Trading Symbol TSE - PDL AMEX - PAL TORONTO, May 10
/PRNewswire-FirstCall/ -- Highlights ---------- - Revenues for Q1
2006 increase 20% over Q1 2005 to $31.5 million owing to
significantly higher commodity prices - Palladium price realized
for Q1 2006 of US$330 per oz versus an average of US$224 per oz in
Q1 2005 - Exploration on Arctic Platinum Project in Finland
underway with $1.4 million spent during the quarter - Net loss for
the quarter reduced to $4.1 million ($0.08 per share) compared to
$7.7 million ($0.15 per share) in Q1 2005 and $11.0 million ($0.21
per share) in Q4 2005 - Cash cost per unit, net of by-product
metal, was US$329 per oz versus US$253 per oz in Q1 2005 and US$417
per oz in Q4 2005 - Underground mine achieves commercial production
- 2006 palladium production outlook positive as underground and
open-pit operations being combined - Closing of first tranche of
private placement Convertible Notes for gross proceeds of US$35
million This news release contains forward-looking statements.
Reference should be made to "Forward-looking Statements" at the end
of this news release. Results of Operations ---------------------
The Company realized a net loss for the three months ended March
31, 2006 of $4,141,000 ($0.08 per share) on revenues of
$31,492,000, a reduction from the net loss for the corresponding
quarter of 2005 of $7,736,000 ($0.15 per share) on revenues of
$26,206,000 and the fourth quarter's net loss of $11,037,000 ($0.21
per share). The improvement in financial performance is chiefly a
result of increased revenue realized from higher average prices for
palladium and all by-product metals during the quarter. Despite a
decrease in palladium and by-product metal production in the first
quarter of 2006 from the corresponding period in 2005, the
strengthening metals markets yielded an increase in revenue, as
palladium revenue was recognized at US$330 per ounce. Revenues from
by-product metal production similarly increased due to higher metal
prices. This compares to palladium revenues in the first quarter of
2005 which were recorded at an average price of US$224 per ounce,
comprising the quoted market price for the quarter of US$199 per
oz. and 6,405 oz. at the floor price of US$325 under the then
existing palladium sales contract. Currently, the Company remains
highly levered to rising commodity prices with no hedging in place
on its production. Selected Quarterly Results
-------------------------------------------------------------------------
($000's) except per share amounts 2005 2006
-------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1
-------------------------------------------------------------------------
Revenue from metal sales 26,206 23,544 17,247 25,609 31,492 Net
loss (7,736) (15,228) (19,610) (11,037) (4,141) Net loss per share
- basic (0.15) (0.29) (0.37) (0.21) (0.08) Basic net loss per share
- fd (0.15) (0.29) (0.38) (0.21) (0.08)
-------------------------------------------------------------------------
Production for the first quarter of 2006 was 47,015 ounces of
palladium (which includes 9,004 ounces of pre-production from the
underground mine) with an average palladium head grade of 1.79 g/t.
During this quarter, the mill processed 1,125,710 tonnes of ore for
an average of 12,508 tonnes per day, at a recovery rate of 72.7%.
This was an improvement over the fourth quarter's palladium
production of 36,833 ounces but below the previous year's
production of 52,572 ounces for the corresponding period when mill
throughput was 1,156,322 tonnes of ore for an average of 12,848
tonnes per day at a recovery rate of 74.0%. Previously disclosed
operating disruptions involving the primary crusher and seepage at
the tailings management facility resulted in a decrease in mill
throughput. Notwithstanding these disruptions, mill availability
during the first quarter of 2006 of 86% was in line with that for
the comparable period in 2005 and an improvement over the 81%
during the fourth quarter. In the first quarter of 2006, the
underground development was completed with commercial production
being achieved as of March 31, 2006. During the quarter, 103,545
tonnes of ore was extracted from the underground mine, with 89,387
tonnes being processed by the mill at an average grade of 3.90
grams per tonne, producing 9,004 ounces of palladium using the
average recovery rate of 72.7% achieved by the mill for the
quarter. In addition, the underground operations produced 555
ounces of platinum, 685 ounces of gold, 138,702 pounds of copper
and 63,279 pounds of nickel. As required under Canadian GAAP,
revenue from the first quarter's underground mine production (the
pre- production period), net of associated production costs, has
been recorded as a reduction in the underground development costs
and has not been recognized as revenue in the quarter. Beginning in
April, 2006, production from the underground mine will be included
in the calculation of earnings and the associated development costs
will be amortized over the expected life of the underground mine.
