North American Palladium Ltd.
TSX : PDL
AMEX : PAL

North American Palladium Ltd.

August 09, 2005 18:22 ET

North American Palladium Ltd. Announces Second Quarter 2005 Financial Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 9, 2005) – North American Palladium Ltd (TSX:PDL)(AMEX:PAL) -

Results of Operations

The Company realized a net loss for the three months ended June 30, 2005 of $15,228,000 or $0.29 per share on revenues of $23,544,000 compared to net income of $2,834,000 or $0.06 per share on revenues of $51,712,000 for the corresponding period a year earlier.

For the six months ended June 30, 2005, the Company realized a net loss of $22,964,000 or $0.44 per share on revenue of $49,750,000 compared to net income of $8,955,000 or $0.17 per share on revenue of $104,868,000 for the six months ended June 30, 2004.

In the second quarter of 2005, the Company's palladium revenue was affected by a 37% decline in palladium production compared to the year earlier period, together with a continuing low palladium price. During the second quarter of 2005, revenue was recorded on 42,399 ounces of palladium at the June 30, 2005 quoted market price of US$183 per ounce, compared to an average realized palladium price for the first quarter of 2005 of US$224 per ounce and a realized price of US$325 per ounce in the second quarter of 2004, which was the floor price under the palladium sales contract in that period. Variations from the provisionally priced sales will be recognized as revenue adjustments as they occur until the price is finalized. In addition, revenue from by-product metal declined by 29% to $13,753,000 in the second quarter of 2005 compared to $19,503,000 in the second quarter of 2004, reflecting the decreased production of nickel, platinum, gold and copper. Despite the lower by-product production, prices for these metals continued well above historical levels. Partially offsetting the higher by-product prices was a strengthening Canadian dollar which averaged US$0.80 in the second quarter 2005, compared to US$0.74 in the second quarter 2004.

Production costs including overheads but excluding non-cash amortization were $26,176,000 during the second quarter of 2005 compared to $27,489,000 during the second quarter of 2004, while unit costs to produce palladium (production costs including overhead and smelter treatment, refining and freight costs), net of by-product metal revenues and royalties, increased to US$322 per ounce in the second quarter of 2005 compared to US$158 per ounce in the second quarter of 2004. The increase in unit cash costs was caused by a 17% decline in mill throughput combined with lower ore grades and metal recoveries, which led to a 37% decline in palladium production and a 29% drop in revenue from by-product metals. In addition, during the second quarter there was an increase in the waste strip ratio and continuing pressure on operating costs, particularly diesel fuel and ongoing mill repairs which resulted in approximately $3.0 million of additional costs in the quarter.

During the second quarter of 2005, the mill processed 1,195,304 tonnes of ore, or an average of 13,135 tonnes per day, with a palladium grade of 1.78 grams per tonne, producing 48,230 ounces of palladium at a recovery rate of 70.4%. This compares with the second quarter of 2004, when the mill processed 1,445,445 tonnes of ore, or 15,884 tonnes per day, with a palladium grade of 2.22 grams per tonne, producing 75,970 ounces of palladium at a recovery rate of 73.5%. Metal production during the second quarter of 2005 was affected by lower recoveries and reduced average daily mill throughput. Metal recovery was negatively affected by fluctuating mill throughput and problems associated with treating a lower grade of ore. Mill availability was also affected by severe weather, which resulted in several significant power disruptions.

Non-cash amortization expense decreased to $4,799,000 in the second quarter of 2005 compared to $8,885,000 in the second quarter of 2004. The reduced amortization expense in the current quarter is attributable to the decrease in palladium production, along with a lower unit of production amortization rate as a result of the asset impairment charge recorded in 2004, which resulted in an approximate 40% reduction in the unit amortization rate.

With the ramp-up in activity on the Company's exploration projects, exploration expense increased to $1,662,000 in the second quarter of 2005 compared to $518,000 in the year-earlier period. The Company incurred interest expense on long-term debt of $611,000 in the second quarter of 2005 compared to $411,000 in the second quarter of 2004.

