You wonder why NAP has done this deal. I'll tell you why.
The terms of the loan agreement are such that once the company utilizes the interest “accrual” option, any amounts paid in the future must include the amount due plus interest on that amount until the maturity of the loan (June 7, 2017). The pre-payment fee is the interest to June 7, 2017 on the US$16.2 million of accrued interest paid. The deal negotiated with Brookfield is a good one since the amount the company should have paid under the loan agreement to get down to the 15% interest rate should have been twice as much (ie: US$46.8 million consisting of US$32.4 million of interest and US$ 14.4 million of pre-payment fee).
Under the letter agreement, NAP is paying US$16.2 million in interest, capitalizing US$16.2 million and paying US$7.2 million of pre-payment fee. Immediate cash outflows are ½ what they should have been and the interest rate drops from 19% to 15% immediately.
So instead of paying $46.8 million to BAM in order to go back to 15% interest, they now had to pay only half of that amount ($23.40 million). So BAM has been "kind", and NAP wins big time here.
If NAP had just held onto the debt like it was (at 19% without cash payments), the debt would balloon rapidly.
Now it's locked at $173.20 million (as long as NAP manages to make cash payments).
So they give up $23.4 million of cash in the short term to save multiples of that amount in the future.
With Pd at these prices, NAP is cash flow positive from operations.
If you understand how cash flows work, you will see that NAP had a cash shortfall in Q1 because accounts payable went down 20 million, while accounts receivable went up 10 million as a result of higher revenue.
This resulted in changes of non-cash working capital, which created the shortfall.
In addition, PAL takes the opportunity to pay down $23.40 million at a lower exchange rate, as the CAD has strengthened against the USD, saving them another $1 million compared to Q1
If you're positive about PAL, Take it as a gift :-)
He is probably / most likely short and got warm feet when NAP sent out the press release, which was definitely a positive. Now he probably needs to cover.
If there's value to be found in PAL, the market will at some point realize this, no matter what someone writes.
It's like holding a ball under water. The more you press it down, the higher it shoots up.
Do your own due dilligence and look at the numbers yourself, don't take anything for granted.
Not Fun traders' articles, not mine, not the analysts covering PAL, not someone posting on Forums. Do the math yourself. Contact management. Call them, email them.
I did, and made my own decisions.
Here's my current view:
1) We might take a chance at attacking $900-$920 this week or next week. I then expect a quite long consolidation between $890 and $940 (until end of September / Early October?) with an explosion from then on towards $1500-$1600 in a matter of weeks (yes, weeks), before a retest of the all-time high of $1100-area around new years'.
2) we consolidate around the current level of $840-$870, followed by $900 with a possible retest of the breakout level ($850-$860 level), followed by $970 before a long consolidation period, after which it explodes to $1800 in Q1 2015.
Either way, I see Pd reaching $1500+ over the next 6-9 months.
Or you can be positive for once, and say that they paid a 7.2M fee to lower their interest cost by 4M per quarter, or 16M per year, while the debt does not increase any longer and will stay at 173M.
TORONTO, ONTARIO--(Marketwired - Jul 7, 2014) - North American Palladium Ltd. ("NAP" or the "Company") (PDL.TO)(NYSE MKT:PAL) today announced that it has returned to a reduced interest rate on its senior secured term loan and its operating credit facility has been extended.
The Company has made a payment of approximately US$23.4 million to Brookfield Capital Partners Ltd. ("Brookfield"), its senior secured term loan lender, representing US$16.2 million of accrued interest and US$7.2 million of the associated pre-payment fee. Per a letter agreement with Brookfield, in consideration of the US$23.4 million payment and the capitalization of the remaining US$16.2 million of accrued and unpaid interest, the Company will revert to quarterly cash payments at a 15% interest rate with the first such cash interest payment on September 30, 2014. All other terms and conditions of the senior secured term loan remain unchanged. The outstanding balance under the senior secured term loan is approximately US$173.2 million on July 1, 2014. The senior secured term loan is secured by first priority security on the Company's fixed assets and second priority security on accounts receivables and inventories.
