Prophecy Platinum starts winter drill program at Wellgreen

Fifteen kilometres off the paved Alaska Highway in southwestern Yukon, the Wellgreen nickel-copper-platinum group metal (PGM) project sits largely as it has since 1973, when Hudson-Yukon Mining abandoned underground mining there after one year of operations.

The large Wellgreen orebody, rich in platinum, palladium, gold, nickel and copper, spreads nearly 20 km over the Kluane mafic-ultramafic belt in the low-altitude Kluane Mountain Range 315 km northwest of Whitehorse. Thought to be formed from sill-like intrusives, geologists and mining engineers have sought for decades to take advantage of the nickel-copper deposit’s unprecedented levels of platinum group metals, unfortunately with little success.

All-North Resources, Chevron Minerals, Galactic Resources, Northern Platinum and Coronation Minerals have had a turn at the project since the eighties, but were beaten back at various points owing to falling metals prices, the project’s isolated location and the sheer size of work and money needed to reopen the mine.

With metal prices returning near all-time highs, and with size and scalability of mining projects becoming increasingly important, Wellgreen has once again piqued the interest of investors and the mining industry alike. Spun out of what is now Prophecy Coal (PCY-T, PCY-V) in June 2011 after mergers with Northern Platinum and Pacific Coast Nickel, John Lee’s Prophecy Platinum (NKL-V) has emerged as the latest company to advance Wellgreen along the path to production.

Things got off to a promising start midway through the year when the company released an updated National Instrument 43- 101-compliant resource estimate nearly six times larger than a previous estimate in 1989. At 289 million inferred tonnes averaging 0.53 gram platinum per tonne, 0.42 gram palladium, 0.23 gram gold (or 1.18 grams PGM plus gold), 0.38% nickel, 0.35% copper and 0.03% cobalt, the company quickly established Wellgreen as one of the largest PGM projects in Canada and one of only a few large projects outside of South Africa’s Bushveld complex. Wellgreen also hosts a higher-grade zone of 14.3 million indicated tonnes grading 0.99 gram platinum, 0.74 gram palladium, 0.52 gram gold (or 2.25 grams PGM plus gold) 0.69% nickel, 0.62% copper and 0.05% cobalt.

In all, the project contains over 2.6 billion lbs. nickel, 2.4 billion lbs. copper, 227 million lbs. cobalt and 12 million oz. PGM plus gold – comprising 5.39 million oz. platinum, 4.25 million oz. palladium and 2.38 million oz. gold – across all resource categories.

Drilling budget

The Northern Miner visited the Wellgreen site late in the Yukon’s 2011 drilling season, alongside a dozen mining analysts and newsletter writers, the director of investment banking for Bank of China International and the special advisor to Eike Batista’s EBX Group. We were met by Rory Calhoun, Wellgreen’s project geologist, who has worked on and off at the project with various operators since the nineties.

“We’ve never had more than around two-and-a-half million dollars to explore here,” Calhoun explained. “Hopefully that’s going to change.” He said the property has never had three drills on it at once, only one or two, but to advance it as a bulk-tonnage, near-surface deposit will require more. Permitting has not been a problem, Calhoun says. In as little as two months the company had obtained enough permits to drill for the next 10 years. “If we set the budget early next year, we can get the drills. We just need John [Lee, the company’s chairmain] to do a financing first.”

Hampered by a small budget in 2011 and difficult ground conditions, Prophecy had made little drilling progress just prior to 2011’s final quarter. It had completed 2,000 metres of a proposed 8,000-metre drill program, of which 800 metres were lost or abandoned. The company reported assays for only five holes by the end of the season, but the results were encouraging. Step-out drilling between the large East and West zones showed the smaller Central-East and Central-West zones to be one contiguous body, outlining the potential to expand the resource base. Other holes demonstrated potential to extend the East zone farther to the east and south, and the West zone at depth.

After seeing its share price rise from a low of 55¢ in July to a high of $5.96 in August, Prophecy Platinum closed a $10-million financing at $2.70 a share in November, giving it the cash injection needed to tackle a bigger drilling program in the new year. And on Jan. 3, it did just that. The company reported that underground drilling would begin in the third week of January, with 9,000 metres planned to target the infill areas of the Wellgreen inferred resource. Some step-out drilling will also be completed to the south and fill the pit area being designed in the company’s preliminary economic assessment (PEA), due for completion in February 2012.

In a decision that should please Rory Calhoun, Prophecy has also signed a contract for a minimum of 10,000 metres of surface drilling before the quarter closes. Between two and four drill rigs will be used to help upgrade and expand the resource, focusing mainly on infilling pit areas but also continuing exploration along strike. Metallurgical tests by SGS have also been continuing since October, with results to be incorporated in the PEA.

The preliminary mine plan for Wellgreen involves producing a PGM-nickel-copper concentrate using a throughput rate of 29,030 tonnes per day, with production commencing in 2016 at the earliest. Mining on this scale could demand 48 megawatts of electrical power supply, however, and may pose some challenges in an isolated corner of the Yukon. According to a conceptual design report compiled by Tetra Tech Wardrop in October, the lowest-cost and most secure solution would be to run a double-circuit, 138-kilovolt transmission line to the site from the Yukon’s nearest power grid 150 km away. Combined with the costs of building a substation and an emergency diesel generator, the estimated capital cost would total $68 million.

The feasibility of running the power line depends on the Yukon increasing its power supply considerably – its generating capacity is 112 megawatts, two-thirds of which comes from hydroelectric power. Alternatives involve accessing a proposed intertie required to supply compressor stations should the Alaska Highway natural gas pipeline go ahead in a few years, or building expensive diesel or gas engine generators.

Shipping concentrate from the mine should be less of a problem. Roughly 400 km away on paved roads is the Haines deep-sea port in Alaska, providing a direct shipping point to Asia.

As for metallurgy, historical results from a 1989 prefeasibility study show metal recoveries in a bulk con of up to 80% for platinum, 80% for palladium, 85% for nickel and 95% for copper.

Amidst ongoing metallurgical work by SGS, Prophecy Platinum has also brought in metallurgist Gary Johnson as an advisor. Johnson is a highly respected metallurgists in the industry and has worked on several nickel projects in recent years, as well as helping to develop the Activox process for treating sulphide concentrates.

As has been the case with many commodities, prices of platinum and palladium have dropped sharply in recent months. Platinum is down to US$1,400 per oz. from US$1,800 in July, while palladium has slid to US$650 per oz. from a mid-2011 high of US$825. The fall in prices led Prophecy Platinum to purchase $4-million worth of platinum and palladium exchange-traded funds in early December.

Shares of the company traded for $2.58 at presstime on Jan. 5. The company has 55.1 million shares outstanding, of which 29 million are owned Prophecy Coal and management as a result of the spin-out transaction. Sprott Asset Management is also a major shareholder, though it is below the threshold required for public disclosure.