Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)
| September 30 2009 | December 31 2008 | ||||
| (unaudited) | |||||
| ASSETS | |||||
| Current Assets | |||||
| Cash and cash equivalents | $93,128 | $43,068 | |||
| Concentrate awaiting settlement – Note 4 | 59 | 43,051 | |||
| Taxes recoverable | 979 | 638 | |||
| Inventories – Note 5 | 22,710 | 16,590 | |||
| Other assets – Note 6 | 1,443 | 3,193 | |||
| 118,319 | 106,540 | ||||
| Mining interests | 75,603 | 31,640 | |||
| Mine restoration deposits | 10,501 | 8,724 | |||
| $204,423 | $146,904 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
| Current Liabilities | |||||
| Accounts payable and accrued liabilities | $7,364 | $13,996 | |||
| Current portion of obligations under capital leases | 856 | 1,992 | |||
| Senior credit facility – Note 7 | 500 | 4,430 | |||
| 8,720 | 20,418 | ||||
| Mine restoration obligations | 11,312 | 8,455 | |||
| Obligations under capital leases | 632 | 1,130 | |||
| 20,664 | 30,003 | ||||
| Shareholders' Equity | |||||
| Common share capital and purchase warrants – Note 8 | 566,466 | 485,386 | |||
| Stock options | 3,066 | 2,305 | |||
| Contributed surplus | 13,006 | 12,336 | |||
| Deficit | (398,779 | ) | (383,126 | ) | |
| Total shareholders' equity | 183,759 | 116,901 | |||
| $204,423 | $146,904 | ||||
See accompanying notes to the consolidated financial statements
21
Consolidated Statements of Operations,
Comprehensive Loss and Deficit
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||
| Revenue – before pricing adjustments | $– | $35,331 | $– | $138,786 | ||||||
| Pricing adjustments: | ||||||||||
| Commodities | 10 | (47,203 | ) | 4,382 | (31,444 | ) | ||||
| Foreign exchange | (9 | ) | 2,992 | (565 | ) | 6,807 | ||||
| Revenue – after pricing adjustments – Note 9 | 1 | (8,880 | ) | 3,817 | 114,149 | |||||
Operating expenses | ||||||||||
| Care and maintenance costs | 2,533 | – | 8,799 | – | ||||||
| Production costs | – | 31,350 | – | 92,679 | ||||||
| Inventory pricing adjustment – Note 5 | (639 | ) | 5,618 | (3,634 | ) | 5,474 | ||||
| Smelter treatment, refining and freight costs | 4 | 6,528 | 82 | 18,070 | ||||||
| Amortization | 95 | 12,958 | 197 | 32,872 | ||||||
| Insurance recovery | – | – | – | (13,800 | ) | |||||
| Loss (gain) on disposal of equipment | (21 | ) | 515 | (21 | ) | 1,573 | ||||
| Asset retirement costs | 131 | 155 | 320 | 463 | ||||||
| Total operating expenses | 2,103 | 57,124 | 5,743 | 137,331 | ||||||
| Loss from mining operations | (2,102 | ) | (66,004 | ) | (1,926 | ) | (23,182 | ) | ||
Other expenses | ||||||||||
| General and administration | 1,790 | 3,831 | 6,059 | 5,837 | ||||||
| Exploration | 2,623 | 4,231 | 8,947 | 18,400 | ||||||
| Interest and other costs (income) – Note 10 | (206 | ) | 76 | (1,546 | ) | 2,980 | ||||
| Foreign exchange loss (gain) | (115 | ) | (244 | ) | 267 | (467 | ) | |||
| Total other expenses | 4,092 | 7,894 | 13,727 | 26,750 | ||||||
| Loss before taxes | (6,194 | ) | (73,898 | ) | (15,653 | ) | (49,932 | ) | ||
| Income and mining tax recovery | – | (2,656 | ) | – | (1,672 | ) | ||||
| Net loss and comprehensive loss for the period | (6,194 | ) | (71,242 | ) | (15,653 | ) | (48,260 | ) | ||
| Deficit, beginning of period | (392,585 | ) | (199,465 | ) | (383,126 | ) | (222,447 | ) | ||
| Deficit, end of period | $(398,779 | ) | $(270,707 | ) | $(398,779 | ) | $(270,707 | ) | ||
| Net loss per share | ||||||||||
| Basic and diluted | $(0.06 | ) | $(0.85 | ) | $(0.17 | ) | $(0.59 | ) | ||
| Weighted average number of shares outstanding | ||||||||||
| Basic and diluted | 104,099,989 | 83,832,622 | 94,592,696 | 81,903,252 | ||||||
See accompanying notes to the consolidated financial statements
22
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
(unaudited)
| Three months ended September 30 | Nine months ended September 30 | |||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||
| Cash provided by (used in) | ||||||||||
Operations | ||||||||||
| Net loss for the period | $(6,194 | ) | $(71,242 | ) | $(15,653 | ) | $(48,260 | ) | ||
| Operating items not involving cash | ||||||||||
| Accretion expense relating to convertible notes payable | – | 400 | – | 3,285 | ||||||
| Amortization | 95 | 10,259 | 197 | 30,892 | ||||||
| Amortization of deferred financing costs | – | 21 | 18 | 184 | ||||||
| Accrued interest and accretion on convertible debentures | – | – | (359 | ) | – | |||||
| Interest on convertible notes settled in shares | – | 85 | – | 682 | ||||||
