North American Palladium Ltd. Announces Third Quarter 2003 Results
Trading Symbol: TSX - PDL AMEX - PAL TORONTO, Nov. 10
/PRNewswire-FirstCall/ -- Results of Operations
--------------------- The Company realized net income for the three
months ended September 30, 2003 of $3,535,000 or $0.07 per share
(fully diluted) on revenues of $42,585,000 compared to a net income
of $2,894,000 or $0.06 per share (fully diluted) on revenue from
metal sales of $46,547,000 for the corresponding period a year
earlier. For the nine months ended September 30, 2003 the Company
reported net income of $22,286,000 or $0.44 per share on revenue of
$132,336,000 compared to net income of $16,661,000 or $0.33 per
share on revenues of $132,869,000 for the nine months ended
September 30, 2002. During the third quarter, the mill processed
1,307,822 tonnes of ore, or an average of 14,215 tonnes per day,
with a palladium grade of 2.47 g/t, producing 76,729 ounces of
palladium at a recovery rate of 74.0%. This compares with the third
quarter of 2002, when the mill processed 1,210,799 tonnes of ore,
or 13,161 tonnes per day, with a palladium grade of 1.83 g/t,
producing 51,168 ounces of palladium at a recovery rate of 71.9%.
The significant improvement in palladium production in the third
quarter of 2003 is directly related to higher ore grades and the
resumption of normal operations after the commissioning of a new
primary crusher on June 19th. Palladium recoveries in the quarter
were lower than the first half of 2003 due to disruptions and
throughput variability experienced in the mill process circuits
resulting from power outages caused by numerous severe electrical
storms. In the first nine months of 2003, 194,589 ounces of
palladium were produced compared to 167,258 ounces in the same
period last year. Production costs including overheads were
$22,338,000 during the third quarter 2003 compared to $24,965,000
during the third quarter 2002. Total cash costs to produce
palladium, net of other metal credits and royalties, decreased to
US$138 per ounce in the third quarter 2003 compared to US$282 per
ounce in the third quarter 2002. The significant decrease in cash
operating costs was due to a 50% increase in palladium production.
In addition, the increased production of platinum, gold, nickel and
copper and the improvement in the prices for these by-product
metals made a significant contribution to operations and resulted
in a reduction of the cash operating costs for palladium by US$176
per ounce. This compares to a by-product credit of US$127 per ounce
in the third quarter of 2002. The strengthening of the Canadian
dollar relative to the U.S. dollar has continued to put pressure on
operating margins. Had the U.S. exchange rate for the current
quarter been comparable to the exchange rate for the same quarter
last year, cash operating costs would have been lower by US$20 per
ounce in the current quarter. Non-cash amortization expenses
increased to $8,753,000 during the quarter compared to $4,935,000
in the third quarter 2002. The higher amortization amount is
attributable to the 50% increase in palladium production and the
increase in the unit of production amortization rate due to the
restatement of reserves at June 30, 2003, that resulted in a 20%
reduction in palladium reserve ounces. Exploration expenses were
$470,000 and $1,571,000 in the three month and nine month periods
ended September 30, 2003 respectively compared to $249,000 and
$590,000 in the corresponding 2002 periods. The increased
exploration expense for the first nine months of 2003 reflects the
higher level of grass root exploration activities on three recently
acquired properties in the Thunder Bay region. Cash Flow and
Financial Position -------------------------------- Cash flow from
operations (prior to changes in non-cash working capital) was
$14,243,000 in the third quarter 2003 compared to $14,207,000 in
the third quarter 2002. After allowing for working capital changes,
cash provided by operations was $11,020,000 in the third quarter of
2003 compared to $9,547,000 in the third quarter of 2002. Cash
provided by operations was $42,202,000 in the first nine months of
2003 compared to $23,201,000 in the first nine months of 2002.
