North American Palladium disappoints, gets punished

North American Palladium (PDL-T, PAL-N) failed to impress with its latest quarterly results, and, given the prevailing bearish sentiment towards mining stocks, the company’s shares felt the full weight of the market’s disappointment.

The company’s shares have fallen nearly 23% since the quarterly results were released, and sat at $1.07 on May 7.

The dissatisfaction is tied to complications with mining at its flagship Lac des Iles (LDI) mine in Ontario and a looming cash crunch, as the company lost $2.8 million for the quarter, compared to a  $900,000 loss for the same period last year.

Production results showed 38,654 payable oz. palladium produced at cash costs of US$490 per oz. With a selling price of US$730 that was enough to generate revenues of $47.1 million.

A total of 540,694 tonnes of ore were mined at LDI, including 245,700 tonnes from underground grading 4.1 grams palladium per tonne, and 295,000 tonnes from  surface at 2.4 grams palladium.

The mill processed 504,000 tonnes at a head grade of 3.3 grams palladium, with a recovery rate of 80.1% palladium.

But with losses mounting, the company is under pressure to make the mine as economic as it can.

With an eye towards doing just that, it is conducting a detailed review of its operating plan for the year while also re-examining its approach to the Offset zone at the site.

The review isn’t expected until the end of the second quarter, but the company gave a heads-up to the market regarding some issues, as it says that preliminary findings found “negative trends” in operations and capital expenditures connected with the transition from the Roby zone to the Offset zone.

Those negative trends have translated into delayed stope development, which means less volume coming out of the Offset zone this year.

This makes for a disappointing year for the company, at a time when many investors are looking for an excuse to sell resource stocks.

North American Palladium says that even the low end of the 150,000 to 160,000 oz. production guidance it gave previously will be hard to reach, and could in fact come in 10–15% lower than those targets.

With less production and lower head grades at the mill, cash costs are likely to increase.

The news had both Raymond James and RBC Dominion cutting price targets and ratings on the company’s stock.

Raymond James analyst Alex Terentiew says the company is in danger of running out of cash within a month, and that it should issue new equity quickly.