Palladium One Mining - Use Your Cranium: Invest In Palladium? (Transcript)

December 6 2019, 12:26 GMT

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. Interview highlights:

  • 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 bunchof investors, I guess, and telling your story.

Derrick Weyrauch: Speed dating at its best.

Matthew Gordon: Why don’t we juststart with one-minute summary for people new to the story?

Derrick Weyrauch: Okay. Well Palladium One is basicallya brand-new story exploration development company and its flagship asset is theLK Project in Finland. It’s a Palladium dominant poly metallic deposit. And wejust published our first resource for the company in September. 1.2MILoz ofpalladium equivalent in all categories split roughly 50/50 between indicatedand inferred, indicated 1.8 grams Palladium equivalent and 1.5grams for theinferred, weighted average about 1.65grams. And we've got a 38KM favorablebasal contact. And this is just covering 1.1KM of that contact. So, a lot of alot of territory to still hit.

Matthew Gordon: Let’s start off withthe obvious question: palladium, what's it used for?

Derrick Weyrauch: Palladium is really, in my view, anindustrial metal. 86% of it is consumed in the auto catalyst. It's really a metalfor providing clean air. Predominantly it's used on the gas engine. So, you'dsee it in the catalyst and basically scrubs the nitrous oxide and carbon monoxideand with increasing environmental standards for air quality, there's more andmore palladium loading and going into the auto catalysts. It's feeding thedemand. The other aspect with the Palladium is that with the demise of dieselthat we see going on since the Volkswagen gate, if you want to call that ordiesel gate, consumers are transitioning away from the diesel engine into thegas engine. And there's more demand as a result of that for palladium. Andthere's been a structural deficit in supply for a number of years.

Matthew Gordon: What is the size ofthe market?

Derrick Weyrauch: The global mine productions is about 6.9MILoz,so fairly small. There's another 3MILoz that come from recycling. That'sroughly 10MILoz market, 6% of which goes into the auto catalyst. There areother applications for jewellery and dentistry and things like that. But it'sfor the most part I consider it industrial metal and not so much on theinvestment side.

Matthew Gordon: You’re a relativelynew story.

Derrick Weyrauch: Absolutely. People haven't reallyheard of it.

Matthew Gordon: You’ve got a 3, 4MILmarket cap. How much cash have you got?

Derrick Weyrauch: We're just in the process of closinga financing of $3.8MIL so that should close in the very near future. The leadorder on that was with Eric Sprott. So, he's taking about $1.2MIL of thatfinancing, which will give him about 19.9% ownership interest on non-dilutivebasis in the company.

Matthew Gordon: You're in Finland.

Derrick Weyrauch: North Central Finland.

Matthew Gordon: What’s that like tooperate in?

Derrick Weyrauch: Finland is absolutely a fantasticjurisdiction. It's really only been open to private mining investments sincethe 1990’s. Previously was pretty much state run. And what we like to tellpeople is Finland has first world geological data sets. The information isfantastic, lots of high-quality mapping, reconnaissance, drilling and whatnotand all that information is publicly available even the assays or rather thecore, this is available as well, but because it's only been open forexploration for 20 odd years, it's underexplored. There's a lot of low hangingfruit and we see that in our project, which if this data was available, let'ssay in a North American context, it would have been followed up. We have ourMurtolampi target, for example. We’ve got a nice 200 meter fence with thenumber 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 20years. Nobody's ever poked a hole around there or done any follow up work. So, that’sjust low-hanging fruit and gives us an obvious target to go after.

Matthew Gordon: Who here has exited, mademoney for shareholders, built companies…

Derrick Weyrauch: Well, the company's been completelychanged over the course of 2019. So brand new management, brand new board.

Matthew Gordon: Who’s deliveredbefore?

Derrick Weyrauch: So, Peter Litefoot for example, webrought him on the board in September. He used to be the head of ProjectGeneration Nickel Base Sulphides for Inco Valle.

Matthew Gordon: Who’s done it in anexploration company? It’s different.

Derrick Weyrauch: Well, they're also finding somefairly large deposits in those big boy companies as well. And so, he's oneindividual. Neil Pettigrew's, another individual. He is our vice President ofexploration. Also, on the board, he's actually based in Thunder Bay. And whatbrought him to Thunder Bay a number of years ago was the Palladium Boom, acouple decades ago that North American Palladium.

Matthew Gordon: And what about you?

Derrick Weyrauch: Well, I'm finance guy by background. 30years in the capital markets. And most recently, I was the CFO for JaguarMining. Did the restructuring there a few years ago and prior to that also waswith Andina Minerals, which we sold to Rothschild Mining back in early 2013.

Matthew Gordon: Can you just tell uswhat the plan is, how you can do it? Who's going to do it? How are you going tofund it?

Derrick Weyrauch: Well, really, what we're going to dois leverage off of the data set that's already available for the project. Wehave 38KM worth.

Matthew Gordon: What type of companyare 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 criticalmass where you may want to put it into operation or perhaps somebody takes ashine for the asset and decides they'd like to have it.

Matthew Gordon: Hopefully that'sattractive to someone who will take it to the next stage. That’s the model.

Derrick Weyrauch: We're not currently configured for adevelopment scenario, so we're not going to fool ourselves.

Matthew Gordon: How do you financethis thing? You're raising a little bit of money now, and that's for presumablythis seasons’ drilling?

Derrick Weyrauch: It's predominately for the LKproject in Finland. We do have another project in Ontario, a nickel sulphideasset. But the money is really earmarked for exploration in Finland conductinggeophysics programs. So, IP as well is a diamond drilling program that we hopeto initiate this winter. It’ll be 4-5 meters of drilling. So hopefully we havesome 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 toget around. You know, if you if you have a moisture in the soil, not just trackright over.

