North American Palladium Raises $65M

After accepting and then rejecting an unpopular $50-million financing through 7% convertible notes, North American Palladium (PDL-T, PAL-X) has found a way to raise the money, and then some, via flow-through shares and equity in two bought deals.

The operator of the halted Lac des les palladium mine in northern Ontario and soon-to-be-producing Sleeping Giant gold mine in Quebec will add $65 million to its treasury for exploration and development.

North American will issue 4 million flow-through shares at $3.75 apiece for a total of $15 million.

The company will issue another 16 million units at $3.15 apiece for $50.4 million. Each unit consists of one share and half a warrant with each warrant exercisable at $4.25 for one share within the next two years. If North American’s stock rises above $5.75 per share, the company can accelerate the expiry dates of the warrants.

A syndicate of underwriters led by Thomas Weisel Partners first agreed to a $35.3-million equity financing, but later in the day increased the amount to $50.4 million.

“We got some very strong interest on our equity transaction, so we decided to upsize the transaction to accommodate some of our shareholders that wanted to participate in that deal,” says Jeffrey Swinoga, vice-president finance and chief financial officer.

A few weeks ago, North American decided a convertible note financing with Casimir Capital was too onerous, and having no long-term debt and $60 million in the treasury, the company decided to hold off. News of this deal caused shares to fall 8% in one day on Aug. 17 to $3.04, but the stock rebounded once the deal was cancelled.

“There were some additional complications associated with some of the terms that we thought were agreed to and we decided to withdraw from that transaction,” Swinoga says.

North American will use the money fund development at both Sleeping Giant and Lac des les.

The company expects to reach commercial production at Sleeping Giant before the end of the year, producing at a rate of 50,000 oz. gold per year.

“Sleeping Giant is on track,” Swinoga says. “Things are looking good, the mill is running and working well.”

The company acquired the mine in May this year after a merger with Cadiscor Resources. Sleeping Giant has produced more than 1 million oz. gold averaging 11.4 grams gold per tonne since 1988.

Over at Lac des les, the company has been exploring for new resources ever since the mine was put on care in maintenance after platinum group metals (PGM) prices plunged last year.

“The price is going in the right direction,” Swinoga says, noting the significant byproduct credits for platinum, gold, nickel and copper at Lac des les. “We haven’t made a decision to start the mine but everything is going in the right direction.”

Palladium was around US$288 per oz. at presstime. Swinoga says the company needs palladium to be sustainable around US$300-325 before the company can consider putting the mine back into production.

“To dip down to US$280 is not very useful to us, especially when you are looking to restart a mine,” Swinoga says.

North American has had some recent success at Lac des les — it has found two new mineralized zones, as well as new mineralization in existing zones.

During the first phase of drilling, North American tested the Offset zone, which is 250 metres from the existing Roby underground mine. Highlights include 5 metres grading 16.9 grams palladium per tonne, 17 metres grading 61.3 grams palladium and 7 metres at 7.06 grams palladium.

Since July, the company has been in the second phase of drilling at Offset, and it expects to be drilling there until December. Highlights at Offset include 28 metres grading 9.18 grams palladium per tonne, 16 metres of 9.68 grams palladium and 6 metres at 9.15 grams palladium. The company says this area is very close to the Roby underground mine.

North American is also working on expanding the vertical limits of the recently discovered Cowboy zone, which was discovered while drilling the Offset zone. Recent drill results include 5 metres averaging 7.06 grams palladium per tonne, 5 metres at 6.71 grams palladium and 8 metres of 5.29 grams palladium. The company plans to complete a resource estimate on this zone by the end of the fourth quarter.

While the company was trying to test the contact of the Lac des les intrusion and the unmineralized rock in another section, it ended up discovering a new zone — the Outlaw zone — located west of the Offset and Cowboy zones. The 750-metre-long exploration hole didn’t reach the contact as planned, but did intersect 22 metres grading 3.26 grams palladium from 579 metres down-hole. The company says this shows that PGM mineralization at Lac des les remains open to the west.

North American has also been drilling in the West pit area, following up on historical and past drill results. The company found near-surface mineralization close to the current pit area. Palladium interval highlights include 28 metres grading 3.02 grams (including 12 metres at 4.39 grams), and 24 metres of 3.45 grams (including 5 metres of 5.66 grams and 7 metres of 4.76 grams).