Production Statistics ---------------------
-------------------------------------------------------------------------
First Quarter March 31 2006(x) 2005 -----------------------
Palladium (oz) 47,015 52,572 Payable Palladium (oz) 42,784 47,924
Platinum (oz) 4,698 5,382 Gold (oz) 3,615 4,131 Copper (lbs)
1,213,394 1,562,040 Nickel (lbs) 616,037 778,200
-------------------------------------------------------------------------
Ore Tonnes Milled 1,125,710 1,156,322 Ore Tonnes Mined -
Underground 103,545 - Ore Tonnes Mined - Open Pit 1,075,597
1,268,875 Waste Tonnes Mined - Open Pit 2,366,675 3,341,433
-------------------------------------------------------------------------
Waste Strip Ratio - Open Pit 2.20:1 2.63:1
-------------------------------------------------------------------------
(x) Metal production and tonnes milled includes production from the
underground pre-production that has not been recorded as revenue,
but offset against the underground capital development costs. Metal
production from the underground pre-production included 9,004 oz of
palladium and other associated by-product metals. Production costs
including overheads, but excluding non-cash amortization, were
$24,311,000 during the first quarter of 2006, compared to
$23,233,000 for the same period in 2005, while unit cash costs to
produce palladium (production costs inclusive of overhead and
smelter treatment, refining and freight), net of by-product metal
revenues and royalties, increased to US$329 per ounce in the first
quarter of 2006 over US$253 per ounce for the corresponding period
in 2005, but lower than fourth quarter 2005 cash costs per ounce of
US$417. The increase in unit cash costs over first quarter 2005 is
attributable to the decline in metals production as well as costs
incurred during the first quarter of 2006 to resolve operational
issues. Operating costs continue to be impacted by upward pressure
on costs relating to power, diesel fuel, tires and the
strengthening Canadian dollar. Non-cash amortization decreased to
$3,608,000 in the first quarter of 2006 compared to $4,729,000 in
the first quarter of 2005, the lower amortization amount attributed
to the decrease in palladium production. In addition, in the first
quarter of 2006, $1,444,000 of amortization was capitalized to
crushed and broken ore and concentrate inventories, compared to nil
in the corresponding period of 2005 because of the then low price
of palladium. Other income and expense, which includes interest
income and foreign exchange gains and losses, was an expense of
$1,397,000 in the first quarter of 2006 compared to $210,000 in the
first quarter of 2005. The current year's foreign exchange loss of
$281,000 compared to a loss of $64,000 in 2005, relating primarily
to the Company's US dollar denominated credit facilities as a
result of the temporary weakening of the Canadian dollar at the
quarter end. In the first quarter of 2006, the Company incurred
interest expense on long- term debt of $695,000 compared to
$635,000 in the first quarter of 2005. The increased interest
expense in the current year reflects the increase in interest rates
year-over-year. During the first quarter, the Company wrote-off the
costs associated with its expiring base shelf-prospectus totaling
$504,000. Interest income for the first quarter declined to $83,000
from $489,000 in the first quarter of 2005 as a result of a lower
average cash position in 2006. The loss from mining operations was
reduced in the first quarter of 2006 to $3,467,000 from $8,991,000
in the corresponding period of 2005. Included in the 2006 results
was $1,408,000 spent on exploration at the Arctic Platinum Project
in Finland. Liquidity and Capital Resources Cash used in operations
(before changes in non-cash working capital) was $362,000 in the
