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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of JANUARY 2006
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Commission File Number 1-15142
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NORTH AMERICAN PALLADIUM LTD.
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(Translation of registrant's name into English)
130 ADELAIDE STREET WEST, SUITE 2116, TORONTO, ONTARIO, CANADA M5H 3P5
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F X
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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 check mark whether by furnishing the information contained
in this Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
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If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b) : 82-_______________
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DOCUMENTS INCLUDED AS PART OF THIS REPORT
Document
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1 Auditors' Report
2 Consolidated balance sheet of North American Palladium Ltd. as at
December 31, 2004 and 2003 and the consolidated statement of
earnings (loss) and deficit and cash flows for the years ended
December 31, 2004, 2003 and 2002
3 Consent of Independent Chartered Accountants
DOCUMENT 1
Auditors' Report
TO THE SHAREHOLDERS OF NORTH AMERICAN PALLADIUM LTD.
We have audited the consolidated balance sheet of North American Palladium Ltd.
as at December 31, 2003 and the consolidated statements of earnings and deficit
and cash flows for each of the years in the two-year period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2003 and the
results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2003 in accordance with Canadian generally
accepted accounting principles.
/s/ Ernst & Young LLP
Chartered Accountants
Toronto, Canada,
February 20, 2004
DOCUMENT 2
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North American Palladium Ltd.
CONSOLIDATED BALANCE SHEETS
(CANADIAN FUNDS IN THOUSANDS OF DOLLARS)
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December 31
2004 2003
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ASSETS
CURRENT ASSETS
Current Assets
Cash and cash equivalents $ 65,755 $ 11,950
Restricted cash equivalents -- 1,813
Concentrate awaiting settlement, net - NOTE 3 68,259 94,610
Inventories - NOTE 4 8,954 9,141
Crushed and broken ore stockpiles 9,256 6,251
Accounts receivable and other assets 1,615 1,387
Future tax asset - NOTE 16 -- 84
153,839 125,236
Mining interests, net - NOTE 5 136,009 247,116
Mine restoration deposit - NOTE 7 5,973 4,733
Crushed and broken ore stockpiles 1,379 5,983
Future tax asset - NOTE 16 -- 9,334
Deferred financing costs - NOTE 6 697 1,290
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$ 297,897 $ 393,692
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 20,231 $ 16,041
Taxes payable 521 1,311
Future tax liability - NOTE 16 -- 216
Current portion of obligations under capital leases - NOTE 8 1,481 1,070
Current portion of long-term debt - NOTE 9 6,815 34,538
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29,048 53,176
Mine restoration obligation 7,592 7,300
Obligations under capital leases - NOTE 8 3,182 1,015
Long-term debt - NOTE 9 24,851 7,272
Kaiser-Francis credit facility - NOTE 10 13,842 14,866
Future mining tax liability - NOTE 16 1,549 10,108
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80,064 93,737
SHAREHOLDERS' EQUITY
Capital stock - NOTE 12 322,904 313,489
Contributed surplus 573 --
Deficit (105,644) (13,534)
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Total shareholders' equity 217,833 299,955
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$ 297,897 $ 393,692
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Commitments - NOTE 13
Contingencies - NOTE 15
See accompanying notes to the consolidated financial statements.
On Behalf of the Board:
/s/ MICHAEL P. AMSDEN /s/ GREG VAN STAVEREN
MICHAEL P. AMSDEN GREG VAN STAVEREN
Director Director
North American Palladium Ltd. 2004 Annual Report 31
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North American Palladium Ltd.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND DEFICIT
(CANADIAN FUNDS IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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Year ended December 31
2004 2003 2002
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REVENUE FROM METAL SALES - NOTE 14 $ 185,204 $ 192,141 $ 176,773
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OPERATING EXPENSES
Production costs, excluding amortization and
asset retirement costs 102,936 103,654 100,599
Smelter treatment, refining and freight costs 23,602 19,048 16,909
Insurance recovery (7,148) -- --
Amortization - NOTE 5(B) 36,710 28,590 20,190
Administrative 5,557 3,788 4,212
Exploration expense 2,479 1,942 850
Loss on disposal of capital assets 277 788 99
Asset retirement costs 905 921 587
Write-down of mining interests - NOTE 5(C) 108,000 2,315 --
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Total operating expenses 273,318 161,046 143,446
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INCOME (LOSS) FROM MINING OPERATIONS (88,114) 31,095 33,327
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Other income (expenses)
Interest on long-term debt - NOTES 9 AND 10 (1,756) (3,158) (5,405)
Write-off of deferred financing costs (788) -- --
Foreign exchange gain (loss) (340) 18,138 792
Interest income 494 474 663
Derivative income 213 -- --
Interest expense (29) (17) (433)
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Total other income (expenses) (2,206) 15,437 (4,383)
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INCOME (LOSS) BEFORE INCOME TAXES (90,320) 46,532 28,944
Provision for income taxes - NOTE 16 1,790 8,154 13,862
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NET INCOME (LOSS) FOR THE YEAR (92,110) 38,378 15,082
Deficit, beginning of year (13,534) (51,912) (66,994)
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Deficit, end of year $ (105,644) $ (13,534) $ (51,912)
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Net income (loss) per share
Basic $ (1.79) $ 0.76 $ 0.30
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Diluted - NOTE 12(B) $ (1.79) $ 0.75 $ 0.30
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Weighted-average number of shares outstanding - basic 51,379,542 50,763,566 50,544,634
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Weighted-average number of shares outstanding - diluted
- NOTE 12(B) 51,379,542 50,832,904 50,593,508
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See accompanying notes to the consolidated financial statements.