| Accrued interest on mine restoration deposit | (1 | ) | (45 | ) | (8 | ) | (129 | ) | ||
| Unrealized foreign exchange loss (gain) | 887 | 1,706 | 1,723 | (6,394 | ) | |||||
| Unrealized commodity price loss (gain) | (1,720 | ) | 49,830 | (9,643 | ) | 33,971 | ||||
| Asset retirement costs | 131 | 155 | 320 | 463 | ||||||
| Future income tax recovery | – | (2,925 | ) | – | (2,121 | ) | ||||
| Stock based compensation and employee benefits | 168 | 550 | 948 | 1,377 | ||||||
| Loss (gain) on disposal of equipment | (21 | ) | 515 | (21 | ) | 1,573 | ||||
| (6,655 | ) | (10,691 | ) | (22,478 | ) | 15,523 | ||||
| Changes in non-cash working capital – Note 11 | (2,295 | ) | 18,174 | 39,441 | 7,890 | |||||
| (8,950 | ) | 7,483 | 16,963 | 23,413 | ||||||
Financing Activities | ||||||||||
| Issuance of common shares and warrants, net of issue costs | 47,411 | – | 47,411 | 10,475 | ||||||
| Repayment of senior credit facilities | (500 | ) | (1,539 | ) | (3,926 | ) | (4,575 | ) | ||
| Repayment of obligations under capital leases | (429 | ) | (469 | ) | (1,519 | ) | (1,322 | ) | ||
| Mine restoration deposit | – | (51 | ) | – | (317 | ) | ||||
| 46,482 | (2,059 | ) | 41,966 | 4,261 | ||||||
Investing Activities | ||||||||||
| Investment and advances to Cadiscor Resources Inc. | – | – | (1,135 | ) | – | |||||
| Additions to mining interests | (5,647 | ) | (11,622 | ) | (7,755 | ) | (36,147 | ) | ||
| Proceeds on disposal of mining interests | 21 | 77 | 21 | 294 | ||||||
| (5,626 | ) | (11,545 | ) | (8,869 | ) | (35,853 | ) | |||
| Increase (decrease) in cash and cash equivalents | 31,906 | (6,121 | ) | 50,060 | (8,179 | ) | ||||
| Cash and cash equivalents, beginning of period | 61,222 | 72,548 | 43,068 | 74,606 | ||||||
| Cash and cash equivalents, end of period | $93,128 | $66,427 | $93,128 | $66,427 | ||||||
Cash and cash equivalents consisting of: | ||||||||||
| Cash | $77,775 | $11,071 | $77,775 | $11,071 | ||||||
| Short-term investments | 15,353 | 55,356 | 15,353 | 55,356 | ||||||
| $93,128 | $66,427 | $93,128 | $66,427 | |||||||
See accompanying notes to the consolidated financial statements
23
Consolidated Statements
of Shareholders' Equity
(expressed in thousands of Canadian dollars, except share amounts)
(unaudited)
| Number of shares | Capital stock | Shares issuable | Stock options | Warrants | Equity component of convertible notes payable | Contributed surplus | Deficit | Total shareholders' equity | ||||||||||||
| Balance, December 31, 2008 | 85,158,975 | $469,214 | $2,080 | $2,305 | $14,092 | $– | $12,336 | $(383,126 | ) | $116,901 | ||||||||||
| Common shares issued/issuable: | ||||||||||||||||||||
| On acquisition of Cadiscor | 14,457,685 | 27,325 | – | – | – | – | – | – | 27,325 | |||||||||||
| Pursuant to conversion of convertible debenture | 2,457,446 | 4,644 | – | – | – | – | – | – | 4,644 | |||||||||||
| For principal repayments on convertible notes payable | 1,486,900 | 2,062 | (2,062 | ) | – | – | – | – | – | – | ||||||||||
| For interest payments on convertible notes payable | 14,738 | 18 | (18 | ) | – | – | – | – | – | – | ||||||||||
| Pursuant to unit offering, net of issue costs | 16,000,000 | 45,220 | – | – | – | – | – | – | 45,220 | |||||||||||
| Warrants issued: | ||||||||||||||||||||
| On acquisition of Cadiscor | – | – | – | – | 1,168 | – | – | – | 1,168 | |||||||||||
| Pursuant to unit offering, net of issue costs | – | – | – | – | 1,686 | – | – | – | 1,686 | |||||||||||
| Warrants exercised | 215,998 | 575 | – | – | (182 | ) | – | – | – | 393 | ||||||||||
| Stock options issued: | ||||||||||||||||||||
| On acquisition of Cadiscor | – | – | – | 1,014 | – | – | – | – | 1,014 | |||||||||||
| Stock options exercised | 85,800 | 113 | – | – | – | – | – | – | 113 | |||||||||||
| Fair value of stock options exercised | – | 139 | – | (139 | ) | – | – | – | – | – | ||||||||||
| Fair value of stock options cancelled | – | – | – | (752 | ) | – | – | 670 | – | (82 | ) | |||||||||
| Stock-based compensation expense | 192,590 | 392 | – | 638 | – | – | – | – | 1,030 | |||||||||||
| Net loss and comprehensive loss for the nine months ended September 30, 2009 | – | – | – | – | – | – | – | (15,653 | ) | (15,653 | ) | |||||||||
| Balance, September 30, 2009 | 120,070,132 | $549,702 | $– | $3,066 | $16,764 | $– | $13,006 | $(398,779 | ) | $183,759 | ||||||||||
| Number of shares | Capital stock | Shares issuable | Stock options | Warrants | Equity component of convertible notes payable | Contributed surplus | Deficit | Total shareholders' equity | ||||||||||||
