Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)
| | | |||||||
|---|---|---|---|---|---|---|---|---|
| | June 30 2010 | December 31 2009 | | |||||
| (unaudited | ) | |||||||
| ASSETS | ||||||||
Current Assets | ||||||||
| Cash and cash equivalents | $ | 148,530 | $ | 98,255 | ||||
| Accounts receivable – Note 4 | 14,348 | – | ||||||
| Taxes receivable | 215 | 204 | ||||||
| Inventories – Note 5 | 24,795 | 25,306 | ||||||
| Other assets | 2,531 | 2,495 | ||||||
| 190,419 | 126,260 | |||||||
| Mining interests – Note 6 | 92,342 | 82,448 | ||||||
| Reclamation deposits | 10,508 | 10,503 | ||||||
| Total Assets | $ | 293,269 | $ | 219,211 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 16,990 | $ | 11,195 | ||||
| Current portion of obligations under capital leases | 1,498 | 558 | ||||||
| Future income tax liability | 3,726 | – | ||||||
| 22,214 | 11,753 | |||||||
| Taxes payable | 936 | 1,573 | ||||||
| Asset retirement obligations | 13,209 | 12,921 | ||||||
| Obligations under capital leases | 1,806 | 576 | ||||||
| Future mining tax liability | 651 | 127 | ||||||
| Total Liabilities | 38,816 | 26,950 | ||||||
Shareholders' Equity | ||||||||
| Common share capital and purchase warrants – Note 7 | 664,360 | 583,089 | ||||||
| Stock options | 3,337 | 2,704 | ||||||
| Contributed surplus | 26,080 | 19,608 | ||||||
| Deficit | (439,324 | ) | (413,140 | ) | ||||
| Total shareholders' equity | 254,453 | 192,261 | ||||||
| $ | 293,269 | $ | 219,211 | |||||
Subsequent event – Note 12
See accompanying notes to the consolidated financial statements
34
2ND QUARTER REPORT 2010
Consolidated Statements of Operations,
Comprehensive Loss and Deficit
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)
| | | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three months ended June 30 | Six months ended June 30 | | ||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | ||||||||||
| Revenue – before pricing adjustments | $ | 21,680 | $ | – | $ | 29,610 | $ | – | |||||||
| Pricing adjustments: | |||||||||||||||
| Commodities | (666 | ) | 373 | (666 | ) | 4,602 | |||||||||
| Foreign exchange | 201 | (1,651 | ) | 201 | (585 | ) | |||||||||
| Revenue – after pricing adjustments – Note 8 | $ | 21,215 | $ | (1,278 | ) | $ | 29,145 | $ | 4,017 | ||||||
Operating expenses | |||||||||||||||
| Production costs | 16,650 | – | 32,701 | – | |||||||||||
| Care and maintenance costs | – | 3,050 | – | 6,266 | |||||||||||
| Inventory pricing adjustment – Note 5 | 388 | (307 | ) | 388 | (2,995 | ) | |||||||||
| Smelter treatment, refining and freight costs | 1,176 | 12 | 1,194 | 78 | |||||||||||
| Royalty expense (recovery) | 745 | (64 | ) | 745 | 201 | ||||||||||
| Amortization | 6,069 | 52 | 8,081 | 102 | |||||||||||
| Loss on disposal of equipment | 8 | – | 17 | – | |||||||||||
| Asset retirement obligation accretion | 144 | 95 | 288 | 189 | |||||||||||
| Total operating expenses | 25,180 | 2,838 | 43,414 | 3,841 | |||||||||||
| Income (loss) from mining operations | (3,965 | ) | (4,116 | ) | (14,269 | ) | 176 | ||||||||
Other expenses (income) | |||||||||||||||
| General and administration | 2,594 | 2,222 | 5,307 | 4,269 | |||||||||||
| Exploration | 6,421 | 3,916 | 10,586 | 6,324 | |||||||||||
| Interest and other income | (51 | ) | (1,200 | ) | (65 | ) | (1,340 | ) | |||||||
| Foreign exchange loss (gain) | 6 | 752 | (7 | ) | 382 | ||||||||||
| Total other expenses | 8,970 | 5,690 | 15,821 | 9,635 | |||||||||||
| Loss before taxes | (12,935 | ) | (9,806 | ) | (30,090 | ) | (9,459 | ) | |||||||
| Income and mining tax recovery | (1,375 | ) | – | (3,906 | ) | – | |||||||||
