SUDBURY, ONT. - They don't call them precious metals for nothing.
In recent decades, only two North American companies -- Stillwater Mining Co. (NYSE: SWC, Stock Forum) and North American Palladium Ltd. (TSX: T.PDL, Stock Forum) -- have been able to prove up sufficient ore reserves to call themselves primary producers of platinum group metals.
Stillwater has two mines in Montana and North American Palladium owns the Lac des Iles mine near Thunder Bay in northern Ontario.
But that hasn't deterred Pacific North West Capital Corp. (TSX T.PFN, Stock Forum) from attempting to develop its own platinum/palladium mine on its River Valley property about 60 kilometres east of Sudbury, Ont.
If it succeeds, PFN chief executive officer Harry Barr might consider stopping by the Hys restaurant in downtown Toronto and buying Pat Sheridan a beer.
A regular at Hys for decades, Sheridan was the driving force behind the move to get Lac des Iles into production. He finally realized the dream in 1993, but only after facing a large amount of skepticism in local mining circles.
When a Stockhouse reporter paid a visit to the River Valley project last week, it was clear that PFN is still a long way from joining the aforementioned group of primary producers. But it was also obvious that the junior could hardly have picked a better time to be making the attempt.
Since the end of 2008, the price of platinum has more than doubled to US$1,841 an ounce from $900, while Palladium has soared to $777 an ounce from $183.50. In doing so, palladium has shifted the traditional pricing ration between palladium and platinum from an average of 36%.
As platinum and palladium play a key role in the production of catalytic converters in the global auto sector, there is talk of supply shortages in Russia and South Africa, the two countries that together account for about 90% of global production.
(Catalytic converters are used in auto exhaust systems to reduce harmful emissions and allow the vehicle to pass mandatory smog tests.)
"We just felt that platinum group metals were a good place for this company," said Barr, a Vancouver-based financier who runs a stable of mining companies that also includes Fire River Gold (TSX: V.FAU, Stock Forum), Next Gen Metals Inc. (TSX: V.N, Stock Forum), and El Nino Ventures Inc. (TSX: V.ELN, Stock Forum).
River Valley is not new in the PFN portfolio. PFN has had the property since 1998, when it acquired the rights from local prospectors. A year later, it optioned the ground to Anglo American Platinum Ltd. (AMPLATS), which subsequently spent $22 million on exploration, drilling 550 holes, and earning a 50% stake in the process.
In 2006, that work resulted in a measured and indicated resource of 19.3 million tonnes, containing 733,000 ounces palladium (1.18 grams per tonne), 245,100 ounces platinum (0.39 grams) and 43,600 ounces of gold (0.07 grams).
However, due to the financial crisis in 2008, and fact that AMPLATS decided to shelve its international operations, the property lay dormant from 2005 until earlier this year when PFN resumed exploration.
It did so after striking a deal in which AMPLATS relinquished its 50% project stake in exchange for a 12% stake in PFN. Under the deal, the junior issued 8.1 million common shares and 3-year warrants to AMPLATS as well as the right to purchase 3 million PFN common shares at 30 cents a share.
Trading at 29 cents on Thursday, PFN currently has a market cap of $27 million, based on 94 million shares outstanding (116 million on a fully diluted basis).
At River Valley, PFN is exploring along a contact zone that extends for a prospective strike length of nine kilometers. The best drill results to date have been reported in an area at the northern end of the property known as Dana North.
That is where PFN was deploying a drill rig when a Stockhouse reporter joined a group of 29 analysts and investors on a recent tour of the site. Getting there involves taking a 60-minute bus ride from Sudbury and a short trek along a gravel road to the drilling site.
PFN's long term goal is to prove up sufficient reserves to establish a multi-million tonne open pit mine.
In keeping with that plan, PFN launched a $5 million (15,500 metre) drill program in April 2011. The aim is to add more tonnes and increase the confidence level in previous resource estimates. The company is also hoping to release an updated 43 101-compliant resource estimate in early 2012.
In an interview, PFN project geologist Richard Zemoroz was asked if he thinks that River Valley will prove to be economic sooner or later.
"Absolutely," he said. "We have a pretty good grade here. But we have to increase the tonnage to make it worthwhile."
Barr said he hopes exploration crews can outline between 50 million and 100 million tonnes grading between 1.5 to 3 grams combined platinum/palladium and gold. The economics are expected to be enhanced by the production of rhodium, copper, and nickel credits, the company hopes.
Meanwhile, PFN is unlikely to develop a mine without the help of a joint venture partner. "There are things going on behind the scenes. But I can't name names," said Zemoroz.
As exploration continues, Barr said he is mindful of the fact that about one million ounces of (platinum and palladium) is being produced as a by-product from nickel operations in nearby Sudbury.
"So if we can get this up and running, we can make a deal with Vale SA (NYSE: VALE, Stock Forum) or Xstrata Plc (the main nickel producers in the Sudbury area)," Barr said.
Meanwhile, as exploration continues east of Sudbury, back in Toronto Sheridan is having the last laugh at his earlier doubters.
That's because in 1994, he had the foresight to sell Sheridan Platinum Group's stake in the Lac de Iles mine to its current operator North American Palladium.
In exchange, Sheridan Platinum Group also received $10 million and two million North American Palladium shares.
Ten years later, the 5% royalty on 95,000 ounces of annual palladium production is paying Sheridan $4.2 million, money he earned in 2010 without having to lift a finger.
When Barr visited Sheridan recently at a downtown Toronto steakhouse, he said Sheridan's only concern was whether or not the local weather conditions would permit him to step outside to smoke his trademark pipe.
The royalty promises to be worth even more when North American Palladium completes a $250 million expansion that is expected to increase the palladium production rate at Lac des Iles to 250,000 ounces annually from a target of up to 155,000 ounces this year.