SECURITIES AND EXCHANGE COMMISSION

Form 6-K

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of May, 2014
Commission File Number: 1-15142

NORTH AMERICAN PALLADIUM LTD.
(Name of Registrant)

200 Bay Street
Royal Bank Plaza, South Tower
Suite 2350
Toronto, Ontario
Canada M5J 2J2
(Address of Principal Executive Offices)

Indicate by checkmark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F   ¨                     Form 40-F   x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):   ¨
Indicate by checkmark whether the registrant, by furnishing the information contained in this Form is also thereby furnishing the information to the SEC pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes   ¨     Assigned File No.                      No   x
If “Yes” is marked, indicate the file number assigned to the Registrant in connection with Rule 12g3-2(b).
This report on Form 6-K is specifically incorporated by reference into North American Palladium’s registration statement on Form S-8 (File No. 333-13766) and registration statement on Form F-10 (File No. 333-185656).

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	 		 	NORTH AMERICAN PALLADIUM LTD.	
				
Date: May 1, 2014	 		 	By:	 	/s/ Tess Lofsky	
	 		 		 	Tess Lofsky	
	 		 		 	Vice President, General Counsel &
Corporate Secretary	

EXHIBIT INDEX

Exhibit	 	Description of Exhibit	
		
1	 	2014 Q1 – Management’s Discussion and Analysis	
		
2	 	2014 Q1 – Financial Statements	
		
3	 	News Release – “North American Palladium Announces First Quarter 2014 Results”	

Exhibit 1

North American Palladium Ltd.
TABLE OF CONTENTS

 	  	Page	 	
Management’s Discussion and Analysis	  				
		
INTRODUCTION	  	 	1	  	
		
FORWARD-LOOKING INFORMATION	  	 	1	  	
		
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MINERAL RESERVES AND RESOURCES	  	 	2	  	
		
OUR BUSINESS	  	 	2	  	
		
GUIDANCE	  	 	3	  	
		
QUARTERLY TRENDS	  	 	3	  	
		
HIGHLIGHTS	  	 	4	  	
		
LDI OPERATING & FINANCIAL RESULTS	  	 	6	  	
		
OTHER EXPENSES	  	 	11	  	
		
SUMMARY OF QUARTERLY RESULTS	  	 	12	  	
		
CASH FLOWS, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES	  	 	13	  	
		
OUTSTANDING SHARE DATA	  	 	16	  	
		
CRITICAL ACCOUNTING POLICIES AND ESTIMATES	  	 	16	  	
		
RISKS AND UNCERTAINTIES	  	 	21	  	
		
INTERNAL CONTROLS	  	 	21	  	
		
OTHER INFORMATION	  	 	21	  	
		
NON-IFRS MEASURES	  	 	22	  	

North American Palladium Ltd.
Management’s Discussion and Analysis
INTRODUCTION
Unless the context suggests otherwise, references to “NAP” or the “Company” or similar terms refer to North American Palladium Ltd. and its subsidiaries. “LDI” refers to Lac des Iles Mines Ltd. and “NAP Quebec” refers to its previously held subsidiary, NAP Quebec Mines Ltd.
The following is management’s discussion and analysis of the financial condition and results of operations (“MD&A”) to enable readers of the Company’s condensed interim consolidated financial statements and related notes to assess material changes in financial condition and results of operations for the three months ended March 31, 2014, compared to those of the respective periods in the prior year. This MD&A has been prepared as of April 30, 2014 and is intended to supplement and complement the condensed interim consolidated financial statements and notes thereto for the three months ended March 31, 2014 (collectively, the “Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. Readers are encouraged to review the Financial Statements in conjunction with their review of this MD&A and the most recent Form 40-F/Annual Information Form on file with the U.S. Securities and Exchange Commission (“SEC”) and Canadian provincial securities regulatory authorities, available at www.sec.gov and www.sedar.com, respectively.
All amounts are in Canadian dollars unless otherwise noted and all references to production ounces refer to payable production.
FORWARD-LOOKING INFORMATION
Certain information contained in this MD&A constitutes ‘forward-looking statements’ within the meaning of the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. The words ‘expect’, ‘believe’, ‘anticipate’, ‘contemplate’, ‘target’, ‘may’, ‘will’, ‘could’, ‘intend’, ‘estimate’ and similar expressions identify forward-looking statements. Forward-looking statements included in this MD&A include, without limitation: information as to our strategy, plans or future financial or operating performance, such as the ramp-up of the Company’s mine, project timelines, production plans, projected cash flows or expenditures, operating cost estimates, mining methods, expected mining rates and other statements that express management’s expectations or estimates of future performance. The Company cautions the reader that such forward-looking statements involve known and unknown risk factors that may cause the actual results to be materially different from those expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to: the risk the Company may not be able to continue as a going concern, the possibility that the Company may not be able to obtain sufficient financing, that the Company may not be able to generate sufficient cash to service all its indebtedness and may be forced to take other actions to satisfy its obligations, events of default on its indebtedness, hedging could expose it to losses, competition, the possibility title to its mineral properties will be challenged, dependency on third parties for smelting and refining, the possibility that metal prices and foreign exchange rates may fluctuate, inherent risks associated with development, exploration, mining and processing including risks related to tailings capacity and ground conditions, the mine transition from mining via ramp to mining via shaft, environmental hazards, uncertainty of mineral reserves and resources, the possibility that the mine may not perform as planned, changes in legislation, regulations or political and economic developments in Canada and abroad, risks related to employee relations and to the availability of skilled labour, litigation and the risks associated with obtaining necessary licenses and permits. For more details on these and other risk factors see the Company’s most recent Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities. Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions contained in this MD&A, which may prove to be incorrect, include, but are not limited to: that the Company will continue in operation for the foreseeable future and will be able to realize its
 
