Chalice Mining (ASX:CHN) – Why Gonneville Could Reshape Global Palladium Supply

My name is Alex Dorsch. I'm the managing director and CEO of Chalice Mining, based on the ASX here in Perth. We're the developer of the leading palladium, nickel, copper project in the Western world. It's a PFS stage project, a project that we discovered, or a deposit that we discovered back in 2020, and it's certainly one of the higher profile critical minerals projects here in Australia. So an interesting, an interesting project and company.

Yeah, so I've been in the industry for about 15 years. I started my career, I'm a mechanical engineer, finance background, started with BHP at the Olympic Dam, and then went into the oil and gas sector for about seven years in the onshore and offshore drilling space, and then worked at McKinsey as a consultant, sort of to resources companies, typically looking at their exploration and development functions. And then I was fortunate enough to get involved with Chalice in 2017 after having a fortuitous meeting with the founder. And back then it was a very small company, about five employees, about 40 million market cap. And we were lucky enough to come across a major greenfield discovery in 2020. So I've led the company from 2018 through to today. So I've been with the company about eight years, and we've taken a greenfield discovery and sort of taken it all the way through to a prefeasibility study and, you know, onwards to FID and ultimately construction in the coming years.

Yeah, so palladium came off a low of sort of $880 US an ounce about seven or eight months ago. At the moment, around about $1,800 an ounce. So it's been a pretty prolific lift in prices over the last six, seven months. It's not quite at its record high yet. The record high was about 3,400 US an ounce back in 2022. That was sort of shortly after the Russian invasion of Ukraine. So palladium is a Russian, South African dominated metal, sort of 90 plus percent of the current supply comes out of those two jurisdictions. So when there is geopolitical sort of tensions, particularly with Russia, that's caused a lot of angst in supply chains in the past, and it can send prices exceptionally high. And I guess in the last six, seven months, what we've seen is not only has supply been very, very challenged, particularly in South Africa, but we've seen a resurgence really from the hybrid vehicle sector, where the sort of perceived electrification of the transport sector has happened far, far slower than what people have anticipated, and that's put platinum and palladium in strong deficit conditions, which is obviously reflected in the price.

Yeah. So Russia accounts for about 40% of the palladium market. South Africa pretty much the balance, small amount from Zimbabwe. Essentially, they are, you know, operations that have been in production for multiple decades. And so they've, you know, very much aging sort of mature assets, very, very deep underground mines. In the case of South Africa, sort of very, very narrow reef style mining. So these are challenging operations to maintain and maintain production. And certainly where you see periods of higher prices, you don't see a lot of supply investment as well. So part of the reason there is that there's just not a lot of deposits around, there's not a lot of projects in the PGM space whatsoever. So they're, you know, something like a tenth of the abundance of gold in terms of how many deposits there are globally. So there's not a lot of supply options. So typically when you see elevated prices, prices can stay high for several years because there's really no sort of supply response to high prices typically. And we're very fortunate, we've got sort of one of the few near-term development options in palladium, and almost all the other projects globally reside in either Russia or South Africa. So it's quite a complex dynamic geopolitically.

Yeah, so they are typically big capital projects and sort of long-term projects. So if you take, for example, the most recent development is a project called Platreef by Ivanhoe Mines. You know, it's a multi-billion dollar capital project, several years to sink a shaft down to about 800 meters to the top of the ore body, and then a, you know, a very elongated process of ramping up to a production level, an ultimate production level. We've got a slightly different situation in that our deposit starts at surface. So we'll be going into an open cut mining operation later this decade. So we're looking at sort of constructing the project in '28, '29. The fact that our mineralization and the ore body starts at surface is a huge advantage, right? Because you effectively just need to build a process plant, the necessary infrastructure, and then you can be straight into actual production and cash flow. So we've got a huge advantage relative to pretty much every other project globally. There's really no other open pitable deposits. And then from a cost perspective as well, even though our deposit is lower grade than those deep underground mines, our mining costs are, you know, an order of magnitude lower than what you see in South Africa. Because when you're obviously dealing with extreme depths and narrow underground mining, you can be sort of looking at mining costs of sort of 80 to 200 US a ton. We'll be looking at mining costs in the order of sort of three to five US dollars a ton. So it's very, very competitive and a huge advantage for us, and that secures what we know now with our PFS is predicting a second quartile cost position in the cost curve. The Russians operate at around about $300 an ounce. We're going to be operating at around about the same level, around $370 an ounce per 3E ounce produced, and we're going to be, you know, operating an open cut mine over an initial 23-year mine life. So it's a great place to be to secure, you know, bottom of the cost curve position. And that really puts, you know, our asset in a league, you know, a leg of its own relative to other development projects out there.

