THUNDER BAY – Mining – North American Palladium Ltd. (TSX:PDL)(NYSE MKT:PAL) is announcing financial and operational results for the year ended December 31, 2013 from its Lac des Iles palladium mine (“LDI”) in northern Ontario.
2013 Results Summary
- Produced 135,158 ounces of payable palladium at a cash cost per ounce(1) of US$560;
- Realized palladium selling price of US$724 per ounce, giving a palladium operating margin of US$164 per ounce, or US$22.2 million;
- Revenue of $153.2 million;
- Adjusted EBITDA(1) of $13.4 million;
- Invested $109.5 million in capital expenditures (exclusive of $28.6 million of capitalized interest) and $12.3 million in exploration;
- Completed shaft construction and commenced commissioning by year end (with notable production ramp up progress made in January 2014); and
- Subsequent to year end, completed a $32-million financing.
“Looking back at 2013, it was a year during which we strived to balance completing a major development project while implementing operating improvements,” commented Phil du Toit, NAP’s President and Chief Executive Officer. “Furthermore, we had a financial shortfall during a period when sector challenges made capital a scarce and expensive commodity. Despite this, we finished the year on target with our revised forecast and accomplished a significant milestone in commissioning the new shaft. Operations are off to a good start in 2014, with January monthly palladium production of approximately 15,000 ounces, representing one of the best months in the last two years.”
Financial Update (1)(3)
2013 Year-End Results
For added context on the drivers of financial performance, it should be noted that 2013 was a transitional year for LDI while operations completed the development work related to the new shaft infrastructure and transitioned into a new and deeper mining area in the Offset Zone. By contrast to 2012 when the majority of ore was sourced from the Roby Zone and open pit (now largely mined out), in 2013 production was predominately sourced from the deeper Offset Zone and a lower grade surface stockpile. This transition resulted in decreased mining volumes, reduced head grades and higher operating costs. It also resulted in some typical start-up challenges associated with the commissioning of the new shaft infrastructure, most of which have now been largely resolved.
Revenue for the year ended December 31, 2013 was $153.2 million compared to $160.7 million in the prior year. The 5% year-over-year decrease in revenue was primarily due to lower tonnes and grades of mineralized material milled resulting in a decrease in precious metals sales volumes, partially offset by higher realized palladium prices.
Loss from mining operations was $0.8 million, compared to income from mining operations of $15.7 million in the prior year. During the year, the Company realized an average palladium selling price of US$724 per ounce, compared toUS$640 per ounce realized in 2012.
Net loss for the year was $46.2 million or $0.25 per share compared to a net loss of $66.0 million or $0.39 per share in the prior year. Adjusted net loss for 2013 was $13.2 million, compared to adjusted net income of $7.2 million the prior year.
EBITDA(2) was negative $5.6 million for the year, compared to $9.4 million in 2012. Adjusted EBITDA(2) (which excludes interest expenses and other costs, depreciation and amortization, exploration, and mine restoration costs net of insurance recoveries) was $13.4 million in 2013, compared to $28.0 million in 2012.
Financing
Subsequent to year end, the Company completed a financing for gross proceeds of $32 million in 7.5% convertible unsecured subordinated debentures and associated warrants. The net proceeds from the financing will be used for general corporate purposes.
Holders of the debentures have the option to convert their debentures into common shares of the Company at any time at a conversion rate of approximately 1,575 common shares per $1,000 principal amount of debentures. Holders converting their first tranche debentures will also receive all accrued and unpaid interest, as well as interest through to maturity (the “Make Whole Amount”). At the Company’s option, interest and Make-Whole Amounts can be paid in common shares. As of February 19, 2014, approximately $20 million of the $32 million first tranche convertible debentures had been converted into 47,061,224 common shares.
Approval of the warrants associated with the debentures is subject to disinterested shareholder approval. Subject to disinterested shareholder approval, the warrants will entitle the holders to purchase up to 33.33% of the number of common shares of the Company into which the principal amount of the debentures purchased by the holders are convertible at the initial fixed conversion price at any time before the third anniversary of the date that shareholder approval is obtained. If shareholder approval is not obtained, the warrants will terminate.
Financial Liquidity
As at December 31, 2013, the Company had cash and cash equivalents of $9.8 million. The Company’s credit facility availability was limited by the borrowing base to US$31.2 million and was fully utilized at year end. On a pro-forma basis reflecting the gross proceeds of the debentures, the Company’s year-end cash position would have been $41.8 million.
Lac des Iles Operations
2013 Production
In 2013, operations were focused on completing the development work related to the new shaft infrastructure and transitioning into a new and deeper mining area in the Offset Zone. By contrast to 2012 when the majority of ore was sourced from the Roby Zone and open pit (now largely mined out), in 2013 production was predominately sourced from the Offset Zone and a lower grade surface stockpile. This transition resulted in decreased mining volumes while underground development took precedence to open up more mining stopes and complete the construction of the shaft infrastructure.
In 2013, the Company’s LDI mine produced 135,158 ounces of payable palladium at a total cash cost(1) of US$560per ounce. Cash costs during the year were adversely impacted by: lower production volumes resulting from the transition into the new ore body; the transitional phase which utilized the ramp from a new and deeper mining area; and decreased metal prices of the by-product metals. In 2014, operations are expected to benefit from the new shaft infrastructure, which has positioned LDI for increased underground production from the Offset Zone. The Company is targeting annual payable palladium production in the range of 170,000 to 175,000 ounces.