first quarter of 2006, compared to cash used in operations of
$3,963,000 in the first quarter of 2005. The improvement in
operating cash flow was attributed to the increase in metals prices
during the quarter. Changes in non-cash working capital consumed
$10,082,000 in the first quarter of 2006 compared to providing
$14,873,000 in the first quarter of 2005. Palladium awaiting
settlement increased to 72,624 ounces at March 31, 2006 compared to
65,905 ounces at December 31, 2005. The increase in the physical
quantity of metal in the concentrate awaiting settlement combined
with the stronger metal prices resulted in a 32% increase in the
value of concentrate awaiting settlement during the first quarter
2006 of $12,039,000. After allowing for non-cash working capital
changes, cash used in operations was $10,444,000 in the first
quarter of 2006, compared to cash provided of $10,910,000 in the
first quarter of 2005. Investing activities required $7,435,000 of
cash in the first quarter of 2006, largely attributable to the
ongoing underground mine development which commenced in mid-2004
and reached commercial production as of March 31, 2006. This
compares with $6,069,000 of net investing activities in the
corresponding period for 2005. On March 29th, the Company closed
the first tranche (Series 1) of a private placement of convertible
notes which provided US$35,000,000 in gross proceeds to the
Company. The transaction was with two purchasers, Kaiser Francis
Oil Company ("KFOC"), the Company's largest shareholder, and an
institutional investor. The convertible notes bear an interest rate
of 6.5% and mature October 1, 2008. The notes can be converted into
common shares of the Company at US$12.18 (2,873,563 common shares)
with attached warrants that can be exercised to purchase 1,436,782
common shares at US$13.48 until March 29, 2010. Under the terms of
the private placement, the Company has the right to sell to KFOC up
to US$13,500,000 principal amount of convertible notes on or before
June 30, 2006, the proceeds of which will be used to repay the loan
outstanding under the KFOC standby loan facility. The terms of the
convertible notes are more fully described in note 6 of the
accompanying Financial Statements. As at March 31, 2006, the
Company had cash and cash equivalents of $36,290,000. With the
expectation of production improving throughout the year and
returning to its historical levels, and the current commodity
prices continuing, the Company believes it has sufficient capital
resources to fund its operations in 2006. Management's Outlook With
the underground mine having achieved commercial production in April
and anticipated to produce an average of 2,000 tonnes per day for
the balance of the year, together with open-pit production of
13,000 tonnes per day, 2006 palladium production outlook is
positive as the average head grade improves with the blending of
underground and open-pit ores. Management is encouraged that the
momentum from operational improvements implemented over recent
quarters will have a positive impact on mill throughput resulting
in lower cash costs for 2006 than that experienced in 2005. The
Company's aggressive exploration program will continue, with
approximately $15.0 million being allocated to exploration
activities in 2006. The main focus will be on the Arctic Platinum
Project in Finland, a joint venture with Gold Fields Limited, where
drilling commenced in late February. Results are expected to be
incorporated into a re-scoping study that has commenced. The
Company will focus on the further definition of the Offset High
Grade Zone at Lac des Iles and grassroots projects such as the
Shebandowan project near Thunder Bay, Ontario. In addition, the
pursuit of quality Nickel/PGM opportunities will be a key focus.
