North American Palladium Reports Q3 2019 Record EBITDA¹
Press Release
TORONTO, Nov. 07, 2019 — North American Palladium Ltd. (“NAP” or the”Company”) (TSX:PDL) (OTC PINK:PALDF) today announced financial and operational results for the three and nine months ended September 30, 2019.
Third Quarter Highlights
- Record revenue: Based on 59,611 ounces of palladium sold at an average palladium price of US$1,587, revenue for the quarter increased to $149.9 million compared to $93.6 million for the same period in 2018. This is the highest quarterly revenue in the Company’s history. Revenue for the first nine months of the year was $413.8 million based on 172,507 payable ounces of palladium sold.
- Strong growth in net income: Net income was $41.4 million, or $0.70 per share, compared to $22.9 million, or $0.39 per share, reported for Q3 2018. Year-to-date net income was $107.5 million, or $1.83 per share.
- Solid free cash flow1: Free cash flow for the quarter was $37.3 million, an increase from $18.2 million in Q3 2018; with year-to-date free cash flow at $127.9 million.
- Record EBITDA: Adjusted EBITDA increased to $82.0 million, up from $38.0 million in Q3 2018. For the first nine months of the year, adjusted EBITDA was at $216.6 million.
- Record production: Underground production averaged 7,410 tonnes per day (“tpd”) for the quarter, the highest in the Company’s history. This is a significant increase compared to the 6,144 tpd produced in Q3 2018.
- On October 7, 2019, NAP entered into a definitive arrangement agreement (the “Arrangement Agreement” with Impala Platinum Holdings Limited (“Implats”) pursuant to which Implats will acquire 100% of NAP’s issued and outstanding common shares for a total cash consideration of approximately C$1.0 billion (the “Transaction”). A special meeting of shareholders has been called for December 4, 2019 to approve the Transaction.
“We are pleased to report a fourth consecutive quarter of record revenue, resulting in our highest-ever adjusted EBITDA of $82 million,” said Jim Gallagher, President and CEO.
“North American Palladium and our Lac des Iles Mine also set new records in Q3 2019 by marking 365 days (and still counting) without a Lost-Time Injury and winning the distinction of the President’s Award for Health and Safety Excellence in Mining from Workplace Safety North. We are proud that our commitment to safety has been recognized by the industry.”
| Financial Results (expressed in millions of Canadian dollars) |
Three months ended September 30, | ||||||
| 2019 | 2018 | ||||||
| Revenue | $ | 149.9 | $ | 93.6 | |||
| Smelting, refining, and freight | $ | 4.7 | $ | 4.3 | |||
| Royalty expense | $ | 6.5 | $ | 4.0 | |||
| Net revenue | $ | 138.7 | $ | 85.3 | |||
| Operating expenses | |||||||
| Production cost | |||||||
| Mining | $ | 31.0 | $ | 28.5 | |||
| Milling | $ | 15.6 | $ | 12.2 | |||
| General and administration | $ | 7.6 | $ | 6.6 | |||
| Inventory and other costs | $ | (0.4 | ) | $ | (2.3 | ) | |
| Total production costs | $ | 53.8 | $ | 45.0 | |||
| Depreciation and amortization | $ | 15.1 | $ | 10.9 | |||
| (Gain) loss on disposal of equipment | $ | (0.3 | ) | $ | 0.5 | ||
| Total mining operating expenses | $ | 68.6 | $ | 56.4 | |||
| Income from mining operations | $ | 70.1 | $ | 28.9 | |||
| Net income | $ | 41.4 | $ | 22.9 | |||
| Net income per share | $ | 0.70 | $ | 0.39 | |||
| Adjusted EBITDA | $ | 82.0 | $ | 38.0 | |||
| Capital investment, including leases | $ | 23.0 | $ | 20.1 | |||
Finance
Revenue for the quarter increased to $149.9 million, the highest in the Company’s history, compared to $93.6 million for the same period in 2018. The revenue growth is largely due to the increase in the price of palladium. Palladium revenue per ounce sold1 this quarter averaged US$1,587/oz compared to US$988/oz in Q3 2018.
Cash flow from operations increased by $25.8 million to $61.0 million in Q3 2019, compared to the same period in 2018, despite increased operating development and mill costs.
