North American Palladium Announces Second Quarter 2015 Results
Toronto, Ontario, July 29, 2015 – North American Palladium Ltd. (“NAP” or the “Company”) (TSX: PDL) (OTC MKT: PALDF) today announced financial and operational results for the second quarter ended June 30, 2015 from its Lac des Iles palladium mine (“LDI”) in northern Ontario.
Q2 2015 Results Summary
- During the second quarter the LDI mill was shut down from May 8 to June 26, and this had a materially adverse impact on operating and financial results for the period.
- Produced 22,904 ounces of payable palladium, a 42% decrease compared to the same period in 2014, at a cash cost per ounce(1) of US$750.
- Realized palladium selling price of US$758 per ounce, giving a palladium operating margin of US$8 per ounce, or US$0.2 million.
- Revenue of $27.3 million, a decrease of $23.2 million or 46% compared to the same period in 2014.
- Adjusted EBITDA(1) of negative $4.0 million, a decrease of $14.5 million compared to $10.5 million for the same period in 2014.
- Invested $7.8 million in capital expenditures and $1.8 million in exploration expenses.
Restart and Water Balance Update
On June 26, 2015, the Company successfully restarted its milling operations at LDI which had been suspended since early May due to water balance issues. The initial mill start-up was at 8,400 tonnes per day (“tpd”) and, for a period in July, the milling rate was increased to 11,500 tpd. At the time of the resumption of milling operations the Company had a significant stockpile of underground ore at surface available for processing. The milling rate is expected to average 8,400 tpd as per the 2015 plan and the underground stockpile on surface is expected to be depleted before blending of underground ore with surface stockpiles recommences.
The Company expects to finalize the design that addresses its tailings requirements for the foreseeable future. Continuing to run the mill at 8,400 tpd for the remainder of 2015 will allow for the implementation of this long -term tailings management solution. Stakeholder consultations are ongoing, engineering designs are nearing completion and permits are expected to be received in due course.
The Company’s action plan to reduce and mitigate the potential downstream impact of the release includes: extensive monitoring and sampling of the receiving watershed; engaging experts to monitor the receiving water bodies and to advise on dam integrity and overall mitigation plans; check dams to slow the flow of water; and, silt fencing in place on the in and out flows of each receiving body of water.
As at July 28, 2015, monitoring indicates that the water quality in the downstream water bodies has essentially returned to background levels that existed before the discharge occurred. Suspended solids, aluminum and iron which were previously identified as being above permitted discharge limits are now at or below those limits. All tests to date indicate no adverse impact to aquatic life. While the potential longer term impact of the discharge on the environment, if any, has yet to be determined, recent test results suggest that the impact will be negligible and the Company is working with experts in the field to prepare and implement a monitoring and remediation plan in consultation with First Nations groups and the Ministry of the Environment and Climate Change.
2015 Guidance Review
The Company also announced today that it is putting its 2015 guidance under review with a negative revision expected. This decision was made due to a number of factors, including the impact of the suspension of milling operations, the recent decline in palladium and other payable metal prices, as well as additional costs incurred due to the remediation related to the water balance issues. The Company expects to provide an update on guidance during the third quarter.
Recapitalization
The Company has entered into an agreement with Brookfield Capital Partners Ltd. (“Brookfield”) aimed at significantly reducing the Company’s debt and enhancing the Company’s liquidity (the “Recapitalization”). On July 30, 2015, meetings of shareholders and debenture holders will be held to vote on the Recapitalization. If the Recapitalization is not approved, the Company has agreed to pursue proceedings under creditor protection legislation. A holder of convertible debentures holding approximately 54% of the Company’s convertible debentures has executed an agreement to support the Recapitalization. The Company’s obligations to employees, trade creditors, equipment leases and suppliers will not be affected by the Recapitalization.
The Recapitalization will be effected by way of a court approved plan of arrangement. Additional information regarding the Recapitalization transaction is included in the Company’s management proxy circular dated June 30, 2015 that is filed with the provincial securities regulatory authorities and the SEC and can be obtained at www.sedar.com or www.sec.gov.
