Mr. Phil du Toit reports
NORTH AMERICAN PALLADIUM ANNOUNCES SECOND QUARTER 2014 RESULTS AND PROVIDES UPDATE ON EXPLORATION
North American Palladium Ltd. has released the operating, development, exploration and financial results for the second quarter ended June 30, 2014.
Second-quarter 2014 results summary:
- Upgrades to the ore handling system were completed at the end of June
and results to date in July demonstrate that more Offset zone ore can be
hoisted up the shaft as per plan. These upgrades are expected to improve
the cost of operations;
- Sold 40,716 ounces of payable palladium at a cash cost per ounce of
$510 (U.S.); excluding approximately 4,200 ounces of payable palladium in
inventory;
- Realized palladium selling price of $806 (U.S.) per ounce, giving a palladium
operating margin of $296 (U.S.) per ounce, or $11.6-million (U.S.). Palladium
prices remain strong, with the July 29, 2014, price at $884 (U.S.) per ounce;
-
Revenue of $50.5-million, which includes $14.1-million of byproduct
revenue;
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $10.4-million for the quarter and $20.2-million
for the first six months of 2014;
- Underground ore mined at LDI was 263,904 tonnes at an average grade of
4.9 grams per tonne palladium;
- Processed 243,041 tonnes of low-grade surface stockpile at LDI at an
average grade of one gram per tonne palladium;
- Underground production during the quarter averaged 2,900 tonnes per day
and was impacted by equipment availability and big muck in stopes, but
remains on track to achieve 5,000 tonnes per day by year-end;
- LDI mill processed 521,478 tonnes of ore at an average palladium head
grade of 3.1 grams per tonne palladium and a recovery rate of 83.6 per cent. Mill recoveries
for the first six months of 2014 are 84.1 per cent and remain ahead of guidance;
- During the quarter the company announced an additional $6-million in
funding for exploration at depth to support potential future mine
expansion;
- Exploration drilling in the lower Offset zone intersected a 74.0-metre
interval with an average grade of 4.76 grams per tonne palladium;
- Exploration drilling in the upper Offset zone intersected 20.2 metres
with an average grade of 7.18 grams per tonne palladium (north Offset) and 37.0
metres with an average grade of 3.72 grams per tonne palladium;
- Subsequent to quarter-end, the company announced the reduction of its
senior secured term loan interest rate and the extension of its credit
facility to July 3, 2015.
"Our turnaround efforts at LDI achieved a significant milestone during the second quarter with the completion of the underground ore handling system upgrades, and increased utilization of the shaft for both ore hoisting and transportation of workers into the mine. These are critical elements in our efforts to improve underground ore production and ultimately increase payable palladium production," said Phil du Toit, president and chief executive officer. "Subsequent to the quarter-end we announced a payment to Brookfield and a resumption of quarterly cash payments at the 15-per-cent interest level on our senior secured loan. The confidence we have in the ramp-up and future cash flow generation capabilities of LDI allowed us to take this important step, which we expect will materially reduce our interest costs over the term of the loan.
"Over all, we remain pleased with the operational progress we are making at LDI and are also encouraged by the continued promising results of our exploration program. Establishing a track record of consistent operations and extending the mine life at LDI are two ongoing objectives that we remain keenly focused on," added Mr. du Toit. "The completion of the ore handling upgrades are now allowing us to hoist a majority of the Offset zone ore, removing a production constraint," said Jim Gallagher, chief operating officer. "We have also begun partial replacements and upgrading of both the surface and underground mobile equipment fleets and continue to modify the mine design to supply better-quality broken ore in more draw points. All of these items are leading to more consistent and reliable production which puts us on track to achieve our target of 5,000 tonnes per day by the end of this year." During the quarter the company experienced a main bearing failure at its surface crusher and appropriate repairs were made to the surface crusher to help ensure reliable production going forward.
Lac des Iles operations
Second-quarter 2014 production
In the second quarter of 2014, the company's LDI mine produced 39,223 ounces of payable palladium at a total cash cost of $510 (U.S.) per ounce. The cash cost is below the company's full-year guidance of $550 (U.S.). More payable palladium ounces sold and a favourable movement of the Canadian dollar were partially offset by increased production costs.
