North American Palladium Ltd.
TSX : PDL
OTC PINK : PALDF

North American Palladium Ltd.

November 03, 2016 17:40 ET

North American Palladium Announces Third Quarter 2016 Results

TORONTO, ONTARIO--(Marketwired - Nov. 3, 2016) -

All figures are in Canadian dollars except where noted.

North American Palladium Ltd. ("NAP" or the "Company") (TSX:PDL)(OTC PINK:PALDF) today announced financial and operational results for the three months ended September 30, 2016 from its Lac des Iles palladium mine ("LDI") in northwestern Ontario.

Q3 2016 Results Summary

  • Adjusted EBITDA(1) for the quarter was $10.1 million compared to $9.1 million for Q3 2015. Revenue was $48.5 million, compared to $64.7 million in Q3 2015.
  • Produced 33,165 ounces of payable palladium at an All-Inclusive Sustaining Cost(1) ("AISC") of US$ 784 per ounce compared to 57,914 ounces of palladium in Q3 2015 at an AISC(1) of US$ 561 per ounce. The higher palladium production in Q3 2015 was primarily due to the processing of the stockpile of high grade underground ore resulting from the mill shutdown in the second quarter of 2015 due to water balance issues.
  • Underground mining operations produced 3,791 tonnes per day of ore at a grade of 3.3 g/t palladium, compared to 3,877 tonnes per day in Q3 2015 at a grade of 4.1 g/t palladium. The lower tonnes and grade in the current quarter are due to the ongoing challenges of removing the remnant sill and rib pillars as the mine transitions to a sublevel shrinkage mining method.
  • The LDI mill processed 520,002 tonnes of blended feed at an average grade of 2.5 g/t palladium with an 81.1% recovery rate, compared with 659,817 tonnes at an average grade of 3.6 g/t palladium with a recovery rate of 83.4% in Q3 2015.
  • Invested $10.9 million in the current quarter and $40.0 million year to date in capital expenditures, principally related to the expansion of the tailings management facility and ongoing capital development underground.

Commenting on the third quarter results, Jim Gallagher, the Company's Chief Executive Officer stated, "The improved EBITDA this past quarter compared to last year despite lower revenues is the result of a significantly improved operating cost structure following the recapitalization in August of 2015. The transition to the new sub-level retreat mining method is progressing as planned; however, the remnant mining from the previous method continues to be a challenge. These challenges confirm that changing mining methods is the right decision but requires us to lower our guidance for the year."

Financial Update(2)

Q3 2016 Quarter-End Results

Revenue for the quarter ended September 30, 2016 was $48.5 million compared to $64.7 million in the third quarter of 2015. The higher revenue in Q3 2015 was primarily due to additional metal units produced from stockpiled high grade underground ore. During the third quarter, the Company realized an average palladium selling price of US$617 per ounce, compared to US$667 per ounce realized in Q3 2015.

Net loss for the quarter was $1.6 million, or $0.03 per share, compared to a net loss of $68.5 million or $2.18 per share in Q3 2015. Adjusted EBITDA(1) was $10.1 million in Q3 2016, compared to $9.1 million in Q3 2015. The increase in Adjusted EBITDA(1) was primarily due to lower operating costs.

Financial Liquidity

As at September 30, 2016, the Company had cash and cash equivalents of $9.0 million and US$ 15 million available to draw under the secured term loan. Availability under the Company's US$ 60 million credit facility is dependent on a borrowing base calculation and as of September 30, 2016, US$2 million was available. Subsequent to the quarter, US$5 million was drawn under the secured term loan and US$1.5 million was drawn under the credit facility.

Lac des Iles Operations

The Lac des Iles mine is currently transitioning from a large open stope blast hole mining method to a variation of sub-level cave mining where ore is extracted from progressively lower production levels of the mine and waste fill is introduced to the top of the production zone. The method is referred to as sub-level shrinkage ("SLS") and is expected to reduce the issues the mine has been experiencing with seismicity and lead to more consistent production throughput. The east tailings facility raise was completed during the quarter and is currently in use. The new water management facility was completed subsequent to the quarter end and is currently being commissioned. There were some project cost and schedule overruns associated with the water management facility. The Company is in discussions with the third party contractor to resolve these outstanding expenses.

Detailed engineering of future tailings management facilities is ongoing and is taking into consideration site conditions encountered during the recent construction season as well as recently revised guidelines and regulations for tailings facilities. This has the potential to extend the scheduling and permitting process and as such the Lac des Iles site will remain on a two week on, two week off batch schedule and will not return to a full time continuous mill run until this process is further advanced.

The mill processed 520,002 tonnes during the quarter consisting of a blend of underground ore and surface low grade stockpiles, resulting in a blended head grade of 2.5 g/t and mill recoveries of 81.1%.

Ongoing challenges of removing the remnant sill and rib pillars as the mine transitions to a sublevel shrinkage mining method will impact year end production and as such, the production guidance for 2016 of between 160,000 to 175,000 payable ounces is revised to between 150,000 to 155,000 ounces.

