"With growing PGM demand and constrained supply, in our view prices for both palladium and platinum are likely to increase from their current strong levels. Importantly, with the sharp reduction in Russian government exports of palladium, and the persistent growth in demand from the auto industry for catalytic converters, the traditional steep discount in the price of palladium relative to platinum has narrowed substantially. From 2003 through mid-2010, the price of palladium typically ranged between 20% and 25% of the price of platinum; since the middle of 2010 it has averaged between 40% and 45% of the platinum price. The Company's mines produce on average about 3.4 times as much palladium as platinum, so this pricing realignment has and will benefit the Company's earnings and the Company's relative cost position to that of other PGM producers.
"With respect to our Montana PGM development projects, we continue to actively pursue all three (Graham Creek, Far West and Blitz), and anticipate these three projects will result in a 20% increase in our annual production rate over the next several years. The Graham Creek project is now well advanced, expanding to the west in areas adjacent to our existing operations at the East Boulder Mine. Through the end of 2012, the TBM has completed about 6,500 feet of new development to the west, out of its total targeted footage of 8,200 feet. The TBM drive should be finished in the first half of 2013, after which we will begin developing two new ventilation shafts to the surface there. These shafts should be completed in early 2015. Once completed, Graham Creek is projected to increase East Boulder Mine production by approximately 30,000 ounces of palladium and platinum per year. We estimate the total cost of the Graham Creek project will be approximately $13 million, of which $3.5 million has been incurred through the end of 2012.
"We also recently announced an opportunity to accelerate some key development in an area located within the existing boundary of the Stillwater Mine. This area, known as the Far West, is situated below the Upper West section of the Stillwater Mine, which has been actively mined for many years. Far West is an area that has been reflected in our long-term mine plans and as our underground development headings have now reached that area, ore grades there appear to be a bit better than are typically found in the Upper West section. Because we expect to have access to production from the Blitz area in the future to help maintain Stillwater's longer-term PGM production, we believe it makes sense to accelerate development at Far West now, which should allow us to increase annual production at the Stillwater Mine ahead of the timetable for Blitz. Developing this project will require pulling forward from future years approximately $28 million of capital spending into the next three years, including approximately $8.6 million into 2013. Once operational this area is projected to add production of approximately 20,000 PGM ounces in 2016 and about 45,000 PGM ounces per year thereafter.
"As reported previously, a newly acquired TBM is now in operation at the Blitz project. This new TBM is located inside the 5000 East portal at the Stillwater Mine and ultimately will drive a 23,000 foot access drift towards the east along the J-M Reef. Simultaneously, a mining team is driving a parallel tunnel about 600 feet above the TBM, using conventional drill and blast methods. Both tunnels eventually will intersect a decline to be developed from a new surface portal located about four miles to the east of the existing Stillwater Mine surface facilities that will provide ventilation and emergency egress for the Blitz area. The Blitz project, which provides a backbone for our planned future operations to the east of the Stillwater Mine, is targeted for completion in late 2017 or 2018. While it is still too early to estimate future annual production from the Blitz area with any precision, we preliminarily expect Blitz production to replace depleting production in the off-shaft area of the Stillwater Mine, as well as to contribute approximately 25,000 ounces of incremental PGM production on an annual basis. Total cost to complete the Blitz project currently is estimated at about $209 million, of which about $35.1 million has been incurred through the end of 2012."
Most Popular Stories
- NSA Defends Global Cellphone Tracking Legality
- Top Websites for U.S. Hispanics
- Ad Counts Rise in 2013 for Hispanic Magazines
- Networks Vie for U.S. Hispanic TV Viewers
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Apple Activates Customer-Tracking iBeacon
- Dell Offers Undisclosed Number of Employee Buyouts
- A Biography of Jonathan Ive, Apple's Creative Chief
- 2013 Tech Gift Guide: iPad Mini Still Hot; Chromecast a Great Low-Cost Option
- Authorities Close to Deal with JPMorgan Chase over Madoff Response