High-stakes palladium gamble

Nothing in life is risk-free. A company entirely dependent on one mine producing a not-very-liquid commodity might seem chancy, but appearances can be deceptive. North American Palladium Ltd. (NAP) of Toronto is such a company, producing palladium from its Lac des Iles mine. Instead of living with risk, however, the company has built in safeguards, while investing in a major expansion.

The Lac des Iles open pit mine, 85 km northwest of Thunder Bay in northwest Ontario, is one of only two primary palladium mines in North America and one of the world’s lowest-cost producers. Palladium delivers 85% of NAP’s revenue. The fact that the precious metal has been selling at record high prices during the last 12 months has therefore been a boon (see “What’s So Good About Palladium” sidebar).

In the past year, Lac des Iles has completed a major Cdn$220-million expansion in- cluding a larger pit, a new equipment fleet, a new processing plant and an expansion to the rest of the facilities. (The $12-million cost overrun was due to substandard equipment and an increased scope of work.) That investment should be paid off in two years, at prevailing palladium prices.

The mill throughput will ramp up from 2,400 to 15,000 tonnes per day by the end of this year. The annual production will be boosted from 95,000 ounces of palladium in 2000 to 150,000 ounces this year, 300,000 ounces in each of 2002 and 2003, and an annual average of 250,000 ounces over the 17-year mine life, at an average cash operating cost of less than US$200/ounce. (Cash cost of production in 2000 was US$142/ounce net of byproduct credits and royalties.)

The work isn’t over yet. Scoping studies are investigating the economics of building an underground mine at Lac des Iles.

Last year the company renewed its long-term agreement with Falconbridge Ltd. and completed an agreement with Inco Ltd. for each to custom smelt and refine half of the Lac des Iles concentrate. It also signed a six-year deal with the United Steelworkers of America, the union representing its workforce.

A year ago, the company signed a five-year deal with an unnamed major automobile manufacturer to sell all its palladium at a floor price of US$325/ounce, with a US$550/ounce cap on half its production. For added comfort, the company has taken favourable hedge positions through 2003.

Hardly Worth Fighting Over

The Lac des Iles property has been explored since the 1950s. By 1990 it was 90%-owned by promoter Pat Sheridan’s Boston Bay Mines Ltd. and under option to Madeleine Mines Ltd. In 1991, Kaiser-Francis Oil Co. took a 15.6% stake in the company. It has since increased its stake to 57%. Madeleine Mines was renamed “North American Palladium Ltd.” in June 1993.

A legal dispute with Sheridan was settled in 1994, with NAP buying his interest in the mine in exchange for cash, shares and a 3% royalty (increased to 5% this year) of the net cash proceeds.

The Lac des Iles mine commenced production in December 1993 using a refurbished concentrator. The high-cost, low tonnage operation was operating at a loss every year. By 1997 NAP was crippled by a Cdn$123-million debt owed to Kaiser-Francis, as well as disadvantageous hedging contracts. There was not enough potential profit in the reserves to pay off the debt. Its only hope lay in finding more reserves, which was what contract exploration manager Moe Lavigne was hired to do. (He is now vice-president of exploration.)

“When Keith [Minty] took over, this mine was a basket case, ready to go down the tubes,” says Stephen Stine, who has been vice-president and general manager of Lac des Iles mine since last December. Straight away Minty reduced the workforce and increased the production rate. He hired consultant Gary Raymond of Kilborn Pacific to conduct a scoping study for a much larger mine; the study was completed in January 1999.

Stine continues: “Keith convinced the primary shareholder to fund some drilling–a $4-million, 50,000-m drilling campaign from March through July 1999–and they struck new ore, raising the resources from 1.2 to 4 million ounces of palladium. Keith raised the money; Moe found the ore. It was a collaborative effort.” Much of the new ore was in a lower-grade halo surrounding the Roby Zone that encompassed the earlier reserves.

“At the same time, he started a feasibility study for the expansion,” says Stine. Following the study by AGRA Simons (now AMEC) from September 1999 to early January 2000, the board gave the go-ahead in February 2000, to a more-than-six-fold expansion of the throughput.

Stine goes on: “In the period that the company raised money for the expansion, we were able to get a contract with ‘Autoco’, sign two smelting and refining contracts and a six-year labour agreement.

