By: Ian Ross

North American Palladium (TSX-PDL) has started recalling laid-off employees and hiring new ones to resume operations this summer at its shuttered Lac des Iles mine in northwestern Ontario.

Lac des Iles will be a smaller operation when production restarts early in the second quarter as the Toronto mid-tier miner abandons its open pit and burrows deeper underground. Plunging base metal prices two years ago forced the company to put the open pit and its underground Roby mine on care and maintenance in late October 2008.

At start-up this summer, the original 350-person workforce will be almost chopped in half to 180, and mining will be underground only. Operations vice-president Dave Passfield said the open pit is basically mined out with only a few months worth of production left.

“Any high grade ore left at the bottom of the pit, we’re going to access from the Roby Mine (below).”

But Roby itself has only two years left of production. The plan is to extend the mine’s life by seamlessly transitioning into a new ore body, their high grade Offset Zone, which is beneath and beside Roby. The company is preparing to drive a 1,600-metre-long ramp to the bottom of Roby this spring with a yet-to-be-named contractor. Completion of the $16 million project is expected by year’s end.

Last May, a preliminary assessment of the Offset Zone indicated about a ten-year mine life.

A scoping study prepared by Roscoe Postle Associates will be released by the third quarter and should provide a more detailed picture of the resource estimate and the economics of developing the zone.

“When you look at the drill results they look pretty encouraging,” said Passfield.

To restart palladium mining at Lac des Iles, Passfield said their price threshold had to be in the $400 range. After bottoming out at $183 early last year, the price for the silvery, white metal began to strengthen as 2009 wore on. In mid-February, prices were bouncing in the $420 to $445 range.

“We can see the green shoots and (thought) let’s make a go for it.”

The mine and processing mill is located 85 kilometres northwest of Thunder Bay and has been in almost continuous production since 1993. Contractors were on the site in February to put the mothballed ore crushing mill and concentrator back in working order.

The 15,000-tonne-per day mill will be running at a reduced schedule on a batched basis, said Passfield. The Roby underground mine is expected to produce 140,000 ounces of palladium annually over its last two years.

While conducting some infill exploration drilling last year for the Offset Zone, the company discovered two new zones - the Cowboy and Outlaw - within a few hundred metres of Offset. It prompted the company to double its 2010 exploration budget to $15 million, much of it earmarked for above and below ground drilling in the Offset Zone, the Creek Zone to the northwest, and the West Pit next to the current pit.

Other junior miners, such as Magma Metals, have moved into the area, but the company is employing a stay-at-home strategy. With a 22,000-acre land package, Passfield said they have only scratched beneath the surface of their large property. Although they will keep an eye on what their neighbours are doing.

“With our exploration budget we’re spending more time to see if there other opportunities on the site.”

The arrival of CEO William Biggar in September 2008 meant the new company watchword was diversification.

“If you look at the history of palladium it has some volatility in the prices,” said Passfield.

As a buffer against unstable base metal prices, the company formed a gold division. Last year, they acquired the closed Sleeping Giant mine in the Abitibi region of northwestern Quebec. Commercial production began in January and NAP is spending $6 million to deepen the shaft this year.

In a statement on their 2009 financial results, Biggar said although 2009 was a challenging year with Lac des Iles (LDI) shut down, the company was well on its way toward becoming a diversified precious metal company. “With LDI set to be fully operational again early in the second quarter, NAP is well positioned to benefit from the continuing upturn in the palladium price cycle as well as the positive outlook for the gold price.”

North American Palladiumposted a 2009 net loss of $30 million and a net loss of $14.4 million for its fourth quarter, but the company reports a big treasury with $98 million in cash and no long-term debt that has allowed them to move on exploration programs at Lac des Iles, Sleeping Giant and other strategic properties