There was a reduced amount of investing activity in the third
quarter, requiring $2,843,000 of cash, with the main capital
spending activity being the expansion of the tailings management
facility. The Company's financial position was further strengthened
during the quarter. Long-term debt was reduced by $11,681,000,
resulting in a long-term debt balance of $68,711,000
(US$50,875,000) bearing interest at an average rate of 3.02%. At
September 30, 2003, the Company had cash and cash equivalents of
$9,781,000 on hand. Production Statistics ---------------------
Three Months Nine Months September 30 September 30
-------------------------------------------------- 2003 2002 2003
2002 -------------------------------------------------- Palladium
(oz) 76,729 51,168 194,589 167,258 Payable Palladium (oz) 70,207
46,819 177,889 153,042 Platinum (oz) 5,887 4,753 16,388 14,620 Gold
(oz) 6,200 4,137 15,814 12,049 Copper (lbs) 1,877,355 1,445,416
4,848,416 3,997,735 Nickel (lbs) 976,533 656,240 2,665,055
2,060,292
-------------------------------------------------------------------------
Ore Tonnes Milled 1,307,822 1,210,799 3,659,046 3,686,233 Ore
Tonnes Mined High grade ore 1,068,416 662,049 3,074,569 2,945,790
Regular grade 342,468 720,922 1,258,040 2,628,737 Waste Tonnes
Mined 1,834,477 2,526,759 6,414,099 8,206,452
-------------------------------------------------------------------------
Waste Strip Ratio 1.30:1 1.83:1 1.48:1 1.47:1 Exploration &
Development ------------------------- During the third quarter
2003, the Company continued initial geological mapping, geophysical
mapping, and surface sampling at its three primary exploration
properties, Chief Peter Lake, Shebandowan Lake, and Roaring River.
Results to date, although preliminary, are encouraging. Exploration
and resource/reserve delineation continued at the Lac des Iles
mine. Results from this summer's exploration activity will be
compiled over the coming months and used to design next year's
exploration program. Roscoe Postle Associates Inc., an independent
mining engineering consulting firm has been selected to take the
Company's Lac des Iles underground project from pre-feasibility to
feasibility. The feasibility study will be completed by the end of
first quarter, 2004. During the quarter, the Company initiated a
business development strategy to expand its precious metals mining
business with an initial focus in Canada. We expect to announce
specific exploration initiatives in the near future. Risks and
Uncertainties ----------------------- The price of palladium is the
most significant factor influencing the profitability of the
Company. In the third quarter 2003, sales of palladium accounted
for approximately 65% of the Company's revenue. Many factors
influence the price of palladium, including global supply and
demand, speculative activities, international political and
economic conditions and production levels and costs in other
platinum group metal producing countries, particularly Russia and
South Africa. To offset the price risk, the Company, in prior years
entered into the Palladium Sales Contract and other hedge
contracts. Without the Palladium Sales Contract and other hedging
contracts, the Company's profitability would be significantly
impacted by the current depressed spot palladium price. At June 30,
2003 the Company had fully recognized the revenue relating to the
palladium forward contracts. In the short term, the Company does
not expect to recognize palladium revenue above the Palladium Sales
Contract floor price of US$325 per ounce. Currently, the
fundamentals for palladium are weak with abundant supply and lack
of demand, however the Company is optimistic that the fundamentals
for palladium will improve in the medium term. The possible
development of a substitute alloy or synthetic material, which has
catalytic characteristics similar to platinum group metals, may
result in a future decrease in demand for palladium and platinum.
Currency fluctuations may affect cash flow since production
currently is sold in United States dollars, whereas the Company's
administration, operating and exploration expenses are incurred in
Canadian dollars. As a result, changes in the exchange rate between
Canadian and United States dollars can affect revenue and
profitability. The Company hedged US$53.0 million of its revenue
for 2003 at an average C$/US$ exchange rate of approximately 1.59.