| Balance, December 31, 2007 | 75,770,570 | $430,793 | $– | $1,673 | $13,193 | $6,044 | $6,292 | $(222,044 | ) | $235,951 | ||||||||||
| Transitional adjustment on adoption of inventory standard – Note 2 | – | – | – | – | – | – | – | (403 | ) | (403 | ) | |||||||||
| Common shares issued/issuable: | ||||||||||||||||||||
| For principal repayments on convertible notes payable | 5,417,830 | 26,501 | – | – | – | (5,469 | ) | 5,469 | – | 26,501 | ||||||||||
| For interest payments on convertible notes payable | 151,427 | 682 | – | – | – | – | – | – | 682 | |||||||||||
| Pursuant to unit offering, net of issue costs | 2,800,000 | 9,575 | – | – | – | – | – | – | 9,575 | |||||||||||
| Tax effect of flow-through shares | – | (1,452 | ) | – | – | – | – | – | – | (1,452 | ) | |||||||||
| Warrants issued: | ||||||||||||||||||||
| Pursuant to unit offering, net of issue costs | – | – | – | – | 899 | – | – | – | 899 | |||||||||||
| Warrants exercised | 100 | 1 | – | – | – | – | – | – | 1 | |||||||||||
| Stock-based compensation expense | 198,678 | 1,015 | – | 362 | – | – | – | – | 1,377 | |||||||||||
| Net income and comprehensive income for the nine months ended September 30, 2008 | – | – | – | – | – | – | – | (48,260 | ) | (48,260 | ) | |||||||||
| Balance, September 30, 2008 | 84,338,605 | $467,115 | $– | $2,035 | $14,092 | $575 | $11,761 | $(270,707 | ) | $224,871 | ||||||||||
| Common shares issued/issuable: | ||||||||||||||||||||
| For principal repayments on convertible notes payable | 694,039 | 1,769 | 2,062 | – | – | (575 | ) | 575 | – | 3,831 | ||||||||||
| For interest payments on convertible notes payable | 13,758 | 32 | 18 | – | – | – | – | – | 50 | |||||||||||
| Stock-based compensation expense | 112,573 | 298 | – | 270 | – | – | – | – | 568 | |||||||||||
| Net loss and comprehensive loss for the year ended December 31, 2008 | – | – | – | – | – | – | – | (112,419 | ) | (112,419 | ) | |||||||||
| Balance, December 31, 2008 | 85,158,975 | $469,214 | $2,080 | $2,305 | $14,092 | $– | $12,336 | $(383,126 | ) | $116,901 | ||||||||||
See accompanying notes to the consolidated financial statements
24
Notes to the Consolidated Financial Statements
for the nine months ended September 30, 2009
(expressed in thousands of Canadian dollars, except per share amounts and metal prices)
1. NATURE OF OPERATIONS
North American Palladium Ltd. ("NAP" or "the Company") is a diversified precious metals company that owns multiple mines and minerals properties in mining friendly jurisdictions. Its principal asset is the Lac des Iles ("LDI") palladium mine, located in the Thunder Bay District in Ontario, which commenced operations in 1993. NAP's other significant asset is the Sleeping Giant gold mine located in the Abitibi region in Quebec, Canada, which is scheduled to reach commercial production in early 2010.
The Company's financial position and operating results at the LDI mine are directly affected by the market price of palladium in relation to the Company's production costs. The prices of palladium, foreign currency, and by-product metals (platinum, gold, nickel and copper) fluctuate widely and are affected by numerous factors beyond the Company's control. On October 21, 2008, the Company announced that, due to declining metal prices, it was temporarily placing its LDI mine on care and maintenance effective October 29, 2008. The closure resulted in the layoff of approximately 350 employees.
The LDI mine consists of an open pit mine, an underground mine and two processing plants (one of which was decommissioned in June 2001). The primary deposits on the property are the Roby Zone and the Offset High Grade Zone ("Offset Zone"). The Company began mining the Roby Zone in 1993 using open pit mining methods. In April 2006, the underground mine went into commercial production to access a higher grade portion of the Roby Zone.
The Offset Zone located on the LDI property was discovered by the Company's exploration team in 2001. The Offset Zone is considered to be the fault-displaced continuation of the Roby Zone mineralization and is located below and approximately 250 meters to the west of the Roby Zone. An updated mineral resource estimate was prepared by Scott Wilson Roscoe Postle Associates Inc. ("RPA") in January 2009. The report showed that the Offset Zone has significantly more mineral resources than the current underground mine of the Roby Zone at similar grades, and remains open along strike to the north, south and at depth. In 2009 the Company discovered the Cowboy and Outlaw Zones, situated west of the Offset Zone.
