Report of Foreign Issuer (6-k)

SECURITIES AND EXCHANGE COMMISSION

Form 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

The Securities Exchange Act of 1934

For the month of May, 2015

Commission File Number: 1-15142

NORTH AMERICAN PALLADIUM LTD.

(Name of Registrant)

200 Bay Street

Royal Bank Plaza, South Tower

Suite 2350

Toronto, Ontario

Canada M5J 2J2

(Address of Principal Executive Offices)

Indicate by checkmark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ¨ Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Indicate by checkmark whether the registrant, by furnishing the information contained in this Form is also thereby furnishing the information to the SEC pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes ¨ Assigned File No. No x

If “Yes” is marked, indicate the file number assigned to the Registrant in connection with Rule 12g3-2(b).

This report on Form 6-K is specifically incorporated by reference into North American Palladium’s registration statement on Form S-8 (File No. 333-13766) and registration statement on Form F-10 (File No. 333-200762).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			NORTH AMERICAN PALLADIUM LTD.

Date:	May 13, 2015	By:	/s/ Tess Lofsky
			Tess Lofsky
			Vice President, General Counsel & Corporate Secretary

EXHIBIT INDEX


Exhibit		Description of Exhibit

1		2015 Q1 – Management’s Discussion and Analysis

2		2015 Q1 – Financial Statements

3		News Release – “North American Palladium Announces First Quarter 2015 Results”

Exhibit 1

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North American Palladium Ltd.

TABLE OF CONTENTS


	Page
Management’s Discussion and Analysis

INTRODUCTION		2

FORWARD-LOOKING INFORMATION		2

CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MINERAL RESERVES AND RESOURCES		3

OUR BUSINESS		3

RECAPITALIZATION TRANSACTION AND SALES PROCESS		4

HIGHLIGHTS		6

LDI OPERATING & FINANCIAL RESULTS		7

SUMMARY OF QUARTERLY RESULTS		13

FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES		14

OUTSTANDING SHARE DATA		16

CRITICAL ACCOUNTING POLICIES AND ESTIMATES		16

RISKS AND UNCERTAINTIES		21

INTERNAL CONTROLS		22

OTHER INFORMATION		22

NON-IFRS MEASURES		23

First Quarter Report 2015

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North American Palladium Ltd.

Management’s Discussion and Analysis

INTRODUCTION

Unless the context suggests otherwise, references to “NAP” or the “Company” or similar terms refer to North American Palladium Ltd. and its subsidiaries. “LDI” refers to Lac des Iles Mines Ltd.

The following is management’s discussion and analysis of the financial condition and results of operations (“MD&A”) to enable readers of the Company’s condensed interim consolidated financial statements and related notes to assess material changes in financial condition and results of operations for the three months ended March 31, 2015, compared to those of the respective period in the prior year. This MD&A has been prepared as of May 8, 2015 and is intended to supplement and complement the condensed interim consolidated financial statements and notes thereto for the three months ended March 31, 2015 (collectively, the “Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. Readers are encouraged to review the Financial Statements in conjunction with their review of this MD&A and the most recent Form 40-F/Annual Information Form on file with the U.S. Securities and Exchange Commission (“SEC”) and Canadian provincial securities regulatory authorities, available at www.sec.gov and www.sedar.com, respectively.

Mr. James Gallagher, the Company’s Chief Operating Officer and a Qualified Person under National Instrument 43-101, has reviewed and approved all technical items disclosed in this MD&A.

All dollar amounts are in millions of Canadian dollars unless otherwise noted and all references to production ounces refer to payable production.

FORWARD-LOOKING INFORMATION

Certain information contained in this MD&A constitutes ‘forward-looking statements’ within the meaning of the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. The words ‘expect’, ‘potential’, ‘believe’, ‘anticipate’, ‘contemplate’, ‘target’, ‘may’, ‘will’, ‘could’, ‘would’, ‘intend’, ‘estimate’ and similar expressions identify forward-looking statements. Forward-looking statements included in this MD&A include, without limitation: information as to our strategy, plans or future financial or operating performance such as statements with respect to the Company’s strategic review process, the Company’s ability to consummate a strategic transaction, project timelines, production plans, projected cash flows or expenditures, operating cost estimates, mining methods, expected mining and milling rates, metal price and foreign exchange rates and other statements that express management’s expectations or estimates of future performance. The Company cautions the reader that such forward-looking statements involve known and unknown risk factors that may cause the actual results to be materially different from those expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to: the risk that the LDI mine may not perform as planned, the possibility that commodity prices and foreign exchange rates may fluctuate, the possibility that the Company may not be able to generate sufficient cash to service its indebtedness and may be forced to take other actions, uncertainty regarding the ability to consummate the Recapitalization, the risk the Company may not be able to continue as a going concern, the possibility the Company will require substantial additional financing, events of default on its indebtedness, hedging could expose it to losses, competition, the possibility title to its mineral properties will be challenged, dependency on third parties for smelting and refining, the possibility that metal prices and foreign exchange rates may fluctuate, inherent risks associated with development, exploration, mining and processing including risks related to tailings capacity and ground conditions, environmental hazards, uncertainty of mineral reserves and resources, the possibility that the mine may not perform as planned, changes in legislation, regulations or political and economic developments in Canada and abroad, employment disruptions including in connection with collective agreements between the Company and unions, litigation and the risks associated with obtaining necessary licenses and

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North American Palladium Ltd.

permits. For more details on these and other risk factors see the Company’s most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities. Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions contained in this MD&A, which may prove to be incorrect, include, but are not limited to: that the Company will be able to consummate the Recapitalization or other strategic transaction, that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business, that metal prices and exchange rates between the Canadian and United States dollar will be consistent with the Company’s expectations, that there will be no material delays affecting operations or the timing of ongoing projects, that prices for key mining and construction supplies, including labour costs, will remain consistent with the Company’s expectations, and that the Company’s current estimates of mineral reserves and resources are accurate. The forward-looking statements are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise, except as expressly required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.

CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MINERAL RESERVES AND RESOURCES

Mineral reserve and mineral resource information contained herein has been calculated in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects, as required by Canadian provincial securities regulatory authorities. Canadian standards differ significantly from the requirements of the SEC, and mineral reserve and mineral resource information contained herein is not comparable to similar information disclosed in accordance with the requirements of the SEC. While the terms “measured”, “indicated” and “inferred” mineral resources are required pursuant to National Instrument 43-101, the SEC does not recognize such terms. U.S. investors should understand that “inferred” mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. In addition, U.S. investors are cautioned not to assume that any part or all of NAP’s mineral resources constitute or will be converted into reserves. For a more detailed description of the key assumptions, parameters and methods used in calculating NAP’s mineral reserves and mineral resources, see NAP’s most recent Annual Information Form/Form 40-F on file with Canadian provincial securities regulatory authorities and the SEC.

OUR BUSINESS

NAP is an established precious metals producer that has been operating its LDI mine located in Ontario, Canada since 1993. LDI is one of only two primary producers of palladium in the world, offering investors exposure to the price of palladium.

The Company recently expanded the underground LDI mine and has transitioned from ramp access to shaft access while utilizing long hole open stope mining.

The Company has significant exploration potential near the LDI mine, where a number of growth targets have been identified, and is engaged in an exploration program aimed at increasing its palladium reserves and resources. As an established palladium-platinum group metal (“PGM”) producer on a permitted property, NAP has the potential to convert exploration success into production and cash flow on an accelerated timeline.

NAP trades on the TSX under the symbol PDL and on the OTC Market under the symbol PALDF.

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North American Palladium Ltd.

RECAPITALIZATION TRANSACTION AND SALES PROCESS

On April 15, 2015, the Company announced that, following discussions with Brookfield Capital Partners Ltd. (“Brookfield”), one of its senior secured lenders, the Company entered into an agreement with Brookfield aimed at significantly reducing the Company’s debt and enhancing the Company’s liquidity (the “Recapitalization”).

The Company has retained a financial advisor in connection with the Recapitalization and to conduct a strategic review process to solicit interest in a sale of the Company. The Company has until June 30, 2015 to obtain a superior proposal to the Recapitalization, with closing of the transaction to occur within a specified timeframe thereafter. Acceptance of a superior proposal is subject to a break fee payable by the Company as defined in the Recapitalization agreement.

At March 31, 2015, covenant relief was required as, compared to plan, in March 2015:

(a)

lower production volumes reduced revenues by $6.7;

(b)

production costs were $3.8 higher; and,

(c)

a decline in spot palladium prices at March 31, 2015 negatively impacted revenues by $7.4 (through the revaluation of certain accounts receivable).

Additionally, 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.

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 to September 15, 2015 subject to certain conditions. Although the Company produced 45,626 payable ounces of palladium in the first quarter of 2015, covenant relief of the current ratio, minimum shareholders’ equity and senior debt to EBITDA ratio covenants was required as a result of lower production volumes and higher expenses in March 2015 that coincided with a decline in palladium prices in that month and a weakening of the Canadian dollar throughout the first quarter of 2015.

The Company also entered into a US$25 interim credit facility with Brookfield that was fully drawn on April 15, 2015. The interim facility terminates on September 15, 2015 and bears interest at 16%. The Company is continuing normal business operations at its LDI mine and the Company’s obligations to employees, trade creditors, equipment leases and suppliers will not be affected by the Recapitalization.

If no superior transaction emerges from the strategic review process by June 30, 2015, the terms of the Recapitalization will be as follows:

(i)

conversion of all amounts owing to Brookfield into equity, resulting in Brookfield owning common shares representing 92% of the common shares outstanding on a fully-diluted basis after giving effect to the Recapitalization;

(ii)

conversion of the 2012 and 2014 convertible debentures into equity, resulting in holders of convertible debentures owning common shares representing in aggregate 6% of the common shares outstanding on a fully diluted basis after giving effect to the Recapitalization;

(iii)

existing holders of common shares will own 2% of the post-Recapitalization common shares outstanding on a fully-diluted basis;

(iv)

termination of all outstanding warrants and options; and,

(v)

after completion of the Recapitalization, the Company will undertake a $50 rights offering to raise equity, pursuant to which all shareholders at that time will be able to participate. The $50 rights offering will be backstopped by Brookfield and other parties.

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The Recapitalization agreement with Brookfield has been filed with the SEC and Canadian provincial securities regulatory authorities and is available at www.edgar.com and www.sedar.com, respectively. The Recapitalization is subject to receipt of customary approvals, including convertible debenture holder and shareholder approval, as well as customary closing conditions. A holder of convertible debentures holding approximately 54% of the Company’s convertible debentures has executed an agreement to support the Recapitalization.

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North American Palladium Ltd.

HIGHLIGHTS


	Three months ended March 31
OPERATIONAL HIGHLIGHTS	2015		2014
Mining
Tonnes ore mined and processed		786,300		530,139
Palladium head grade (g/t)		2.5		3.1
Milling
Tonnes ore milled		751,420		516,511
Palladium head grade (g/t)		2.5		3.3
Palladium recovery (%)		83.0		84.5
Palladium production – payable ounces		45,626		42,641
Palladium sales – payable ounces		45,129		39,485
Realized palladium price per ounce (US$)	$	786	$	739
Cash cost per ounce palladium sold (US$) ¹	$	589	$	492


FINANCIAL HIGHLIGHTS	Three months ended March 31
($millions except per share amounts)	2015			2014
Revenue	$	64.0		$	48.7
Production costs		41.6			29.7
Income from mining operations		4.0			1.9
Loss and comprehensive loss	$	(37.3	)	$	(26.7	)
Loss and comprehensive loss per share	$	(0.10	)	$	(0.11	)
EBITDA ¹	$	(15.0	)	$	1.0
Adjusted EBITDA ¹	$	9.9		$	9.7
Capital spending	$	5.6		$	2.9

¹	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 23-25.

In the first quarter of 2015:

•

786,300 tonnes were mined from the underground Offset and Roby zones and processed from the low grade surface stockpile at an average grade of 2.5 grams per tonne palladium.

•

The mill processed 751,420 tonnes of ore at an average palladium head grade of 2.5 grams per tonne and a recovery of 83.0%.

•

Payable palladium production was 45,626 ounces while payable palladium sales were 45,129 ounces.

•

Cash interest of $8.3 was paid.

•

Revenue increased by $15.3 compared to 2014 primarily due to increased palladium production and sales ($4.6), higher palladium prices ($2.5) and more favourable exchange rates ($8.4).

•

Production costs increased $11.9 to $41.6 compared to 2014 primarily due to mining 43% more underground tonnes, milling 45% more tonnes, higher contractor and consulting cost and a less favourable inventory and other cost movements.

•

Adjusted EBITDA increased $0.2 to $9.9.

•

A net loss of $37.3 occurred which included non-cash items of: $8.6 of depreciation and amortization and $21.9 of unrealized foreign exchange losses.

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North American Palladium Ltd.

LDI OPERATING & FINANCIAL RESULTS

The LDI mine consists of an underground mine accessed via shaft with a capacity of approximately 8,000 tonnes per day, an open pit (currently inactive), a substantial low grade surface stockpile and a mill with processing capacity of approximately 15,000 tonnes per day. The primary underground deposits on the property are the Offset and Roby zones. During the first three quarters of 2014, the mill was run on a batch basis and in the fourth quarter it was run full-time at high capacity on a test basis. During 2015, the Company plans to run the mill on a full time basis at approximately 60% of capacity.

Operating Results

The key operating results for the palladium operations are set out in the following table.