Cash Flow and Financial Position

Cash used in operations (prior to changes in non-cash working capital) was $10,200,000 for the second quarter of 2005 compared to cash provided by operations of $13,769,000 for the second quarter of 2004. The primary reason for the decrease in operating cash flow was the significant decline in revenue from metal sales. Changes in non-cash working capital provided $12,398,000 in the second quarter compared to $6,381,000 in the second quarter of 2004. The major item affecting the non-cash working capital was a $12,339,000 reduction in concentrate inventory awaiting settlement. The reduction was caused by a decrease in the physical quantity of palladium in concentrate awaiting settlement, which declined to 83,755 ounces at June 30, 2005 compared to 114,186 ounces at December 31, 2004. After allowing for working capital changes, cash provided by operations was $2,198,000 in the second quarter of 2005 compared to $20,150,000 in second quarter of 2004.

Investing activity required $7,722,000 of cash in the second quarter of 2005 compared to $4,019,000 in the second quarter of 2004. During the quarter, the Company advanced the underground mine development, with 174 metres of main ramp development and completed the first stage of the ventilation raise development. The underground mine development is progressing towards stope production in the first quarter of next year. During the six months ended June 30, 2005, the Company incurred $19,170,000 on capital expenditures, of which $5,379,000 were acquired by means of capital lease.

The Company's long-term debt position was $51.6 million at June 30, 2005 compared to $50.2 million at December 31, 2004, and it had cash and cash equivalents of $63.3 million at June 30, 2005.



Production Statistics
---------------------

Second Quarter Six Months
June 30 June 30
------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------
Palladium (oz) 48,230 75,970 100,802 167,231
Payable Palladium
(oz) 43,959 69,399 91,883 152,766
Platinum (oz) 5,123 6,319 10,505 13,302
Gold (oz) 3,834 6,249 7,965 14,004
Copper (lbs) 1,432,890 2,103,948 2,994,930 4,245,703
Nickel (lbs) 643,505 1,060,318 1,421,705 2,381,519
-------------------------------------------------------------------------
Ore Tonnes Milled 1,195,304 1,445,445 2,351,626 2,794,224
Ore Tonnes Mined 935,263 1,305,529 2,204,138 2,958,196
Waste Tonnes Mined 2,964,600 2,848,833 6,306,033 5,074,933
-------------------------------------------------------------------------
Waste to Ore
Strip Ratio 3.17:1 2.18:1 2.86:1 1.72:1
-------------------------------------------------------------------------


Exploration

At Lac des Iles, the Company currently has four surface drills actively expanding the known resource of the Offset High Grade Zone. Two additional holes (05-006 and 05-007) have been completed since the last reported results (see press release dated July 11, 2005) bringing the current number of completed holes to 4 of the planned 12 to 14 hole program. To date, all 4 holes have intersected the target horizon at its projected depth. It should be noted that the holes on average represent 120-140 metre step-outs from any previous drill intercept.

Hole 05-006 intersected the Offset High Grade Zone at the -440 metres above sea level, approximately 100 metres down dip and 100 metres south of previously released drill hole 01-047 (see attached figure). Hole 05-007 encountered the target horizon at the -330 metres above sea level 180 metres south of drill hole 01-047 and intersected two zones of mineralization.



-------------------------------------------------------------------------
(metres) (grams per tonne) %
-------------------------------------------------------------------------
Inter- Palla- Plat-
Hole ID From To val dium inum Gold Nickel Copper
-------------------------------------------------------------------------
Previously Reported
-------------------------------------------------------------------------
00-205 1094.70 1134.00 39.30 5.88 0.35 0.35 0.11 0.07
-------------------------------------------------------------------------
Reported July 11, 2005
-------------------------------------------------------------------------
05-005 1107.90 1129.05 21.15 4.91 0.32 0.17 0.07 0.05
-----------------------------------------------------------
incl 1115.00 1129.05 14.05 5.58 0.35 0.21 0.07 0.06
-----------------------------------------------------------
and 1137.00 1140.00 3.00 6.97 0.42 0.29 0.16 0.03
-------------------------------------------------------------------------
05-008 819.00 824.00 5.00 2.75 0.26 0.18 0.45 0.29
-------------------------------------------------------------------------
Reported today
-------------------------------------------------------------------------
05-006 1056.00 1085.40 29.40 8.19 0.48 0.62 0.17 0.14
incl 1056.00 1073.00 17.00 10.58 0.58 0.53 0.13 0.08
incl 1062.00 1069.10 7.10 15.38 0.76 0.80 0.16 0.09
-------------------------------------------------------------------------
05-007 994.60 1003.80 9.20 3.36 0.38 0.21 0.13 0.12
-----------------------------------------------------------
and 1050.50 1077.50 27.00 5.64 0.48 0.41 0.08 0.09
-----------------------------------------------------------
incl 1053.50 1065.50 12.00 7.77 0.66 0.49 0.12 0.14
-------------------------------------------------------------------------