In addition to mining, development and exploration activities around the LDI property, the Company has historically conducted grassroots exploration activities within the Province of Ontario and elsewhere as opportunities are identified.
The Company's Quebec based holdings consist of the Sleeping Giant mine, Discovery project, the Flordin and Cameron Shear and Florence Properties, and Laflamme Gold Property.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2008, except for those included in the adoption of new accounting standards section. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for 2008.
Adoption of New Accounting Standards
Goodwill and Intangible Assets
In February 2008, the CICA issued Section 3064, "Goodwill and Intangible Assets", replacing Section 3062, "Goodwill and Other Intangible Assets", and Section 3450, "Research and Development Costs". This section establishes standards for the recognition, measurement, presentation and disclosure of goodwill
25
subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. The new section is effective for years beginning on or after October 1, 2008. The adoption of this standard did not have a material impact on the Company's financial statements.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
Effective January 1, 2009, the Company adopted Emerging Issues Committee ("EIC") abstract 173 ("EIC-173"),Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The abstract clarifies that an entity should take into account its own credit risk and counterparty credit risk in determining the fair value of financial assets and financial liabilities, including derivative instruments. The Company's adoption of this abstract had no effect on the consolidated financial statements.
Mining Exploration Costs
Effective January 1, 2009, the Company adopted EIC-174,Mining Exploration Costs, which clarifies guidance related to capitalization of exploration costs and impairment of capitalized costs. The Company's adoption of this abstract had no effect on the consolidated financial statements.
Future Accounting Standards
Business Combinations
In January 2009, the CICA issued Section 1582,Business Combinations, replacing Section 1581 of the same name. The new section will apply prospectively to business combinations for which the acquisition date is on or after January 1, 2011. Section 1582, which provides the Canadian equivalent to International Financial Reporting Standard 3,Business Combinations (January 2008), establishes standards for the accounting for a business combination. Section 1582 requires business acquisitions (including non-controlling interests and contingent consideration) to be measured at fair value on the acquisition date, generally requires acquisition-related costs to be expensed, requires gains from bargain purchases to be recorded in net (loss) earnings, and expands the definition of a business. As Section 1582 will apply only to future business combinations, it will not have a significant effect on the Company's consolidated financial statements prior to such acquisitions.
Consolidated Financial Statements and Non-controlling Interests
In January 2009, the CICA issued Section 1601,Consolidated Financial Statements, and Section 1602,Non-controlling Interests, which together replace the existing Section 1600,Consolidated Financial Statements, and provide the Canadian equivalent to International Accounting Standard 27,Consolidated and Separate Financial Statements (January 2008). The new sections will be applicable to the Company on January 1, 2011. Section 1601 establishes standards for the preparation of consolidated financial statements, and Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The Company is assessing the impact, if any, of the adoption of these new sections on its consolidated financial statements.
International Financial Reporting Standards ("IFRS")
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption allowed starting in calendar year 2009. The conversion to IFRS will be required, for the Company, for interim and annual financial statements beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures.
The Company is currently evaluating the impact of the adoption of IFRS on its consolidated financial statements. The adoption of IFRS will make it possible for the Company to re-assess the fair values of assets and liabilities on its balance sheet under IFRS 1, which could impact the balance sheet significantly if the impairment imposed needs to be reassessed.
To transition to IFRS, the Company must apply "IFRS 1 – First Time Adoption of IFRS" that set out the rules for first time adoption. In general, IFRS 1 requires an entity to comply with each IFRS effective at the
26
reporting date for the entity's first IFRS financial statements. This requires that an entity apply IFRS to its opening IFRS balance sheet as at January 1, 2010 (i.e. the balance sheet prepared at the beginning of the earliest comparative period presented in the entity's first IFRS financial statements).
The Company continues to refine its scoping plan, project timeline, and evaluate the potential impact of existing standards and proposed amendments on its reported balances under IFRS. However, as a result of ongoing analyses and potential adjustments due to amendments to key IFRS standards, the specific impact that these standards and related exemptions will have upon the reporting and disclosures within the Company's financial statements cannot be effectively determined at this time.
3. ACQUISITION OF CADISCOR RESOURCES INC.
On March 31, 2009 the Company announced that it had entered into a definitive agreement pursuant to which the Company would acquire, by way of a plan of arrangement, all of the outstanding common shares of Cadiscor in an all-equity transaction. Coincident with the signing of the definitive acquisition agreement, the Company advanced to Cadiscor $7.5 million, consisting of a $5.4 million, 12% convertible debenture, and a $2.1 million, 12% debenture, the proceeds of which would be used by Cadiscor to bring the Sleeping Giant mine in Quebec back into production.
Effective May 26, 2009, the Company acquired 100% of the outstanding common shares of Cadiscor in an all-equity transaction. The results of Cadiscor's operations have been included in these consolidated financial statements since the date of acquisition.
Pursuant to the acquisition agreement, Cadiscor shareholders received 0.33 common shares of the Company for each common share of Cadiscor. The Company issued 14.5 million common shares on closing at a price of $1.89 per share based on the volume weighted average closing stock price of the Company's common shares for the period from March 27, 2009 to April 2, 2009.