Exploration

Exploration expenditures in the third quarter of 2016 were $1.0 million. Activities were focused on conversion drilling of the B2 Zone and included 8 holes and 2,002 metres. In addition, 5,061 metres of definition drilling were completed in the quarter, which was focused on the Offset Zone. Selected B2 Zone drilling highlights include:

HOLE # ZONE From (m) To (m) Length (m) Pd (g/t)
16-704 B2 2.0 10.0 8.0 5.49
" " 95.0 186.0 91.0 3.77
16-707 " 312.0 320.0 8.0 4.51
16-711 " 210.0 226.0 16.0 4.06
" " 172.0 189.0 17.0 5.40
16-713 " 117.0 128.0 11.0 3.66
inc. " 117.0 120.0 3.0 5.61
16-714 " 129.4 162.0 32.6 3.79
inc. " 130.9 143.0 12.1 4.91
16-717 " 225.0 232.0 7.0 4.14

The reported interval lengths are estimated to represent 50 to 95% of the true width.

The B2 zone is a vertical, cylindrical-shaped mineralized zone with a minimum height of 350 metres and an average diameter of approximately 75 metres. It was discovered in 2014 and is a separate structure from the existing Roby and Offset zones. The top of the zone is located approximately 200m south of the Roby underground mine infrastructure. The bottom of the zone, as it is currently defined, is located approximately 100m from the rockbreaker station in the Offset underground mine. Commercial production from the B2 zone is expected to commence in Q3 2017. A new resource estimate for this zone will be included in the Company's next comprehensive reserve and resource update and 43-101 Technical Report on the LDI property planned for release in Q2 2017.

Technical Information and Qualified Persons

Dr. Dave Peck, the Company's Vice President, Exploration and a Qualified Person under National Instrument 43-101, has reviewed and approved all technical items disclosed in this news release.

About North American Palladium

NAP is an established precious metals producer that has been operating its Lac des Iles mine ("LDI") located in Ontario, Canada since 1993. LDI is one of only two primary producers of palladium in the world, offering investors exposure to palladium. The Company's shares trade on the TSX under the symbol PDL and on the OTC Pink under the symbol PALDF.

Notes:

(1) Non-IFRS measure. Please refer to Non-IFRS Measures in the MD&A.
(2) NAP's consolidated financial statements for the quarter ended September 30, 2016 are available in the Appendix of this news release. These financial statements should be read in conjunction with the notes and management's discussion and analysis available at www.nap.com and www.sedar.com.

Cautionary Statement on Forward-Looking Information

Certain information contained in this news release constitutes 'forward-looking statements' within the meaning of the 'safe harbor' provisions of Canadian securities laws and the United States Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. The words 'target', 'plan', 'should', 'could', 'estimate', 'guidance', and similar expressions identify forward-looking statements. Forward-looking statements in this news release include, without limitation: information pertaining to the Company's strategy, plans or future financial or operating performance, such as statements with respect to, long term fundamentals for the business, operating performance expectations, project timelines, production forecasts, operating and capital cost estimates, expected mining and milling rates, cash balances, projected grades, mill recoveries, metal price and foreign exchange rates and other statements that express management's expectations or estimates of future performance. Forward-looking statements involve known and unknown risk factors that may cause the actual results to be materially different from those expressed or implied by the forward-looking statements. Such risks include, but are not limited to: the possibility that metal prices and foreign exchange rates may fluctuate, the risk that the LDI mine may not perform as planned, that the Company may not be able to meet production forecasts, the possibility that the Company may not be able to generate sufficient cash to service its indebtedness and may be forced to take other actions, inherent risks associated with development, exploration, mining and processing including environmental risks and risks to tailings capacity, employment disruptions, including in connection with collective agreements between the Company and unions, the risks associated with obtaining necessary licenses and permits and uncertainty regarding the ability to consummate the Recapitalization. For more details on these and other risk factors see the Company's most recent Annual Information Form on file with Canadian provincial securities regulatory authorities.

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions contained in this news release, which may prove to be incorrect, include, but are not limited to: that the Company will be able to continue normal business operations at its Lac des Iles mine, that metal prices and exchange rates between the Canadian and United States dollar will be consistent with the Company's expectations, that there will be no significant disruptions affecting operations, and that prices for key mining and construction supplies, including labour, will remain consistent with the Company's expectations. The forward-looking statements are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise, except as expressly required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.