The PGM markets continue to benefit from strong global
fundamentals. With increasing palladium usage in the autocatalyst
sector, funding for research into alternative energy sources such
as fuel cell technology, and the appreciable demand for palladium
jewellery, the Company believes that the fundamentals are in place
for sustainable strength in palladium prices. Conference Call The
Company will host its first quarter conference call at 8:30 am EDT
on Thursday, May 11, 2006. The toll-free conference call dial-in
number is 1-800-814-4890 and the local and overseas dial-in number
is 416-644-3430. The conference call will be simultaneously web
cast and archived at http://www.napalladium.com/ in the Investor
Centre under Conference Calls. A replay of the conference call will
be available until May 18, 2006; toll-free at 1-877-289-8525,
locally and overseas at 416-640-1917, access code 21188312 followed
by the number sign. Forward-Looking Statements Securities laws
encourage companies to disclose forward-looking information so that
investors can obtain a better understanding of the company's future
prospects and make informed investment decisions. This MD&A
contains forward-looking statements about our objectives, plans,
strategies, financial condition and results of operations.
Forward-looking statements may include words such as "estimated",
"progressing", "expect", "will", "continue", "believe" and other
similar expressions are intended to identify forward-looking
statements. All such forward-looking statements are made pursuant
to the "safe harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 and any applicable
Canadian securities legislation, including the Securities Act
(Ontario). It is important to note that: (i) unless otherwise
indicated, forward- looking statements indicate our expectations as
at May 5, 2006; (2) our actual results may differ materially from
our expectations if known and unknown risks or uncertainties affect
our business, or if estimates or assumptions prove inaccurate; (3)
we cannot guarantee that any forward-looking statement will
materialize and, accordingly, you are cautioned not to place undue
reliance on these forward-looking statements; and (4) we disclaim
any intention and assume no obligation to update or revise any
forward-looking statement even if new information becomes
available, as a result of future events or for any other reason. In
making the forward-looking statements in this news release, the
Company has applied several material assumptions, including but not
limited to, the assumption that market fundamentals will result in
increased palladium demand and prices, the integrated operation of
the underground mine with the open pit mine are viable
operationally and economically and plans for sustainable recoveries
from the Lac des Iles mine, for further exploration at the Lac des
Iles mine and for exploration in Finland can proceed as expected.
Important factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements include among others metal price volatility, economic
and political events affecting metal supply and demand,
fluctuations in ore grade, ore tonnes milled, geological,
technical, mining or processing problems and future production. For
a more comprehensive review of risk factors, please refer to the
Company's most recent Annual Report under "Management's Discussion
and Analysis of Financial Results" and Annual Information Form
under "Risk Factors" on file with the U.S. Securities and Exchange
Commission and Canadian securities regulatory authorities.
-------------------------------------------------------------------------
North American Palladium's Lac des Iles Mine is Canada's only
primary producer of platinum group metals and is among the largest
open pit, bulk mineable palladium reserves in the world. The Mine
also generates substantial revenue from platinum and by-product
metals including nickel, gold and copper. NAP is focused on
expanding its production profile through joint ventures in Canada
and the Arctic Platinum Project in Finland. Palladium's catalytic
qualities are expected to play an increasing role in the automotive