	Three months ended March 31
	2015		2014
Ore mined (tonnes)
Underground
Offset		360,629		269,943
Roby		34,423		5,902

		395,052		275,845
Surface
Low grade stockpile		391,248		254,294

Total		786,300		530,139

Mined ore grade (Pd g/t)
Underground
Offset		4.1		5.0
Roby		3.8		4.0

		4.0		5.0
Surface
Low grade stockpile		1.0		1.0

Average		2.5		3.1

Milling
Tonnes of ore milled		751,420		516,511
Palladium head grade (g/t)		2.5		3.3
Palladium recoveries (%)		83.0		84.5
Tonnes of concentrate produced		6,702		5,002
Production cost per tonne milled	$	55	$	62
Payable production
Palladium (oz)		45,626		42,641
Platinum (oz)		3,833		3,005
Gold (oz)		2,899		2,978
Nickel (lbs)		494,795		400,719
Copper (lbs)		867,370		799,871
Cash cost per ounce of palladium sold (US$)¹	$	589	$	492

¹	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 23-25.

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North American Palladium Ltd.

Mining

In the first quarters of 2015 and 2014, underground tonnes mined from the Offset and Roby zones were blended with the low grade surface stockpile material for processing in the mill. Underground ore mined at LDI in the first quarter of 2015 was from the Offset and Roby zones consisted of 395,052 tonnes (4,389 tonnes per day) at an average grade of 4.0 g/t palladium compared to 275,845 tonnes (3,065 tonnes per day) at an average palladium grade of 5.0 g/t in the same period in the prior year. LDI processed 391,248 tonnes of the low grade surface stockpile at an average grade of 1.0 g/t palladium in the first quarter of 2015 compared to 254,294 tonnes at the same palladium grade in the prior year. On a combined basis, 48% more tonnes of ore were mined and processed in the first quarter of 2015 at a 20% lower palladium grade compared to the same period in 2014.

Milling

During the three months ended March 31, 2015, the LDI mill processed 751,420 tonnes of ore at an average palladium head grade of 2.5 g/t palladium and a recovery of 83.0% to produce 45,626 ounces of payable palladium (2014 – 516,511 tonnes milled, average palladium head grade of 3.3 g/t, recovery of 84.5%, producing 42,641 ounces of payable palladium). The higher payable palladium ounces for the three months ended March 31 2015 compared to the same period in 2014 was primarily due to a 45% increase in tonnes milled partially offset by a 24% lower palladium head grade and a 1.8% decrease in palladium recoveries. Lower palladium recoveries were primarily due to lower mill head grades and high levels of suspended solids in reprocessed mill water partially offset by the favourable impact of a flash cell installed in late 2014 and commissioned in the first quarter of 2015.

Production Costs per Tonne Milled

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 cost partially offset by the production cost increases noted below.

Payable Production

Payable production was higher for all payable metals except gold in the first quarter of 2015 compared to the same period in 2014. Payable metal changes were primarily due to 45% more tonnes milled partially offset by lower grades and recoveries for all metals. Payable palladium production increased by 2,985 ounces (7%) to 45,626 ounces in the first quarter of 2015 compared to 2014.

Cash Cost per Ounce of Palladium Sold

Cash cost per ounce of palladium sold is a non-IFRS measure and the calculation is provided in the Non-IFRS Measures section of this MD&A.

The cash cost per ounce of palladium sold increased to US$589¹ for the three months ended March 31, 2015 compared to US$492¹ in the same period in 2014. The increase in cash cost in 2015 was mostly due to increased production costs [+56%], smelting, refining and freight costs [+60%] and royalty costs [+19%] partially offset by more payable palladium ounces sold [+14%], favourable movements of the Canadian dollar [+11%] and higher by-product revenues [+23%]. Please refer to the LDI revenue, production costs, smelting, refining and freight costs and royalty expense sections of this MD&A for additional details.

¹	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 23-25.

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North American Palladium Ltd.

Financial Results

Income from mining operations for the LDI operations is summarized in the following table.


	Three months ended March 31
($millions)	2015			2014
Gross revenue	$	64.0		$	48.7
Smelting, refining and freight costs		6.7			4.2
Royalty expense		2.5			2.1

Net revenue		54.8			42.4

Mining operating expenses
Production costs
Mining		23.9			18.8
Milling		11.0			8.0
General and administration		7.1			5.1

		42.0			31.9
Inventory		(0.4	)		(2.2	)

		41.6			29.7
Depreciation and amortization		8.6			10.4
Inventory pricing adjustment		0.5			—
Loss on disposal of equipment		0.1			0.4

Total mining operating expenses		50.8			40.5

Income from mining operations	$	4.0		$	1.9

The Company has included income from mining operations as an additional IFRS measure to provide the user with additional information on the actual results of the LDI operations.

Gross Revenue

Gross revenue is affected by production and sales volumes, commodity prices, currency exchange rates, mill run timing and shipment schedules. Metal sales for LDI are recognized in revenue at provisional prices when delivered to a smelter for treatment or a designated shipping point. Final pricing is determined in accordance with LDI’s smelter agreements. In most cases, final pricing is determined two months after delivery to the smelter for gold, nickel and copper and four months after delivery for palladium and platinum. Final pricing adjustments can result in additional revenues in a rising commodity price environment and reductions to revenue in a declining commodity price environment. Similarly, a weakening in the Canadian dollar relative to the U.S. dollar would have a positive impact on revenues and a strengthening in the Canadian dollar would have a negative impact on revenues. The Company periodically enters into financial contracts for past production delivered to the smelters to mitigate the smelter agreements’ provisional pricing exposure to rising or declining palladium prices and an appreciating Canadian dollar. These financial contracts represent 4,100 ounces of palladium as at March 31, 2015 (December 31, 2014 – 12,800 palladium ounces) and mature In April 2015 at an average forward price of US$822 per ounce of palladium (December 31, 2014 – US$812 per ounce of palladium). For substantially all of the palladium delivered to the customers under the smelter agreements, the quantities and timing of settlement specified in the financial contracts match final pricing settlement periods. The palladium financial contracts are being recognized on a mark-to-market basis as an adjustment to revenue. The fair value of these contracts at March 31, 2015 was an asset of $0.2 included in accounts receivable compared to $0.2 at December 31, 2014.

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North American Palladium Ltd.

Revenue for the three months ended March 31, 2015


	Palladium			Platinum			Gold		Nickel			Copper		Others		Total
Sales volume⁽¹⁾		45,129			3,782			2,856		491,057			856,121		n.a.		n.a.

Realized price (US$)⁽¹⁾	$	786		$	1,193		$	1,218	$	6.54		$	2.65		n.a.		n.a.

Revenue before price adjustment	$	44.6		$	5.7		$	4.3	$	3.8		$	2.8	$	0.1	$	61.3
Price adjustment ($millions):
Commodities		(4.8	)		(0.5	)		0.1		(0.3	)		—		—		(5.5	)
Foreign exchange		6.2			0.8			0.5		0.4			0.3		—		8.2

Revenue ($million)	$	46.0		$	6.0		$	4.9	$	3.9		$	3.1	$	0.1	$	64.0

⁽¹⁾	Quantities and prices are per ounce for palladium, platinum and gold and per pound for nickel and copper.

Revenue for the three months ended March 31, 2014


	Palladium			Platinum		Gold		Nickel		Copper			Others		Total
Sales volume⁽¹⁾		39,485			2,767		2,788		368,581		748,786			n.a.		n.a.

Realized price (US$)⁽¹⁾	$	739		$	1,419	$	1,280	$	6.53	$	3.21			n.a.		n.a.

Revenue before price adjustment ($000’s)	$	32.3		$	4.4	$	4.0	$	2.8	$	2.7		$	—	$	46.2
Price adjustment ($millions):
Commodities		2.5			0.2		0.1		0.1		(0.2	)		—		2.7
Foreign exchange		(0.7	)		0.2		0.1		0.1		0.1			—		(0.2	)

Revenue ($millions)	$	34.1		$	4.8	$	4.2	$	3.0	$	2.6		$	—	$	48.7

⁽¹⁾	Quantities and prices are per ounce for palladium, platinum and gold and per pound for nickel and copper.

Revenue for the first three months of 2015 increased by $15.3 or 31% compared to the first quarter of 2014 primarily due to 14% more ounces of palladium sold at 6% higher realized prices, an 11% favourable movement in the exchange rate and greater volumes of platinum (+37%), nickel (+33%) and copper (+14%) sold. During March 2015, lower production volumes reduced revenues by $6.7 and a decline in palladium prices during March 31, 2015 negatively impacted revenues a further $7.4 (through the revaluation of certain accounts receivable).

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North American Palladium Ltd.

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Spot Metal Prices* and Exchange Rates

For comparison purposes, the following table sets out spot metal prices and exchange rates.


	Mar-31 2015		Dec-31 2014		Sep-30 2014		Jun-30 2014		Mar-31 2014		Dec-31 2013		Sep-30 2013		Jun-30 2013
Palladium – US$/oz	$	729	$	798	$	775	$	844	$	778	$	711	$	726	$	643
Platinum – US$/oz	$	1,129	$	1,210	$	1,300	$	1,480	$	1,418	$	1,358	$	1,411	$	1,317
Gold – US$/oz	$	1,187	$	1,199	$	1,217	$	1,315	$	1,292	$	1,202	$	1,327	$	1,192
Nickel – US$/lb	$	5.65	$	6.77	$	7.49	$	8.49	$	7.14	$	6.34	$	6.29	$	6.20
Copper – US$/lb	$	2.73	$	2.85	$	3.03	$	3.15	$	3.01	$	3.34	$	3.31	$	3.06

Exchange rate (Bank of Canada) – CDN$1 = US$	US$	0.79	US$	0.86	US$	0.89	US$	0.94	US$	0.90	US$	0.94	US$	0.97	US$	0.95

*	Based on the London Metal Exchange

Smelting, refining and freight costs

Smelting, refining and freight costs for the three months ended March 31, 2015 were $6.7 compared to $4.2 in 2014. The increase in 2015 over the prior year was primarily due to the impact of a weaker Canadian dollar and 59% more tonnes of concentrate shipped.

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North American Palladium Ltd.

Royalty expense

For the three months ended March 31, 2015, royalty expense was $2.5 compared to $2.1 in 2014. The increase in 2015 was primarily due to higher revenues in 2015 compared to 2014.

Production costs

For the three months ended March 31, 2015, production costs were $41.6 compared to $29.7 in the comparable 2014 period. In March 2015, production costs were $3.8 million higher than plan.

Mining costs for the first quarter of 2015 increased $5.1 (27%) to $23.9 compared to $18.8 in the same period in 2014. The increase was primarily related to underground mining costs that increased 33%, primary due to 43% more underground tonnes mined, and increased costs associated with contractors, parts and labour partially offset by lower costs for propane, capital chargebacks and equipment rentals.

For the three months ended March 31, 2015, milling costs increased by $3.0 (38%) to $11.0 compared to $8.0 in 2014. The increase in 2015 compared to 2014 was primarily due to 45% more tonnes milled and increased costs associated with reagent use, labour and contractor costs.

General and administration costs at the LDI level in the first quarter of 2015 increased $2.0 (39%) to $7.1 compared to $5.1 in the same period in 2014 primarily due to increased consultant costs.

Inventory movements were $0.4 favourable in the first quarter of 2015 compared to $2.2 in 2014.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2015 was $8.6 compared to $10.4 in 2014. The 2015 decrease over the prior year was primarily due to lower unit of production depletion related to an increased reserve and resource base partially offset by more tonnes mined.

OTHER EXPENSES

Exploration

Exploration expenditures for the three months ended March 31, 2015 were $2.5 compared to $0.8 in 2014. The increase was primarily due to an early start to the 2015 exploration program.

Corporate general and administration

The Company’s corporate general and administration expenses for the three months ended March 31, 2015 were $2.7 compared to $2.6 in the prior year. The 2015 increase was primarily due to higher salaries, audit, consulting and director fees partially offset by lower legal costs.

Financing costs

For the first three months of 2015, financing costs were $0.4 compared to $4.0 in the comparable 2014 period. The 2015 decrease was primarily due to financing costs related to the convertible debentures issued in 2014 which did not occur in 2015.

Foreign exchange loss

Foreign exchange loss for the three months ended March 31, 2015 was $22.4 compared to $7.9 in 2014. The 2015 and 2014 losses were primarily due to the impact of exchange rate movements on the US$ denominated senior secured term loan and the US$ denominated credit facility. Non-cash components of the losses in the first three months of 2015 and 2014 were $21.9 and $7.5 respectively.