Condensed Interim Consolidated Balance Sheets
(expressed in millions of Canadian dollars)
(unaudited)
September 30 December 31
2016 2015
ASSETS
Current Assets
Cash and cash equivalents $ 9.0 $ 11.2
Accounts receivable 55.8 51.4
Inventories 17.0 15.2
Other assets 2.5 3.6
Total Current Assets 84.3 81.4
Non-current Assets
Mining interests 474.5 453.9
Total Non-current Assets 474.5 453.9
Total Assets $ 558.8 $ 535.3
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 25.2 $ 23.1
Credit facility 31.3 32.4
Current portion of obligations under finance leases 7.2 4.9
Total Current Liabilities 63.7 60.4
Non-current Liabilities
Income taxes payable 0.8 0.1
Asset retirement obligations 17.8 16.7
Obligations under finance leases 6.4 9.8
Long-term debt 45.8 -
Total Non-current Liabilities 70.8 26.6
Shareholders' Equity
Common share capital and purchase warrants 1,313.0 1,313.0
Stock options and related surplus 10.9 10.3
Contributed surplus 8.9 8.9
Deficit (908.5 ) (883.9 )
Total Shareholders' Equity 424.3 448.3
Total Liabilities and Shareholders' Equity $ 558.8 $ 535.3
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
(expressed in millions of Canadian dollars, except share and per share amounts)
(unaudited)
Three months ended
September 30
Nine months ended
September 30
2016 2015 2016 2015
Revenue $ 48.5 $ 64.7 $ 120.9 $ 156.0
Mining operating expenses
Production costs 30.8 44.9 93.6 112.1
Smelting, refining and freight costs 3.6 6.8 10.8 16.2
Royalty expense 2.0 2.7 5.0 6.2
Depreciation and amortization 7.8 10.8 23.8 24.0
Inventory pricing adjustment - - 1.0 0.5
Loss on disposal of equipment 0.6 0.3 0.6 0.2
Mine restoration and mitigation costs - 2.4 0.1 6.1
Total mining operating expenses 44.8 67.9 134.9 165.3
Income (loss) from mining operations 3.7 (3.2 ) (14.0 ) (9.3 )
Other expenses (Income)
Exploration 1.0 1.3 3.8 5.6
General and administration 1.4 4.6 4.5 9.6
Interest and other income - (0.1 ) (0.8 ) (1.1 )
Interest costs and other 2.1 10.0 5.0 103.5
Financing costs 0.4 2.2 0.6 10.1
Foreign exchange loss (gain) 0.4 19.0 (2.5 ) 37.3
Loss on recapitalization - 28.3 - 28.3
Total other expenses, net 5.3 65.3 10.6 193.3
Loss before taxes (1.6 ) (68.5 ) (24.6 ) (202.6 )
Income taxes - - - -
Net loss and comprehensive loss $ (1.6 ) $ (68.5 ) $ (24.6 ) $ (202.6 )
Loss per share
Basic and Diluted $ (0.03 ) $ (2.18 ) $ (0.42 ) $ (18.04 )
Weighted average number of shares outstanding
Basic and diluted 58,126,526 31,392,831 58,126,526 11,229,418
Condensed Interim Consolidated Statements of Cash Flows
(expressed in millions of Canadian dollars)
(unaudited)
Three Months Ended
September 30
Nine Months Ended
September 30
2016 2015 2016 2015
Cash provided by (used in)
Operations
Net loss $ (1.6 ) $ (68.5 ) $ (24.6 ) $ (202.6 )
Operating items not involving cash
Depreciation and amortization 7.8 10.8 23.8 24.0
Inventory pricing adjustment - - 1.0 0.5
Accretion expense 0.2 4.1 0.4 10.5
Share-based compensation and employee benefits 0.1 0.4 0.6 0.9
Unrealized foreign exchange loss (gain) 1.3 1.7 (1.2 ) 4.8
Realized foreign exchange loss on financing activities (0.3 ) 12.9 (0.1 ) 31.5
Loss on disposal of equipment 0.6 0.3 0.6 0.2
Interest expense and other 1.9 5.8 3.9 91.9
Financing costs 0.4 2.2 0.6 10.1
Loss on recapitalization - 28.3 - 28.3
10.4 (2.0 ) 5.0 0.1
Changes in non-cash working capital (7.6 ) (12.0 ) (4.4 ) 13.1
2.8 (14.0 ) 0.6 13.2
Financing Activities
Issuance of common shares, net of issue costs - 49.6 - 49.6
Proceeds of credit facilities 4.6 10.2 14.4 47.8
Repayment of credit facilities - (12.2 ) (13.9 ) (31.5 )
Net proceeds of term loan 12.6 - 45.1 -
Net proceeds of bridge loan - (17.6 ) - -
Repayment of obligations under finance leases (1.5 ) (1.3 ) (4.0 ) (3.6 )
Interest paid (1.7 ) (4.5 ) (3.6 ) (27.6 )
Other recoveries (costs) (0.7 ) (3.0 ) (0.8 ) (10.9 )
13.3 21.2 37.2 23.8
Investing Activities
Additions to mining interests (11.0 ) (12.3 ) (40.4 ) (25.6 )
Proceeds on disposal of mining interests 0.1 - 0.4 0.6
(10.9 ) (12.3 ) (40.0 ) (25.0 )
Increase (decrease) in cash 5.2 (5.1 ) (2.2 ) 12.0
Cash and cash equivalents, beginning of period 3.8 21.2 11.2 4.1
Cash and cash equivalents, end of period $ 9.0 $ 16.1 $ 9.0 $ 16.1
Cash and cash equivalents consisting of:
Cash $ 9.0 $ 16.1 $ 9.0 $ 16.1
Foreign exchange included in cash balance $ 0.2 $ 0.9 $ 0.2 $ 0.9

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