The Julimar Mineralisation and the Oil Price
by David Archibald
12 July 2023
Chalice Mining (CHN) announced the discovery hole of the Julimar platinoid deposit near Perth three years ago. The first hole encountered 25 metres at 8.5 g/t palladium, 2.0% nickel, 0.9% copper, and 0.11% cobalt from 46 metres. The contained metal value of that intercept is US$874 per tonne.
Chalice drilled the deposit out like Swiss cheese but not much more high-grade was found. The deposit now stands at 560 million tonnes with an insitu value of the contained metal of US$82 per tonne. But it gets worse. The metallurgy of palladium deposits can be problematic and the recovery factors of palladium and nickel at Julimar are only 60% and 45% respectively, reducing the recovered value per tonne of ore to US$45. And it gets worse again because smelters generally pay miners only 70% of the value of the metal content of the concentrates they produce. So that US$45 per tonne in the ground becomes US$32 per tonne in the hand for the mining company.
This is unlikely to cover operating costs and the capital charge. There are some higher grade patches of ore scattered through the deposit, but these will be costly to mine selectively. In effect the Julimar deposit is mineralisation, not an orebody.
The board of Chalice when it found Julimar may have come to that conclusion and resigned so that they could sell stock without having to announce those sales to the ASX. A lifeboat, Falcon Metals, was floated out as vehicle for directors who wanted to continue in corporate life. There is exploration potential on trend from Julimar but now, after three years, the best of these prospects have been drilled and nothing dramatic has been intersected.
Chalice has a market capitalisation of $2.3 billion and is 0.14% of the total Australian market capitalisation. If the Julimar deposit doesn’t have a positive net present value, then the market is paying $2.3 billion for Chalice’s exploration potential.
And what is happening to oil supply suggests that Julimar’s economics will deteriorate further. A month ago a French oilman, Jean Laherrere, now on his 93rd solar orbit, produced this graph of 200 years of US oil production:
The X axis is annual production in exajoules. Current US oil production is 12.6 million barrels per day, three quarters of which is tight oil production. World peak oil production was supposed to happen in 2005. What happened was that tight oil production took off and became the only source of supply growth for over a decade as the world’s economy continued to grow. World peak oil production occurred in 2018.
Laherrere’s forecast, consistent with experience of unconstrained extraction of a resource, has US oil production falling by half a million barrels per day each year between 2025 and 2040. The US will flip from being the only source of supply growth to the biggest source of decline. Adding to that effect will be the end of sales from the US Strategic Petroleum Reserve. The Biden regime has been selling down the reserve for no good reason at the rate of 450,000 barrels per day, effectively adding that amount to world oil supply:
When that selling stops, as it must do when the reserve runs out, world oil markets will tighten further. If the US Government complies with its own legislation and rebuilds the reserve, that will tighten markets again. The Republicans can’t complain about selling down the reserve because sales began during the Trump administration, when the idiotic notion that tight oil was a boundless cornucopia held sway.
China has been stockpiling 741,000 barrels of oil per day so far in 2023. Stockpiling oil is something you do before going to war. The Biden regime’s sell down of the US Strategic Petroleum Reserve has made the Chinese stockpiling cheaper to execute.
The significance of the tightening oil market that is upon us is that it will suck the life out of the rest of economy and lower our standard of living. Renewables won’t save us because renewables are made from plastic derived from oil and energy from coal. The power actually produced by wind and solar is too expensive to make more solar panels and wind turbines.
The short term solution to this problem will be converting coal to liquid fuels using the Bergius process. The long term solution will be adoption of plutonium breeder reactor technology as our major power source, and using hydrogen from electrolysis to make synthetic diesel and petrol. The economics of completely recycling electric vehicle batteries have yet to be determined. It is likely that synthetic diesel is the better medium for storing and utilising power from nuclear reactors.
David Archibald is the author of The Anticancer Garden in Australia.
