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Stillwater plans to triple PGM production by 2003.

There is an air of optimism and enthusiasm present at the Stillwater Mining Co. operation. This feeling is generated by the expansion of platinum and palladium production and the recent meteoric rise in the price of palladium. The company earned a $4.04M net income in the first half of 1998 vs. a loss of $2.87M in the first half of 1997. Additionally, preparations are under way to commence development work at a new mine and mill site 13 miles to the west of the existing mine, which is located 85 miles southwest of Billings in the Beartooth Mountains of south central Montana. The company's goal: to triple the output of platinum to 300K and palladium to 1M oz by 2003.

The Stillwater Complex was first prospected for gold in 1883. Chromite was mined in 1905 and, thereafter, intermittently during World Wars I and II and the Korean conflict when chrome was in short supply. Platinum and palladium were first detected in the 1930s. Johns Manville conducted extensive geochemical sampling and drilling during the 1970s. In 1977 Manville announced a strike length of 18K ft and an average width of 7 ft grading 0.65 oz/st combined Pt/Pd. Exploration and development continued during the early 1980s with a 50% partner, Chevron USA. Anaconda Minerals and Lac Minerals were brief partners in the project. In 1986, the joint venture commenced its first production. The company was incorporated in 1992 and the following year Manville and Chevron transferred all assets, liabilities, and operations to the Stillwater Mining Co. and they each retained 50% of the stock. Thereafter, each partner's share was acquired by the company or sold to investors. The company is now listed on the American Stock Exchange under the symbol "SWC."

Geology and Reserves

The deposit is located within the J-M Reef, shown above, which is part of the Stillwater Complex. It is a large, syngenetic magma body composed of basic and ultra-basic rocks emplaced an estimated 2.8B years ago. The magma was

sufficiently fluid to allow individual minerals to settle with the heavier basic minerals sinking toward the bottom, leaving the lighter, more siliceous minerals above. Bands of noritc, gabbro, and anorthosite can be traced along the strike length of the complex.

Platinum group metals (PGMs) mineralization has been identified for 28 miles striking in an east-southeasterly direction. The complex has a maximum thickness of 4.5 miles that was tilted to the north at an angle of 50-90[degrees] after cooling. Subsequent erosion has produced a lenticular-shaped exposure. The J-M Reef has been drilled to a subsurface depth of 6,000 ft, and geological and geophysical evidence suggest that it continues downward and perhaps flattens to the north.

The other great platiniferous deposit, the Merensky Reef in the South African Bushveld Complex, has lower grades and is thinner but much longer. These attributes plus the steeper dip make Stillwater more amenable to higher extraction rates and lower production costs.

The PGMs occur with sulphide minerals within the J-M Reel principally pyrrhotite, chalcopyrite, and pentlandite. The PGM zone varies in thickness between inches up to 90 ft with the average being 8 ft. Although the sulphide assemblage is not prominent, the ore zone can be visually identified. Byproducts include copper, nickel, rhodium, gold, silver, and cobalt.

Ore reserves as of Dec. 31, 1997, are based on a cutoff grade of 0.40 oz/st combined platinum/palladium and assume the following prices for economic production: $375 for platinum and $155 for palladium. Dilution of 10% at zero grade is added to the reserves.

Proven Reserves: 1,379K st at 0.86 oz/st = 1,184K oz(*)

Probable Reserves: 28,130K st at 0.79 oz/st = 22,183K oz(*)

Total Reserves: 29,509K st at 0.80 oz/st = 23,367K oz(*)

* rounded

The ounces are combined platinum/palladium at a ratio of 3.4:1 palladium to platinum, before processing losses. The company replaces reserves as they are consumed and only attempts to prove up sufficient reserves to support stoping operations for approximately 18 months in advance to minimize the high cost of lateral development and close-spaced drilling to convert geological resources into reserves.

Production and Costs

Several operational improvements under way since 1994 were completed in 1997, These include the sinking of a 1,950-ft shaft adjacent to the mill, construction of an underground crushing system adjacent to the shaft, an increase of mill throughput by the addition of a large ball mill grinding unit and additional flotation capacity, and construction of a base metals refinery.

With the addition of more working stopes, the operation's throughput has been increased from 1,370 st/d in the fourth quarter of 1996 to approximately 2,000 st/d design capacity in the fourth quarter of 1997 and, in fact, exceeded that capacity during the second quarter of 1998. Platinum and palladium output increased 39% from 1996 to 355K oz produced in 1997. First-half 1998 production was 220K oz combined.