On July 21, 2005 the Company executed a definitive Option Joint Venture Agreement with URSA Major Minerals Corporation "URSA" whereby the Company can acquire a 60% interest in USRA's interest in the Shakespeare Property (approximately 80% URSA: 20% Falconbridge Limited). The Shakespeare Option Joint Venture Agreement is subject to URSA's receipt of regulatory and shareholder approval. The Company also has an agreement with URSA to acquire a 50% interest in the adjoining 100% URSA owned Agnew Lake Properties, located in the Sudbury area. The Shakespeare Project hosts the Shakespeare Deposit, which contains a diluted Probable Reserve of 7.3 million tonnes at 0.37% Ni, 0.39% Cu, 0.024% Co, 0.37 grams per tonne Pt, 0.40 grams per tonne Pd and 0.20 grams per tonne Au. A full feasibility study on an open pit mine and a 4,000-5,000 tonnes per day "stand alone" mill is currently in progress.

A diamond drill program was completed in the second quarter on the Company's Bird River Project, an Option Joint Venture with Gossan Resources Limited. A total of 8 holes totaling 934 metres were completed. The holes were planned to test priority Airborne EM Conductors delineated from the recently completed VTEM Survey flown over the property. The exploration target on the Bird River Project is for massive sulphide mineralization (Ni, Cu, and PGM) associated with the lower contact zone of the Bird River Sill. Assay results from the current program included 13.75 metres of 1.08% Ni, 0.50% Cu, 0.047% Co, 0.396 grams per tonne Pt, and 1.108 grams per tonne Pd (including 4.75 metres of 2.14% Ni and 0.44% Cu) from drill hole BR-05-02.

Elsewhere the Company recently completed a detailed airborne survey over their Lynn Lake Properties, an Option Joint Venture Agreement with Rare Earth Metals Corp. located within the historic Lynn Lake Mining camp in northern Manitoba. A field crew will be mobilized to start ground truthing selected targets once the results from the airborne survey have been analyzed.

First pass mapping and prospecting on the Company's Tyko and Bulldozer Lake Properties located approximately 30 kilometres southeast of Manitouwadge, Ontario identified a new discovery termed the "RJ Showing" from which grab samples have returned values up to 2.5% Ni and 0.5% Cu from a mineralized ultramafic body located 1500 metres northwest of the original Tyko Prospect. Field work is continuing.

Management's Outlook

By the end of second quarter mill throughput and availability improved greatly due to the efforts of the mill operations team and the new maintenance system. During July the mill averaged more than 14,000 tonnes per day and was averaging over 15,000 tonnes per day by month's end, which is a significant improvement from earlier this year. Expectations are for the productivity of the mill to continue improving through the end of the third quarter 2005 and be in shape to maintain an average above 15,000 tonnes per day moving forward. In spite of the mill's improved throughput performance its feed will remain below 2 grams per tonne and as a result palladium recovery will remain below 75%. The second quarter's recovery issues continue into the third quarter and are being addressed. The combination of low grade and low mill recovery will continue to challenge operations ability to bring production costs in line with the current depressed palladium price.

The underground mine development is scheduled for commercial production during the first quarter of 2006. Ground conditions remain excellent with little or no ground water influx. The first drive into the ore is scheduled to begin late in the third quarter.

Palladium prices again remained flat during the second quarter and traded at an average of $190 per ounce. While mine production is currently lagging consumption, the market appears to be in an over supply due to the existing above ground stocks. The combination of year over year increasing palladium demand, along with above ground stocks being depleted, allows management to continue to remain optimistic the palladium price will return to more sustainable levels in 2006 and trade at a more historical relationship to platinum. With platinum now trading at over $900 an ounce it suggests there will be greater emphasis on substitution for palladium.