Additionally, the Company has extended its US$60 million revolving operating line of credit with The Bank of Nova Scotia by an additional year on the same terms and conditions, which includes US$ based loans interest at LIBOR plus 4.5%, to July 3, 2015. The credit facility is secured by first priority security on the Company's accounts receivables and inventories and second priority security on fixed assets.
By the way,
Greg van Staveren also bought 25k worth of stock.
As far as I know, Greg is not part of the management team, but he is part of the board of directors.
Why would he be forced to buy?
I see what you mean.
However, the main purchases (about 65k $) come from 1 person: Jim Gallagher, who is COO.
I guess we'll have to wait for production numbers to get more clues on why he has been buying, but better that he's buying than jumping ship, right?
Back then, they got a loan from Kaiser Francis Oil (their largest shareholder at the time) at "Libor + 2%".
Maybe you don't know, but Libor stands for London InterBank Offered Rate.
Back in 2001, this rate fluctuated between 2% and 6%, meaning NAP paid between 4% and 8% interest on that loan, substantially lower than 15%-19%.
But yes, I do see possibilities of better interest rates. Why not contact Sprott or other streaming companies?
Swallow the pill and take the cost of the penalty fee. At rates below 10% this penalty fee will be paid back in a couple of quarters.
Platinum is breaking out today, and is at the highest level since September 2013.
Palladium around $850, and almost ready to take out $860, before running to $900-$950 by year end.
All we need is one positive catalyst that will push the price back above $1, and the train is ready for departure.
From there, it wouldn't do so much harm to issue new shares to fund operations.
- Good Preliminary production results of Q2 (remember they issued preliminary Q1 numbers on April 7th, only 7 days after the Q end)?
- Return to cash payments on the loan, meaning going back to 15% interest rate, thereby saving 21% (4/19th=21%) on interest expenses per quarter? Would save them a couple of millions per year...
- Pd above $860 causing many to rush into anything palladium?
- what else?
I didn't use spot rates, I used the average realized sales price as disclosed on Page 9 of the Q1 report.
I used his break even price of $1646 just to show that this cannot be correct at all, as it would result in a profit of 10-15M, not Break even
What is the All Empirical Cost for Q1 2014?
All Empiric Cost = (Total Revenue + Gain/loss) / Production of palladium in Oz
All Empiric Cost = ($C48.736 million + $C26.666 million) / 42,641 Oz
AEC = $C1,768 per oz ($1,646 per oz.)
What does it mean?
It means that if PAL wanted to break-even for Q1 and to cover all expenses with the production for Q1, it would have needed a price of palladium at a minimum of $1,646 per oz.
Read that again... "It means that if PAL wanted to break-even for Q1 and to cover all expenses with the production for Q1, it would have needed a price of palladium at a minimum of $1,646 per oz"
This is complete nonsense. It would be TRUE if NAP did not have any by-product sales. However, by-product revenue makes out 30% of total revenue, and must thus be included.
Do the math yourself, or better yet, I will do it for you:
Palladium at his break-even price of $1646 x 39 485 oz = USD 64.99M
Platinum: 2767 oz x USD 1419 = USD 3.92M
Gold: 2788 oz x USD 1280 = USD 3.57M
Nickel: 368581 lb x USD 6.53 = USD 2.41M
Copper: 748786 lb x USD 3.32 = USD 2.40M
TOTAL REVENUE = USD 77.30M or about CAD 85.89M.
Compare that with his total cost ($C48.736 million + $C26.666 million=CAD 75.40M) , and you get a PROFIT of CAD 10M+ (not just break even like he claimed).
Now I even used ounces of Palladium SOLD, but it would get even better with ounces produced (42 641oz instead of 39 485oz).
Where did this "engineer" graduate?
Any increase in production will result in higher profit and thus a higher Price per share is justified.
Just saying that EVEN if management continues to overpromise and underdeliver, not all looks bad for PAL.
We all know that NAP has:
- overpromised and underdelivered in the past
- made very bad decisions related to the gold-adventure, costing shareholders a lot of money
- a substantial amount of debt at an extremely high interest rate
So no need to take this up again.