32 Continued FOCUS on Operations, Growth and Financial Position
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North American Palladium Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CANADIAN FUNDS IN THOUSANDS OF DOLLARS)
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Year ended December 31
2004 2003 2002
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CASH PROVIDED BY (USED IN)
OPERATIONS
Net income (loss) for the year $ (92,110) $ 38,378 $ 15,082
Operating items not involving cash
Future income tax expense - NOTE 16 643 7,392 13,046
Amortization 36,710 28,590 20,190
Accrued interest on mine closure deposit (40) (63) (38)
Write-down of mining interests 108,000 2,315 --
Unrealized foreign exchange gain (3,687) (18,519) (1,494)
Loss on disposal of capital assets 277 788 99
Provision for asset retirement costs 905 921 587
Write-off of deferred financing costs 788 -- --
Stock-based compensation 573 -- --
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52,059 59,802 47,472
Changes in non-cash working capital - NOTE 17(A) 29,731 (5,235) (5,369)
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81,790 54,567 42,103
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FINANCING ACTIVITIES
Repayment of long-term debt (44,290) (45,134) (33,233)
Increase in long-term debt 36,809 -- --
Issuance of common shares 9,415 1,506 1,199
Mine restoration deposit (1,200) (1,200) (1,200)
Repayment of obligations under capital leases (1,751) (1,046) (1,419)
Deferred financing costs (504) -- --
Increase in Kaiser-Francis credit facility -- -- 10,372
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(1,521) (45,874) (24,281)
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INVESTING ACTIVITIES
Additions to mining interests (28,728) (11,707) (8,446)
Proceeds on disposal of mining interests 451 114 513
Restricted cash equivalents 1,813 3,314 (128)
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(26,464) (8,279) (8,061)
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Increase in cash and cash equivalents 53,805 414 9,761
Cash and cash equivalents, beginning of year 11,950 11,536 1,775
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Cash and cash equivalents, end of year $ 65,755 $ 11,950 $ 11,536
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Supplementary information - NOTE 17(B) AND (C)
See accompanying notes to the consolidated financial statements.
North American Palladium Ltd. 2004 Annual Report 33
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North American Palladium Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2004, 2003 and 2002
(CANADIAN FUNDS IN THOUSANDS OF DOLLARS)
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1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
North American Palladium Ltd. ("NAP" or "the Company") is a Canadian
company in the business of exploring and mining Platinum Group Metals ("PGMs")
and certain base and precious metals. Its principal asset is the Lac des Iles
mine located in the Thunder Bay District in Ontario. The Company operates in one
geographical area, Canada, and in one operating segment, mining.
The Company's financial position and operating results are directly
affected by the market price of the PGMs in relation to the Company's production
costs. The prices of PGMs (palladium, platinum) and by-product metals (gold,
copper and nickel) fluctuate widely and are affected by numerous factors beyond
the Company's control. The Company is under long-term contracts with two
smelting firms for the sale of its concentrates. During 2000, the Company
entered into a long-term palladium sales agreement with a major automotive
manufacturer for the sale of all of its palladium production for deliveries of
metal up to June 30, 2005 (NOTE 13(A)). Commencing with the first quarter of
2005, palladium production which will be available for delivery after June 30,
2005 will not be subject to the palladium sales agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and, except as discussed
in note 18, conform in all material respects with United States generally
accepted accounting principles. The more significant accounting policies are
summarized as follows:
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Lac des Iles Mines Ltd. ("LDI"). All
intercompany balances and tranactions have been eliminated.
REVENUE AND CONCENTRATE AWAITING SETTLEMENT
Revenue from the sale of palladium and by-product metals is recognized
net of royalties upon the delivery of concentrate to the smelter, which is when
title transfers and the rights and obligations of ownership pass. The Company's
metals are sold under contracts that provide for final prices that are
determined by quoted market prices in a period subsequent to the date of sale.
Variations from the provisionally priced sales are recognized as revenue
adjustments as they occur until the price is finalized. The effect of hedging
instruments is also included in revenue. Concentrate awaiting settlement at the
smelter is net of estimated treatment and refining costs.
Although the Company sold its metals during 2004 to a limited number of
customers, the Company is not economically dependent upon them as there are
other markets throughout the world for the Company's metals.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward commodity sales contracts from time to
time to hedge the effect of changes in the prices of metals it produces on the
Company's revenues (NOTES 13(A), (C), (D) (E) AND (F)). Gains and losses on
derivative financial instruments used to mitigate metal price risk are
recognized in revenue from metal sales (NOTE 14) over the term of the hedging
contract.
From time to time the Company enters into foreign exchange forward sales
contracts to manage the effect of fluctuations in the value of committed US
dollar denominated revenues. For those forward exchange contracts designated by
the Company as hedges, the related revenue is recorded at the forward contract
rate. Those foreign exchange forward sales contracts not designated by the
Company as hedges are marked-to-market as at the balance sheet date and the
resultant gains or losses are included in earnings for the period. The fair
value of the Company's derivative financial instruments is determined based on
forward prices supplied by knowledgeable, independent third parties.
The Company used electricity swap contracts to hedge the effects of
price fluctuations in its electricity purchase requirements in Ontario. The net
swap settlements are recognized in the same period as the hedge transaction.
The Company does not hold financial instruments or derivative financial
instruments for trading purposes. Cash flows arising in respect of hedging
transactions are recognized under cash flows from operating activities.
The Company does not consider the credit risk associated with its
financial instruments to be significant. Foreign currency contracts and
commodity hedge contracts are maintained with high-quality counter-parties, and
the Company does not anticipate that any counter-party will fail to meet its
obligations.
34 Continued FOCUS on Operations, Growth and Financial Position
CONCENTRATE, CRUSHED AND BROKEN ORE STOCKPILES AND SUPPLIES INVENTORIES
Concentrate and crushed and broken ore stockpiles are valued at the
lower of average production cost and net realizable value. Average production
cost does not include an allocation of the amortization of production related
assets. Crushed and broken ore stockpiles represent course ore that has been
extracted from the mine and is available for further processing. Stockpile
tonnages are verified by periodic surveys. The amount of stockpiled ore that is
not expected to be processed within one year is shown as a long-term asset.
Supplies inventory is valued at the lower of average direct acquisition cost and
replacement cost.
MINING INTERESTS
Plant and equipment are recorded at cost with amortization generally
provided either on the unit-of-production method over the proven and probable
reserves to which they relate or on a straight-line method over their estimated
useful lives ranging from three to seven years. The Company capitalizes interest
on major projects where direct indebtedness has occurred.
The Company leases certain equipment under capital leases. These leases
are capitalized based on the lower of fair market value and the present value of
future minimum lease payments. The corresponding liabilities are recorded as
obligations under capital leases. This equipment is being amortized on the same
basis as described above.
Mining leases and claims and royalty interests are recorded at cost and
are amortized on the unit-of-production method over the proven and probable
reserves.