The Company will host its second quarter conference call at 1 pm EDT on Wednesday, August 10, 2005. The toll-free conference call dial-in number is 1-800-814-4853 and the local and overseas dial-in number is 416-640-4127. The conference call will be simultaneously web cast and archived at www.napalladium.com in the Investor Centre under Conference Calls. A replay of the conference call will be available until August 24, 2005; toll-free at 1-877-289-8525, locally and overseas at 416-640-1917, passcode 21132883.

North American Palladium's Lac des Iles Mine is Canada's only primary producer of platinum group metals and is one of the largest open pit bulk mineable palladium reserves in the world. The Company also earns substantial revenue from by-product nickel, platinum, gold and copper. In addition to operating Lac des Iles, the Company's mandate is to expand its production profile through an aggressive exploration campaign, designed to increase its exposure to base and precious metals. Palladium use in the auto industry continues to be an important component in controlling exhaust emissions as mandated by more stringent hydrocarbon emissions standards for cars, particularly in the United States, Europe and Japan. Palladium is also used in the dental, electronics, jewellery and chemical sectors.

Forward-Looking Statements - Certain statements included in this news release are forward-looking statements which are made pursuant to the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. They include estimates and statements that describe the Company's future plans, objectives and goals, including words to the effect that the Company or management expects a stated condition or result to occur. When used herein, words such as "estimate", "expect", "believe", "intend", "budget", "plan", "scheduled" and other similar expressions are intended to identify forward-looking statements. In particular statements relating to the estimated future metal prices, cash flows, expenses, capital costs, ore production, mine life, financing, construction and commissioning are forward-looking statements. Such forward-looking statements involve inherent risks and uncertainties and are subject to factors, many of which are beyond our control, that may cause actual results or performance to differ materially from those currently anticipated in such statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include among others metal price volatility, changes in the US/CDN dollar exchange rate, economic and political events affecting metal supply and demand, fluctuations in ore grade, ore tonnes milled, geological, technical, mining or processing problems, recoverability of metals, future profitability and production, availability of financing on acceptable terms and unexpected problems during the development, construction and start-up phases of the underground mine. For a more comprehensive review of risk factors, please refer to the Company's most recent Annual Report under "Management's Discussion and Analysis of Financial Results" and Annual Information Form under "Risk Factors" on file with the U.S. Securities and Exchange Commission and Canada provincial securities regulatory authorities. The Company disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise. Readers are cautioned not to put undue reliance on these forward-looking statements.



North American Palladium Ltd.
Consolidated Balance Sheets
(Canadian funds in thousands of dollars)

June 30 December 31
2005 2004
------------ ------------
(unaudited)
Assets
Current Assets
Cash and cash equivalents $ 63,250 $ 65,755
Concentrate awaiting settlement, net - Note 2 38,574 68,259
Inventories 8,865 8,954
Crushed and broken ore stockpiles - Note 3 10,067 9,256
Accounts receivable and other assets 935 1,615
------------ ------------
121,691 153,839

Mining interests, net 145,577 136,009
Mine restoration deposit - Note 4 6,573 5,973
Crushed and broken ore stockpiles - Note 3 1,089 1,379
Deferred financing costs 676 697
------------ ------------
$ 275,606 $ 297,897
------------ ------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 18,114 $ 20,231
Taxes payable (24) 521
Current portion of obligations under capital
leases 2,198 1,481
Current portion of long-term debt - Note 5 6,903 6,815
Kaiser-Francis credit facility - Note 5 14,095 -
------------ ------------
41,286 29,048

Mine restoration obligation 7,743 7,592
Obligations under capital leases 6,738 3,182
Long-term debt - Note 5 21,708 24,851
Kaiser-Francis credit facility - Note 5 - 13,842
Future mining tax liability 1,281 1,549
------------ ------------
78,756 80,064
Shareholders' Equity
Capital stock - Note 7 324,540 322,904
Contributed surplus 918 573
Deficit (128,608) (105,644)
------------ ------------
Total shareholders' equity 196,850 217,833
------------ ------------
$ 275,606 $ 297,897
------------ ------------


North American Palladium Ltd.
Consolidated Statements of Earnings (Loss) and Deficit
(Canadian funds in thousands of dollars,
except share and per share amounts)
(unaudited)

Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------

Revenue from metal
sales - Note 8 $ 23,544 $ 51,712 $ 49,750 $ 104,868
------------ ------------ ------------ ------------
Operating expenses
Production costs,
excluding amortization
and asset retirement
costs 26,176 27,489 49,409 52,487
Smelter treatment,
refining and freight
costs 4,324 7,321 8,997 12,652
Amortization 4,799 8,885 9,528 18,731
Administrative 1,792 1,072 3,387 2,289
Exploration expense 1,662 518 2,505 947
Asset retirement costs 122 223 246 466
Loss on disposal of
capital assets - 491 - 623
------------ ------------ ------------ ------------
Total operating
expenses 38,875 45,999 74,072 88,195
------------ ------------ ------------ ------------

Income (loss) from
mining operations (15,331) 5,713 (24,322) 16,673
------------ ------------ ------------ ------------

Other income (expenses)
Interest on long-term
debt (611) (411) (1,246) (898)
Foreign exchange gain
(loss) (82) (264) (146) (1,046)
Interest income 439 66 928 103
Derivative income - (257) - 213
Write-off of deferred
financing costs - (788) - (788)
------------ ------------ ------------ ------------
Total other income
(expenses) (254) (1,654) (464) (2,416)
------------ ------------ ------------ ------------

Income (loss) before
income taxes (15,585) 4,059 (24,786) 14,257
Income tax expense
(recovery) - Note 6 (357) 1,225 (1,822) 5,302
------------ ------------ ------------ ------------
Net income (loss) for
the period (15,228) 2,834 (22,964) 8,955

Deficit, beginning of
period (113,380) (7,413) (105,644) (13,534)
------------ ------------ ------------ ------------
Deficit, end of
period $ (128,608) $ (4,579) $ (128,608) $ (4,579)
------------ ------------ ------------ ------------

Net income (loss)
per share
Basic $ (0.29) $ 0.06 $ (0.44) $ 0.18
------------ ------------ ------------ ------------
Diluted $ (0.29) $ 0.06 $ (0.44) $ 0.17
------------ ------------ ------------ ------------

Weighted average
number of shares
outstanding
Basic 51,997,215 51,254,953 51,870,012 51,114,948
------------ ------------ ------------ ------------
Diluted 51,997,215 51,496,798 51,870,012 51,311,421
------------ ------------ ------------ ------------



North American Palladium Ltd.
Consolidated Statements of Cash Flows
(Canadian funds in thousands of dollars)
(unaudited)

Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------

Cash provided by
(used in)
Operations
Net income (loss) for
the period $ (15,228) $ 2,834 $ (22,964) $ 8,955
Operating items not
involving cash
Future income tax
expense (recovery) (522) 464 (2,207) 3,261
Amortization 4,799 8,885 9,528 18,731
Unrealized foreign
exchange loss (gain) 462 (217) 653 549
Asset retirement costs 122 223 246 466
Stock based
compensation 167 44 345 90
Loss on disposal of
capital assets - 491 - 623
Write-off of deferred
financing costs - 788 - 788
Derivative income - 257 - (213)
------------ ------------ ------------ ------------
(10,200) 13,769 (14,399) 33,250
Changes in non-cash
working capital
- Note 9 12,398 6,381 27,271 (822)
------------ ------------ ------------ ------------
2,198 20,150 12,872 32,428
------------ ------------ ------------ ------------
Financing Activities
Repayment of long-term
debt (1,731) (5,775) (3,455) (15,001)
Issuance of common shares 2,908 2,374 3,575 4,677
Mine restoration deposit (300) (300) (600) (600)
Repayment of obligations
under capital leases (649) (673) (1,106) (876)
------------ ------------ ------------ ------------
228 (4,374) (1,586) (11,800)
------------ ------------ ------------ ------------
Investing Activities
Additions to mining
interests (7,722) (5,144) (13,791) (8,894)
Restricted cash
equivalents - 704 - 697
Proceeds on disposal
of capital assets - 421 - 451
------------ ------------ ------------ ------------
(7,722) (4,019) (13,791) (7,746)
------------ ------------ ------------ ------------

