Analyst Actions: North American Palladium Target Cut By A Third, But Keeps Outperform at Credit Suisse; Shares Up 7%


Credit Suisse says: "$150mn should cover Phase 1, but likely more to come; Revising Estimates and Lowering Target Price to C$1.40 (from C$2.10)."

"PDL announced closing of a US$130mn secured term loan from Brookfield Capital Ltd, along with a $20mn subscription for flow through shares that will be placed in two tranches. $150mn in proceeds will be used to i) fund the ongoing Phase I expansion at LDI, and ii) close out $72mn in senior secured notes (including a 10% penalty). Separately, the $60mn July 2013 working capital facility has also been pushed out by 12 months.

"It is a credit to management that PDL has managed to raise this much capital in such a tight market, but it hasn't come cheaply. The 15% nominal interest rate on the new $130mn facility increases to 19% in the (likely) event that interest payments are accrued for the first 2 years of the loan.

Management strategic review of the Phase 1 project (3,500 tpd via vertical shaft) is ongoing, and we expect an update on this project in July with the financial results. By September we hope to learn more about PDL's longer term growth aspirations, which might include a Phase 2 expansion (5,500tpd) of the Offset Zone, further development of the Roby Zone, a SE Extension of the Offset Zone or surface opportunities such as a push back of the open pit or North VT Rim.

"Our target price remains based on a risk-weighted NAV, but falls to C$1.40/share (from C$2.10). PDL trades at 10.5x 2014 EV/EBITDA, compared to Stillwater ( SWC ) which our estimates put at 7.5x 2014 EV/EBITDA.2013/2014/2015 EPS estimates to (C$0.09)/C$0.06/C$0.09 from (C$0.04)/C$0.05/C$0.07 respectively."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

Referenced Stocks: SWC

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