Cash costs of production improved from $184/oz in 1996 to $174/oz in 1997. The 1998 first-half cost dropped to $150/oz. Despite improved costs and increased output, the company lost $5.4M in 1997, principally due to a heavy capital expansion program combined with lower metals prices, which were hedged at much lower levels than the actual spot prices, and a one-time charge for management restructuring.

The operating costs have decreased due to production improvements. The cash cost per ton milled dropped from $105 in 1996 to $95 for the first half of 1998.

Mining Operations

The current mining operations are at the Stillwater mine toward the eastern end of the J-M Reef on both sides of the mountains flanking the Stillwater River, a distance of 5 miles between elevations of 3,100 to 6,700 ft. Several adits and laterals have been driven to establish 200-ft vertical intervals, and a decline driven from the 5,000-ft level accesses five levels down to the 4,000-ft level. The recently completed shaft bottoms at 3,100 ft and provides access to three levels below the 5,000-ft level, as shown in the mine cross-section. The 18-ft-dia shaft is concrete-lined. It has separate compartments for counterbalanced hoisting of both ore and waste in 10-st-capacity skips as well as a separate compartment for personnel and supplies. The adjacent crushing station on the 3,100 level receives ore from the upper levels through passes and reduces it to 6 in. The crushed ore is conveyed to a holding bin and cartridge for loading into the skips. During the fourth quarter of 1997, 56% of the ore production was hoisted. This percentage will increase as the underground development connects current workings to the shaft. The shaft has significantly improved the handling of ore and waste, and the crushing has improved the grinding capacity of the mill. Internal ore haulage from the underground levels is by 15-st trucks and by 50-st trucks from the various portals to the mill stockpile.

Prior to 1991, almost all the mining was done by cut-and-fill stoping using slushers. Since then, two other methods ramp-and-fill and sub-level stoping have been introduced. Declines are driven parallel to the ore-body and entries are made into the stoping area as mining progresses in an overhand manner. Hydraulic drill jumbos and LHD units are used in the ramp-and-fill stopes. Sub-levels are driven on 40-ft lifts with holes drilled from the top down along the structure. Ore is shot down to the lower level and recovered with LHDs. Currently, ore production by the various mining methods is derived 58% from mechanized ramp and fill, 15% from sublevel, 18% from mechanized captive cut and fill, and 9% from slusher cut and fill. It is reported that the direct cost of ramp and fill is 40% cheaper than cut and fill.

Stopes are currently filled with a combination of development waste and tailings. Testing has been conducted on "paste backfill," which uses a combination of tailings and cement. The tailing is thickened and filtered to 80-85% solids and a small percentage of cement is added to give more strength. With additional cement, it is possible to underhand mine where it is economically advantageous. The planned implementation of this technique is taking place in the fourth quarter of 1998.

One of the biggest challenges at the Stillwater mine is grade control. This has been addressed by assigning 13 geologists to act as ore-control specialists. Although drilling of ore rounds is directed by visual observation of the contained sulphides, the geologists sample and inspect each round to ensure that dilution is minimized. Additionally, audits are conducted and an ore and waste inventory management system has been installed. Miners' bonuses are now tied to dilution control as well as to production. Total dilution has been reduced from 40% to 20-25%.

Rock at the mine appears to be fairly competent with minimal support required. (Support is usually in the form of cable bolts or Split Set rock stabilizers.) The average stope width is 10 ft with some areas widening to 90 ft. Selection of the appropriate mining method is made on a stope-by-stope basis. Currently, the operation has 30-38 working stopes and anticipates increasing to about 40 active stopes by the end of 1998.

Mine productivity in 1996 was 13.57 st/manshift but slipped to 13.49 st/manshift in 1997. The productivity through the second quarter of 1998 was 14.35 st/manshift.

Development in 1997 decreased by 55% from the 1996 level, to 13,629 ft. because of the focus on increased mill throughput. In 1998 development is expected to be double the 1997 level and will be performed principally by mining contractors.

The increase in production has required the addition of qualified miners. This has been a problem at most underground U.S. mines because this form of mining has significantly declined in the recent past. However, the downturn in gold mining has provided additional miners for Stillwater, which has increased its crew size by 15% since the first of the year.

