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Mackie Research: SELL rating and $0.20 target price for North American Palladium Limited
According to Mackie Research:
is (dot) gd/oqctxv
North American Palladium Ltd.
Bumpy ride, but operating near full year guidance: Despite some bumps in the quarter, LDI?s Q2 operating results were largely in-line with our estimates. For the quarter underground production averaged ~2,900 tpd, slightly below the company?s operating guidance of 3,000 tpd for the first half of the year. The lower than expected underground production lead to the palladium head grade decreasing to 3.1 g/t from 3.3 g/t in Q1/14. We note the grade remains ahead of 2014 guidance of 3.0 g/t. Recoveries of 83.6% were below Q1/14 recoveries of 84.5% but were better than guidance of 82.0%.
Many questions remain unanswered: We remain concerned with the Company?s ability to meet its short and long term financial obligations. The company had a cash position of $44.3 million and a total debt balance of ~$247MM at the end of Q2/14. Subsequent to the end of Q2, PDL paid $23.5MM to Brookfield in order to revert back to a 15% annual interest rate from 19% previously. However to receive this rate PDL must also start making quarterly interest payments, which exceed the current income from operations. We continue to assume a $70 million financing in 2015 for interest payments and unknown capital expenditures in 2015 and 2016; however should no financing occur, PDL has enough cash to survive the next 2 quarters. Additionally with the Brookfield debt coming due in 2017, the company?s current cash flow is clearly insufficient to cover the sizeable repayment. The company is presently reviewing stope size and blast design, the possibility of running the mill on a full-time basis, and is evaluating a Phase 2 shaft sinking expansion; however, little information was provided on how PDL intends to meet its upcoming financial obligations. It is clear, however, that quarterly earnings from operations of $4.9MM will not suffice.
ACTION ? SELL
We maintain our SELL recommendation and target price of $0.20/share
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