| Net loss and comprehensive loss for the period | (11,560 | ) | (9,806 | ) | (26,184 | ) | (9,459 | ) | |||||||
| Deficit, beginning of period | (427,764 | ) | (382,779 | ) | (413,140 | ) | (383,126 | ) | |||||||
| Deficit, end of period | $ | (439,324 | ) | $ | (392,585 | ) | $ | (439,324 | ) | $ | (392,585 | ) | |||
| Net loss per share | |||||||||||||||
| Basic and diluted | $ | (0.08 | ) | $ | (0.11 | ) | $ | (0.19 | ) | $ | (0.11 | ) | |||
| Weighted average number of shares outstanding | |||||||||||||||
| Basic and diluted | 141,280,348 | 92,736,944 | 134,381,303 | 89,760,259 | |||||||||||
See accompanying notes to the consolidated financial statements
35
2ND QUARTER REPORT 2010
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
(unaudited)
| | | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three months ended June 30 | Six months ended June 30 | | ||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | ||||||||||
| Cash provided by (used in) | |||||||||||||||
Operations | |||||||||||||||
| Net loss for the period | $ | (11,560 | ) | $ | (9,806 | ) | $ | (26,184 | ) | $ | (9,459 | ) | |||
| Operating items not involving cash | |||||||||||||||
| Future income tax recovery | (834 | ) | – | (2,917 | ) | – | |||||||||
| Amortization | 6,069 | 52 | 8,081 | 102 | |||||||||||
| Stock based compensation and employee benefits | 458 | 357 | 812 | 780 | |||||||||||
| Accrued interest and accretion on convertible debentures | – | (359 | ) | (359 | ) | ||||||||||
| Asset retirement obligation accretion | 144 | 95 | 288 | 189 | |||||||||||
| Future mining tax recovery | (76 | ) | – | (183 | ) | – | |||||||||
| Unrealized foreign exchange loss (gain) | 6 | (208 | ) | – | (87 | ) | |||||||||
| Other | 4 | 6 | 12 | 11 | |||||||||||
| (5,789 | ) | (9,863 | ) | (20,091 | ) | (8,823 | ) | ||||||||
| Changes in non-cash working capital – Note 9(a) | (12,644 | ) | 21,327 | (8,514 | ) | 34,742 | |||||||||
| (18,433 | ) | 11,464 | (28,605 | ) | 25,919 | ||||||||||
Financing Activities | |||||||||||||||
| Issuance of common shares and warrants, net of issue costs | 94,174 | – | 94,207 | – | |||||||||||
| Repayment of senior credit facilities | – | (1,667 | ) | – | (3,426 | ) | |||||||||
| Repayment of obligations under capital leases | (478 | ) | (527 | ) | (725 | ) | (1,096 | ) | |||||||
| 93,696 | (2,194 | ) | 93,482 | (4,522 | ) | ||||||||||
Investing Activities | |||||||||||||||
| Investment and advances to Cadiscor Resources Inc. – Note 3 | – | 6,365 | – | (1,135 | ) | ||||||||||
| Additions to mining interests | (10,146 | ) | (1,898 | ) | (14,633 | ) | (2,108 | ) | |||||||
| Proceeds on disposal of mining interests | 26 | – | 31 | – | |||||||||||
| (10,120 | ) | 4,467 | (14,602 | ) | (3,243 | ) | |||||||||
| Increase in cash and cash equivalents | 65,143 | 13,737 | 50,275 | 18,154 | |||||||||||
| Cash and cash equivalents, beginning of period | 83,387 | 47,485 | 98,255 | 43,068 | |||||||||||
| Cash and cash equivalents, end of period | $ | 148,530 | $ | 61,222 | $ | 148,530 | $ | 61,222 | |||||||
Cash and cash equivalents consisting of: | |||||||||||||||
| Cash | $ | 148,530 | $ | 40,765 | $ | 148,530 | $ | 40,765 | |||||||
| Short-term investments | – | 20,457 | – | 20,457 | |||||||||||
| $ | 148,530 | $ | 61,222 | $ | 148,530 | $ | 61,222 | ||||||||
See accompanying notes to the consolidated financial statements
36
2ND QUARTER REPORT 2010
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 | Contributed surplus | Deficit | Total shareholders' equity | | |||||||||||||||||
| Balance, December 31, 2009 | 127,383,051 | $ | 572,505 | $ | – | $ | 2,704 | $ | 10,584 | $ | 19,608 | $ | (413,140 | ) | $ | 192,261 | ||||||||||