industry in response to growing concern for global environmental
solutions, in fuel cell technology for alternative energy sources
and an emerging jewellery market, while continuing to have
widespread application in the dental, electronics and chemical
sectors. North American Palladium Ltd. Consolidated Balance Sheets
(expressed in thousands of Canadian dollars) March 31 December 31
2006 2005 ----------- ----------- (unaudited) Assets Current Assets
Cash and cash equivalents $ 36,290 $ 15,031 Concentrate awaiting
settlement, net - Note 2 49,492 37,453 Inventories 9,864 8,599
Crushed and broken ore stockpiles - Note 3 6,553 7,267 Other assets
2,077 2,344 ----------- ----------- 104,276 70,694 Mining
interests, net 161,873 159,523 Mine restoration deposit - Note 4
7,547 7,247 Crushed and broken ore stockpiles - Note 3 369 239
Deferred financing costs 1,316 654 ----------- ----------- $
275,381 $ 238,357 ----------- ----------- Liabilities and
Shareholders' Equity Current Liabilities Accounts payable and
accrued liabilities $ 17,411 $ 16,392 Taxes payable 357 386 Future
mining tax liability 123 - Current portion of obligations under
capital leases 2,283 2,323 Current portion of long-term debt - Note
5 6,668 6,664 Kaiser Francis credit facility - Note 5 15,756 13,407
----------- ----------- 42,598 39,172 Mine restoration obligation
7,974 7,894 Obligations under capital leases 5,680 6,218 Long-term
debt - Note 5 16,004 17,660 Convertible notes payable - Note 6
22,490 - Future mining tax liability 311 202 -----------
----------- 95,057 71,146 Shareholders' Equity Common share capital
and common share purchase warrants - Note 7 331,314 325,592 Equity
component of convertible notes payable, net of issue costs - Note 6
11,388 - Contributed surplus 1,018 874 Deficit (163,396) (159,255)
----------- ----------- Total shareholders' equity 180,324 167,211
----------- ----------- $ 275,381 $ 238,357 ----------- -----------
North American Palladium Ltd. Consolidated Statements of Operations
and Deficit (expressed in thousands of Canadian dollars, except
share and per share amounts) (unaudited) Three months ended March
31 2006 2005 ----------- ----------- Revenue from metal sales -
Note 9 $ 31,492 $ 26,206 ----------- ----------- Operating expenses
Production costs, excluding amortization and asset retirement costs
24,311 23,233 Smelter treatment, refining and freight costs 2,714
4,673 Amortization 3,608 4,729 Administrative 2,179 1,595
Exploration expense 2,024 843 Asset retirement costs 123 124
----------- ----------- Total operating expenses 34,959 35,197
----------- ----------- Loss from mining operations 3,467 8,991
----------- ----------- Other expenses (income) Interest on
long-term debt 695 635 Foreign exchange loss (gain) 281 64 Interest
income (83) (489) Write-off of deferred financing costs 504 -
----------- ----------- Total other expenses (income) 1,397 210
----------- ----------- Loss before income taxes 4,864 9,201 Income
tax expense (recovery) (723) (1,465) ----------- ----------- Net
loss for the period 4,141 7,736 Deficit, beginning of period
159,255 105,644 ----------- ----------- Deficit, end of period $
163,396 $ 113,380 ----------- ----------- Net loss per share Basic
$ 0.08 $ 0.15 ----------- ----------- Diluted $ 0.08 $ 0.15
----------- ----------- Weighted average number of shares
outstanding Basic 52,214,834 51,741,396 ----------- -----------
Diluted 52,214,834 51,741,396 ----------- ----------- North
American Palladium Ltd. Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars) (unaudited) Three
months ended March 31 2006 2005 ----------- ----------- Cash
provided by (used in) Operations Net income (loss) for the period $
(4,141) $ (7,736) Operating items not involving cash Future income
tax expense (recovery) (835) (1,685) Amortization 3,608 4,729
Unrealized foreign exchange gain (loss) (46) 191 Asset retirement
costs 123 124 Write-off of deferred financing costs 504 - Stock
based compensation and employee benefits 425 414 -----------
----------- (362) (3,963) Changes in non-cash working capital -
Note 8 (10,082) 14,873 ----------- ----------- (10,444) 10,910
----------- ----------- Financing Activities Repayment of long-term
