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The World's Hottest Metal, Found Right Here in Ontario

Dave Jackson Dave Jackson, Stockhouse
3 Comments| August 1, 2019

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Click to enlargePalladium. A rare, precious metal – one of the six platinum group metals (PGMs). Its very name conjures up exotic images of a glistening, space-age metal with a price-tag that matches its scarcity. Its lustrous sheen has historically made it a popular choice for wedding bands and other jewelry, plus it is feathery light, wears well, is highly ductile, and doesn't degrade like other precious metals. Its other uses include dental, chemical, and electronic applications.

But, it’s the automotive industry – catalytic converters specifically – that dominates its production usage.
Today, about 85 percent of palladium ends up in the exhaust systems of cars, where it helps turn toxic pollutants into less-harmful carbon dioxide and water vapor. The metal is mined primarily in Norilsk Russia and South Africa, and is mostly extracted as a secondary product from operations that are focused on other metals, such as platinum or nickel.

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Not only has palladium been the best performing commodity for two years straight, the price of the precious metal (which is 30 times as rare as gold) has risen by more than 50 percent since August 2018 – surpassing the price of gold for the first time since 2001. Palladium has been on a roll lately jumping to a historic high of about US$1600 in March 2019 – a record high. At press, it was still trading at a robust US$1,515.

Savvy mining exploration and development companies like Generation Mining (C.GENM, GENMF, Forum) have taken keen note of this. Recently, the Company acquired a large property holding covering about 17,000 hectares in the Northern Ontario jurisdiction of Marathon – a historical mining hotbed smackdab in the heart of the Canadian Shield. Metals & mining insiders know this is a significant strategic move.

Investors take note – GENM has now positioned itself as one of the PGM sector’s near-pure palladium plays.

On July 11, 2019 the Company closed a deal to obtain up to 80 percent of the Marathon PGM project – a project that had been given little attention by Sibanye Stillwater upon its acquisition of Stillwater Mining. Historical reports estimate the property contains an open pit resource of 3.5 million ounces of palladium, nearly a million ounces of platinum, as well as 881 million pounds of copper. In short, this looks to be a project that may pay for itself…in relatively a short time. And here’s what’s important to note and underline twice – there are only three major places to extract palladium on Planet Earth – Russia, South Africa and, you guessed it, northern Ontario.

Supply shortages continue to back palladium’s performance with strong multi-year growth in palladium demand now straining a fixed supply. The precious metal is especially scarce, and its supply is inelastic since it is often a by-product of ores that are being mined for other metals – like platinum and nickel. It is rarely mined on its own. Russia is the world’s largest palladium-producing country, followed by South Africa, Canada, the U.S. and Zimbabwe.


(Source: U.S. Geological Survey)

The official level of palladium reserves in Russia is a state secret and many industry experts believe that Russia’s stockpiles of palladium have been largely sold, constraining supply. Supply concerns were further heightened in April 2018 when the U.S. levied more sanctions against Russia.


Investors Corner

Under the option agreement, Generation Mining earned an initial 51 percent stake for $3 million in cash along with another $3 million worth of its shares. Generation Mining can boost interest 80 percent by spending $10 million within four years of closing. If it fails to do that, its ownership in Marathon will drop to 20 percent.

Upon a production decision, Sibanye Stillwater has the option to earn back the 51 percent ownership by advancing 31 percent of the project capex within 90 days. At that point, Generation Mining could earn a 49 percent interest by paying only 34 percent of the capital expenditure.

In turn, Generation Mining raised $8 million through a bought-deal private placement in June at a 28 cents-per-unit subscription price, consisting of one common share and one-half of a warrant exercisable at 45 cents per share.

In conversation with Stockhouse Editorial, Company CEO Jamie Levy and Kerry Knoll, Chairman, discussed the Marathon acquisition and what this means for the Company and its investors. Mr. Knoll gives a bit of background information why they entered the palladium space at this time:

“I’ve been in the business for 38 years and have only once seen something comparable to the current palladium market – that was molybdenum in 2004 when we founded Blue Pearl Mining. First, there are almost no palladium mines under development. Now, we’ve got the largest undeveloped palladium project in North America. Since most of the palladium comes from either South Africa or Russia, there’s a desire for a better jurisdiction. I don’t think we could be in a better location (Marathon Ontario).”

