North American Palladium buys project from Agnico-Eagle for $10M

In a move to find new sources of ore for its Sleeping Giant mill 80 km north of Amos, Que., North American Palladium (PDL-T, PAL-X) has signed an agreement with Agnico-Eagle Mines (AEM-T, AEM-N) to acquire the Vezza gold project for $10 million in cash and shares.

North American will pay Agnico-Eagle $3.5 million in cash and $6.5 million in shares. The deal is expected to close in 30 days.

The property comes with a newly compiled measured and indicated resource of 1.5 million tonnes grading 5.9 grams gold per tonne for 288,000 oz., plus inferred resources of 121,500 oz. A gold price of US$1,000 per oz. and a cutoff grade of 3 grams gold per tonne were used by the consultant, Roscoe Postle Associates.

“This acquisition of Vezza supports our strategy to increase gold production by leveraging our underutilized Sleeping Giant mill,” said William Biggar, North American Palladium’s president and CEO in a statement. “With Vezza, we now have a sufficient number of projects in our pipeline that, if developed, could significantly increase production in our gold division.”

The Vezza project is fairly advanced. It’s located about 80 km by paved road from Sleeping Giant – a 900-tonne-per-day mill operating at about two-thirds capacity. Previous companies drilled about 85,000 metres at Vezza and completed substantial underground development, including a three-compartment shaft with four underground levels down to a depth of 741 metres, a hoist and surface and pollution control infrastructure.

Agnico-Eagle completed a feasibility study back in 1997 but low gold prices and lack of a nearby milling facility prevented the company from ever reaching production.

North American says it will conduct further studies before making a decision on how best to advance Vezza.

Adding the Vezza project to its portfolio enhances the company’s gold division. North American diversified into gold after plunging palladium prices forced it to shut down its Lac des Iles palladium mine near Thunder Bay, Ont., in the fall of 2008. The company has recently resumed operations there as a result of improved palladium prices and an increase in known resources.

But the company is still committed to gold. North American is spending $6 million this year to deepen the shaft at Sleeping Giant,. The mine reached commercial production in January and North American expects to produce about 50,000 oz. gold by the end of the year.

North American’s gold projects include the Discovery, Flordin and Dormex properties which are all within trucking distance of the Sleeping Giant mine. A scoping study in August 2008 looked at the potential for Discovery to produce 44,000 oz. gold per year over a four-year mine life. North American has recently filed an environmental impact study and applied for a mining licence so it can continue to advance Discovery.

North American shares were down 3¢ today to $5.27 on a trading volume of 272,000 shares.