Sulphide Flotation Concentrator

Hoisted and trucked ores are conveyed to a recently completed 3.500-st storage silo. The concentrator is a conventional sulphide flotation plant. Ore is fed to an 18-x 6-ft SAG mill. Discharge is screened with the +1/4-in. oversize reporting to a 13.5-x 20-ft ball mill. SAG mill undersize is run through a flash flotation circuit with the float product going to the product thickener. The undersize is passed through hydrocyclones with the overflow reporting to a conditioning tank and hence through rougher flotation. The float product reports to a thickener. The tailing routes through a series of cleaning and scavenger cells to further separate residual ore from waste. Hydrocyclone underflow goes through flash flotation cells with the float product reporting to the thickener and the tailings reground in the ball mill. The scavenger float product goes through a small regrind mill. Tailings report to a sand plant where the coarse sands are separated for mine backfill. Approximately 50-60% of the tailings is used for backfill.

Thickened concentrate, containing 50 oz/st platinum/palladium, is filtered, dried, and trucked in 23-st lots to the smelter located at Columbus, Mont., approximately 45 miles to the northeast.

The concentrator is undergoing an expansion to increase its throughput to 3,000 st/d.

There will be some modifications in the present flow sheet. Changes include larger grates and pans behind the grates on the SAG mill and the addition of a jaw crusher and pebble mill. Additional flotation and rougher/scavenger tanks will be installed. Larger pumps and piping will be installed in the mill and tailings lines. Additional drying capacity may be installed.

Smelting and Converting

Smelting in Columbus employs a 1.5-MW electric furnace to melt sulphide concentrate (with lime added) into a silica-oxide-rich slag and a PGM-rich furnace matte. An environmentally safe slag is removed, cooled, and used as a road base. Furnace matte, containing approximately 200 oz/st platinum/palladium, is granulated with water jets to provide an easy-to-handle product and is then dried. It is then introduced into one of two top-blown rotary converters with lime and oxygen where the iron and some sulphide are removed. Converter matte is granulated, dried, and sent to the adjacent base metals refinery.

The smelter has an elaborate and efficient dust and gas collection system for zero discharge. The dust is recovered in either a hygiene or process bag-house and returned to the process circuit. Fugitive gases are routed through a gas/liquid scrubber where 99.7% of the sulphur dioxide is removed. The recovered sulphur, in the form of gypsum, is sold as a soil additive. The plant has an allowable emission rate of 50 st/yr sulphur dioxide, but it has never exceeded 5 st. In 1997, the total was only 3 st.

The smelter will be expanded to process the equivalent of 3,000 st/d ore processed through the concentrator. The upgrades include increasing the transformer capacity from 1.5 to 3.5 MVA and upgrading process control systems for the electric furnace, increasing granulation and scrubbing/regeneration capacity, and constructing a maintenance facility for the plant and refinery.

A testing facility was completed in late 1997 to accept spent catalysts that are crushed and added to the electric furnace. Test results were favorable and improved the performance of the system. The company is now processing the spent auto catalysts.

Sherritt-Gordon Process

The base metals refinery was constructed and commissioned in 1996. It uses the patented Sherritt-Gordon Process whereby nickel, copper, cobalt, and iron are leached from the converter matte using oxygen and sulphuric acid. Matte is ground in a tower mill to 85% - 200 mesh and introduced into a series of agitation tanks with sulphuric acid and oxygen at atmospheric pressure. Slurry is pumped to a thickener. Decantate is pumped through a polishing filter and the filtrate is combined with ammonia and oxygen to precipitate the iron. The mixture is then pumped through filter presses where the iron residue is collected for recycling back to the smelter. Filtered solution - containing nickel, copper, and cobalt - is shipped to Canada for recovery of the base metals. Although revenue is received for part of the contained metals, it is expensive to dispose of the metals in solution. The company is planning to install a refinery to recover the metals on-site for an expected $3/oz byproduct credit.

Thickener underflow is combined with the polishing filter solids and sulphuric acid and is pumped into two autoclaves. This mixture is then charged with oxygen at 320[degrees]F and 140 lb/[in..sup.2]. The discharge is then passed through a filter press where the solubilized metals are returned to the atmospheric leach section. The filter cake is dried and stored in a secure area. The product has been upgraded to 65% platinum/palladium and is shipped to precious metals refineries. A high-efficiency scrubber treats all gases and vapors from tanks.

The refinery is capable of processing the equivalent of 4,000 st/d and can be expanded by adding a new autoclave and minor piping and pump upgrades.

Safety and Environment

Safety has improved considerably in the past few years. In 1997, the severity rate was about the same as it was in 1996 but lost time accidents increased to 3.3 from 2.8 for every 200K hours worked. The smelter and refinery continue with their outstanding safety record with zero lost-time accidents, and, once again, they have received the Governor's Safety Award. The smelter also was granted the Safety and Health Achievement Recognition Program Award for the fifth consecutive year, exempting it from routine inspections by the Occupational Safety and Health Administration.