“Keith had a unique and fortunate opportunity to do the right things and be at the right place at the right time. He made sure he was prepared to take advantage of the opportunity. He had the feasibility study done on a very conservative palladium price of US$325/ounce. When the price jumped up he was ready with his business plan, able to obtain a Cdn$235-million equity financing and a US$90-million project financing.”

“Northwest Ontario has amongst the most favourable mining legislation in the world,” said Minty at the annual general meeting in June this year. “The government is being very supportive. Permits for mining were received within a speedy 60 days of application, which demonstrates the support we received from the government.” The expansion took just 15 months to complete, from the start of construction on April 27, 2000, until commissioning this June.

Geology and Exploration

“The ore is not in a reef,” says Lavigne. “This is a 2.69-billion-year-old diatreme, injected into an active, subvolcanic environment.” The amoeboid-shaped Roby Zone is at least 1 km by 1 km in map area, and the deepest intercept so far is 830 m below surface. “This is a big orebody. Because of its size, we can legitimately compare it with a porphyry-type mineralizing mechanism system. This may be what a porphyry looks like in a mafic environment.”

The Roby Zone (where the pit is) and the Twilight Zone (adjacent to the east) occur in the mafic / ultramafic Lac des Iles Intrusive Complex. The Roby Zone is made up of 60-m-wide blocks of various rock types, and individual breccia pipes mixed with varitextured gabbros. It contains three distinct ore types: Breccia ore (most of the orebody), Shear ore and North Roby ore. On the north side of the pit is the “no-see’um” ore containing no sulphides. “Any rock type can be ore,” says Lavigne. “Everything has to be identified by assay.”

How would one look for another Lac des Iles-type orebody? “The first thing to look for, ” suggests Lavigne, “are nice, big intrusions, and you want to pick up anomalous PGE and varitextured gabbros. If you’re sitting on the breccias, you’re on ore.”

Drilling continued to find more ore last year. At year-end, the proven and probable reserves totaled 96.2 million tonnes grading 1.55 grams/tonne (g/t) Pd, 0.17 g/t Pt, 0.12 g/t Au, 0.06% Cu and 0.05% Ni. As well, there were measured and indicated resources of 49.8 million tonnes at 1.62 g/t Pd, 0.17 g/t Pt, 0.12 g/t Au, 0.05% Cu and 0.05% Ni. Reserves plus resources contained 7.4 million ounces of palladium. A Cdn$6-million drill program is currently exploring the Roby and Twilight zones.

In his quarterly update address to the site employees in June 2001, Minty said, “Since May 10 we have had three drills operating, starting at the 350 m depth and working our way down to 750-m depth. An example of the potential beneath the pit is a 17-m thickness grading 7 g/t palladium. Now we are exploring the north part of Lac des Iles. Hopefully we’ll find new orebodies. Also we’re shopping around for new properties. I have no intention of this being a one-orebody company.”

Mining

One of the mine’s main problems used to be the inefficiency of the low-tonnage operation. That has been laid to rest by a new mine plan for a larger-
tonnage/lower-grade reserve, and the purchase of a Cdn$42-million fleet of larger mobile equipment.

The new haulage fleet consists of seven 190-tonne Komatsu 730E trucks, with two more on order. (The old fleet of 75-tonne Caterpillar 777 trucks are still in use.) Two shovels were purchased–an 18-m3 Komatsu 4000 and a 23-m3 Komatsu 5500–as well as a 17-m3 Komatsu WA1200 front-end loader. The rest of the new equipment comprises three Driltech Mission DM55SP rotary drills, Caterpillar 2D10 dozers and a Caterpillar grader. The rolling stock arrived between August 2000 and February 2001. Transwest Mining System Inc. erected and serviced the vehicles at the site. Kal Tire installs and services the large tires for the fleet.

Production of ore for the year 2000 averaged 7,400 tonnes per day. Mine production for the first quarter of 2001 dropped to 3,224 tonnes per day, because of a delay commissioning the second shovel and the additional volume of prestripping. The shortfall is expected to be made up in the next three quarters.

