Site visit: Wellgreen eyes revival under new management

DESTRUCTION BAY, YUKON – Roughly 30 km southeast from the small settlement of Destruction Bay along the Alaska Highway, which traces the picturesque shores of Kluane Lake in southwestern Yukon, lies Wellgreen Platinum’s (TSX: WG; US-OTC: WGPLF) base of operations. The company is the latest in a long line of suitors hoping to unlock the prolific mineral potential that lies in the shadow of the Saint Elias Mountains.

Wellgreen’s current management team took control of the large platinum group metals (PGMs) enriched Wellgreen nickel-sulphide deposit back in 2012, but the project has a lengthy history. Prospectors W. Green, C. Aird and C. Hankins staked the first recorded mineral claims on the property in 1952, while Hudbay Minerals (TSX: HBM; NYSE: HBM) didn’t have much luck operating an underground mine at the site in the early 1970s.

The company’s camp is an easy drive along the all-season highway, after a prerequisite detour to check out the world’s largest gold pan. And it’s quite evident that Wellgreen is only the most recent company to occupy the site, which hosts an extensive bunk area and the skeletons of old machinery.

The property lies in the the Kluane Ranges, which are a continuous chain of foothills spattered along the eastern flank of the Saint Elias Mountains. The Wellgreen deposit lies within an Upper Triassic ultramafic body within the Quill Creek Complex, which is 20 km long and closely intrudes along the contact between the Station Creek and Hasen Creek formations.

President and CEO Greg Johnson explains from the company’s extensive core shack that Wellgreen is analogous to gabbro-associated nickel deposits, with notable examples including Noril’sk in Russia, Raglan in northern Quebec, Stillwater in Montana and Sudbury in Ontario.

“This type of system with the platinum group metals (PGMs) enrichment is quite rare, since these ultramafic rock packages don’t occur in many places around the world,” Johnson says. “One of the areas of focus for our team over the past couple of years has been to take the geologic context from five generations of exploration history, including production data from the high-grade underground mine.”

Something that certainly isn’t a problem at the project is size and growth potential.

Wellgreen hosts 330 million measured and indicated tonnes grading 0.24 gram platinum per tonne, 0.24 gram palladium per tonne, 0.045 gram gold per tonne, 0.3% nickel, 0.1% copper and 0.02% cobalt. Inferred resources include 846 million tonnes of 0.23 gram platinum, 0.23 gram palladium, 0.047 gram gold, 0.2% nickel, 0.1% copper and 0.02% cobalt. All resource estimates assume a 0.57-gram platinum equivalent cut-off grade.

Why is the new Wellgreen team so confident it can bring the deposit to production, when previous operators have failed to solve the puzzle?

The simplest answer is an abundance of experience with similar deposits, and proven ability to raise capital. Johnson co-founded NovaGold Resources (TSX: NG; NYSE-MKT: NG), while chief operating officer John Sagman has experience working in Xstrata’s nickel division including the Raglan complex.

Management has flexed its financial muscle by raising over $40 million in cash since taking control of the project three years ago.

“Hudbay chased higher grades along narrow horizons, and that proved really difficult, because they pinch and swell. For us those high-grade massive sulphides are sweeteners within our open-pit, bulk-tonnage plan, so we’ll avoid that difficulty of maintaining grade control,” Johnson adds.

“One of the main benefits at Wellgreen is that the drill holes are still largely on-site, and we really worked on systematically correlating all that data. When we first got here there was this massive inferred resource, and we really prioritized updating our confidence in that resource over further expansion — but there’s still a lot of potential out here.”

This growth potential is apparent during a drive out to the main Wellgreen zone along the deposit’s eastern edges. Johnson says the “mountainous topography” is a benefit to mine planning, as it helps the company minimize strip ratio due to the tabular nature of the ultramafic rock package. He gestures to the mountain peak where the company is conducting infill drilling, though it is shrouded in a veil of thick, low-lying fog on this day.

“We’re also fortunate that some of our highest-grade zones come right to surface, which allows us to have starter pits over our first five years of operation,” Johnson says.

The trucks roll to a stop on a valley floor along the edges of Quill Creek. Sagman points out the proposed tailings and processing facility nearby, and explains that the mine layout minimizes impacts on regional watersheds. Wellgreen figures that the central valley location can be used to process mill feed from its deposit, as well as any satellite discoveries it makes in the future.

“We based the layout on the design of the Raglan camp up in Baffin Island where the complex is quite contained, so it’s efficient for maintenance and operations,” Sagman elaborates. “We believe it’s highly probable we find other mineralization zones. If the material is at surface, you might snap it right into your mine plan.”

Wellgreen outlined its early vision for the mine in February with a preliminary economic assessment that models a staged build running at 25,000 tonnes per day for five years, before graduating to 50,000 tonnes per day for the remaining 20 years. Johnson points out that the 25-year mine life uses only “one-third” of total pit-constrained resources.

Pre-production capital expenses are pegged at US$586 million, but that’s only a fraction of life-of-mine capital requirements of US$1.6 billion. The big spend is on expansion and sustaining capital, which total US$889 million.

Wellgreen would annually produce 177,500 oz. platinum-palladium-gold (3E), 68 million lb. nickel and 44 million lb. copper. Sagman adds that two starter pits would target higher-grade, near-surface mineralization in the mine’s early years, which would improve payback and provide cash flow to fund the costly expansion.

The company’s economic base case assumes US$1,450 per oz. platinum, US$800 per oz. palladium, US$1,250 per oz. gold, US$8 per lb. nickel and US$3 per lb. copper. The model features a $1.2-billion after-tax net present value at a 7.5% discount rate, and a 24.6% internal rate of return.

The tour continues along the well-kept gravel service road, which tilts upwards as it leads towards Wellgreen’s current drill collars. Johnson points out Hudbay’s old access portal, and explains the company expects to include some of the historic, high-grade material in the mine plan.

“From an underground point of view, there’s some opportunity for us in the historic workings,” Johnson says.

“For example, the main underground workings have nice high-grade material that we could access quite quickly. That ore might come forward in the mine plan, compared to sticking solely to open-pit methods. I think it’s exciting in general that there are so many opportu
nities here in terms of potential expansion of future pits, and underground opportunities that could add real value,” he adds.

Wellgreen’s regional scale is evident during a drive over the property despite the fog. The main deposit is part of an 18 km system of ultramafic rocks that could host more mineralization. The trucks roll by a small hill atop the company’s Quill target, which is another geophysical anomaly awaiting drilling. Johnson explains that similar ultramafic geophysical signatures have been traced another 4 km toward its Burwash target.

“Our ultramafic intrusions occur for at least 150 km along a major break. It’s thought that related systems continue up through Alaska and down through northern B.C.,” he adds.

The next steps at Wellgreen will  tweak project metallurgy, with the company hoping to improve recoveries by adding another regrind and flotation element to its circuit. Sagman says there’s also potential in “exotic PGM” production, which includes rhodium, iridium, osmium and ruthenium.

One thing that hasn’t gone according to plan is a steep drop in metal prices over the past year. Since early January, three-month future contracts for Platinum have dropped US$263 en route to US$950 per oz. at press time, while two-month contracts for palladium are down US$95 at US$702 per oz.

Meanwhile, nickel has fallen from near US$10 per lb. a year ago to US$4.59 per lb.

Wellgreen shares have followed metal prices downward, as its share price has dropped 64%, or 41¢ year-to-date, en route to a 23¢-per-share close at the time of writing.

The company reported $5.8 million in cash and equivalents at the end of June, and has 112 million shares outstanding for a $25.8-million market capitalization.