FIRST QUARTER REPORT 2014
 
1

North American Palladium Ltd.
 
assets and discharge its liabilities in the normal course of business, that metal prices and exchange rates between the Canadian and United States dollar will be consistent with the Company’s expectations, that there will be no material delays affecting operations or the timing of ongoing projects including the mine ramp-up, that prices for key mining and construction supplies, including labour costs, will remain consistent with the Company’s expectations, and that the Company’s current estimates of mineral reserves and resources are accurate. The forward-looking statements are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise, except as expressly required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING MINERAL RESERVES AND RESOURCES
Mineral reserve and mineral resource information contained herein has been calculated in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects, as required by Canadian provincial securities regulatory authorities. Canadian standards differ significantly from the requirements of the SEC, and mineral reserve and mineral resource information contained herein is not comparable to similar information disclosed in accordance with the requirements of the SEC. While the terms “measured”, “indicated” and “inferred” mineral resources are required pursuant to National Instrument 43-101, the SEC does not recognize such terms. U.S. investors should understand that “inferred” mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. In addition, U.S. investors are cautioned not to assume that any part or all of NAP’s mineral resources constitute or will be converted into reserves. For a more detailed description of the key assumptions, parameters and methods used in calculating NAP’s mineral reserves and mineral resources, see NAP’s most recent Annual Information Form/Form 40-F on file with Canadian provincial securities regulatory authorities and the SEC.
OUR BUSINESS
NAP is an established precious metals producer that has been operating its LDI Mine located in Ontario, Canada since 1993. LDI is one of only two primary producers of palladium in the world, offering investors leverage to the rising price of palladium.
The Company recently expanded the underground LDI Mine and is transitioning from ramp access to shaft access while utilizing long hole open stope mining. Through the utilization of the shaft and bulk mining methods, operations are expected to benefit from increased mining rates and decreased operating costs, transforming LDI into a low cost producer with a rising production profile.
The Company is planning an exploration program in 2014 targeting the lower portion of the Offset Zone, with the intention to perform a preliminary economic assessment that would entail deepening the shaft, installation of a lower level bulk ore handling systems that would increase production and extend the mine life.
The Company has significant exploration potential near the LDI Mine, where a number of growth targets have been identified, and is engaged in an exploration program aimed at increasing its palladium reserves and resources. As an established palladium-platinum group metal (“PGM”) producer with excess mill capacity on a permitted property, NAP has potential to convert exploration success into production and cash flow on an accelerated timeline.
NAP trades on the TSX under the symbol PDL and on the NYSE MKT under the symbol PAL.
 
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North American Palladium Ltd.
 
GUIDANCE
Given the recent financings and improved operating results, the Company is increasing its guidance for exploration by $6 million to $10 million for 2014. The increased exploration spending is to expand the current drill program for the Offset zone to increase reserves and resources and to upgrade existing reserves and resources.
While we are encouraged that the operating results in the first quarter of 2014 generally exceeded our expectations, pending completion of the ore handling system late in the second quarter or early in the third quarter of 2014, the Company is maintaining all other 2014 guidance.

