Interview with Derrick Weyrauch, President and CEO of Palladium One Mining (TSX.V: PDM).
Palladium One Mining Inc. is a TSX-listed PGE and Nickel-Copper exploration and development company. It possesses several assets: the flagship Läntinen Koillismaa PGE-Nickel-Copper Project in north-central Finland and the Tyko Nickel-Copper, PGE Property near Marathon, Ontario, Canada.
The key theme at play is strong fundamentals. Palladium One published their first Resource for the company in September: 1.2Moz of palladium equivalent (split 50/50 between indicated and inferred). Palladium has a strong foundation of demand and limited supply says Weyrauch.
Palladium is an industrial metal: 86% of it is consumed in auto-catalysts, and it is predominantly used in gas engines. Using Palladium allows for cleaner air, making palladium a modern, green solution to transportation headaches is the marketing spin. The slow decline of the diesel engine is resulting in greater future demand.
There has been a structural deficit of Palladium in the market in recent years, and Palladium One is hoping to fill that gap. The market is small at around 10Moz. There are additional applications of Palladium in dentistry and jewelry, but are much smaller markets.
Palladium One is in the process of closing a non-brokered private placement for $3.8m dollars. Renowned Canadian mining investor Eric Sprott is investing $1.2m, giving him a 19.9% ownership of Palladium One. This is only option money for Sprott as Palladium is not large market, nor a key focus for him, but it is interesting to us that he has selected this Palladium asset.
Weyrauch explains another ace up Palladium One’s sleeve: Finland is an excellent jurisdiction with “first-world geological data sets.” This area has been heavily researched and the information is publically available.
Palladium One has a brand new management team and board as of 2019. Dr. Peter C. Lightfoot, a 20-year nickel exploration veteran at Inco and Vale, clambered aboard in September. A real plus, not sure if this is his only focus though. Neil Pettigrew, a geologist with 20-years of mineral exploration experience, serves as Palladium One’s Vice President – Exploration. Weyrauch’s primary experience comes in the world of finance where his experience has been restructuring mining companies and experiencing success.
Weyrauch claims the main obstacle for Palladium One is the same as for every other junior: raising capital. Weyrauch has used the accurate historical data, obtained in Finland, to successfully push the Palladium One story. He claims the reason behind the lack of exploration under previous stewardship at the property comes from economic downturns of Palladium rather than a lack of promise. We shall see.
Palladium One’s strength comes from the fundamental promise of their flagship asset, and the fundamentally robust level of palladium demand.
Palladium One has a market cap of CA$2.94M. It started the year with a share price of just $0.04CAD, rising to a peak of $0.14CAD in April, before falling back to its current value of $0.075CAD.
A concern is the available capital to do what they need to do and getting to a point where the company understand the economics for this project. There will be questions marks around the management team’s experience in this particular field, and the commodity itself. The palladium market is small, and with the impending EV revolution, battery metals would demonstrate enormously greater growth potential in the automotive sector. By the time Palladium One would be ready to mine, would EV be taking hold?
It is a question of whether investors buy into the macro story of palladium, and can trust the team at Palladium One to deliver on an asset that has failed to be mined under several previous companies.
What did you make of Derrick Weyrauch? Is palladium worth your time, attention and money? Do you have any idea what the palladium market looks like? Comment below and we may just ask your questions in the near future.
- Company Overview
- Palladium: What is it, What’s it Used For and What’s the Size of the Market?
- Company Financials and Cash Position: How Will They Finance Their Projects?
- Finland: Is it a Mining-Friendly Jurisdiction?
- Team Experience
- Business Plan and Focus: What is the Plan and When Do People See Things Move?
- Current Constraints: What is Preventing Them from Moving Forward and How are They Dealing With it?
- What Did E. Sprott Buy Into and Why Should You Invest?
Click here to watch the full interview.
Matthew Gordon: You’re over here for the 121 meeting a bunch
of investors, I guess, and telling your story.
Derrick Weyrauch: Speed dating at its best.
Matthew Gordon: Why don’t we just
start with one-minute summary for people new to the story?