Common shares issued/issuable: | ||||||||||||||||||||||||||
| Pursuant to 2010 unit offering, net of issue costs | 20,000,000 | 89,756 | – | – | 4,418 | – | – | 94,174 | ||||||||||||||||||
| Tax effect of flow-through shares | – | (5,050 | ) | – | – | – | – | – | (5,050 | ) | ||||||||||||||||
Warrants expired: | ||||||||||||||||||||||||||
| Pursuant to convertible notes | – | – | – | – | (8,038 | ) | 6,445 | – | (1,593 | ) | ||||||||||||||||
Stock options issued: | ||||||||||||||||||||||||||
| Stock options exercised | 24,750 | 33 | – | – | – | – | – | 33 | ||||||||||||||||||
| Fair value of stock options exercised | – | 34 | – | (34 | ) | – | – | – | – | |||||||||||||||||
| Fair value of stock options cancelled | – | – | – | (27 | ) | – | 27 | – | – | |||||||||||||||||
| Stock-based compensation expense | 28,593 | 118 | – | 694 | – | – | – | 812 | ||||||||||||||||||
| Net loss for the six months ended June 30, 2010 | – | – | – | – | – | – | (26,184 | ) | (26,184 | ) | ||||||||||||||||
| Balance, June 30, 2010 | 147,436,394 | $ | 657,396 | $ | – | $ | 3,337 | $ | 6,964 | $ | 26,080 | $ | (439,324 | ) | $ | 254,453 | ||||||||||
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 | ) | – | – | – | – | – | |||||||||||||||||
Warrants issued: | ||||||||||||||||||||||||||
| On acquisition of Cadiscor | – | – | – | – | 1,168 | – | – | 1,168 | ||||||||||||||||||
Stock options issued: | ||||||||||||||||||||||||||
| On acquisition of Cadiscor | – | – | – | 1,014 | – | – | – | 1,014 | ||||||||||||||||||
| Stock-based compensation expense | 170,225 | 330 | – | 450 | – | – | – | 780 | ||||||||||||||||||
| Net loss for the six months ended June 30, 2009 | – | – | – | – | – | – | (9,459 | ) | (9,459 | ) | ||||||||||||||||
| Balance, June 30, 2009 | 103,745,969 | $ | 503,593 | $ | – | $ | 3,769 | $ | 15,260 | $ | 12,336 | $ | (392,585 | ) | $ | 142,373 | ||||||||||
Common shares issued/issuable: | ||||||||||||||||||||||||||
| Pursuant to 2009 unit offering, net of issue costs | 18,400,000 | 51,333 | – | – | – | – | – | 51,333 | ||||||||||||||||||
| Private placement of flow-through shares (net) | 4,000,000 | 14,077 | – | – | – | – | – | 14,077 | ||||||||||||||||||
Warrants issued: | ||||||||||||||||||||||||||
| Pursuant to 2009 unit offering, net of issue costs | – | – | – | – | 2,243 | – | – | 2,243 | ||||||||||||||||||
| Warrants exercised | 1,115,997 | 3,167 | – | – | (866 | ) | – | – | 2,301 | |||||||||||||||||
Warrants expired: | ||||||||||||||||||||||||||
| Pursuant to 2007 unit offering | – | – | – | – | (6,053 | ) | 6,053 | – | – | |||||||||||||||||
Stock options issued: | ||||||||||||||||||||||||||
| Stock options exercised | 85,800 | 113 | – | – | – | – | – | 113 | ||||||||||||||||||
| Fair value of stock options exercised | – | 119 | – | (119 | ) | – | – | – | – | |||||||||||||||||
| Fair value of stock options cancelled | – | – | – | (1,301 | ) | – | 1,219 | – | (82 | ) | ||||||||||||||||
| Stock-based compensation expense | 35,285 | 103 | – | 355 | – | – | – | 458 | ||||||||||||||||||
| Net loss for the year ended December 31, 2009 | – | – | – | – | – | – | (20,555 | ) | (20,555 | ) | ||||||||||||||||
| Balance, December 31, 2009 | 127,383,051 | $ | 572,505 | $ | – | $ | 2,704 | $ | 10,584 | $ | 19,608 | $ | (413,140 | ) | $ | 192,261 | ||||||||||
See accompanying notes to the consolidated financial statements
37
2ND QUARTER REPORT 2010
Notes to the Consolidated Financial Statements
for the six months ended June 30, 2010
(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 two mines and various mineral 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 reached commercial production on January 1, 2010.
