THUNDER BAY – MINING – North American Paladium has reported on the company’s first quarter earnings.
All figures are in Canadian dollars except where noted. North American Palladium Ltd. (“NAP” or the “Company”) (TSX:PDL)(OTC PINK:PALDF) announced financial and operational results for the first quarter ended March 31, 2015 from its Lac des Iles palladium mine (“LDI”) in northern Ontario.
Q1 2015 Results Summary
| • | Produced 45,626 ounces of payable palladium, a 7% increase compared to the same period in 2014, at a cash cost per ounce(1) of US$589. | ||
| • | Realized palladium selling price of US$786 per ounce, giving a palladium operating margin of US$197 per ounce, or US$9.0 million. | ||
| • | Revenue of $64.0 million, an increase of $15.3 million or 31% compared to the same period in 2014. | ||
| • | Adjusted EBITDA(1) of $9.9 million, compared to $9.7 million for the same period in 2014, the first quarter results were negatively impacted by $7.4 million due to lower spot palladium prices at the end of March that resulted in re-valuation of certain accounts receivable. | ||
| • | Invested $5.6 million in capital expenditures and $2.5 million in exploration expenses. | ||
| • | On February 26, 2015 the Company announced a positive preliminary economic assessment for its LDI mine. | ||
| • | As compared to plan, in March of 2015: | ||
| (a) | lower production volumes reduced revenues by $6.7 million; | ||
| (b) | production costs were $3.8 million higher; and, | ||
| (c) | a decline in palladium prices at March 31, 2015 to US$735 negatively impacted revenues by $7.4 million. | ||
Additionally with the foreign exchange market seeing fluctuations daily, during the first quarter of 2015, a weakening of the Canadian dollar increased the Canadian dollar equivalent of US$ debt and decreased shareholders’ equity by approximately $22 million.. The culmination of the above factors resulted in the Company seeking covenant relief for the current ratio, minimum shareholders’ equity and senior debt to EBITDA covenants.
Recent Developments
- The Company has obtained covenant relief from its senior secured lenders in respect of certain financial and other covenants until August 15, 2015 which may be extended subject to certain conditions.
- Subsequent to the end of the quarter, the Company announced that it has entered into an agreement with Brookfield Capital Partners Ltd. (“Brookfield”) aimed at significantly reducing the Company’s debt and enhancing the Company’s cash position (the “Recapitalization”).
- CIBC World Markets Inc. is acting as the Company’s financial advisor in connection with the Recapitalization and continues to conduct a strategic review process commenced earlier in the year to solicit interest in a sale of the Company. The Company has until June 30, 2015 to enter into a binding agreement with respect to a superior proposal to the Recapitalization, with closing of the transaction to occur within a specified timeframe thereafter.
- Subsequent to the end of the quarter, the Company entered into and fully drew down on a US$25 million interim credit facility with Brookfield.
- Decreasing the debt burden and strengthening the capital structure is essential for the Company’s future. If this can be obtained, the Company believes that the long term fundamentals for the underlying business will be favorable.
Financial Update (2)
Q1 2015
Revenue for the first quarter was $64.0 million compared to $48.7 million in the first quarter of 2014. The increase in revenue was primarily due to increased palladium production and sales, higher palladium prices and more favorable exchange rates. During the first quarter, the Company realized a palladium selling price of US$786 per ounce.
Net loss for the quarter was $37.3 million or $0.10 per share compared to a net loss of $26.7 million or $0.11 per share in the same quarter last year. The increase in the net loss is primarily due to the impact of unrealized foreign exchange losses.
Adjusted EBITDA(1) (which excludes interest expenses and other costs, depreciation and amortization, exploration, foreign exchange gains and losses and mine restoration costs net of insurance recoveries) was $9.9 million in the first quarter, compared to $9.7 million in first quarter last year.
Financial Liquidity
As at March 31, 2015, the Company had cash and cash equivalents of $10.4 compared to $4.1 as at December 31, 2014. Subsequent to the end of the quarter, the Company entered into and drew down fully on a US$25 million interim credit facility with Brookfield.
Lac des Iles Operations
Q1 2015 Production
In the first quarter of 2015, the Company’s LDI mine produced 45,626 ounces of payable palladium at a total cash cost of US$589 per ounce(1) compared to US$492 in the same period in 2014. The increase in cash cost in 2015 was mostly due to increased production, smelting, refining, freight and royalty costs partially offset by more payable palladium ounces sold, favourable movements of the Canadian dollar and higher by-product revenues.
During the first quarter, 786,300 tonnes of ore were mined and processed at LDI from underground and surface stockpiles with an average palladium grade of 2.5 grams per tonne. During the first quarter, the LDI mill processed 751,420 tonnes of ore at a combined average palladium mill head grade of 2.5 grams per tonne, at an 83% palladium recovery rate.
Production costs per tonne milled in the three months ended March 31, 2015 were $55 compared to $62 per tonne in 2014. The decrease was primarily due to the impact of the 45% increase in tonnes milled partially offset by production cost increases.
Operating costs were higher in the first quarter of 2015 than planned, due primarily to increased use of contractors and consultants, higher maintenance costs as part of the overall maintenance improvement strategy, and increased reagent use in the mill to mitigate water quality issues. The remaining cost increases were primarily due to higher than anticipated fuel and energy costs. Mitigation plans for a majority of the increased costs are in place and cost savings measures are being implemented. Management is currently reviewing guidance for cash costs per ounce and will determine in due course if revised guidance is required upon completion of that review.
Palladium production in January and February was essentially on budget, but March production decreased, in spite of LDI achieving a record average underground mining rate of 4,600 tonnes per day for the month. The two key issues that adversely impacted production in March were stope sequencing that impacted grade, and water quality problems that impacted mill recoveries.
Two higher grade stopes that could not be accessed in March are now back in the production sequence, and as a result underground mining grades and palladium production are expected to recover over the remainder of the year.
During the month of March, the water returning from the tailings management facility to the mill had higher levels of suspended solids, which had a negative impact on recoveries. Water quality has improved with the spring thaw but is expected to be an issue until the plan for the new tailings management facility is implemented. Water management continues to be a challenge and the Company is currently addressing water seepage, including a relatively small discharge of reclaim water that was contained and pumped back into the water reclaim pond. Milling operations have been suspended temporarily to effect repairs to the liner, which appears to have been damaged by ice. Operations are expected to return to normal as soon as these repairs are complete.
Construction of a raise of the east tailings management facility has commenced. The full long-term design, which includes upstream raising and new water retention ponds is currently in the public consultation process, and is expected to be implemented in stages. The project is advanced both in terms of engineering and permitting.
Exploration
Exploration expenditures for the three months ended March 31, 2015 were $2.5 million compared to $0.8 million in 2014. The increase was primarily due to an early start to the 2015 exploration program. During the quarter, the Company completed 14 holes and 12,489 meters of drilling, primarily in the Lower Offset Zone where the focus was on conversion drilling. The Company expects to provide a more detailed exploration update with its second quarter results.
