North American Palladium (NAP) announced in mid-August 2010 it is proceeding with underground development of the Offset Zone at its Lac des Iles mine north of Thunder Bay, Ontario. When commercial production is achieved in 2012, the zone is expected to produce more than 250,000 oz/y of palladium, up from 140,000 oz/y currently being produced from the Lac des Iles underground Roby Zone. Life-of-mine production from the Offset Zone is currently estimated at 1.6 million oz of palladium.

A 6-m-diameter, 1,300-m-deep production shaft will be the primary development requirement to support Offset Zone production. A ramp from the Roby Zone through the upper part of the Offset Zone is accessing the shaft location 690 m below surface, and the upper portion of the shaft will be raise bored from that point. The raise boring is scheduled to start in November 2010. Sinking of the lower section of the shaft is planned to begin in the third quarter of 2011.

NAP based its development decision for the Offset Zone on a scoping study completed by P&E Mining Consultants and Scott Wilson Roscoe Postle Associates, with input from other consulting firms, including Nordmin Engineering and Xstrata Processing Support. “With Lac des Iles running smoothly and $150 million in cash and no long-term debt, we are financially well positioned to fund the pre-production capital expenditures of C$204.1 million for the Offset Zone,” NAP President and CEO William J. Biggar said. Ongoing development after commercial production is reached will require additional capital expenditures of about C$71 million.

Mining in the Offset Zone will be based on a shrinkage blast-hole stoping method called super shrinkage, with sub-levels at nominal 65-m intervals. Based on this method, stoping panels will 60 m long, and 10-m rib pillars will be left behind. No backfilling is anticipated. Mining recovery is expected to be better than 90%, and mining dilution is expected to be 10%, grading 3 g/mt palladium.

The Offset Zone ore also contains platinum, gold, copper and nickel. Based on current resources, life-of-mine production is expected to include 97,000 oz of platinum, 85,000 oz of gold, 17.3 million lb of copper and 8.5 million lb of nickel.

The Offset Zone ore will be processed at the existing Lac des Iles mill, where no material changes will be required. The Roby Zone ore is currently being processed at the mill at palladium recoveries approaching 82%. Modifications to the grinding circuit are being made, and management is confident that palladium recoveries can be increased to 84% in the future. XPS has recently completed a metallurgical study of both Roby and Offset ore that shows the ores are compatible and can be processed together. It also shows a palladium recovery of 86%.

The scoping study highlights that there is significant upside potential from continued exploration of the Offset Zone, which remains open in all directions. In particular, there is potential to upgrade resources in the lower mine block and to extend the zone south, where an additional lens of inferred resources was modeled. The resource estimate used for the scoping study does not include the parallel Cowboy and Outlaw zones that were intersected in 2009.