Exploration costs relating to properties are charged to earnings in the
year in which they are incurred. When it is determined that a mining property
can be economically developed as a result of established proven and probable
reserves, future development and exploration expenditures are capitalized.
Determination as to reserve potential is based on the results of feasibility
studies, which indicate whether production from a property is economically
feasible. Initial feasibility studies are optimized once drilling has confirmed
the shape, grades and continuity of the mineralization. Upon commencement of the
commercial production of a development project these costs are amortized using
the unit-of-production method over the proven and probable reserves. Deferred
expenditures, net of salvage values, relating to a property that is abandoned or
considered uneconomic for the foreseeable future, are written off.
Each year, the Company reviews mining plans for the remaining life of
each property. Significant changes in the mine plan can occur as a result of
mining experience, new discoveries, changes in mining methods and rates, process
changes, investments in new equipment and technology and other factors. Based on
year-end ore reserves and the current mine plan, the Company reviews annually
its accounting estimates and makes adjustments accordingly.
The Company assesses long-lived assets for recoverability whenever
indicators of impairment exist. When the carrying value of a long-lived asset is
less than its net recoverable value as determined on an undiscounted basis, an
impairment loss is recognized to the extent that its fair value, measured as the
discounted cash flows over the life of the asset is less than the carrying
value. Future cash flows are estimated based on quantities of recoverable
minerals, expected palladium and other commodity prices and expected foreign
exchange rates (considering current, historical and expected future prices and
foreign exchange rates and related factors), production levels and cash costs of
production and capital and reclamation expenditures, all based on detailed
life-of-mine plans and projections. The term "recoverable minerals" refers to
the estimated amount of palladium and other commodities that will be obtained
from proven and probable reserves after taking into account losses during
mining, ore processing and concentrate treatment. Assumptions underlying future
cash flow estimates are subject to risk and uncertainty. Any differences between
significant assumptions and market conditions such as metal prices, exchange
rates, recoverable metal, and/or the Company's operating performance could have
a material effect on the Company's ability to recover the carrying amounts of
its long-lived assets resulting in possible additional impairment changes (NOTE
5(C)).
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are recognized when incurred and recorded
as liabilities at fair value. The amount of the liability is subject to
re-measurement at each reporting period. The liability is accreted over time
through periodic charges to earnings. In addition, the asset retirement
obligation is capitalized as part of mining interests and amortized over the
estimated life of the mine. Total undiscounted cash flows required to settle the
obligations are estimated to be approximately $7.8 million, the majority of
which is to be paid at the end of the mine life, which is currently expected to
end in 2010. A credit adjusted risk-free rate of 5% has been utilized to
determine the obligation recorded on the balance sheet. The estimated asset
retirement obligation may change materially based on future changes in
operations, costs of reclamation and closure activities, and regulatory
requirements.
North American Palladium Ltd. 2004 Annual Report 35
The following is a reconciliation of the changes in the asset retirement
obligation during the year:
2004 2003
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Balance, beginning of the year $ 7,300 $ 7,019
Accretion expense 292 281
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Balance at the end of year $ 7,592 $ 7,300
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STOCK-BASED COMPENSATION PLAN
The Company has a stock-based compensation plan which is described in
note 12(a). Effective January 1, 2003, the Company changed its method of
accounting for stock options from the intrinsic value method to one that
recognizes as an expense the cost of stock-based compensation based on the
estimated fair value of new stock options granted to employees and directors.
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model. For options granted from January
1, 2002 to December 31, 2002, the Company elected to not recognize compensation
expense when stock options were issued to employees and directors. Any
consideration paid by employees and directors on exercise of stock options or
purchase of stock is credited to share capital.
TRANSLATION OF FOREIGN CURRENCY
Transactions recorded in United States dollars have been translated into
Canadian dollars as follows:
1. Monetary items at the rate prevailing at the consolidated
balance sheet dates;
2. Non-monetary items at the historical exchange rate; and
3. Revenue and expenses at the actual rate in effect during the
applicable accounting period.
All resulting foreign exchange gains and losses are recorded in the
consolidated statements of earnings and deficit.
INCOME TAXES
The Company follows the asset and liability method of tax allocation for
accounting for income taxes. Under the asset and liability method of tax
allocation, future tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the substantively enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The effect
on future tax liabilities and assets of a change in tax rates is recognized in
income in the period that the change occurs.
CASH AND CASH EQUIVALENTS/RESTRICTED CASH EQUIVALENTS
Cash and cash equivalents include cash on account, demand deposits and
short-term investments with original maturities of three months or less and are
stated at cost.
Short-term investments with maturities of three months or less that are
subject to security arrangements are included in restricted cash equivalents.
DEFERRED FINANCING COSTS
Deferred financing costs represents the costs of negotiating and
securing the Company's long-term debt facilities and share issue costs in
connection with the filing of a shelf prospectus. The amortization of the costs
of securing the long-term debt facilities is included in amortization expense on
a straight-line basis over the term of the debt facility. The share issue costs
will be offset against share proceeds at the time an equity financing is
completed and if an equity financing is not completed before the expiration of
the shelf prospectus, the share issue costs will be written off.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments on the balance sheet
approximate fair value due to their short-term maturities or variable interest
rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and that also affect the reported amounts of revenues and expenses
during the reported year. Actual results could differ from those estimates.
36 Continued FOCUS on Operations, Growth and Financial Position
3. CONCENTRATE AWAITING SETTLEMENT
Concentrate awaiting settlement is comprised of:
2004 2003
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Concentrate awaiting settlement, gross $ 76,491 $ 104,880
Refining and smelter treatment charges (8,232) (10,270)
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Concentrate awaiting settlement, net $ 68,259 $ 94,610
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The gross value of concentrate awaiting settlement represents the value
of all PGMs and base metals from production shipped to and received by the
third-party smelters between June and December 2004, including 114,186 ounces of
palladium (2003 - between June and December 2003, including 147,570 ounces of
palladium).
All of the concentrate awaiting settlement is from two domestic
customers at December 31, 2004 (2003 - two domestic customers). No reserves for
doubtful accounts have been established. In the opinion of management, full
realization will occur on all such receivables.