As a result of the acquisition of Cadiscor Resources Inc. ("Cadiscor") in May 2009, the Company owns the Sleeping Giant gold mine consisting of an underground mine and a mill. Restart activities for the LDI mine began during the first quarter of 2010 and production of concentrate commenced in April 2010.
The Company's Quebec based holdings consist of the Discovery, Flordin, Cameron Shear, Florence, Laflamme, Dormex, Harricana, and Vezza properties. NAP's Quebec properties, including the Vezza gold project, are located within trucking distance of the Sleeping Giant mill.
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, 2009, 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 2009.
FUTURE ACCOUNTING STANDARDS
Impact of International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board has confirmed January 1, 2011 as the date that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for publicly accountable enterprises. As a result, the Company will report under IFRS for interim and annual periods beginning January 1, 2011, with comparative information for 2010 restated under IFRS. Adoption of IFRS as Canadian GAAP will require the Company to make certain accounting policy choices and could materially impact our reported financial position and results of operations. A detailed discussion of the impact of the adoption of IFRS is included in the Company's MD&A for the six months ended June 30, 2010.
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 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.
38
2ND QUARTER REPORT 2010
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.
3. ACQUISITION OF CADISCOR RESOURCES INC.
In May 2009, the Company acquired all of the outstanding common shares of Cadiscor in an all-equity transaction. Prior to the acquisition, 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 were used by Cadiscor to bring the Sleeping Giant gold mine in Quebec back into production.
39
2ND QUARTER REPORT 2010
The following table summarizes the 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 | |||
| Future mining tax asset | 203 | |||
| 8,891 | ||||
| Mining interests | 40,090 | |||
| Reclamation deposit | 1,769 | |||
| $ | 50,750 | |||
LIABILITIES | ||||
Current Liabilities | ||||
| Accounts payable and accrued liabilities | $ | 3,531 | ||
| Current portion of obligation under capital lease | 7 | |||
| 3,538 | ||||
| Asset retirement obligation | 4,291 | |||
| Long-term debt | 11,066 | |||
| Obligation under capital lease | 27 | |||
| $ | 18,922 | |||
| 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 | ||
The above totals reflect adjustments at June 30, 2010 relating to the final allocations and fair value of the assets acquired and liabilities assumed as at the date of acquisition.
4. ACCOUNTS RECEIVABLE
The value of accounts receivable represents the value of all platinum group metals ("PGMs"), gold and certain base metals from production shipped to and received by a third-party smelter and refinery, including 24,089 ounces of palladium that was valued at the June 30, 2010 forward metal price.
All of the accounts receivable is due from one domestic customer at June 30, 2010. A reserve for doubtful accounts has not been established, as in the opinion of management, the amount due will be fully realized.
40
2ND QUARTER REPORT 2010
5. INVENTORIES
Inventories consist of the following:
| | June 30 2010 | December 31 2009 | | ||||
|---|---|---|---|---|---|---|---|
| Supplies | $ | 12,385 | $ | 12,555 | |||
| Gold inventory* | 3,160 | 4,890 | |||||
| Crushed and broken ore stockpiles | 7,172 | 7,861 | |||||
| Concentrate inventory | 2,078 | – | |||||
| $ | 24,795 | $ | 25,306 | ||||
Supplies inventory of $4,259 (2009 – $225) were expensed during the three months ended June 30, 2010 and $7,631 during the six months ended June 30, 2010 (2009 – $981).
The Company recognized write-downs of crushed and broken ore stockpiles of $388 (2009 – $307 write-up) during the three months ended June 30, 2010 and $388 (2009 – $2,995 write-up) during the six months ended June 30, 2010.
