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At Surface and Out of Africa: CEO Greg Johnson on Wellgreen Platinum’s Yukon Project
Wednesday July 2, 2014, 3:30pm PDT
By Teresa Matich+ - Exclusive to Platinum Investing News

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At Surface and Out of Africa: CEO Greg Johnson on Wellgreen Platinum's Yukon ProjectSouth Africa, long known as a platinum and palladium powerhouse, saw an end to a protracted miners’ strike last week. However, the white metals are still rallying, and South African mines will take time to ramp up production again. In light of those factors, investors and analysts may be interested in looking at companies that operate outside that country.

One such company is Wellgreen Platinum (TSXV:WG), which holds the Wellgreen deposit, a large PGM-nickel-copper deposit in Canada’s Yukon. It features mineralization that begins at surface rather than deep underground, making it noteworthy for miners and investors alike.

To find out more about the company, Platinum Investing News (PIN) spoke with Wellgreen’s president and CEO, Greg Johnson. In the interview below, the CEO discusses the unique characteristics of the Wellgreen deposit, the importance of PGM projects in mining-friendly jurisdictions and what’s next for Wellgreen Platinum.
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PIN: Just to start off with, I don’t think we’ve covered Wellgreen extensively on our network before, so could you tell our readers a bit about your company?

GJ: Wellgreen is a PGM-focused exploration and development company, and our primary asset is the Wellgreen project, which is located in the Yukon territory. It’s one of the largest undeveloped platinum and palladium resources in the world at about 10 million ounces, and it’s an open-pittable type deposit. This is quite unique in that most of the world’s platinum and palladium is concentrated in Southern Africa and Russia, so a large deposit in general is quite rare, and one that’s located in Canada in an open-pittable type configuration is even more scarce, so we’re seeing strong investor interest in the company. We just recently completed a $6.9-million financing that’s going to allow the company to move seamlessly into the prefeasibility level of activity this field season.

PIN: How does the Wellgreen deposit compare to others around the world?

GJ: Wellgreen is one of the largest undeveloped projects of its kind in the world, and has the potential to be a very significant producer. Most of the world’s platinum and palladium production is coming from deep, underground mines that are quite costly to operate, very labor intensive and don’t have the ability to really scale up the way you can with an open pit.

Our project is quite unique in that its very wide widths of mineralization start right at surface and are typically between 100 and up to 700 meters wide. So in many ways our project would look more like a porphyry copper-gold type deposit, except that our metals are PGM and nickel. This is a project that was historically developed back in the 1970s by HudBay Minerals (TSX:HBM) as a high-grade underground operation, but since the late 90s, the focus has been on looking at it as a bulk mineable deposit, and that has been the focus of Wellgreen Platinum’s activities as well.

PIN: Interesting. I’ve seen a few comparisons between platinum deposits; for example, Ivanhoe Mines’ (TSX:IVN) Flatreef deposit in South Africa vs. the Bushveld Complex. How does Wellgreen compare to that deposit?

GJ: In terms of comparison, what makes the Ivanhoe and Platinum Group Metals (TSX:PTM,NYSEMKT:PLG) deposits stand out from the others in South Africa is that even though they’re mostly underground, they have much greater widths of mineralization than is typical of the area. I believe with Platinum Group Metals it’s around 25 meters width and I think for Ivanhoe it’s up to 90 meters in width.

Our mineralization on the western end of the Wellgreen deposit, where it’s the narrowest, is about 100 to 200 meters in width, and it widens out to over 500 meters at surface in the central part of the deposit; it then expands to almost a kilometer wide at the eastern end of the deposit where it’s open. So it’s a very large system, and we’re also fortunate with the geometry, since mineralization starts right at surface as opposed to being a kilometer deep or more, which is more typical in South Africa and Russia. And that’s just really the result of the particular geologic setting that we have at Wellgreen, which means that it happens to be exposed right at the surface. That allows us to look at far wider zones of mineralization with a slightly overall lower grade because it’s open-pit mining cost as opposed to underground mining cost.

PIN: How unusual is it to have an open-pittable platinum deposit?

GJ: It’s quite unusual, around 95 percent of the world’s platinum production is from underground mines. There are a handful of projects in the first world that are open pit and those tend to be the lowest-cost producers. I think much like we’ve seen in the gold and the silver business over time we’re going to see a migration towards the lower-cost, higher-scale, open-pit type operations. The challenge is you have to have the right kinds of geology, the right rocks to host these deposits, and the ultramafic rocks that host ours are exceedingly rare; they only occur in a few places globally.

