Palladium’s Next Boomtown: Northern Ontario?

There’s no doubt that the breakout metal for the last year has been palladium. It has steadily surpassed price high after price high and is currently up about 40 percent year-to-date.

Impressively, the value of palladium, an important automotive industry metal, has climbed from US$483 an ounce in February 2016 to an all-time high of US$2,745 on Tuesday (February 19).

The rising cost of platinum-group metals (PGMs) is correlated to increasingly strict regulations for car emissions as part of a global effort to reduce greenhouse gases and pollutants in the environment.

These tighter guidelines have prompted companies that make gasoline-powered cars to steadily ramp up the amount of palladium used in catalytic convertors, which are used to help reduce the level of emissions that vehicles produce.

As demand for palladium has steadily grown, production has begun to slip. In 2019, global output was pegged at 210,000 kilograms, a 10,000 kilogram decrease year-over-year from 2018’s 220,000 kilograms.

The 2019 production decline was brought on by a 4 percent output reduction in South Africa, the world’s leading producer of the gray metal. Issues around increased labor costs, rising electricity prices, unreliable power grids and deep-level mining all factored into the shortfall.

As a result of these jurisdictional issues and the price surge, interest in palladium projects outside of Africa is hitting a fever pitch.

One area in particular that has seen a flurry of activity in recent months is Northern Ontario.

In early October, sector major Impala Platinum (Implats) (OTCQX:IMPUY,JSE:IMP) acquired Canadian company North American Palladium for C$1 billion.

The deal birthed a new entity, Impala Canada, which oversees the operation of the Lac des Iles mine near Thunder Bay. Lac des Iles has been in production for 25 years, and North American Palladium was the only pure-play palladium company in the world, a fact that was enticing for Implats.

“Our Lac des Iles mine is unique,” Impala Canada CEO Tim Hill said. “Most orebodies that contain precious metals follow a narrow vein structure, whereas the orebodies at Lac des Iles are large, continuous structures that lend themselves to low-cost bulk-mining methods.”

He noted that the company had experienced challenges related to the project in years past — an issue that is no longer weighing on the project.

“Today, Lac des Iles is one of Canada’s largest, lowest-cost and safest underground mines. It uses fully mechanized mining practices, modern infrastructure, advanced underground mining technologies and, most importantly, a dedicated and engaged workforce committed to safe and responsible mining.”

Parent company Implats operates in the Bushveld Complex located in Rustenburg, South Africa. Bushveld is ground zero for palladium mining and is home to the largest global reserves of the metal, according to the US Geological Survey.

In terms of jurisdiction, Northern Ontario more than makes up for what it may lack in proven reserves with positive mining attitudes, a skilled workforce, support services and opportunity.

“As an operator in Northwestern Ontario for more than a quarter century, we receive strong support from the Thunder Bay community and a number of indigenous partners; it is a privilege to operate in such a collaborative region,” said Hill. “Additionally, some of the world’s most outstanding orebodies have been found in Northern Ontario, including those located in the Sudbury Basin and Red Lake.”

Impala isn’t the only company staking a claim and hoping for returns in the northern region of Canada’s most populous province.

In late January, junior miner Sienna Resources (TSXV:SIE,OTC Pink:SNNAF) added the Marathon North palladium project in Northern Ontario to its roster, which also includes the Slattberg PGMs and base metals project in Sweden.

Sienna’s Marathon North site directly borders another deposit, Generation Mining’s (CSE:GENM,OTC Pink:GENMF) Marathon palladium project.

According to diversified explorer Generation, Marathon is the largest undeveloped palladium deposit in North America at a measured and indicated 8,668,000 palladium equivalent ounces.

Proximity to Generation’s favorable project was part of the allure of Marathon North, Sienna Resources CEO Jason Gigliotti told the Investing News Network.

“We were just looking to see if there was any acreage within the same vicinity of where they were, and were kind of shocked to see that there was some property that had not been staked,” he said. “So we were able to get in there, grab that property.”

In 2017, total PGMs production in Canada totaled 1,016,402 kilograms. Of that, 770,414 kilograms were produced in Ontario. For 2018, that number climbed to 1,206,948 kilograms, of which 898,131 kilograms came from mines in Ontario.

For Gigliotti, the rising palladium price signals a renaissance for the Canadian mining sector, an industry that accounted for C$47 billion of the country’s annual GDP in 2018.

“Clearly the biggest part of the Canadian junior space is the mining side, and it’s strong across the board, and that helps everybody out,” Gigliotti said.

“There’s people now looking at something other than cannabis, which is extremely nice to see. A lot of that money that was kind of trapped in that space the last couple years is now finally migrating into the mining side. Which then allows a lot of the juniors like us to really get out there, put boots on the ground and get the work done to try to prove up the assets that (we) have.”

As the Canadian mining sector continues to attract investors back, lucrative palladium plays could be especially alluring in the current market.

“You’re also seeing the majors themselves, for the first time in five or six years, starting to look at those joint ventures again, and participating in a lot of stuff that they had on the books,” explained Sienna’s CEO. “And you see the bigger companies starting to step in on the exploration side, not just the acquisition side with their junior partners.”

As the junior company awaits the spring thaw, Gigliotti said the next step will be getting geologists to assess the properties’ potential and reserves.

While he remains cautious about the quick momentum the palladium price has made in the last 12 months, he said, “There’s a lot of smarter people than me that are calling for heightened prices for multi-months to years — not just a spike and then (a) come back down.”

Palladium’s parabolic rise has surprised some market watchers who expected its price to fall after reaching new highs in October of last year; the opposite has happened and the precious metal has continued its upward trajectory.

This is a trend Impala Canada’s Hill sees continuing as long as palladium remains the metal of choice for gasoline engine automotive manufacturers and as long as countries continue to deploy increasingly stringent emissions standards.

“The quest for an alternative to the gasoline engine is challenged and it is unlikely that these engines will be replaced in the near term,” said Hill.

“For example, challenges facing a transition towards battery electric vehicles include the scarcity of required materials, commercial battery production costs, inadequate infrastructure for battery charging and the functional limitations of battery electric vehicles themselves. Until these challenges can be tackled in a meaningful way, the robust demand for palladium will continue.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Sienna Resources is a client of the Investing News Network. This article is not paid-for content.

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