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SUMMARY OF QUARTERLY RESULTS

Summary of Quarterly Results


($millions except per share amounts)	2015			2014												2013
	Q1			Q4			Q3			Q2			Q1			Q4			Q3			Q2
Revenue	$	64.0		$	74.5		$	46.4		$	50.5		$	48.7		$	39.6		$	33.3		$	33.2
Production costs, net of mine restoration costs		41.6			40.5			30.1			30.4			29.7			29.9			22.9			25.4
Exploration expense		2.5			3.1			2.5			1.9			0.8			1.4			3.9			2.2
Capital expenditures		5.6			9.5			5.8			5.6			2.9			16.7			26.9			27.8
Net loss		37.3			11.3			18.8			9.9			26.7			11.7			5.3			26.3
Cash provided by (used in) operations		20.7			1.0			8.0			(3.8	)		(16.8	)		4.2			2.0			(2.8	)
Cash provided by (used in) financing activities		(8.8	)		0.7			(34.7	)		31.6			31.8			4.3			(2.1	)		52.0
Cash provided by (used in) investing activities		(5.6	)		(9.5	)		(5.8	)		(5.4	)		(2.9	)		(16.7	)		(26.7	)		(27.8	)
Net loss per share
– basic	$	(0.10	)	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.11	)	$	(0.05	)	$	(0.03	)	$	(0.15	)
– diluted	$	(0.10	)	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.11	)	$	(0.05	)	$	(0.03	)	$	(0.16	)
Tonnes milled		751,420			1,080,299			566,494			521,478			516,511			544,074			517,157			483,266
Palladium sold (ounces)		45,129			57,256			36,430			40,716			39,485			35,205			27,370			32,620
Realized palladium price (US$/ounce)	$	786		$	787		$	860		$	806		$	739		$	725		$	721		$	719

Trends:

•

Revenue, production costs, tonnes milled and palladium ounces sold, varied over the last eight quarters as mining has transitioned from the Roby zone underground and the surface open pit to the Offset zone underground and surface stockpiles. Changes in tonnes, grades and sources of ore significantly impacted revenue realized, production costs, ore available for milling and palladium ounces produced.

•

Realized quarterly average prices for palladium have ranged from US$719 to US$860 per ounce in the last eight quarters while prices for platinum, gold, copper and nickel have generally been flat to declining over the same period. The weakening of the Canadian dollar versus the United States dollar generally results in higher revenues.

•

Underground mining operations have been transitioning to a shaft based ore handling system from a ramp based one in the most recent quarters. The vast majority of ore currently brought to surface is using the shaft which, for accounting purposes, was considered in commercial production on January 1, 2014.

•

Capital expenditures have been generally declining for the last eight quarters as activities associated with the construction of the shaft and related infrastructure to process the upper Offset zone ore were completed.

•

Cash provided by operations in Q1 2015 increased primarily due to increases in accounts receivable and accounts payable.

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North American Palladium Ltd.

•

Cash from financing activities in Q1 and Q2 2014 was a primarily due to the issuance of convertible debentures while the use of funds in Q3 2014 was primarily due to a partial repayment of the senior secured term loan. Cash provided by financing activities in Q2 2013 was high primarily due to $131.9 of senior secured term loan incurred and $9.6 share issuance less $79.2 repayment of senior secured notes and $8.8 repayment of the credit facility.

FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash


	Three months ended March 31
($millions)	2015			2014
Cash provided by operations prior to changes in non-cash working capital	$	7.9		$	9.4
Changes in non-cash working capital		12.8			(26.2	)

Cash provided by (used in) operations		20.7			(16.8	)
Cash provided by (used in) financing		(8.8	)		31.8
Cash used in investing		(5.6	)		(2.9	)

Increase in cash and cash equivalents	$	6.3		$	12.1

Operating Activities

For the three months ended March 31, 2015, cash provided by operations prior to changes in non-cash working capital was $7.9 compared to $9.4 in the prior year. The 2015 decrease of $1.5 was primarily due to an $11.9 increase in production costs, a $2.5 increase in smelting, refining, freight and royalty costs and a $1.7 increase in exploration costs partially offset by a $15.3 increase in revenue.

Changes in non-cash working capital for the first three months of 2015 resulted in a source of cash of $12.8 compared to a use of cash of $26.2 in 2014. The 2015 increase of $39.0 was primarily due to favourable movements in accounts receivable of $19.4 and accounts payable and accrued liabilities of $18.4.

Financing Activities and Liquidity

For the three months ended March 31, 2015, financing activities resulted in a use of cash of $8.8 compared to a source of cash of $31.8 in 2014. For the three months ended March 31 2015, financing activities consisted primarily of $8.3 of interest payments. For the three months ended March 31, 2014, financing activities resulted in a source of cash of $31.8 consisting primarily of $28.5 net proceeds related to the issuance of convertible debentures, which were largely converted into equity in the first quarter of 2014, and the drawdown of $6.1 of the credit facility.

Investing Activities

For the three months ended March 31, 2015, investing activities used cash of $5.6 compared to $2.9 in the comparable 2014 period. The expenditures in 2015 and 2014 were due to additions to mining interests.

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Liquidity and Capital Resources


	As at March 31		As at December 31
($millions)	2015		2014
Cash and cash equivalents	$	10.4	$	4.1
Adjusted net working capital (deficit) surplus¹		4.6		20.5
Total debt		305.6		281.7
Shareholders’ equity		189.2		224.4

¹	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 23-25.

As at March 31, 2015, the Company had cash and cash equivalents of $10.4 compared to $4.1 as at December 31, 2014. The change from the prior year end is due to the sources and uses of cash as noted above. The funds are deposited with major Canadian chartered banks.

The Company has, subject to a borrowing base cap, a US$60.0 credit facility that is secured by first priority on the Company’s accounts receivable and inventory and second priority on the property, plant and equipment and may be used for working capital liquidity and general corporate purposes. In July 2014, the Company extended its US$60 credit facility to July 3, 2015 and the facility was further extended to September 15, 2015 as part of the Recapitalization negotiations. As at March 31, 2015, the borrowing base calculation limited the credit facility to a maximum of US$46.0 of which US$45.6 was utilized including US$12.2 of letters of credit.

The Company’s senior secured term loan and credit facility contain several financial covenants which, if not met, would result in an event of default. These loans also include certain other covenants, including limits on liens, material adverse change provisions and cross-default provisions. Certain events of default result in these loans becoming immediately due. Other events of default entitle the lenders to demand repayment.

At March 31, 2015, covenant relief was required as, compared to plan, in March 2015:

(d)

lower production volumes reduced revenues by $6.7;

(e)

production costs were $3.8 higher; and,

(f)

a decline in spot palladium prices at March 31, 2015 negatively impacted revenues by $7.4 (through the revaluation of certain accounts receivable).

Additionally, 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. The Company has obtained waivers from its senior secured lenders as of March 31, 2015. The waivers were received prior to March 31, 2015 and extend to August 31, 2015, or to September 15, 2015, subject to certain conditions. Please also see the recapitalization transaction and sales process section of this MD&A.

The Company’s liquidity may be adversely affected by operating performance, a downturn in market conditions impacting access to capital markets or entity specific conditions. The Company’s liquidity is dependent on a number of variables including, but not limited to, metal prices, operational costs, capital expenditures, and meeting production targets. Adverse changes in any of these variables may impact the Company’s liquidity position. Please also see the recapitalization transaction and sales process section of this MD&A.

At March 31, 2015, the Company did not meet certain covenants of its senior secured term loan and credit facility for which waivers were obtained from the lenders prior to the March 31, 2015 reporting date. The Company obtained waivers from both lenders regarding certain covenants including the current ratio, shareholders’ equity and leverage ratio covenants until August 15, 2015 with an agreement to extend the waivers to September 15, 2015 if certain terms and conditions are met. Please also see the recapitalization transaction and sales process section of this MD&A.

The Company has $17.7 of finance leases funding equipment for operations. Please also see the contractual obligations below for additional commitments.

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Contractual Obligations

Contractual obligations are comprised as follows:


As at March 31, 2015	Payments Due by Period
($millions)	Total		1-3 Years		3-5 Years		5+ Years
Credit facility	$	42.3	$	42.3	$	—	$	—
Finance lease obligations		17.7		14.0		3.7		—
Operating leases		3.2		3.1		0.1		—
Long term debt		245.6		245.6		—		—
Purchase obligations		5.6		5.6		—		—

	$	314.4	$	310.6	$	3.8	$	—

In addition to the above, the Company has asset retirement obligations at March 31, 2015 in the amount of $16.9 for the LDI mine, contractual obligations reflected in accounts payable and obligations related to its credit facility and long-term debt. The Company obtained letters of credit of $14.1 as financial surety for these future outlays.

Commitments

Please refer to note 14 of the Company’s Financial Statements.

Related Party Transactions

There were no related party transactions for the period ended March 31, 2015.

OUTSTANDING SHARE DATA

As of May 8, 2015, there were 393,690,541 common shares of the Company outstanding. In addition, there were options outstanding pursuant to the Corporate Stock Option Plan entitling holders thereof to acquire 5,200,042 common shares of the Company at a weighted average exercise price of $1.00 per share.

At May 8, 2015, $0.3 and $43.0 of 2014 and 2012 convertible debentures were outstanding and were convertible into approximately 1.6 million and 14.8 million common shares respectively.

In conjunction with the 2014 convertible debentures, approximately 35.7 million common share purchase warrants at an exercise price of $0.5786 per share were issued and remain outstanding as of May 8, 2015.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies generally include estimates that are highly uncertain and for which changes in those estimates could materially impact the Company’s financial statements. The following accounting policies are considered critical:

a.	*Going Concern*

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The Company’s senior secured term loan and credit facility contain several financial covenants, which, if not met would result in an event of default. These loans also include certain other covenants, including limits on liens, material adverse change provisions and cross-default provisions. Certain events of default entitle the lenders to demand repayment and, the senior secured term loan, provides for the payment of a prepayment fee and penalty interest upon an event of default. At March 31, 2015, the Company would not have met the minimum shareholders’ equity and senior debt to EBITDA ratio covenants. The Company received waivers of the March 31, 2015 violations, and amendments waiving future covenant compliance for the April, May and June 2015 compliance tests and events of default which may occur as a result of completing the Recapitalization or obtaining a superior proposal. However, the Company’s lenders will require testing of covenant compliance commencing with the July 31, 2015 compliance date or earlier if certain conditions of the waivers are not met. If compliance is not met on the test date, such an event, would represent events of default resulting in all amounts becoming due on August 15, 2015, subject to extension to September 15, 2015 in certain conditions. There is no assurance that the Company will be in compliance with its covenants on the dates specified. In addition, the Company’s convertible debentures contain change of control clauses which may occur as a result of completing the Recapitalization or obtaining a superior proposal. If the Company’s lenders were to demand repayment of outstanding amounts upon an event of default on either August 15, 2015 or September 15, 2015, or if the change of control clause on the Company’s convertible debentures is triggered as a result of completing the Recapitalization or obtaining a superior proposal, the Company would not have sufficient funds to repay its obligations when due, and such events could cause the Company to seek protection from its creditors, or seek to restructure its obligations.

If the Company’s lenders were to demand repayment of outstanding amounts, the Company would not have sufficient funds to repay its obligations when due, and could cause the Company to seek protection from its creditors, or seek to restructure its obligations.

The Company’s ability to continue operations and exploration and development activities is also dependent upon a number of variables including, but not limited to, meeting production targets, metal prices, operational costs, capital expenditures, achieving profitable operations at the LDI mine and meeting future covenant requirements under the Company’s senior secured term loan and credit facility.

These conditions have resulted in a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern. The condensed interim consolidated financial statements do not include adjustments to the carrying values and classifications of recorded assets and liabilities and related revenues and expenses that might be necessary should the Company be unable to continue as a going concern. Please also see the recapitalization transaction and sales process section of this MD&A.

b.	*Use of estimates*

The preparation of the condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed interim consolidated financial statements and the reported amounts of revenue and expenses during the year. Significant estimates and assumptions relate to recoverability of mining operations and mineral exploration properties. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.

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Certain assumptions are dependent upon reserves, which represent the estimated amount of ore that can be economically and legally extracted from the Company’s properties. In order to estimate reserves, assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transportation costs, commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period they are determined and in any future periods affected.

Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the Company’s financial results and financial position in a number of ways, including the following:

•

Asset carrying values including mining interests may be affected due to changes in estimated future cash flows;

•

Depreciation and amortization charged in the statement of operations may change or be impacted where such charges are determined by the units of production basis, or where the useful economic lives of assets change;

•

Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities; and,

•

The carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the tax benefits.

c.	*Impairment assessments of long-lived assets*

The carrying amounts of the Company’s non-financial assets, excluding inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. Impairment is assessed at the level of cash-generating units (“CGUs”). An impairment loss is recognized in the Consolidated Statements of Operations and Comprehensive Loss for any excess of carrying amount over the recoverable amount.

Impairment is determined for an individual asset unless the asset does not generate cash inflows that are independent of those generated from other assets or groups of assets, in which case, the individual assets are grouped together into CGUs for impairment purposes.

The recoverable amount of an asset or CGU is the greater of its “value in use”, defined as the discounted present value of the future cash flows expected to arise from its continuing use and its ultimate disposal, and its “fair value less costs to sell”, defined as the best estimate of the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognized in the Consolidated Statements of Operations and Comprehensive Loss if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss on non-financial assets other than goodwill is reversed if there has been a change in the estimates used to determine the recoverable amount, only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.

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d.	*Depreciation and amortization of mining interests*

Mining interests relating to plant and equipment, mining leases and claims, royalty interests, and other development costs are recorded at cost with depreciation and amortization provided on the unit-of-production method over the estimated remaining ounces of palladium to be produced based on the proven and probable reserves or, in the event that the Company is mining resources, an appropriate estimate of the resources mined or expected to be mined.

Mining interests relating to small vehicles and certain machinery with a determinable expected life are recorded at cost with depreciation provided on a straight-line basis over their estimated useful lives, ranging from three to seven years, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Straight-line depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value.

Significant components of individual assets are assessed and, if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately using the unit-of-production or straight-line method as appropriate. Costs relating to land are not amortized.

Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

e.	*Revenue recognition*

Revenue from the sale of metals in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of volume adjustments. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.

