TORONTO (miningweekly.com) – Precious-metals producer North American Palladium (NAP) will not achieve steady state operations this year at its Sleeping Giant gold mine in Quebec, after mining lower than expected grades in the second quarter, the firm said this week.

NAP bought the mine last year when it acquired junior Cadiscor Resources, as part of a strategy to diversify into gold.

The company's other mine is the Lac des Iles (LDI) palladium operation, in Ontario, which it restarted this year, and where it preparing an expansion to mine a new high-grade underground zone.

LDI was meeting production rate targets by the end of the second quarter, CEO Bill Biggar said on Friday.

The firm is building a 1 500-m ramp from the current Roby zone into the new Offset zone, which will be the focus of future production.

Once completed – which is expected by year-end – the ramp will provide a platform for exploration, and the company also plans to raisebore a shaft to the surface, which will serve as a production shaft for the Offset zone.

A scoping study on developing of the Offset zone is scheduled for completion later this month, Biggar said.

NAP produced 27 839 oz of palladium in the second quarter, at costs of $304/oz net of by-product revenues.

In the second half of the year, the company expects to produce 70 000 oz, at a cash cost of between $325/oz and $350/oz.

The firm reported a net loss for the quarter of C$11,6-million, compared with a C$9,8-million loss a year earlier.

At Sleeping Giant, NAP produced 4 237 oz of gold in the second quarter, at a total cash cost of $1 545/oz.

The average gold grade for the quarter was $5,71 g/t, well below the average grade of 9,3 g/t.

The company is busy developing new higher-grade zones that it believes will boost output and help lower costs in 2011.

The firm will complete a 200-m shaft deepening by year-end, so that it can access new stopes in zones that have historically provided good tonnage and higher-grade feed for the mill.

In the meantime, NAP will implement tighter infill drilling and focus on shrinkage and long-hole stopes rather than room and pillar stopes, to improve grade control and certainty.

The company believes it will be able to produce 50 000 oz of gold next year.