During 2013, 2,093,669 tonnes of ore was mined, of which proportionally more ore was sourced from a lower grade surface stockpile which reduced the overall head grade at the mill. In 2013, 1,276,964 tonnes came from surface (at an average grade of 1.6 g/t) and 816,705 tonnes were mined from underground (at an average grade of 4.4 g/t). Underground production during 2013 averaged approximately 2,240 tonnes per day.
During 2013, the mill processed 2,048,082 tonnes of ore at an average palladium head grade of 2.8 grams per tonne palladium, a recovery of 80.7%, and a total cost of $52 per tonne milled. As discussed in the February 12, 2014 news release, ongoing mill improvements are resulting in increased recoveries, currently averaging around 84%.
The following table includes the quarterly and annual operating results for the year ended December 31, 2013:
| Q1, 2013 |
Q2, 2013 |
Q3, 2013 |
Q4, 2013 |
2013 Actuals |
|
| Payable palladium produced | 38,654 oz | 35,428 oz | 30,097 oz | 30,979 oz | 135,158 oz |
| Cash cost per ounce (1) | US$490 | US$564 | US$581 | US$621 | US$560 |
| Tonnes of ore mined | 540,694 | 433,580 | 542,917 | 576,478 | 2,093,669 |
| Tonnes Mined – From surface | 295,038 @ 2.4 g/t |
301,974 @ 2.1 g/t |
334,820 @ 1.2 g/t |
345,132 @ 0.98 g/t |
1,276,964 @ 1.6 g/t |
| Tonnes Mined – From underground | 245,656 @ 4.1 g/t |
131,606 @ 4.4 g/t |
208,097 @ 4.5 g/t |
231,346 @ 4.67 g/t |
816,705 @ 4.4 g/t |
| Tonnes of ore milled | 503,585 | 483,266 | 517,157 | 544,074 | 2,048,082 |
| Average milled head grade | 3.3 g/t Pd | 3.1 g/t pd | 2.5 g/t Pd | 2.4 g/t Pd | 2.8 g/t Pd |
| Palladium mill recovery | 80.1% | 80.7% | 80.7% | 81.5% | 80.7% |
| Total cost per tonne milled | C$57 | C$53 | C$42 | C$55 | C$52 |
Capital Expenditures & Development Update
In the fourth quarter of 2013, the Company completed the construction of its new shaft and commenced the commissioning of the shaft and underground ore handling system. Capital expenditures in 2013 amounted to $109.5 million, exclusive of $28.6 million of capitalized interest. Of the $109.5 million investment, $91.8 million was spent on the LDI mine expansion and $17.7 million was spent on other sustaining capital expenditures at LDI (including a$16.1 million investment in the tailings management facility lift). With Phase I of the mine expansion now completed, the 2014 capital expenditure program for LDI has been substantially reduced to approximately $30 million.
As reported in the February 12, 2014 news release, the production ramp up from the Offset Zone utilizing the new shaft infrastructure is progressing well. In January 2014, underground production averaged over 3,100 tonnes per day, ahead of the Company’s guidance for the first half of the year. The Company also reported payable production of approximately 15,200 ounces for January (representing one of the best months in the last two years) and increased mill recoveries of around 84% from a blended mill feed (which comprised a blend of underground ore and lower grade surface stockpiles) with a head grade of approximately 3.4 grams per tonne. The Company’s plan to optimize the design of the underground ore handling system is on track, which upon completion should increase the tonnage hoisted through the shaft and reduce mining costs.
Exploration
In 2013, NAP invested $12.3 million in exploration and infill drilling, exclusive of an additional $1.9 million that was capitalized in connection with the LDI mine expansion.
During 2013, 212 holes were drilled at LDI totaling 54,532 metres, of which 19,288 metres were drilled underground (9,794 metres on infill drilling and 9,494 metres on extension drilling) and 35,244 metres were drilled from surface on near mine targets. An additional 4,940 metres were drilled on NAP’s greenfields properties.
Drilling in 2013 was predominately focused on near mine targets, including the upper Offset Zone southeast extension, the Roby Zone northeast extension, North VT Rim, Sheriff Zone, and South LDI. The Company plans to release its updated mineral reserve and resource estimate in the first quarter of 2014. The Company’s 2014 exploration program will target the lower portion of the Offset Zone in support of an anticipated preliminary economic assessment to be undertaken in late 2014.
2014 Outlook
In 2014, the Company will focus on the following operational and strategic initiatives:
- Increasing underground production through the shaft (and therefore reducing operating costs);
- Optimizing mining and milling operations to realize cost savings;
- Identifying opportunities for LDI’s future growth potential to improve infrastructure utilization; and
- Enhancing the balance sheet.
Year End 2013 Conference Call & Webcast Details
Date: Thursday, February 20, 2014
Time: 8:30 a.m. ET
Webcast: www.nap.com
Live Call: 1-866-229-4144 or 1-416-216-4169 (PIN: 5351970, followed by # sign)
Replay: 1-888-843-7419 or 1-630-652-3042 (PIN: 5351970, followed by # sign)
The conference call replay will be available for 30 days after the live event. An archived audio webcast of the call will also be posted to NAP’s website.