Revenue from the sale of palladium and by-product metals from the LDI mine is provisionally recognized based on quoted market prices upon the delivery of concentrate to the smelter or designated shipping point, which is when title transfers and significant rights and obligations of ownership pass. The Company’s smelter contract provides for final prices to be determined by quoted market prices in a period subsequent to the date of concentrate delivery. Variations from the provisionally priced sales are recognized as revenue adjustments until final pricing is determined. Accounts receivable are recorded net of estimated treatment and refining costs, which are subject to final assay adjustments. Subsequent adjustments to provisional pricing amounts due to changes in metal prices and foreign exchange are disclosed separately from initial revenues in the notes to the financial statements.

f.	*Asset retirement obligations*

In accordance with Company policies, asset retirement obligations relating to legal and constructive obligations for future site reclamation and closure of the Company’s mine sites are recognized when incurred and a liability and corresponding asset are recorded at management’s best estimate. Estimated closure and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs.

The amount of any liability recognized is estimated based on the risk-adjusted costs required to settle present obligations, discounted using a pre-tax risk-free discount rate consistent with the time period of expected cash

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flows. When the liability is initially recorded, a corresponding asset retirement cost is recognized as an addition to mining interests and amortized using the unit of production method.

The liability for each mine site is accreted over time and the accretion charges are recognized as an interest cost in the Consolidated Statements of Operations and Comprehensive Loss. The liability is subject to re-measurement at each reporting date based on changes in discount rates and timing or amounts of the costs to be incurred. Changes in the liability, other than accretion charges, relating to mine rehabilitation and restoration obligations, which are not the result of current production of inventory, are added to or deducted from the carrying value of the related asset retirement cost in the reporting period recognized. If the change results in a reduction of the obligation in excess of the carrying value of the related asset retirement cost, the excess balance is recognized as a recovery through profit or loss in the period.

Adoption of New Accounting Standards

There have been no new accounting standards adopted by the Company for the three month period ended March 31, 2015.

New standards not yet adopted

The following new standards or amendments to standards are not yet effective for the period ended March 31, 2015 or have otherwise not yet been adopted by the Company.

IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortization

This pronouncement amends IAS 16 Property Plant and Equipment and IAS 38 Intangible Assets to (i) clarify that the use of a revenue-based depreciation method is not appropriate for property, plant and equipment, and (ii) provide a rebuttable presumption for intangible assets. The amendment is effective for years beginning on or after January 1, 2016. This amendment is not expected to have a material impact on the consolidated financial statements of the Company.

IFRS 15 Revenue from contracts with customers

This new standard on revenue recognition supercedes IAS 18 Revenue, IAS 11 Construction Contracts, and related interpretations. The amendment is effective for years beginning on or after January 1, 2017. The Company is presently evaluating the potential impact of this new standard on the consolidated financial statements of the Company.

IFRS 9 Financial Instruments: Classification and Measurement

On July 24, 2014, the IASB issued the complete IFRS 9 (IFRS 9 (2014)) which will replace IAS 39, Financial Instruments: Recognition and Measurement.

IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. This includes the introduction of a third measurement category for financial assets – fair value through other comprehensive income.

Special transitional requirements have been set for the application of the new general hedging model.

IFRS 9 (2014) includes finalized guidance on the classification and measurement of financial assets. The final standard also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment, and new general hedge accounting requirements.

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The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. The restatement of prior periods is not required and is only permitted if information is available without the use of hindsight. The Company is presently evaluating the impact of adopting this standard.

RISKS AND UNCERTAINTIES

In addition to the risks and uncertainties discussed within the Company’s most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities, the reader should also consider the following risk factors:

Going Concern Risk – The Company’s ability to continue operations and exploration and development activities as a going concern is dependent upon the Company funding working capital and capital expenditure requirements. There can be no assurance that, if the Company requires additional funding, the Company will be able to raise additional capital or obtain sufficient financing or that any such financing would be available in a timely manner or on terms favourable to the Company. Please also see the recapitalization transaction and sales process section of this MD&A.

Liquidity Risk – The Company may be exposed to liquidity risk, which is the risk that the Company will not be able to meet its financial obligations as they become due. The Company incurred an adjusted loss of $37.3 for the three month period ended March 31, 2015 and has incurred net losses for each of the eight most recent quarters. While the Company had a working capital deficit of $231.4 ($4.6 adjusted working capital deficit⁽¹⁾ excluding the current portion of long-term debt of $236.0) as at March 31, 2015, achievement of its goals is dependent on a number of variables including, but not limited to, meeting production targets, operational costs and capital expenditures, metal prices, foreign exchange rates and achieving profitable operations of the LDI mine. Adverse changes in any of these variables may require the Company to seek additional financing. Please also see the recapitalization transaction and sales process section of this MD&A.

Financing Risk – The Company’s ability to secure future financing is dependent on numerous factors, many of which are outside of the Company’s control. Inability or failure to obtain additional capital or generate sufficient cash flows to satisfy its funding requirements could have a material adverse impact on the Company’s financial conditions, operations and ability to grow, including the Company’s ability to repay its credit facility when it becomes due. If the Company is unable to repay its debts as they come due or is in breach of its covenants under its other debt instruments, the lenders would be entitled to enforce the related security agreement by taking possession of the pledged collateral. Alternatively, the Company would have to refinance the debt, which refinancing could be at higher interest rates and may require the Company to comply with more onerous covenants which could restrict its business operations. Please also see the recapitalization transaction and sales process section of this MD&A.

¹	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 23-25.

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INTERNAL CONTROLS

Disclosure Controls and Procedures

Management is responsible for the information disclosed in this MD&A and has in place the appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is, in all material respects, complete and reliable.

For the three month period ended March 31, 2015, the Chief Executive Officer and Chief Financial Officer certify that they have designed, or caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

The disclosure controls and procedures are evaluated annually through regular internal reviews which are carried out under the supervision of, and with the participation of, the Company’s management, including the Chief Executive Officer and Chief Financial Officer.

Internal Control over Financial Reporting

For the three month period ended March 31, 2015, the Chief Executive Officer and Chief Financial Officer certify that they have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS as issued by the IASB.

There have been no changes in the Company’s internal controls over the financial reporting that occurred during the most recent three month period ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent limitations and can only provide reasonable assurance, not absolute assurance, with respect to the preparation and fair presentation of published financial statements and management does not expect such controls will prevent or detect all misstatements due to error or fraud. The Company is continually evolving and enhancing its systems of controls and procedures.

Under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, management performs regular internal reviews and conducts an annual evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).

OTHER INFORMATION

Additional information regarding the Company is included in the Company’s Form 40-F/Annual Information Form, which are filed with the SEC and the provincial securities regulatory authorities, respectively. A copy of the Company’s Form 40-F can be obtained from the SEC’s website at www.sec.gov. and a copy of the Annual Information Form is posted on the SEDAR website at www.sedar.com.

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NON-IFRS MEASURES

This MD&A refers to cash cost per ounce, EBITDA, adjusted EBITDA and adjusted net working capital and proforma condensed balance sheet which are not recognized measures under IFRS. Such Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Management uses these measures internally. The use of these measures enables management to better assess performance trends. Management understands that a number of investors, and others who follow the Company’s performance, assess performance in this way. Management believes that these measures better reflect the Company’s performance and are better indications of its expected performance in future periods. This data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

The following tables reconcile these non-IFRS measures to the most directly comparable IFRS measures:

Cash Cost Per Ounce of Palladium

The Company uses this measure internally to evaluate the underlying operating performance of the Company for the reporting periods presented. The Company believes that providing cash cost per ounce allows the ability to better evaluate the results of the underlying business of the Company.

Cash cost per ounce include mine site operating costs such as mining, processing, administration and royalties, but are exclusive of depreciation, amortization, reclamation, capital and exploration costs. The cash cost per ounce calculation is reduced by any by-product revenue and is then divided by ounces sold to arrive at the by-product cash cost per ounce of sales. This measure, along with revenues, is considered to be a key indicator of a Company’s ability to generate operating earnings and cash flow from its mining operations.

The Company’s primary operation relates to the extraction of palladium metal. Therefore, all other metals extracted in conjunction with the palladium metal are considered to be a by-product credit for the purposes of the cash cost calculation.

Reconciliation of Palladium Cash Cost per Ounce


	For the three months ended
($millions except ounce and per ounce amounts)	Mar 31 2015		Dec 31 2014		Sep 30 2014		Jun 30 2014		Mar 31 2014
Production costs including overhead	$	41.6	$	40.5	$	30.1	$	30.4	$	29.7
Smelting, refining and freight costs		6.7		6.7		4.0		4.1		4.2
Royalty expense		2.5		3.0		1.8		2.2		2.1

Operational expenses		50.8		50.2		35.9		36.7		36.0
Less by-product metal revenue		18.0		19.5		12.5		14.1		14.6

	$	32.8	$	30.7	$	23.4	$	22.6	$	21.4

Divided by ounces of palladium sold		45,129		57,256		36,430		40,716		39,485
Cash cost per ounce (CDN$)	$	727	$	537	$	642	$	554	$	541
Average exchange rate (CDN$1 – US$)		0.81		0.88		0.92		0.92		0.91

Cash cost per ounce (US$), net of by-product credits	$	589	$	473	$	589	$	510	$	492

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North American Palladium Ltd.

Adjusted EBITDA

The Company believes that EBITDA and Adjusted EBITDA are valuable indicators of the Company’s ability to generate operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.

EBITDA excludes the impact of the cost of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS.

Other companies may calculate EBITDA differently. Adjusted EBITDA is a non-IFRS financial measure, which excludes the following from loss: income and mining tax expense; interest expense and other costs, net; depreciation and amortization; exploration; mine start-up and closure costs; asset impairment charges and insurance recoveries; one-time costs (mine restoration costs due to flood and retirement payments); and, foreign exchange loss (gain).


	For the three months ended
($millions)	Mar 31 2015			Dec 31 2014			Sep 30 2014			Jun 30 2014			Mar 31 2014
Loss and comprehensive loss	$	(37.3	)	$	(11.2	)	$	(18.8	)	$	(10.0	)	$	(26.7	)
Interest and other income		—			(0.5	)		(1.5	)		(2.7	)		—
Interest expense and other costs		13.3			10.1			10.2			16.0			13.3
Financing costs		0.4			—			(0.9	)		4.4			4.0
Depreciation and amortization		8.6			12.2			6.9			8.2			10.4

EBITDA	$	(15.0	)	$	10.6		$	(4.1	)	$	15.9		$	1.0
Exploration		2.5			3.1			2.6			1.9			0.8
Foreign exchange loss (gain)		22.4			7.9			9.8			(7.4	)		7.9

Adjusted EBITDA	$	9.9		$	21.6		$	8.3		$	10.4		$	9.7

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North American Palladium Ltd.

Adjusted Net Working Capital and Proforma Condensed Balance Sheet

This MD&A refers to adjusted net working capital which is not a recognized measure under IFRS. The table below also refers to adjusted current liabilities and adjusted non-current liabilities which are also not recognized measures under IFRS. Such Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted net working capital, adjusted current liabilities and adjusted non-current liabilities are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

As at March 31, 2015, the Company had obtained waivers and amendments from the lenders regarding potential breaches of certain covenants. Had the waivers and amendments received been for twelve months or more, the Company’s proforma condensed interim consolidated balance sheet and adjusted net working capital surplus would have been:


($ millions)	Proforma As at March 31 2015⁽¹⁾		As at December 31 2014⁽¹⁾
Current assets	$	94.0	$	98.0
Non-current assets		450.6		452.8

		544.6		550.8

Adjusted current liabilities⁽²⁾	$	89.4	$	77.5
Adjusted non-current liabilities⁽³⁾		266.0		248.9
Shareholders’ equity		189.2		224.4

	$	544.6	$	550.8

Adjusted net working capital surplus⁽⁴⁾	$	4.6	$	20.5

⁽¹⁾	No non-IFRS adjustments have been made to the December 31, 2014 amounts. They have been provided for comparison purposes only. Other than as noted by the term “adjusted” and footnotes, amounts shown as at March 31, 2015 are IFRS amounts.

⁽²⁾	IFRS current liabilities as at March 31, 2015 totaled $287.3. After reducing for the current portion of long-term debt of $197.9, adjusted current liabilities amount to $89.4.

⁽³⁾	IFRS non-current liabilities as at March 31, 2015 totaled $68.1. After increasing for the current portion of long-term debt of $197.9, adjusted non-current liabilities amount to $266.0.

⁽⁴⁾	Adjusted net working capital surplus is determined by subtracting adjusted current liabilities from current assets.

Exhibit 2

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North American Palladium Ltd.

Condensed Interim Consolidated Balance Sheets

(expressed in millions of Canadian dollars)

(unaudited)


	Notes		March 31 2015			December 31 2014
ASSETS
Current Assets
Cash and cash equivalents			$	10.4		$	4.1
Accounts receivable		4		66.2			75.4
Inventories		5		15.4			14.9
Other assets		6		2.0			3.6

Total Current Assets				94.0			98.0

Non-current Assets
Mining interests		7		450.6			452.8

Total Non-current Assets				450.6			452.8

Total Assets			$	544.6		$	550.8

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities			$	32.8		$	28.8
Credit facility		9		42.3			36.8
Current portion of obligations under finance leases		10		4.7			4.6
Current portion of long-term debt		11		207.5			7.3

Total Current Liabilities				287.3			77.5

Non-current Liabilities
Income taxes payable				0.1			0.1
Asset retirement obligations		8		16.9			15.8
Obligations under finance leases		10		13.0			14.2
Long-term debt		11		38.1			218.8

Total Non-current Liabilities				68.1			248.9

Shareholders’ Equity
Common share capital and purchase warrants		12		868.4			866.4
Stock options and related surplus				9.8			9.7
Equity component of convertible debentures, net of issue costs		11		6.9			6.9
Contributed surplus				8.9			8.9
Deficit				(704.8	)		(667.5	)

Total Shareholders’ Equity				189.2			224.4

Total Liabilities and Shareholders’ Equity			$	544.6		$	550.8

Nature of operations and going concern – Note 1

Commitments – Note 14

Subsequent events – Notes 9, 11 and 18

See accompanying notes to the condensed interim consolidated financial statements

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North American Palladium Ltd.