Payable palladium production in the second quarter was in line with management's full-year guidance for 2014 as the mine continued to balance production volumes between surface and underground ore sources during the transition period. During the second quarter, 506,945 tonnes of ore were mined at LDI, of which 263,904 tonnes came from underground sources (with an average palladium grade of 4.9 grams per tonne), and 243,041 tonnes came from surface stockpiles (with an average palladium grade of one gram per tonne). During the second quarter, the LDI mill processed 521,478 tonnes of ore at a combined average palladium mill head grade of 3.1 grams per tonne, at an 83.6-per-cent palladium recovery rate, and at a total cost of $56 per tonne milled.
The company is encouraged by the operating results in the first six months of 2014, which have generally met or exceeded its expectations. During the first six months of 2014, upgrades to the ore handling system were completed, transportation of men and material via the shaft commenced and mill recoveries remained high; however; production has been impacted by repairs to the primary surface crusher, oversized muck and other equipment availability. The fatality at the mine site which was previously reported on July 11, 2014, has impacted production for the first few weeks of July and is expected to result in lower production in the third quarter of 2014. Production is returning to normal and remediation steps are being implemented.
QUARTERLY TRENDS
For the three months ended
June 30, March 31, Dec. 31, Sept. 30,
2014 2014 2013 2013
Palladium production --
payable oz 39,223 42,641 30,979 30,097
U.S.$ cash cost per $492
palladium oz sold $510 ($422(1)) $620 $581
Underground mining --
tonnes 263,904 275,845 231,346 208,097
Underground mining --
tonnes per day 2,900 3,065 2,515 2,262
Milling -- palladium
head grade (g/t) 3.1 3.3 2.9 2.5
Milling -- palladium
recovery 83.6% 84.5% 81.5% 80.7%
Adjusted EBITDA ($000s) $ 10,444 $ 9,743 $ 1,369 $ 3,189
(1) After adjusting for the impact of approximately $2.7-million of power
and propane costs associated with an unusually cold winter.
Exploration
On May 1, 2014, the company announced a $6-million expansion to its 2014 LDI exploration budget. The revised $10-million program is principally focused on conversion and extension drilling on the lower part of the Offset zone below the 1,065-metre mine level -- the current lower limit of known proven and probable resources. Specific objectives of the lower Offset zone drilling program are:
- Define additional, inferred resources in the hangingwall and footwall
zones to a depth of 1,600 metres;
- Convert some of the existing inferred resources between depths of 1,100
and 1,300 metres to indicated category;
- Determine the northern and southern limits and the strike, dip and
plunge of the hangingwall and footwall zones below the 1,065-metre
level.
Other objectives of the 2014 exploration program include resource conversion drilling in the upper Offset zone directly to the north of current active and planned mining stopes; and delineation of new resources at the shallowest known level of the deposit in an area known as the upper Offset southeast extension.
The 2014 Offset zone exploration program includes a total of 40,000 metres of drilling utilizing both surface and underground diamond drill rigs. Currently there are three surface exploration drills operating at LDI. Two of the surface drills are testing the down-plunge extension of the thickest part of the Offset zone deposit (central Offset target). The third rig is testing the upper Offset southeast extension target, following up on an intersection in hole 13-717 of 37 metres having an average grade of 5.23 grams per tonne palladium (see the company's Dec. 13, 2013, press release). Surface drilling is expected to continue until October, 2014.
Year-to-date exploration drilling statistics are:
- 7,681 metres drilled in 14 holes on all targets;
- 4,040 metres drilled in six holes on lower Offset zone targets;
- 3,641 metres drilled in eight holes on upper Offset zone targets.
As of June 30, 2014, four holes were in progress.
Highlights
Highlights for the second-quarter 2014 drilling program are provided in the Selected drilling highlights table. The best result was obtained from hole 14-901 that pierced the central Offset target at a vertical depth of approximately 1,150 metres below surface and intersected an 83-metre interval with an average grade of 4.34 grams per tonne palladium.
The interval assays reported were selected using a 2.5-gram-per-tonne-palladium cut-off grade. Average grades reported are weighted by individual sample core lengths. Interval assays represent measured core lengths. True widths are estimated to represent between 60 and 70 per cent of the reported core lengths for the upper-north, lower-central and lower-north Offset zone targets. The strike and dip of the upper-southeast extension target are not well enough constrained to support an accurate estimate of true widths.
