Mr. Phil du Toit reports

NORTH AMERICAN PALLADIUM ANNOUNCES 2014 OPERATING GUIDANCE

North American Palladium Ltd. has released its production guidance along with its capital expenditure and exploration forecasts for its Lac des Iles palladium mine in 2014.

Summary

• The company is targeting increased payable palladium production of 170,000 to 175,000 ounces.
• The company's capital investment and exploration budgets will be significantly reduced to approximately $30-million and $4-million, respectively.
• Underground production is forecasted to gradually increase throughout the year from approximately 3,000 tonnes per day in the first half of the year up to 5,000 tonnes per day by the end of 2014.
• The company is planning to commission a preliminary economic assessment study to define future growth potential at Lac des Iles by optimizing the Offset zone resources and several alternative supplemental development opportunities that could leverage the capacity of existing infrastructure.

"Looking ahead to 2014, our operating focus will be on consolidating the growth investments from our past to establish steady-state operations with the new shaft at Lac des Iles," commented Phil du Toit, president and chief executive officer. "Production through the shaft is gradually increasing, enabling us to target over 170,000 ounces of payable palladium production in 2014 at a significantly reduced capital expenditure program of under $30-million. As we increase underground production, we expect that a decrease in operating costs will follow, further positioning Lac des Iles for enhanced operating margins."

Mr. du Toit added: "We recognize that our ability to proceed with our plans is contingent on securing additional financing, which we are working hard to complete. The fundamentals of our asset base remain robust, offering good upside to deliver future production growth in a market where the demand exceeds supply. As part of our long-term objective of becoming a low-cost mid-tier palladium producer, in 2014 we also plan to determine the most optimal plan for future organic growth so that we can optimize the resources and leverage the historical investments in site infrastructure."

Production and commissioning update for 2013

The company is pleased to report that operations are making good progress ramping up underground production through the shaft, while the company continues to optimize the underground ore-handling system to improve shaft production and allow for greater utilization in 2014. Underground production in December increased to approximately 2,800 tonnes per day, peaking at over 3,500 tonnes per day on several days. Production in the month of December totalled approximately 12,000 ounces, one of the highest monthly production rates of 2013, benefitting from improved recoveries at the mill of approximately 83 per cent.

Based on the preliminary results, the company estimates that 2013 payable palladium production will total approximately 135,000 ounces, consistent with management's revised forecast for the year. More detailed disclosure of 2013 production results will be provided when the company releases its year-end results in February, 2014.

Operating guidance for 2014

Production metrics

In 2014, operations are expected to benefit from the new shaft, which has positioned Lac des Iles for increased underground production from the Offset zone. The company is targeting annual payable palladium production in the range of 170,000 to 175,000 ounces. Underground mining is expected to average approximately 3,000 tonnes per day for the first half of the year and gradually increase up to 5,000 tonnes per day by the end of 2014.

The company plans to mine up to approximately 1.3 million tonnes from the underground mine at an approximate average diluted grade of 4.2 grams per tonne palladium, with ore predominately sourced from the Offset zone, as well as some contribution from an additional stope in the northern extension of the Roby zone. The company also plans to augment underground production with approximately one million tonnes of lower-grade surface stockpiles, which average approximately one g/t palladium. The surface stockpile contribution is forecasted to be higher in the first half of the year, resulting in quarterly variability to the milled head grade and therefore recoveries, with the improved performance (driven by an increased percentage of underground higher-grade material) forecasted for the second half of the year.

During the first quarter the company plans to complete its mill upgrades, which are expected to yield improved recoveries for the remainder of the year. The combined head grade to the mill is forecasted to average approximately three g/t palladium for the year at an improved mill recovery average, expected to be higher than 82 per cent.

