North American Palladium disappoints and gets punished

North American Palladium failed to impress with its latest quarterly results and, given the prevailing bearish sentiment towards mining stocks, the company felt the full weight of the market’s disappointment.

North American Palladium failed to impress with its latest quarterly results and, given the prevailing bearish sentiment towards mining stocks, the company felt the full weight of the market’s disappointment.

The company's shares have fallen nearly 23% since releasing the results and were sitting at $1.07 in Toronto on May 7.

The dissatisfaction is tied to complications with mining at its flagship LDI mine in Ontario and a looming cash crunch as the company lost $2.8 million for the quarter compared to a loss of $900,000 for the same period last year.

Production results showed 38,654 oz of payable palladium produced at cash costs of US$490 per ounce. With a selling price of US$730 that was enough to generate revenues of $47.1 million.

A total of 540,694 tonnes of ore were mined at LDI — 245,656 tonnes from underground with an average grade of 4.1 g/t Pd, and 295,038 tonnes from the surface with an average grade of 2.4 g/t.

The mill managed to process 503,585 tonnes of ore mined at an average head grade of 3.3 g/t with the recovery rate coming in at 80.1% Pd.

But with losses mounting, the company is under pressure to make the mine as economic as it can, and with an eye towards doing just that, it is conducting a detailed review of its operating plan for the year while also re-examining its approach to the Offset zone at the site.

The review isn’t expected to be done until the end of the second quarter, but the company gave a heads-up to the market regarding some issues, as it says that preliminary findings found negative trends in operations and capital expenditures connected with the transition form the Roby zone to the Offset zone.

Those “negative trends” translate into complications that have resulted in delays in stope development, which means less volume coming out of the Offset zone this year.

It all adds up to a disappointing year for the company at a time when many investors are looking for any excuse to sell resource stocks. North American Palladium says even the low end of the 150,000 to 160,000 oz production guidance it gave previously will now be hard to reach, and could in fact come in 10% to 15% lower than those targets.

With less production and lower head grades at the mill, cash costs are likely to increase.

The news had both Raymond James and RBC Dominion both cutting price targets and ratings on the company’s stock. Raymond James’ analyst Alex Terentiew said the company is in danger of running out of cash within a month and that it must issue new equity quickly.

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