Yeah. So palladium is about a 9 million ounce a year market, and almost all of that is consumed in catalytic converters. What's probably less spoken about is, I guess, the more exciting sort of demand side is as gold has obviously gotten much, much more expensive over the last 12 months or 18 months, that, you know, the electronics industry, the AI data center demand starts to sort of pivot away from gold into sort of other conductive materials. And obviously that's been very, very beneficial for silver, but palladium is the other real, you know, metal that's used in those sort of advanced circuitry electronics types applications. So it's a small market relative to gold, obviously an order of magnitude smaller. And I think the consensus over the last few years has been that electrification of the transport sector, the move to electric vehicles, was going to destroy palladium demand because you weren't going to require an internal combustion engine. And I think what we've seen is, you know, customers and sort of consumers in the Western world in particular, in the face of, you know, sky-high electricity prices, cheap oil prices, but also better resale value on a hybrid or a nice vehicle. Consumers just haven't been ready for the full electric transition. So that really underpins that sort of next 10, 20 years worth of palladium demand because we can see that the transition to fully electric transport is going to take, you know, is going to be a multi-decade transition. And indeed, there's probably some parts of the transport sector that ultimately just stay on hybrid. They just have those specific applications or they're in areas where they need the range of the engine. They need those, you know, those geographical sort of constraints come into play. So we think, you know, hybrids are here to stay for considerably longer than, I guess, the market consensus. And I think the pace at which the narrative has changed for PGMs and particularly, you know, platinum and palladium, it's been driven by that realization that a fully electrified transport sector or trying to electrify the 1.4 billion, you know, light vehicles on the planet is a considerable task and it's something that's going to take, you know, a very, very long time. So, and I think we've seen that with the EU, you know, with their decision there in December to walk away and abandon their ban on internal combustion. We can see pragmatism sort of coming in through, you know, various Western governments that they're realizing that we're going to need hydrocarbons and hybrid vehicles for a long time.

Yeah. So there's sort of a pecking order in terms of all the metals that can catalyze emissions and facilitate those emissions reduction in an engine. So rhodium is considered, I guess, the top of the pyramid, that rhodium is the best catalytic metal, sort of palladium number two, platinum number three. Platinum is substituted where possible and if there is a price incentive to do so. So previously, sort of through the period of 2019 to 2023, palladium was trading at a significant premium to platinum at some points, you know, two or three times the value of platinum. So there was a big push by the industry to bring as much platinum into catalytic converters as possible. Rhodium, for example, went from 4,000 US dollars an ounce to 30,000 US an ounce over the course of several years there around COVID. And so, you know, there is those attempts to try and, you know, find and thrift and use the, you know, the cheapest possible materials to affect the catalytic reactions and achieve the emissions reduction, but ultimately there are limits to what these manufacturers can do. So it's quite a secretive space. The manufacturers obviously don't disclose a lot about what metals and what ratios they use. And that's for good reason, right? Because obviously it's a game of trying to thrift better than all the other competitors building catalysts out there. And obviously if everyone behaves the same and uses the same ratios, those metals can go from being, you know, in small surpluses to being in extreme deficits. And then all of a sudden all their good work in thrifting can be, you know, can be unwound by prices, you know, going into sort of extreme high territory. So we saw that with rhodium and palladium in sort of 2020 through 2022, that those metals were just in very, very significant deficit and, like I said, they reached sort of record highs very, very quickly. So, yeah, so I think, you know, there is ultimately sort of three primary metals that can achieve the use case or the application. But palladium is, there's roughly 50% more palladium going into vehicles than there is platinum. So if you think about it from those terms, you know, for every one ounce of platinum going into a catalytic converter, there's one and a half ounces of palladium. And so that's been sort of typically the ratio over the longer term in hybrid vehicles. Hybrid vehicles, you're typically seeing vehicle manufacturers preferencing petrol. And so wherever you've got a petrol engine, typically you see a palladium dominant or palladium rhodium dominant catalyst in those vehicles. And that's because petrol engines just operate at a higher temperature that platinum struggles to operate under. So there's several advantages and that's why I say there's a bit of a hierarchy in terms of how useful the metals are in those applications. And obviously there's a geopolitical element as well. South Africa has almost an exclusive dominance over platinum, whereas palladium has, you know, a Russian element to it. You know, Russia is really the dominant producer in palladium.

Yeah. So, like I said, we outlined in December a 23-year open pit mine operation, headline NPV at an 8% discount rate of 1.4 billion Australian dollars, IRR of 23% at our base case prices. Prices are now up sort of between 40 and 50% from those levels from where we were in December. So we're now looking at a pre-tax NPV8 of about 3.3 billion Australian dollars. So that's an uplift from 1.4 to 3.3 billion, which shows the leverage that a large, you know, open cut operation like ours will have. And IRR today at spot prices around about 40%. So it's an increase from 23 to 40%. So it's quite phenomenal sort of the leverage you get, you know, from a mining project like this. So from an investor's perspective, you can see, you know, Chalice trades, you know, very well linked or very closely to movements in palladium primarily, but also nickel and copper make up about 35 to 40% of our revenues. So we are somewhat linked to those base metal markets as well. And those have obviously been very strong markets in the last six months as well. Sort of copper's at a record high around 13,000 US a ton at the moment. Nickel sort of rebounded off a very low base of around 14,000 US a ton, currently around $18,000 US a ton. So, you know, we're unique in that perspective because other operations are typically, you know, very much PGM dominated or they are nickel or copper dominated or, you know, base metals dominated. We are the true sort of hybrid between the two where we're about sort of 55, 60% precious and 45, 50% base metals.