4. INVENTORIES
Inventories consist of the following:
2004 2003
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Concentrate $ 587 $ 1,669
Supplies 8,367 7,472
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$ 8,954 $ 9,141
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5. MINING INTERESTS
(A) Mining interests are comprised of the following:
2004 2003
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Plant and equipment, at cost $ 345,588 $ 322,966
Underground mine development, at cost 6,920 -
Accumulated amortization 140,413 108,972
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212,065 213,994
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Equipment under capital lease, at cost 6,346 3,758
Accumulated amortization 859 1,056
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5,487 2,702
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Mining leases and claims, royalty interest,
exploration and development, at cost 82,537 82,353
Accumulated amortization 56,080 51,933
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26,457 30,420
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Mining interests before impairment charge 244,009 247,116
Impairment charge 108,000 -
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Mining interests, net $ 136,009 $ 247,116
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North American Palladium Ltd. 2004 Annual Report 37
(B) Amortization expense is comprised of:
2004 2003 2002
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Capital assets (including plant and equipment,
and equipment under capital lease) $ 32,149 $ 24,746 $ 17,505
Mining leases and claims, royalty interest,
exploration and development costs 4,147 3,054 1,895
Deferred financing costs 414 790 790
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$ 36,710 $ 28,590 $ 20,190
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(C) During the fourth quarter of 2004 the Company performed an
annual impairment test which resulted in a non-cash charge of $108,000 to
write-down the carrying value of mining interests. An assessment of impairment
was required as a result of changes in certain key assumptions which were
affected by a continuation of low palladium prices.
In 2003, the Company recorded a write-down of $2,315 pertaining to the
retirement of a damaged primary crusher.
6. DEFERRED FINANCING COSTS
2004 2003
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Financing costs $ 716 $ 3,265
Accumulated amortization 19 1,975
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$ 697 $ 1,290
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7. MINE RESTORATION PLAN
The Company, in conjunction with the Ontario Ministry of Northern
Development and Mines (the "Ministry"), has established a trust fund (the
"Fund") pursuant to the Company's mine closure plan for eventual clean-up and
restoration of the mine site. The mine closure plan calls for a total amount of
$7,802 to be accumulated in the Fund.
Commencing in February 2001, the Fund, controlled by the Ministry,
started to accumulate through monthly deposits of $100. At December 31, 2004,
the Company had $5,973 (2003 - $4,733) on deposit with the Ministry including
accrued interest of $243. 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.
8. LEASE OBLIGATIONS
The following is a schedule of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments:
2004 2003
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2004 $ - $ 1,098
2005 1,632 620
2006 1,223 257
2007 951 171
2008 763 -
2009 452 -
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Total minimum lease payments 5,021 2,146
Amounts representing interest rates from 3.5% - 8.3% 358 61
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Present value of minimum lease payments $ 4,663 $ 2,085
Less current portion $ 1,481 $ 1,070
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Long-term liabilities $ 3,182 $ 1,015
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38 Continued FOCUS on Operations, Growth and Financial Position
9. LONG-TERM DEBT
(A) PROJECT TERM LOAN
The project term loan was a non-revolving credit facility with an
interest margin of 1.75% over LIBOR or Bankers Acceptance. In return for
granting the loan the lender received a security in all of the Company's
existing and future assets. In addition, the lender received an assignment of
all material agreements including the palladium sales contract (NOTE 13(A)) and
a pledge of the shares of LDI.
Amounts drawn under the credit facility were required to be repaid in
quarterly installments, with the final maturity date of the credit facility
being March 31, 2005.
In June 2004, the Company entered into a new senior credit facility and
used a portion of this new facility to repay the Company's project term loan
totalling approximately US$19,000.
(B) SENIOR CREDIT FACILITY
On June 28, 2004, the Company entered into a new US$20,000 and C$10,000
senior credit facility with a leading equipment finance company which were fully
drawn. The US$20,000 credit facility is repayable in equal quarterly
installments of US$1,000 commencing on September 30, 2004 and has a final
maturity on June 30, 2009. The C$10,000 credit facility is repayable in equal
quarterly installments of C$500 commencing February 24, 2005 and has a final
maturity of November 24, 2009. The credit facility has an interest margin of
2.5% over LIBOR or Bankers Acceptances. In return for granting the loan the
lender received a first priority security in all of the Company's existing and
future assets excluding its production leases and claims. The credit facility
allows in certain circumstances, full repayment of outstanding loans at any time
during the term of the facility.
10. KAISER-FRANCIS CREDIT FACILITY
At the time the Company entered into the new senior credit facility,
certain terms under the US$20,000 non-revolving credit facility with
Kaiser-Francis Oil Company ("Kaiser-Francis") were amended. The final maturity
date was extended to June 30, 2006 from May 31, 2005 and the interest rate was
reset based upon the 30 day LIBOR rate plus 2.50%. Amounts not drawn under the
loan are subject to a standby fee payable quarterly at 0.125% per annum. The
Company paid on closing a commitment fee of 0.75% of the total commitment
(US$150). In connection with the loan, the Company has granted Kaiser-Francis a
security interest in all of the assets of the Company and a pledge of the LDI
shares. The security interests in all of the assets of the Company are
subordinated to the security interests of the senior credit facility. As at
December 31, 2004, the outstanding loan was US$11,500 (2003 - US$11,500).
The loan agreement includes customary representations, warranties and
covenants, including a covenant by the Company not to pay dividends or make any
other payment to shareholders while the loan is outstanding. The loan agreement
also provides for customary events of default.
11. RELATED PARTY TRANSACTIONS AND COMMITMENTS
Kaiser-Francis is the controlling shareholder of the Company. In
addition to the related party transactions with Kaiser-Francis disclosed in note
10, the Company has completed the following related party transactions:
(A) On January 1, 1999, the Company entered into a farm-in agreement
with a mining company of which one of the Company's directors is an officer and
director. Under the agreement, the Company earned the right to a 100% interest
in six mining claims in the vicinity of the Lac des Iles property by making
payments to the optionor totaling $260 and by conducting exploration work in the
amount of $135 by December 31, 2000. The optionor retained a 2% net smelter
royalty on the farm-in claim property.
(B) In 2004, a director of the Company received a fee of $581 (2003
- $400; 2002 - $412) in connection with the negotiations related to the
Palladium Sales Contract entered into by the Company in 2000 (NOTE 13(A)). The
contract was made prior to such person becoming a director of the Company.
