Mr. Jim Gallagher reports
NORTH AMERICAN PALLADIUM COMPLETES A NEW FEASIBILITY STUDY FEATURING A MAJOR EXPANSION OF UNDERGROUND RESERVES
North American Palladium Ltd.
has provided the results of a new feasibility study incorporating major changes to the life-of-mine plan for the Lac des Iles mine property (LDI) in Northwestern Ontario. The feasibility study has been prepared in accordance with National Instrument 43-101 -- Standards of Disclosure for Mineral Projects and will be filed within 45 days on
SEDAR
and posted on the company's
website.
Based on the success of the recent transition to the sublevel shrinkage mining method (SLS) in the lower part of the mine, the company initiated an internal evaluation of similar underground mass mining approaches for all of the near-surface resources as an alternative to a pushback of the existing Roby open pit proposed in the prior 2017 feasibility study. The positive results of this evaluation prompted the commissioning of the feasibility study. The feasibility study has improved margins, cash flows, mine life and net present value (NPV) relative to the previous study. Additionally, the more selective underground mining method provides the company with increased flexibility to deal with any future palladium price volatility.
Highlights of the feasibility study
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The previously planned pushback of the dormant Roby open pit is now replaced by an expansion of the underground mine using bulk mining methods to extract maximum value from several near-surface resources outside the original mine plan.
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Mine life is extended by one year to 2027 with average underground production increasing from 6,000 to more than 12,000 tonnes per day (tpd) and includes a total of 40.9 million tonnes of underground and surface reserves at an average palladium grade of 2.31 grams per tonne, yielding 2.32 million ounces of payable palladium production.
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Improved key financial metrics, including total revenue of $3.64-billion, total EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.51-billion and after-tax net present value (NPV) (8 per cent) of $637-million, generated by an average operating margin of 43 per cent ($37.86 per tonne of ore milled).
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Annual after-tax cash flows of between $52-million and $144-million, totalling $909-million over the life of the mine.
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Average all-inclusive sustaining cost (AISC) of $622 (U.S.) and cash costs of $504 (U.S.) per ounce of palladium sold, with an average underground mining cost of $33.67 per tonne.
"With the completion of the operational turnaround last year, the company has now generated positive earnings for five consecutive quarters. The new mine plan outlined in the feasibility study generates increased cash flow by optimizing resources previously included in the Roby open-pit pushback plan and by adding reserves that were previously sterilized by the open-pit design. LDI continues to be one of the lowest cost underground mines in Canada. This new approach will take full advantage of LDI's large, lower-grade near-surface resources and allow for the mining of more resources at an improved grade than contemplated in the prior 2017 feasibility study. The net result is improved operating margins, a longer mine life and greater value creation for shareholders," said Jim Gallagher, president and chief executive officer of North American Palladium.
"Improved current and long-term consensus for palladium prices also contributed to higher value when compared to the study released 16 months ago. The market has begun to recognize that the primary deficit in the palladium market that has existed for the last few years is likely to continue well into the future. The new feasibility study places the company in a strong position to manage volatility in palladium prices and capitalize on the robust palladium market while continuing to add resources through mine site and greenfields exploration," continued Mr. Gallagher.
Updated mineral reserves and resources
The new feasibility study includes a comprehensive update to the mineral reserves and mineral resources for LDI. The attached tables are explained in the accompanying notes at the end of this release and in the new feasibility study.
MINERAL RESERVES FOR THE LAC DES ILES MINE
Reserves Classification Tonnes (000s) Pd (g/t) PdEq (1) (g/t) Contained Pd oz (000s)
Offset underground Proven 3,089 2.30 3.05 228
Offset underground Probable 17,159 3.01 4.02 1,661
Roby underground Proven 2,279 1.76 2.31 128
Roby underground Probable 14,569 1.89 2.49 886
Roby surface Proven 300 1.94 2.50 18
Roby surface Probable 80 3.11 3.63 8
Low-grade stockpile Probable 3,399 0.970 1.45 106
Total Proven + probable 40,877 2.31 3.08 3,038
Mineral reserves reflect depletion from mining activities up to and including June 30, 2018 -- see notes for more
details.
(1) Palladium equivalent grade, estimated using the average grades shown and spot metal prices from Sept. 6, 2018.
Includes nickel. No mill recoveries or smelter charges are included in the calculation. Spot prices (in U.S.
dollars) from Sept. 7, 2018, are: Pd: $982 per ounce; platinum: $776/oz; gold: $1,198.90/oz; copper: $2.67 per
pound; Ni: $5.57/lb. Source: Kitco & LME.
MINERAL RESOURCES FOR THE LAC DES ILES MINE
Resources Classification Tonnes (000s) Pd (g/t) PdEq (g/t) Contained Pd oz (000s)
Offset underground Measured 9,568 2.90 3.88 893
Offset underground Indicated 18,759 2.97 4.01 1,788
Roby underground Measured 9,581 2.20 2.92 677
Roby underground Indicated 26,589 1.56 2.13 1,336
Roby surface Measured 3,174 1.38 1.84 140
Roby surface Indicated 1,910 1.32 1.94 81
Low-grade stockpile Indicated 3,399 0.970 1.45 106
Total MEA+IND 72,980 2.14 2.89 5,024
Total Inferred 8,235 2.22 2.96 -
Mineral resources are inclusive of mineral reserves and reflect depletion from mining activities up to
and including June 30, 2018 -- see notes for more details.