The Company is dependent on one mine for its metal production. The
business of mining is generally subject to risks and hazards,
including environmental hazards, industrial accidents,
metallurgical and other processing problems, unusual and unexpected
rock formations, pit slope failures, flooding and periodic
interruptions due to inclement weather conditions or other acts of
nature, mechanical equipment and facility performance problems and
the availability of materials and equipment. These risks could
result in damage to, or destruction of the Company's properties or
production facilities, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal
liability. Although the Company maintains insurance in respect of
the mining operations that is within ranges of coverage consistent
with industry practice, such insurance may not provide coverage of
all the risks associated with mining. The Company is making a claim
under its property damage and business interruption insurance
policies relating to the primary crusher failure in 2002. The
Company will record the effect of this insurance recovery in its
financial statements when the proceeds are received. North American
Palladium's Lac des Iles Mine is Canada's only primary producer of
platinum group metals and has one of the largest open pit bulk
mineable palladium reserves in the world. In addition to palladium,
the Company earns substantial revenue from by-product nickel,
platinum, gold and copper. Palladium use in the auto industry
continues to be an important component in controlling exhaust
emissions as mandated by more stringent hydrocarbon emissions
standards for cars, particularly in the United States, Europe and
Japan. In addition, palladium is consumed in the dental,
electronics, jewellery and chemical sectors. Forward-Looking
Statements - Certain statements included in this news release are
forward-looking statements, such as estimates and statements that
describe the Company's future plans, objectives and goals,
including words to the effect that the Company or management
expects a stated condition or result to occur. Such forward-looking
statements involve inherent risks and uncertainties and other
factors that may cause the actual results or performance to differ
materially from those currently anticipated in such statements.
Important factors that could cause actual results to differ
materially from those currently anticipated are described above and
in the Company's most recent Annual Report under "Management's
Discussion and Analysis of Financial Results" and Annual
Information Form under "Risk Factors" on file with the U.S.
Securities and Exchange Commission and Canada provincial securities
regulatory authorities. The Company disclaims any obligation to
update or revise any forward-looking statements whether as a result
of new information, events or otherwise. North American Palladium
Ltd. Consolidated Balance Sheets (Canadian funds in thousands of
dollars) September 30 December 31 2003 2002 ------------
------------ (Unaudited) ASSETS Current Assets Cash and cash
equivalents $ 4,545 $ 11,536 Short-term investments 5,236 5,127
Concentrate awaiting settlement, net - Note 3 82,895 85,312
Inventories 9,347 7,414 Crushed and broken ore stockpiles 7,367
9,157 Future tax asset 3,097 4,868 Accounts receivable and other
assets 1,338 1,683 ------------ ------------ 113,825 125,097 Mining
interests, net 253,143 260,985 Mine closure deposit - Note 5 4,370
3,470 Deferred financing costs 1,487 2,080 Crushed and broken ore
stockpiles 6,124 7,983 Future tax asset 4,637 11,218 ------------
------------ $ 383,586 $ 410,833 ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts
payable and accrued liabilities $ 14,273 $ 14,813 Taxes payable
2,194 1,940 Current portion of obligations under capital lease
1,078 1,127 Current portion of project term loan 39,883 51,083
------------ ------------ 57,428 68,963 Provision for mine closure
costs 1,908 1,554 Obligations under capital leases 1,213 1,024
Project term loan 13,296 51,083 Kaiser-Francis Oil Company credit
facility 15,532 18,163 Future tax liability 10,780 9,600
------------ ------------ 100,157 150,387 ------------ ------------
Shareholders' Equity Capital stock - Note 10 312,680 311,983
Deficit (29,251) (51,537) ------------ ------------ Total
shareholders' equity 283,429 260,446 ------------ ------------ $
383,586 $ 410,833 ------------ ------------ North American
Palladium Ltd. Consolidated Statements of Earnings and Deficit
(Canadian Funds in Thousands of Dollars Except Share and Per Share
Amounts) (Unaudited) Three Months Ended Nine Months Ended September
30 September 30 2003 2002 2003 2002 Revenues from metal sales -