Derrick Weyrauch: Okay. Well Palladium One is basically
a brand-new story exploration development company and its flagship asset is the
LK Project in Finland. It’s a Palladium dominant poly metallic deposit. And we
just published our first resource for the company in September. 1.2MILoz of
palladium equivalent in all categories split roughly 50/50 between indicated
and inferred, indicated 1.8 grams Palladium equivalent and 1.5grams for the
inferred, weighted average about 1.65grams. And we’ve got a 38KM favorable
basal contact. And this is just covering 1.1KM of that contact. So, a lot of a
lot of territory to still hit.
Matthew Gordon: Let’s start off with
the obvious question: palladium, what’s it used for?
Derrick Weyrauch: Palladium is really, in my view, an
industrial metal. 86% of it is consumed in the auto catalyst. It’s really a metal
for providing clean air. Predominantly it’s used on the gas engine. So, you’d
see it in the catalyst and basically scrubs the nitrous oxide and carbon monoxide
and with increasing environmental standards for air quality, there’s more and
more palladium loading and going into the auto catalysts. It’s feeding the
demand. The other aspect with the Palladium is that with the demise of diesel
that we see going on since the Volkswagen gate, if you want to call that or
diesel gate, consumers are transitioning away from the diesel engine into the
gas engine. And there’s more demand as a result of that for palladium. And
there’s been a structural deficit in supply for a number of years.
Matthew Gordon: What is the size of
Derrick Weyrauch: The global mine productions is about 6.9MILoz,
so fairly small. There’s another 3MILoz that come from recycling. That’s
roughly 10MILoz market, 6% of which goes into the auto catalyst. There are
other applications for jewellery and dentistry and things like that. But it’s
for the most part I consider it industrial metal and not so much on the
Matthew Gordon: You’re a relatively
Derrick Weyrauch: Absolutely. People haven’t really
heard of it.
Matthew Gordon: You’ve got a 3, 4MIL
market cap. How much cash have you got?
Derrick Weyrauch: We’re just in the process of closing
a financing of $3.8MIL so that should close in the very near future. The lead
order on that was with Eric Sprott. So, he’s taking about $1.2MIL of that
financing, which will give him about 19.9% ownership interest on non-dilutive
basis in the company.
Matthew Gordon: You’re in Finland.
Derrick Weyrauch: North Central Finland.
Matthew Gordon: What’s that like to
Derrick Weyrauch: Finland is absolutely a fantastic
jurisdiction. It’s really only been open to private mining investments since
the 1990’s. Previously was pretty much state run. And what we like to tell
people is Finland has first world geological data sets. The information is
fantastic, lots of high-quality mapping, reconnaissance, drilling and whatnot
and all that information is publicly available even the assays or rather the
core, this is available as well, but because it’s only been open for
exploration for 20 odd years, it’s underexplored. There’s a lot of low hanging
fruit and we see that in our project, which if this data was available, let’s
say in a North American context, it would have been followed up. We have our
Murtolampi target, for example. We’ve got a nice 200 meter fence with the
number of holes in it going down about 40 meters. All the mineralized holes,
for the most part, ending in mineralization. It’s been sitting there for 20
years. Nobody’s ever poked a hole around there or done any follow up work. So, that’s
just low-hanging fruit and gives us an obvious target to go after.
Matthew Gordon: Who here has exited, made
money for shareholders, built companies…
Derrick Weyrauch: Well, the company’s been completely
changed over the course of 2019. So brand new management, brand new board.
Matthew Gordon: Who’s delivered
Derrick Weyrauch: So, Peter Litefoot for example, we
brought him on the board in September. He used to be the head of Project
Generation Nickel Base Sulphides for Inco Valle.
Matthew Gordon: Who’s done it in an
exploration company? It’s different.
Derrick Weyrauch: Well, they’re also finding some
fairly large deposits in those big boy companies as well. And so, he’s one
individual. Neil Pettigrew’s, another individual. He is our vice President of
exploration. Also, on the board, he’s actually based in Thunder Bay. And what
brought him to Thunder Bay a number of years ago was the Palladium Boom, a
couple decades ago that North American Palladium.
Matthew Gordon: And what about you?