The transition to shaft hoisting in 2014 is expected to result in cost savings for operations, although these cost savings are expected to be realized during the second half of the year as the new shaft system gets optimized with more efficient skipping, and as underground volumes increase and start to dilute the fixed costs. Accordingly, cash costs per ounce are forecasted to be higher in the first half of 2014 and are expected to decrease to approximately $450 (U.S.) in the fourth quarter. The company estimates that cash costs per ounce will average around $550 (U.S.) for the year and that the overall cost per tonne milled will range between $51 and $55.

Lac des Iles's cash costs per ounce are presented net of byproduct revenue. In 2014, the byproduct metals are estimated to comprise approximately 26 per cent of its revenue. In comparison with 2013, the company forecasts decreased prices from the byproduct metals and that revenue from palladium will increase from approximately 66 per cent in 2013 to approximately 74 per cent in 2014. Assumptions used by the company for 2014 forecasting purposes are $750 (U.S.) per ounce of palladium, $1,400 (U.S.) per ounce of platinum, $1,300 (U.S.) per ounce of gold, $6.20 (U.S.) per pound of nickel and $3.20 (U.S.) per pound of copper, and an exchange rate of $1 to $1 (U.S.).

Capital expenditure and exploration programs

With phase 1 of the mine expansion now completed, the 2014 capital expenditure program for Lac des Iles has been substantially reduced to under $30-million. Key expenditures from the program include $11-million for capital development and $5-million to expand the tailings management facility, as well as other expenditures related to underground development, enhancements to the ore handling system, upgrades at the mill, engineering studies and other sustaining capital.

Concurrent with the company's initiative to reduce spending, investment in exploration has been reduced to approximately $4-million in 2014, all of which will be expensed. The program will be predominately focused on conversion drilling on the Offset zone to upgrade the resource categories and on definition drilling on the Offset zone extensions.

Capital resources and liquidity

The company is currently in discussions about obtaining additional financing to enhance the balance sheet in support of its 2014 budget. The additional proceeds are required to support the company's working capital needs, and to enable the company to continue financing its operating and capital expenditures to establish Lac des Iles for sustainable production in 2014. While the company has been successful at securing financings in the past, there is no certainty that the required financing will be available or, if available, on acceptable terms.

In the event that the company is unable to secure additional financing, it is also reviewing a number of other strategic alternatives. These may include, among other things, a sale of all or part of the company or its assets, or a recapitalization transaction. There can be no assurance that any alternative transaction will occur or as to the terms of any possible transaction. Unless otherwise expressly required by law, the company does not currently intend to disclose further developments with respect to this review process unless and until a transaction is agreed to or unless it is otherwise determined to be appropriate to do so.

Outlook

With palladium ending 2013 as one the best performing commodities (averaging $723 (U.S.) per ounce for the year), most metals forecasters agree that the strong performance will continue into 2014 as global car sales are estimated to rise by 4.8 per cent. Although price forecasts vary by institution, the average consensus price is approximately $815 (U.S.) for 2014, driven by the resilient industrial demand from the automotive sector and the inability of global mine supply to meet demand.

The supply and demand fundamentals of palladium remain strong, keeping the market in a deficit that is further estimated to grow in 2014 as there should be a decreased contribution from Russian stock sales, strong demand from the Chinese auto market and increased investment demand. The outlook for palladium is extremely positive, and the company believes that its recent mine expansion has been well timed in the commodity's cycle, where Lac des Iles is one of the few platinum group metals producers that is well positioned for production growth at a reduced cost structure.

In 2014, management will focus on:

• Increasing underground production from approximately 3,000 tonnes per day in the first half of the year up to 5,000 tonnes per day by the end of 2014;
• Updating its mineral reserve and resource estimate for Lac des Iles, targeted for January, 2014;
• Updating its NI 43-101 technical report for phase 1 reserves, targeted for the first quarter of 2014;
• Commissioning a new PEA study to assess Lac des Iles's future growth potential by evaluating an expansion of the mine at depth, alternative mining methods and several lateral development opportunities, targeted for completion in the second half of 2014.

We seek Safe Harbor.