Lower PGM prices eat into NAP earnings

With 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 revenue of $56.9 million during the three months ended Dec. 31, 2001.

During the comparable period in 2000, 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 (50 per share) on revenue of $31.5 million.

Included in the recent fourth-quarter results was a $4.6-million writedown on an old plant and equipment at the Lac des les mine in northern Ontario. The plant was removed after commissioning a new, 15,000-tonne-per-day concentrator in June 2001.

Earnings in the fourth quarter of 2000 enjoyed a $15-million boost, owing 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 than in the year-earlier quarter.

For all of 2001, net income amounted to $7.5 million (15 per share) on revenue of $121.5 million, compared with 2000 earnings of $61.5 million ($2 per share) on revenue of $109.5 million. Cash flow between the two periods slipped to $34.4 million from $65.8 million.

The numbers for 2001 include a foreign-exchange loss of $6.8 million. Under newly adopted accounting policies, NAP accounts for the loss or gain on foreign exchange in the period in which it occurs.

During the fourth quarter of 2001, the mill processed more than 1.1 million tonnes of ore running 2 grams palladium per tonne, from which 51,475 oz. palladium were produced. Recovery rates continued to improve, hitting 70.4%. The mine also churned out 4,238 oz. platinum, 3,817 oz. gold, 540 tonnes copper and 274 tonnes nickel.

For comparison, 910,509 tonnes averaging 2 grams palladium per tonne were processed during the third quarter of 2001. In addition to the 36,891 oz. palladium recovered, the mine churned out 3,347 oz. platinum, 2,829 oz. gold, 434 tonnes copper and 158 tonnes nickel.

Palladium recoveries in the third quarter of 2001 were 62.9%, compared with 73.7% in the corresponding period of 2000.

Some third-quarter startup hiccups 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 of 2002. The company is also considering modifications to the grinding circuit and a possible expansion of the cleaner flotation circuit.

As part of a cost-cutting program, NAP has reduced mining rates to 54,000 tonnes per year. However, a stockpile of 6.4 million tonnes running 1.3 grams palladium will sustain daily milling rates at 15,000 tonnes. The lower opertating costs, combined with a smaller workforce and ancillary services, should result in roughly $700,000 in savings.

On the exploration front, in 2001, NAP drilled 36 new holes and extended 12 others that were previously drilled for a total of 28,607 metres of core drilling at Lac des les. All were drilled to test mineralization below the pit envelop depth of 400 metres.

The drill program led to the identification of new resources and the discovery of the Offset High-Grade zone, 250 metres west of the Main High-Grade zone, at a vertical depth ranging from 560 to 903 metres below surface.

At the end of 2001, Lac des les hosted 159 million tonnes of mineralized material grading 1.55 grams palladium per tonne, up from 146 million tonnes running 1.57 grams at the end of 2000. Within the inferred category, which totals 73 million tonnes grading 1.57 grams, are 6.1 million tonnes of Offset High-Grade material averaging 5.2 grams.

Reserves and resources at Lac des les are based on a cutoff grade of 0.7 gram palladium-equivalent per tonne.

At the end of 2001, NAP had $1.8 million in cash, $111.1 million in long-term debt and 50.5 million shares outstanding.