debt (1,670) (1,724) Issuance of convertible notes - Note 6 41,037
- Increase in long term debt and credit facility 2,311 - Deferred
financing costs (2,137) - Issuance of common shares 475 431 Mine
restoration deposit (300) (300) Repayment of obligations under
capital leases (578) (457) ----------- ----------- 39,138 (2,050)
----------- ----------- Investing Activities Additions to mining
interests - Note 8(b) (7,435) (6,069) ----------- -----------
Increase in cash and cash equivalents 21,259 2,791 Cash and cash
equivalents, beginning of period 15,031 65,755 -----------
----------- Cash and cash equivalents, end of period $ 36,290 $
68,546 ----------- ----------- North American Palladium Ltd. Notes
to the Consolidated Financial Statements For the three months ended
March 31, 2006 (expressed in thousands of Canadian dollars except
per share and per ounce amounts) (unaudited) 1. Basis of
Presentation These unaudited consolidated financial statements have
been prepared using disclosure standards appropriate for interim
financial statements and do not contain all the explanatory notes,
descriptions of accounting policies or other disclosures required
by Canadian generally accepted accounting principles for annual
financial statements. Such notes, descriptions of accounting
policies and other disclosures are included in the Company's
audited annual consolidated financial statements included in the
Company's annual report to shareholders for the year ended December
31, 2005. Accordingly, these consolidated financial statements
should be read in conjunction with the audited annual consolidated
financial statements for 2005. 2. Concentrate Awaiting Settlement
The gross value of concentrate awaiting settlement represents the
value of platinum group metals and base metals from production
shipped to and received by the third-party smelters between August
2005 and March 2006, which are in-process at the balance sheet
date. At March 31, 2006, concentrate awaiting settlement included
72,624 ounces of palladium (December 31, 2005 - 65,905) of which
9,004 ounces is pre-production from the underground mine which is
not recognized as revenue. Concentrate awaiting settlement is
revalued and adjusted at each reporting period to reflect the
changes in metal prices and foreign exchange rates. Concentrate
awaiting settlement was entirely from two domestic customers at
March 31, 2006 and December 31, 2005 and the Company expects full
realization will occur on all such receivables. 3. Crushed and
Broken Ore Stockpiles Crushed and broken ore stockpiles are valued
at the lower of average production cost and estimated net
realizable value. Crushed and broken ore stockpiles represent
coarse ore that has been extracted from the mine and is available
for further processing. The amount of stockpiled ore that is not
expected to be processed within one year is shown as a long-term
asset. 4. Mine Restoration Deposit The Company has established a
mine closure plan for the eventual clean-up and restoration of the
mine site in conjunction with the Ontario Ministry of Northern
Development and Mines (the "Ministry"), which requires a total
amount of $7,802 to be accumulated in a Trust Fund controlled by
the Ministry. At March 31, 2006, the Company had $7,547 on deposit
with the Ministry and has agreed to make monthly deposits of $100.
The funds on deposit bear interest at current short-term deposit
rates and will be returned to the Company once the mine closure is
completed. 5. Credit Facility and Long-Term Debt The Company's
credit facility and long-term debt, is comprised of a senior credit
facility with an equipment finance company and a credit facility
with Kaiser-Francis Oil Company ("KFOC"), the Company's controlling
shareholder. The interest rate under both loan facilities is LIBOR
plus 250 basis points, or 7.31% at March 31, 2006. As at March 31,
2006, the outstanding long-term debt, including current and
long-term portions was $38,428 ($37,731 at December 31, 2005). The
senior credit facility is repayable in equal quarterly installments
over a five-year period with a final maturity of November 24, 2009.
