North American Palladium sees exploration upside at Lac des Iles

VANCOUVER — The drills are turning at North American Palladium’s (TSX: PDL, NYSE-MKT: PAL) flagship Lac des Iles (LDI) mine, 85 km northwest of Thunder Bay, Ont., and the company remains bullish on the asset’s exploration potential. During the first six months of 2013, N.A. Palladium drilled 33,000 metres at the site, and released an exploration update that includes maiden resources for its near-surface Sheriff and VT Rim zones.

Surface drilling has accounted for 13,700 metres of the company’s program this year, with holes collared at North VT Rim, shallow portions of Sheriff and LDI’s South VT Rim zones. N.A. Palladium is also chasing mineralization at the Creek and Shorty Lake zones, which are earlier-stage surface targets on the central and eastern parts of the LDI mine block intrusion.

All platinum group metals (PGM) at the mine occur within a gabbro intrusion that covers 10 sq. km and is part of the LDI intrusive complex. PGM and base metal mineralization in the LDI intrusion occurs in primary and secondary situations within sulphide and silicate minerals.

LDI is an open-pit and underground operation, and the new resources at North VT Rim and Sheriff could offer N.A Palladium more surface-mining potential and access to supplemental mill feed. Drilling at the western end of the North VT Rim delineated 339,000 measured tonnes grading 2.02 grams palladium per tonne under a 1-gram cut-off grade.

The North VT Rim outcrops near the northeast end of LDI’s Roby zone open pit, with its current resource defined from surface to a depth of 100 metres. The west section remains open to depth and to a limited extent to the southwest, where it may connect to the northeast portion of Roby.

Meanwhile, Sheriff contributes 5.3 million measured and indicated tonnes averaging 1.48 grams palladium. At a 1.5 gram cut-off, Sheriff holds 1.8 million tonnes at 2.05 grams palladium, which the company says could allow accelerated development in a higher palladium price or a higher tonnage, bulk-mining method environment.

The Sheriff South resource has a southerly plunge and extends along a sub-vertical dip from surface to 300 metres at depth. The Sheriff zone’s North resource extends from the south side of LDI’s Twilight zone open pit to 200 metres depth, and also has a sub-vertical dip.

“The recent results from our exploration drilling support our belief that we have considerable exploration upside at LDI, and that we can continue to organically grow our reserve and resource base through exploration,” president and CEO Phil du Toit says. “Our current exploration focus remains on identifying near-surface and lateral resource gains that can support sustainable production growth while minimizing capital requirements.”

In addition to its resource update, N.A. Palladium revealed highlights from its earlier-stage targets. The company reported a notable intersection of 7 metres grading 2.52 grams palladium in hole 13-402 along an extension to its Creek zone, while at Shorty Lake, drilling was highlighted by 10 metres of 3.44 grams palladium in hole 13-001.

About 19,300 metres of underground drilling has been completed at LDI, with the company’s focus on infill activities at its Offset zone to validate grades and lengths ahead of development in 2014. Highlights from infill drilling at Offset include 36 metres grading 7.68 grams palladium in hole 13-804, 41 metres grading 6.13 grams palladium in hole 13-813 and 42 metres of 5.23 grams palladium in hole 13-844.

The company shifted gears in April to focus on the new Upper Offset zone’s Southeast Extension, where drill intercepts at Sheriff led to a geological interpretation that the mineralized trend could deviate along a southeasterly trend before connecting the upper Offset zone to the southern part of the Sheriff zone. Offset South Extension drilling is highlighted by hole 13-603, which cut 9 metres of 4.23 grams palladium.

N.A. Palladium spent $8.8 million in exploration and infill drilling over the first half of 2013. A drilling program remains in the works for the third quarter, with a focus on validating the Upper Offset zone’s Southeast Extension target and the Roby zone northeast extension target. Four surface rigs are operating at LDI, and the company intends to polish off a 25,000-metre drill program in September.

The company is attempting to streamline operations at LDI in the face of declining palladium prices. Cash costs have risen even as realized metal prices have fallen, and a strategic review remains in progress.

During the second quarter N.A. Palladium produced 35,430 oz. palladium at cash costs of US$564 per oz., while realized prices hovered around US$719 per oz. That compares to first-quarter production of 38,700 oz. palladium at cash costs of US$490 per oz., and a realized price of US$730 per oz.

As a result, revenues declined 30% quarter-on-quarter to $33.2 million.

The company indicates that its cash costs in the third quarter are “expected to remain around the range of what they were in the second quarter, and decrease in the fourth quarter, when operations are transitioned to the shaft.”

N.A. Palladium expects its total capital expenditures for the year to total $130 million. The company had $45 million in cash at the end of June, and has 197 million shares outstanding for a $210 million market capitalization. N.A. Palladium has traded within a 52-week window of 95¢ and $2.21, at press time was trading at 99¢ per share.