6. MINING INTERESTS
| | June 30 2010 | December 31 2009 | | |||||
|---|---|---|---|---|---|---|---|---|
| Plant and equipment, at cost | $ | 391,527 | $ | 389,153 | ||||
| Underground mine development, at cost | 107,092 | 85,359 | ||||||
| Accumulated amortization and impairment charges | (426,522 | ) | (416,917 | ) | ||||
| 72,097 | 57,595 | |||||||
| Equipment under capital lease, at cost | 5,136 | 5,912 | ||||||
| Accumulated amortization and impairment charges | (1,173 | ) | (3,453 | ) | ||||
| 3,963 | 2,459 | |||||||
| Mining leases and claims, royalty interest, and development, at cost | 95,311 | 100,993 | ||||||
| Accumulated amortization and impairment charges | (79,029 | ) | (78,599 | ) | ||||
| 16,282 | 22,394 | |||||||
| Mining interests, net | $ | 92,342 | $ | 82,448 | ||||
7. SHAREHOLDERS' EQUITY
The authorized capital stock of the Company consists of an unlimited number of common shares, issuable in series. As of June 30, 2010 there were 147,436,394 common shares issued and outstanding.
41
2ND QUARTER REPORT 2010
The changes in issued common share purchase warrants for the period end are summarized below:
| June 30 2010 | December 31 2009 | ||||||||||||
| Warrants | Amount | Warrants | Amount | ||||||||||
| Balance beginning of period | 12,286,665 | $ | 10,584 | 13,489,898 | $ | 14,092 | |||||||
| Issued pursuant to unit offering, net of issue costs | 10,000,000 | 4,418 | 9,200,000 | 2,243 | |||||||||
| Issued pursuant to acquisition of Cadiscor | – | – | 1,445,997 | 1,168 | |||||||||
| Warrants exercised | – | – | (1,115,997 | ) | (866 | ) | |||||||
| Warrants expired | (2,756,665 | ) | (8,038 | ) | (10,733,233 | ) | (6,053 | ) | |||||
| Balance, end of period | 19,530,000 | $ | 6,964 | 12,286,665 | $ | 10,584 | |||||||
| | Exercise Price | | | |||
|---|---|---|---|---|---|---|
| Number of Warrants | Expiry Date | | ||||
| 330,000 | $ | 2.12 | December 31, 2010 | |||
| 9,200,000 | $ | 4.25 | September 30, 2011 | |||
| 10,000,000 | $ | 6.50 | October 28, 2011 | |||
| 19,530,000 | ||||||
On May 26, 2009, in conjunction 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 Company issued 1,445,997 warrants of which 1,115,997 were exercised in 2009.
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 $46,455 (issue costs $3,945). On October 8, 2009, the Company issued an additional 2,400,000 units under a 30-day over-allotment option granted to the underwriters at an exercise price of $3.15 per unit, for total net proceeds of $7,121 (issue costs $438). 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, subject to adjustment, at any time on or prior to September 30, 2011, subject to early termination in certain circumstances. The total fair value of the warrants issued was $2,243. In the event that the closing sale price of the common shares on the TSX is greater than $5.75 per share for a period of 20 consecutive trading days at any time after the closing of the offering, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof and in such case the warrants will expire on the 30th day after the date on which such notice is given by the Company.
On April 28, 2010, the Company completed an equity offering of 20,000,000 units at a price of $5.00 per unit for total net proceeds of $94,174 (issue costs $5,826), which included the exercise of an over-allotment option in the amount of 2,600,000 units at a price of $5.00 per unit. 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 $6.50, subject to adjustment, at any time prior to October 28, 2011. In the event that the closing sale price of the common shares on the TSX is greater than $7.50 per share for a period of 20 consecutive trading days at any time after the closing of the offering, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof and in such case the warrants will expire on the 30th day after the date on which such notice is given by the Company.
42
2ND QUARTER REPORT 2010
In March 2010, 1,805,016 warrants, and in June 2010, 951,649 warrants, relating to the convertible notes issued in 2006 expired and the carrying values of $4,870 and $1,575, respectively, were reclassified to contributed surplus.