 	  	2014
Guidance	 	 	First Quarter
2014 Results	 	
Palladium production – payable oz	  	 	170,000-175,000	  	 	 	42,641	  	
US$ cash cost per palladium oz sold – year/Q4	  	US$	550/US$450	  	 	US	$    492 (US$422	(1) ) 	
Production cost per tonne milled	  	$	51 to $55	  	 	$	62 ($56	(1) ) 	
Underground mining	  				 				
Tonnes mined per day	  	 
 	3,000 ramping
up to 5,000	 
  	 	 	3,065	  	
Tonnes	  	 	1.3 million	  	 	 	276,000	  	
Palladium head grade (g/t)	  	 	4.2	  	 	 	5.0	  	
Surface stockpile processing	  				 				
Tonnes	  	 	1.0 million	  	 	 	254,000	  	
Palladium head grade (g/t)	  	 	1.0	  	 	 	1.0	  	
Milling	  				 				
Palladium head grade (g/t)	  	 	3.0	  	 	 	3.3	  	
Palladium recovery	  	 	82.0	% 	 	 	84.5	% 	
Capital expenditures ($ millions)	  	 	Under $30	  	 	$	2.9	  	
Exploration expense ($ millions)	  				 				
Original	  	$	4.0	  	 	$	0.8	  	
Revised	  	$	10.0	  	 				
 
(1)	After adjusting for the impact of approximately $2.7 million of power and propane costs associated with an unusually cold winter, see highlight section for additional details.	
QUARTERLY TRENDS

 	  	For the three months ended	 	
 	  	March 31
2014	 	 	December 31
2013	 	 	September 30
2014	 	
Palladium production – payable oz	  	 	42,641	  	 	 	30,979	  	 	 	30,097	  	
US$ cash cost per palladium oz sold	  	US	$  492 (US$422	(1) ) 	 	US$	621	  	 	US$	581	  	
Underground mining – tonnes	  	 	275,845	  	 	 	231,346	  	 	 	208,097	  	
Underground mining – tonnes per day	  	 	3,065	  	 	 	2,515	  	 	 	2,262	  	
Milling – palladium head grade (g/t)	  	 	3.3	  	 	 	2.9	  	 	 	2.5	  	
Milling – palladium recovery	  	 	84.5	% 	 	 	81.5	% 	 	 	80.7	% 	
Adjusted EBITDA ($000s)	  	$	9,764	  	 	$	1,369	  	 	$	3,189	  	
 
(1)	After adjusting for the impact of approximately $2.7 million of power and propane costs associated with an unusually cold winter, see highlight section for additional details.	
 
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North American Palladium Ltd.
 
HIGHLIGHTS

 	  	Three months ended March 31	 	
OPERATIONAL HIGHLIGHTS	  	2014	 	 	2013	 	
Mining	  				 				
Tonnes ore mined	  	 	530,139	  	 	 	540,694	  	
Palladium head grade (g/t)	  	 	3.1	  	 	 	3.1	  	
Milling	  				 				
Tonnes ore milled	  	 	516,511	  	 	 	503,585	  	
Palladium head grade (g/t)	  	 	3.3	  	 	 	3.3	  	
Palladium recovery (%)	  	 	84.5	  	 	 	80.1	  	
Palladium production – payable oz	  	 	42,641	  	 	 	38,654	  	
Palladium sales – payable oz	  	 	39,485	  	 	 	39,760	  	
Realized palladium price per ounce (US$)	  	$	739	  	 	$	730	  	
Cash cost per ounce palladium sold (US$) 1	  	$	492	  	 	$	490	  	
			
FINANCIAL HIGHLIGHTS
($000s except per share amounts)	  	2014	 	 	2013	 	
Revenue	  	$	48,736	  	 	$	47,090	  	
Expenses	  				 				
Production costs	  	 	29,735	  	 	 	28,941	  	
Smelting, refining and freight	  	 	4,183	  	 	 	3,802	  	
Royalty	  	 	2,074	  	 	 	2,509	  	
Depreciation and amortization	  	 	10,368	  	 	 	6,085	  	
Income from mining operations	  	 	1,929	  	 	 	5,124	  	
Earnings	  				 				
Loss from continuing operations	  	$	(26,666	) 	 	$	(5,357	) 	
Loss from continuing operations per share	  	$	(0.11	) 	 	$	(0.03	) 	
Loss and comprehensive loss	  	$	(26,666	) 	 	$	(2,848	) 	
Loss per share	  	$	(0.11	) 	 	$	(0.02	) 	
Adjusted net income (loss) 1	  	$	(13,886	) 	 	$	69	  	
EBITDA 1	  	$	1,020	  	 	$	2,937	  	
Adjusted EBITDA 1	  	$	9,764	  	 	$	8,282	  	
Capital spending, continuing operations	  	$	2,888	  	 	$	38,068	  	
 
1	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 22-23.	
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
In 2014, the Company continues to transition from ramp to shaft based underground mining and the sources of ore milled have changed significantly. In the first quarter of 2014:
 
 	•	 	530,139 tonnes at an average grade of 3.1 g/t palladium were mined and processed from the Offset zone and low grade stockpile respectively.	
 
