deposit. Eight separate zones of mineralization were uncovered.
Mining promoter Patrick Sheridan took on the project in 1985 and continued work through Madeleine Mines. In the fall of 1991, Kaiser-Francis Oil acquired control of the company and, in the summer of 1993, changed its name to North American Palladium. Lac des Iles was brought into production that year, but not without controversy. There were permitting problems, technical snags, and a legal dispute between NAP and Sheridan.
In the fall of 1994, NAP settled its dispute with the Sheridan Platinum Group (SPG). As part of that settlement, NAP bought SPG’s interest in the mine in exchange for cash, stock and a reserved net interest of 3%, increasing to 5% after the year 2000. SPG also received $10 million and 2 million NAP shares.
Lac des Iles, meanwhile, produced a string of losses, beginning with $1.2 million in 1993, $3 million in 1994, $2.4 million in 1995 and $28.7 million in 1996. The company was carrying a debt load of $78 million and, by the end of 1997, was in a negative working capital position.
Keith Minty took the helm of NAP in early 1998, just before the company reported a staggering loss of $70.2 million for 1997, and just after leaving a post as mine superintendent at the Brewery Creek gold mine in the Yukon.
A 1978 graduate of Queen’s University in Kingston, Ont., the mining engineer had more than 20 years of domestic and international mining experience under his belt, in both open-pit and underground mines. At Brewery Creek, Minty was involved in the design, construction and operation of the project owned by Viceroy Resource.
When Minty joined NAP, Lac des Iles was operating as a high-grade, low tonnage, open-pit mine, producing at an annual average rate of 68,500 oz. palladium. A team was assembled to evaluate all aspects of the operation, including challenges such as dilution, though the main point of the exercise was to determine the overall potential of the project.
Minty saw the opportunity to expand the palladium resources of the Roby zone and launched a major exploration program in hopes of defining enough resources to support a large-tonnage, lower-grade mining operation.
On the operating front, new equipment was added to the existing open-pit fleet. Operational improvements in the mill boosted palladium recoveries to 80.5%, an increase of 8.3% over the previous year. Palladium production in the first six months of 1998 increased 44.6% from the previous year to a total of 37,899 oz. The mine produces a single bulk concentrate that is trucked to Sudbury, Ont., for custom processing, and then to Europe for refining.
In addition to the heavy debt load, Minty laboured under a double-whammy from previous management: NAP was locked into hedging contracts at well below market prices and a Canadian dollar hedged at $1.33. Palladium production was oversold, which meant the company was unable to meet its commitments under the hedging program. It had to lease palladium on the open market at high prices to fulfil the commitments of its oversold and embarrassingly low-priced hedging program.
However, by late 1998, the hedging programs had run their course and the mine was expected to at least operate on a positive-cash-flow basis. More good news followed on the exploration front, and by the summer of 2000, the measured and indicated resources at the Roby zone stood at 121.7 million tonnes grading 1.63 grams per tonne palladium, using a 0.7 gram cutoff grade. Exploration is ongoing, and expectations are that more resources will be defined within the Roby zone, and in other zones.
AGRA Simons, which had been retained to perform a feasibility study of the expanded operation, recommended construction of a 15,000-tonne-per-day mill, significantly larger than the 2,400-tonne-per-day flotation mill currently in operation. Capital costs are estimated at $208 million. The project is on schedule and on budget, with commissioning expected in mid-2001.
Once completed, and starting in 2002, annual production will average 250,000 oz. palladium at an estimated cost (including byproduct credits) of US$160 per oz. palladium. This would make Lac des Iles the lowest-cost primary palladium producer in the world. Current reserves provide for a mine life of at least 11 years. The mine will then employ 250, compared with the pre-expansion level of 130.
On the financial front, NAP reported net income of $37 million for the first nine months of this year, compared with a net loss of $8.6 million a year earlier. Palladium production was 74,487 oz., compared with 46,507 oz. a year earlier. Platinum production jumped to 4,531 oz. for the 9-month period, up from 3,459 oz. a year earlier. And in October of this year, the company completed a capital restructuring that reduced debt and eliminated preferred shares.
High prices, coupled with the remarkable turnaround at Lac des Iles, have helped trigger an exploration boom for PGMs in Ontario, largely dominated by juniors. However, among the hopefuls are two South African majors: Impala Platinum Holdings and Anglo Platinum.
Late this year, NAP was added to the TSE 300 Composite Index in the gold and previous metals sub-group — no small accomplishment for a company once dismissed as outside the mining mainstream. The company has 49.9 million shares outstanding, 57% of which are held by Kaiser-Francis Oil.