North American Palladium Ltd.
TSX : PDL
NYSE Amex : PAL

North American Palladium Ltd.

November 10, 2010 18:19 ET

North American Palladium Reports Return to Profitability in Third Quarter

Lac des Iles Palladium Mine Operating Smoothly with Lower Cash Costs

TORONTO, ONTARIO--(Marketwire - Nov. 10, 2010) -

All figures are in Canadian dollars except where noted.

North American Palladium Ltd. ("NAP" or the "Company") (TSX:PDL)(NYSE Amex:PAL) today announced financial results and operational updates for the third quarter ended September 30, 2010.

"We are pleased to report that NAP has returned to profitability in the third quarter," said William J. Biggar. "I think this milestone is indicative of the Company's transformation over the last two years as we pursue our vision to become a mid tier precious metals producer. The execution of our strategic plan to optimize operations and reduce costs at LDI has driven improved financial performance. LDI is operating efficiently and the mine expansion is progressing on schedule."

Highlights

  • Produced 34,420 ounces of payable palladium at a cash cost of US$218 per ounce;

  • Since restart of mine production in May 2010, produced 62,258 ounces of payable palladium at a cash cost of US$253 per ounce;

  • Net income in Q3 of $3.2 million or $0.02 per share;

  • Announced Lac des Iles ("LDI") mine expansion plans, expected to nearly double palladium production while significantly reducing cash costs and extend mine life;

  • Mine expansion commenced and progressing on schedule, targeting production from the shaft by third quarter 2012;

  • Achieved a significant safety milestone at LDI of a two-year track record without a single injury that resulted in lost time; and

  • Management further strengthened through appointment of Greg Struble as Vice President and Chief Operating Officer.

Financial Results

During the third quarter of 2010, NAP returned to profitability with increased earnings and cash flow. Net income for the quarter ended September 30, 2010 was $3.2 million or $0.02 per share compared to a net loss of $6.2 million or $0.06 per share in the same quarter last year.

EBITDA was $5.6 million for the third quarter, compared to a negative $6.2 million in the same quarter last year.

Revenue, after pricing adjustments, increased to $38.5 million in the third quarter, compared to a nominal amount in the same quarter last year. Revenue was $33.4 million from LDI, and $5.1 million from Sleeping Giant.

In the third quarter, NAP provided cash from operating activities of $6.0 million, before changes in non-cash working capital, or $0.04 per share,* as compared to cash used in operations of $5.8 million, before changes in non-cash working capital, or $0.06 per share,* for the quarter ended September 30, 2009. This increase is due primarily to the increased net income of $12.5 million (of which amortization represents $3.1 million), partially offset by the future income and mining tax recoveries ($1.0 million).

For the third quarter, cash used in operations was $20.1 million compared to $8.9 million in the corresponding period last year.

As at September 30, 2010, the Company has approximately $161 million in working capital (including $114 million cash on hand) and no long-term debt.

During the third quarter in July, the Company also entered into a $30 million operating line of credit with the Bank of Nova Scotia. The credit facility has a term of one year and is secured by the Company's accounts receivables, intended to be used for working capital liquidity and general corporate purposes.

"NAP showed improved financial performance in the third quarter with the achievement of our return to profitability," said Jeffrey A. Swinoga, Vice President, Finance and CFO. "The increased cash flow from LDI supports our funding strategy as we begin to invest over $200 million over the next couple of years to grow our palladium production, reduce our cash costs per ounce, and expand our operating margin."

NAP's consolidated financial statements for the third quarter ended September 30, 2010 are available in the Appendix of this news release. Certain prior period amounts have been reclassified to conform to the presentation adopted in 2009. These financial statements should be read in conjunction with the notes and management's discussion and analysis available at www.nap.com, www.sedar.com, and www.sec.gov.

*Non-GAAP measure. Please refer to Non-GAAP Measures in the MD&A.