As of Dec. 31, 1997, the company had 675 employees in the following areas:
AREA                                                  EMPLOYEES

Mining                                                   435
Processing                                                63
Maintenance                                               89
Technical services                                        36
Safety and Environment                                    15
Administration                                            37

TOTAL                                                    675


The total includes all on-site personnel at the mine, Columbus, and the Billings and Denver offices. Prior to 1995, the employees were nonunion. An election in that year saw 50.6% of the hourly workers favor the Oil, Chemical and Atomic Workers Union as their bargaining representative. In 1996, a three-year contract was ratified.

The operation has some 30 operating permits covering all aspects of its operation including air, water, land disturbance and reclamation, waste disposal, and other environmental matters. Most permits do not have expiration dates but are subject to periodic reviews.

Montana has a unique Hard Rock Impact Plan that requires mining companies that employ more than 75 people to negotiate with affiliated units of local governments for tax prepayments and grants to mitigate socioeconomic impacts. Theoretically, the companies are repaid with tax credits but this has not happened, as yet, at Stillwater.

The company has developed an innovative method of treating excess nitrate in its water discharge - from mine use of ammonium nitrate explosives. The process, called anaerobic denitrification, uses sewage sludge to remove the nitrate. Pits are dug, lined with high-density polyethylene, and filled with crushed rock to act as a substrate for the bacteria. The cells are charged with sewage sludge and mine water is percolated through the cells. Bacteria quickly drive the cells anoxic at which point they attack the nitrate, driving off nitrogen. Results have been effective with an average 80% of the nitrate removed. Only about 50 lb/d nitrates reach groundwater. Regulatory agencies recognize the method and give nitrate reduction credits. The increase in production and water outflow simply requires that additional denitrification cells be added. The method is cheap and effective.

Expansion Projects

Stillwater plans to triple production by 2003 by increasing production at the mine and commencing operations at the East Boulder project. A consulting firm has been retained to prepare an engineering study that includes the deepening of the present shaft or increasing lateral development around the shaft as well as accelerating the production plans at East Boulder. Increased mine production will require additional capacity in the concentrator, smelter, and refinery.

The East Boulder project is located 13 miles to the west of the Stillwater mine along the J-M Reef. It is fully permitted for development. An adit was opened as a launch pad for a tunnel-boring machine (TBM), which began test boring in July. The TBM will drive a 15-ft-dia tunnel normal to the reef for 18.5K ft. It should take 18 months and will cost $20M. An engineering feasibility study on the project will be completed during that period, which will encompass all details of the project and update the capital and operating costs. If results of the study are favorable, production would start in the second half of 2002 and be at full production in 2003.

The authors spent a brief one and one-half days at the Stillwater mine and plant site. They came away with the following impression: After many years of operating under the direction of non-mining companies and with limited resources, the operation is poised to become a major player in the PGM market. The personnel are experienced in their respective fields and with the capital commitments, Stillwater should achieve the production and cost goals that should assure ongoing profitability. The supply side of the PGM market is the largest unknown, but by achieving low-cost production Stillwater should remain a viable player.

Acknowledgement

The authors wish to thank all the personnel with Stillwater Mining Co. who arranged their visit, gave the briefings and tours, and provided the plethora of documents.

RELATED ARTICLE: PGM Expansion Program Accelerated

After the main article was completed, Stillwater Mining announced that it was accelerating its previously announced expansion of the Stillwater platinum/palladium mine at Nye, Mont., and development of its East Boulder project at Big Timber, Mont Stillwater is now targeting production of 1.2M oz/yr combined platinum/palladium during 2001, against previously announced plans for 1.3M oz/yr by 2003. The company's production for 1998 will total about 450-470K oz platinum/palladium.

Capex for the Stillwater expansion program is budgeted at $385M. Of this, the Stillwater mine expansion will take about $75M, East Boulder will require about $270M, and expansion of Stillwater's smelter and base metals refinery at Columbus, Mont., will take about $40M. Included in the budget is $35M for future expansion of East Boulder beyond the current design rate of 2,000 st/d.

The expansion at the Stillwater mine will increase the milling rate from 2,000 st/d to more than 3,000 st/d, which is expected to yield 700-725K oz/yr platinum/palladium at full capacity. Cash operating costs are expected to remain in the range of $140-$160/oz. Included in the $75M capex budget for the Stillwater mine expansion is $20M for a long-term tailings facility.

