NAP coasts on stronger loony

The weaker U.S. dollar has enabled North American Palladium (PDL-T) to overcome substantial increases in operating expenses and income taxes.

Net earnings topped $8.4 million (or 17 per share) on $41.6 million in the first three months of the year, compared with $6.2 million (12 per share) on $40.6 million in the similar period of 2002.

NAP actually recorded $8.2 million more in operating expenses and provisions for income taxes in the recent period, the former being a reflection of its use of contract crushers at the Lac des Iles mine in northern Ont. However, the additional costs were than offset by foreign exchange gains and fewer interest payments on long-term project debt, which is denominated in U.S. dollars.

Before working capital changes, cash flow from operations fell to $11.4 from $14 million, as most of the foreign exchange gain was not realized. After changes to non-cash working capital, cash provided by operations totaled $10 million in the recent period, whereas $1 million more was spent than was generated last year, owing mainly to a large increase in concentrate awaiting settlement.

Lac des Iles pumped out 58,791 oz. palladium from 1.2 million tonnes of ore, versus 53,992 oz. from a similar volume a year ago. Higher headgrades and recovery rates account for the increase, as well as for higher volumes of byproduct platinum, gold, copper and nickel.

Total cash costs jumped by 16% to US$277 per oz. palladium, net of byproduct credits. The increase reflects the contractors, necessitated by the breakdown of the primary crusher last Sept., and the stronger loony. A new crusher has been purchased and is scheduled for start-up in mid-year, following which costs should decline.

Exploration around the minesite continues, with recent drilling focused on delineating possible near-surface extention’s of the main Roby zone to the southeast and southwest. A magnetotelluric survey also was carried out to test for a deep-seated, massive sulphide source of several precious- and base-metal rich lenses known to occur near-surface.

Regional exploration focused on the Buck Lake, Weaver Lake, Shebandowan Lake and Chief Peter Lake properties. Results from several holes recently sunk in geophysical anomalies outlined previously at Buck Lake and Weaver Lake are pending.

At Shebandowan Lake and Chief Peter Lake properties, mapping, geochemical sampling and trenching is under way. The former is located 80 km west of Thunder Bay and the later, 100 km southwest of the mine.

On March 31, NAP had about $52 million in working capital, with about $6 million of current assets being cash or equivalents. Long-term debt stood at $52 million, excluding the current portion.

For 2003, NAP hedged US$53 million of its revenue at an average rate of 1.59-to-1. It also has remaining foward sales contracts on 37,800 oz. palladium priced at US$899 per oz. and 2,000 oz. fixed at US$524 per oz. Further, until mid-2005, long-term sales contracts assure it a minimum price of US$325 per oz. on all of its production.