PIN: And you said there was historic mining in the area?

GJ: Yes, the historic infrastructure is still in place and available. We are right now updating our preliminary economic assessment on the project and targeting this summer for release. It will update the overall resource estimate on the project, as well address the major objective of converting a significant portion of the inferred ounces into measured and indicated.

Importantly, it will also update the overall approach to the mining of the project. The new approach that’s being developed is looking at a smaller-scale operation that has lower capital investment up front, but is focused on higher-grade material, so we think that should enhance the economics. Then, later in the mine plan, the project gets naturally wider as we start mining deeper and towards the east the project; at that point, we would likely scale up to a higher throughput level with the geometry of the deposit changing. And that could result in the project being one of the largest first-world PGM producers.

PIN: What does your timeline look like in terms of getting to commercial production?

GJ: Right now we are looking to start prefeasibility activities in the second half of this year. That would likely allow us to start feasibility activities in 2015, so potentially we could be looking at a construction decision in 2017, which would allow for first production in 2018 or perhaps 2019. For a development-stage project, it has the opportunity to move quite rapidly, and because the Yukon is one of the best jurisdictions for mining in Canada, there’s a very straightforward permitting and regulatory process to move the project forward to production.

PIN: Your website highlights the importance of your project being outside of South Africa and Russia, which have been problematic jurisdictions in the past, but are the world’s largest PGM producers. What is the importance of platinum and palladium projects outside of these jurisdictions?

GJ: Starting on the demand side in general, the fundamentals for platinum and palladium are quite different than what we see today in gold and silver. Platinum and palladium are also precious metals, but the single largest use for both is catalytic converters in automobiles. So we’ve basically seen nearly continuous demand growth since the mid-1980s for platinum and palladium, particularly for catalytic converters. As higher emissions standards are implemented in the first world and in the developing world, we’re seeing that growth continue.

That demand growth was matched up until the mid-2000s, with new mine supply of platinum and palladium as one might expect, but because of the challenges of mining deep underground in South Africa and in Russia, we’ve seen falling mine supplies since 2006 for platinum and since 2004 for palladium. The main decrease in supply on the platinum side was due to a decrease in production supply from South Africa, while the main decrease in supply of palladium came from decreasing supply out of Russia. So the opportunity to have a project located in Canada that has an open-pittable and very saleable configuration that could add to the source of supply outside of Southern Africa or Russia has real strategic value.

PIN: Given the current situations in Russia and South Africa, what do you think the future holds for PGM producers in North America?

GJ: Well, the trend was in motion well before the strike in terms of declining supply out of South Africa and Russia, so most analysts continue to project deficits in terms of mined supply vs. total demand for the metals. That’s obviously very bullish for projects that are in areas that don’t have the same kind of political and operating risks that we see today in South Africa and Russia. We would not expect that the removal of the strike would significantly change the overall fundamentals, and in fact, you’ve taken about a million ounces of platinum off the market this year from the strikes, so potentially with that lack of production taking away additional sources of supply for the market, I think analysts are expecting looking to see continued price increases looking forward to at least 2020.