 	•	 	The mill processed 516,511 tonnes of ore at an average palladium head grade of 3.3 grams per tonne and a recovery of 84.5% to produce 42,641 ounces of payable palladium.	
 
 	•	 	Payable palladium production was 42,641 ounces while payable palladium sales were 39,485 ounces. The 3,156 ounce difference was primarily due to a build-up of concentrate inventory in the first quarter of 2014.	
 
 	•	 	Revenue increased by $1.6 million primarily due to more favourable exchange rates partially offset by lower payable metal sales at lower realized prices.	
 
 	•	 	Production costs increased $0.8 million to $29.7 million in 2014 compared to in the prior year primarily due to $4.2 million higher power and propane costs in the first quarter of 2014 compared to 2013 ($2.7 million above plan, see below) partially offset by favourable inventory and other cost movements. Excluding the higher than planned propane and power costs noted above, production costs would have been $27.0 million or 7% lower than the first quarter of 2013.	
 
 	•	 	Adjusted EBITDA increased $1.5 million or 18% to $9.8 million.	
 
 	•	 	Capital expenditures from continuing operations totaled $2.9 million in the first quarter of 2014 compared to $38.1 million in the same period in 2013.	
 
 	•	 	Incurred a net loss of $26.7 million which included non-cash items of $10.4 million of depreciation and amortization, $7.5 million of unrealized foreign exchange losses and $17.5 million of interest expense and other.	
The Company is pleased with its production ramp-up progress during the first quarter of 2014. A colder than normal winter resulted in approximately $2.7 million ($5 per tonne milled or $70 per ounce of palladium sold) higher costs for propane and power than planned. Compared to the first quarter of 2013, 2014 propane and power costs were approximately $4.2 million higher. In addition to the weather, operations also had to contend with some unexpected delays such as repairs to the primary surface crusher and the low grade stockpile excavator, both of which reduced the planned number of days milled during the quarter and the amount of low grade stockpile processed.
The colder weather resulted in the Company using 31% more litres of propane than planned in the first quarter of 2014 to heat the underground and surface buildings while a regional shortage of propane resulted in a 44% price increase per litre above plan. As a result, propane costs were $1.7 million or 88% above plan in the first quarter of 2014. Compared to the first quarter of 2013, propane costs were $2.5 million higher (206%) with unit costs 89% higher and volumes 62% higher.
Despite 6% less power used in the first quarter of 2014 compared to plan, costs were 27% higher ($1.0 million) than planned due to a 35% increase in unit rates. The cold weather caused greater than normal freezing on rivers which feed the hydro stations and required the power authority to switch to higher cost generation alternatives which included natural gas. Compared to the first quarter of 2013, hydro costs were $1.7 million higher with unit costs 59% higher on 1% higher volumes.
Repairs in March 2014 to the primary surface crusher required the Company to split the planned mill run into two segments and resulted in the mill running until the final days of the month which is not the normal practice at LDI. The mill run to the end of March 2014 resulted in a buildup of concentrate inventory at the end of the quarter (March 31, 2014 concentrate inventory value $5.2 million; December 31, 2013 $2.2 million) and reduced revenues recognized. The higher concentrate inventories will be recognized as revenue in the second quarter of 2014.
 
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North American Palladium Ltd.
 
LDI OPERATING & FINANCIAL RESULTS
The LDI mine consists of an underground mine, an open pit (currently inactive), a mill with a processing capacity of approximately 15,000 tonnes per day and a shaft with a capacity of approximately 8,000 tonnes per day. The primary underground deposits on the property are the Offset zone and the Roby zone, both of which are disseminated magmatic palladium-platinum group metal deposits.
Operating Results
The key operating results for the palladium operations are set out in the following table.

