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TABLE OF CONTENTS Mar 8 - 14, 2010 Volume 96 Number 3 - 0 comments

Marathon Gears Up For Mining

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By: Susan Kirwin


MARATHON, ONT. -- Named after a paper mill company that created jobs and sparked a population boom about 65 years ago, Marathon is now a town dwindling in size with a hurting economy.

Marathon Pulp shut suddenly last year putting 230 people out of work with reduced pensions, no severance and no vacation pay.

But as the town says good riddance to Pulp it's putting out the welcome mat for copper and platinum group metals (PGMs). Or more specifically, Marathon PGM (MAR-T).

The company has been developing a copper and platinum group metal project since late 2003 and is now in the process of securing permits to start construction of a 22,000 tonne-per-day open pit mine with an 11.5-year mine life.

The company expects to produce 37 million lbs. copper, 234,000 oz. PGMs plus gold, and 182,000 oz. silver per year over the first five years with start up projected around 2012 or 2013.

Marathon completed its first feasibility study on the project in late 2008 as the world financial crisis caused metals prices to plummet. So the company, like many others last year, went into conservation-mode until things turned around. Marathon didn't sit idle though; it focused on improving resources and metallurgy. It also needed to improve its project description for the Canadian Environmental Assessment Agency (CEAA) so it could begin the permitting process.

It's now a year later and much has changed. President and CEO Phillip Walford discussed the improved climate during a property tour in the fall of 2009.

"Recent prices for platinum and palladium have recovered quickly from last year and hopefully our fortunes will as well," Walford said.

Not only have metals prices improved, credit markets have recovered, equipment costs are lower and there's also been an upturn in vehicle manufacturing, which needs PGMs to make catalytic converters. This good news is what senior geologist David Leng calls, "a perfect storm of the stars being in alignment, if you will." The updated feasibility outlined a stronger project than before as a result.

The company redesigned the pit to include new ore resources, relocated the ramps so that haulage distances for waste were shortened and improved metallurgical recoveries for precious metals by 2.5-8%.

"The reality is that the metallurgical work that was done for the original study was anomalous," says Ray Mason, vice-president of operations. "All of the previous metallurgical work was much higher than in the feasibility study so that gives us a great deal of confidence that the new numbers are the real numbers."

According to the optimized study, the Marathon project will cost $351 million to build -- down by $35 million from the initial study -- with life-of-mine capital amounting to $495 million.

The project's after-tax net present value increased to $251 million (at a 6% discount) from $174 million (at an 8% discount). Undiscounted pretax cash flow is set at $847 million and after tax cash flow of $596 million.

The after-tax, internal rate of return is significantly higher at 17% from 12.4% and the payback period is slightly shorter at 4.4 years compared to 4.7 years.

Life of mine cash costs per PGM plus gold oz. (net of credits) is (-US$14.40) per oz. while cash cost per lb. copper (net of credits) is (-US25¢) per lb.

Metals prices used in the study were based on the three-year trailing average as of October 2009 with copper at US$2.91 per lb., palladium at US$321 per oz., platinum at US$1,347 per oz., gold at US$819 per oz. and silver at US$14.10 per oz.

Now Marathon is going through the permitting process while working out a plan to secure funding for construction.

What strengthens the economics of the Marathon project is the large amount of copper in the deposit, which if the price is right, takes care of operating costs.

"Above US$2.80 per lb. copper starts contributing to profit. We are very leveraged to copper," Walford says. "If copper is high or PGMs are high, or all are high, it's very good for us."

Marathon will actually ship a copper concentrate to a smelter yet to be determined where the rest of the metals will be processed as byproducts.

The deposit is large and low grade. Proven and probable reserves total 497 million lbs. copper, 2.4 million oz. palladium, 696,000 oz. platinum, 251,000 oz. gold and 4.2 million oz. silver. Reserves are contained in 91.4 million tonnes grading 0.83 gram palladium per tonne, 0.24 gram platinum, 0.09 gram gold, 0.25% copper and 1.44 grams silver.

But the deposit is largely open. Marathon had quadrupled resources after successive drilling campaigns between 2005 and 2008 before deciding it was time to do a feasibility study.

"We could keep drilling for a month of Sundays but at some point you have to quantify what's been defined," Leng says.

What Marathon has now defined is pretty unique since primary PGM mines are far and few between in North America. There's North American Palladium's (PDL-T, PAL-X) Lac des Îles palladium mine near Thunder Bay, Ont., and Stillwater Mining's (SWC-N) PGM complex in Montana. Marathon has a similar palladium-platinum ratio as Stillwater while Lac des Îles is predominantly palladium.

About 30% of world palladium supply comes from South Africa as a byproduct of platinum production while another 45% of mined palladium is a byproduct of nickel production in Russia. PGMs are also a byproduct of nickel and copper mining in North America but on a much smaller scale.

According to Johnson Matthey, platinum and palladium demand declined in 2009.

Platinum demand dropped 4.4% to 5.92 million oz. and palladium demand fell by 3.8% to 6.52 million oz. due to weakness in the global economy, especially the automotive mar ket, but the situation is expected to improve in 2010.

