North American Palladium (NAP) is taking a breather before taking another deep dive at its Lac des Iles (LDI) mine in northwestern Ontario.
The Toronto-based miner has chosen to take a sideways approach to extend the longevity and curb spending at its flagship property, northwest of Thunder Bay.
At the same time it was commissioning a new shaft and hoist last October, NAP announced it was deferring a second phase of mine expansion in the belief there's more mineable and cheaper cost ore closer to surface.
“We had some encouraging exploration results and it shows some potential near-surface opportunities that we are looking at closely and investigating,” said NAP president-CEO Phil du Toit, “because closer to surface helps operating costs.”
The company reported a $5.2-million loss in its third quarter, an improvement over the $8 million lost during the same period in 2012.
NAP's struggles in 2013 caused equity analysts to downgrade the company to “neutral” or “sector underperform” with its shares languishing in mid-November at $0.66 on the NYSE:PAL.
The company chalks up 2013 to being a “transitional year” with talks underway to secure more financing to become profitable or break even in 2014.
Last year, North American Palladium marked 20 years of production at Lac des Iles. What began as an open pit operation transitioned underground in 2006 as mining began on its Roby Zone.
Underground expansion plans began three years ago to start exploiting the deeper Offset Zone.
NAP's 825-metre deep shaft has a hoisting capacity of 8,000 tonnes per day and will allow them to shift away from a ramp and a truck haulage system to its mill operation.
Mining from the Offset began in late 2012 but the company is still six to eight months away from drilling off the entire orebody.
Du Toit said before they sink more capital into expansion they want to drill off the Offset to get the big picture of its geology and size. There are also some operational bugs to work out with the new shaft. “It's common knowledge that capital is tight for 2014,” said du Toit. “We want to make sure that we unlock the advantages of the shaft properly, which get us onto an even keel for 2014 in the Offset Zone and we'll tackle phase two with the right information and the right plan.”
Du Toit said all indications point to better material deeper down, at least for the next five years.
The company also wants to generate some revenue before it plunges deeper. Last summer, NAP closed a (US) $130-million term loan with Brookfield Capital Partners to complete the first phase of the mine expansion.
“We want to make sure we can service the loan and create (for ourselves) some breathing room. We really want to focus on really growing the volumes now that the shaft is in commissioning.”
LDI's mine life is five to six years based on current reserves, but du Toit said they're comfortable with their reserves in the indicated and inferred categories going laterally as well as deeper.
Du Toit said there's considerable untapped potential on their 21,000-hectare property and he expects exploration activity at depth and on some outlying zones to continue for many years.
“We know there's something there and once we get deeper into the Offset Zone we’ll probably intercept some of the adjoining orebodies, and then we'll be able to form a better picture.”
Lac des Iles is not a pure palladium mine but it makes up 70 per cent of its production revenue.
Depressed metal prices in the past put Lac des Iles on care and maintenance in 2008. However, du Toit is hopeful that a recovering American and Chinese auto sector will spur the demand for more palladium used in catalytic converters.
With palladium prices in the $720-anounce range in November, it was considered the best performing metal of 2013.
Du Toit believes in the forecasters who predict the metal's strong performance will soar heading into 2014.
“We trust in Chinese and U.S. market growth, which could tighten global mine supply and push the price of palladium to the $800 mark.”