The new mineral reserves include several areas not previously captured in the mine plan, including the Roby Northeast, Roby South and Sheriff South mining areas.
The updated mineral resources include materials added to the southern part of the offset zone by exploration and conversion drilling completed since January, 2017. The large quantity of mineral resources not included in the current reserves estimate generally reflects isolated clusters of resource blocks separated by areas of low drilling density within the mineral envelope. The mineral resource also includes a large but low-grade mineralized envelope encompassing most of the discrete zones in the Roby block. Many of the resources external to the current reserves are targeted for infill drilling to determine if they can be included in future mine plans.
Feasibility study results
The new mining plan features the introduction of sublevel caving to the large, low-grade mineral resource in the central and southwestern parts of the Roby zone, below and adjacent to the current open pit. The new plan extracts a much larger proportion of the higher grade resources residing below the pit in the Roby Central domain, leading to a net increase in the average Roby zone palladium mining grade. It also accelerates production from these higher grade resources, leading to an improvement in cash flows in the early years of the plan. The new plan is anchored by the continuation of low-cost SLS mining in the thicker and higher grade central part of the offset zone. It also includes supplemental feed from new selective mining areas in the northern and southern ends of both the Roby and offset zones. Surface mining involves the completion of the current operations in the Sheriff pit by the end of 2018 and selective extraction of the remaining low-grade stockpile reserves to maximize the operating rate of the existing mill. Annual production by source includes approximately equal contributions from the Roby block and the offset block.
PRODUCTION BY YEAR
Ore mined (kilo tonnes) Mining rate (tpd) Palladium head grade (g/t) Payable Pd (oz)
2018 H2 2,253 12,247 2.34 130,117
2019 4,470 12,247 2.15 234,600
2020 4,470 12,213 2.30 252,892
2021 4,470 12,247 2.53 279,700
2022 4,470 12,247 2.43 268,187
2023 4,470 12,247 2.43 267,738
2024 4,470 12,213 2.37 260,619
2025 4,470 12,247 2.17 237,528
2026 4,470 12,247 2.19 239,178
2027 2,864 10,491 2.15 150,524
Summary results of the feasibility study are highlighted in the attached table.
KEY METRICS OF THE NEW FEASIBILITY STUDY
Palladium reserves (contained) 3.038 M oz
Palladium reserve grade 2.31 g/t
Total ore reserves 40.9 M tonnes
Total underground ore reserves 37.1 M tonnes
Average1 mill throughput 12,238 tpd
Average palladium recovery 81.3%
Total payable palladium production 2.32 M oz
Average (1) payable palladium production 255,000 oz
Mine life 9 years
Average1 cash costs (2) US$504 per oz
Total capital expenditures $425 M
Average1 all-in sustaining costs (2) US$622 per oz
EBITDA $1,505 M
After-tax cash flow $909 M
After-tax NPV (8%) $637 M
(1) Based on full production years 2019 to 2026.
(2) Net of byproduct revenue.
In comparison with the 2017 feasibility study, total payable palladium production has increased by 14 per cent and underground production has increased by 82 per cent. The average palladium grade increased by 5 per cent, EBITDA increased by 43 per cent, after-tax cash flow increased by 34 per cent and the after-tax NPV (8 per cent) has increased by 36 per cent. AISC has increased by 18 per cent, reflecting a stronger Canadian dollar, reduced byproduct revenue, and higher sustaining capital and production costs associated with underground mining. The reduced byproduct revenue is primarily due to lower forecasted prices for platinum and gold. The improvement in 2018 numbers takes into account one year of mining depletion included in the previous feasibility study. The improvement in total reserves and palladium production reflects:
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Recent gains from exploration and definition drilling in the offset block;
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The inclusion of a much larger proportion of the lower-grade resources in the Roby block based on the adoption of bulk mining approaches.
COMPARISON OF KEY METRICS FROM THE 2017 AND 2018 FEASIBILITY STUDIES
Item 2018 study 2017 study
Average (1) underground mining rate (tpd) 11,383 6,250
Underground tonnes milled (millions) 37.1 20.4
Surface tonnes milled (millions) 3.8 17.3
Total tonnes milled (millions) 40.9 37.7
Average palladium head grade (g/t) 2.31 2.21
Payable palladium oz (millions) 2.32 2.04
AISC ($US per oz) $ 622 $527
EBITDA (millions) $ 1,505 $1,056
Total capital expenditures (millions) $ 425 $303
Posttax cash flow (millions) $ 909 $678
Posttax NPV (8%) (millions) $ 637 $470
(1) Averaged over full production years 2019 to 2026.