Note 12 $ 42,585 $ 46,547 $ 132,336 $ 132,869 Deduct: smelter
treatment, refining and freight costs (4,425) (3,893) (12,473)
(12,846) ------------ ------------ ------------ ------------ Net
revenue from mining operations 38,160 42,654 119,863 120,023
------------ ------------ ------------ ------------ Operating
expenses Production costs including overheads 22,338 24,965 74,566
71,387 Amortization 8,753 4,935 18,468 15,028 Administrative
expenses 889 1,498 2,499 3,442 Provision for mine closure costs 95
134 354 406 ------------ ------------ ------------ ------------
Total operating expenses 32,075 31,532 95,887 90,263 ------------
------------ ------------ ------------ Income from mining
operations 6,085 11,122 23,976 29,760 ------------ ------------
------------ ------------ Other income (expenses) Interest income
83 82 228 497 Gain (loss) on disposal of or retirement of capital
assets - Note 4 (342) - (3,052) 120 Interest (11) (115) (11) (371)
Interest on long-term debt (855) (1,446) (2,580) (4,281)
Exploration (470) (249) (1,571) (590) Foreign exchange gain (loss)
1,048 (5,801) 15,909 (199) ------------ ------------ ------------
------------ (547) (7,529) 8,923 (4,824) ------------ ------------
------------ ------------ Income before income taxes 5,538 3,593
32,899 24,936 Provision for income taxes - Note 9 2,003 699 10,613
8,275 ------------ ------------ ------------ ------------ Net
income for the period 3,535 2,894 22,286 16,661 Deficit, beginning
of period (32,786) (52,905) (51,537) (66,672) ------------
------------ ------------ ------------ Deficit, end of period $
(29,251) $ (50,011) $ (29,251) $ (50,011) ------------ ------------
------------ ------------ Net income per share $ 0.07 $ 0.06 $ 0.44
$ 0.33 ------------ ------------ ------------ ------------ Fully
diluted net income per share $ 0.07 $ 0.06 $ 0.44 $ 0.33
------------ ------------ ------------ ------------ Weighted
average number of shares outstanding 50,792,361 50,574,116
50,738,867 50,519,640 ------------ ------------ ------------
------------ North American Palladium Ltd. Consolidated Statements
of Cash Flows (Canadian Funds in Thousands of Dollars) (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 2003
2002 2003 2002 Cash Provided by (used in) Operations Net Income for
the period $ 3,535 $ 2,894 $ 22,286 $ 16,661 Operating items not
involving cash Future income tax 1,573 188 9,532 7,343 Amortization
8,753 4,935 18,468 15,028 Unrealized foreign exchange (gain) loss
(55) 6,056 (15,682) (970) (Gain) loss on disposal of or retirement
of capital assets 342 - 3,052 (120) Provision for mine closure
costs 95 134 354 406 ------------ ------------ ------------
------------ 14,243 14,207 38,010 38,348 Changes in working capital
other than cash - Note 11 (3,223) (4,660) 4,192 (15,147)
------------ ------------ ------------ ------------ 11,020 9,547
42,202 23,201 ------------ ------------ ------------ ------------
Financing Activities Mine closure deposit (300) (300) (900) (900)
Obligations under capital leases 664 (395) 140 407 Repayment of
project term loan (11,626) (6,551) (35,936) (19,950) Issuance of
common shares 232 521 697 925 Increase in Kaiser Francis Oil
Company credit facility - - - 10,372 ------------ ------------
------------ ------------ (11,030) (6,725) (35,999) (9,146)
------------ ------------ ------------ ------------ Investing
Activities Short term investments (47) (35) (109) (93) Additions to
plant and equipment (2,703) (1,052) (12,343) (6,069) Mining claims,
exploration and development costs (99) (1,797) (856) (2,284)
Proceeds on disposal of capital assets 6 - 114 128 ------------
------------ ------------ ------------ (2,843) (2,884) (13,194)
(8,318) ------------ ------------ ------------ ------------
Increase (decrease) in cash (2,853) (62) (6,991) 5,737 Cash,
beginning of period 7,398 7,574 11,536 1,775 ------------
------------ ------------ ------------ Cash, end of period $ 4,545
$ 7,512 $ 4,545 $ 7,512 ------------ ------------ ------------
------------ North American Palladium Ltd. Notes to the September
30, 2003 Interim Consolidated Financial Statements (in thousands of
Canadian dollars except per share and per ounce amounts) 1. Basis
of Presentation These unaudited consolidated financial statements
have been prepared using disclosure standards appropriate for
interim financial statements and do not contain all the explanatory
notes, descriptions of accounting policies or other disclosures
required by Canadian generally accepted accounting principles for
annual financial statements. Such notes, descriptions of accounting
policies and other disclosures have been included in the Company's
annual report to shareholders for the year ended December 31, 2002.
