Prophecy Platinum (TSXv:NKL) – Massive PGM Deposit in the Yukon?

Prophecy Platinum (TSXv:NKL) – Massive PGM Deposit in the Yukon?
Prepared by: Rob Bruggeman, Northern Securities
July 15, 2011
Capital Structure
Shares outstanding
Warrants and options
Fully diluted
50.6M
8.0M
58.6M
Market capitalization at $1.95/share = $121M ($141M FD)
Major shareholder: Prophecy Coal (TSXv:PCY) owns 45% of shares outstanding.
Overview
An updated 43-101 resource on Prophecy Platinum’s 100%-owned Wellgreen PGE-Ni-Cu property in the
Yukon caught our attention yesterday because it showed a total resource of 12 million ounces of PGM
and gold (1M oz Indicated and 11M oz Inferred). The market also took notice of the resource estimate
and the stock price more than doubled yesterday. However, we want to highlight the story to investors
because we believe there may be much more upside potential.
The new Wellgreen resource estimate is shown below and was prepared by Wardrop Engineering.
Ninety five percent of the resource is in the Inferred category and is based on 53,222m of drilling (701
holes), 24,919m of which were drilled underground. The Wellgreen property was mined by Hudbay in the
1970s, but it was mining massive sulphide pockets that contained greater than 1% Cu and Ni and greater
than 2 g/t Pt. Hudbay sank four shafts on the property and developed over 4km of underground
workings.
Now, it looks like Wellgreen has the potential to be a large bulk tonnage open pit deposit. What makes
the deposit attractive is that the copper grades are similar to other large bulk tonnage deposits, but it is
the precious metals content that really makes this deposit attractive. Prophecy plans additional drilling on
the property in order to prepare an updated resource by the end of the year. Substantial infill drilling will
be required to move resources to the Indicated category, but given the share price appreciation the
company should have no problem raising money for drilling.
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In Situ Value of $178 to $327/tonne
The graphics below highlight the gross metal value of the rock at Wellgreen. Gross metal values for the
Indicated ore come in at $327/tonne at current metal prices, with about 70% of the value from copper and
nickel and 30% from precious metals. While no metallurgy has been done to indicate recoveries
(although historical work suggested 80% recoveries), the high in situ value should translate into very
attractive economics under an open pit scenario. The Inferred portion of the resource has lower grades,
but has a gross value of $178/tonne at current metal prices.
Gross Metal Value of Indicated Resource
Source: kitcocasey.com
Gross Metal Value of Inferred Resource
Source: kitcocasey.com
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Rhodium, Osmium, Iridium and Ruthenium Could Offer Further Upside
As outlined in the graphic below from Prophecy’s investor presentation, the Wellgreen deposit also
contains significant quantities of rhodium, which is worth more per ounce than platinum and gold.
Property Description and Geology
The Wellgreen property is located in the Southwest corner of the Yukon and is part of the Kluane
Ultramafic Nickel belt, which is the second largest behind the Thompson Belt and remains vastly
unexplored. The Wellgreen property is approximately 15km from the paved 2-land Alaska Highway,
30km from an all-weather airstrip and 402km from the Haines deep sea port in Alaska. On a cautionary
note, the property is also near the Kluane National Park and aboriginal lands, which may cause some
hurdles when it comes to permitting.
The Wellgreen deposit occurs along the lower margin of an Upper Triassic ultramafic-mafic intrusion, the
Quill Creek Complex. Mineralization is typical of gabbro-associated nickel deposits such as Noril’sk,
Russia; Stillwater, Montana; Duluth, Minnesota; and Sudbury, Ontario. Prophecy’s current resource is
based on a strike length of 2,600m while the broader Quill Creek Complex Ultramafic intrusion has a
strike length of 4,000 to 7,000m, a width of 30 to 35m, depth of 200 to 250m and assumed specific gravity
of 3.22. Mineralization within the Quill Creek Complex has delineated into four zones of gabbro-hosted
massive and disseminated mineralization known as the East Zone, West Zone, Central Zone and North
Zone. The East Zone is gently west-plunging and moderately to steeply south-dipping and has received
the most detailed exploration. The mineralized portion of the East Zone has been outlined by
underground diamond drilling over a strike length of 900m and an average vertical extent of 200m.
