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'I Believed In The Long-Term Outlook': CEO For North American Palladium

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Jim Gallagher, CEO of North American Palladium

(Kitco News) - Palladium has found favor, and North American Palladium is benefitting, said CEO Jim Gallagher who spoke with Kitco at PDAC earlier this month.

Over the past year the price of the white metal, used in catalytic converters, has shot up 57% to US$1,517 per ounce. Tighter industry regulations after the Volkswagen emissions scandal has increased demand for palladium. Platinum, typically used for catalytic converters in diesel engines, has not performed as well while diesel remains out of favor with auto buyers. Over the past 12-months, platinum has dropped 10% to US$858 ounce.

In 2018 North American Palladium (TSX: PDL) announced CAN$167.8 million EBITDA compared to CAN$86.2 million from the previous year. The company produced a total of 237,461 ounces of payable palladium, an increase from the 201,592 ounces produced in 2017.

With a better financial picture, NAP can look at growth opportunities. 

“We have cash flow,” said Gallagher. “What are we going to do with our cash flow?”

Gallagher said NAP is going to focus on the PGM space for now with more exploration. The company has taken a hard look at the battery material space but finds it too speculative and too crowded. 

 “My view on the battery material space is that you might as well bet on a horse race because which metal is going to win.

Gallagher said getting the message out about palladium was difficult in recent years given how much “oxygen” the battery material crowd was drawing.

Earlier this decade North American Palladium was a distressed asset. The company made a US$130M debt deal in 2013 with Brookfield Asset Management. North American Palladium’s management couldn’t manage the turnaround, and Brookfield converted its debt to equity in 2015, appointed its own directors, and now owns 92 percent of NAP.  Brookfield installed Gallagher as its CEO. From the start of Gallagher’s tenure to now, the stock has risen from $4.20 a share to $18.90 a share.

Gallagher first ran into the Brookfield team when he was working for Hatch. The engineering consultancy was hired by NAP for some mine work.  

“I showed up on the same day that Brookfield's due diligence team showed up,” said Gallagher.

Gallagher said he believed in the mine, which he calls “a big, bulk-mineable PGM asset.” 

“I did my homework. I believed in the long-term outlook for palladium, which is really the same thesis that Brookfield had when they invested.” 

Gallagher said NAP is unusual. While South African mines will have a ratio of about two platinum to one palladium, NAP’s ratio is different.

“We are quite unique because we tilt towards 100 to one. We have platinum, but it is a much smaller ratio.” 

Byproducts at NAP are nickel, platinum, gold and copper, which constitute just under 20% of revenues.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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