In addition, all of Cadiscor's outstanding stock options and warrants as at the date of acquisition were exchanged for equivalent instruments in the Company. Approximately 0.9 million stock options and 1.4 million warrants were issued by the Company in the exchange. The Company recorded $1.0 million and $1.2 million as part of the purchase consideration, representing the fair value of these stock options and warrants respectively. The Company also assumed the equity conversion option relating to the convertible debentures with an assigned fair value of $1.4 million at the date of acquisition.
27
The following table summarizes the estimated preliminary fair value of the assets acquired and liabilities assumed as at the date of acquisition:
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | $7,248 | ||
| Taxes recoverable | 461 | ||
| Inventories | 420 | ||
| Other assets | 559 | ||
| 8,688 | |||
| Mining interests | 36,740 | ||
| Mine restoration deposit | 1,769 | ||
| $47,197 | |||
LIABILITIES | |||
| Current Liabilities | |||
| Accounts payable and accrued liabilities | $1,732 | ||
| Current portion of obligation under capital lease | 7 | ||
| 1,739 | |||
| Mine restoration obligation | 2,537 | ||
| Long-term debt | 11,066 | ||
| Obligation under capital lease | 27 | ||
| $15,369 | |||
| Net assets acquired | $31,828 | ||
TOTAL PURCHASE CONSIDERATION | |||
| Common share capital | $27,325 | ||
| Stock options | 1,014 | ||
| Purchase warrants | 1,168 | ||
| Convertible rights on convertible debenture | 1,437 | ||
| Transaction costs | 884 | ||
| Total purchase price | $31,828 | ||
4. CONCENTRATE AWAITING SETTLEMENT
The gross value of concentrate awaiting settlement represents the value of all by-product metals from production shipped to and received by the third-party smelters prior to October 2008.
All of the concentrate awaiting settlement is from one domestic customer at September 30, 2009 (2008 – two domestic customers). A reserve for doubtful accounts has not been established, as in the opinion of management, the amount will be fully realized.
28
5. INVENTORIES
Inventories consist of the following:
| September 30 2009 | December 31 2008 | ||||
| Supplies | $12,572 | $12,363 | |||
| Gold inventory* | 2,277 | – | |||
| Crushed and broken ore stockpiles | 7,861 | 4,227 | |||
| $22,710 | $16,590 | ||||
Supplies inventory of $175 (2008 – $9,078) were expensed during the three months ended September 30, 2009 and $1,156 during the nine months ended September 30, 2009 (2008 – $29,022).
The Company recognized writedowns of obsolete supplies inventories of $nil (2008 – $nil) during the three months ended September 30, 2009 and $nil during the nine months ended September 30, 2009 (2008 – $80).
The Company recognized writedowns of concentrate inventory of $nil (2008 – $385) during the three months ended September 30, 2009 and $nil during the nine months ended September 30, 2009 (2008 – $241).
The Company recognized write-ups of crushed and broken ore stockpiles of $639 (2008 – $5,233 writedown) due to increasing commodity prices partially offset by the strengthening of the Canadian dollar during the three months ended September 30, 2009 and $3,634 during the nine months ended September 30, 2009 (2008 – $5,233 writedown).
6. OTHER ASSETS
Other assets consist of the following:
| September 30 2009 | December 31 2008 | ||||
| Investments | $– | $850 | |||
| Prepaids | 169 | 839 | |||
| GST recoverable | 661 | 1,475 | |||
| QST recoverable | 499 | – | |||
| Other | 114 | 29 | |||
| $1,443 | $3,193 | ||||
For investments in shares of unrelated publicly listed companies, for which such holdings do not constitute a significant influence, the company has elected to classify the instruments as held-for-trading for accounting purposes. Such investments are stated at fair value based on the closing market price of the companies' common stock on the last trading day on or before the Company's reporting date. Any gain or loss in the value of the investments is recognized in the income statement at each reporting date.
Investments in derivative instruments, consisting of warrants and options, are adjusted to fair value at each reporting date using the Black-Scholes option pricing model. Any resultant gain or loss is recognized in the income statement at each reporting date. For each of the various instruments, the inputs to the Black-Scholes models include the closing price of the issuers' common stock on the last trading day in the Company's reporting period, the exercise price of the instrument, the historical volatility for the issuers' common stock, and the expected life of the derivative instrument.
29
7. SENIOR CREDIT FACILITY
The Company's senior credit facility is comprised of a Canadian dollar loan facility with an equipment finance company in the amount of $500. The interest rate under the Canadian dollar loan facility is Canadian LIBOR plus 2.50%, or 2.75% at September 30, 2009 (6.50% – September 30, 2008). The senior credit facility is repayable in equal quarterly installments over a five-year period with a final maturity of November 24, 2009. In return for granting the facility, 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.
8. SHAREHOLDERS' EQUITY
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.