North American Palladium Ltd. 2004 Annual Report 39
12. CAPITAL STOCK
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:
The changes in issued common share capital for the year are
summarized below:
2004 2003
----------------------------------------------------------------------------------------------------
SHARES AMOUNT Shares Amount
Common shares issued, beginning of year 50,895,338 $ 313,489 50,647,955 $ 311,983
Common shares issued
Pursuant to stock options exercised 459,380 4,637 13,450 101
To Group Registered Retirement
Savings Plan participants 84,357 956 190,605 905
Private placement 270,000 3,822 43,328 500
----------------------------------------------------------------------------------------------------
Common shares issued, end of year 51,709,075 $ 322,904 50,895,338 $ 313,489
----------------------------------------------------------------------------------------------------
GROUP REGISTERED RETIREMENT SAVINGS PLAN
The Company has a group registered retirement savings plan, which all
employees can participate in at their option. The Company is required to make
matching contributions to a maximum of $5 per employee per annum. The Company
matching contribution can be made either in cash or treasury shares of the
company. During 2004 the Company contributed 84,357 shares at a stated capital
of $956, being fair value (2003 - 190,605 shares at a stated capital of $905).
PRIVATE PLACEMENT
On July 9, 2004, the Company completed a private placement of 270,000
flow through common shares. The gross proceeds of $4,050 must be spent on
Canadian exploration expenses as defined in Section 66 of the Income Tax Act
(Canada) by December 31, 2005. In 2003, the Company completed a private
placement of 43,328 flow through common shares. The gross proceeds of $500 were
spent on Canadian exploration expenses by December 31, 2004. Under the terms of
the flow through common share issue, the tax attributes of the related
expenditures will be renounced to investors and the share capital will be
reduced and future income tax liabilities will be increased by the estimated
income tax benefits renounced by the Company to the investors.
CORPORATE STOCK OPTION PLAN
The Company has adopted, and the shareholders have approved, the ongoing
1995 Corporate Stock Option Plan (the "Plan"), under which eligible directors,
officers, employees and consultants of the Company are entitled to receive
options to acquire common shares. The Plan is administered by the Compensation
Committee, a subcommittee of the Board of Directors, which will determine the
number of options to be issued, the exercise price (which may not be lower than
the closing price of the Company's common shares on the Toronto Stock Exchange
("TSX") on the day prior to the date of grant) and 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 a limited time period should the optionee cease to be an "Eligible
Person" as set forth in the conditions of the Plan. Options granted since
December 2001 vest as to 1/3 on each of the first three anniversary dates of the
date of grant. Prior to December 2001, options granted under the Plan vested as
to 1/3 on the date of grant and 1/3 on each of the first two anniversary dates.
The maximum number of common shares subject to option shall not exceed
2,700,000, being approximately 5.2% of the outstanding common shares or such
greater number of common shares as may be determined by the Board of Directors,
and approved if required, by the shareholders of the Company and by any relevant
stock exchange or other regulatory authority. As at December 31, 2004, 318,094
options were available to be granted under the Plan.
40 Continued FOCUS on Operations, Growth and Financial Position
The following summary sets out the activity in outstanding common share purchase
options:
2004 2003
-----------------------------------------------------------------------------------------
WEIGHTED- Weighted-
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
-----------------------------------------------------------------------------------------
Outstanding, beginning of year 1,038,857 $ 9.24 1,066,939 $ 11.04
Granted 316,800 11.87 258,000 3.71
Exercised (459,380) 10.10 (13,450) 7.50
Cancelled (70,667) 7.96 (272,632) 11.15
-----------------------------------------------------------------------------------------
Total 825,610 $ 9.88 1,038,857 $ 9.24
-----------------------------------------------------------------------------------------
Options exercisable at end of year 389,265 $10.08 685,057 $ 11.27
-----------------------------------------------------------------------------------------
The following table summarizes information about the Company's stock
options outstanding at December 31, 2004 (SEE ALSO NOTE 15(A)):
EXERCISE PRICE EXPIRY DATES OPTIONS OPTIONS
OUTSTANDING AT EXERCISABLE AT
DEC. 31, 2004 DEC. 31, 2004
------------------------------------------------------------------------------------------
$ 3.42 April 7, 2011 103,334 34,445
$ 3.70 April 1, 2011 33,400 11,133
$ 4.75 February 27, 2011 7,500 2,500
$ 5.92 September 2, 2011 20,000 6,667
$ 7.89 December 12, 2009 51,900 51,900
$ 8.40 March 3, 2005 35,000 35,000
$ 9.30 July 27, 2005 34,499 34,499
$ 9.40 March 15, 2005 14,760 14,760
$ 9.76 November 1, 2012 15,000 -
$ 10.01 June 6, 2010 73,667 49,111
$ 11.90 June 23, 2012 287,300 -
$ 13.55 June 6, 2006 90,750 90,750
$ 13.90 December 14, 2005 25,500 25,500
$ 14.44 February 13, 2006 33,000 33,000
------------------------------------------------------------------------------------------
825,610 389,265
------------------------------------------------------------------------------------------
Prior to January 1, 2003, the Company did not recognize compensation
expense for stock options. Had compensation expense for options granted in 2002
under the Company's stock option plan been determined based on the fair value at
the grant dates consistent with the fair value based method of accounting for
stock-based compensation, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2004 2003 2002
------------------------------------------------------------------------------------------
Net income (loss) as reported $ (92,110) $ 38,378 $ 15,082
Stock-based compensation 160 160 160
------------------------------------------------------------------------------------------
Pro forma net income (loss) $ (92,270) $ 38,218 $ 14,922
------------------------------------------------------------------------------------------
Pro forma basic and diluted income (loss) per share $ (1.80) $ 0.75 $ 0.30
------------------------------------------------------------------------------------------
The fair value of options granted in 2004 has been estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk free interest rate of 3.7% (2003 - 4%; 2002 -
4%), expected dividend yield of nil (2003 - nil; 2002 - nil), expected
volatility of 55% (2003 - 48%; 2002 - 60%), and expected option life of 4 years
(2003 - 3 years; 2002 - 3 years). The estimated fair value of the options is
expensed over the option's vesting period, which is 3 years. The weighted
average fair market value of options granted in 2004 was $5.43 (2003 - $2.13;
2002 - $4.33).