Condensed Interim Consolidated Statements of Operations and

Comprehensive Loss

(expressed in millions of Canadian dollars, except share and per share amounts)

(unaudited)


				Three months ended March 31
	Notes			2015			2014
Revenue		15		$	64.0		$	48.7

Mining operating expenses
Production costs					41.6			29.7
Smelting, refining and freight costs					6.7			4.2
Royalty expense					2.5			2.1
Depreciation and amortization					8.6			10.4
Inventory pricing adjustment					0.5			—
Loss on disposal of equipment					0.1			0.4

Total mining operating expenses					60.0			46.8

Income from mining operations					4.0			1.9

Other expenses
Exploration					2.5			0.8
General and administration					2.7			2.6
Interest expense and other costs		16			13.3			13.3
Financing costs					0.4			4.0
Foreign exchange loss					22.4			7.9

Total other expenses					41.3			28.6

Loss before taxes					(37.3	)		(26.7	)
Income tax recovery					—			—

Loss and comprehensive loss for the period				$	(37.3	)	$	(26.7	)

Loss per share
Basic and Diluted		12	(d)	$	(0.10	)	$	(0.11	)

Weighted average number of shares outstanding
Basic and Diluted		12	(d)		390,782,683			232,873,928

See accompanying notes to the condensed interim consolidated financial statements

First Quarter Report 2015

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North American Palladium Ltd.

Condensed Interim Consolidated Statements of Cash Flows

(expressed in millions of Canadian dollars)

(unaudited)


				Three months ended March 31
	Notes			2015			2014
Cash provided by (used in) Operations
Loss for the period				$	(37.3	)	$	(26.7	)
Operating items not involving cash
Depreciation and amortization					8.6			10.4
Inventory pricing adjustment					0.5			—
Accretion expense (recovery)		16			2.1			(0.2	)
Share-based compensation and employee benefits		12	(f)		0.4			0.5
Unrealized foreign exchange loss					21.9			7.5
Loss on disposal of equipment					0.1			0.4
Interest expense and other					11.2			13.5
Financing costs					0.4			4.0

					7.9			9.4
Changes in non-cash working capital		17			12.8			(26.2	)

					20.7			(16.8	)

Financing Activities
Issuance of convertible debentures, net of issue costs		11			—			28.5
Credit facility		9			1.0			6.1
Repayment of obligations under finance leases		10			(1.1	)		(0.8	)
Interest paid					(8.3	)		(1.5	)
Other					(0.4	)		(0.5	)

					(8.8	)		31.8

Investing Activities
Additions to mining interests, net		7			(5.6	)		(2.9	)

					(5.6	)		(2.9	)

Increase in cash					6.3			12.1
Cash and cash equivalents, beginning of the period					4.1			9.8

Cash and cash equivalents, end of the period				$	10.4		$	21.9

Cash and cash equivalents consisting of:
Cash				$	10.4		$	21.9

Foreign exchange included in cash balance				$	1.2		$	1.1

See accompanying notes to the condensed interim consolidated financial statements

First Quarter Report 2015

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North American Palladium Ltd.

Condensed Interim Consolidated Statements of Shareholders’ Equity

(expressed in millions of Canadian dollars, except share amounts)

(unaudited)


	Notes			Number of shares		Capital stock		Stock options		Equity component of convertible debentures		Contributed surplus		Deficit			Total shareholders’ equity
Balance, January 1, 2014					197,109,924	$	798.4	$	9.1	$	6.9	$	8.9	$	(600.8	)	$	222.5
Common shares issued:
Pursuant to conversion of convertible debentures (Series 1)		11			76,407,816		30.9		—		—		—		—			30.9
Stock based compensation:
Stock-based compensation		12	(b)(c)		474,409		0.3		0.2		—		—		—			0.5
Net loss and comprehensive loss for the three months ended March 31, 2014					—		—		—		—		—		(26.7	)		(26.7	)

Balance, March 31, 2014					273,992,149	$	829.6	$	9.3	$	6.9	$	8.9	$	(627.5	)	$	227.2

Balance, January 1, 2015					386,514,777	$	866.4	$	9.7	$	6.9	$	8.9	$	(667.5	)	$	224.4
Common shares issued:
Pursuant to conversion of convertible debentures (Series 1 & 2)		11			5,258,170		1.7		—		—		—		—			1.7
Stock based compensation:
Stock-based compensation		12	(b)(c)		1,917,594		0.3		0.1		—		—		—			0.4
Net loss and comprehensive loss for the three months ended March 31, 2015					—		—		—		—		—		(37.3	)		(37.3	)

Balance, March 31, 2015					393,690,541	$	868.4	$	9.8	$	6.9	$	8.9	$	(704.8	)	$	189.2

See accompanying notes to the condensed interim consolidated financial statements

First Quarter Report 2015

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North American Palladium Ltd.

Notes to the Condensed Interim Consolidated Financial Statements

(expressed in millions of Canadian dollars, except per share amounts and metal prices)

1. NATURE OF OPERATIONS AND GOING CONCERN

North American Palladium Ltd. (“NAP”) is domiciled in Canada and was incorporated on September 12, 1991 under the Canadian Business Corporations Act. The address of the Company’s registered office is 200 Bay Street, Suite 2350, Royal Bank Plaza South Tower, Toronto, Ontario, Canada, M5J 2J2. The Company’s 100%-owned subsidiary is Lac des Iles Mines Ltd. (“LDI”).

NAP operates the LDI palladium mine, located northwest of Thunder Bay, Ontario, which started producing palladium in 1993. The Company has transitioned the LDI mine from mining via ramp access to mining via shaft while utilizing bulk mining methods.

The condensed interim consolidated financial statements for the Company include the Company and its subsidiary (collectively referred to as the “Company”).

The condensed interim consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. On April 15, 2015 the Company announced that it has entered into an agreement with Brookfield Capital Partners Ltd. (“Brookfield”), its senior secured term loan lender, aimed at significantly reducing the Company’s debt and enhancing the Company’s liquidity (the “Recapitalization”, see note 18). The Company’s ability to continue operations, exploration and development activities in the near term is dependent upon successfully executing the Recapitalization under a plan of arrangement under the Canada Business Corporation Act, or the Company obtaining a superior proposal, as defined in the Recapitalization agreement, which would enable it to satisfy its obligations and continue operations.

The Company’s senior secured term loan and credit facility contain several financial covenants, which, if not met would result in an event of default. These loans also include certain other covenants, including limits on liens, material adverse change provisions and cross-default provisions. Certain events of default entitle the lenders to demand repayment and, the senior secured term loan provides for the payment of a prepayment fee and penalty interest upon an event of default. At March 31, 2015, the Company was in default of the minimum shareholders’ equity and senior debt to EBITDA ratio covenants. The Company received waivers of the March 31, 2015 violations, and amendments waiving future covenant compliance for the April, May and June 2015 compliance tests, subject to certain conditions. However, the Company’s lenders will require testing of covenant compliance commencing with the July 31, 2015 compliance date, or earlier if certain conditions of the waivers are not met. If compliance is not met on the test date, such an event would represent events of default resulting in all amounts becoming due on August 15, 2015, subject to extension to September 15, 2015 in certain conditions. There is no assurance that the Company will be in compliance with its covenants on the dates specified. In addition, the Company’s convertible debentures contain change of control clauses which may occur as a result of completing the Recapitalization or obtaining a Superior Proposal. If the Company’s lenders were to demand repayment of outstanding amounts upon an event of default on either August 15, 2015 or September 15, 2015, or if the change of control clause on the Company’s convertible debentures is triggered as a result of completing the Recapitalization or obtaining a Superior Proposal, the Company would not have sufficient funds to repay its obligations when due, and such events could cause the Company to seek protection from its creditors, or seek to restructure its obligations.

First Quarter Report 2015

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North American Palladium Ltd.

These conditions have resulted in a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include adjustments to the carrying values and classifications of recorded assets and liabilities and related revenues and expenses that might be necessary should the Company be unable to continue as a going concern.

2. BASIS OF PRESENTATION

Statement of Compliance

These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), applicable to the preparation of these financial statements, including IAS 34, Interim Financial Reporting.

These condensed interim consolidated financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2014, which have been prepared in accordance with IFRS as issued by the IASB.

Basis of Measurement

These condensed interim consolidated financial statements have been prepared on the historical cost basis, except for the following items in the consolidated balance sheet:

(i)

Accounts receivable are measured at fair value.

(ii)

Financial instruments at fair value through profit or loss are measured at fair value.

(iii)

Liabilities for cash-settled share-based payment arrangements are measured at fair value.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies disclosed in the Company’s annual financial statements for the year ended December 31, 2014 have been applied consistently by all Company entities for all periods presented in these condensed interim condensed financial statements, unless otherwise indicated.

Basis of Consolidation

These condensed interim consolidated financial statements include the accounts of NAP and its wholly-owned subsidiary.

Adoption of New Accounting Standards

There have been no new accounting standards adopted by the Company for the three-month period ended March 31, 2015.

New standards not yet adopted

The following new standards or amendments to standards are not yet effective for the period ended March 31, 2015 or have otherwise not yet been adopted by the Company.

IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortization

IFRS 15 Revenue from contracts with customers

First Quarter Report 2015

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North American Palladium Ltd.

presently evaluating the potential impact of this new standard on the consolidated financial statements of the Company.

IFRS 9 Financial Instruments: Classification and Measurement

On July 24, 2014 the IASB issued the complete IFRS 9 (IFRS 9 (2014)) which will replace IAS 39, Financial Instruments: Recognition and Measurement.

Special transitional requirements have been set for the application of the new general hedging model.

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:


	At March 31 2015		At December 31 2014
Accounts receivable	$	66.0	$	75.2
Unrealized gain on financial contracts¹		0.2		0.2

Accounts receivable	$	66.2	$	75.4

As at March 31, 2015, a total of 4,100 ounces of past palladium production delivered and sold to a smelter, was priced using forward prices for the month of final settlement at an average price of $1,043 per ounce of palladium (December 31, 2014 – 12,800 ounces of past palladium production at an average price of $942 per ounce).

Accounts receivable represents the value of all platinum group metals (“PGMs”), gold and certain base metals contained in LDI’s concentrate shipped for smelting and refining, using the March 31, 2015 forward metal prices and foreign exchange rates applicable for the month of final settlement, and for which significant risks and rewards have transferred to third parties.

All of the accounts receivable are due from one customer at March 31, 2015 (December 31, 2014 – two customers). A reserve for doubtful accounts has not been established, as in the opinion of management, the amount due will be fully collected. The Company is not economically dependent on its customers, refer to note 15.

First priority security of accounts receivable, supplies inventory, and inventories of concentrate, crushed and broken ore and second priority security on the property, plant and equipment have been pledged as security against a credit facility described in note 9.

First Quarter Report 2015

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North American Palladium Ltd.

5. INVENTORIES

Inventories consist of the following:


	At March 31 2015		At December 31 2014
Supplies¹	$	11.7	$	11.3
Concentrate inventory¹		3.5		3.1
Crushed and broken ore stockpiles^1,2		0.2		0.5

Total	$	15.4	$	14.9

¹	This portion of inventories has been pledged as security on the Company’s credit facility. Refer to note 9.

²	Crushed and broken ore stockpiles represent coarse ore that has been extracted from the mine and is available for further processing.

During the period ended March 31, 2015, concentrate inventory was written down in the amount of $0.5 to reflect net realizable value (March 31, 2014—$nil) and has been recorded as an inventory pricing adjustment.

6. OTHER ASSETS

Other assets consist of the following:


	At March 31 2015		At December 31 2014
Prepaids	$	1.7	$	2.0
HST receivable		0.2		0.8
Other receivables		0.1		0.8

	$	2.0	$	3.6

7. MINING INTERESTS

Mining interests are comprised of the following:


	Plant and equipment		Underground mine development		Equipment under finance lease		Mining leases and claims, royalty interest, and development		Total
Carrying amounts
As at December 31, 2014	$	64.3	$	358.8	$	18.6	$	11.1	$	452.8

As at March 31, 2015	$	65.0	$	356.9	$	17.9	$	10.8	$	450.6

Depreciation and amortization

As a result of the finalization of the technical report for the LDI mine, which was filed on March 27, 2015 (amended on April 20, 2015), the Company has revised its estimate of in-situ ounces of palladium used as the denominator for depreciation and amortization of certain of its assets under the unit-of-production method. The revised estimate was based on the inclusion of the proven and probable reserves and measured resources expected to be converted to reserves based on prior conversion rates. This change in estimate has been prospectively applied for all depreciation and amortization calculations effective February 1, 2015.

Asset restrictions and contractual commitments

The Company’s assets are subject to certain restrictions on title and property, plant and equipment. Substantially all assets are pledged as security for credit agreement arrangements and senior secured lenders. See notes 4, 9, and 11.

