Lac des les struggling for profits

Despite robust prices for platinum group metals, profits have remained elusive at the Lac des les mine near Thunder Bay, Ont., Canada’s only primary platinum group metals producer.

In the first six months of this year, operator North American Palladium (PDL-T), previously known as Madeleine Mines, produced 37,899 oz. palladium, 2,531 oz. platinum, 2,393 oz. gold, 598,592 lbs. copper and 481,214 lbs. nickel from 464,447 tons milled.

While these results represent a 47% increase in palladium production and a 40% increase in tons milled over the comparable period in 1997, they are not translating into profits.

North American Palladium posted a net loss of $7.8 million, or 65 cents per share, for its latest quarter ended June 30. For the 1998 first half, the net loss reached a whopping $15.8 million, or $1.33 per share. And the 1997 net loss was a staggering $70.2 million, which includes a $22.5-million writedown of deferred expenditures and another $22.3 million writedown of capital assets.

President Keith Minty concedes these results are less than impressive, and that some may be wondering what is keeping the operation and the management team going.

“We’ve been laboring under a double whammy [from previous management],” Minty says ruefully. “We were locked into hedging contracts at well below market prices, and a Canadian dollar hedged at $1.33.”

If that weren’t bad enough, palladium production was oversold, which meant that the company was unable to meet its commitments under the hedging program. It also couldn’t realize major increases in the market price of palladium for its own production, owing to the forward sales contracts and hedged U.S. dollar exchange rates. To add to the woes, it had to lease palladium on the open market at high prices to fulfil the commitments of its oversold and embarassingly low-priced hedging program.

The good news, Minty says, is that all hedging contracts for the sale of palladium were fulfilled at the end of July. The company is now able to sell its product on the open market and realize revenues at current market prices. And the dollar-hedging program has almost run its course, which means the company will soon reap the benefits of the low Canadian dollar.

“We expect the property to be operating at a cash profit shortly,” Minty says, “though we don’t expect to be profitable, as the company is still carrying a sizable debt-load.”

He says an ambitious, $1.1-million exploration program, currently under way at the property, is aimed at boosting reserves and, therefore, the project’s overall economics. “We don’t have results yet, but we’re encouraged.”

At last report, the Roby zone at Lac des les hosted proven and probable minable reserves of 7.8 million tonnes with a combined PGM grade of 0.123 oz. per ton.

The Lac des les mine consists of a 2,650-ton-per-day flotation mill fed from the adjacent open pits. Concentrates are shipped to Falconbridge’s Sudbury operations for smelting and refining.

North American Palladium’s largest shareholder is Kaiser-Francis Oil, an American company.