North American Palladium posts $8M profit in turnaround quarter

VANCOUVER — North American Palladium (TSX: PDL; US-OTC: PALDF) has marked its first profitable quarter since mid-2015, thanks to surging palladium prices and increased production at its Lac des Îles underground palladium mine near Thunder Bay, Ontario.

The company recorded net income of $7.9 million for the second quarter, compared to a $9.9-million loss in the comparable quarter last year.

North American Palladium president and CEO Jim Gallagher said during a conference call that the results reflect the company’s turnaround efforts since its financial and operational restructuring began two years ago.

“This is our first conference call in some time and the silence has been intentional, as we’ve focused on the turnaround of the company that is now largely complete,” Gallagher said. “We’ll continue to host calls, and will have a positive story to tell.”

For the quarter, the company saw a 43% increase in palladium pricing and a 41% increase in the metal sold year-over-year, leading to revenues of $70.3 million, compared to $30.4 million in the second quarter last year.

The company sold 53,982 oz. palladium at US$799 per oz. during the quarter.

Palladium is trading at a spot price of US$954.76 per oz. — its highest level since 2001 — and Gallagher says prices will keep rising.

“Demand is expected to continue to exceed supply over the next few years, driven by continued global growth of automotive sales, tightening emission standards and a recent move back to gas engines, versus diesel,” he said. “Add this to the potential supply risk due to many challenges facing the South African mining industry, and you have most analysts forecasting higher palladium prices over the next few years.”

Production at Lac des Îles was up 66% to 5,002 tonnes per day during the quarter due to a switch in mining methods to sublevel shrinkage from longhole open stoping.

The open-stoping method left ore in pillars and created ground-control issues, the company said.

Gallagher said production at Lac des Îles should rise to 6,000 tonnes per day before year-end, with the addition of ore from low-grade stockpiles.

The company plans to boost production at Lac des Îles to 10,860 tonnes per day, as outlined in a revised feasibility study published in June.

North American Palladium’s Lac des Îles palladium-platinum mine, 90 km northwest of Thunder Bay, Ontario. Credit: North American Palladium.

Surface-mining operations are also scheduled to resume in 2018, with ore production from the Sheriff pit for the first 16 months, followed by a pushback at the Roby pit for the rest of the 9.5-year mine life.

“We’ve received permits for the centre-line raise on the tailings facility and we’re well advanced in construction. We’ve already started overburden removal from the small Sheriff open pit and are on track to produce by the start of the year,” Gallagher said. “These items will complete the operational turnaround and demonstrate the full value of the Lac des Îles mine.”

The revised feasibility study foresees an after-tax, $678-million cash flow resulting in a $470-million, after-tax net present value, assuming an 8% discount rate. All-in sustaining costs are an estimated US$527 per oz. palladium sold, compared to US$644 per oz., as reported in the second quarter.

North America Palladium has also broadened its exploration initiatives, with the acquisition of the Sunday Lake property from Impala Platinum Holdings (US-OTC: IMPUY) and Transition Metals (TSXV: XTM; US-OTC: TNTMF) in June.

Magmatic-style mineralization at Sunday Lake has been outlined over 800-by-400 metres, with combined platinum and palladium grades ranging from 2 to 5 grams per tonne over a true thickness from several metres to 40 metres.

North American Palladium plans to spend $10 million annually for the next three years exploring Sunday Lake and its greenfield properties within 50 km of the Lac des Îles mill.

“Sunday Lake adds an asset located within trucking distance of the mine,” Gallagher said. “With the addition of Sunday Lake, along with our exploration portfolio, the company offers strong potential upside, which could lead to mine-life extensions and possibly other Lac des Îles-type deposits.”

Shares of the company have traded in a 52-week range of $4.54 to $6.31, and closed at $6.17 at press time. The company has 58.1 million shares outstanding for a $342-million market capitalization.