First Quarter Report 2015

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North American Palladium Ltd.

8. ASSET RETIREMENT OBLIGATIONS AND RECLAMATION DEPOSITS

At March 31, 2015, the changes in asset retirement obligations are as follows:


Asset retirement obligations, beginning of period	$	15.8
Change in discount rate and estimated closure costs		1.0
Accretion expense		0.1

Asset retirement obligations, end of period	$	16.9

Asset retirement obligations comprised the following as at March 31, 2015:


Property	Expected timing of cash flows		Asset retirement obligation		Mine closure plan requirement		Letters of credit outstanding		Undiscounted asset retirement obligation
LDI mine¹		2029	$	16.9	$	14.1	$	14.1	$	20.7

¹	Including a letter of credit for Shebandowan West project, the total letters of credit outstanding are $14.4 for asset retirement obligations. Refer to note 14.

The key assumptions applied for determination of the ARO obligation are as follows as at:


	At March 31 2015			At December 31 2014
Inflation		2.00	%		2.00	%
Market risk		5.00	%		5.00	%
Discount rate		1.36	%		1.67	%

The asset retirement obligation may change materially based on future changes in operations, costs of reclamation and closure activities, and regulatory requirements.

9. CREDIT FACILITY

The Company has secured a credit facility with a Canadian chartered bank, which was due to mature on July 3, 2015, and was further extended to September 15, 2015 as part of the Recapitalization negotiations. The credit facility is to be used for working capital liquidity and general corporate purposes. The maximum that can be utilized under the facility is the lesser of US$60 and an amount determined by a borrowing base calculation. The credit facility contains certain financial covenants, as defined in the agreement, including senior debt to earnings before interest, taxes, depreciation and amortization ratios, which became effective in the fourth quarter of 2014, and adjusted current ratio requirements, minimum tangible net worth requirements and capital expenditure limits which became effective June 7, 2013 which, if not met, result in an event of default. The loan also includes certain other covenants, including material adverse change provisions and cross-default provisions with the senior secured term loan (note 11). Certain events of default result in the credit facility becoming immediately due, while other events of default entitle the lender to demand repayment. The Company has obtained waivers due to certain covenants being breached as of March 31, 2015 and which extend to August 15, 2015, or to September 15, 2015 subject to certain conditions.

Under the credit facility, as of March 31, 2015, the Company utilized $15.5 (US$12.2) for letters of credit, primarily for reclamation deposits (December 31, 2014– $15.4 (US$13.3)), and had $42.3 (US$33.4) in borrowings outstanding (December 31, 2014 – $36.8 (US$31.7)).

First Quarter Report 2015

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North American Palladium Ltd.

10. LEASES

At the respective reporting dates, the Company was party to the following lease arrangements:

FINANCE LEASES (OBLIGATIONS UNDER FINANCE LEASES)

The Company leases production equipment under a number of finance lease agreements. Some leases provide the Company with the option to purchase the equipment at a beneficial price. The leased equipment secures the lease obligations. The net carrying amount of leased equipment at each reporting date is summarized in the mining interests under the category of equipment under finance lease. Refer to note 7.

The following is a schedule of future minimum lease payments under finance leases together with the present value of the net minimum lease payments at each reporting date:


	At March 31, 2015						At December 31, 2014
	Future minimum lease payments		Interest		Present value of minimum lease payments		Future minimum lease payments		Interest		Present value of minimum lease payments
Less than one year	$	5.5	$	0.8	$	4.7	$	5.5	$	0.9	$	4.6
Between one and five years		13.9		0.9		13.0		15.3		1.1		14.2

	$	19.4	$	1.7	$	17.7	$	20.8	$	2.0	$	18.8
Less current portion						4.7						4.6

					$	13.0					$	14.2

OPERATING LEASES

The Company, from time to time, enters into leasing arrangements for production and other equipment under a number of operating leases. These leases are generally short-term in nature and subject to cancellation clauses. The Company periodically reviews the nature of these leases to identify if there have been any significant changes to the terms and use of the items under operating lease which would require reclassification as a finance lease. Any required reclassification is applied prospectively from the date the revised lease terms become effective.

The following schedule provides the future minimum lease payments under non-cancellable operating leases outstanding at each of the reporting dates:


	At March 31 2015		At December 31 2014
Less than one year	$	1.5	$	1.4
Between one and five years		1.7		1.4

	$	3.2	$	2.8

The total minimum lease payments recognized in expense during each of the stated three month end periods are as follows:


	March 31 2015		March 31 2014
Minimum lease payments expensed	$	0.7	$	0.9

First Quarter Report 2015

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North American Palladium Ltd.

11. LONG-TERM DEBT

Long-term debt is comprised of the following as at each reporting date:


	At March 31 2015		At December 31 2014
Senior secured term loan	$	205.5	$	186.4
Convertible debentures (2012)		37.9		37.5
Convertible debentures and warrants (2014 – Series 1)		1.3		0.8
Convertible debentures and warrants (2014 – Series 2)		0.9		1.4

		245.6		226.1
Less current portion		207.5		7.3

	$	38.1	$	218.8

Senior secured term loan

On June 7, 2013, the Company closed a US$130 senior secured term loan financing with Brookfield which bears interest at 15% per annum and is due June 7, 2017. The loan is secured by first priority security on the property, plant and equipment and second priority security on accounts receivable and inventory. The Company has the option to accrue interest during the first two years of the loan; in which case, the interest rate on the loan and accrued interest would increase by 4%.

At closing, the Company exercised an option to defer a commitment fee of US$3.9 for a period of up to two years. As a result, the balance of the commitment fee was added to the principal outstanding with interest on the outstanding fee compounding monthly until repaid.

In addition to the term loan and the commitment fee included in the principal, the loan agreement also included a provision for the payment of an exit fee equal to 5% of term loan principal settlements at the time of repayment.

On November 29, 2013, the Company amended its senior secured term, resulting in an additional advance of US$21.4 of cash. The cash received consisted of an additional US$15.0 added to the existing facility and a refund of US$6.4 of cash interest previously paid to Brookfield.

Pursuant to the 2013 amendment, the interest rate was recalculated as if the Company had elected to accrue interest on the loan from the date of the original closing on June 7, 2013, resulting in a 4% increase of the interest rate from 15% to 19% until a voluntary reversion to cash interest payments by the Company. The exit fee contained in the original loan agreement was replaced by an amendment fee and all interest accrued up to and including June 30, 2014 was capitalized to the principal amount along with the amendment and commitment fees. Prepayment of any principal (including capitalized interest and fees) is subject to a prepayment fee (note 18) and voluntary prepayment conditions. The 2013 amendment resulted in an increase of the US$133.9 principal of the loan at November 29, 2013 for capitalized interest of US$12.7, an additional loan of US$15.0, and an amendment fee of US$8.1 for a total revised principal of US$169.7.

The loan is measured at amortized cost. Interest on the loan was originally recorded at an effective interest rate of 16.7%. As a result of the 2013 amendment to the term loan agreement, the amended effective interest rate was adjusted to 18.00%.

Effective June 30, 2014, the loan was further amended to reduce the interest rate to 15% effective July 1, 2014. As part of the 2014 amendment, a payment of US$23.4, consisting of US$16.2 previously accrued interest and US$7.2 of associated pre-payment fees, was made on July 3, 2014, and accrued and unpaid interest of US$16.2 was capitalized to the loan principal amount. As a result of this amendment to the term loan agreement, the amended effective interest rate was adjusted to 18.74%. As at March 31, 2015, the carrying amount for the senior secured term loan was $205.5 (US$162.0) (December 31, 2014 – $186.4 (US$160.6).

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The loan contains covenants, including senior debt to earnings before interest, taxes, depreciation and amortization ratios, which became effective in the fourth quarter of 2014, and minimum tangible net worth requirements and capital expenditure limits which became effective June 7, 2013 which, if not met, would result in an event of default. The loan also includes certain events of default including breaches of the financial covenants, material adverse changes, limits on liens, additional debt, payments and cross-default provisions. Certain events of default result in the loan becoming immediately due, together with the prepayment fee and penalty interest of 5% above the applicable rate while unpaid, and other events of default entitle the lender to demand repayment of the loan together with the prepayment fee and penalty interest. At March 31, 2015, the Company was in violation of the minimum tangible net worth and senior debt to earnings before interest, taxes, depreciation and amortization ratio covenants, and for which a waiver was obtained, with an agreement to extend the waiver to August 15, 2015 or to September 15, 2015 if certain terms and conditions are met. At December 31, 2014, the Company was in compliance with all covenants.

Refer to note 18 for discussion of subsequent events which may impact this loan.

Convertible Debentures (2012)

On July 31, 2012, the Company completed an offering of 43,000 convertible unsecured subordinated debentures of the Company at a price of $1,000 per debenture, for total gross proceeds of $43.0 ($40.8 net proceeds). The debentures mature on September 30, 2017 and bear interest at a rate of 6.15% per year, payable semi-annually. At the option of the holder, the debentures may be converted into common shares of the Company at any time prior to maturity at a conversion price of $2.90 per common share.

The convertible debentures are compound financial instruments, consisting of the debt instrument and the equity conversion feature. The debt instrument was valued at amortized cost using the effective interest rate method at a discount rate of 10.5%. The excess of the proceeds of $43.0 over the value assigned to the debt instrument was allocated as the fair value of the equity component of the convertible debentures. Transaction costs were netted against the debt instrument and equity component based on the pro-rata allocation of the fair value of each instrument at initial recognition.

Of the net proceeds of $40.8, $33.9 has been allocated to long-term debt, and the remaining portion of $6.9 has been allocated to the equity component of the convertible debentures at the time of issuance.

Convertible Debentures (2014 – Series 1)

On January 31, 2014 and February 10, 2014, the Company closed a public offering with the aggregate sale of $32.0 gross principal amount of convertible unsecured subordinated debentures (the “2014 Series 1 Debentures”) of the Company at a price of $1,000 per Debenture, including approximately 16.8 million common share purchase warrants (the “2014 Series 1 Warrants”). This offering represented the first tranche of the offering. Net proceeds received were $28.5. The conversion price of the 2014 Series 1 Debentures is $0.635 per common share, and the original exercise price of the 2014 Series 1 Warrants was $0.762 per common share. As a result of the completion of the second tranche offering, the anti-dilution clause within the 2014 Series 1 Debentures agreements resulted in an adjustment of the original exercise price for the 2014 Series 1 Warrants to $0.5786 per common share.

The 2014 Series 1 Debentures will mature on January 31, 2019, unless redeemed or converted earlier, or unless extended, and will bear interest at an annual rate of 7.5% payable semi-annually in arrears on January 31 and July 31 of each year. Holders may convert their 2014 Series 1 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 2014 Series 1 Debentures, representing 50.4 million common shares of the Company. Holders converting their debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the 2014 Series 1 Debentures were held through to maturity (the “Tranche 1 Make Whole Amount”). At the Company’s option, interest and Tranche 1 Make Whole Amounts can be paid in common shares.

Each 2014 Series 1 Warrant entitles the holder thereof to purchase one common share of the Company at any time before March 28, 2017.

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Due to the existence of multiple derivatives embedded within the contract, the Company has elected to account for the 2014 Series 1 Debentures and all related derivatives as one instrument at fair value through profit or loss, with changes in fair value being recognized as derivative gains or losses through profit or loss. The 2014 Series 1 Warrants are also accounted for at fair value through profit or loss. As a result of this election, transaction costs of $3.5 were expensed as financing costs for the year ended December 31, 2014.

The initial fair value of the 2014 Series 1 debt of $28.4 was determined based on the publicly traded market price of the 2014 Series 1 Debentures, while the fair value of the 2014 Series 1 Warrants approved on March 28, 2014 was assigned a value of $3.6 using the Black-Scholes model.

At December 31, 2014, 2014 Series 1 Debentures with an initial face value of $31.7, including accrued interest and make-whole provisions, had been converted into 76,407,816 common shares of NAP.

In the first quarter of 2015, 2014 Series 1 Debentures with an initial face value of $0.3, including accrued interest and make-whole provisions, had been converted into 760,312 common shares of NAP.

Debentures with a nominal initial face value were outstanding at March 31, 2015 ($0.3 at December 31, 2014). All warrants issued were also outstanding at March 31, 2015. The fair value of the remaining debentures outstanding as at March 31, 2015 is nominal (December 31, 2014 – $0.4) based on the publicly traded market price and the fair value of the outstanding warrants is $1.3 (December 31, 2014 – $0.5), respectively, and this amount is recorded in the statement of financial position in long term debt and current portion of long term debt. The changes in fair value during each of the respective three month reporting periods are included in interest and other income in the statement of comprehensive loss (refer to note 16).

The following assumptions were applied for the Black-Scholes valuations of the outstanding 2014 Series 1 Warrants at initial recognition and the current and prior reporting dates:


	March 31, 2015			December 31, 2014			January 31, 2014
Market price common shares of NAP (PDL)	$	0.26		$	0.16		$	0.53
Strike price	$	0.58		$	0.58		$	0.76
Volatility¹		92	%		83	%		75	%
Risk free rate		0.51	%		1.02	%		1.14	%
Expected life (in years)		2.00			2.25			3.00

¹	Expected volatility is estimated by considering historic average daily price volatility of the common shares of the Company based on the remaining life of the warrants.

Refer to note 18 for discussion of subsequent events which may impact this loan.