(Source: April 2011 Technical Report by Wardrop)
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Open Pit and Exploration Potential
The main mineralized zone at Wellgreen lies between elevations 1,300m and 1,700m on a moderate to
steep un-glaciated south facing slope. Mineralization begins at surface, so it seems conceivable that the
Wellgreen deposit could be bulk mined by blasting the side of the hill, which could be very economical.
The deposit continues deeper into the hill and is open at depth, plus there is exploration potential to the
east.
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Conclusions
We are new to the Prophecy Platinum story but are excited by what we have seen so far. Based on the
share price, the updated resource also caught other investors’ attention. Our mining analyst is analyzing
Prophecy in detail and is likely to put a note out on the company as a follow-up to this morning’s note in
the near future. In the meantime, I wanted to give clients a brief overview of Prophecy Platinum to
facilitate an understanding of the company and why the Wellgreen deposit looks attractive.
Our early work on Prophecy indicates that as much as 7 to 8 million ounces of PGMs and gold may be
accessible via an open pit. While the stock price has almost quadrupled in the past few days, this
suggests that there may still be further upside on Prophecy Platinum. The Wellgreen deposit could
become the most attractive new PGM play in Canada.
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Management and Directors
John Lee, CFA: Chairman
John Lee is an entrepreneur with degrees in economics and engineering from Rice University, U.S. He
was appointed Chairman and CEO of Prophecy Resource Corp. in October 2009. In a little over a year
and under John's leadership, Prophecy Resource Corp. grew from having minimal assets to owning
substantial coal and PGM assets in Mongolia and Canada. Prophecy Resource Corp. was restructured to
Prophecy Coal Corp. (PCY.V) and Prophecy Platinum Corp. in June, 2011. Prophecy Coal Corp. is only
the second Canadian public company to commission a mine to production in Mongolia, a country where
John calls his second home. John Lee is also CEO and chairman of Prophecy Coal Corp.
Greg Hall, Director
Mr. Hall is an independent business adviser to the mining industry. For over 30 years, Mr. Hall has
focused on significant international exploration, development and mining ventures, and all aspects of
corporate structuring and finance. He is a current director of Prophecy Coal Corp. (PCY.V) and a former
director of Silvercorp Metals Inc., China's largest primary silver producer. His previous positions include
being a director with Haywood Securities Inc., vice-president with Canaccord Capital Corporation, and
senior vice-president with Leede Financial Markets Inc. He is a graduate of the SME Board program at
the Rotman School of Management, University of Toronto, and a member of the Institute of Corporate
Directors.
Donald Gee, Director
Mr. Gee, CA, brings more than 30 years of experience in finance and accounting, with extensive
experience in business start-ups, international business, and managing public resource companies and
mining company joint ventures. As an entrepreneur, Mr. Gee was the successful founder of Gee &
Company Chartered Accountants, a Vancouver-based public accounting firm. More recently, Mr. Gee has
served as a key executive and director for several publicly listed resource companies. Mr. Gee is a
member of the Canadian Institute of Chartered Accountants, the Society of Economic Geologists, and the
Canadian Institute of Mining and Metallurgy. He holds a Bachelor of Science degree in geology from the
University of British Columbia.
David Patterson, Director
Mr. Patterson has been involved with exploration companies for over two decades. He has an MBA from
Vancouver's Simon Fraser University. Mr. Patterson has an extensive European and North American
network which has enabled him to raise in excess of $100-million for mineral exploration companies,
including Donner Metals Ltd., for which he acts as chairman.
John McGoran, P.Geo Director
John McGoran graduated with a Bachelor of Science degree in geology from Carleton University and has
a P.Geo designation. Mr. McGoran is a member in good standing with both the British Columbia
Association of Professional Engineers and Geoscientists, and the Society for Mining, Metallurgy and
Exploration. Mr. McGoran's extensive experience includes thirty eight years as an economic geologist
and twelve years as a prospector for economic minerals. Mr. McGoran is a co-founder of Imperial Metals
Corp., founder of Fleck Resources (now Polymet), founder of Northern Platinum Ltd. and former director
of Prophecy Coal Corp. (PCY.V).
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Stock Chart
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