North American Palladium Ltd. 2004 Annual Report 41
(B) Reconciliation of the diluted number of shares outstanding:
2004 2003 2002
------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ (92,110) $ 38,378 $ 15,082
------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 51,379,542 50,763,566 50,544,634
Effect of dilutive securities stock options - 69,338 48,874
------------------------------------------------------------------------------------------------
Weighted average diluted number of
shares outstanding 51,379,542 50,832,904 50,593,508
------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ (1.79) $ 0.75 $ 0.30
------------------------------------------------------------------------------------------------
The effect of stock options has not been included in the determination
of diluted loss per share for 2004 because to do so would be antidilutive.
13. COMMITMENTS
(A) PALLADIUM SALES CONTRACT
During 2000, the Company entered into a contract (the "Palladium Sales
Contract") whereby the Company hedged the price of 100% of its palladium
production. Under the Palladium Sales Contract the sales price is based on the
monthly average spot price for palladium, as determined by the London Metal
Exchange P.M. Fix, for the month prior to the month that the metal is received
by the customer, but the price will be no less than US$325 per ounce for 100% of
the metal received and no more than US$550 per ounce for 50% of the metal
received. For the remaining 50% of the metal received, there is no maximum
price. The Palladium Sales Contract's term commenced effective July 1, 2000 and
expires on June 30, 2005.
(B) SHERIDAN PLATINUM GROUP OF COMPANIES ("SPG") COMMITMENT
The Company is required to pay a royalty to SPG equal to 5% of the Net
Cash Proceeds, as defined in the agreement from mining operations until the
expiration of the Lac des Iles leases.
(C) PLATINUM FORWARD CONTRACTS
At December 31, 2004, the Company had forward sales contracts for 10,500
ounces of platinum at an average price of US$831 per ounce maturing at various
dates through December 2005. The fair value of these forward sales contracts was
below their carrying value by $313 as at December 31, 2004.
(D) NICKEL SWAP CONTRACTS
At December 31, 2004, the Company had swap contracts for 1,190,000 lbs.
of nickel at an average fixed price of US$6.58 per lb. maturing at various dates
through June 2005. The fair value of these swap contracts was below their
carrying value by $123 as at December 31, 2004.
(E) COPPER SWAP CONTRACTS
At December 31, 2004, the Company had swap contracts for 1,984,000 lbs.
of copper at an average fixed price of US$1.25 per lb. maturing at various dates
through December 2005. The fair value of these swap contracts was below their
carrying value by $176 as at December 31, 2004.
(F) GOLD FORWARD CONTRACTS
At December 31, 2004, the Company had forward sales contracts for 12,000
ounces of gold at an average price of US$435 per ounce maturing at various dates
through December 2005. The fair value of these forward sales contracts was below
their carrying value by $140 as at December 31, 2004.
42 Continued FOCUS on Operations, Growth and Financial Position
14. REVENUE FROM METAL SALES
2004 2003 2002
--------------------------------------------------------------------------
Palladium (A) $ 112,879 $ 109,443 $ 101,317
Palladium forward contracts (B) - 20,437 46,033
Adjustments for mark-to-market 909 (1,163) (9,243)
Nickel 25,735 26,010 12,111
Platinum 21,476 18,847 14,069
Gold 10,665 9,826 7,094
Copper 10,945 7,722 4,723
Other metals 2,595 1,019 669
--------------------------------------------------------------------------
$ 185,204 $ 192,141 $ 176,773
--------------------------------------------------------------------------
(A) Palladium revenues include the effect of the Palladium Sales
Contract (NOTE 13(A)).
(B) The Company entered into palladium forward contracts in 2001 for
100,800 ounces of palladium at an average price of US$922 per ounce, the revenue
from which was fully recognized by June 30, 2003. The effect of palladium
forward contracts represents the difference between the fixed price realized
under the palladium forward contracts and the palladium price at the time of
revenue recognition.
15. CONTINGENCIES
(A) The Company is a defendant in an action by another mining
company claiming damages in the amount of $20,000, punitive and exemplary
damages in the amount of $5,000 and a declaration that the Company held the
Compania Minerales de Copan, S.A. de C.V. ("Copan") property in trust for the
plaintiff. No provision has been made in the accounts as at December 31, 2004 or
2003 for any possible loss from this action as management of the Company
believes it has a valid defense and it has been indemnified by SPG regarding
this action. In addition, certain stock options are claimed to be held by
employees of Copan. These options have not been included in note 12(A) as the
Company has been indemnified by SPG regarding such matters.
(B) The Company has filed a claim with its insurance company
relating to losses incurred in connection with the failure of the primary
crusher in 2002. During 2004, the Company received $7,148 as an interim payment
against this claim and has included this amount in income from mining
operations. The Company is pursuing the balance of its insurance claim and will
record any additional recovery in income if and when received.
(C) From time to time, the Company is involved in other litigation,
investigations, or proceedings related to claims arising out of its operations
in the ordinary course of business. In the opinion of the Company's management,
these claims and lawsuits in the aggregate, even if adversely settled, will not
have a material effect on the consolidated financial statements.
North American Palladium Ltd. 2004 Annual Report 43
16. INCOME TAXES
The provision for income and mining taxes differs from the amount that
would have resulted by applying the combined Canadian Federal and Ontario
statutory income tax rates of approximately 39%.