The Kaiser-Francis credit facility outstanding as at March 31, 2006
was US$13,500 (US$11,500 as at December 31, 2005) and matures on
June 30, 2006 (also refer to Note 6). 6. Convertible Notes On March
29, 2006, the Company issued US$35,000 aggregate principal amount
of Series 1 convertible notes (the "Notes") due August 1, 2008
through a private placement of convertible notes and common share
purchase warrants. The offering (the "Offering") consists of up to
US$ 58,500 principal amount of Notes. The Offering is to KFOC and
an institutional investor (the "Purchasers"). The Offering is
governed by a securities purchase agreement dated March 24, 2006
(the "SPA") among the Corporation and the Purchasers. Under the
terms of the SPA, the Corporation issued on March 29, 2006
US$35,000 principal amount of Notes (the "First Tranche"), 50% to
each of the Purchasers. The First Tranche of Notes is convertible
into 2,873,563 common shares of the Corporation (the "Common
Shares") at any time by the holder at US$12.18 per share. Warrants
exercisable to purchase 1,436,782 Common Shares were issued with
the Notes, each Warrant being exercisable to purchase one Common
Share at an exercise price of US$13.48 until March 29, 2010. The
Notes bear interest at a rate of 6.5% per annum payable bi-monthly,
commencing on June 1, 2006. Each Note is repayable in nine equal
installments commencing on the first interest payment date that is
at least twelve months after the date of issuance of such Note
(June 1, 2007 for the First Tranche). The interest payments and/or
repayment amounts may be paid to each Purchaser, at such
Purchaser's option, in any combination of cash and/or Common
Shares. Common Shares issued for interest payments or in repayment
of Notes will be issued at a 10% discount from the weighted average
trading price of the Common Shares on the AMEX for the five
consecutive trading days immediately prior to applicable payment
date. The Corporation, at its option, has the right to sell to KFOC
up to US$13,500 principal amount of Notes (the "Second Tranche") on
or before June 30, 2006, the proceeds of which will be used to
repay the loan under the existing KFOC standby loan facility (refer
to note 5). KFOC has granted the other purchaser an option to
acquire up to 50% on the Second Tranche. The Purchasers will have
the option to acquire an additional US$10,000 principal amount of
Notes (the Third Tranche") on or before December 31, 2006, with
each Purchaser entitled to acquire one-half. If either Purchaser
does not acquire its entire allotment of the additional US$10,000
in Notes, the other Purchaser may purchase the balance. Commencing
15 months after the date of issuance of each tranche of Notes (June
29, 2007 for First Tranche), if the weighted average trading price
of the Common Shares for each of any 25 consecutive trading days is
150% of the Conversion Price, the Corporation will have the right
to force the Purchasers to convert all or any of the outstanding
principal amount of the Notes at the Conversion Price. The Notes
contain customary covenants, including restrictions on the
Corporation incurring debt or obligations for or involving the
payment of money in excess of certain restricted amounts. The Notes
are unsecured but will contain customary anti-dilution protection
as well as adjustments in the event that the Corporation issues
Common Shares or securities convertible into Common Shares at a
purchase price per Common Share less than the Conversion Price. The
Warrants will contain similar anti-dilution protection. Under
Canadian GAAP, the components of the convertible notes must be
bifurcated and accounted for separately as debt and equity
instruments. The warrants are separable from the Notes and are
accounted for as an equity instrument. The proceeds received were
allocated to the debt and equity components of the Notes and to the
initial warrants on a relative fair value basis as follows:
US$19,270 to the debt, US$10,246 to the equity component and
US$5,484 to the warrants. The Company will be required to accrete
the carrying value of the Notes such that at each installment
payment date, the carrying value of the Notes will be equal to
their face value. The fair value of the debt was determined based
on the future payments of principal and interest for a debt
instrument of comparable maturity and credit quality, excluding any
conversion option by the holder. The Notes carry an effective
interest of 46.7%. The conversion option or equity component of the
Notes was valued using a Binomial model. The fair value of the
warrants was determined based on the Black-Scholes option pricing
model. The models used in the valuation of the components of the
convertible debt contain certain subjective assumptions, changes of
which can cause significant variation in the estimated fair value
of the debt and equity components of the Notes. The estimated issue
costs of C$2,137 have been allocated pro-rata to the debt and
equity components of the Notes and to the initial warrants on a
relative fair value basis. The financing costs related to the debt
component will be amortized on an effective yield basis over the 30
month term of the convertible notes. 7. Common Share Capital and
Common Share Purchase Warrants The authorized capital stock of the
Company consists of an unlimited number of common shares and an
unlimited number of special shares, issuable in series, including
10,000,000 Series A preferred shares. (a) Common shares and common
share purchase warrants: March 31, 2006 Shares Amount
----------------------- Common shares issued, beginning of period
52,197,217 $ 325,592 Common shares issued: Pursuant to stock
options exercised 47,054 475 Fair value of stock options exercised
- 26 To group registered retirement savings plan participants
19,032 193 Tax effect of flow-through shares - (1,067)
----------------------- Common shares issued, end of period
52,263,303 325,219 ----------------------- Common share purchase
warrants Balance, beginning of period - - Issued pursuant to terms
of Series 1 convertible notes, net of issue costs 1,436,782 6,095
----------------------- Balance, end of period 1,436,782 6,095
----------------------- $ 331,314 ----------- At March 31, 2006,
the Company had 498,084 stock options outstanding at a
weighted-average exercise price of $9.11, expiring at various dates
from June 6, 2006 to December 14, 2013. No stock options were
granted in the first quarter of 2006 or the first quarter of 2005.
