North American Palladium (PDL
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American Palladium is a major supplier to the automobile industry, where their product is
used in catalytic converters
CEOCFOinterviews: Mr. Douchane, please tell us about the recent changes North American Palladium Ltd. experienced and what you looking to in the future.
Mr. Douchane: North American Palladium has excellent possibilities as well as a good future and the ability to build value for the share holders. The entire team has moved along to correct some of our recent operational problems. For example, we had a crusher fail a year ago in September and are now in the process of getting that redesigned and a new one installed. This takes quite a bit of the cost out of the operation. Once the crusher is in place and operating, which is expected by the middle of July, then we can start to focus on some of the other issues that take the last 10 to 15% out of the inefficiencies and have an excellent running property.
CEOCFOinterviews: Will you tell us about Palladium and what the market for it is in general?
Mr. Douchane: Palladium is a rare metal in an interesting and volatile market, with prices ranging from a high of over $1,100 per ounce and recently reaching new lows of $140.00 per ounce. Last year, the market shrunk down to slightly over five million ounces. In the late 1990s the auto companies, which used the most of it, did a lot of purchasing and created a shortage. This led to an overhang in the market and drove the price down. Today, the majority of palladium is used in automobile catalytic converters. The palladium works very well with gasoline engines by converting the carbon monoxide to carbon dioxide. Palladium is also used in the electronics industry, and it is used to a smaller extent in dental apparatuses and in jewelry. In electronics, it is used for multi-layered capacitors, which are used in cell phones and cellular equipment.
CEOCFOinterviews: Why does most of your palladium go for automobiles? Do you foresee the use of palladium in automobiles dropping off?
Mr. Douchane: We currently have a long-term contract with a major automobile manufacturer that includes a price protection. This year our average price will be around $440.00 per ounce. Next year it may fall off to a low of $325.00 if the spot price does not come back up. Our long-term contract goes through the middle of 2005. Palladium and platinum belong to a group of metals have some unique properties, such as the ability to hold hydrogen. I doubt use of that process will go down because they are beginning to use those things in Asia. As we move forward with catalytic converters in places like China, Viet Nam, Thailand and those areas, you are going to see actual usage go up. This is long term and there are other uses coming along such as energy storage and fuel cells.
CEOCFOinterviews: What is involved in the mining of palladium and getting it to its final destination?
Mr. Douchane: Palladium is mined from a surface (open pit) mine, which is located in northwestern Ontario. We move a massive amount of rock and put a massive amount of rock through a milling operation where it is ground. Right now we are averaging a little over 14,000 tons a day and we are trying to get up to 15,000 tons a day. The rock is ground in big grinding mills to a consistency of face powder. It is then run through a concentration process where it is collected on air bubbles then filtered and dried into what is called a concentrate. That is then sent off to one of two smelters where it is then smelted and refined into various metals.
CEOCFOinterviews: I see that your objective is to increase the recovery. How are you going to do that?
Mr. Douchane: We have some ongoing research into increasing our recovery rate and I think we have most of what we need in place. We have to re-pipe a few things and take care of some of our losses. We have some more work to do on the air bubbles to make them smaller so we can work with them better. We are not quite there yet, we are still going through the machines we have with test equipment, trying to figure out exactly why these float cells do not work like the ones in the laboratory did. One of the Universities, Magill, is helping us walk through this exercise. We have just about completed it to where we can start to make some sense of this and answer why we are only getting 75% recovery instead of 80%. We have done some finer grinding though lately and we are now closer to 77%.
CEOCFOinterviews: What do you do with the various by-products of palladium?
Mr. Douchane: When we recover palladium, we also recover another suite of metals. We recover a little platinum, gold, nickel, copper and cobalt, which are also sold on the market. I think palladium is a good long-term business as well as platinum and nickel.
CEOCFOinterviews: You have talked about developing some resources and some exploration. Will you tell us more about that?
Mr. Douchane: We have some exploration properties in and around the mine and we are in the process of looking for more minerals to mine on exploration properties. A particular property that I am fond of is near the old Shebandowan Lake Mine and we have had some very good surface results, which is always encouraging. This does not always mean a lot but it does mean the minerals are there. We are methodically going through and exploring those. The next step is to drill and if we are extremely lucky, we will find them. This process can take up to five or six years.
CEOCFOinterviews: The other objective you have is to strengthen your financial position. How do you do that?
Mr. Douchane: We are in the process of strengthening the financial status of the company. We are paying down an existing loan and anticipate having it paid off by the beginning of 2005. At that juncture, we will be a debt-free company, which would put us in the position to do another project, should we find another one to get into production. We are also trying to reduce our operations spending. Our recent cost of production was $277 an ounce in U.S dollars and about $60.00 of that was due to contracting out a crusher. We are looking to get our costs in the range of $220.00 an ounce, depending on how strong the Canadian dollar gets.
CEOCFOinterviews: I see on your Palladium Cycle, part of your plan is returning the land to its natural state. Where does that fit in the end?
Mr. Douchane: The final stage of the mining cycle is the reclamation that goes on when the mine is complete. We continuously put money into a government controlled account. So if something were to happen to the company, the government would have the money to repair the site and the environment to its natural state. You cover everything, except the hole stays there, and that is also protected.
CEOCFOinterviews: What are your biggest challenges going forward?
Mr. Douchane: We need to double the size of the company and there are several ways we can do that. One of them is through finding another mine or getting involved in a late-stage exploration project, and the other is finding an appropriate company to merge with or purchase. We are working on all of those things, but the current challenge is to get the cost down on this particular mine. Then to increase the size of the company in a way that is valuable to the shareholders.
CEOCFOinterviews: Do you see increased interest in the company because of the increased interest in gold?
Mr. Douchane: Over the last month and a half, there seems to be increased market interest. We are not able to find out why but I think there are more people coming back into the stock market and they are looking for things that are hedges on inflation, and precious metals are perceived to be that to some people. That means that there is going to be money to do new things and build new mines.
CEOCFOinterviews: In closing, why should potential investors be interested and what should they know that they might not realize when they first look at the company?
Mr. Douchane: Potential investors should know that the market is at the bottom of the cycle. The stock is down low and has been down low for many reasons, one of which is because the company failed to deliver last year on their production due to operating problems. The price of metal is an influence also. When companies are trading at or near their value, it is then a good time to purchase. We know we are going to turn the company around where it is going to produce what we say it is going to produce. We expect palladium to go back up. The gap between palladium and platinum is too wide; historically they traded within a hundred dollars of each other. The other thing that is going to happen is that when palladium was high, the automotive manufacturers were buying platinum because it was cheaper. But now we are starting to see the automotive companies buying palladium and even General Motors announced that they were back in the market for palladium.
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