2004 2003 2002
--------------------------------------------------------------------------------------------
Income tax provision using statutory income
tax rates $ (35,406) $ 18,147 $ 11,888
Increase (decrease) in taxes resulting from:
Write-down of mining interests not tax benefited 35,694 - -
Resource allowance 6,439 (3,342) (5,320)
Non-taxable portion of capital gains (2) (2,908) -
Increase in valuation allowance on assets
previously recognized 2,525 - -
Changes in income tax rates and laws - (3,546) -
Benefit of income tax losses not previously
recognized (437) (811) -
Federal large corporations taxes 465 837 817
Ontario mining taxes (7,979) 983 4,357
Other 491 (1,206) 2,120
--------------------------------------------------------------------------------------------
Income tax expense $ 1,790 $ 8,154 $ 13,862
--------------------------------------------------------------------------------------------
The details of the Company's income tax expense are as follows:
2004 2003 2002
--------------------------------------------------------------------------------------------
Current income tax expense:
Income taxes $ 102 $ (550) $ -
Mining taxes 580 475 -
Federal large corporations tax 465 837 816
--------------------------------------------------------------------------------------------
$ 1,147 $ 762 $ 816
--------------------------------------------------------------------------------------------
Future income tax expense:
Income taxes $ 9,202 $ 6,884 $ 8,546
Mining taxes (8,559) 508 4,500
--------------------------------------------------------------------------------------------
$ 643 $ 7,392 $ 13,046
--------------------------------------------------------------------------------------------
$ 1,790 $ 8,154 $ 13,862
--------------------------------------------------------------------------------------------
44 Continued FOCUS on Operations, Growth and Financial Position
Future tax assets (liabilities) consist of the following temporary
differences:
2004 2003
-------------------------------------------------------------------
Current future income tax asset:
Cash and cash equivalents $ 389 $ -
Non-capital loss carry-forwards - 84
Valuation allowance (389) -
-------------------------------------------------------------------
Net future income tax asset, current $ - $ 84
-------------------------------------------------------------------
Long-term future income tax asset:
Mining interests, net $ 34,630 $ 7,472
Deferred financing costs (11) 1,022
Mine restoration obligation 3,495 -
Future mining tax liability 343 2,157
Other assets 174 231
Ontario corporate minimum tax credits 327 257
Capital loss carry-forwards 927 1,308
Valuation allowance (38,728) (1,308)
-------------------------------------------------------------------
Net future income tax asset, long-term 1,157 11,139
-------------------------------------------------------------------
Future income tax liability, long-term:
Long-term debt (420) (1,243)
Kaiser-Francis credit facility (737) (562)
-------------------------------------------------------------------
(1,157) (1,805)
-------------------------------------------------------------------
Net future income tax asset, long-term $ - $ 9,334
-------------------------------------------------------------------
Current future tax liability:
Deferred financing costs $ - $ 216
-------------------------------------------------------------------
Future tax liability, current $ - $ 216
-------------------------------------------------------------------
Future mining tax liability, long-term:
Mining interests, net $ 1,549 $ 10,108
-------------------------------------------------------------------
Future mining tax liability, long-term $ 1,549 $ 10,108
-------------------------------------------------------------------
At December 31, 2004, the Company had net capital loss carry-forwards of
approximately $5,100 (2003 - $3,700), which are available to reduce net capital
gains of future years.
17. STATEMENT OF CASH FLOWS
(A) The net changes in non-cash working capital balances related to
operations are as follows:
2004 2003 2002
---------------------------------------------------------------------------------
Cash provided by (used in):
Concentrate awaiting settlement $ 26,351 $ (9,298) $ (2,778)
Inventories and stockpiles 1,786 3,179 507
Accounts receivable and other assets (229) 296 943
Accounts payable and accrued liabilities 2,613 1,218 (2,442)
Taxes payable (790) (630) (1,599)
---------------------------------------------------------------------------------
$ 29,731 $ (5,235) $ (5,369)
---------------------------------------------------------------------------------
(B) Cash outflows during the year for interest and income taxes were
as follows:
2004 2003 2002
---------------------------------------------------------------------------------
Interest paid on long-term debt $ 1,929 $ 3,433 $ 5,842
Income and mining taxes paid $ 436 $ - $ -
North American Palladium Ltd. 2004 Annual Report 45
(C) During 2004, mining interests were acquired at an aggregate cost
of $33,058 (2003 - $12,687; 2002 - $9,960) of which $4,330 (2003 - $980; 2002 -
$1,514) were acquired by means of capital leases.
18. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE U.S.
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles, which differ in some
respects from those in the United States. The following table presents amounts
that would have been reported had the Company's consolidated financial
statements been prepared on the basis of United States generally accepted
accounting principles ("U.S. GAAP"):
(CANADIAN FUNDS IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2004 2003 2002
--------------------------------------------------------------------------------------------
Statements of earnings (loss) and deficit:
Net income (loss) under Canadian GAAP $ (92,110) $ 38,378 $ 15,082
Amortization of capitalized interest (A) (95) (39) (20)
Concentrates and crushed and broken ore
stockpiles (B) 295 (1,702) (404)
Derivative financial instruments (C) 2,041 (2,867) 74
Reversal of asset retirement obligation under
Canadian GAAP (E) - - 53
Tax effect of differences - 1,459 112
--------------------------------------------------------------------------------------------
Net income (loss) and comprehensive income
under U.S. GAAP before cumulative impact
of change in accounting policy $ (89,869) $ 35,229 $ 14,897
Cumulative impact of change in accounting
policy for asset retirement obligations (E) - (375) -
--------------------------------------------------------------------------------------------
Net income (loss) and comprehensive income
under U.S. GAAP $ (89,869) $ 34,854 $ 14,897
Basic and diluted income (loss) per share
under U.S. GAAP before cumulative impact
of change in accounting policy $ (1.75) $ 0.69 $ 0.29
--------------------------------------------------------------------------------------------
Basic and diluted income (loss) per share under
U.S. GAAP $ (1.75) $ 0.69 $ 0.29
--------------------------------------------------------------------------------------------
Balance sheets:
Current assets (B) and (C) $ 155,842 $ 124,186
Mining interests (A) $ 136,567 $ 247,769
Crushed and broken ore stockpiles - long-term
(B) $ 1,568 $ 6,889
Future tax asset, long-term $ - $ 9,124
Capital stock (D) $ 329,002 $ 319,587
Deficit $ (108,992) $ (19,333)
(A) The Company capitalizes interest on major projects where direct
indebtedness has occurred. Under U.S. GAAP, interest is capitalized as it arises
from indebtedness incurred, directly or indirectly, to finance development and
construction activities on assets that are not yet subject to amortization or
depletion. The current year adjustment relates entirely to the amortization of
these amounts under U.S. GAAP.
(B) Under Canadian GAAP, the cost of the Company's concentrate and
crushed and broken ore stockpiles is determined on the average production cost
and does not include an allocation of the amortization of production related
assets, whereas under U.S. GAAP the cost of these assets should include this
allocation.
(C) Under U.S. GAAP, the Company has chosen not to designate its
derivative financial instruments as hedging instruments and thus they are
carried on the balance sheet at their fair value and any changes in fair value
are being recorded to earnings in the period of the change.