The following summary sets out the activity in outstanding common share purchase options:
| June 30, 2010 | December 31, 2009 | ||||||||||
| Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | ||||||||
| Outstanding, beginning of period | 3,057,800 | $ | 3.50 | 1,461,100 | $ | 5.10 | |||||
| Issued pursuant to acquisition of Cadiscor | – | – | 917,400 | 2.42 | |||||||
| Granted | 10,000 | 4.18 | 1,180,000 | 3.16 | |||||||
| Exercised | (24,750 | ) | 1.32 | (85,800 | ) | 1.32 | |||||
| Cancelled/forfeited | (25,000 | ) | 5.09 | (414,900 | ) | 6.26 | |||||
| Outstanding, end of period | 3,018,050 | 3.50 | 3,057,800 | $ | 3.50 | ||||||
| Options exercisable at end of period | 1,268,050 | $ | 4.17 | 1,217,967 | $ | 3.96 | |||||
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 and a corresponding liability is established on the balance sheet. The RSU Plan is administered by the Board of Directors, which will determine after considering recommendations made by the Compensation Committee, the number and timing of restricted share 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. At each reporting date, the compensation expense and liability are adjusted to reflect the changes in market value of the liability.
As at June 30, 2010, 133,950 (December 31, 2009 – 256,882) restricted share units have been granted and are outstanding at an aggregate value of $331 (December 31, 2009 – $737).
43
2ND QUARTER REPORT 2010
8. REVENUE FROM METAL SALES
| Total | Palladium | Platinum | Gold | Silver | Nickel | Copper | Cobalt | |||||||||||||||||||
| 2010 | ||||||||||||||||||||||||||
| Three months ended June 30 | $ | 21,680 | $ | 11,970 | $ | 1,805 | $ | 6,387 | $ | 4 | $ | 561 | $ | 908 | $ | 45 | ||||||||||
| Revenue – before pricing adjustments | ||||||||||||||||||||||||||
| Pricing adjustments: | ||||||||||||||||||||||||||
| Commodities | (666 | ) | (530 | ) | (34 | ) | 26 | – | (29 | ) | (98 | ) | (1 | ) | ||||||||||||
| Foreign exchange | 201 | 139 | 22 | 18 | – | 8 | 13 | 1 | ||||||||||||||||||
| Revenue – after pricing adjustments | $ | 21,215 | $ | 11,579 | $ | 1,793 | $ | 6,431 | $ | 4 | $ | 540 | $ | 823 | $ | 45 | ||||||||||
| 2009 | ||||||||||||||||||||||||||
| Three months ended June 30 | ||||||||||||||||||||||||||
| Revenue – before pricing adjustments | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Pricing adjustments: | ||||||||||||||||||||||||||
| Commodities | 373 | 369 | 29 | (26 | ) | 1 | – | – | – | |||||||||||||||||
| Foreign exchange | (1,651 | ) | (1,003 | ) | (335 | ) | (298 | ) | (15 | ) | – | – | – | |||||||||||||
| Revenue – after pricing adjustments | $ | (1,278 | ) | $ | (634 | ) | $ | (306 | ) | $ | (324 | ) | $ | (14 | ) | – | – | – | ||||||||
| Total | Palladium | Platinum | Gold | Silver | Nickel | Copper | Cobalt | |||||||||||||||||||
| 2010 | ||||||||||||||||||||||||||
| Six months ended June 30 | $ | 29,610 | $ | 11,970 | $ | 1,805 | $ | 14,138 | $ | 183 | $ | 561 | $ | 908 | $ | 45 | ||||||||||
| Revenue – before pricing adjustments | ||||||||||||||||||||||||||
| Pricing adjustments: | ||||||||||||||||||||||||||
| Commodities | (666 | ) | (530 | ) | (34 | ) | 26 | – | (29 | ) | (98 | ) | (1 | ) | ||||||||||||
| Foreign exchange | 201 | 139 | 22 | 18 | – | 8 | 13 | 1 | ||||||||||||||||||
| Revenue – after pricing adjustments | $ | 29,145 | $ | 11,579 | $ | 1,793 | $ | 14,182 | $ | 183 | $ | 540 | $ | 823 | $ | 45 | ||||||||||
| 2009 | ||||||||||||||||||||||||||
| Six months ended June 30 | ||||||||||||||||||||||||||
| Revenue – before pricing adjustments | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
| Pricing adjustments: | ||||||||||||||||||||||||||
| Commodities | 4,602 | 3,134 | 1,199 | 215 | 53 | (61 | ) | 139 | (77 | ) | ||||||||||||||||
| Foreign exchange | (585 | ) | (451 | ) | (136 | ) | (95 | ) | (8 | ) | 66 | 31 | 8 | |||||||||||||
| Revenue – after pricing adjustments | $ | 4,017 | $ | 2,683 | $ | 1,063 | $ | 120 | $ | 45 | $ | 5 | $ | 170 | $ | (69 | ) | |||||||||
44
2ND QUARTER REPORT 2010
9. STATEMENT OF CASH FLOWS
| | 2010 | 2009 | 2010 | 2009 | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three months ended June 30 | Six months ended June 30 | | |||||||||||
| Cash provided by (used in): | ||||||||||||||
| Accounts receivable | $ | (14,348 | ) | $ | 19,969 | $ | (14,348 | ) | $ | 42,937 | ||||
| Inventories | (984 | ) | (50 | ) | 723 | (2,549 | ) | |||||||
| Other assets | 271 | 1,384 | (36 | ) | 1,911 | |||||||||
| Accounts payable and accrued liabilities | 2,655 | (222 | ) | 5,795 | (8,056 | ) | ||||||||
| Taxes receivable | (238 | ) | 246 | (648 | ) | 499 | ||||||||
| $ | (12,644 | ) | $ | 21,327 | $ | (8,514 | ) | $ | 34,742 | |||||
10. SEGMENT INFORMATION
The Company is Canadian-based and is in the business of exploring and mining 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, and milling. 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 7. The Company's segments are summarized in the following table.
