Land of Opportunity - Platinum in the Yukon

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Land of Opportunity - Platinum in the Yukon

Toronto, ON / ACCESSWIRE / March 6, 2014 / Geology has favoured South Africa with the lion’s share of the world’s known platinum deposits. However, labour strife over the past two years at the country’s biggest producing mines has kneecapped a region that supplies up to 80% of the global platinum market. As buyers search for more stable sources of platinum, exploration companies are turning to Canada and other mining-friendly jurisdictions to fill the production gap.

South African platinum is largely restricted to extreme subterranean seams that require deep shafts and tunnels to access it. The increasing depth of the country’s accessible deposits continues to make extraction more expensive and forces producers to rely heavily on human labour.

Rising production costs coupled with increased wage demands have led to a series of protracted strikes by the Association of Mineworkers and Construction Union.  During a protest in August 2012, South African police shot and killed 34 miners among a crowd of 3,000, some of whom were armed with machetes and traditional weapons.

A November 2013 report on platinum markets by British specialty chemicals company Johnson Matthey foreshadowed the current labour situation, citing “potential for industrial action over wage negotiations, with significant disparities between pay increases claimed by unions and those offered by producers, most of which are under severe financial pressure…”

This year’s wage strike has crippled production at South Africa’s top three platinum mining companies, causing current global output to drop by more than 40% over just a few weeks. With the current strike entering its sixth week, concerns are increasing about the state of these producers’ existing stockpiles, which may last only until the end of March. Depletion of these stockpiles could result in the upward move in platinum prices that has yet to be seen.

While South African platinum producers may repair fragile labour relations over time, platinum buyers are looking to secure more stable supplies of the precious metal.

As the ScotiaMocatta Precious Metals 2014 Forecast notes: “The longer term outlook for platinum looks robust as supply is struggling to keep up with non-investment demand, which means even a relatively small amount of investment demand can cause a supply deficit.”

Platinum prices are currently based on three fundamental drivers: industrial demand, investment demand and demand for platinum luxury goods such as jewelry. That makes it somewhat different from silver, which has only moderate industrial demand, and gold, which has almost none.

Platinum is used to manufacture everything from fibreglass, batteries and pharmaceuticals to lasers, gasoline and fibre-optic cables. However, it’s the automotive industry that primarily drives demand. Platinum, and its sister metal palladium, are essential components of catalytic converters, which help to reduce harmful emissions from vehicle exhaust.

Scotiabank’s Global Auto Report, released in January, predicts a strong recovery in world auto sales, with China overtaking the United States as the world’s largest car market. Rising Chinese environmental standards would spike the demand for both platinum and palladium.

Jewelry and watches currently account for nearly 40% of the total global demand for platinum with buyers in Japan, India and China dominating the market.

Like gold and silver, investors can also buy physical platinum in the form of bars, bullion, coins and wafers, with entry-level investors typically buying lower-priced platinum coins. Investors can also purchase platinum investments in the form of futures contracts, platinum- and palladium-based exchange-traded funds and mining company stocks.

While Russia, the world’s second-largest platinum producer, stands to benefit from the current labour disruptions, producers and resource exploration companies in fourth-ranked North America are also looking to correct supply uncertainties.

Platinum and palladium are mined primarily on this continent by two producers, Stillwater Mining and North American Palladium, which operates its flagship Lac des Iles mine located near Thunder Bay, Ont.

Exploration in mining-friendly jurisdictions such as Yukon also shows promise.

“Geologists from the Yukon Geological Survey have been mapping southwestern Yukon to better assess the potential for minerals and several occurrences of platinum group elements have been prospected,” says Yukon Premier Darrell Pasloski. “The sector’s growth during the past decade has been nothing short of tremendous. It is a priority of our government to ensure that our regulatory regime is at the leading edge of consistency, timeliness and transparency. We’ve been recognized as a world leader because of these efforts and we are seeing impressive progress on the ground because of it.”

Development and pre-production companies such as Vancouver-based Wellgreen Platinum Ltd. are actively pursuing Yukon platinum projects. According to the company’s website, the Wellgreen project is the third-largest undeveloped platinum-group metals (PGM) deposit in the world, located about 300 kilometres northwest of Whitehorse on 64 square kilometres of the territory.

“This isn’t typically what you think of as a ‘Northern’ project,” says Greg Johnson, Wellgreen’s president and chief executive officer. “There’s an existing all-weather gravel road which connects us to the Alaska Highway and two deep water year-round sea ports. Unlike the extremely deep platinum mines that are largely mined by human labour and are extremely costly to operate, these deposits are relatively close to the surface, meaning we can operate more economically as an open-pit mine and rely more heavily on automation.”

The open-pit form factor is allowing the company to employ a staged approach to development, beginning with a smaller operation and then expanding on the strength of early mineral harvests.

Johnson says he also sees the company’s extensive negotiations with Kluane First Nation as a major benefit to the project. “They have a strong voice at the table and significant economic benefits flowing from this development,” he says. “They also have a vested interest in its success.”

According to a 2012 Preliminary Economic Assessment of the site, the Wellgreen project could produce more than seven million ounces of PGMs and gold, along with significant copper and nickel output, over the life of the mine.

Premier Pasloski notes that the project is the most advanced, in terms of exploration, in the territory. “We are encouraged by the results that we have seen so far,” he says.

Analysts note that Canadian producers are in a good position to benefit from the gap between platinum demand and faltering supply lines.

“Because there has been such interest in South Africa, the world’s biggest platinum producer, it’s raised some real concerns about future supply disruptions,” says Joe Fazzini, a mining analyst at Dundee Capital Markets Inc. “It certainly caught the market’s attention.”

He notes that the competitiveness of South African mines relies predominantly on very low labour costs. The outcome of the current strikes may tip that balance to the benefit of other producers.

“For buyers looking for a new and more stable supply of precious metals, it certainly makes sense for Canada to be one of those guys as a world class producer of precious metals,” he says.

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