All ore from the Phase 2 Roby pit was stockpiled to allow for continuous milling operations during the Cdn$7.5-million preproduction stripping of the Phase 3 expansion of the pit and construction of the new processing facility.

“The arrival of the new haulage fleet provided the mine with the increased capacity required to complete the Phase 2 mining on schedule, on October 24, 2000,” says Stine. “Commissioning of the new loader and the shovels has provided the mine with additional capacity to accelerate preproduction stripping.” The stripping began in July 2000. By the end of 2000, 4.1 million tonnes of overburden had been removed at a cost of Cdn$6.5 million. An additional 600,000 tonnes of overburden will be removed in 2001 at a cost of Cdn$1.0 million.

Chief mine engineer Chris Turek describes the mining operation. The top of the pit is about 500 m above sea level and the final pit bottom will be 80 m above sea level. Equipment is now working on the 473 bench (473 m above sea level). The ore extends virtually to surface. The life-of-mine waste:ore ratio will be 2.16:1. The ultimate extent of the pit will be 1.5 km by 0.8 km. As it deepens, the pit will have to be dewatered.

The walls are presheared using 15-cm-diameter holes drilled on 1.8-m spacings, for geotechnical wall control. The very competent rock allows for relatively steep pit slopes, at 55. Benches 8-m high are drilled with 23-cm-diameter holes on a 5.3-m by 6.2-m pattern in both ore and waste. Blasting uses a blend of 65% emulsion and 35% Anfo, and a powder factor of 0.39 kg/tonne. It is initiated row by row or sequentially, depending on the material.

The loader or shovels fill the trucks in five passes. The 1-km haulage distance will increase as the pit deepens. A Minestar system ensures loaded trucks are sent to the correct ore or waste stockpiles. The five ore stockpiles include the three ore types separated into high-, medium- and low-grade ore. As part of the Minestar system, the Aquilla drilling system is being installed to assist in blasthole drilling.

New Mill Commissioned

The flowsheet for the new plant was based on testwork carried out by Process Research Associates of Vancouver, to produce a high-grade rougher-cleaner concentrate and a lower grade scavenger-cleaner concentrate. Communications throughout the plant uses a Fisher Rosemount distributed control system. Most of the instrumentation is by Allen-Bradley.

Ore is hauled from stockpiles to the crusher where it is reduced to 140 mm and conveyed to an 18,000-tonne coarse ore stockpile.

The coarse ore is conveyed into the plant, to a 9.1-m-diameter by 4.3-m-long SAG mill where it is reduced. The -13-mm fraction reports to one of two identical ball mills, each 6.1-m-diameter by 10.4-m-long, where ore is ground to 74 microns. Farnell Thompson supplied the grinding mills.

The SAG mill oversize goes to a 2.1-m-diameter shorthead cone crusher set to 13 mm, the “pebble crusher”. The refurbished pebble crusher that was purchased for the new plant did not function properly and has been the plant’s main impediment to reaching capacity. It will be replaced in September by a new Metso HP800 shorthead cone crusher.

The ball mill hydrocyclones discharge into a conditioning tank where reagents are added. “One of our concerns is magnesium oxide,” says mill superintendent Joe Hettinger. “This is quite negative to the smelters if it forms more than 7% in the concentrate. We’re using CMC [carboxy methyl cellulose], which is a talc- and silicate-depressant. It’s a ratio thing: put in enough CMC to depress talc and silicate but nothing else.”

There are two parallel flotation lines. About 60% of the recovery takes place in the two 50-m3 rougher flotation cells. This is followed by two rows of seven 130-m3 scavenger tank cells, and three stages of cleaning: nine 38-m3 cells for the first stage, eight 3-m3 cells for the second stage, and two column cells, 1.3 m diameter by 11 m high, operated in series for the final stage. Most of the flotation tanks are built by Outokumpu. VTM tower regrind mills reduce the concentrate to 30 microns after roughing, and 30 microns after scavenging.

The rougher column and cleaner column concentrates are pumped to a 17-m-diameter high-capacity thickener. The thickener overflow is recirculated into the process water system. The underflow, at 60% solids, is pumped to an agitated concentrate stock tank that feeds one of two 19.0-m2 Larox pressure filters. The filtrate is returned to the thickener, while the concentrate, at 11% moisture, drops to a concrete storage pad below. Final mill tailings are pumped to the tailings impoundment.