 	  	Three months ended March 31	 	
 	  	2014	 	  	2013	 	
Ore mined (tonnes)	  				  				
Underground	  				  				
Offset	  	 	269,943	  	  	 	102,619	  	
Roby	  	 	5,902	  	  	 	143,037	  	
	  	 	 	 	  	 	 	 	
	  	 	275,845	  	  	 	245,656	  	
	  	 	 	 	  	 	 	 	
Surface	  				  				
Low grade stockpile	  	 	254,294	  	  	 	4,669	  	
Open pit	  	 	—  	  	  	 	290,369	  	
	  	 	 	 	  	 	 	 	
	  	 	254,294	  	  	 	295,038	  	
	  	 	 	 	  	 	 	 	
Total	  	 	530,139	  	  	 	540,694	  	
	  	 	 	 	  	 	 	 	
Mined ore grade (Pd g/t)	  				  				
Underground	  				  				
Offset	  	 	5.0	  	  	 	3.8	  	
Roby	  	 	—  	  	  	 	4.3	  	
	  	 	 	 	  	 	 	 	
	  	 	5.0	  	  	 	4.1	  	
	  	 	 	 	  	 	 	 	
Surface	  				  				
Low grade stockpile	  	 	1.0	  	  	 	1.0	  	
Open pit	  	 	—  	  	  	 	2.4	  	
	  	 	 	 	  	 	 	 	
	  	 	1.0	  	  	 	2.4	  	
	  	 	 	 	  	 	 	 	
Average	  	 	3.1	  	  	 	3.1	  	
	  	 	 	 	  	 	 	 	
Milling	  				  				
Tonnes of ore milled	  	 	516,511	  	  	 	503,585	  	
Palladium head grade (g/t)	  	 	3.3	  	  	 	3.3	  	
Palladium recoveries (%)	  	 	84.5	  	  	 	80.1	  	
Tonnes of concentrate produced	  	 	5,002	  	  	 	4,502	  	
Production cost per tonne milled	  	$	62	  	  	$	57	  	
Payable production	  				  				
Palladium (oz)	  	 	42,641	  	  	 	38,654	  	
Platinum (oz)	  	 	3,005	  	  	 	2,842	  	
Gold (oz)	  	 	2,978	  	  	 	3,001	  	
Nickel (lbs)	  	 	400,719	  	  	 	391,506	  	
Copper (lbs)	  	 	799,871	  	  	 	701,923	  	
Cash cost per ounce of palladium sold (US$) 1	  	$	492	  	  	$	490	  	
 
1	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 22-23.	
 
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North American Palladium Ltd.
 
Mining
In the first quarter of 2014, underground mining focused almost exclusively on the Offset zone which was blended with the low grade surface stockpile material for processing in the mill. Underground ore mined at LDI during the three months ended March 31, 2014, consisted of 275,845 tonnes at an average grade of 5.0 g/t palladium compared to 245,656 tonnes at an average palladium grade of 4.1 g/t in the prior year from the Offset and Roby zones. LDI processed 254,294 tonnes of the low grade surface stockpile at an average grade of 1.0 g/t in the first quarter of 2014 compared to 295,038 tonnes at an average grade of 2.4 g/t mined primarily from the open pit in the prior year. On a combined basis, similar tonnages and grades of ore were mined and processed in 2014 as in 2013 despite significant changes in the sources of ore.
Milling
During the three months ended March 31, 2014, the LDI mill processed 516,511 tonnes of ore at an average palladium head grade of 3.3 g/t palladium and a recovery of 84.5 % to produce 42,641 ounces of payable palladium (2013 – 503,585 tonnes milled, average palladium head grade of 3.3 g/t, recovery of 80.1 %, produced 38,654 ounces of payable palladium).
The higher mill recovery for the three months ended March 31, 2014 compared to 2013 was primarily due to improvements in the mill circuit late in 2013 which increased the percentage of palladium recovered while processing similar ore grades in both periods.
Production Costs per Tonne Milled
Production costs per tonne milled were $62 in the three months ended March 31, 2014, compared to $57 per tonne in 2013. The increase was primarily due to significantly higher propane and power costs noted above. Adjusting for the $2.7 million higher than planned power and propane costs noted above, production costs per tonne milled would have been $56.
Payable Production
Payable production was higher for all metals in the first quarter of 2014 compared to 2013. Payable palladium production increased 3,987 ounces (10%) to 42,641 ounces in the first quarter of 2014 compared to 2013 and increased 11,662 ounces (38%) compared to the fourth quarter of 2013.
Cash Cost per Ounce of Palladium Sold
Cash cost per ounce of palladium sold is a non-IFRS measure and the calculation is provided in the Non-IFRS Measures section of this MD&A. In 2013, the Company was in transition, sinking a shaft and completing related infrastructure at the same time it was developing and transitioning to mining the Offset zone. In 2014, the development and transitioning to the Offset zone was virtually complete.
The cash cost per ounce of palladium sold remained similar at US$ 492 1 for the three months ended March 31, 2014 compared to the prior year. Lower by-product metal revenues, fewer payable palladium ounces sold and increased production costs (including $2.7 million of propane and power costs above plan) were primarily offset by a weakening of the Canadian dollar. If the $2.7 million of propane and power costs were excluded, the cash cost per ounce of palladium sold would have been approximately US$422 or 14% lower than the first quarter of 2013. Please refer to the LDI revenue, production costs, smelting, refining and freight costs and royalty expense sections of this MD&A for additional details.
 
