U.S. investors back Sheridan despite Madeleine uncertainty

One of Madeleine Mines’ (TSE) biggest shareholders is satisfied the company’s Lac des Iles palladium project near Thunder Bay, Ont., is progressing into production even though it has not met early deadlines set by President Patrick Sheridan. “It doesn’t disturb me that the company’s timetables are not being fulfilled,” said George Kaiser, president and chairman of Oklahoma-based Kaiser Francis Oil, Co., the fifth largest privately owned natural gas producer in the U.S. Sheridan said the property would be in production by June, 1988 (T.N.M., March 14/88).

Like other U.S. shareholders who have bought into Madeleine because it can earn 50% of the largest palladium/platinum deposit discovered outside South Africa, Kaiser has heard that startup may be delayed by Ontario’s strict environment rules.

According to Howard Mortfield, a government environmental officer assigned to the project, construction at Lac des Iles is continuing and the orebody has been marked out. But he said the ministry hasn’t yet received applications for mining permits which could take several months to approve.

“The bottom line is that the company is well aware of what is required and it’s up to them now,” he said. “They can’t operate without the permits.”

But Kaiser says timing was never a vital factor in his decision to buy the stock. “To me the critical element is whether the metal yield and recoveries have been correctly assessed,” said Kaiser, who owns 1.4 million Madeleine shares, representing a 12% interest.

He made an initial investment back in December, 1988, when Madeleine was trading at around $2. Since then, some bullish recommendations from the New York brokerage firm Ladenburg, Thalmann have combined with developments in the platinum industry to drive the shares up to a high of $9.75.

With reserves in the Roby zone at Lac des Iles standing at 22.6 millon tons of polymetallic ore averaging 0.19 oz. per ton platinum/ palladium, Lac des Iles could rank as only the third orebody in the world to be mined primarily for its platinum group metals.

“Assuming a 7-to-1 ratio in palladium/platinum values and if palladium is priced at US$129 per oz. and platinum at US$488, we could be looking at a deposit having a present undiscounted net pretax value of nearly US$7 billion or US$388 per share,” said Ladenburg, Thalmann analyst Andrew Brichant.

An open pit operation is contemplated for the project which should make mining costs lower than existing platinum/palladium producers which are underground operations. There are also significant nickel and copper values included in ore reserves.

Kaiser says he has never met Sheridan, and he has no plans to visit the mine. “I have heard the comment that promises have been made and not fulfilled and that the president has exasperated other people in the Canadian mining industry,” Kaiser told The Northern Miner recently. He was referring to Sheridan’s reluctance to be interviewed on the subject and his prediction that the mine would be producing concentrates by June, 1988. Sheridan wasn’t available for comment.

When he bought into Madeleine, Kaiser says he acted on the advice of an Oklahoma-based Merrill Lynch broker who visited the site along with a group of 60 analysts and geologists, March 9.

According to the broker, who asked not to be identified, U.S. investors, including some institutional buyers are following the company’s progress for the following reasons:

With the exception of Manville Corp.’s Stillwater mine in Montana, Lac des Iles is the only North American platinum and palladium project available to investors. “The project has been developed without the help of a joint venture partner and therefore Madeleine can’t get squeezed out by a lawsuit,” the broker said.

Madeleine is earning a 50% interest in the Lac des Iles property from a private firm, The Sheridan Platinum Group, which is 90% owned by Boston Bay Mines (COATS) and 10% by Sheridan.

As Madeleine is debt-free, it isn’t likely to lose the project to nervous bankers and the company is listed on a widely recognized stock exchange. “Although there is a speculative feature to it, the project appears to be genuine,” said Kaiser.

While the price of platinum dropped from US$604 to US$534 per oz. in late 1988 when the Ford Motor Co. announced that it had developed a catalytic converter that wouldn’t require the use of platinum, demand for the metal is high. A $1-billion agreement between General Motors and the Soviet Union, under which GM will supply fuel emission equipment to Volga Autor Works, is viewed as positive for platinum. The metal traded recently at US$491.75 per oz.

Whether or not Madeleine can bring its mine into production in time to take advantage of any future upswings in metal prices depends in part on its ability to satisfy Ministry of Environment officials in Thunder Bay that it can operate under Ontario’s environment laws.