The single bulk concentrate contains palladium, platinum, gold, copper and nickel. It averages 180-190 g/t Pd, although it can range from 150 to 300 g/t Pd depending on the ore type. “We are concerned that we meet the smelter specs,” says Hettinger. “The impurities cost us penalties. The silica values help the smelter, but if it’s above 23% it’s a problem. The sulphide content is about 17%; the smelters would prefer above 23%.”

Concentrate is loaded into trucks, weighed on an electronic scale, sampled and driven 1,400 km by Transwest Trucking to the smelters in Sudbury, where it is again sampled for verification.

By the end of this year the new plant is expected to be treating ore at its design capacity of 15,000 tonnes/day, producing 170 dry tonnes/day of concentrate. The old plant had improved its palladium recovery last year to 74% by selectively treating different ore types separately. Recovery will improve to about 81% in the new mill because of a finer grind and longer retention time.

The plant is capable of additional throughput, at a coarser grind, with minor reductions in concentrate grade and recovery. Says Hettinger, “If we wanted to double the plant capacity, we could just duplicate the grinding and flotation. The crushing and dewatering facilities are already sufficient.”

Contract operators were hired and trained in February 2001 to operate and maintain the existing mill. This freed up company personnel for training purposes and to assist construction with commissioning the new processing facilities as they came on line.

The new mill began commissioning in April and produced its first concentrate June 1. When CMJ visited the site in mid-June, both plants were operating. The old plant was expected to be decommissioned later that month.

Environmental Management

Fresh water is drawn from nearby Lac des Iles and used for make-up water in the plant, as a fire-fighting water supply, and for potable water.

The mine expansion has created a need for more tailings disposal. “We have lots of land but not much depth, so we have to raise the height of the dams,” says Hettinger. The dams that enclose the existing 195-hectare tailings impoundment are being joined to form a single dam, and the wall is being raised 10 m on the west dam this year to give enough tailings stora
ge for the next two years.

Ninety-five percent of the 11.2 million m3 of water that will be sent annually from the plant to the tailings impoundment will be reclaimed, providing 95% of the process water. The other 5% will be released to the environment, after being treated for suspended solids (mainly talc). The water is discharged in a swamp upstream of Lackey Lake.

“Last year we treated 350,000 m3 of water, and all specs were met,” says Hettinger. “This year there will be no release of water; if anything we’re a bit short of water this year, as we are bringing up the level of the reclaim water dam.” The mine has a permit to release 500,000 m3 of water between mid-March and the end of November each year, although this will probably need to be increased to 1,100,000 m3 in the future.

“We have proven ourselves to the Ministry of the Environment,” says Hettinger. “We are in compliance with all of our permits, our tailings are benign and we have no air emissions at the mine.”

All permits are in place for the current expansion project including the final closure plan, which was accepted in early June. The five-year Cdn$7-million reclamation program will involve contouring and sloping the rock piles and covering them with organics, and planting the roughed-up tailings with various local vegetation. The tailings have a benign pH of 7.4. Buildings will be removed and concrete blown up.

Human Resources

Most of the workforce lives in Thunder Bay, which is a 90-minute drive from the mine. NAP employees stay in single rooms at the site in a new, 350-person accommodations complex, formed of rows of joined trailers. During construction, contractors have set up temporary “villages” of trailers around the property. “Getting the camp reorganized is the main issue for me right now,” says human resources manager Terry Perrier.

Two-thirds of the Lac des Iles workforce is unionized. United Steelworkers of America local 9422 signed a six-year agreement a year ago with the NAP, giving the company a large comfort zone. “The hourly employees love their rotation,” says Perrier. They work 12-hour shifts–seven days in/seven days out–while staff work four days in/three days out. Full-time personnel increased from 126 in early 2000 to 295 by June of this year, with an additional 50 permanent site contractors.

There are no land rights issues with aboriginal groups in the area, according to Hettinger. The closest First Nations settlement is the Gull Bay reserve 100 km to the north. A small amount of purchasing is done from the Gull Bay community, and Lac des Iles has been progressive in hiring members from the Gull Bay band. NAP is trying to encourage more commerce with the band.