Derrick Weyrauch: Well, I’m finance guy by background. 30
years in the capital markets. And most recently, I was the CFO for Jaguar
Mining. Did the restructuring there a few years ago and prior to that also was
with Andina Minerals, which we sold to Rothschild Mining back in early 2013.
Matthew Gordon: Can you just tell us
what the plan is, how you can do it? Who’s going to do it? How are you going to
Derrick Weyrauch: Well, really, what we’re going to do
is leverage off of the data set that’s already available for the project. We
have 38KM worth.
Matthew Gordon: What type of company
are you going to build?
Derrick Weyrauch: We’re growing a resource base.
Matthew Gordon: That’s the model?
Derrick Weyrauch: Absolutely. To get to that critical
mass where you may want to put it into operation or perhaps somebody takes a
shine for the asset and decides they’d like to have it.
Matthew Gordon: Hopefully that’s
attractive to someone who will take it to the next stage. That’s the model.
Derrick Weyrauch: We’re not currently configured for a
development scenario, so we’re not going to fool ourselves.
Matthew Gordon: How do you finance
this thing? You’re raising a little bit of money now, and that’s for presumably
this seasons’ drilling?
Derrick Weyrauch: It’s predominately for the LK
project in Finland. We do have another project in Ontario, a nickel sulphide
asset. But the money is really earmarked for exploration in Finland conducting
geophysics programs. So, IP as well is a diamond drilling program that we hope
to initiate this winter. It’ll be 4-5 meters of drilling. So hopefully we have
some very consistent news flow.
Matthew Gordon: Is it seasonal there?
Can you drill twelve months of the year?
Derrick Weyrauch: You can drill twelve months a year.
As a matter of fact, it’s a preference to drill in the winter. It’s easier to
get around. You know, if you if you have a moisture in the soil, not just track
Matthew Gordon: Where are you based?
Derrick Weyrauch: I’m based in Toronto.
Matthew Gordon: You’ve got a local
Derrick Weyrauch: Yeah exactly. But for the most part
of the stage, we’re still relying on consultants. We’re early days for us,
we’ve only been configured like this for about six months with this management
team and board. So, we’re still building it.
Matthew Gordon: When do you get boots
on the ground?
Derrick Weyrauch: Well, we’ve had boots on the ground
this summer already. So, we have people there working for us, but in a
Matthew Gordon: When do people start seeing
things moved? What do you think people are going to be interested in hearing
Derrick Weyrauch: Well, yeah. The key message is that
we’ve got a very interesting property package, which is at 38km of basel
contact, less than 4km of it has had systematic drilling. Based on the
historical data set we get from auto compo and others, we have seen tremendous
amounts of reconnaissance, drilling and sampling that’s happened along the
contact. So, we know it’s generally mineralised and we know where to go. So,
there’s a very good targeting that’s already taken place with only four
kilometres of the thirty 38KM trend, having had systematic drilling, our job is
really to expand out and grow the resources more. The Kaukua deposit where we
announced the resource in September, it’s only 1KM of that 4 where you have got
those ounces and that resource. So, our job is to do the geophysics, target into
the higher sulphide areas along that contact and drill those out. And we
envision having a situation where we have multiple resources, perhaps multiple
open pit environments. We’re not really looking at an underground scenario at
this point. Our resources are pit constrained, and the pit only goes down to
about 275 meters. So, fairly shallow.
Matthew Gordon: How do you manage all
of this? How do you watch the pennies? What are the things that are
constraining you now?
Derrick Weyrauch: Well, capital is always a constraint
when you’re pre-revenue. So, you know, that’s the big issue for any junior
explorers. So, you have to have sufficient reason and justification to be able
to raise the next chunk of money. So, what we did is we spent the summer
validating all the historical information, putting a very robust resource
together, pit constrained. We tripled the cut off grade from what had been done
by previous operators. And, demonstrating that this is real. It’s not an
aggressive estimate by any means. We only used the price assumption of $1100
for Palladium as an example, whereas the market right now is over $1700 per
ounce. So, we’ve got that, we show the historical information that we have on
the property and then it’s a matter of just systematically working that
property. One of the luxuries that we have in this particular situation is we
don’t have to come up with any black box magic and new geological theory that’s
maybe a little bit out there because this project’s been looked at time and
time again. This is more taking a systematic, proven approach and working your
way through the process.