The changes in issued common share purchase warrants for the quarter-end are summarized below:
| September 30 2009 | December 31 2008 | |||||||||
| Shares | Amount | Shares | Amount | |||||||
| Balance beginning of period | 13,489,898 | $14,092 | 12,089,998 | $13,193 | ||||||
| Issued pursuant to unit offering, net of issue costs | 8,000,000 | 1,686 | 1,400,000 | 899 | ||||||
| Issued pursuant to acquisition of Cadiscor | 1,445,997 | 1,168 | – | – | ||||||
| Warrants exercised | (215,998 | ) | (182 | ) | (100 | ) | – | |||
| Balance, end of period | 22,719,897 | $16,764 | 13,489,898 | $14,092 | ||||||
In connection with the issue of the convertible notes in 2006, warrants to purchase 2,756,665 common shares were issued and are outstanding as follows:
| Number of Warrants | Exercise Price | Expiry Date | ||||||
| 1,805,016 | US$10.73 | March 29, 2010 | ||||||
| 951,649 | US$7.85 | June 23, 2010 | ||||||
In connection with the issue offering on December 13, 2007, and the subsequent over-allotment issued on January 9, 2008, warrants to purchase 10,733,233 common shares were issued and are outstanding as follows:
| Number of Warrants | Exercise Price | Expiry Date | |||||
| 10,733,233 | US$5.05 | December 13, 2009 | |||||
Each unit consisted of one common share and one half of a common share purchase warrant of the Company. Each whole warrant will entitle the holder to purchase one common share at a price of US$5.05 per share at any time on or prior to December 13, 2009.
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In connection with the acquisition of Cadiscor, all of Cadiscor's outstanding warrants as at the date of acquisition were exchanged for equivalent instruments in the Company. The warrants issued and outstanding are as follows:
| Number of Warrants | Exercise Price | Expiry Date | |||||
| 899,999 | $2.12 | March 1, 2010 | |||||
| 330,000 | $2.12 | December 31, 2010 | |||||
On September 30, 2009, the Company completed an equity offering of 16,000,000 units at a price of $3.15 per unit for total net proceeds of $46,905 (issue costs $3,495). Each unit consists of one common share and one-half of one common share purchase warrant of the Company. Each whole warrant entitles the holder to purchase an additional common share at a price of $4.25 per share, subject to adjustment, at any time on or prior to September 30, 2011 subject to early termination in certain circumstances.
In connection with the unit offering, warrants to purchase 8,000,000 common shares were issued and are outstanding as follows:
| Number of Warrants | Exercise Price | Expiry Date | |||||
| 8,000,000 | $4.25 | September 30, 2011 | |||||
The following summary sets out the activity in outstanding common share purchase options:
| September 30 2009 | |||||
| Shares | Weighted- Average Exercise Price | ||||
| Outstanding, beginning of year | 1,461,100 | $5.10 | |||
| Issued pursuant to acquisition of Cadiscor | 917,400 | 2.42 | |||
| Granted | 240,000 | 2.94 | |||
| Exercised | (85,800 | ) | 1.32 | ||
| Cancelled | (125,600 | ) | 7.54 | ||
| Outstanding, end of period | 2,407,100 | $3.87 | |||
| Options exercisable at end of period | 1,453,933 | $4.18 | |||
During the nine months ended September 30, 2009, the Company granted additional options to employees, consistent with the 1995 Corporate Stock Option Plan.
The fair value of the options granted during 2009 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 1.78%, expected dividend yield of 0%, expected volatility of 96%, and expected option life of 4 years. The estimated fair value of the options is expensed over the option's vesting period, which is 4 years. The weighted average exercise price of options granted in 2009 was $1.99 per option.
The Company has an RSU 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 is equivalent in value to the fair market value of a common share of the Company on the date of the award. The RSU plan is administered by the Board of Directors, which determines after considering recommendations made by the compensation committee, the number and timing of restricted share
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units to be awarded and their vesting periods, not to exceed three years. The value of each award is charged to compensation expense over the period of vesting and a corresponding liability is established on the balance sheet. The compensation expense and liability are adjusted to reflect the changes in market value of the equivalent number of common shares during the vesting period.
As at September 30, 2009, 313,620 (December 31, 2008 – 5,002) restricted share units have been granted and are outstanding at an aggregate value of $389 (December 31, 2008 – $9).