Increase (decrease)
in cash and cash
equivalents (5,296) 11,757 (2,505) 12,882

Cash and cash
equivalents, beginning
of period 68,546 13,075 65,755 11,950
------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
period $ 63,250 $ 24,832 $ 63,250 $ 24,832
------------ ------------ ------------ ------------


North American Palladium Ltd.
Notes to the June 30, 2005 Consolidated Financial Statements
(in thousands of Canadian dollars except
per share and per ounce amounts)
(Unaudited)

1. Basis of Presentation

These unaudited consolidated financial statements have been prepared
using disclosure standards appropriate for interim financial
statements and do not contain all the explanatory notes, descriptions
of accounting policies or other disclosures required by Canadian
generally accepted accounting principles for annual financial
statements. Such notes, descriptions of accounting policies and other
disclosures are included in the Company's audited annual consolidated
financial statements included in the Company's annual report to
shareholders for the year ended December 31, 2004. Accordingly, these
consolidated financial statements should be read in conjunction with
the audited annual consolidated financial statements for 2004.

2. Concentrate Awaiting Settlement

The gross value of concentrate awaiting settlement represents the
value of platinum group metals and base metals from production
shipped to and received by the third-party smelters between December
2004 and June 2005, which are in-process at the balance sheet date.
At June 30, 2005, concentrate awaiting settlement included 83,755
ounces of palladium (December 31, 2004 - 114,186). Concentrate
awaiting settlement was entirely from two domestic customers at
June 30, 2005 and December 31, 2004. Revaluations of the net
realizable value of concentrate awaiting settlement are included in
revenue at each reporting period and are adjusted for the effects of
hedging instruments, sales contracts and foreign exchange.

3. Crushed and Broken Ore Stockpiles

Crushed and broken ore stockpiles are valued at the lower of average
production cost and estimated net realizable value. The amount of
stockpiled ore that is not expected to be processed within one year
is shown as a long-term asset.

4. Mine Restoration Deposit

As part of the expansion project, the Company established a revised
mine closure plan for the eventual clean-up and restoration of the
mine site with the Ontario Ministry of Northern Development and Mines
(the "Ministry"), which requires a total amount of $7,802 to be
accumulated in a Trust Fund controlled by the Ministry. At June 30,
2005, the Company had $6,573 on deposit with the Ministry and has
agreed to make monthly deposits of $100.

5. Long-Term Debt

The Company's long-term debt, is comprised of a senior credit
facility with a leading equipment finance company and the Kaiser-
Francis credit facility. At June 30, 2005, the outstanding long-term
debt, including current and long-term portions was $42,706 compared
to $45,508 at December 31, 2004. The interest rate under both
facilities is LIBOR plus 250 basis points, or 5.64% at June 30, 2005.
The senior credit facility is repayable in equal quarterly
installments over a five-year period with a final maturity of
November 24, 2009 and the Kaiser-Francis facility matures on June 30,
2006.

6. Income Taxes

The provision for income and mining taxes differs from the amount
that would have resulted by applying the combined Canadian Federal
and Ontario statutory income tax rates of approximately 38.3%.

Six Months Ended
June 30
2005 2004
-------------------------
Income tax provision using statutory
income tax rates $ (9,493) $ 5,489
Increase (decrease) in taxes resulting from:
Losses not tax benefited 7,093 -
Resource allowance 934 (1,459)
Non-taxable portion of capital gains
(losses) (3) (899)
Federal large corporations tax 183 430
Ontario mining taxes (575) 1,468
Other 39 273
-------------------------
Income tax expense (recovery) $ (1,822) $ 5,302
-------------------------

7. Capital Stock

June 30, 2005 June 30, 2004
Shares Amount Shares Amount
------------------------------------------------
Common shares issued,
beginning of period 51,709,075 $ 322,904 50,895,338 $ 313,489
Common shares issued:
Pursuant to stock
options exercised 81,427 536 394,223 4,215
To group registered
retirement savings
plan participants 56,274 536 39,037 462
Private Placement 213,000 2,503 - -
Tax effect of flow-
through shares - (1,939) - -
------------------------------------------------
Common shares issued,
end of period 52,059,776 $ 324,540 51,328,598 $ 318,166
------------------------------------------------

At June 30, 2005, the Company had 701,437 stock options outstanding
at a weighted-average exercise price of $10.25, expiring at various
dates from July 27, 2005 to November 1, 2012. No stock options were
granted in the first six months of 2005. The Company recognized a
stock based compensation expense of $167 for the three months ended
June 30, 2005 and $345 for the six months ended June 30, 2005 (three
months ended June 30, 2004 - $44; six months ended June 30, 2004 -
$90).