Accordingly, these consolidated financial statements should be read
in conjunction with the audited fiscal financial statements. 2.
Stock-Based Compensation Effective January 1, 2002, the Company
adopted the recommendations issued by The Canadian Institute of
Chartered Accountants ("CICA") dealing with stock-based
compensation. The new recommendations are generally applicable only
to awards granted after the date of adoption. The adoption of the
new recommendations did not impact these financial statements. The
Company has elected not to recognize compensation expense when
stock options are issued to employees. The table below presents pro
forma net earnings and basic and diluted net income per common
share as if the options granted to employees had been determined
based on the fair value method. The table includes all stock
options granted by the Company subsequent to the date of adoption
of the recommendations issued by the CICA.
------------------------------------------- Three Months Ended Nine
Months September 30 September 30
------------------------------------------- 2003 2002 2003 2002
------------------------------------------- Net income as reported
$ 3,535 $ 2,894 $ 22,286 $ 16,661 Stock-based compensation expenses
99 53 246 106 ------------------------------------------- Pro forma
net income 3,436 2,841 22,040 16,555
------------------------------------------- Pro forma basic and
diluted net income per share $ 0.07 $ 0.06 $ 0.43 $ 0.33
------------------------------------------- 3. Concentrate Awaiting
Settlement The gross value of concentrate awaiting settlement
represents the value of all platinum group metals and base metals
from production shipped to and received by third-party smelters
between April 2003 and September 30, 2003, including 111,636 ounces
of palladium. At December 31, 2002, concentrate awaiting settlement
included 93,619 ounces of palladium. Concentrate awaiting
settlement was entirely from two domestic customers at September
30, 2003. Revaluations of the net realizable value of concentrate
awaiting settlement are included in revenue at each reporting
period and are adjusted for the effects of sales contracts and
foreign exchange. 4. Loss on Disposal of or Retirement of Capital
Assets During the nine months ended September 30, 2003, the damaged
primary crusher was removed from service and replaced with a new
crusher. The Company recorded a write-down of $2,315 relating to
the retirement of the crusher. 5. Mine Closure Deposit As part of
the expansion project, the Company has established a revised mine
closure plan with the Ontario Ministry of Northern Development and
Mines (the "Ministry"), which requires a total amount of $7,800 to
be accumulated in a Trust Fund controlled by the Ministry. At
September 30, 2003, the Company had $4,370 on deposit with the
Ministry and has agreed to make monthly deposits of $100 until
completely funded. 6. Palladium Sales Contract In 2000, the Company
entered into a Palladium Sales Contract with a major automobile
manufacturer which provides for a floor price of US$325 per ounce
on 100% of palladium production and a cap of US$550 per ounce on
50% of palladium production delivered by June 30, 2005. 7.