46 Continued FOCUS on Operations, Growth and Financial Position
(D) Canadian GAAP allows for the reduction of the stated capital of
outstanding common shares with a corresponding offset to deficit. This
reclassification, which the Company made in 1991, is not permitted by U.S. GAAP
and would result in an increase in both capital stock and deficit of $6,098 at
December 31, 2004 and 2003.
(E) Effective January 1, 2003, the Company adopted FAS 143,
"Accounting for Asset Retirement Obligations" which requires that the fair value
of liabilities for asset retirement obligations be recognized in the period in
which they occur. A corresponding increase to the carrying amount of the related
asset is generally recorded and depreciated over the life of the asset. The
amount of the liability is subject to re-measurement at each reporting period.
The cumulative effect of the change through January 1, 2003 was to increase
mining assets by $6,489, increase the mine closure obligation to $7,019 and a
one time after-tax charge to net earnings of $375.
(F) U.S. GAAP requires that amounts totaling 5% or more of accounts
payable and accrued liabilities be identified separately. As at December 31,
2004, these amounts were as follows: trade payables and accruals - $15,235 (2003
- $13,756); other accruals - $4,996 (2003 - $2,285).
(G) U.S. GAAP does not permit the disclosure of subtotal of cash
from operations before changes in non-cash working capital.
(H) Effective January 1, 2003, the Company prospectively adopted FAS
No. 123 "Accounting for Stock-based Compensation" as amended by FAS No. 148,
whereby compensation expense for options granted after January 1, 2003 is
measured at fair value at the grant date using the Black-Scholes valuation model
and recognized over the remaining vesting period of the options granted.
Previously, the Company, for purposes of preparing financial information in
accordance with U.S. GAAP, accounted for its stock-based compensation plan under
Accounting Principles Board Opinion 25 "Accounting for Stock Issued to
Employees" (APB No. 25) which did not result in the recognition of compensation
expense. Under FAS 148, pro forma disclosure is still required for those options
granted prior to January 1, 2003 as follows:
2004 2003 2002
------------------------------------------------------------------------------------------------
Net income (loss) as reported under U.S. GAAP $ (89,869) $ 34,854 $ 14,897
Stock-based compensation 168 (1,000) 2,648
------------------------------------------------------------------------------------------------
Pro forma net income (loss) under U.S. GAAP $ (90,037) $ 35,854 $ 12,249
------------------------------------------------------------------------------------------------
Pro forma basic and diluted income (loss) per share $ (1.75) $ 0.71 $ 0.24
------------------------------------------------------------------------------------------------
19. COMPARATIVE FIGURES
Certain of the prior years' figures have been reclassified to conform to
the presentation adopted in 2004.
------------------------------------------------------------------------
Forward-Looking Statements
The Company's annual report 2004, consolidated balance sheets as at
December 31, 2004 and the consolidated statements of earnings and deficit and
cash flows for each of the years in the three year period ended December 31,
2004 (collectively the "Financial Statements") and management's discussion and
analysis of operations and financial position ("MD&A") for the Financial
Statements, contain certain that are forward-looking statements which are made
pursuant to the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. They include estimates and statements that
describe the Company's future plans, objectives and goals, including words to
the effect that the Company or management expects a stated condition or result
to occur. When used herein, words such as "estimate", "expect", "believe",
"intend", "budget", "projection", "strategy", "will", "continue" and other
similar expressions are intended to identify forward-looking statements. In
particular statements relating to the impairment charge and the estimated future
metal prices, cash flows, expenses, capital costs, ore production, mine life,
financing, construction and commissioning are forward-looking statements. Such
forward-looking statements involve inherent risks and uncertainties and are
subject to factors, many of which are beyond our control, that may cause actual
results or performance to differ materially from those currently anticipated in
such statements. Important factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include among others metal price volatility, changes in the US/CDN dollar
exchange rate, the salvage value of equipment, economic and political events
affecting metal supply and demand, fluctuations in ore grade, ore tonnes milled,
geological, technical, mining or processing problems, recoverability of metals,
future profitability and production, availability of financing on acceptable
terms and unexpected problems during the development, construction and start-up
phases of the underground mine, exploration programs may not result in increased
reserves and competition for acquisition of new properties. For a more
comprehensive review of risk factors, please refer to the Company's MD&A and
Annual Information Form under "Risk Factors" on file with the U.S. Securities
and Exchange Commission and Canadian provincial securities regulatory
authorities. The Company disclaims any obligation to update or revise any
forward-looking statements whether as a result of new information, events or
otherwise. Readers are cautioned not to put undue reliance on these
forward-looking statements.
North American Palladium Ltd. 2004 Annual Report 47
DOCUMENT 3
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the inclusion in this Annual Report on Form 40-F of North American
Palladium Ltd. (the "Corporation") of our report dated February 20, 2004 (the
"Report") with respect to the consolidated financial statements of the
Corporation as at December 31, 2003 and for each of the years in the two-year
period then ended, included therein.
We understand that this Annual Report on Form 40-F is incorporated by reference
into the Corporation's Registration Statement on Form S-8 (File No. 333-13766),
which was originally filed with the Securities and Exchange Commission (the
"SEC") on July 27, 2001 and we consent to the incorporation by reference of the
Report therein. We also consent to the incorporation by reference of the Report
in the Corporation's Registration Statement on Form F-10, which was originally
filed with the SEC on April 7, 2004 (File No. 333-114261).
Ernst & Young LLP
Toronto, Canada /s/ Ernst & Young LLP
January 3, 2006 Chartered Accountants
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.
----------------------------------------
(Registrant)
Date: January 19, 2006 By: /s/ Mary Batoff
---------------------- -----------------------------------
Name: Mary Batoff
Title: Vice President, Legal and
Secretary
This report on From 6-K, dated January 19, 2006, is specifically incorporated by
reference into North American Palladium's registration statement on Form S-8
(File No. 333-13766), which was originally filed with the Securities and
Exchange Commission on July 27, 2001. This report on Form 6-K is also
specifically incorporated by reference into North American Palladium's
registration statement on Form F-10 (File No. 333-114261), which was originally
filed with the Securities and Exchange Commission on April 7, 2004.