Here is the latest...
CEO Greg Johnson provides an overview of Wellgreen’s renewed focus on bringing its flagship platinum-nickel-gold project into production with a revised (and smaller) capex approach, and the moves the company has made to strengthen both its management team and its share structure. Transcript: Greg Johnson: Well, it’s been a fairly busy period for the company. Our new management team all joined about 15 months ago, in late 2012 and at that point the Board brought in a new technically focused management group. We undertook a couple of important things over the last year plus. One was to comprehensively go back and compile all of the existing information on the project back to the 1950s to bring all that into a single database and systematize it and allow our geologists and team to really dive in, engage some of the leading experts in PGMs who helped us to be able to understand the Wellgreen system in context with other world class systems like Norilsk in Russia, the Bushveld down in South Africa. So our work with the new drilling, we have got almost 40,000 meters of new drill information that’s gone into the program since the 2011 resource estimate has really built our confidence in terms of understanding of the system. The early work in 2011 demonstrated that we had a very large system, mostly inferred, and the work that we’re doing now is really reinforcing the scale of the system, in fact, it’s demonstrating that we’ve got what’s effectively becoming a porphyry scale PGM System here, that’s open-pitable. In addition, there were some pretty important structural changes at the corporate level. We had a controlling shareholder that was around a 30% position that we placed entirely in 2013, in new hands, and that restructuring of the company resulted in new Board of Directors and effectively taking that over-hang from those stock sales from that financially distressed investor out of the way so that we would be in a position to be able to take the story out. James West: Okay, was that a Prophecy Coal you are referencing there? Greg Johnson: Prophecy Coal was the original control and shareholder in Wellgreen and they are now effectively completely out of the shares. James West: Okay. So what’s been happening since your new team has taken over? Greg Johnson: Well, in addition to the drilling, the development of the new geologic model, we have been undertaking as well, engineering and metallurgical test work. We’ve got a couple of major milestones here in the second quarter. We are looking to deliver an updated concept on the engineering and production for the project. We are looking at a smaller capital project focused on higher grade material, potentially an open-pit and underground combination operation, and we’re targeting an operation that could be the largest producer of PGMs in the first world, potentially larger than Stillwater; as our target for this project, and clearly the resource that’s coming together is demonstrating that this is a system that could be a very large producer for a very long period of time. In addition, we are getting set up to look at pre-feasibility activities, they are going to get kicked off in the second half of this year and we are targeting to be able to move into feasibility in 2015. James West: Hey, well that’s interesting. Have you been drilling all through the winter this year? Greg Johnson: We drilled up in through November and we’ve been releasing the results of a combination program, it was about 5000 metres of new drilling, including one of the widest intercepts ever hit on the property, 756 meters at almost 2 grams per ton, platinum equivalent. In addition, we had the benefit of being able to go back into historic drilling. Particularly drilling that was done in the 1980s, and we were able to re-log and resample many of it for the very first time, about 20,000 meters of historic drilling. So our combined program was about 25,000 meter program. And all of that is going to go into this new resource estimate that’s going to be coming out in the second quarter and the new preliminary economic assessment. James West: I see! Okay, so then — I had actually visited the Wellgreen project back in 2011 and at the time there was some discussion about a 16-17 kilometer strike length for the whole Wellgreen project. Is that still something that you feel comfortable sort of putting out there? Greg Johnson: Yeah, our property is about 18 kilometers long that we control a 100%. The main focus — we’ve got almost 800 drill-holes in the Wellgreen deposit proper, and that’s about a ten million ounce platinum equivalent resource for platinum, palladium and gold. Along trend of that, we have got a series of other deposits that are also associated with these ultramatic systems. (00:05:12) Most of the work on those was done in the 1980s. There really hasn’t been much more modern work done since that time. But we undertook some surveys on project, both of magnetics as well as surface sampling and we have identified two very high priorities areas. One that is the continuation of the Wellgreen to the East called Quill and that’s about a two-and-a-half kilometer long anomaly combination of soils and magnetics. And then the second is the Burwash area which historically was actually a separate property that was optioned by INCO and others looking for high grade massive sulfide deposits. And that deposit has a very strong signature similar in scale to Wellgreen itself, with historic drilling shallow holes, but some interesting results in some of that historic work. And with the new surveys that we have, we’ve got some very large targets that we’re hoping to be able to test this year. All of this is on the road. So all of this, if we can develop additional open-pitable resources could be processed through a centralized facility and all of it could be looked at as kind of a single coherent district James West: I see! Interesting! So those discrete deposits to the East that you mentioned in Burwash and Quill, are those — you don’t think those are contiguous possibly connected to the main Wellgreen deposit? Greg Johnson: Well, the geology is mapped as continuous. But we don’t have a lot of information on there yet. A lot of that is based on outcrop mapping and magnetics in particular. The Ultramatic Host Rocks for the deposits do have a high degree of magnetic minerals in them. So magnetics can be a very good tool, but until we actually have a series of drill-holes across those, it’s hard to say whether or not this is going to be continuous. Certainly when you look at Quill, and you look at the strength of the magnetic signature at Wellgreen, and the fact, that that runs unbroken into the Quill target, one could argue that there is a strong probability that there is continuation of Wellgreen into Quill. Burwash, it almost appears that there is a — the area that our main access road comes in and