As at and during the periods ending as shown, the segmented information is presented as follows:
| As at June 30, 2010 | As at December 31, 2009 | ||||||||||||||||||||||||
| | | Sleeping Giant mine | | | | Sleeping Giant mine | | | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | LDI mine | Corporate and other | | LDI mine | Corporate and other | | | ||||||||||||||||||
| | Total | Total | | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 847 | $ | 1,657 | $ | 146,026 | $ | 148,530 | $ | 689 | $ | 576 | $ | 96,990 | $ | 98,255 | |||||||||
| Accounts receivable | 14,348 | – | – | 14,348 | – | – | – | – | |||||||||||||||||
| Inventories | 20,250 | 4,545 | – | 24,795 | 19,649 | 5,657 | – | 25,306 | |||||||||||||||||
| Other current assets | 915 | 1,447 | 384 | 2,746 | 708 | 1,510 | 481 | 2,699 | |||||||||||||||||
| Mining interests | 41,196 | 50,867 | 279 | 92,342 | 31,815 | 50,300 | 333 | 82,448 | |||||||||||||||||
| Other non-current assets | 8,410 | 1,769 | 329 | 10,508 | 8,406 | 1,769 | 328 | 10,503 | |||||||||||||||||
| Total assets* | $ | 85,966 | $ | 60,285 | $ | 147,018 | $ | 293,269 | $ | 61,267 | $ | 59,812 | $ | 98,132 | $ | 219,211 | |||||||||
45
2ND QUARTER REPORT 2010
| Three months ended June 30, 2010 | Three months ended June 30, 2009 | |||||||||||||||||||||||||
| | | Sleeping Giant mine | | | | Sleeping Giant mine | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | LDI mine | Corporate and other | | LDI mine | Corporate and other | | | |||||||||||||||||||
| | Total | Total | | |||||||||||||||||||||||
| Revenue – after pricing adjustments | $ | 16,068 | $ | 5,147 | $ | – | $ | 21,215 | $ | (1,278 | ) | $ | – | $ | – | $ | (1,278 | ) | ||||||||
| Operating expenses | 12,532 | 6,579 | – | 19,111 | 2,786 | – | – | 2,786 | ||||||||||||||||||
| Amortization | 3,044 | 2,996 | 29 | 6,069 | 51 | 1 | – | 52 | ||||||||||||||||||
| Income (loss) from mining operations | 492 | (4,428 | ) | (29 | ) | (3,965 | ) | (4,115 | ) | (1 | ) | – | (4,116 | ) | ||||||||||||
| Other expenses | ||||||||||||||||||||||||||
| General and administration | 60 | 48 | 2,486 | 2,594 | 138 | 110 | 1,974 | 2,222 | ||||||||||||||||||
| Exploration | 3,865 | 2,448 | 108 | 6,421 | 3,735 | 143 | 38 | 3,916 | ||||||||||||||||||
| Other | 42 | (4 | ) | (83 | ) | (45 | ) | 796 | (3 | ) | (1,241 | ) | (448 | ) | ||||||||||||
| Loss before taxes | (3,475 | ) | (6,920 | ) | (2,540 | ) | (12,935 | ) | (8,784 | ) | (251 | ) | (771 | ) | (9,806 | ) | ||||||||||
| Income and mining tax recovery | (355 | ) | (186 | ) | (834 | ) | (1,375 | ) | – | – | – | – | ||||||||||||||
| Net loss and comprehensive loss for the period | $ | (3,120 | ) | $ | (6,734 | ) | $ | (1,706 | ) | $ | (11,560 | ) | $ | (8,784 | ) | $ | (251 | ) | $ | (771 | ) | $ | (9,806 | ) | ||
46
2ND QUARTER REPORT 2010
| Six months ended June 30, 2010 | Six months ended June 30, 2009 | |||||||||||||||||||||||||