The Company finances a portion of its exploration activities through
the issue of flow through shares. Under the terms of these share
issues, the tax attributes of the related expenditures are renounced
to subscribers. At the time the Company renounces the tax attributes
of the expenditures to the subscribers, share capital is reduced and
future tax liabilities are increased by the estimated income tax
benefits renounced.

8. Revenue from Metal Sales

Three Months Ended Six Months Ended
June 30 June 30
---------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------
Palladium (a) $ 9,432 $ 31,423 $ 21,302 $ 63,146
Adjustments for
mark-to-market 359 786 685 3,098
Nickel 4,637 7,029 9,523 13,258
Platinum 4,775 6,227 9,601 11,761
Gold 1,873 2,398 3,691 5,704
Copper 2,162 3,104 4,148 6,016
Other metals 306 745 800 1,885
---------------------------------------------------
$ 23,544 $ 51,712 $ 49,750 $ 104,868
---------------------------------------------------

(a) The Company had a Palladium Sales Contract with a major
automobile manufacturer, which provided for a floor price of
US$325 per ounce on 100% of palladium production delivered by
June 30, 2005. During the six months ended June 30, 2004, revenue
was recognized at the floor price of US$325 per ounce for all of
the palladium. During the six months ended June 30, 2005, revenue
on 6,403 ounces of palladium production was recognized at the
floor price of US$325 per ounce while revenue for the balance of
palladium production, which will be available for physical
delivery after June 30, 2005, was recognized at the June 30, 2005
quoted market price of US$183 per ounce.

9. Changes in Non-Cash Working Capital

Three Months Ended Six Months Ended
June 30 June 30
---------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------
Cash provided by
(used in):
Concentrate
awaiting
settlement $ 12,339 $ 3,478 $ 29,685 $ (2,512)
Inventories and
stockpiles 290 1,366 (432) 1,283
Accounts receivable
and other assets 304 (452) 680 (168)
Accounts payable
and accrued
liabilities (106) 2,094 (2,117) (520)
Taxes payable (429) (105) (545) 1,095
---------------------------------------------------
$ 12,398 $ 6,381 $ 27,271 $ (822)
---------------------------------------------------

During the six months ended June 30, 2005, mining interests were
acquired at an aggregate cost of $19,170 (six months ended June 30,
2004 - $10,692) of which $5,379 (six months ended June 30, 2004 -
$1,798) were acquired by means of capital lease.

10. Commitments

The Company enters into forward contracts from time to time to hedge
the effects of changes in the prices of metals it produces and
foreign exchange on the Company's revenues. Gains and losses realized
on derivative financial instruments used to mitigate metal price risk
are recognized in revenue from metal sales when the hedge transaction
occurs.

(a) Platinum Forward Contracts

At June 30, 2005, the Company had forward sales contracts for
13,039 ounces of platinum at an average price of US$860 per ounce
maturing at various dates through June 2006. The fair value of these
forward sales contracts was below their carrying value by $346 as at
June 30, 2005.

(b) Nickel Swap Contracts

At June 30, 2005, the Company had swap contracts for 2,380,000 lbs.
of nickel at an average fixed price of US$6.68 per lb. maturing at
various dates through June 2006. The fair value of these swap
contracts was above their carrying value by $857 at June 30, 2005.

(c) Copper Swap Contracts

At June 30, 2005, the Company had swap contracts for 1,322,000 lbs.
of copper at an average fixed price of US$1.26 per lb. maturing at
various dates through March 2006. The fair value of these swap
contracts was below their carrying value by $195 as at June 30, 2005.

(d) Gold Forward Contracts

At June 30, 2005, the Company had forward sales contracts for
9,000 ounces of gold at an average price of US$439 per ounce maturing
at various dates through June 2006. The fair value of these forward
sales contracts was below their carrying value by $34 as at June 30,
2005.

11. Comparative Period Figures

Certain prior period amounts have been reclassified to conform to the
classification adopted in the current period.

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