Operational Updates

Lac des Iles Palladium Mine

The LDI mine continues to perform very well with improved head grades at the mill. During the third quarter, NAP produced 34,420 ounces of payable palladium, at total cash costs of US$218 per ounce. LDI's cash costs were less than the Company's forecast due to better than expected head grades and higher revenue from the mine's byproduct credit metals (platinum, gold, nickel and copper). Since the restart of mine production in May, LDI has produced 62,259 ounces of palladium to September 30, 2010 at a cash cost of US$253 per ounce. 

Of the 225,960 tonnes of ore that was extracted from the LDI mine during the quarter, 220,694 tonnes came from the Roby Zone with an average palladium grade of 6.95 grams per tonne, and 5,266 tonnes of silling ore came from the top of Offset Zone at an average palladium grade of 9.37 grams per tonne. The average palladium head grade at the mill was 7.05 grams per tonne with a palladium recovery of 82.1%. 

During the quarter, NAP announced its LDI mine expansion plans with the objective of achieving a seamless changeover from mining in the Roby Zone (via ramp access) to the Offset Zone (via shaft access). A third party Scoping Study forecasts that the mine expansion will result in palladium production in excess of 250,000 ounces per year at significantly reduced cash costs averaging around US$132 per ounce. The Company is targeting to achieve commercial production from the Offset Zone by the third quarter of 2012 and initial development is underway, progressing on NAP's projected timeline.

Detailed engineering of the surface hoisting plant and production shaft was initiated in May 2010 and is on schedule to be completed by the end of the year. Timing risk has been substantially diminished as the Company has already purchased the production, sinking and service cage hoists that are critical to the project. During the quarter, the Company awarded the raiseboring contract to Redpath Mining for the shaft construction, and a contract to Cementation Inc. for raiseboring the ventilation raise. All senior positions of the Offset Zone project team have been hired and the team is onsite at LDI overseeing all aspects of the Offset Zone development.

NAP's $15-million, 68,000-metre drilling and exploration program for LDI is ongoing, and an exploration update on the 2010 program is expected later in November. The exploration update will also include an updated reserve classification on the Roby Zone. 

Sleeping Giant Gold Mine

During the third quarter, 3,879 ounces of gold were produced at a cash cost of US$1,660 per ounce. The average gold grade was 5.8 grams per tonne, below the average resource grade of 9.3 grams per tonne at the mine, with gold recovery of 95.5%. For the nine months ended September 30, 2010, Sleeping Giant produced 12,979 ounces of gold.

Since commencing operations, mining activities have been confined to zones mined by the previous owner. The ramp up to steady-state production in these zones has proceeded at a slower pace as the tonnes and grade were not in line with initial expectations. The Company's original mine plan was based on a technical report with wider drill spacing, which considering the mine's geology, caused some of the challenges in accessing the higher grades.

Development work at Sleeping Giant continued in the third quarter, focused on implementing a number of measures to manage the mine's ramp-up issues. Tighter infill drilling is now being conducted to better manage grade control issues and shrinkage and long-hole stopes are being favoured over room and pillar stopes due to the higher certainty over grade and tonnage recovered. The Company will continue to adjust its mine plan and methods in order to optimize operations.

New higher grade zones are currently under development in preparation for 2011 production. A long-term solution is expected in the second quarter of 2011, once the Company's development team has completed a 200-metre shaft deepening. This will allow the Company to access new stopes in zones that have historically provided good tonnage and higher grade feed for the mill.

The Company is also currently completing a mill expansion study of its Sleeping Giant mill. If developed, NAP's other gold assets, in conjunction with the Sleeping Giant mine, have the potential to collectively produce in the range of 125,000 ounces of gold per year from an expanded Sleeping Giant mill.

Over 30,000 metres of underground extensional drilling has been completed at Sleeping Giant to September 30, 2010. An additional 5,000 metres are planned for the fourth quarter. The goal of the 2010 drilling is to define and extend the zones within the current mine and at depth. Results will be released in the first quarter of 2011.

