Lac des les nears expansion capacity

With the new concentrator at its Lac des les mine in northern Ontario finally drawing nearer to the nameplate capacity of 15,000 tonne per day, North American Palladium (PDL-T) managed to nearly triple palladium output during the first three months of 2002.

During the recent quarter, the new concentrator ran through more than 1.2 million tonnes of ore at a rate of 13,391 tonnes per day to produce 53,922 oz. of palladium. A year earlier, the old concentrator managed to process just 223,107 tonnes to yield 18,838 oz.

The quarter’s production benefited from the blending of fine ore, from contract crushing, with coarser ore, upping the semi-autogenous grinding (SAG) mill’s efficiency. The SAG mill also had new liners installed in March. Simplification of the cleaning circuit has improved flotation metallurgy. Cleaning capacity was upped by using flotation cells in the old mill and adjusting reagent application. As a result concentrate grade climbed to 249.8 grams palladium per tonne from 198.9 grams per tonne in the fourth quarter of 2001.

The mine also churned out 4,656 oz. platinum, 3,668 oz. gold, 528 tonnes copper and 302 tonnes nickel; all significantly higher that a year earlier.

Cash costs, net of other metal credits and royalties, improved to US$239 per oz. from the year-ago US$330 per oz. The improvement is attributed to the high mill throughput and recoveries plus improved metal credits. However, the higher volumes sent production costs including overhead up $13 million to $23.4 million.

Ore mined during the quarter tallied to nearly 2 million tonnes, up from 981,377 tonnes a year earlier. Head grade slipped to 1.91 grams palladium per tonne from 3.51 grams. Recoveries edged up to 73% from 72.5% to partially offset the drop in grade.

With the increased production, NAP’s first-quarter net income came to $6.2 million (or 12 per fully diluted share), compared with net income of $1.3 million (3 per share) the previous year. Revenue climbed to $44.6 million from $20.2 million. Cash flow from operations (before changes in non-cash working capital) doubled to $14 million.

NAP’s palladium production is covered by a sales contract with a major automobile manufacturer. The deal provides a floor price of US$325 per oz. on 100% of palladium production and a cap of US$550 per oz. on half of the company’s palladium production until June 30, 2005. The contract was a condition to the US$90 million project term loan that was used to fund the Lac des les expansion.

Leafing through the hedge book, the company also has forward sales contracts for 37,800 oz. palladium at US$945 apiece plus another 50,400 oz. at US$899 each against part of its 2002 and 2003 production, respectively. Additionally, 6,390 oz. of 2002 platinum production are hedged at US$503 per oz.

On the exploration front, the company plans a 48,000-metre, $2.9-million infill drilling program on the Main High Grade zone during the second quarter. The program will include geophysical surveying designed to trace the Roby and other known zones to depth, identify fault-offset mineralization and uncover new zones.

A scoping study concludes that a combined underground and open-pit operation on the Main High Grade zone is potentially economic and feasible.

At last count, Lac des les’ total proven and probable reserves, and measured and indicated resources stood at 159 million tonnes averaging 1.55 grams palladium per tonne, or 8 million contained ounces of palladium.

At the end of March, NAP had $1.7 million in cash. The company made its second project loan payment of $6.7 million during the quarter and drew $10.4 million under a US$20-million credit facility with Kaiser-Francis Oil, its largest shareholder. As a result, the combined net debt increased by $3.7 million.

NAP has nearly 50.5 million shares issued and outstanding.