When we asked the CEO what makes their particular mining business attractive to investors, here’s what he had to say:

“Our business model is two things with two goals – one, is to do a Preliminary Economic Assessment, which we’re doing this year, following that up with a Feasibility Study and then moving forward toward building a mine. Over 200-thousand metres of drilling has been done on the property for over 35 years, huge amounts of work. Yet despite all that drilling the property has barely been scratched because it’s so big. The strike length of the favourable structure – the main structure – is about 40 kilometres long with palladium deposits all the way along it. But since the bush is so thick and so hilly a lot of places are not that accessible; therefore they haven’t been explored. The second goal is for us to mount a major exploration campaign and our target is to find some higher grade material.”

He went on to say that current grades at Marathon are a respectable 1.45 g/t palladium equivalent and the project contains a historic resource around 6.5 million palladium-equivalent ounces. And, most importantly the project is potentially mineable by low cost open pit methods with a reasonable strip ratio. The operation compares favourably with all the North American precious metal projects out there that trade at about US$65 per ounce, while Generation Mining trades at only US$3 per ounce


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Some in the mining industry have argued that the growth of electric vehicles (EVs) could pose a risk to the palladium sector since EVs do not require catalytic converters. Conversely, the rise of hybrid-electric vehicles could drive palladium demand since they, too, require palladium to control pollution. Recent legislation in Europe and China has increased the per-car loadings of palladium by more than 50 percent, meaning palladium demand kept increasing to the point that the market began experiencing supply deficits. To that end, the mining behemoth Norilsk Nickel forecasts that combined palladium use in autocatalysts in 2019 will be nearly 5 percent higher than 2018 totals.


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Passing Platinum: Why is Palladium Getting More Expensive?

Supply simply hasn’t responded to growing demand. Usage is increasing as governments (especially China’s) tighten regulations to crack down on pollution from vehicles, now forcing automakers to increase the amount of precious metal they use. As a result, palladium usage worldwide has increased despite what has been called a temporary lull in car sales, especially in China. In North America and Europe, consumers are buying fewer diesel vehicles – which mostly use platinum – and are instead choosing gasoline-powered vehicles ­– which use palladium – following revelations that makers of diesel cars cheated on emissions tests.

Even with the recent slowdown in the automotive market, the price of palladium has continued to rise. The pent-up demand for palladium, leading to the current palladium deficit, will not be reversed quickly. The fact is that palladium is required for catalytic conversions on almost all passenger vehicles. Furthermore, palladium is the most versatile of the PGMs for use in the converters.


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From the Chairman

In closing, we asked Kerry Knoll, that in regard to value and opportunity, what makes this particular mining project so intriguing and attractive:

“I think there’s no better way to invest right now a near-pure palladium play. If you look at the reports from Johnson Matthey palladium has been in a (supply and demand) deficit since 2013. And what has been making up that deficit is two things – first, they’ve been draining the ETFs (palladium-backed exchange-traded funds) so it appears that the automakers were using ETFs as their hedge against rising palladium prices because they realized there was shortage. Second, has been investment stockpiles and Norilsk holding back palladium from the market when prices were lower. That was detailed in a Johnson Matthey report in May (2019).”

So with demand far outstripping supply in a mineral commodities sector the U.S. government has deemed critical to their national security and the economy, exploration companies with an eye to the future are as equally vital. With intensive exploration programs proposed for late summer 2019, Generation Mining and its Marathon property appears to be one Company with its eyes closely focussed on the future of one of earth’s most precious and purposeful minerals…palladium.


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FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.


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Comments

I quess you forgot Lac Des Illes 85km northwest of Thunder Bay ON that has been operational for the last 25 years. Owned by North American Palladium.
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August 3, 2019

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