Lower prices eat into NAP earnings

With ramp-up to full steam at the newly expanded Lac des les mine in northern Ontario taking longer than expected and palladium prices well off their recent highs, North American Palladium (PDL-T) recorded lower net income of $1.2 million (or 3 per diluted share) on revenues of $56.9 million during the three months ended Dec. 31, 2001.

During the year-ago period, when palladium hit a record high of US$1,094 per oz., the owner of Canada’s only primary palladium mine raked in net earnings of $23.4 million (or 50 per share) on revenues of $31.5 million. Included in the recent fourth quarter results is a $4.6-million writedown on an old plant and equipment that was removed after commissioning of the new 15,000-tonne-per-day concentrator at Lac des les in June 2001. The fourth quarter 2000 results enjoyed a $15-million boost thanks to the recognition of future income tax recovery.

Cash flow from operations (before changes in non-cash working capital) amounted to $17.8 million, about $6 million better that the previous year.

For all of 2001, net income came to $7.5 million (15 per share) on revenues of $121.5 million, compared with year-ago net income of $61.5 million ($2 per share) on revenues of $109.5 million. Cash flow was $34.4 million compared $65.8 million the previous year.

The numbers for 2001 include a foreign exchange loss of about $6.8 million. Under newly adopted accounting policies, NAP counts the loss or gain on foreign exchange in the period in which they occur.

During the fourth quarter of 2001, the mill processed more than 1.1 million tonnes of ore running 2 grams palladium per tonne to produce 51,475 oz. of palladium. Recovery rates continued to improve hitting 70.4%. The mine also churned out 4,238 oz. of platinum, 3,817 oz. of gold, 1.2 million lbs. of copper and 604,933 lbs. of nickel.

That’s up from the 910,509 tonnes averaging about 2 grams palladium processed during the third quarter of 2001. In addition to the 36,891 oz. of palladium recovered, the mine churned out 3,347 oz. of platinum, 2,829 oz. gold, 956,935 lbs. copper and 348,015 lbs. nickel. Palladium recoveries in the third quarter 2001 were 62.9% compared to 73.7% in the corresponding period of 2000.

Some third quarter start-up hiccoughs at Lac des les, combined with lower realized palladium prices, resulted in a third-quarter loss of $2.7 million.

Engineering studies for a secondary crushing facility, to replace contract crushing are underway and a decision on the secondary crusher will be made during the first quarter 2002. The company is also considering modifications to the grinding circuit and possible expansion of the cleaner flotation circuit.

As part of a cost-cutting program, NAP is gearing down mining activity to 54,000 tonnes per day during 2002. The company says that the operation’s stockpiles comprising 6.4 million tonnes of 1.3 grams palladium (at year end 2001) will allow the lower mining rate without affecting the 2001 projected mill throughput of 15,000 tonnes per day. In addition, a reduction of the mine’s workforce and ancillary services will result in savings of about $700,000.

On the exploration front, NAP completed 36 new core drill holes and the extended 12 previously drilled holes for a total of 28,607 metres of core drilling at Lac des les. The holes focused on testing below the maximum pit depth of 400 metres.

The drill program identified additional resources and discovered the new Offset High Grade zone 250 metres west of the Main High Grade zone at a vertical depth ranging from 560 metres to 903 metres below surface.

At the end of 2001, total reserves and measured and indicated resources increased to 159 million tonnes grading 1.55 grams palladium per tonne, up from 146 million tonnes running 1.57 grams at the end of 2000.

Inferred resources climbed to 73 million tonnes of 1.57 grams, including 6.1 million tonnes averaging 5.2 grams in the newly discovered Offset High Grade zone. At the end of 2000, inferred resources stood at 19.7 million tonnes grading 1.69 grams.

The reserves and resources are based on a cut-off grade of 0.7 grams palladium per tonne.

At Dec. 31, NAP had about $1.8 million in cash, long-term debt of $111.1 million and 50.5 million shares outstanding.