Outlook

During the third quarter of 2010, spot palladium prices averaged US$495 per ounce, and US$477 for the first nine months of the year. As a result of strong investment and fabrication demand and constrained supply, palladium has been the best performing metal in 2010 and recently was at a nine year high of over US$700 per ounce. NAP is well positioned to benefit from the forecasted rise in the price of palladium as the LDI mine expansion is expected to significantly increase production.

In the near term, the Company will focus on:

  • Growing palladium production at LDI while continuing to optimize costs;

  • Continuing to advance the LDI mine expansion, including development work on the ramp, ventilation, shaft and mining levels; 

  • Continuing exploration programs aimed at increasing reserves and resources at LDI and in the gold division;

  • Improving operating results at Sleeping Giant by continuing to implement a number of measures to mitigate the ramp-up issues, and continuing the deepening of the mine shaft to facilitate development of new zones at depth; and

  • Determining expansion plans for NAP's gold assets and the underutilized Sleeping Giant mill.

The Company currently expects fourth quarter production and cash costs, net of byproduct credits, to be similar to the third quarter for both the LDI and Sleeping Giant mines. In early 2011, NAP intends to announce its 2011 guidance for annual palladium and gold production and cash costs, its budget for exploration, and the expansion plans for its gold assets.

     
  Conference Call and Webcast  
       
  Date: Thursday, November 11, 2010  
  Time: 2:00 p.m. ET  
  Webcast: www.nap.com  
  Dial in: 416-340-2218 or 866-226-1793  
  Replay: 416-695-5800 or 800-408-3053 (Passcode: 5365634)  
       
  The conference call replay will be available until midnight on November 25, 2010. An archived audio webcast of the call will also be posted to NAP's website.  
     

About North American Palladium

NAP is a Canadian precious metals company focused on growing its production of palladium and gold in mining-friendly jurisdictions. The Company's flagship mine, Lac des Iles, is one of the world's two primary palladium producers. NAP also owns and operates the Sleeping Giant gold mine located in the prolific Abitibi region of Quebec. The Company has extensive landholdings adjacent to both its Lac des Iles and Sleeping Giant mines, and a number of exploration projects. NAP trades on the NYSE Amex under the symbol PAL and on the TSX under the symbol PDL.

Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)
 
  September 30   December 31    
  2010   2009    
  (unaudited)        
ASSETS              
               
Current Assets              
Cash and cash equivalents $ 113,614   $ 98,255    
Accounts receivable   44,279        
Taxes receivable   357     204    
Inventories   25,054     25,306    
Other assets   3,671     2,495    
    186,975     126,260    
Mining interests   109,721     82,448    
Reclamation deposits   10,508     10,503    
Total Assets $ 307,204   $ 219,211    
               
LIABILITIES AND SHAREHOLDERS' EQUITY              
               
Current Liabilities              
Accounts payable and accrued liabilities $ 22,249   $ 11,195    
Current portion of obligations under capital leases   1,221     558    
Future income tax liability   2,404        
    25,874     11,753    
Taxes payable   936     1,573    
Asset retirement obligations   13,443     12,921    
Obligations under capital leases   1,354     576    
Future mining tax liability   1,106     127    
Total Liabilities   42,713     26,950    
               
Shareholders' Equity              
Common share capital and purchase warrants   670,874     583,089    
Stock options   3,676     2,704    
Contributed surplus   26,080     19,608    
Deficit   (436,139 )   (413,140 )  
Total shareholders' equity   264,491     192,261    
  $ 307,204   $ 219,211    
 
 
Consolidated Statements of Operations,
Comprehensive Income and Deficit
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2010   2009   2010   2009  
Revenue – before pricing adjustments $ 33,724   $   $ 63,334   $  
Pricing adjustments:                        
  Commodities   5,691     10     5,025     4,612  
  Foreign exchange   (964 )   (9 )   (763 )   (594 )
Revenue – after pricing adjustments $ 38,451   $ 1   $ 67,596   $ 4,018  
                         