SELECTED DRILLING HIGHLIGHTS FOR Q2 2014 OFFSET ZONE EXPLORATION PROGRAM
From To Length Pd Pt Au
Target Hole No. (m) (m) (m) (g/t) (g/t) (g/t)
Upper southeast 14-771 500.00 550.00 50.00 3.04 0.23 0.19
" including 500.00 537.00 37.00 3.72 0.28 0.23
" 14-772 444.00 472.00 28.00 2.56 0.20 0.21
" including 459.00 472.00 13.00 3.58 0.28 0.28
Upper north 14-802 477.76 498.00 20.24 7.18 0.49 0.76
" including 479.00 493.95 14.95 9.32 0.62 1.02
" 14-804 358.00 383.00 25.00 2.72 0.25 0.14
" including 375.90 383.00 7.10 5.58 0.46 0.23
" 14-805 329.00 351.00 22.00 3.40 0.24 0.27
" including 331.00 345.00 14.00 4.76 0.31 0.20
Lower central 14-901 610.00 693.00 83.00 4.34 0.32 0.50
" including 610.00 684.00 74.00 4.76 0.35 0.52
Lower north 14-973 1,867.00 1,877.00 10.00 2.72 0.24 0.14
" and 1,885.00 1,893.00 8.00 3.04 0.39 0.11
" and 1,906.43 1,919.30 12.87 2.22 0.38 0.07
Second-quarter drilling results
Although early in the program, the company is pleased with the results received to date for the four target areas tested. The central Offset target is now believed to represent an area of structural thickening and, possibly, a structural embayment in which disseminated sulphides were concentrated in both the hangingwall and footwall zones. Regardless of its provenance, this part of the deposit typically contains much thicker and continuous palladium, nickel and copper mineralization than is present along strike to the north or south. The embayment concept has been effectively used for exploration in several magmatic sulphide mining camps including the Sudbury mining district. Available information from the central Offset target suggests that this area of thickening has a north-south strike, dips steeply to the east, plunges to the south at approximately 60 degrees, has an average strike length of approximately 300 metres, and displays an average composite thickness (that is, the combined footwall and hangingwall zone thickness having an average grade exceeding a 2.5-gram-per-tonne-palladium cut-off grade) varying between 20 and 80 metres. Limited drilling on the lower-central Offset target completed in the second quarter of 2014 confirms that the zone extends to at least 1,150 metres depth. One historical hole (08-001) suggests that the embayment feature extends to at least 1,400 metres depth. Despite its southerly plunge the available drilling information suggests the central Offset zone will not impinge on the shaft pillar if a future deepening of the existing mine shaft occurs.
The drilling results reported are for the upper-north Offset zone and the upper Offset southeast extension target and are still being assessed. In the case of the upper-north target, the company remains optimistic that the new drilling results will support conversion of inferred and indicated resources to indicated and measured resources, ideally translating into new mining stopes being added to the mine plan. Initial analysis of the results from the upper Offset southeast extension target suggests that good potential exists to add palladium resources in this, the shallowest part of the Offset zone deposit (approximately 400 metres depth).
Exploration plans for the remainder of 2014
An additional 30,000 metres of underground and surface drilling are expected to be completed before the end of the year. In August, two underground drill rigs will be positioned in the south end of the 655-metre level exploration drift and will begin systematic conversion drilling on the central Offset target below the 1,065-metre level. Surface drilling will continue to target deeper levels on the projected extension of the south-plunging central Offset target. An update on exploration results will be included as part of the company's third-quarter results release.
Technical information and qualified persons
The assay analyses performed during NAP's exploration drilling programs are subject to a rigorous, formal quality assurance and quality control program, details of which can are provided in the most recent technical report (March, 2014). Diamond drill core from exploration drilling is logged and sampled on site with samples transported by the company to ALS Global's sample preparation facilities in Thunder Bay. The sample pulps prepared in Thunder Bay are shipped by ALS Global to its Vancouver analytical laboratories, which constitute an independent accredited commercial laboratory for platinum group elements assay and base metal analysis.
The exploration results section of this new release was prepared by Dave Peck, PGeo, the company's head of exploration and a qualified person as defined by National Instrument 43-101. The company's exploration team designed and executed the drilling program under the direction of Robert D. Stewart, PGeo, exploration department chief geoscientist, an employee of North American Palladium and a qualified person as defined by National Instrument 43-101, who has reviewed and approved the exploration sections of this news release.
Financial results
Revenue for the second quarter was $50.5-million compared with $33.2-million in the second quarter of 2013. The increase in revenue was primarily due to favourable exchange rate movements, higher realized prices for palladium and greater palladium ounces sold. During the second quarter, the company realized a palladium selling price of $806 (U.S.) per ounce.