As a result, adjusted EBITDA increased to $82.0 million in Q3 2019 from $38.0 million in Q3 2018 and net income increased to $41.4 million from $22.9 million in Q3 2018.
Total capital investment increased in Q3 2019 to $23.0 million compared to $20.1 million in Q3 2018 in support of the Company’s continued investment in the underground mine expansion and ongoing tailings management facility construction.
Total production costs for the third quarter of 2019, before inventory and other cost adjustments, were $53.8 million or $54 per tonne milled, compared to $45.0 million or $46 per tonne milled in Q3 2018. The increase in total operating unit costs is the result of additional underground tonnes, increased operating development metres and ongoing mill optimization initiatives.
The Company remains debt-free, excluding capital leases, with total liquidity as of September 30, 2019 increased to $190.6 million, including $68.3 million in cash and $122.3 million available under its current credit facility.
All-in sustaining costs (“AISC”) 1 increased in the quarter to US$802 per ounce of payable palladium produced compared to US$733 per ounce in Q3 2018. Year-over-year royalty costs, due to higher palladium prices, rose by $30 per ounce of palladium produced, which contributed significantly to this increase. Ongoing mine expansion efforts and continued focus on mill maintenance also played a role in the AISC increase.
| Operating Results | Three months ended September 30, | ||||||
| 2019 | 2018 | ||||||
| Ore mined (tonnes)2 | |||||||
| Underground Sheriff Pit |
681,717 – |
565,277 208,739 |
|||||
| Surface stockpiles | 358,162 | 289,430 | |||||
| Total | 1,039,879 | 1,063,446 | |||||
| Mined ore grade (Pd g/t) | |||||||
| Underground Sheriff Pit |
3.0 – |
3.2 1.4 |
|||||
| Surface | 0.9 | 0.9 | |||||
| Milling | |||||||
| Tonnes ore milled (dry metric tonnes) | 1,006,661 | 1,028,361 | |||||
| Head grade (grams palladium per tonne milled) | 2.4 | 2.3 | |||||
| Palladium recoveries (%) | 80.6 | 79.5 | |||||
| Palladium concentrate grade (g/t) | 198 | 214 | |||||
| Tonnes of concentrate produced (dry metric tonnes) | 9,789 | 8,729 | |||||
| Production cost per tonne ore milled1 | $ | 54 | $ | 46 | |||
| Payable production | |||||||
| Palladium – ounces | 58,884 | 56,852 | |||||
| Other results | |||||||
| Underground cost per tonne mined1 | $ | 37 | $ | 37 | |||
| AISC per ounce of palladium produced, net of by-product revenues (US$)1 | $ | 802 | $ | 733 | |||
| Cash cost per ounce of palladium sold, net of by-product revenues (US$)1 | $ | 602 | $ | 555 | |||
Operations
Positive results were reported by the Company’s operations.
The underground mine expansion continues on schedule. A total of 2,941 metres of development occurred during the quarter at an average rate of 32.0 metres per day. The project remains on track to achieve its 12,000 tpd production target in 2021.
Underground production remains above budget and increased to a record average of 7,410 tpd in Q3 2019 from 6,144 tpd in Q3 2018. This is the highest quarterly underground production in the Company’s history. Underground costs per tonne remained unchanged at $37 in Q3 2019 and Q3 2018.
Mill recovery increased this quarter to 80.6% from 79.5% in Q3 2018. The Company produced a total of 58,884 payable ounces of palladium, an increase from the 56,852 payable ounces produced in Q3 2018. Mill throughput for the quarter averaged just under 11,000 tpd.
Exploration
Exploration expenditures for Q3 2019 were $4.2 million compared to $1.9 million in Q3 2018 as a result of significant increases in underground and surface diamond drilling at the Lac des Iles Mine (“LDI”). A total of 13,691 metres of diamond drilling was completed in the quarter, comprising 7,121 metres of underground drilling at LDI and 6,570 metres of surface drilling at LDI.
Exploration highlights for the quarter include:
- Additional, positive results for the C Zone, including 42 metres of 3.4 g/t Pd with 10 metres at 5.3 g/t in hole 19-339 and 12.6 metres of 4.8 g/t Pd in hole 19-336.
- Encouraging results for the B3 Zone extension target, including 25 metres of 4.1 g/t Pd with 13 metres of 5.2 g/t Pd in hole 19-805.
