TORONTO, ONTARIO- MINING – North American Palladium Ltd. (“NAP” or the “Company”) (TSX:PDL)(NYSE MKT:PAL) today announced the operating, development, exploration and financial results for the second quarter ended June 30, 2014 (“Q2”).
Q2, 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(1) of US$510; excluding approximately 4,200 ounces of payable palladium in inventory.
Realized palladium selling price of US$806 per ounce, giving a palladium operating margin of US$296 per ounce, or US$11.6 million. Palladium prices remain strong, with the July 29, 2014 price at US$884 per ounce.
Revenue of $50.5 million which includes $14.1 million of by-product revenue;
- Adjusted EBITDA(1) 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 g/t palladium.
- Processed 243,041 tonnes of low grade surface stockpile at LDI at an average grade of 1.0 g/t 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 g/t palladium and a recovery rate of 83.6%. Mill recoveries for the first six months of 2014 are 84.1% 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 meter interval with an average grade of 4.76 g/t palladium.
Exploration drilling in the upper Offset Zone intersected 20.2 meters with an average grade of 7.18 g/t palladium (north Offset) and 37.0 meters with an average grade of 3.72 g/t 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 turn-around 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% 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.”
“Overall, 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
Q2 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 US$510 per ounce(1). The cash cost is below our full year guidance of US$550. More payable palladium ounces sold and a favorable 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 1.0 grams 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% 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.
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 meter 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 meters;
Convert some of the existing inferred resources between depths of 1,100 to 1,300 meters to indicated category; and,
Determine the northern and southern limits and the strike, dip and plunge of the hangingwall and footwall zones below the 1,065 meter 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 meters 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 meters having an average grade of 5.23 g/t Pd (see the company’s December 13, 2013 press release). Surface drilling is expected to continue until October 2014.
Year-to-date exploration drilling statistics are:
7,681 meters drilled in fourteen holes on all targets
4,040 meters drilled in six holes on lower Offset Zone targets
3,641 meters drilled in eight holes on upper Offset Zone targets
As of June 30, 2014, four holes were in progress.
Highlights for the second quarter 2014 drilling program are provided in the table below. The best result was obtained from hole 14-901 that pierced the central Offset target at a vertical depth of approximately 1,150 meters below surface and intersected an 83 meter interval with an average grade of 4.34 g/t palladium. To view supplemental information including a figure illustrating the relative position of the drill hole pierce points and a complete listing of anomalous drilling results for all holes completed in the second quarter of 2014 please click on the following link: http://media3.marketwire.com/docs/pdl0730supplemental.pdf.
Selected drilling highlights for the second quarter of 2014 Offset Zone exploration program. The interval assays reported were selected using a 2.5 g/t Pd 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 to 70% 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.
Management Analysis of Q2 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 sulfides 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 sulfide 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 meters, and displays an average composite thickness (i.e., the combined footwall and hangingwall zone thickness having an average grade exceeding a 2.5 g/t Pd cut-off grade) varying between 20 and 80 meters. 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 meters depth. One historical hole (08-001) suggests that the embayment feature extends to at least 1,400 meters 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 meters depth).
Exploration Plans for the Remainder of 2014
An additional 30,000 meters 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 meter level exploration drift and will begin systematic conversion drilling on the central Offset target below the 1,065 meter 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 (QA/QC) program, details of which can are provided in the most recent Technical Report (March 2014 – see link on NAP’s website). 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 their Vancouver analytical laboratories, which constitute an independent accredited commercial laboratory for PGE assay and base metal analysis.
The exploration results section of this new release was prepared by Dave Peck, P.Geo., 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, P.Geo., Exploration Department Chief Geoscientist, an employee of NAP 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 (2)
Revenue for the second quarter was $50.5 million compared to $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 US$806 per ounce.
Net loss for the quarter was $10.0 million or $0.03 per share compared to a net loss of $26.3 million or $0.15 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(1) was $15.9 million for the second quarter, compared to negative $6.1 million in the same quarter last year. Adjusted EBITDA(1) (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 to $0.9 million 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 December 31, 2013. As at June 30, 2014, the Company’s credit facility availability was limited by the borrowing base to US$42.8 million of which US$37.1 million was utilized.
On July 7, 2014, the Company announced that it had paid US$23.4 million to its senior secured term loan lender representing US$16.2 million of accrued interest and US$7.2 million of associated pre-payment fee. Effective June 30, 2014, the Company reverted to a 15% annual interest rate on the senior secured term loan and the Company’s cash balance, after reflecting the payment, was approximately $19 million.
Q2 2014 Conference Call & Webcast Details
Date: Wednesday, July 30, 2014
Time: 8:30 a.m. ET
Live Call: 1-866-229-4144 or 1-416-216-4169 (PIN: 8347411, followed by # sign)
Replay: 1-888-843-7419 or 1-630-652-3042 (PIN: 8347411, followed by # 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 NAP’s website.
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 NYSE MKT under the symbol PAL and on the TSX under the symbol PDL.