the Quill creek drains out of — it looks like there may be some kind of important structure; geologic structure that goes through there. And sometimes in geology and ore deposits, big structures can be important. So it looks like we may have a little different geometry as we get across into Burwash. And we don’t know what level we’re looking at in the system, we could be looking deeper than we are at Wellgreen. So we’re pretty excited to take a look at that and see what comes out of it. James West: Sure! Okay, so what is the drilling budget for 2014 in terms of dollars and metrage? Greg Johnson: So we’re basically looking to start a pre-feasibility level program in the second half of the year. So that’s probably going to kick off sometime in June. We are talking of $5-$10 million program, and actually that’s likely to be something that’s going to be in the 5,000-10,000 meter program combination, probably of reverse circulation and core drilling. We haven’t finalized, right now we’re going through and developing our priority target list, and I can tell you that our target list is probably going to be longer than what we’re going to be able to go after, so you know we’ll clearly be prioritizing within our priority list. But there are some very exciting targets. Some of the very best holes at Wellgreen have not had the natural step-out adjacent to them, and so, were going to want to test some of these targets at Quill and Burwash look like, very promising targets. So I think we would want to test some of those. So it’s going to be a combination of both, infill confirmatory work, as well as step out and expansion work and testing some of these new targets. James West: And I assume that’s all in support of an updated revised resource calculation? Greg Johnson: Yeah, so we’ll have an updated resource out this second quarter along with the updated economic approach looking at this smaller capital, higher grade start-up concept. And then, we would look to put out a pre-feasibility update to that probably early in 2015 and then begin the feasibility work in the remainder of 2015, with potentially permits could be completed by late 2016 on the projects. (00:10:03) So, we do have the opportunity that this thing can move quite rapidly, particularly mining is the industry in the Yukon, as you know. So they’ve got a good process in terms of going through environmental assessment, The Kluane First Nations are strong supporters of the project and we see the project being able to move fairly quickly through that process. James West: Sure! Okay, so in terms of financing a $10 million drill program in 2014, does Wellgreen have that capital in the bank? Greg Johnson: We are going to need to raise some money, and so we’re basically going to be looking to raise, probably something in the $5-$10 million range. It’s depending on the outcome of that investment round, that’s going to kind of set the plans in terms of how much work will be done in the summer or into the fall. But that work would be specifically targeted towards that next major milestone of the completion of the pre-feasibility studies. James West: I see. And at this point do you have as an investor any major mining corporations or large mineral funds that will sort of provide the role of lead order in that financing? Greg Johnson: Yeah, we’ve got — a number of our existing shareholders have invested in each round of financing, including, putting in lead orders. We’ve got a number of new funds that are looking at the company in terms of new investment. These are names that are also invested in other platinum names and are groups that are putting capital to work today. In addition, we are already discussing the project and potential investment from a number of more strategic type investment groups. These could be groups that are affiliated with smelting groups, or some of the producers. I think we’ve got a number of irons in the fire that we’re pursuing. It is still fairly early days at Wellgreen, but there are so few assets of scale in the platinum space, particularly that would likely have an open pit mining cost structure and scalability, and I think as we get out this next set of studies on the resource and on the engineering, and as we’re advancing that we’re likely to see a lot of attention from those groups over the next couple of quarters and years. James West: Sure! Okay, now what about infrastructure? It seems to me that there were some challenges there in terms of energy, electricity etcetera. Has there been any progress on that front since 2011? Greg Johnson: I mean the Yukon energy is one of the main issues for all projects. Now fortunately, we’ve got the highway that goes past the project and we’ve got our year round access road and the two ports. The one at Skagway and the one at Haines are already in place with capacity to be able to handle our concentrates. So really when we talk infrastructure, for our project, it mostly is about energy with the access roads and things already there. The Yukon has about 20 MW of capacity on the grid. There is a high capacity line near Haines junction which is a about 100 kilometers from the project down the highway. LNG is definitely coming to the Yukon; there is a couple of initiatives that are underway now. The State of Alaska’s Industrial Development Bank is putting in place an LNG facility in Fairbanks, Alaska. They’ve completed their feasibility and they’ve gone to tender for the groups that’s going to construct that, and that’s supposed to be up and running by late 2015. So that’s a possible source for us, and in fact, we are in discussions with the Alaska Industrial Development and Export Authority right now about a potential MoU on that source of LNG. In addition, about 95% of the Yukon grid is hydroelectric, about 5% of their power comes from diesel and they are upgrading those sets to become LNG and are actually in the construction phase on their first LNG plant that would be tied into the grid now in Watson Lake. So the Yukon Energy Corporation is going to be bringing LNG to the territory for that. So we are going to be looking for this next study, the PEA that was done in 2012, we used diesel as its assumed power source. We are likely to be looking at an LNG-base case, which could be a significant reduction in the cost assumptions for power and it looks like we’ve got two or three different potential sources along with investigating whether or not it may make sense to extend the power line from the main Yukon Energy Corporation Grid. James West: Oh well, great! So it sounds like you’ve got options there. That sounds great Greg! Thanks for taking the time. We’ll catch up with you in the next couple of quarters and see how you are making out. Greg Johnson: I really appreciate your time and look forward to providing you further updates. James West: Thanks very much Greg!

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