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

Chalice Mining Project Summary

Key Concepts

• Chalice Mining is developing a significant palladium-nickel-copper project in Western Australia, currently at the Pre-Feasibility Study (PFS) stage, with a current MPV (at 8% discount rate) of A$1.4 billion, potentially rising to A$3.3 billion at current spot prices.
• The project benefits from a shallow, surface deposit allowing for open-pit mining, lower operating costs, and poly-metallic revenue streams.
• Palladium supply is highly concentrated in Russia and South Africa, creating geopolitical vulnerabilities and a supply deficit exacerbated by hybrid vehicle demand.
• A staged development approach and strong financial metrics, even under conservative price scenarios, are central to the project’s viability.
• Strategic partnerships, particularly with Mitsubishi Corporation, are being pursued to secure offtake agreements and funding.

Project Overview & Discovery

Chalice Mining is advancing a leading palladium-nickel-copper project in Western Australia. Discovered in 2020, the deposit is unique for starting at surface, enabling open-pit mining. The project’s current MPV is A$1.4 billion (at an 8% discount rate) with an IRR of 23%, but this is significantly impacted by recent price increases, now estimated at A$3.3 billion MPV and 40% IRR at current spot prices. The company is currently undertaking a Bankable Feasibility Study (BFS) following a re-evaluation of the initial PFS design to simplify the flowsheet and reduce capital expenditure.

Company Leadership & History

Alex Dorsch, Managing Director and CEO, brings 15 years of industry experience, including roles at BHP’s Olympic Dam, in oil and gas, and at McKinsey. He joined Chalice in 2017 when it was a small company (40 million market cap, 5 employees) and has led its development to the current PFS stage.

Palladium Market Dynamics & Supply Constraints

Palladium prices have experienced significant volatility, rising from a low of $880/oz to around $1,800/oz currently, though still below the 2022 peak of $3,400/oz. Approximately 90%+ of palladium supply originates from Russia and South Africa, making the market vulnerable to geopolitical tensions. A resurgence in hybrid vehicle demand, coupled with slower-than-anticipated full electric vehicle adoption, is creating a strong deficit in palladium and platinum. Existing operations in Russia and South Africa are aging, deep underground mines with narrow ore bodies, making production maintenance challenging and limiting investment in new supply. Palladium is roughly one-tenth as abundant as gold, further restricting new discoveries.

Chalice’s Competitive Advantages

Chalice’s project offers several competitive advantages: a surface deposit allowing for open-pit mining and reduced capital expenditure; projected all-in sustaining costs of $370/oz (compared to $900-$1800/oz in South Africa); a poly-metallic nature with revenue diversified between precious metals (55-60%) and base metals (45-50%); a target second quartile cost position; and high-grade material in the first four years of production driving strong early cash flow. Lower mining costs are projected at $3-5/ton compared to $80-200/ton in South Africa.

Metallurgical Confidence & Demand Drivers

Chalice has invested $15 million in metallurgical test work, including 33 dedicated metallurgical holes, to understand deposit variability and de-risk the process, adapting techniques from Canadian poly-metallic deposits. Palladium is primarily used in catalytic converters (approximately 9 million ounces/year market), but increasing demand is emerging from the electronics industry (AI data centers) as a substitute for gold. While platinum can substitute palladium in catalytic converters based on price incentives, palladium is preferred in gasoline engines due to higher operating temperatures. The slower-than-anticipated transition to electric vehicles supports continued demand for palladium in hybrid vehicles.

Funding Strategy & Infrastructure

Chalice has $75 million in cash and is targeting a funding split of 50-70% debt and 30-50% equity for the A$820 million stage one capital requirement. They are actively engaging with potential lenders, including sovereign wealth funds and credit agencies. The project benefits from proximity to Perth and existing infrastructure, reducing infrastructure costs to approximately A$200-250 million. Land acquisition has been completed to mitigate permitting risks. Western Australia’s economic context is favorable, with a strong gold sector and manageable escalation costs.

Strategic Partnerships & Risk Mitigation

A key partnership with Mitsubishi Corporation is being developed, leveraging their global PGM trading expertise and existing investments in Australian mining. Mitsubishi actively participated in the PFS input assumptions, demonstrating due diligence. The company has adopted a staged, two-stage open pit process to mitigate downside risk related to metal price fluctuations. The project maintains a positive NPV, IRR, and viable payback period even under “absolute bottom of the cycle” price scenarios. The company acknowledges the cyclical nature of commodity prices (“the cure for low prices is low prices”) and does not intend to hedge price exposure.

Future Deliverables & Exploration

Deliverables for 2026 focus on progressing to a BFS and Final Investment Decision (FID). Key activities include securing funding, completing permitting submissions (regulatory review expected in the second half of the year), optimizing mine and plant design, and continuing exploration across a large land holding (approximately 30-40 prospective targets) to identify additional deposits. Exploration is led by an “elite group of Greenfield explorers” targeting analogous deposits and Bodington-type gold-copper systems.

Conclusion

Chalice Mining is developing a strategically important palladium project in Western Australia, capitalizing on a constrained global supply and favorable geological conditions. The company’s focus on a staged development, cost control, and strategic partnerships, combined with a bullish outlook on the PGM market, positions it for success. Ultimately, the company emphasizes that successful “execution” will be the primary driver of value creation.