Yeah, look, I think we've always had a development plan to build the project in two stages. Sort of take a more modest stage one approach, something that, you know, Chalice can fund alone, you know, without stretching sort of debt equity markets and then really scale up into a true tier one type of production profile. So with the 2023 scoping study, you know, we saw, you know, much, much higher prices than where we are today and what we've seen in 2025. So we, you know, sort of designed the project at a larger scale. We saw metals prices pull back considerably and that obviously hurt us because we were sort of leveraged the wrong way. On top of that, we had a flow sheet which involved a lot of complexity and we were sort of forced into a complex flow sheet, particularly on the nickel side really, because we couldn't create a nickel product that would be, you know, salable without doing further sort of hydrometallurgical treatment. So in 2023 we were punished a bit by the market around those two things being sort of too large in scale but also having a flow sheet which wasn't quite right. So in '24 and '25, we really reset the flow sheet. We went back to the drawing board and worked out how to get just a simple concentrator and leach plant to deliver salable products. So we're not using any sort of, you know, further downstream processing or anything like that. So we've taken a lot of the upfront capital away and a lot of the operating costs away by simplifying the flow sheet and producing initially simpler products. So it doesn't mean to say we can't, you know, bolt on more processing on this project over the longer term, but really to get into business, we've now got a sizing and a flow sheet configuration that can be executed quite simply. And those products that we produce, which will be a copper concentrate, a nickel concentrate, and a PGM doré, they're all very much commercially standard products. So we don't need to rely on sort of these unproven sort of downstream technologies. We don't need to rely on the South African downstream sector to process our PGM products. We're basically producing base metal concentrates that are useful and processable by standard copper and nickel smelters.

We've been fortunate that, you know, we made the discovery in a very, you know, bullish market environment. We were able to raise $325 million Australian dollars and that's meant we've been able to invest considerably in de-risking the flow sheet, the metallurgical performance. We spent about $15 million on metallurgical test work. So that's, you know, compared to other junior projects out there in the nickel space or the PGM space, you know, it wouldn't be unusual to see half a million spent or $1 million spent on test work to get to a PFS. We've spent $15 million. So we've done orders of magnitude more test work. We've done a lot more variability work as well across the deposit. We've drilled 33 dedicated metallurgical holes to make sure that every corner and every sort of domain, every geomet domain within the deposit is adequately tested. And so we understand that variability point much better than I think the market acknowledges. There are complexities to nickel sulfide systems just like there is complexities to chromite reef PGM deposits in the Bushveld. We're eyes wide open to that and that's why we've made such a considerable investment in sort of de-risking that through the feasibility study which we've now kicked off. You know, there'll be further work on that, really piloting that process end to end. So we will have sort of a continuous pilot which will then be able to provide sample to each of the smelters that we're talking to. And all of those things combined alongside all that PFS test work, you know, gives us a huge amount of confidence that, you know, the outcomes that we've presented in that study are absolutely real. They're absolutely, you know, replicable in full-scale operations.

I think the big one for us is we've sort of now, we've gone from optimizing the scoping study at very high prices to optimizing the PFS at very, very low prices. So probably there's a middle ground optimization there to do. Obviously if prices increase, all the optimizations in the process plant and in the mine plan can adapt to, you know, to higher prices. So things, for example, blocks of material that was previously considered waste potentially becomes economic at higher prices. So the nature of having a large, you know, polymetallic low-grade disseminated deposit is that the grade tonnage curve is steep, you know, at the economic cutoff point that we're looking at. So as prices go up, we will bring more and more material into the mine plan, more and more material become economic. So you see this sort of thing in large porphyry copper projects, for example, in South America, where, you know, they can be mined for 20 years and after 20 years of mining they still have exactly the same size resource and reserve as where they started, you know, 20 years prior. And it's not really because they've drilled more, it's because prices have increased and therefore more material becomes economic to process. So there is a margin, you know, on blocks of ore that previously wasn't there at lower prices. So that's part of the optimizations we're doing at the moment is that we've sort of come from a PFS which is optimized very much at the bottom of the cycle. Now we can look at sort of less conservative prices to re-optimize at, and that we think will bring in a lot more material into the mine plan, but it'll also incentivize, for example, increased reagent consumption in the plant. You can chase more recovery and have a higher opex, and at higher prices obviously that's a trade-off worth taking because your increase in recovery will outcompensate the increase in operating costs, for example. So there's lots of things there that these are inherent optionality in a large, you know, poly-metallic deposit like ours. You don't see that sort of optionality in a small-scale underground mine. You don't see that, you know, in a typical mining deposit. So, yeah, our project really has a degree of optionality and a degree of flexibility to metals prices that is quite unusual.