Convertible Debentures (2014 – Series 2)

On April 11, 2014 and April 17, 2014, the Company closed a public offering with the aggregate sale of $35.0 gross principal amount of convertible unsecured subordinated debentures (the “2014 Series 2 Debentures”) of the Company at a price of $1,000 per Debenture, including approximately 18.9 million common share purchase warrants (the “2014 Series 2 Warrants”). This offering represented the second tranche of the offering. Net proceeds received were $32.7. The conversion price of the 2014 Series 2 Debentures is $0.4629 per common share, and the exercise price of the 2014 Series 2 Warrants is $0.5786 per common share.

The 2014 Series 2 Debentures will mature on April 11, 2019, unless redeemed or converted earlier, or unless extended, and will bear interest at an annual rate of 7.5% payable semi-annually in arrears on March 31 and September 30 of each year. Holders may convert their 2014 Series 2 Debentures into common shares of NAP at any time at a conversion rate of approximately 2,160 Common Shares per $1,000 principal amount of Debentures. Holders converting their

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debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the 2014 Series 2 Debentures were held through to maturity (the “Tranche 2 Make Whole Amount”). At the Company’s option, interest and Tranche 2 Make-Whole Amounts can be paid in common shares.

Each 2014 Series 2 Warrant will entitle the holders thereof to purchase one common share of the Company at any time before the second anniversary of the date of issue.

Due to the existence of multiple derivatives embedded within the contract, the Company has elected to account for the 2014 Series 2 Debentures and all related derivatives as one instrument at fair value through profit or loss, with future changes in fair value being recognized as derivative gains or losses through profit or loss. The 2014 Series 2 Warrants are also accounted for at fair value through profit or loss. As a result of this election, transaction costs of $2.3 were expensed in the period as financing costs for the year ended December 31, 2014.

The initial fair value of the 2014 Series 2 Debentures of $33.1 was determined using a FinCAD pricing model, while the value of the related 2014 Series 2 Warrants of $1.9 was calculated using the Black-Scholes model.

At December 31, 2014, 2014 Series 2 Debentures with an initial face value of $33.5, including accrued interest and make-whole provisions, had been converted into 108,972,404 common shares of NAP.

In the first quarter of 2015, 2014 Series 2 Debentures with an initial face value of $0.9, including accrued interest and make-whole provisions, had been converted into 4,497,858 common shares of NAP.

Debentures with an initial face value of $0.3 were outstanding at March 31, 2015 (December 31, 2014 – $1.5). All warrants issued were also outstanding at March 31, 2015. The fair value of the remaining debentures outstanding as at March 31, 2015 is $0.2 and the fair value of the outstanding warrants is $0.7 (December 31, 2014 – $1.0 and $0.4) using the Black-Scholes model, respectively, and these amounts are recorded in the statement of financial position in long term debt and current portion of long term debt, respectively. The changes in fair value for each of the respective three month reporting periods are included in interest and other income in the statement of comprehensive loss (refer to note 16).

The following assumptions were applied for the valuations of the outstanding 2014 Series 2 Debentures and Warrants at initial recognition and the current and prior reporting dates:


Debentures	April 11, 2014
Market price common shares of NAP (PDL)	$	0.34
Strike price	$	0.46
Risk free rate		1.64	%
Expected life (in years)		5.00


Warrants	March 31, 2015			December 31, 2014			April 11, 2014
Market price common shares of NAP (PDL)	$	0.26		$	0.16		$	0.34
Strike price	$	0.58		$	0.58		$	0.58
Volatility¹		92	%		98	%		81	%
Risk free rate		0.51	%		1.01	%		1.04	%
Expected life (in years)		1.03			1.28			2.00

¹	Expected volatility is estimated by considering historic average daily price volatility of the common shares of the Company based on the remaining life of the warrants.

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At March 31, 2015, the fair value of the 2014 Series 2 Debentures was estimated based on the equivalent fair value of common shares issuable by the Company to settle the remaining $0.3 (December 31, 2014 – $1.5) initial face value, including accrued interest and make-whole provisions payable under the terms of the debenture agreement. Refer to note 18 for discussion of subsequent events which may impact this loan.

12. SHAREHOLDERS’ EQUITY

(a)

Authorized and Issued Capital Stock

The authorized capital stock of the Company consists of an unlimited number of common shares.

(b)

Group Registered Retirement Savings Plan

The Company has a group registered retirement savings plan, in which eligible employees can participate in at their option. Union employees are entitled to an employer contribution of either: (a) $1.00 for each $1.00 contribution up to a maximum of 5% of base salary for employees who have been employed for 6-18 months (maximum $2,500 per year); or (b) $2.00 for each $1.00 contribution up to a maximum of 10% of base salary for employees who have been employed for greater than 18 months (maximum $5,000 per year). Non-union employees are entitled to an employer contribution equal to 3% of base salary plus an employer matching contribution of up to a maximum of 2% of base salary for employees who have been employed for greater than 90 days. The Company contributions are made either in cash or treasury shares of the Company on a quarterly basis. If the matching contribution is made in treasury shares, the price per share issued is the 5-day volume weighted average trading price of the common shares on the Toronto Stock Exchange (“TSX”) preceding the end of the quarter. During the three month period ended March 31, 2015, the Company contributed 1,917,594 shares with a fair value of $0.3 (2014 – 474,409 shares with a fair value of $0.3), which was equal to the market value of the shares on the contribution date.

(c)

Corporate Stock Option Plan

The Company has a Corporate Stock Option Plan (the “Plan”), under which eligible directors, officers, employees and consultants of the Company may receive options to acquire common shares. The Plan is administered by the Board of Directors, which will determine after considering recommendations made by the Compensation Committee, the number of options to be issued, the exercise price (which is the 5-day volume weighted average trading price of the common shares on the TSX on the trading day prior to the grant date), expiration dates of each option, the extent to which each option is exercisable (provided that the term of an option shall not exceed 10 years from the date of grant), as well as establishing the time period should the optionee cease to be an “Eligible Person” as set forth in the conditions of the Plan. One third of options granted vest on each of the first three anniversary dates of the date of grant.

The maximum number of common shares issuable under the Plan, and all other share-based compensation arrangements of the Company, shall not exceed 3.49% of the issued and outstanding shares of the Company (“the cap”). As at March 31, 2015, of the 5,415,342 options outstanding, 3,815,342 options granted under the Plan were subjected to the cap, which represented 0.97% of the issued and outstanding shares of the Company. At December 31, 2014, 1,184,658 options were available to be granted under the Plan.

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North American Palladium Ltd.

The following summary sets out the activity in outstanding common share purchase options:


	At March 31, 2015					At December 31, 2014
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding, beginning of period		5,371,142		$	0.99		3,359,221		$	1.91
Granted		100,000		$	0.16		2,596,700		$	0.18
Cancelled/forfeited		(48,300	)	$	0.27		(549,779	)	$	2.29
Expired		(7,500	)	$	8.87		(35,000	)	$	8.40

Outstanding, end of period		5,415,342		$	0.97		5,371,142		$	0.99

Options exercisable at end of period		1,377,583		$	2.34		1,341,752		$	2.35

No options were exercised during the three month period ended March 31, 2015 or the year ended December 31, 2014.

The following table summarizes information about the Company’s stock options outstanding at March 31, 2015:


Exercise price range	Average remaining contractual life (years)		Options Outstanding at March 31, 2015		Options Exercisable at March 31, 2015
$0.16-2.50		4.86		4,765,343		727,584
$2.51-3.00		1.84		130,000		130,000
$3.01-6.00		2.72		404,999		404,999
$6.01-6.52		1.09		115,000		115,000

		4.55		5,415,342		1,377,583

The fair value of options granted during the three month periods ended March 31, 2015 and March 31, 2014 have been estimated at the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:


	March 31 2015			March 31 2014
Awards granted		100,000			—
Weighted average fair value of awards	$	0.10		$	—
Pre-vest forfeiture rate		27	%		—	%
Grant price	$	0.16		$	—
Market price	$	0.17		$	—
Volatility¹		78	%		—	%
Risk free rate		1.08	%		—	%
Dividend yield		0	%		—	%
Expected life (in years)		3.52			—

¹	Expected volatility is estimated by considering historic average share price volatility based on the average expected life of the options.

(d)

Reconciliation of the diluted number of shares outstanding:


	Three months ended March 31
	2015			2014
Net loss available to common shareholders	$	(37.3	)	$	(26.7	)
Effect of dilutive securities		—			—

Adjusted net loss available to common shareholders	$	(37.3	)	$	(26.7	)

Weighted average number of shares outstanding		390,782,683			232,873,928
Effect of dilutive securities		—			—

Weighted average diluted number of shares outstanding		390,782,683			232,873,928

Diluted net loss per share	$	(0.10	)	$	(0.11	)

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North American Palladium Ltd.

For the three month periods ended March 31, 2015 and March 31, 2014, the dilutive effects of the convertible debentures, warrants, restricted share units and stock options have not been included in the determination of diluted loss per share because to do so would be anti-dilutive.

(e)

Other Stock-Based Compensation – Restricted Share Unit Plan

The Company has a Restricted Share Unit Plan (“RSU”) under which eligible directors, officers and key employees of the Company are entitled to receive awards of RSUs. Each RSU is equivalent in value to the fair market value of a common share of the Company on the date of the award and a corresponding liability is established on the balance sheet. The RSU is administered by the Board of Directors, which will determine after considering recommendations made by the Compensation Committee, the number and timing of RSUs to be awarded and their vesting periods, not to exceed three years. The value of each award is charged to compensation expense over the period of vesting. At each reporting date, the compensation expense and liability are adjusted to reflect the changes in market value of the liability based on the fair values of RSU’s for each vesting period determined using the Black-Scholes model.

As at March 31, 2015, 2,274,717 (December 31, 2014 – 1,221,126) restricted share units had been granted and were outstanding at an aggregate value of $0.3 (December 31, 2014 – $0.1).

(f)

Summary of Share-based compensation and employee benefits

The following table details the components of share-based compensation expense:


	Three months ended March 31
	2015		2014
Registered retirement savings plan	$	0.3	$	0.3
Common share stock options		0.1		0.2
Restricted share units		0.2		—

	$	0.6	$	0.5

As at March 31, 2015, the number of shares issued or issuable pursuant to awards made under all share-based compensation plans of the Company, which were subject to the cap, represents 2.03% of the Company’s total issued and outstanding common shares.

13. FINANCIAL INSTRUMENTS

Fair Values

The Company’s financial assets and liabilities consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, credit facility, current derivative liabilities, obligations under finance leases and long-term debt.

Cash and cash equivalents, accounts receivable, current derivative liabilities, and 2014 Series 1 and Series 2 debentures and warrants are stated at fair value. The carrying value of other assets and trade accounts payable and accrued liabilities and the amount outstanding under the credit facility approximate their fair values due to the immediate or short-term maturity of these financial instruments.

Derivatives

The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.

Fair values reflect the credit risk of the instrument and include adjustments to take into account the credit risk of the Company entity and counterparty when appropriate.

The Company enters into financial contracts to mitigate the smelter agreements’ provisional pricing exposure to rising or declining palladium prices and an appreciating Canadian dollar for past production already sold. For substantially all of

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the palladium delivered to customers under smelter agreements, the quantities and timing of settlement specified in the financial contracts matches final pricing settlement periods. The palladium financial contracts are being recognized on a mark-to-market basis as an adjustment to revenue.

Other non-derivative financial liabilities

The fair values of the senior secured term loan, 2012 convertible debentures and finance leases, which are determined for disclosure purposes, are calculated based on the present value of future principal and interest cash flows, discounted at the estimated market rate of interest at the reporting date. For finance leases the estimated market rate of interest is determined by reference to similar lease agreements.

The fair values of the non-derivative financial liabilities are comprised of the following as at each reporting date:


	At March 31 2015		At December 31 2014
Senior secured term loan	$	219.7	$	201.0
Convertible debentures (2012)		44.4		45.2
Finance leases		17.7		18.8

Fair Value Hierarchy

The table below details the fair values of the assets and liabilities at March 31, 2015:


	Notes		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Aggregate Fair Value
Financial assets
Cash and cash equivalents			$	10.4	$	—		$	—	$	10.4
Accounts receivable		4		—		66.0			—		66.0
Fair value of financial contracts*		4		—		0.2			—		0.2
Financial liabilities
Senior secured term loan				—		(219.7	)		—		(219.7	)
Convertible debentures (2012)				—		(44.4	)		—		(44.4	)
Finance leases				—		(17.7	)		—		(17.7	)
Fair value of convertible debentures and warrants		11		—		(2.2	)		—		(2.2	)

Net carrying value			$	10.4	$	(217.8	)	$	—	$	(207.4	)

*	As detailed in note 4, the asset relating to the mark-to-market on financial contracts is included in the carrying value of accounts receivable on the balance sheet.

14. COMMITMENTS

(a)

Sheridan Platinum Group of Companies (“SPG”) Commitment

The Company is required to pay a 5% net smelter royalty to SPG from mining operations at the Lac des Iles mine. This obligation is recorded as royalty expense.

(b)

Operating Leases and Other Purchase Obligations

As at March 31, 2015, the Company had outstanding operating lease commitments and other purchase obligations of $3.2 and $5.6 respectively (December 31, 2014 – $2.8 and $5.1 respectively) the majority of which had maturities of less than five years (see also note 10).

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North American Palladium Ltd.