Long-Term Credit Facilities The Company's credit facilities are
denominated in US dollars. At September 30, 2003, the outstanding
long term debt, including current and long-term portions was
$68,711 (US$50,875) compared to $120,329 (US$76,188) at December
31, 2002. During the nine month period ended September 30, 2003 the
Company's long term debt was reduced by $51,618 as a result of
repayments of $35,936 and an unrealized foreign exchange gain of
$15,682. 8. Foreign Exchange Hedge Contracts All of the Company's
production is sold in U.S. dollars, whereas its operating,
administration and exploration expenses are incurred in Canadian
dollars. To protect against an adverse movement in the exchange
rate between the Canadian and the U.S. dollar, the Company entered
into foreign exchange hedge contracts on US$53.0 million of its
revenue for 2003 at an average C$/US$ exchange rate of 1.59. Of
these hedge contracts, US$13.0 million remained to be realized upon
at September 30, 2003. 9. Income Taxes The variance between the
income taxes as computed at the combined statutory rate and the
effective rate for the Company is reconciled as follows: Nine
Months Ended June 30 --------------------- 2003 2002 ----------
---------- Income taxes based on a combined federal and Ontario
rate of 40.6% (2002 -41.6%) $ 13,460 $ 10,379 Ontario mining tax at
a rate of 12% (2002 - 14%) 3,976 3,491 Increase (decrease) in taxes
resulting from: Resource allowance (1,904) (3,214) Federal
government changes in resource sector taxation (545) - Unrealized
foreign exchange (1,728) - Mining tax rate reduction (272) (1,436)
Mining tax processing allowance (1,018) (500) Federal large
corporations taxes 578 632 Mining tax permanent differences (780)
1,315 Other (1,154) (2,392) ---------- ---------- Income tax
provision $ 10,613 $ 8,275 ---------- ---------- 10. Capital Stock
As at September 30, 2003, the Company had 50,806,098 common shares
issued and outstanding. At September 30, 2003, the Company had
1,052,307 stock options outstanding at a weighted average exercise
price of $9.21, expiring at various dates from March 3, 2005 to
September 3, 2011. 11. Changes in Non-Cash Working Capital Three
Months Ended Nine Months Ended September 30 September 30
------------------------------------------- 2003 2002 2003 2002
---------- ---------- ---------- ---------- Decrease (increase) in:
Concentrate awaiting settlement $ (1,161) $ (4,699) $ 2,417
$(11,179) Inventories and stockpiles 197 2,065 1,716 1,040 Accounts
receivable and other assets (294) (555) 345 701 ----------
---------- ---------- ---------- (1,258) (3,189) 4,478 (9,438)
---------- ---------- ---------- ---------- Increase (decrease) in:
Accounts payable and accrued liabilities (2,110) (1,874) (540)
(4,457) Taxes payable 145 403 254 (1,252) ---------- ----------
---------- ---------- (1,965) (1,471) (286) (5,709) ----------
---------- ---------- ---------- Changes in non-cash working
capital $ (3,223) $ (4,660) $ 4,192 $(15,147) ---------- ----------
---------- ---------- 12. Revenue from Metal Sales Three Months
Ended Nine Months Ended September 30 September 30
------------------------------------------- 2003 2002 2003 2002
---------- ---------- ---------- ---------- Palladium $ 27,685 $
22,913 $ 74,486 $ 78,086 Palladium forward contracts - 11,464
20,437 34,610 Adjustments for mark to market (88) 3,184 597 (8,120)
Other metals 14,988 8,986 36,816 28,293 ---------- ----------
---------- ---------- $ 42,585 $ 46,547 $132,336 $132,869
---------- ---------- ---------- ---------- The effect of palladium
forward contracts represents the difference between the fixed price
realized under the palladium forward contracts and the palladium
price at the time of revenue recognition. At June 30, 2003, the
Company had fully recognized the revenue relating to the palladium
forward contracts. Palladium revenue includes the impact of the
floor price of US$325 per ounce under the Palladium Sales Contract.
For the nine months ended September 30, 2003, revenue from other
metals is comprised of nickel - $13,382, platinum - $12,320, gold -
$6,305, copper - $4,201 and other metals - $608. DATASOURCE: North
American Palladium Ltd. CONTACT: Andre J. Douchane - President and
CEO, Tel: (416) 360-2656, Fax: (416) 360-7709; or George D. Faught
- Vice President Finance & CFO, Tel: (416) 360-2650, Fax: (416)
360-7709
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