Matthew Gordon: Where are you based?

Derrick Weyrauch: I'm based in Toronto.

Matthew Gordon: You've got a localteam there?

Derrick Weyrauch: Yeah exactly. But for the most partof 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 managementteam and board. So, we're still building it.

Matthew Gordon: When do you get bootson the ground?

Derrick Weyrauch: Well, we've had boots on the groundthis summer already. So, we have people there working for us, but in aconsulting capacity.

Matthew Gordon: When do people start seeingthings moved? What do you think people are going to be interested in hearingnext?

Derrick Weyrauch: Well, yeah. The key message is thatwe've got a very interesting property package, which is at 38km of baselcontact, less than 4km of it has had systematic drilling. Based on thehistorical data set we get from auto compo and others, we have seen tremendousamounts of reconnaissance, drilling and sampling that's happened along thecontact. 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 fourkilometres of the thirty 38KM trend, having had systematic drilling, our job isreally to expand out and grow the resources more. The Kaukua deposit where weannounced the resource in September, it's only 1KM of that 4 where you have gotthose ounces and that resource. So, our job is to do the geophysics, target intothe higher sulphide areas along that contact and drill those out. And weenvision having a situation where we have multiple resources, perhaps multipleopen pit environments. We're not really looking at an underground scenario atthis point. Our resources are pit constrained, and the pit only goes down toabout 275 meters. So, fairly shallow.

Matthew Gordon: How do you manage allof this? How do you watch the pennies? What are the things that areconstraining you now?

Derrick Weyrauch: Well, capital is always a constraintwhen you're pre-revenue. So, you know, that's the big issue for any juniorexplorers. So, you have to have sufficient reason and justification to be ableto raise the next chunk of money. So, what we did is we spent the summervalidating all the historical information, putting a very robust resourcetogether, pit constrained. We tripled the cut off grade from what had been doneby previous operators. And, demonstrating that this is real. It's not anaggressive estimate by any means. We only used the price assumption of $1100for Palladium as an example, whereas the market right now is over $1700 perounce. So, we've got that, we show the historical information that we have onthe property and then it's a matter of just systematically working thatproperty. One of the luxuries that we have in this particular situation is wedon't have to come up with any black box magic and new geological theory that'smaybe a little bit out there because this project's been looked at time andtime again. This is more taking a systematic, proven approach and working yourway through the process.

Matthew Gordon: Why hasn't anyonedone 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. Itwas 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 caughtwith the downturn in 2008, 2009 and weren't able to really survive that. Theasset, then moved and some additional properties or claims were added to it byanother junior out of Vancouver that were able to do one program in 2012. Butthey had challenges of the 2012/2013 downturn. Nothing's happened to theproject since. It's just been sitting there and ultimately moved into PalladiumOne. So, there's no market awareness, only two real programs and nobody'sfollowed up on the prior program.

Matthew Gordon: How do you ensure thiscompany isn’t another statistic on the side of the road? What are the thingsthat you need to deliver, stage by stage, to ensure that we're still havingthis conversation a couple of years’ time?

Derrick Weyrauch: Well, we need to grow the resource ina prudent way and target the low hanging fruit.

Matthew Gordon: What does that mean?

Derrick Weyrauch: So, we've defined a resource rightnow. Our immediate target is to double that. And we believe we have a path todouble that in fairly short order. I'm going to say it's going to happen in thenext program. That might be a little bit aggressive. But, I think in the nextyear, we would have a good shot of doing that with sufficient amount ofdrilling. We've got a budget now for a drilling program. We're going to bedoing 4-5000 meters of drilling. The reality is that we have to do a little bitof a balancing act. So, there's a little bit about upgrading the historical informationto be able to bring another zone into resource. But then there's also theaspect of how much more discovery you want to get.

Matthew Gordon: Is that what you soldto Eric Sprott, 19%? But this is really option money for someone like that. Butthat's the story he bought.

Derrick Weyrauch: Basically. There's a resource growthopportunity here that's not high risk. There’re very limited investmentalternatives for Palladium. The fundamentals for Palladium are fantastic. Youknow, 80% of production comes from South Africa and from Russia. 90% ofproduction is a by-product of other mining operations, whether it be nickel orplatinum. As a result of that, producers have little capacity to increasepalladium production to meet the demand. The commodities have been in deficitposition for eight years and is forecasted to continue. The forecast for 2019is about 800,000onz deficit in a market that's only producing 7MILoz. It's abig problem. And what's also interesting is the two primary palladium producersglobally, Still Water and The North American Palladium, they've both beenacquired by South Africans taking the money and investing in otherjurisdictions, whether it be in Montana or Ontario. So, it's a market wherethere's limited capacity to increase supply from the existing producers. And wethink we've got a project that's fairly straightforward. It's open pit. It'snot very deep. We believe it's going to grow a few multiples of where it is nowon a systematic approach without applying huge amount of risk.

Matthew Gordon: Why should anyonelook at your company versus the multitude of other junior miners or early stagecompanies? Why should they trust you to help them make money?

Derrick Weyrauch: It's a great question. I think itstarts off with the commodity, right? There's fundamental demand it makes sensefor the commodity. Secondly, the asset, there's limited investmentalternatives. If you're looking for exposure to palladium, Stillwater's gone,North American Palladium is gone. Where else are you going to invest? You'vegot a systematic, simple approach to increasing the resource so it's not highrisk. On top of that, we're in a Tier 1 jurisdiction. Finland is a fantasticplace to work. Rule of law and systems that's mining friendly. There’resmelters locally. We've got power on the property. We've got roads to theproperty. 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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