(c)

Letters of Credit

As at March 31, 2015, the Company had outstanding letters of credit of $15.5, consisting of $14.4 for various mine closure deposits and $1.1 for a regulated energy supplier (December 31, 2014 – $15.4 outstanding letters of credit, consisting of $14.4 for various mine closure deposits and $1.0 for a regulated energy supplier).

15. REVENUE FROM METAL SALES


	Total			Palladium			Platinum			Gold		Nickel			Copper			Other Metals
2015
Three months ended March 31
Revenue – before pricing adjustments	$	61.3		$	44.6		$	5.7		$	4.3	$	3.8		$	2.8		$	0.1
Pricing adjustments:
Commodities		(5.5	)		(4.8	)		(0.5	)		0.1		(0.3	)		—			—
Foreign exchange		8.2			6.2			0.8			0.5		0.4			0.3			—

Revenue – after pricing adjustments	$	64.0		$	46.0		$	6.0		$	4.9	$	3.9		$	3.1		$	0.1

2014
Three months ended March 31
Revenue – before pricing adjustments	$	46.2		$	32.3		$	4.4		$	4.0	$	2.8		$	2.7		$	—
Pricing adjustments:
Commodities		2.7			2.5			0.2			0.1		0.1			(0.2	)		—
Foreign exchange		(0.2	)		(0.7	)		0.2			0.1		0.1			0.1			—

Revenue – after pricing adjustments	$	48.7		$	34.1		$	4.8		$	4.2	$	3.0		$	2.6		$	—

During the three month period ending March 31, 2015, the Company delivered all of its concentrate to two customers under the terms of the respective agreements (2014 – two customers).

Although the Company sells its bulk concentrate to a limited number of customers, it is not economically dependent upon any one customer as there are other markets throughout the world for the Company’s concentrate.

16. INTEREST EXPENSE AND OTHER COSTS

Interest expense and other costs consist of the following:


			Three months ended March 31
	Note		2015		2014
Interest on finance leases			$	0.3	$	0.2
Asset retirement obligation accretion		8		0.1		0.1
Accretion expense on long-term debt				2.0		(0.3	)
Interest expense				9.3		10.0
Change in fair value of palladium warrants				—		0.3
Change in fair value of convertible debentures				0.4		2.7
Change in fair value of warrants				1.2		0.3

			$	13.3	$	13.3

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North American Palladium Ltd.

17. OTHER DISCLOSURES

Statement of Cash flows

The net changes in non-cash working capital balances related to operations are as follows:


	Three months ended March 31
	2015			2014
Cash provided by (used in):
Accounts receivable	$	9.2		$	(10.2	)
Inventories		(1.0	)		(2.3	)
Other assets		1.6			2.9
Accounts payable and accrued liabilities		3.0			(15.4	)
Taxes payable		—			(1.2	)

	$	12.8		$	(26.2	)

18. SUBSEQUENT EVENTS

On April 15, 2015, the Company announced that, following discussions with Brookfield, the Company has entered into the Recapitalization agreement with Brookfield aimed at significantly reducing the Company’s debt and enhancing the Company’s liquidity.

The Company has retained CIBC World Markets Inc. to act as its financial advisor in connection with the Recapitalization and to conduct a strategic review process to solicit interest in a sale of the Company. The Company has until June 30, 2015 to obtain a superior proposal to the Recapitalization, with closing to occur within a specified timeframe thereafter. Acceptance of a superior proposal is subject to a break fee payable by the Company as defined in the Recapitalization agreement.

The Company has obtained covenant relief from its senior secured lenders in respect of certain financial and other covenants until August 15, 2015, extendible to September 15, 2015 under certain conditions. Although the Company produced approximately 45,600 payable ounces of palladium in the first quarter of 2015, covenant relief was required as a result of a weakening of the Canadian dollar, and decline in palladium prices and lower production volumes in March combined with higher expenses, which impacted the minimum shareholders’ equity and senior debt to EBITDA ratio covenants at March 31, 2015.

The Company entered into an immediately available US$25 interim credit facility with Brookfield, and US$25 was drawn on April 15, 2015. The facility terminates on September 15, 2015 and bears interest at 16%. NAP is continuing normal business operations at its Lac des Iles mine and the Company’s obligations to employees, trade creditors, equipment leases and suppliers will not be affected by the Recapitalization.

If no superior transaction emerges from the strategic review process by June 30, 2015, the terms of the Recapitalization will be as follows:

•

Conversion of all amounts owing to Brookfield into equity, resulting in Brookfield owning common shares representing 92% of the common shares outstanding on a fully-diluted basis after giving effect to the Recapitalization;

•

Conversion of the 2012 and 2014 convertible debentures into equity, resulting in holders of convertible debentures owning common shares representing in aggregate 6% of the common shares outstanding on a fully diluted basis after giving effect to the Recapitalization;

•

Existing holders of common shares will own 2% of the post-Recapitalization common shares outstanding on a fully-diluted basis;

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North American Palladium Ltd.

•

The Company’s outstanding warrants and options will be terminated;

•

After completion of the Recapitalization, the Company will undertake a $50 rights offering to raise equity, pursuant to which all shareholders at that time will be able to participate;

•

The rights offering will be backstopped by Brookfield and other parties; and

•

Employees, trade creditors, equipment leases and suppliers will not be affected.

The terms of the Recapitalization are outlined in an agreement the Company has entered into with Brookfield. A copy of the Recapitalization term sheet has been filed with regulators and is available on SEDAR at www.sedar.com and EDGAR at www.edgar.com.

The Recapitalization is subject to receipt of customary approvals, including convertible debenture holder and shareholder approval, as well as customary closing conditions. A holder of convertible debentures holding approximately 54% of the Company’s convertible debentures has executed an agreement to support the Recapitalization.

It is estimated that acceleration of the repayment of the principal of the senior secured term loan will result in a prepayment fee in the amount of US$46.1 being applied to the outstanding principal at the time of settlement.

First Quarter Report 2015

Exhibit 3

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North American Palladium Announces First Quarter 2015 Results

All figures are in Canadian dollars except where noted.

Toronto, Ontario, May 11, 2015 – North American Palladium Ltd. (“NAP” or the “Company”) (TSX: PDL) (OTC MKT: PALDF) today 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, 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.

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•

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.

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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.

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Q1 2015 Conference Call & Webcast Details


Date:		Monday, May 11, 2015
Time:		10 a.m. ET
Webcast:		www.nap.com
Live Call:		1-866-229-4144 or 1-416-216-4169 (PIN: 7083275, followed by # sign)
Replay:		1-888-843-7419 or 1-630-652-3042 (PIN: 7083275, followed by # sign)

The conference call replay will be available for 90 days after the live event. An archived audio webcast of the call will also be posted to NAP’s website.

Technical Information and Qualified Persons

Mr. James Gallagher, the Company’s Chief Operating Officer and a Qualified Person under National Instrument 43-101, has reviewed and approved all technical items disclosed in this news release.

About North American Palladium

NAP is an established precious metals producer that has been operating its Lac des Iles mine (“LDI”) located in Ontario, Canada since 1993. LDI is one of only two primary producers of palladium in the world, offering investors exposure to palladium. The Company’s shares trade on the TSX under the symbol PDL and on the OTC Pink under the symbol PALDF.

For further information, please contact:

John Vincic

Telephone: 416-360-7374

Email: IR@nap.com

Notes:

(1) Non-IFRS measure. Please refer to Non-IFRS Measures in the MD&A.

(2) NAP’s unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2015 are available in the Appendix of this news release. These financial statements should be read in conjunction with the notes and management’s discussion and analysis available at www.nap.com, www.sedar.com and www.sec.gov.

Cautionary Statement on Forward-Looking Information

Certain information contained in this news release constitutes ‘forward-looking statements’ within the meaning of the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. The words ‘target’, ‘plan’, ‘should’, ‘could’, ‘estimate’, ‘guidance’, and similar expressions identify forward-looking statements. Forward-looking statements in this news release include, without limitation: information pertaining to the Company’s strategy, plans or future financial or operating performance, such as statements with respect to the Company’s strategic review process, the Company’s ability to consummate a strategic transaction, long term fundamentals for the business, operating performance expectations, project timelines, production forecasts, operating and capital cost estimates, expected mining and milling rates, cash balances, projected grades, mill recoveries, metal price and foreign exchange rates and other statements that express management’s expectations or estimates of future performance. Forward-looking statements involve known and unknown risk factors that may cause the actual results to be materially different from

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those expressed or implied by the forward-looking statements. Such risks include, but are not limited to: the possibility that metal prices and foreign exchange rates may fluctuate, the risk that the LDI mine may not perform as planned, that the Company may not be able to meet production forecasts, the possibility that the Company may not be able to generate sufficient cash to service its indebtedness and may be forced to take other actions, inherent risks associated with development, exploration, mining and processing including environmental risks and risks to tailings capacity, employment disruptions, including in connection with collective agreements between the Company an unions, the risks associated with obtaining necessary licenses and permits and uncertainty regarding the ability to consummate the Recapitalization. For more details on these and other risk factors see the Company’s most recent Annual Information Form / Form 40-F on file with Canadian provincial securities regulatory authorities and the SEC.

Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions contained in this news release, which may prove to be incorrect, include, but are not limited to: that the Company will be able to consummate the Recapitalization or other strategic transaction, that the Company will be able to continue normal business operations at its Lac des Iles mine, that metal prices and exchange rates between the Canadian and United States dollar will be consistent with the Company’s expectations, that there will be no significant disruptions affecting operations, and that prices for key mining and construction supplies, including labour, will remain consistent with the Company’s expectations. The forward-looking statements are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise, except as expressly required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.

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Condensed Interim Consolidated Balance Sheets

(expressed in millions of Canadian dollars)

(unaudited)


	March 31 2015			December 31 2014
ASSETS
Current Assets
Cash and cash equivalents	$	10.4		$	4.1
Accounts receivable		66.2			75.4
Inventories		15.4			14.9
Other assets		2.0			3.6

Total Current Assets		94.0			98.0

Non-current Assets
Mining interests		450.6			452.8

Total Non-current Assets		450.6			452.8

Total Assets	$	544.6		$	550.8

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	32.8		$	28.8
Credit facility		42.3			36.8
Current portion of obligations under finance leases		4.7			4.6
Current portion of long-term debt		207.5			7.3

Total Current Liabilities		287.3			77.5

Non-current Liabilities
Income taxes payable		0.1			0.1
Asset retirement obligations		16.9			15.8
Obligations under finance leases		13.0			14.2
Long-term debt		38.1			218.8

Total Non-current Liabilities		68.1			248.9

Shareholders’ Equity
Common share capital and purchase warrants		868.4			866.4
Stock options and related surplus		9.8			9.7
Equity component of convertible debentures, net of issue costs		6.9			6.9
Contributed surplus		8.9			8.9
Deficit		(704.8	)		(667.5	)

Total Shareholders’ Equity		189.2			224.4

Total Liabilities and Shareholders’ Equity	$	544.6		$	550.8

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Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

(expressed in millions of Canadian dollars, except share and per share amounts)

(unaudited)


	Three months ended March 31
	2015			2014
Revenue	$	64.0		$	48.7

Mining operating expenses
Production costs		41.6			29.7
Smelting, refining and freight costs		6.7			4.2
Royalty expense		2.5			2.1
Depreciation and amortization		8.6			10.4
Inventory pricing adjustment		0.5			—
Loss on disposal of equipment		0.1			0.4

Total mining operating expenses		60.0			46.8

Income from mining operations		4.0			1.9

Other expenses
Exploration		2.5			0.8
General and administration		2.7			2.6
Interest expense and other costs		13.3			13.3
Financing costs		0.4			4.0
Foreign exchange loss		22.4			7.9

Total other expenses		41.3			28.6

Loss before taxes		(37.3	)		(26.7	)
Income tax recovery		—			—

Loss and comprehensive loss for the period	$	(37.3	)	$	(26.7	)

Loss per share
Basic and Diluted	$	(0.10	)	$	(0.11	)

Weighted average number of shares outstanding
Basic and Diluted		390,782,683			232,873,928

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Condensed Interim Consolidated Statements of Cash Flows

(expressed in millions of Canadian dollars)

(unaudited)


	Three months ended March 31
	2015			2014
Cash provided by (used in) Operations
Loss for the period	$	(37.3	)	$	(26.7	)
Operating items not involving cash
Depreciation and amortization		8.6			10.4
Inventory pricing adjustment		0.5			—
Accretion expense (recovery)		2.1			(0.2	)
Share-based compensation and employee benefits		0.4			0.5
Unrealized foreign exchange loss		21.9			7.5
Loss on disposal of equipment		0.1			0.4
Interest expense and other		11.2			13.5
Financing costs		0.4			4.0

		7.9			9.4
Changes in non-cash working capital		12.8			(26.2	)

		20.7			(16.8	)

Financing Activities
Issuance of convertible debentures, net of issue costs		—			28.5
Credit facility		1.0			6.1
Repayment of obligations under finance leases		(1.1	)		(0.8	)
Interest paid		(8.3	)		(1.5	)
Other		(0.4	)		(0.5	)

		(8.8	)		31.8

Investing Activities
Additions to mining interests, net		(5.6	)		(2.9	)

		(5.6	)		(2.9	)

Increase in cash		6.3			12.1
Cash and cash equivalents, beginning of the period		4.1			9.8

Cash and cash equivalents, end of the period	$	10.4		$	21.9

Cash and cash equivalents consisting of:
Cash	$	10.4		$	21.9

Foreign exchange included in cash balance	$	1.2		$	1.1

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