Implats to acquire N.A. Palladium for $1B in cash

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North American Palladium Ltd. [PDL-TSX; PALDF-OTC] said Monday October 7 that it has agreed to be acquired by South African giant Impala Platinum Holdings Ltd. [IMP-JSE] in an all-cash transaction worth $1.0 billion.

North American Palladium has described itself as the world’s only pure play producer of palladium, a key ingredient in the production of catalytic converters, which are used to limit harmful emissions from car exhaust system.

Due to strong demand and constrained supply, palladium prices recently hit a record high of US$1,665.50 an ounce.

North American Palladium’s flagship asset is the Lac des Iles mine, which has been in production for 25 years and is located northwest of Thunder Bay, Ontario.

With over 600 employees, Lac des Iles boasts a unique ore body, and modern infrastructure, including both an underground and open pit mine.

A 5% net smelter return royalty is paid to Sheridan Platinum Group Ltd. of Toronto as a result of a 1994 settlement that saw North American Palladium buy Sheridan’s interest in the mine in exchange for cash, stock, and a reserved NSR interest of 3%, which rose to 5% after the year 2000.

Under the terms of an agreement with Implats, shareholders of North American Palladium, other than Brookfields Business Partners L.P. will receive $19.74 per common share. Brookfields, as the majority shareholder, will receive $16 a share.

The minority shareholder consideration represents a premium of 15% to North American Palladium’s 30-day volume-weighted average price and 23% to the company’s 60-day volume weighted average price on the Toronto Stock Exchange as of October 4, 2019.

The transaction has been unanimously approved by both the directors of North American Palladium and Implats.

“This transaction delivers attractive value for shareholders and reflects five years of hard work we have devoted to realize the potential of our assets,” said North American Palladium President and CEO Jim Gallagher.

“We have successfully established Lac des Iles Mine as one of Canada’s largest, lowest cost and safest underground mines, producing metal that contributes to a cleaner global environment,” Gallagher said.

North American Palladium said the transaction will require the approval of at least 66 2/3% of the votes cast by shareholders of the company at a special meeting of shareholders.

A termination fee of $24.5 million becomes payable to Implats if North American Palladium accepts a superior proposal during a 30-day “go shop period,” during which the company and its representatives have the right to respond to bonafide expressions of interest in respect of an acquisition proposal.

The termination fee rises to $37.7 million if North American Palladium accepts a superior proposal after the 30-day go-shop period has ended.

News of the deal comes after North American Palladium recently reported record revenue of $135.6 million in the second quarter of 2019, up from $94.1 million in the year earlier period.

Net income in the second quarter was $36.6 million or $0.62 a share, compared to net income of $14.2 million or 24 cents a share in the second quarter of 2018.

Underground production averaged just over 7,000 tonnes per day in the quarter, the highest in the company’s history, and a significant increase from 5,856 tonnes per day in the second quarter of 2018.

Gallagher said the company benefitted in the second quarter from strong palladium prices and the highest-ever underground production.

The company said its mine expansion project is ahead of schedule in terms of both development metres and rate of underground production as Lac des Iles is well on its way to achieving 12,000 tonnes per day by 2021.

In the first half of 2019, the company said it generated free cash flow of $91 million.

On Monday, North American Palladium shares eased 0.25% or $0.05 to $19.69 on volume of 847,511. The shares are trading in a 52-week range of $26.30 and $9.12.

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