Palladium and an Ontario mining success story

Palladium has been making headlines of late with the scarce metal surging past gold to hit a record high, the rally in part driven by concerns over Russian and South African supplies. Just a few years ago, in February 2016, prices fell to as low as US$482 per oz. Since that time, however, they have increased by almost 400% to sit today at about US$2,300 per oz. This is a remarkable increase over such a short period of time, due largely to growing demand from the automotive industry for use in emissions-reducing catalytic converters. Canada produces little palladium, but it boasts an incredible success story. Thanks to the meteoric rise in palladium prices, the value of the Lac des Iles mine near Thunder Bay has increased many times over during the last three years, culminating in the project’s sale to Impala Platinum for $1 billion last fall.

The Lac des Iles platinum group metals (PGM) mine, previously owned by North American Palladium (NAP), has been in production for 25 years. In April 2015, NAP announced a significant recapitalization and restructuring transaction in the face of an unmanageable debt load. At that time, palladium was trading at approximately US$765 per oz. NAP undertook a major underground mine expansion, transitioning from long-hole open stoping to the sublevel shrinkage mining method (SLS), which led to material increases in PGM production, revenue and earnings before interest, tax, depreciation and amortization. It paid off. Last August, the mine reported the highest underground production in the company’s history at more than 7,000 tonnes per day for the quarter, as well as record revenue.

The market price for NAP shares rose from approximately $5 per share in 2016 to more than $24 per share in 2019, with the minority shareholders of NAP ultimately receiving $19.74 per share as part of an acquisition by Impala Platinum.

During the unprecedented run in the palladium price, the Lac des Iles project represented one of the few standalone PGM projects in the world. So it was not a surprise that it was eventually swallowed up by one of the global PGM producers. NAP represents one of the most remarkable mining project turnarounds in recent memory in Ontario, driven by unprecedented palladium price increases and strong operational performance.

But what does the future hold for PGM mining in Ontario? If PGM prices remain at historic levels, then it is inevitable that other PGM projects in the province will attract considerable attention. One possible beneficiary of the PGM price explosion is the Marathon palladium-copper project near the town of Marathon, in northern Ontario, which was recently the subject of a new joint venture. In January, Generation Mining released the results of a positive independent preliminary economic assessment (PEA), projecting development of the property could result in an operation producing 107,000 oz. palladium annually over a 14-year mine life.

In any event, there is no doubt that continued demand for palladium and other PGMs will continue to impact the futures of many mining projects across Ontario as entrepreneurs work to take advantage of this extraordinary time for the precious metal.

ROBERT MASON is a Toronto-based partner and the head of mining in Canada at Norton Rose Fulbright. For more information, please visit www.nortonrosefulbright.com.