Net loss for the quarter was $10.0-million or three cents per share compared with a net loss of $26.3-million or 15 cents per share in the same quarter last year. The decrease in the net loss is primarily due to the impact of higher revenues, increased foreign exchange gains partially offset by increased production costs and increased interest expense and other costs.
EBITDA was $15.9-million for the second quarter, compared with negative $6.1-million in the same quarter last year. Adjusted EBITDA (which excludes interest expenses and other costs, depreciation and amortization, exploration, foreign exchange gains and losses, and mine restoration costs net of insurance recoveries) was $10.4-million in the second quarter of 2014, compared with $900,000 in the second quarter of last year.
During the second quarter, the company closed the second $35.0-million tranche related to its previously announced convertible unsecured subordinated debenture financing. As at June 30, 2014, the company had cash and cash equivalents of $44.3-million compared to $9.8-million as at Dec. 31, 2013. As at June 30, 2014, the company's credit facility availability was limited by the borrowing base to $42.8-million (U.S.) of which $37.1-million (U.S.) was utilized.
On July 7, 2014, the company announced that it had paid $23.4-million (U.S.) to its senior secured term loan lender representing $16.2-million (U.S.) of accrued interest and $7.2-million (U.S.) of associated prepayment fee. Effective June 30, 2014, the company reverted to a 15-per-cent annual interest rate on the senior secured term loan and the company's cash balance, after reflecting the payment, was approximately $19-million.
Second-quarter 2014 conference call and webcast details
Date: Wednesday, July 30, 2014
Time: 8:30 a.m. ET
Webcast: North American Palladium website
Live call: 1-866-229-4144 or 1-416-216-4169 (PIN: 8347411, followed by the pound
sign)
Replay: 1-888-843-7419 or 1-630-652-3042 (PIN: 8347411, followed by the pound sign)
The conference call replay will be available for 90 days after the live event. An archived audio webcast of the call will also be posted to North American Palladium's website.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS)
(expressed in thousands of dollars, except per share amounts)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Revenue $ 50,497 $ 33,213 $ 99,233 $ 80,303
Mining operating
expenses
Production costs 30,355 25,701 60,090 54,642
Smelting, refining
and freight costs 4,130 3,406 8,313 7,208
Royalty expense 2,184 892 4,258 3,401
Depreciation and
amortization 8,174 7,004 18,542 13,089
Loss on disposal of
equipment 773 425 1,220 1,054
------------- ------------- ------------- -------------
Total mining
operating expenses 45,616 37,428 92,423 79,394
------------- ------------- ------------- -------------
Income (loss) from
mining operations 4,881 (4,215) 6,810 909
------------- ------------- ------------- -------------
Other expenses
Exploration 1,891 2,192 2,659 7,032
General and
administration 2,611 2,186 5,165 5,099
Interest and other
income (2,687) (2,179) (2,400) (1,532)
Interest expense and
other costs 16,010 2,006 28,984 3,184
Financing costs 4,348 2,318 8,384 2,399
Loss on
extinguishment of
long-term debt - 11,035 - 11,035
Foreign exchange
loss (gain) (7,335) 4,495 641 5,317
------------- ------------- ------------- -------------
Total other expenses 14,838 22,053 43,433 32,534
------------- ------------- ------------- -------------
(Loss) from
continuing operations
before taxes (9,957) (26,268) (36,623) (31,625)
Income and mining
tax recovery - - -
------------- ------------- ------------- -------------
(Loss) and
comprehensive (loss)
from continuing
operations for the
period (9,957) (26,268) (36,623) (31,625)
Income and
comprehensive
income from
discontinued
operations for the
period - - - 2,509
------------- ------------- ------------- -------------
(Loss) and
comprehensive (loss)
for the period $ (9,957) $ (26,268) $ (36,623) $ (29,116)
============= ============= ============= =============
(Loss) per share
Basic $ (0.03) $ (0.15) $ (0.13) $ (0.16)
Diluted (0.03) (0.16) (0.13) (0.17)
(Loss) from
continuing operations
per share
Basic (0.03) (0.15) (0.13) (0.17)
Diluted (0.03) (0.16) (0.13) (0.18)
------------- ------------- ------------- -------------
Income from
discontinued
operations per
share
Basic - - - 0.01
Diluted - - - 0.01
We seek Safe Harbor.
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