The Company recognized a stock based compensation expense of $176
for the three months ended March 31, 2006 (March 31, 2005 - $178).
The Company finances a portion of its exploration activities
through the issue of flow through shares. Under the terms of these
share issues, the tax attributes of the related expenditures are
renounced to subscribers. At the time the Company renounces the tax
attributes of the expenditures to the subscribers, share capital is
reduced and future tax liabilities are increased by the estimated
income tax benefits renounced. (b) Common Share Purchase Warrants
Pursuant to the terms of the securities purchase agreement
governing the issue of the convertible notes, warrants to purchase
1,436,782 common shares were issued and are outstanding, with each
warrant being exercisable to purchase one Common Share at an
exercise price of US$13.48 until March 29, 2010 (refer to note 6).
(c) Restricted Share Unit Plan Effective December 14, 2005, the
Company adopted a Restricted Share Unit Plan under which eligible
directors, officers and key employees of the Company are entitled
to receive awards of restricted share units. Each restricted share
unit means an equivalent in value to the fair market value of a
common share of the Company on the date of the award. As at March
31, 2006, 25,000 restricted share units have been granted and are
outstanding. The fair value of the restricted share units as at
March 31, 2006 is $13.68 per unit and $57 has been charged to
compensation expense for the three months ended March 31, 2006. 8.
Changes in Non-Cash Working Capital Three months ended March 31
2006 2005 ----------------------- Cash provided by (used in):
Concentrate awaiting settlement $ (12,039) $ 17,346 Inventories and
stockpiles 763 (722) Other assets 267 376 Accounts payable and
accrued liabilities 956 (2,011) Taxes payable (29) (116)
----------------------- $ (10,082) $ 14,873 -----------------------
(b) During the three months ended March 31, 2006, mining interests
were acquired at an aggregate cost of $7,435 (March 31, 2005 -
$7,507) of which $nil (March 31, 2005 - $1,438) were acquired by
means of capital lease. 9. Revenue from Metal Sales Three months
ended March 31 2006 2005 ----------------------- Palladium $ 12,346
$ 11,870 Adjustments for mark-to-market 4,429 326 Nickel 4,689
4,886 Platinum 5,169 4,826 Gold 1,991 1,818 Copper 2,654 1,986
Other metals 214 494 ----------------------- $ 31,492 $ 26,206
----------------------- 10. Commitments The Company enters into
forward contracts from time to time to hedge the effects of changes
in the prices of metals it produces and foreign exchange on the
Company's revenues. Gains and losses realized on derivative
financial instruments used to mitigate metal price risk are
recognized in revenue from metal sales when the hedge transaction
occurs. 11. Comparative Period Figures Certain prior period amounts
have been reclassified to conform to the classification adopted in
the current period. DATASOURCE: North American Palladium Ltd.
CONTACT: James Excell - President & CEO, Tel: (416) 360-2656,
email: ; Ian MacNeily - Vice President Finance & CFO, Tel:
(416) 360-2650, email: ; Donna Yoshimatsu - Director, Investor
Relations, Tel: (416) 360-2652, email:
Copyright