Operating expenses                        
Production costs   20,452         53,153      
Smelter treatment, refining and freight costs   1,953     4     3,147     82  
Royalty expense   1,439         2,184     201  
Inventory pricing adjustment   (388 )   (639 )       (3,634 )
Depreciation and amortization   3,171     95     11,252     197  
Asset retirement obligation accretion   145     131     433     320  
Loss (gain) on disposal of equipment   86     (21 )   103     (21 )
Care and maintenance costs       2,533         8,799  
Total operating expenses   26,858     2,103     70,272     5,944  
Income (loss) from mining operations   11,593     (2,102 )   (2,676 )   (1,926 )
                         
Other expenses (income)                        
General and administration   2,432     1,790     7,739     6,059  
Exploration   7,008     2,623     17,594     8,947  
Interest and other income   (79 )   (206 )   (144 )   (1,546 )
Foreign exchange loss (gain)   (1 )   (115 )   (8 )   267  
Total other expenses   9,360     4,092     25,181     13,727  
Income (loss) before taxes   2,233     (6,194 )   (27,857 )   (15,653 )
Income and mining tax recovery   952         4,858      
Net income (loss) and comprehensive income (loss) for the period   3,185     (6,194 )   (22,999 )   (15,653 )
Deficit, beginning of period   (439,324 )   (392,585 )   (413,140 )   (383,126 )
Deficit, end of period $ (436,139 ) $ (398,779 ) $ (436,139 ) $ (398,779 )
Net income (loss) per share                        
  Basic $ 0.02   $ (0.06 ) $ (0.17 ) $ (0.17 )
  Diluted $ 0.02   $ (0.06 ) $ (0.17 ) $ (0.17 )
Weighted average number of shares outstanding                        
  Basic   147,537,429     104,099,989     138,814,869     94,592,696  
  Diluted   148,357,596     104,099,989     138,814,869     94,592,696  
                         
 
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
(unaudited)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2010   2009   2010   2009  
Cash provided by (used in)                        
                         
Operations                        
Net income (loss) for the period $ 3,185   $ (6,194 ) $ (22,999 ) $ (15,653 )
Operating items not involving cash                        
  Future income tax recovery   (1,408 )       (4,325 )    
  Depreciation and amortization   3,171     95     11,252     197  
  Stock based compensation and employee benefits   388     168     1,200     948  
  Accrued interest and accretion on convertible debentures               (359 )
  Asset retirement obligation accretion   145     131     433     320  
  Future mining tax recovery   455         272      
  Unrealized foreign exchange loss (gain)       (24 )       (111 )
  Other   86     (22 )   98     (11 )
    6,022     (5,846 )   (14,069 )   (14,669 )
Changes in non-cash working capital   (26,075 )   (3,065 )   (34,589 )   31,677  
    (20,053 )   (8,911 )   (48,658 )   17,008  
                         
Financing Activities                        
Issuance of common shares and warrants, net of issue costs   51     47,411     94,258     47,411  
Repayment of senior credit facilities       (500 )       (3,926 )
Repayment of obligations under capital leases   (729 )   (468 )   (1,454 )   (1,564 )
    (678 )   46,443     92,804     41,921  
                         
Investing Activities                        
Investment and advances to Cadiscor Resources Inc.               (1,135 )
Additions to mining interests   (14,589 )   (5,647 )   (29,222 )   (7,755 )
Proceeds on disposal of mining interests   404     21     435     21  
    (14,185 )   (5,626 )   (28,787 )   (8,869 )
Increase (decrease) in cash and cash equivalents   (34,916 )   31,906     15,359     50,060  
Cash and cash equivalents, beginning of period   148,530     61,222     98,255     43,068  
Cash and cash equivalents, end of period $ 113,614   $ 93,128   $ 113,614   $ 93,128  
                         
Cash and cash equivalents consisting of:                        
Cash $ 113,614   $ 77,775   $ 113,614   $ 77,775  
Short-term investments       15,353         15,353  
  $ 113,614   $ 93,128   $ 113,614   $ 93,128  
                         