Financial Update(2)
Q2 2015
Revenue for the second quarter was $27.3 million compared to $50.5 million in the second quarter of 2014. The decrease in revenue was primarily due to the adverse impact of the mill shutdown in May and June. During the second quarter, the Company realized a palladium selling price of US$758 per ounce.
Net loss for the quarter was $96.8 million or $0.25 per share compared to a net loss of $10.0 million or $0.03 per share in the same quarter last year. The increase in the net loss is primarily due to a non-cash change in the carrying value of the senior secured term loan to include prepayment fees ($66.8 million) related to the Recapitalization transaction, and to the impact of the mill shutdown in May and June.
Adjusted EBITDA(1) (which excludes income and mining tax expense, interest and other income, interest, debt revaluation and other costs, financing costs, depreciation and amortization, exploration, foreign exchange gains and losses and mine restoration and mitigation costs) was negative $4.0 million in the second quarter, compared to $10.5 million in second quarter last year.
Financial Liquidity
As at June 30, 2015, the Company had cash and cash equivalents of $21.2 million compared to $10.4 million as at March 31, 2015.
On June 18, 2015, Brookfield made available a US$25 bridge loan to fund short term liquidity requirements related to the recent mill shutdown. The bridge loan is available in two tranches, matures on September 15, 2015 and bears interest at 16%. On June 19, 2015, the Company drew down the first US$15 million tranche of the bridge loan and on July 14, 2015 drew down on the second US$10 million tranche.
Lac des Iles Operations
Q2 2015 Production
In the second quarter of 2015, the Company’s LDI mine produced 22,904 ounces of payable palladium at a total cash cost of US$750 per ounce(1) compared to US$510 in the same period in 2014. The
increase in cash cost in the second quarter of 2015 was mostly due to the impact of the mill shutdown in May and June.
During the first quarter, 625,093 tonnes of ore were mined and processed at LDI from underground and surface stockpiles with an average palladium grade of 3.3 grams per tonne. During the second quarter, the LDI mill processed 336,142 tonnes of ore at a combined average palladium mill head grade of 2.8 grams per tonne, at an 82.8% palladium recovery rate.
Production costs per tonne milled in the three months ended June 30, 2015 were $76 compared to $58 per tonne in the same period 2014. The increase was primarily due to the impact of the 36% decrease in tonnes milled due to the mill shutdown in May and June.
Underground mining continued during the mill shutdown in the second quarter of 2015 and consisted of 438,555 tonnes (4,819 tonnes per day) at an average grade of 4.3 g/t palladium compared to 263,904 tonnes (2,900 tonnes per day) at an average palladium grade of 4.9 g/t in the same period in the prior year. In the second quarter of 2015, 186,538 tonnes of the low grade surface stockpile and tailings at an average grade of 1.0 g/t palladium was processed compared to 243,041 tonnes at an average grade of 1.0 g/t in the prior year.
In the second quarter of 2015, the Company entered into a new three year collective agreement with its hourly employees that runs from June 1, 2015 to May 31, 2018.
Exploration
Exploration expenditures for the three months ended June 30, 2015 were $1.8 million compared to $1.9 million in the same period in 2014. The change was primarily due to an early start to the 2015 exploration program and a subsequent curtailment of the program in light of the mill shutdown.
Q2 2015 Conference Call & Webcast Details
Date: Thursday, July 29, 2015
Time: 10:00 a.m. ET
Webcast: www.nap.com
Live Call: 1-866-229-4144 or 1-416-216-4169 (PIN: 9404636, followed by # sign)
Replay: 1-888-843-7419 or 1-630-652-3042 (PIN: 9404636, 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.
Technical Information and Qualified Persons
Mr. James Gallagher, the Company’s Chief Operating Officer and a Qualified Person under National Instrument 43-101, has reviewed and approved all technical items disclosed in this news release.
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 TSX under the symbol PDL and on the OTC Pink under the symbol PALDF.
For further information, please contact:
John Vincic
Telephone: 416-360-7374
Email: IR@nap.com
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