9. REVENUE FROM METAL SALES
| Total | Palladium | Platinum | Gold | Nickel | Copper | Other Metals | |||||||||||
| 2009 | |||||||||||||||||
| Three months ended September 30 | |||||||||||||||||
| Revenue – before pricing adjustments | $– | $– | $– | $– | $– | $– | $– | ||||||||||
| Pricing adjustments: | |||||||||||||||||
| Commodities | 10 | – | – | – | – | – | 10 | ||||||||||
| Foreign exchange | (9 | ) | – | – | – | – | – | (9 | ) | ||||||||
| Revenue – after pricing adjustments | $1 | $– | $– | $– | $– | $– | $1 | ||||||||||
| 2008 | |||||||||||||||||
| Three months ended September 30 | |||||||||||||||||
| Revenue – before pricing adjustments | $35,331 | $16,087 | $5,918 | $3,768 | $5,131 | $3,829 | $598 | ||||||||||
| Pricing adjustments: | |||||||||||||||||
| Commodities | (47,203 | ) | (33,009 | ) | (10,650 | ) | (538 | ) | (1,600 | ) | (1,159 | ) | (247 | ) | |||
| Foreign exchange | 2,992 | 1,507 | 641 | 339 | 278 | 190 | 37 | ||||||||||
| Revenue – after pricing adjustments | $(8,880 | ) | $(15,415 | ) | $(4,091 | ) | $3,569 | $3,809 | $2,860 | $388 | |||||||
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| Total | Palladium | Platinum | Gold | Nickel | Copper | Other Metals | |||||||||||
| 2009 | |||||||||||||||||
| Nine months ended September 30 | |||||||||||||||||
| Revenue – before pricing adjustments | $– | $– | $– | $– | $– | $– | $– | ||||||||||
| Pricing adjustments: | |||||||||||||||||
| Commodities | 4,382 | 2,977 | 1,139 | 204 | (58 | ) | 132 | (12 | ) | ||||||||
| Foreign exchange | (565 | ) | (428 | ) | (129 | ) | (90 | ) | 63 | 29 | (10 | ) | |||||
| Revenue – after pricing adjustments | $3,817 | $2,549 | $1,010 | $114 | $5 | $161 | $(22 | ) | |||||||||
| 2008 | |||||||||||||||||
| Nine months ended September 30 | |||||||||||||||||
| Revenue – before pricing adjustments | $138,786 | $67,105 | $23,347 | $11,186 | $22,235 | $12,543 | $2,370 | ||||||||||
| Pricing adjustments: | |||||||||||||||||
| Commodities | (31,444 | ) | (22,178 | ) | (6,071 | ) | 218 | (3,193 | ) | (218 | ) | (2 | ) | ||||
| Foreign exchange | 6,807 | 3,837 | 1,278 | 633 | 620 | 364 | 75 | ||||||||||
| Revenue – after pricing adjustments | $114,149 | $48,764 | $18,554 | $12,037 | $19,662 | $12,689 | $2,443 | ||||||||||
10. INTEREST AND OTHER COSTS (INCOME)
| Three months ended September 30 | Nine months ended September 30 | |||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||
| Interest on convertible notes payable | $– | $83 | $– | $651 | ||||||
| Accretion expense relating to convertible notes payable | – | 400 | – | 3,285 | ||||||
| Interest on senior credit facilities | 6 | 125 | 62 | 418 | ||||||
| Interest on capital leases | 17 | 35 | 70 | 129 | ||||||
| Interest expense | 18 | 69 | 118 | 540 | ||||||
| Investment income | (93 | ) | 24 | (676 | ) | 24 | ||||
| Deferred financing costs | – | 21 | 18 | 184 | ||||||
| (52 | ) | 757 | (408 | ) | 5,231 | |||||
| Interest income | (154 | ) | (681 | ) | (1,138 | ) | (2,251 | ) | ||
| $(206 | ) | $76 | $(1,546 | ) | $2,980 | |||||
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11. STATEMENT OF CASH FLOWS
The net changes in non-cash working capital balances related to operations are as follows:
| Three months ended September 30 | Nine months ended September 30 | |||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||
| Cash provided by (used in): | ||||||||||
| Concentrate awaiting settlement | $58 | $1,412 | $46,802 | $6,964 | ||||||
| Inventories and stockpiles | (2,512 | ) | 2,472 | (2,066 | ) | 2,403 | ||||
| Other assets | 511 | 13,024 | 2,614 | (1,873 | ) | |||||
| Accounts payable and accrued liabilities | 27 | 740 | (8,029 | ) | 1,087 | |||||
| Taxes recoverable | (379 | ) | 526 | 120 | (691 | ) | ||||
| $(2,295 | ) | $18,174 | $39,441 | $7,890 | ||||||
12. SEGMENT INFORMATON
The Company is Canadian-based and is in the business of exploring and mining Platinum Group Metals ("PGMs"), gold and certain base metals. Its operations are organized into three reportable segments: LDI palladium mine, Sleeping Giant gold mine, and corporate and other. The two mines include activities related to exploration, evaluation and development, mining, milling and the sale of mineral concentrates. The corporate and other segment includes general corporate expenses and other projects not allocated to the other segments. The Company's revenue by significant product type is disclosed in Note 9. The Company's segments are summarized in the following table.
