TORONTO (miningweekly.com) – Shares in North American Palladium (NAP) plunged 27% on Tuesday, after the group lowered full-year forecasts for both its mines and said it would emphasise development work rather than production for the balance of this year.

The Toronto-based company owns the Lac des Iles (LDI) palladium mine in Ontario and the Sleeping Giant gold operation in Quebec.

Executives faced some tough questions from analysts during a conference call on Tuesday afternoon, as CEO Bill Biggar and his team were grilled on the guidance cut and higher than expected costs.

At LDI, the group has run into “congestion” problems, as it worked on a big underground expansion project, while normal mining operations continued at the same time.

NAP has now scaled back its mining plans for this year to make sure development stays on schedule, and has cut its production guidance range by 20 000 oz of palladium, to between 145 000 and 155 000 oz.

“We have done this to alleviate the pressure on developing and operating at the same time, so we can keep our mine expansion on track,” Biggar said.

The lower production level “is more than justified by the benefits of advancing the project on schedule,” he said.

Biggar emphasised that the production is not lost and will only be deferred to ensure the development project continues on schedule.

“Those 20 000 oz aren't going anywhere,” he said.

The LDI expansion, which will increase production and lower costs at the mine, is the “number one priority” for the company.

During the first quarter, production was affected by difficult weather and man-power constraints that reduced the contribution from stockpiled ore that NAP blends with underground production, and pushed costs upwards after the company hired additional contractors to help break up the stockpile.

Analysts were also concerned about the company's revelation that it had encountered some pillar instability in the mine and, after installing a new geotechnical monitoring system, plans to look at backfilling options for the expansion project.

But Biggar argued that the news was not necessarily negative. It was better to have the information sooner than later, and backfilling the mine would be easier than having to permit new tailings facilities in the future, he commented.

Raiseboring for a new shaft that the company will use to access the new Offset zone at LDI started in May, and Biggar said the firm is still targeting commercial production from the shaft in the fourth quarter of 2012.

The company will update its LDI mine expansion plan in the third quarter of this year, to include new reserve and resource estimates, current metal price assumptions and the new seismic information that could affect stope design.

SLEEPING GIANT

At the Sleeping Giant mine, NAP has lowered production targets to between 15 000 and 20 000 oz of gold in 2011, and said it will aim for break-even cash flow this year, while development continues in preparation for mining deeper, higher-grade zones in 2012.

The company had previously forecast output of 30 000 to 35 000 oz at the mine in 2011. NAP bought the former Iamgold operation when it acquired Cadiscor Resources in 2009 and restarted the mine the same year.

However, facing a severe shortage of skilled labour and with cash costs approaching $2 000/oz in the first quarter, the firm has decided to scale back operations and will target grades rather than volume, until it can hire more people.

Competition for miners and geologists in the region is high, with new mines, including Osisko Mining's Canadian Malartic and Iamgold's Westwood projects, putting pressure on the skilled labour pool.

NAP has a programme aimed at retaining and attracting experienced miners, but while it has successfully reduced turnover at Sleeping Giant, the firm has been unable to attract new skilled workers, COO Greg Struble said.

The company will focus on reducing costs at the mine this year, while it completes the shaft deepening, and a mill expansion that began during the first quarter.

NAP will complete an updated mine plan in the third quarter, based on ongoing infill drilling, and will determine whether there are any changes to its 2012 production forecast of 40 000 to 50 000 oz at Sleeping Giant.

The firm reported a first-quarter net loss of $10,3-million, compared with an $18,4-million loss a year, earlier, when the LDI mine was on care and maintenance.

LDI produced 30 661 oz of payable palladium during the quarter, at a cash cost of $519/oz, while at Sleeping Giant gold production was 3 966 oz, at a cash cost of $1 991/oz.

The price of palladium more than doubled in 2010, although it has declined this year to the current $726/oz.

Palladium is mainly used in emissions-reducing autocatalysts, as well as in jewellery.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.