- Narrow but high-grade Pd intersected in the Mystery Zone in hole 19-327, which returned 14 metres of 8.8 g/t Pd, including 9 metres of 11.5 g/t Pd.
Plans for the fourth quarter include additional underground exploration drilling on the Camp Lake target, the B2 and B3 Zones, the Offset South Zone and the C Zone. Most of the drilling will be done from the new exploration drift on the 1,065 level of the mine. Additional surface drilling will be completed in the East Mine Block on extensions to the Baker and Creek Zones along the coincident gravity-magnetic anomaly.
Implats Acquisition
During the quarter, NAP entered into a definitive Arrangement Agreement with Implats pursuant to which Implats will acquire 100% of NAP’s issued and outstanding common shares for total cash consideration of approximately C$1.0 billion. The Transaction delivers attractive value to NAP shareholders and reflects the five years of hard work the NAP team has dedicated to realizing the potential of LDI and the Company’s other exploration assets.
The Transaction will require approval by at least 66 2/3% of the votes cast by NAP shareholders present at a special meeting of NAP shareholders, which will be held on Wednesday, December 4, 2019. In connection with the Transaction, Implats has entered into customary voting support agreements with Brookfield as well as each of NAP’s directors and executive officers. In addition to shareholder approval, the Transaction is subject to the receipt of certain other customary regulatory, court and stock exchange approvals.
Under the terms of the Arrangement Agreement, shareholders of NAP other than Brookfield (defined below), will receive C$19.74 per NAP common share (the “Minority Shareholder Consideration”) in cash and Brookfield Business Partners L.P. (together with its institutional partners, collectively “Brookfield”), as the majority shareholder of NAP, will receive C$16.00 per NAP common share in cash. The Minority Shareholder Consideration represents a premium of 15% to NAP’s 30-day volume-weighted average price and 23% to NAP’s 60-day volume-weighted average price on the Toronto Stock Exchange (“TSX”) as of October 4, 2019, the last trading day prior to the announcement of the Transaction.
Dividend
The Board has discontinued the quarterly dividend as a result of and in connection with the previously announced Transaction.
Shareholder Information
The Company’s complete consolidated financial statements for the quarter ending September 30, 2019 and the related management’s discussion and analysis can be found on NAP’s website at www.nap.com, and on SEDAR at www.sedar.com.
The information circular in connection with the special meeting to approve the Transaction was posted on SEDAR on November 6, 2019 and will be mailed out to all shareholders on November 7, 2019.
Notes:
1 Non-IFRS measures. Such non-IFRS measures do not have a standardized meaning under the financial reporting framework used to prepare the Company’s financial statements and may not be comparable to similar financial measures presented by other issuers. For information regarding how the non-IFRS measures provide useful information and the additional purposes for which management uses the non-IFRS measures, please refer to Non-IFRS Measures in the Company’s management team discussion and analysis.
2 The determination of mined tonnes requires reliance upon various estimates, including estimated load factors assigned to trucks and the shaft skips, density factors assigned to the size of ore being mined, the impact of seasonal conditions, and the variability of the moisture content at the time of extraction.
All figures are in Canadian dollars except where noted.
The analyses reported in this news release were performed by ALS Global in Vancouver, British Columbia. The Company’s rigorous internal quality control and quality assurance protocols are described in detail in the current Technical Report for LDI (September 2018 – available on SEDAR).
Qualified Person
The technical content of this news release was reviewed and approved by the Company’s Vice President, Exploration, Dr. Dave Peck, a Qualified Person as defined in National Instrument 43–101 – Standards of Disclosure for Mineral Projects and a registered Professional Geoscientist with the Association of Professional Geoscientists of Ontario, the Association of Professional Engineers and Geoscientists of British Columbia, and the Association of Professional Engineers and Geoscientists of Manitoba.
About North American Palladium Ltd.
North American Palladium (TSX: PDL) (OTC PINK: PALDF) is a Canadian company with over 25 years of production at the Lac des Iles Mine in a low-risk jurisdiction northwest of Thunder Bay, Ontario. North American Palladium is the world’s only pure play palladium producer. With over 700 employees, the Lac des Iles Mine features a unique, world-class ore body and modern infrastructure, including both an underground mine and surface operations.
For further information, please contact:
North American Palladium Investor Relations at ir@nap.com.
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