 
Consolidated Statements of Shareholders' Equity
(expressed in thousands of Canadian dollars, except share amounts)
(unaudited)
 
  Number of shares Capital stock   Shares issuable   Stock options   Warrants   Contributed surplus Deficit   Total shareholders' equity  
Balance, December 31, 2009 127,383,051 $ 572,505   $   $ 2,704   $ 10,584   $ 19,608 $ (413,140 ) $ 192,261  
Common shares issued/issuable:                                          
  Pursuant to 2010 unit offering, net of issue costs 20,000,000   89,804             4,423           94,227  
  Tax effect of flow-through shares   (5,136 )                     (5,136 )
  Pursuant to purchase of Vezza property 1,368,421   6,500                       6,500  
Warrants expired:                                          
  Pursuant to convertible notes               (8,038 )   6,445       (1,593 )
Stock options issued:                                          
  Stock options exercised 24,750   33                       33  
Fair value of stock options exercised   34         (34 )              
Fair value of stock options cancelled           (27 )       27        
Stock-based compensation expense 42,500   165         1,033               1,198  
Net loss for the nine months ended September 30, 2010                     (22,999 )   (22,999 )
Balance, September 30, 2010 148,818,722 $ 663,905   $   $ 3,676   $ 6,969   $ 26,080 $ (436,139 ) $ 264,491  
                                           
  Number of shares Capital stock   Shares issuable   Stock options   Warrants   Contributed surplus Deficit   Total shareholders' equity  
Balance, December 31, 2008 85,158,975 $ 469,214   $ 2,080   $ 2,305   $ 14,092   $ 12,336 $ (383,126 ) $ 116,901  
Common shares issued/issuable:                                          
  On acquisition of Cadiscor 14,457,685   27,325                       27,325  
  Pursuant to conversion of convertible debenture 2,457,446   4,644                       4,644  
  For principal repayments on convertible notes payable 1,486,900   2,062     (2,062 )                  
  For interest payments on convertible notes payable 14,738   18     (18 )                  
  Pursuant to unit offering, net of issue costs 16,000,000   45,220                       45,220  
Warrants issued:                                          
  On acquisition of Cadiscor               1,168           1,168  
  Pursuant to unit offering, net of issue costs               1,686           1,686  
  Warrants exercised 215,998   575             (182 )         393  
Stock options issued:                                          
  On acquisition of Cadiscor           1,014               1,014  
  Stock options exercised 85,800   113                       113  
Fair value of stock options exercised   139         (139 )              
Fair value of stock options cancelled           (752 )       670       (82 )
Stock-based compensation expense 192,590   392         638               1,030  
Net loss for the nine months ended September 30, 2009                     (15,653 )   (15,653 )
Balance, September 30, 2009 120,070,132 $ 549,702   $   $ 3,066   $ 16,764   $ 13,006 $ (398,779 ) $ 183,759  
Common shares issued/issuable:                                          
  Pursuant to 2009 unit offering, net of issue costs 2,400,000   6,113                       6,113  
  Private placement of flow-through shares (net) 4,000,000   14,077                       14,077  
Warrants issued:                                          
  Pursuant to 2009 unit offering, net of issue costs               557           557  
  Warrants exercised 899,999   2,592             (684 )         1,908  
Warrants expired:                                          
  Pursuant to 2007 unit offering               (6,053 )   6,053        
Fair value of stock options exercised   (20 )       20                
Fair value of stock options cancelled           (549 )       549        
Stock-based compensation expense 12,920   41         167               208  
Net loss for the year ended December 31, 2009                     (14,361 )   (14,361 )
Balance, December 31, 2009 127,383,051 $ 572,505   $   $ 2,704   $ 10,584   $ 19,608 $ (413,140 ) $ 192,261  
                                           

Contact Information

  • North American Palladium Ltd.
    Camilla Bartosiewicz
    Manager, Investor Relations and Corporate Communications
    416-360-7590 Ext. 7226
    camilla@nap.com
    www.nap.com