Prophecy Platinum releases Wellgreen PEA, says project has scores of blue-sky potential

In just a year’s time, Prophecy Platinum (CVE:NKL) has managed to outline an initial resource, generate a robust economic report, and kick start a 20,000 metre drill program at its flagship Wellgreen project, a Platinum group metals (PGM)-rich Nickel-copper property in the Yukon.
The project is comprised of 120 claims over 2,500 hectares.
The company, which spun off of Prophecy Coal (TSE:PCY) in June of last year, is focused on increasing the resource at Wellgreen, with the  highly-anticipated preliminary economic assessment (PEA) of the project just released.
According to Prophecy Platinum’s statement earlier this week, the PEA, prepared by Tetra Tech, evaluated a base case open pit mine at an 111,500 tonne per day mining rate, and an onsite concentrator at a 32,000 tonne per day milling rate.
The project is expected to produce 1.959 billion pounds of Nickel in concentrate, 2.058 billion pounds of copper and 7.119 million ounces of Platinum plus palladium plus gold over a 37-year mine life, with an average strip ratio of 2.57.
The study further noted that the development of the Wellgreen deposit will produce a pre-tax internal rate of return (IRR) of 38% and an net present value (NPV) of $3.0 billion, based on 8 per cent discount rate.
Initial capital costs were pegged at $863 million, including 25 per cent contingency. The deposit is to be processed using a conventional concentrator to produce bulk Nickel-copper-Platinum group element (PGE) concentrate.
The company said permits to start construction are anticipated to be obtained in 2016, with the production of concentrated expected to begin in 2019.
Greg Hall, a director with Prophecy, says the company is “very happy with the PEA results”.
“It is an independent study with numbers that position Wellgreen as one of most compelling mineral projects in the Yukon.”
The past-producing Wellgreen mine, which had historic reports of “very high” PGM credits, was originally operated in the 1970s as a Nickel-copper mine, when prices for Platinum group metals were low.
But today, Hall notes that rhodium and Platinum track gold prices very closely, with Wellgreen also expected to produce the yellow metal.
The company has done a significant amount of geotechnical work confirming the PGM and gold grades, with Nickel and copper mineralization already well identified. Prophecy digitized data from more than 700 drill holes last year to come up with the resource estimate announced in July 2011.
The July 2011 technical report gave the project 289 million tonnes of inferred resource grading 0.38% Nickel, 0.35% copper, 1.18 grams per tonne PGM plus gold, and 14 million tonnes of indicated resource at 0.69% Nickel, 0.62% copper, 2.25 grams per tonne PGM plus gold.
Hall says the property is a potentially ideal scenario for an open pit mine, with a “very low” strip ratio and “perfectly laid out” in the southwestern part of the Yukon – right off the major Alaska Highway.
“Wellgreen is also well off from an infrastructure point of view,” remarks Hall.
“The existing access road and lower camp are all located right off the highway, with the company only having to build a mine and a mill.”
The Wellgreen property is located around 35 kilometres northwest of the airstrip at Burwash Landing, and just 15 km from the Alaska Highway and 402 km from Alaska's Haines deep sea port.
The underground drilling program at the site, which kicked off in February, is the first phase of an extensive infill drilling campaign designed to upgrade a significant portion of Wellgreen's NI 43-101 inferred resource into the measured and indicated category.
Hall says there were not enough holes to define PGM mineralization under NI 43-101 measured and indicated standards, which is why there is currently such a large inferred resource.
Recent results from the current 20,000 metre program – the largest in the project’s history - included hole WU12-533, which returned 10.4 metres of 0.98% copper, 1.18 grams per tonne (g/t) Platinum + palladium + gold, and 0.24% Nickel, or 2.54% copper equivalent.
A surface program, designed to supplement the underground phase, is anticipated to start soon, Hall says, with an extensive exploration campaign in the works.
In late May, natural resources investment bank Casimir Capital issued a bullish note on the mineral explorer, in which it stated: "Directly to the east [of the Wellgreen resource], a 2.3 km magnetic anomaly suggests potential for resource expansion.
“If the deposit holds together, the additional strike length implies the resource could increase by nearly 90%."
An updated resource is planned for early 2013, with a pre-feasibility study expected soon after based on the updated numbers.
Casimir is assuming Wellgreen will go into production in 2017 at an annual rate of 98.6 million pounds of Nickel equivalent at cash costs of $0.98 per pound of Nickel.
The investment bank expects a 250 million tonne resource will be mined over 20 years for a total capex of $1.6 billion, with a 10% net present value of $1.3 billion, a 28 per cent internal rate of return and 3.6-year payback period.
Hall says the exploration program on the 2.5 kilometre step-out covers just a fraction of the entire 17.5 kilometre known strike of the Wellgreen structure.
The company is continually de-risking the project, with Prophecy announcing in early May what it called successful metallurgical recovery results of up to 88 per cent copper and 73 per cent Nickel.
The preliminary results were from the first phase of an extensive metallurgical program at Wellgreen, and included recoveries of 46% Platinum, 73% palladium and 59% gold. Metallurgical tests are ongoing, and samples are also being tested for rhodium, osmium, iridium, and ruthenium, with results pending.
Specific programs will be developed to recover these latter elements, the company said.
In March, Mackie Research initiated coverage on Prophecy Platinum, with a $7.50 target, way up from the company’s current trading price of around $2.30.
"We like Prophecy Platinum for its decisive management team, growing technical capability and valuation upside potential. The Wellgreen project stands out for its size, metal mix, open-pit potential, good jurisdiction and blue-sky potential," Mackie analyst Matt O'Keefe noted at the time.
Prophecy also stands to benefit from its recently-announced acquisition of Ursa Major Minerals (TSE:UMJ), which is expected to close in July 2012, creating a mid-tier resource company with a pipeline of Platinum and Nickel projects.
Indeed, the merger, which was announced in March, will see Prophecy take hold of the Shakespeare Nickel-copper mine near Sudbury.
Shakespeare has a probable reserve of 11.82 million tonnes grading 0.33% Nickel, 0.35% copper and 0.02% cobalt with 0.33 grams per tonne (g/t) Platinum. This includes 0.36 g/t palladium and 0.18 g/t gold.
“We are very interested in Nickel sulfide with PGM as we believe long term in higher prices for these metals, and Shakespeare is very attractive,” Hall says.
He explains that Ursa shut down the mine as the company was losing money trucking ore to the Xstrata mill.
Prophecy does not intend to re-open the mine under the previous format, with a feasibility study for this project expected in the next 12 to 18 months.
“We believe other operating methods for the fully-permitted mine could be quite profitable,” Hall adds, “and it doesn’t detract from our main goal of developing Wellgreen.”
In addition to Wellgreen, Prophecy also holds Manitoba’s Lynn Lake Nickel-copper property, which has an NI 43-101 compliant measured resource of 1 million tonnes at 0.76% Nickel and 0.36% copper, and an indicated resource of 21.9 million tonnes at 0.56% Nickel and 0.3% copper, according to a technical report in January 2010.
Prophecy, with around $3.5 million of cash in the bank, requires additional capital to fund its exploration program and Hall expects to have the financing in place, with discussions for various fundraising options at an advanced stage.
“We do not intend to slow down,” he concludes.
Prophecy Coal remains a “passive shareholder” of Prophecy Platinum, currently owning 22.5 million shares, or about 42 percent of the company.