| | | Sleeping Giant mine | | | | Sleeping Giant mine | | | | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | LDI mine | Corporate and other | | LDI mine | Corporate and other | | | |||||||||||||||||||
| | Total | Total | | |||||||||||||||||||||||
| Revenue – after pricing adjustments | $ | 16,068 | $ | 13,077 | $ | – | $ | 29,145 | $ | 4,017 | $ | – | $ | – | $ | 4,017 | ||||||||||
| Operating expenses | 18,642 | 16,691 | – | 35,333 | 3,739 | – | – | 3,739 | ||||||||||||||||||
| Amortization | 3,079 | 4,945 | 57 | 8,081 | 101 | 1 | – | 102 | ||||||||||||||||||
| Income (loss) from mining operations | (5,653 | ) | (8,559 | ) | (57 | ) | (14,269 | ) | 177 | (1 | ) | – | 176 | |||||||||||||
| Other expenses | ||||||||||||||||||||||||||
| General and administration | 99 | 66 | 5,142 | 5,307 | 284 | 110 | 3,875 | 4,269 | ||||||||||||||||||
| Exploration | 6,783 | 3,558 | 245 | 10,586 | 6,084 | 143 | 97 | 6,324 | ||||||||||||||||||
| Other | 34 | 5 | (111 | ) | (72 | ) | 457 | (3 | ) | (1,412 | ) | (958 | ) | |||||||||||||
| Income (loss) before taxes | (12,569 | ) | (12,188 | ) | (5,333 | ) | (30,090 | ) | (6,648 | ) | (251 | ) | (2,560 | ) | (9,459 | ) | ||||||||||
| Income and mining tax recovery | (670 | ) | (319 | ) | (2,917 | ) | (3,906 | ) | – | – | – | – | ||||||||||||||
| Net loss and comprehensive loss for the period | $ | (11,899 | ) | $ | (11,869 | ) | $ | (2,416 | ) | $ | (26,184 | ) | $ | (6,648 | ) | $ | (251 | ) | $ | (2,560 | ) | $ | (9,459 | ) | ||
| Three months ended June 30, 2010 | Three months ended June 30, 2009 | ||||||||||||||||||||||||
| | | Sleeping Giant mine | | | | Sleeping Giant mine | | | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | LDI mine | Corporate and other | | LDI mine | Corporate and other | | | ||||||||||||||||||
| | Total | Total | | ||||||||||||||||||||||
| Additions to mining interests | $ | 6,944 | $ | 3,202 | $ | – | $ | 10,146 | $ | 177 | $ | 1,709 | $ | 12 | $ | 1,898 | |||||||||
| Six months ended June 30, 2010 | Six months ended June 30, 2009 | ||||||||||||||||||||||||
| | | Sleeping Giant mine | | | | Sleeping Giant mine | | | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | LDI mine | Corporate and other | | LDI mine | Corporate and other | | | ||||||||||||||||||
| | Total | Total | | ||||||||||||||||||||||
| Additions to mining interests | $ | 9,825 | $ | 4,804 | $ | 4 | $ | 14,633 | $ | 387 | $ | 1,709 | $ | 12 | $ | 2,108 | |||||||||
11. COMPARATIVE FIGURES
Certain of the prior period figures have been reclassified to conform to the presentation adopted in 2010.
12. SUBSEQUENT EVENT
In July 2010, the Company obtained a one year $30 million operating line of credit with the Bank of Nova Scotia. The cost on amounts drawn is Libor plus 2.5%. The operating line of credit is secured by the Company's accounts receivables. The credit facility will be used for working capital liquidity and general corporate purposes.
47
2ND QUARTER REPORT 2010
