Marathon PGM Corp. digging in for place in exclusive club

By Peter Koven , Financial PostNovember 24, 2009 7:02 PM

Platinum and palladium miners in North America form an exclusive club, to say the least. Right now, there is exactly one pure-play producer of the two metals operating in North America: Stillwater Mining Co. Another, North American Palladium Ltd., has a mine that is currently shut down. But with improving prices for the metals and a positive feasibility study, Toronto-based Marathon PGM Corp. could become No. 3. The company released a definitive feasibility study Tuesday for its Marathon project in northwestern Ontario that greatly improved the economics compared with a study done last year. The new report knocked $92-million off the project’s capital cost (still a hefty $351-million) and raised the internal rate of return by five percentage points to 17%. Chief executive Phillip Walford said in an interview the company used a new mine plan and a new metallurgical program in the study that improved recoveries of platinum, palladium and gold. It also benefited from equipment costs, something that many miners have hinted at but few have demonstrated. “We looked at everything to cut down on costs and make this study as optimized as possible,” he said. His biggest asset may be improving prices for both platinum and palladium (collectively known as the platinum group metals, or PGMs). They were left for dead last year alongside the auto sector, but have staged a remarkable rebound. The most important use for these metals is in catalytic converters for automobiles, which make up about 60% of platinum demand on their own. Last fall’s collapse of the U.S. auto sector helped trigger a crash in platinum prices, which fell from highs of above US$2,000 an ounce to around US$800. Palladium suffered a similar meltdown. Since then, platinum has rebounded to more than US$1,450 as the car outlook has improved. That is particularly true in China, which is now the world’s biggest auto producer and is improving emission standards for its vehicles. “There are very few places in the world where you can now go and sell a vehicle without a catalyst on it,” Mr. Walford said. On the supply side, PGM production is centred in South Africa and Russia, and there are production concerns in those countries. The rising South African currency is also bolstering prices. George Topping, an analyst at Blackmont Capital, wrote in a note that he expects the Marathon project to go into production by 2013. The biggest challenge for Marathon PGM will be raising money to build the project, as the company’s current market value is just $31-million. Mr. Walford said financing is achievable through some combination of joint venture partners, equity, debt, or royalty or offtake agreements. He also said that strategic investments from platinum-hungry countries like China or India are possible. Financial Post pkoven@nationalpost.com ********************************************************************** IRR of 17%....I am NOT impressed! Luker