About 62% of all platinum and palladium goes toward making catalytic converters for cars. As the car market in North America recovers, China and India are seeing vehicle production soar to new heights. In fact, Chinese media are reporting that China overtook the United States and Japan as the world's largest car manufacturer in 2009 with more than 13 million vehicles coming off the line. If this growth continues and the rest of the world recovers, there could be an increased demand for PGM production.

In a recent market review, Johnson Matthey forecasted a tightening in the platinum market in 2010, which could cause a modest deficit and a rise in the platinum price up to US$1,550 per oz. However, much of the latest price return has been supported by the weakness of the U.S. dollar, a strong gold price and growing investor interest so it could drop as low as US$1,280 per oz.

With rising demand and only modest growth in primary supplies of palladium, Johnson Matthey says the size and fate of Russian state stocks of palladium are very important to the supply. Johnson Matthey predicts Russia will sell some of its stock in 2010, putting the market in surplus, but, if not, a deficit can be expected. Regardless, Johnson Matthey forecasts that the palladium price will rise as high as US$390 per oz. in 2010, particularly if vehicle production improves.

A strong PGM market is what Marathon needs going forward as it secures mining permits and financing to build the project.

As all that is worked out, the company will be focusing on its other projects, Geordie Lake, a PGM-copper project that's just 15 km away from the Marathon deposit, and Valentine Lake, a gold project in central Newfoundland.

The company has $11 million in the bank and plans to spend about $4-6 million on its projects this year.

Marathon is in the middle of a 21- hole, 3,000-metre drill program at Geordie Lake and results have shown significant hits of mineralization.

Highlights so far include a 28- metre interval grading 0.46% copper, 0.61 gram palladium per tonne, 0.03 gram platinum, 0.05 gram gold and 1.9 grams silver.

The deposit is similar to the Marathon deposit, with thick intervals of gabbro-hosted PGM-copper mineralization that dip at 45 to 60 degrees and would be amenable to open pit mining.

The plan is to put out a new resource estimate later this year. So far, tonnage is about a quarter of the size of the entire Marathon project so eventually it could add significantly to the project life.

Geordie measured and indicated resources stand at 25.99 million tonnes grading 0.35% copper, 0.55 gram palladium, 0.03 gram platinum, 0.05 gram gold and 2.35 grams silver per tonne for 195.7 million lbs. copper, 456,800 oz. palladium, 28,400 oz. platinum, 45,800 oz. gold and 1.94 million oz. silver.

"It could become a satellite resource for the Marathon project once it's up and going but that's years down the line and we're not really in that planning stage right now," Leng says. "There is still a great deal of work to be done at Geordie Lake."

Marathon Mayor Rick Dumas would love to see Marathon extend the mine life, but right now his chief concern is that the project actually reaches production in a timely manner.

"We've been supporting Marathon PGM basically since day one," Dumas says. "We know the economic impact of the project is going to be great for the community."

Dumas recalls the early 1980s when the Hemlo gold complex, 30 km southeast of the Marathon project, was brought into production. At the time the Willroy copper-lead-zinc mine in nearby Manitouwadge, a nearby mining town, had shut down, leaving many out of work. Hemlo was permitted quite quickly -- the final drill hole was drilled in 1982 and the first gold bar was poured in 1985.

"That's really fast," Dumas says. "They (the government) knew the amount of jobs Hemlo was going to create in the region. . . everything was hurting."

Hemlo, now owned by Barrick Gold (ABX-T, ABX-N), is still in operation. In fact, Barrick recently announced that it has extended the mine life at the Williams mine by seven years and the David-Bell mine by three.

"Those employees won't be worrying about their livelihood for the next three to ten years if the price of gold stays up," Dumas says.

Manitouwadge's population has already experienced what Dumas fears for Marathon.

In the mid-1990s, the Geco copper mine was closed and within four years time the population fell from 4,000 to less than 3,000. Then in 2006, Newmont Mining (NMC-T, NEM-N) closed the Golden Giant mine causing the population to drop further to 2,300.

Creating 150 or more good jobs would be significant for Marathon, where the declining population illustrates the economic situation. Many have had no choice but to pick up and go elsewhere. According to Statistics Canada, Marathon's population fell from 4,416 in 2001 to 3,863 in 2006. Dumas say the population is now around 3,700.

"We've dropped in population the last several years and I'm hoping to maintain it but at the same time we need these types of projects to move forward to keep those people here," Dumas says. "We need to keep our youth in northwestern Ontario and these are the jobs we need to focus on."

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The Marathon PGM team (from front left): president and CEO Phillip Walford, geologist Jessica Borysenko, geologist Sherry Dunsworth, vice president of operations Ray Mason, and vice president of exploration David Goode (behind).
The Marathon PGM team (from front left): president and ...
The deposit is located in an area of steep hilly terrain dense with trees and a series of creeks and lakes. Capital costs are estimated at $351 million, the after-tax, net present value is $251 million and the internal rate of return is 17%.
The deposit is located in an area of steep hilly terrai...
Marathon PGM's VP of exploration David Goode (far right) discusses the huge potential for adding resources at the Marathon copper-PGM project.
Marathon PGM's VP of exploration David Goode (far right...

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