The East Boulder project encompasses opening a new mine 13 miles west of the Stillwater mine. East Boulder is now planned to reach a production rate of 450K-500K oz/yr platinum/palladium in 2001. Production costs are expected to be similar to those at the Stillwater mine. East Boulder is expected to operate at 2,000 st/d but will be engineered to permit future expansion.

The East Boulder capex budget includes $65M for underground facilities, including a crusher, conveyor system, and shop; $55M in underground development; $50M for mobile and mining equipment; $35M for the mill; and $55M for ancillary facilities. Spending for the East Boulder project will be spread over a 4-year period beginning in 1998, with the largest portion spent in 2000.

During 1998, Stillwater Mining has added 70 new miners to its work force. To accomplish its new goals at both the Stillwater mine and East Boulder, the company will need an additional 230 miners by 2001. To satisfy this requirement, Stillwater has established an internal miner-training program that is expected to graduate 15 miners/mo. The company is also recruiting from external sources and expects to engage contract personnel.

Stillwater will finance the expansion with operating cash flow and external financing. The company has a commitment for a $175M facility with The Bank of Nova Scotia, which will provide the debt financing. This commitment includes a $50M revolver and $125M project financing.

Recently signed long-term sales contracts will provide Stillwater with an average floor price of about $225/oz palladium for almost all palladium ounces produced from 1999 to 2003. These contracts were instrumental in establishing the debt financing arrangements. - LW

RELATED ARTICLE: Marketing Stillwater PGMs

PGMs have unique qualities including a high melting point, excellent conductivity and ductility, high resistance to corrosion, strength and durability, and strong catalytic properties. Both platinum and palladium are used as catalysts in automobile converters. Approximately 40% of the palladium is used in converters, 33% in electronic devices, and 18% as dental alloys. Approximately 60% of platinum is used in industrial and manufacturing processes with the balance used in the production of jewelry.

The principal suppliers of PGMs are: South Africa, Russia, the United States [from Stillwater), and a small portion from Canada. Both the Russian and Canadian PGMs come principally as byproducts from nickel operations.

The demand for palladium has nearly doubled. from 3.9M oz in 1992 to 7.4M oz in 1997. Platinum output has increased from 3.8M to 5.1M oz from 1992 to 1997 - a gain of 34%.

The PGM market has been very volatile in recent years principally because of erratic Russian sales. In 1997. Russia withheld shipments during the first half of the year and has not shipped any through May of this year. Wildly soaring prices have resulted, especially with palladium which, on May 18, exceeded platinum for the first time. Previous to 1997, the Russians exported large quantities of PGMs causing an oversupply and depressed prices. The feeling is that the Russian PGM exports have been more motivated by the need for hard currency or political machinations than by availability. It is believed, however, that Russian PGM stockpiles may be depleting which could create a short world supply, especially in palladium. However, manufacturers may look for substitutes if the prices remain too high over an extended period of time.

The earlier oversupply prompted Stillwater Mining to seek forward sales contracts for 1997 and 1998. In 1997, the company realized $154/oz for palladium and $388/oz for platinum while the average market prices were $178/oz and $395/oz. respectively. If the sales had been at market prices, the company would have realized a profit of $1M instead of a loss of $6.2M. Stillwater did realize a profit of $4M in the first half of 1998, which was $11M lower than it would have been had it said at market prices. Although Stillwater continues to be partially hedged through the remainder of 1998, it plans to sell at market prices thereafter, except under special situations in which hedging would be advantageous. At the time of the mine visit, no hedge positions existed for palladium in 1999 and beyond.

After this article was completed. Stillwater Mining announced long-term agreements to supply platinum and palladium to U.S. and other users. The accords set minimum price levels for all of Stillwater's palladium production and about 20% of its platinum output for 1999-2003. Palladium production sold in this time frame will be at prevailing market price, net of a small discount. While the terms of the agreements vary, Stillwater has effectively hedged mere than 90% of its palladium production so that the minimum price is about $225/oz and 30% of this production is subject to a $400/oz cap. The platinum hedge position enables the company to receive from $350-425/oz. The remaining 80% of production will be sold at then-prevailing market prices. - Ed.
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Title Annotation:Stillwater Mining Co; platinum group metals; includes related articles
Author:Dyas, Keith; Marcus, Jerry
Publication:E&MJ - Engineering & Mining Journal
Article Type:Cover Story
Date:Dec 1, 1998
Words:4296
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