Matthew Gordon: Why hasn’t anyone
done this before on your property?
Derrick Weyrauch: Well, the property was released by Autocompo’s.
They released lots of properties and was sitting in inventory, so to speak. It
was picked up by a prospector in 2006, was flipped into a Vancouver junior.
They did one program of exploration at the Kaukua area, and they got caught
with the downturn in 2008, 2009 and weren’t able to really survive that. The
asset, then moved and some additional properties or claims were added to it by
another junior out of Vancouver that were able to do one program in 2012. But
they had challenges of the 2012/2013 downturn. Nothing’s happened to the
project since. It’s just been sitting there and ultimately moved into Palladium
One. So, there’s no market awareness, only two real programs and nobody’s
followed up on the prior program.
Matthew Gordon: How do you ensure this
company isn’t another statistic on the side of the road? What are the things
that you need to deliver, stage by stage, to ensure that we’re still having
this conversation a couple of years’ time?
Derrick Weyrauch: Well, we need to grow the resource in
a prudent way and target the low hanging fruit.
Matthew Gordon: What does that mean?
Derrick Weyrauch: So, we’ve defined a resource right
now. Our immediate target is to double that. And we believe we have a path to
double that in fairly short order. I’m going to say it’s going to happen in the
next program. That might be a little bit aggressive. But, I think in the next
year, we would have a good shot of doing that with sufficient amount of
drilling. We’ve got a budget now for a drilling program. We’re going to be
doing 4-5000 meters of drilling. The reality is that we have to do a little bit
of a balancing act. So, there’s a little bit about upgrading the historical information
to be able to bring another zone into resource. But then there’s also the
aspect of how much more discovery you want to get.
Matthew Gordon: Is that what you sold
to Eric Sprott, 19%? But this is really option money for someone like that. But
that’s the story he bought.
Derrick Weyrauch: Basically. There’s a resource growth
opportunity here that’s not high risk. There’re very limited investment
alternatives for Palladium. The fundamentals for Palladium are fantastic. You
know, 80% of production comes from South Africa and from Russia. 90% of
production is a by-product of other mining operations, whether it be nickel or
platinum. As a result of that, producers have little capacity to increase
palladium production to meet the demand. The commodities have been in deficit
position for eight years and is forecasted to continue. The forecast for 2019
is about 800,000onz deficit in a market that’s only producing 7MILoz. It’s a
big problem. And what’s also interesting is the two primary palladium producers
globally, Still Water and The North American Palladium, they’ve both been
acquired by South Africans taking the money and investing in other
jurisdictions, whether it be in Montana or Ontario. So, it’s a market where
there’s limited capacity to increase supply from the existing producers. And we
think we’ve got a project that’s fairly straightforward. It’s open pit. It’s
not very deep. We believe it’s going to grow a few multiples of where it is now
on a systematic approach without applying huge amount of risk.
Matthew Gordon: Why should anyone
look at your company versus the multitude of other junior miners or early stage
companies? Why should they trust you to help them make money?
Derrick Weyrauch: It’s a great question. I think it
starts off with the commodity, right? There’s fundamental demand it makes sense
for the commodity. Secondly, the asset, there’s limited investment
alternatives. If you’re looking for exposure to palladium, Stillwater’s gone,
North American Palladium is gone. Where else are you going to invest? You’ve
got a systematic, simple approach to increasing the resource so it’s not high
risk. On top of that, we’re in a Tier 1 jurisdiction. Finland is a fantastic
place to work. Rule of law and systems that’s mining friendly. There’re
smelters locally. We’ve got power on the property. We’ve got roads to the
property. It’s just a nice jurisdiction to be in.
Matthew Gordon: Ok. Well, we look forward to seeing how this story develops. Stay in touch. Let us know how things are getting on and we will see you hopefully in London soon. Appreciate that. Thanks very much.
Company page: https://www.palladiumoneinc.com/
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