As at and during the three and nine months ended September 30, 2009, segmented information is presented as follows:
| As at September 30, 2009 | As at September 30, 2008 | ||||||||||||||||
| LDI mine | Sleeping Giant mine | Corporate and other | Total | LDI mine | Sleeping Giant mine | Corporate and other | Total | ||||||||||
| Cash and cash equivalents | $615 | $1,158 | $91,355 | $93,128 | $1,117 | $– | $65,310 | $66,427 | |||||||||
| Concentrate awaiting settlement | 59 | – | – | 59 | 51,263 | – | – | 51,263 | |||||||||
| Inventories | 19,570 | 3,140 | – | 22,710 | 14,914 | – | – | 14,914 | |||||||||
| Other current assets | 1,091 | 911 | 420 | 2,422 | 3,149 | – | 2,040 | 5,189 | |||||||||
| Mining interests | 31,677 | 43,593 | 333 | 75,603 | 121,665 | – | 31 | 121,696 | |||||||||
| Other non-current assets | 8,404 | 1,769 | 328 | 10,501 | 8,398 | – | 320 | 8,718 | |||||||||
| Total assets* | $61,416 | $50,571 | $92,436 | $204,423 | $200,506 | $– | $67,701 | $268,207 | |||||||||
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| Three months ended September 30, 2009 | Three months ended September 30, 2008 | |||||||||||||||||
| LDI mine | Sleeping Giant mine | Corporate and other | Total | LDI mine | Sleeping Giant mine | Corporate and other | Total | |||||||||||
| Revenue – after pricing adjustments | $1 | $– | $– | $1 | $(8,880 | ) | $– | $– | $(8,880 | ) | ||||||||
| Amortization | 69 | 26 | – | 95 | 12,955 | – | 3 | 12,958 | ||||||||||
| Operating expenses | 1,971 | 37 | – | 2,008 | 44,166 | – | – | 44,166 | ||||||||||
| Loss from mining operations | (2,039 | ) | (63 | ) | – | (2,102 | ) | (66,001 | ) | – | (3 | ) | (66,004 | ) | ||||
| Other expenses | ||||||||||||||||||
| General and administration | (120 | ) | 219 | 1,691 | 1,790 | 28 | – | 3,803 | 3,831 | |||||||||
| Exploration | 2,339 | 257 | 27 | 2,623 | 982 | – | 3,249 | 4,231 | ||||||||||
| Other | (96 | ) | (3 | ) | (222 | ) | (321 | ) | 46 | – | (214 | ) | (168 | ) | ||||
| Loss before taxes | (4,162 | ) | (536 | ) | (1,496 | ) | (6,194 | ) | (67,057 | ) | – | (6,841 | ) | (73,898 | ) | |||
| Income and mining tax recovery | – | – | – | – | (2,656 | ) | – | – | (2,656 | ) | ||||||||
| Net loss and comprehensive loss for the period | $(4,162 | ) | $(536 | ) | $(1,496 | ) | $(6,194 | ) | $(64,401 | ) | $– | $(6,841 | ) | $(71,242 | ) | |||
| Nine months ended September 30, 2009 | Nine months ended September 30, 2008 | |||||||||||||||||
| LDI mine | Sleeping Giant mine | Corporate and other | Total | LDI mine | Sleeping Giant mine | Corporate and other | Total | |||||||||||
| Revenue – after pricing adjustments | $3,817 | $– | $– | $3,817 | $114,149 | $– | $– | $114,149 | ||||||||||
| Amortization | 170 | 27 | – | 197 | 32,863 | – | 9 | 32,872 | ||||||||||
| Operating expenses | 5,509 | 37 | – | 5,546 | 104,459 | – | – | 104,459 | ||||||||||
| Loss from mining operations | (1,862 | ) | (64 | ) | – | (1,926 | ) | (23,173 | ) | – | (9 | ) | (23,182 | ) | ||||
| Other expenses | ||||||||||||||||||
| General and administration | 164 | 329 | 5,566 | 6,059 | (943 | ) | – | 6,780 | 5,837 | |||||||||
| Exploration | 8,423 | 400 | 124 | 8,947 | 2,508 | – | 15,892 | 18,400 | ||||||||||
| Other | 361 | (6 | ) | (1,634 | ) | (1,279 | ) | 714 | – | 1,799 | 2,513 | |||||||
| Loss before taxes | (10,810 | ) | (787 | ) | (4,056 | ) | (15,653 | ) | (25,452 | ) | – | (24,480 | ) | (49,932 | ) | |||
| Income and mining tax recovery | – | – | – | – | (220 | ) | – | (1,452 | ) | (1,672 | ) | |||||||
| Loss and comprehensive loss for the period | $(10,810 | ) | $(787 | ) | $(4,056 | ) | $(15,653 | ) | $(25,232 | ) | $– | $(23,028 | ) | $(48,260 | ) | |||
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| Three months ended September 30, 2009 | Three months ended September 30, 2008 | ||||||||||||||||
| LDI mine | Sleeping Giant mine | Corporate and other | Total | LDI mine | Sleeping Giant mine | Corporate and other | Total | ||||||||||
| Additions to mining interests | $187 | $5,169 | $291 | $5,647 | $11,622 | $– | $– | $11,622 | |||||||||
| Nine months ended September 30, 2009 | Nine months ended September 30, 2008 | ||||||||||||||||
| LDI mine | Sleeping Giant mine | Corporate and other | Total | LDI mine | Sleeping Giant mine | Corporate and other | Total | ||||||||||
| Additions to mining interests | $574 | $6,878 | $303 | $7,755 | $36,147 | $– | $– | $36,147 | |||||||||
13. SUBSEQUENT EVENTS
On October 8, 2009, the Company issued an additional 2,400,000 units under a 30-day overallotment option granted to the underwriters at an exercise price of $3.15 per unit, for total gross proceeds of $7,560. Also, the Company completed a private placement of 4,000,000 flow-through common shares at an exercise price of $3.75 per share, for total gross proceeds of $15,000.
On November 2, 2009, 899,999 warrants were exercised for proceeds of $1,908.
14. COMPARATIVE FIGURES
Certain of the prior period figures have been reclassified to conform to the presentation adopted in 2009.
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