North American Palladium acquires 51% of Sunday Lake

On the back of record quarterly revenues from its wholly owned Lac des Îles mine, 100 km northwest of Thunder Bay, Ont., pure-play palladium producer North American Palladium (TSX: PDL; US-OTC: PALDF) recently added to its regional presence by acquiring 51% of the nearby Sunday Lake platinum group metal project, just 60 km south of its mine.

Originally entering an earn-in agreement in mid-2017 with Sunday Lake partners Impala Platinum Holdings and project-generator Transition Metals (TSXV: XTM), North American Palladium has completed its stage-one option terms, vesting a 51% interest by spending $1.5 million on exploration and making $675,000 in payments to major platinum group metals (PGM) producer Implats and $75,000 to Transition Metals, which now hold 24% and 25%.

In North American Palladium’s news release announcing the acquisition on Aug. 19, CEO and president Jim Gallagher described Sunday Lake as the company’s “best blue-sky opportunity and a key element of our long-term strategy to build an inventory of high-quality platinum group metal assets in the Thunder Bay region. We have demonstrated that the PGM zone has significant lateral continuity and are now able to focus on areas of enhanced thickness and grade.”

Transition Metals geologist Steve Flank standing in front of the discovery hole at the Sunday Lake PGM project, 25 km north of Thunder Bay, Ont., in November 2013. Credit: Transition Metals.

Drill programs over the past two years have confirmed PGM and base metal sulphide mineralization along the lower part of the Sunday Lake intrusion, which is modelled as a near-continuous blanket with a 1.5 km north–south extent, and a 900-metre, east–west extent. Drill highlights include hole 19-026 on the “Big Red” geophysical target returning a 41-metre interval grading 5.51 grams PGM per tonne (3.22 grams platinum per tonne, 2.08 grams palladium per tonne and 0.21 gram gold per tonne) and 0.57% copper, including a high-grade section of 16 metres of 9.11 grams PGM per tonne (5.42 grams platinum, 3.35 grams palladium and 0.34 gram gold), plus 0.88% copper.

Drilling indicates the main mineralized zone forms a tabular body ranging from 10 to 60 metres thick. The Sunday Lake PGM mineralized mafic-ultramafic intrusion is modelled as part of the Proterozoic midcontinental rift magmatic event also responsible for Lundin Mining’s (TSX: LUN) Eagle nickel deposit in Michigan, as well as the Tamarack nickel-copper-cobalt deposit (a Rio Tinto [NYSE: RIO; LSE: RIO] and Talon Metals [TSX: TLO] joint venture) and Antofagasta’s (LSE: ANTO) Duluth complex magmatic sulphide deposits in Minnesota.

North American Palladium can boost its Sunday Lake interest to 75% through more staged earn-ins comprised of cumulative exploration expenses of $3 million, plus cumulative payments of $2.48 million and $275,000 to Implats and Transition Metals over the next three years. Transition has a 25% interest in the project carried to feasibility.

The company’s next stage of drilling at Sunday Lake will target remaining geophysical targets and look to establish continuity of the thickest, highest-grade mineralization found to date.

Sunday Lake gives North American Palladium future optionality to its Lac des Îles palladium mine, which has operated since 1993.

Based on its 2018 Lac des Îles feasibility study to incorporate underground mining of the Roby zone using bulk-mining methods, the company has been ramping up its 6,000-tonne-per-day underground production rate towards 12,000 tonnes per day, which it says is on target to achieve by 2021. The revised development plan aims to extract material from several near-surface resources outside the original open-pit development plan and could push out mine life another year to 2027. Current processing capacity at the mine is more than sufficient to accommodate this planned increased ore output, with its 13,500-tonne-per-day rated mill.

As of 2018, total surface and underground proven and probable reserves at Lac des Îles stand at 40.9 million tonnes grading 2.31 grams palladium, 0.21 gram platinum and 0.17 gram gold.

North American Palladium has had strong performance from its Lac des Îles operation over recent quarters, driven by both increased mining rates and the rally in palladium prices to record levels of just under US$1,700 per ounce. In the second quarter of 2019, the company produced 56,472 payable oz. palladium at an all-in sustaining cost of US$834 per oz., net of by-product revenues. Second-quarter revenue of $135.6 million was also a record for the company and net income was $36.6 million, or 62¢ per share, prompting the company to add a special dividend of 35¢ per share on top of its 10¢-per-share quarterly dividend payout.

North American Palladium’s Lac des Îles palladium mine in Ontario. Credit: North American Palladium.

The company forecasts 2019 annual production of 220,000 to 235,000 payable oz. palladium from its Lac des Îles operations at an all-in sustaining cost of US$815 per payable oz. palladium.

Shares of North American Palladium traded at the $19.65 level at press time, slightly above the mid-point of its 52-week trading range of $26.30 to $9.12, giving the company a $1.16-billion market capitalization. As of its latest financials, the company had $58.2 million in the treasury and a $123.8-million working capital position.