Palladium market
The long-term consensus for the palladium market continues to forecast a physical metal deficit, driven by significant supply risks from declining South African production combined with a growing demand picture. Demand continues to be driven by three key factors including global auto sales growth, increasing global emissions standards, which require higher palladium loadings, and the continuing move away from diesel engines to more palladium-intensive gasoline engines. An additional factor is the increasing popularity of hybrid-electric vehicles, which require slightly higher palladium loadings to meet emission standards due to their lower operating temperature. The improved results in the new feasibility report reflect these updated market fundamentals.
Sensitivities
Sensitivities of the financial results related to macroeconomic assumptions are provided below. The consensus-based average palladium price used in the feasibility study is $1,040/oz. The long-term U.S.-dollar/Canadian-dollar exchange rate is 1.25.
LIFE OF MINE MACROECONOMIC ASSUMPTIONS
2018 H2 2019 2020 2021 2022 fwd
US$/oz palladium 976 1,040 1,040 1,040 1,040
US$/oz platinum 903 955 955 955 955
US$/oz gold 1,290 1,276 1,275 1,305 1,290
US$/lb copper 3.08 3.19 3.24 3.29 3.27
USD/CAD 1.30 1.24 1.26 1.25 1.25
Source: Bloomberg -- median of analyst forecasts; fwd: forward.
PALLADIUM PRICE AND EXCHANGE RATE SENSITIVITIES OF THE POSTTAX NPV ($M) FOR THE FEASIBILITY STUDY
USD/CAD exchange rate
Pd price ($US/oz) 1.15 1.20 1.25 1.30 1.35
$ 850 $122 $197 $271 $342 $413
$ 950 $336 $416 $481 $543 $604
$ 1,040 $501 $569 $637 $702 $757
$ 1,150 $676 $740 $801 $869 $938
$ 1,250 $808 $884 $958 $1,033 $1,108
Assumes a discount rate of 8 per cent.
PALLADIUM PRICE AND DISCOUNT RATE SENSITIVITIES OF THE POSTTAX NPV ($M) FOR THE FEASIBILITY STUDY
Discount rate
Pd price ($US/oz) 0 % 5 % 8 % 10 %
$ 850 $421 $317 $271 $244
$ 950 $703 $550 $481 $441
$ 1,040 $909 $722 $637 $589
$ 1,150 $1,128 $904 $801 $743
$ 1,250 $1,339 $1,078 $958 $890
Assumes U.S.-dollar/Canadian-dollar foreign exchange rate of 1.25.
Qualified persons
The technical content of this news release was reviewed and approved by the company's vice-president, exploration, Dr. Dave Peck, Steven Olson, senior mining engineer, employed by the company, and Brian Young, senior mining engineer employed by the company, all of whom are qualified persons under the meaning of NI 43-101. Dr. Peck is a registered professional geoscientist with the Association of Professional Geoscientists of Ontario, the Association of Professional Engineers and Geoscientists of British Columbia, and the Association of Professional Engineers and Geoscientists of Manitoba. Mr. Olson is a registered professional engineer with the Association of Professional Engineers of Ontario. Mr. Young is a registered professional engineer with the Association of Professional Engineers of Ontario.
Note
(1)
Non-IFRS (international financial reporting standards) measure. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not be comparable with similar measures presented by other issuers.
Notes to accompany the mineral reserves and resources tables
All mineral resource and mineral reserve estimates were prepared in accordance with the CIM Definition Standards (2014).
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Mineral resources which are not mineral reserves do not have demonstrated economic viability. Mineral resources are inclusive of mineral reserves.
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The effective date of the mineral resource and mineral reserve estimates is July 4, 2018.
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The current estimates of mineral resources and mineral reserves on the property reflect depletion from mining activities to July 1, 2018.
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The estimates of the mineral reserves were reviewed and approved by Steven Olson, PEng, an employee of the company and a qualified person under National Instrument 43-101.
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The estimates of the mineral resources were reviewed and approved by Dave Peck, PGeo, an employee of the company and a qualified person under NI 43-101.
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The following long-term analyst consensus metal price and foreign exchange assumptions were used for mineral reserves estimation: $1,040 (U.S.)/oz palladium, $955 (U.S.)/oz platinum, $1,290 (U.S.)/oz gold, $3.27 (U.S.)/lb copper and Canadian-dollar/U.S.-dollar exchange rate of 1.25.
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Tonnage and contained palladium estimates are rounded down to the nearest thousand tonnes and the nearest ounce, respectively. Row and column totals may not match due to rounding.
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Nickel grade was not considered in the estimation of reserves because it is not a payable metal in the company's primary smelter agreement.
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Palladium, platinum and gold prices are from Kitco. Copper and nickel prices are from the London Metal Exchange.
About North American Palladium Ltd.
North American Palladium Ltd. is a Canadian company with over 25 years of production at Lac des Iles mine, located northwest of Thunder Bay, Ont. North American Palladium is the only pure-play palladium producer in the world. With over 600 employees, Lac des Iles mine features a unique world-class orebody, modern infrastructure, including both an underground mine and an open-pit mine, and a world-class exploration portfolio.
We seek Safe Harbor.
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