The reason why I am bullish on PAL is because I am EXTREMELY bullish on Palladium.
I expect price to rise towards $900-$950 by year end, and then explode higher in Q1 2015.
With "explode" higher, I mean $1500-$1700 per ounce.
The fact that Johnson Matthey has closed a deal with SWC is interesting to me, as I think they see supply disruptions coming down the road. Russia could suddenly decide to ban all exports of Palladium, thereby reducing world supply by around 42%. It's not without a reason that JM commited to buying ALL of SWC's output.
If you think my estimate of $1500-$1700 is completely out of whack, just search google for "profitimes silver target $45-$48". When Silver was at $37 on March 26th 2011, I forecasted silver to rise to $45-$48 over the next couple of weeks. Only 4 weeks later, it hit $49. I then said it would CRASH towards $22 and perhaps lower. So it did.
Palladium's chart looks EXTREMELY bullish, and therefore I am bullish on PAL.
Just IMAGINE if I'm right this time too, and the average price in Q1 would be $1250 (low of $950 to a high of $1550). Keep production numbers constant at 42.641 oz palladium.
Don't look at financing costs, cold winter, foreign exchange gains/losses etc.
Then I get to a quarterly profit of $15M, or an annual profit of $60M. With a market cap of around $120M right now, PAL could be trading at only 2x 2015' EPS!
A more "normal" P/E would be 25-30 for a stock like PAL. 25x60M results in a market cap of $1.5B or a price of $3-4. PAL could easily become a 10-bagger from here if Pd rises exponentially.
I think SWC will do VERY well too in that environment, but it will unlikely become a 10-bagger.
I see PAL as an out of the money call option on Palladium.
To those of you wondering if NAP will go belly up, just go ahead and call/email IR.
I just got off the phone with John from IR, and he said that they are looking at going back to cash payments on the loan, (meaning back to a 15% interest rate), so if they were going bankrupt (default on the loan), they wouldn't be looking at that option at all he said. He's on holiday at the moment, but he's a nice guy.
The refinancing of the letter of credit that expires on July 4th shouldn't be any problem at all he said. They will provide us with an update on that later in July/with Q2 results.
PS: I was in contact with John from IR and he confirmed that my math is right, when I said that all in costs would be around $1000.
A couple of weeks ago I wrote that NAP booked a non-realized loss on foreign exchange of 7.796M CAD due to the fact that the USD strengthened against the CAD from about 1.062 to about 1.102 in Q1.
Look at the rate today, it's back below 1.068, meaning the loss will be almost completely reversed in Q2, and NAP should thus report a non-realized gain on foreign exchange of about 6-8M.
With only 1 trading day to go, I don't expect the USD to suddenly strengthen a lot...
We would then go from -26M to -12M based on the exchange rate fluctiations.
All else equal, NAP should be able to sell 42641 ounces in Q2 (assuming production was stable), which means that revenue goes up 2.8M.
-- Bottom line: -9.2M
In addition, the 3 156 ounces that were not sold in Q1 will add to income in Q2. 3156oz at 810$ would be another 2.8M that would add to the bottom line.
-- Bottom line: -6.4M
NAP was hit with $4.0 million of financing costs, $2.7 million and $0.3 million of fair value charges for the convertible debentures and related warrants respectively in Q1.
I haven't found out about the change in fair value of the convertible debentures and warrants yet, but I assume that since the share price dropped since 31/03, NAP should be able to book a gain due to the change in fair values (the fair value of convertible debentures goes up when the share price goes down). Financing costs are also a bit unclear to me, as they completed the second tranche on april 11th, and might thus take this cost in Q2. Not clear to me if this cost was included in the $4.0million financing cost of Q1.
-- assuming no financing costs or financing costs offset by gain due to change in fair value of debentures would result in $7M less costs.
-- Bottom line: near break even!
If we then apply Funtrading's methodology of NOT excluding one-off items, all in costs would be equal to the average realized selling price ($810?).
So you get a swing from $1750 to $810 in just one quarter, and is completely unreliable.