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Analyst Actions: Credit Suisse Analyzes North American Palladium Q2

Event: "North American Palladium reported a Q2/11 EPS gain of $0.03, beating our estimate for a loss of $0.03 and the consensus estimate loss of $0.02. Both NAP's LDI palladium mine and its Sleeping Giant gold mine beat production expectations, with throughput, grades and recoveries all playing a factor."

"Palladium production was 47koz, 24% above our 38 koz estimate, and a 53% QOQ improvement. Cash costs were also lower at $335/oz, vs our estimate of $462/oz. Grades played a major factor in both production and cash cost performance, but we note that the higher grades were a function of stope sequencing and are not expected to remain elevated. NAP remains on track to have the shaft built by Q4 2012, and we see the next leg of production growth complete once the expansion reaches its target rate of 3,500tpd by Q2 2013."

"Sleeping Giant focused on higher grades, lower throughput. Given the shortage of labour, Sleeping Giant remains focused on lower throughput, higher grade mining, and has brought in an outside consultant in a bid to reduce fixed costs. We note that while cash costs of $1,643 are in line with our estimate, they are down 17% versus the previous quarter."

Catalysts: "NAP is expected to provide an updated mine plan for LDI towards the end of Q3, which will provide more clarity on operations going forward. A production decision for Vezza is expected by year end."

Valuation: "We rate NAP as Outperform, with a C$7.75 target price, which is based on 1.1x our NAVPS of C$7.22. We continue to believe that NAP remains a growth story that is poised to benefit significantly from the structural deficits and higher pricing we see emerging in the global palladium markets. Our 11/12/13 EPS estimates have increased to (C$0.04)/C$0.28/C$0.83 from (C$0.12)/C$0.25/C$0.81, respectively."

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

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

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