1	Non-IFRS measure. Please refer to Non-IFRS Measures on pages 22-23.	
 
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North American Palladium Ltd.
 
Financial Results
Income from mining operations for the LDI operations is summarized in the following table.

 	  	Three months ended March 31	 	
(expressed in thousands of dollars)	  	2014	 	 	2013	 	
Revenue	  	$	48,736	  	 	$	47,090	  	
	  	 	 	 	 	 	 	 	
Mining operating expenses	  				 				
Production costs	  				 				
Mining	  	 	18,756	  	 	 	17,648	  	
Milling	  	 	8,007	  	 	 	6,933	  	
General and administration	  	 	5,154	  	 	 	4,301	  	
	  	 	 	 	 	 	 	 	
	  	 	31,917	  	 	 	28,882	  	
Inventory and others	  	 	(2,182	) 	 	 	59	  	
	  	 	 	 	 	 	 	 	
	  	 	29,735	  	 	 	28,941	  	
Smelting, refining and freight costs	  	 	4,183	  	 	 	3,802	  	
Royalty expense	  	 	2,074	  	 	 	2,509	  	
Depreciation and amortization	  	 	10,368	  	 	 	6,085	  	
Loss on disposal of equipment	  	 	447	  	 	 	629	  	
	  	 	 	 	 	 	 	 	
Total mining operating expenses	  	$	46,807	  	 	$	41,966	  	
	  	 	 	 	 	 	 	 	
Income from mining operations	  	$	1,929	  	 	$	5,124	  	
	  	 	 	 	 	 	 	 	
The Company has included income from mining operations as an additional IFRS measure to provide the user with information on the actual results of the LDI operations.
Revenue
Revenue is affected by production and sales volumes, commodity prices, currency exchange rates, mill run timing and shipment schedules. Metal sales for LDI are recognized in revenue at provisional prices when delivered to a smelter for treatment or a designated shipping point. Final pricing is determined in accordance with LDI’s smelter agreements. In most cases, final pricing is determined two months after delivery to the smelter for gold, nickel and copper and four months after delivery for palladium and platinum. These final pricing adjustments can result in additional revenues in a rising commodity price environment and reductions to revenue in a declining commodity price environment. Similarly, a weakening in the Canadian dollar relative to the U.S. dollar would have a positive impact on revenues and a strengthening in the Canadian dollar would have a negative impact on revenues. The Company periodically enters into financial contracts for past production delivered to the smelters to mitigate the smelter agreements’ provisional pricing exposure to rising or declining palladium prices and an appreciating Canadian dollar. These financial contracts represent 39,000 ounces of palladium as at March 31, 2014 (December 31, 2013 – 31,000 palladium ounces) and mature from April 2014 through August 2014 at an average forward price of US$744 (C$820) per ounce (December 31, 2013 – US$735 (C$768) per ounce of palladium). For substantially all of the palladium delivered to the customers under the smelter agreements, the quantities and timing of settlement specified in the financial contracts match final pricing settlement periods. The palladium financial contracts are being recognized on a mark-to-market basis as an adjustment to revenue. The fair value of these contracts at March 31, 2014 was a liability of $1.6 million included in accounts payable and accrued liabilities (December 31, 2013 – an asset of $0.2 million included in accounts receivable).
 
FIRST QUARTER REPORT 2014
 
8

North American Palladium Ltd.
 
Revenue for the three months ended March 31, 2014

 	  	Palladium	 	 	Platinum	 	  	Gold	 	  	Nickel	 	  	Copper	 	 	Others	 	 	Total	 	
Sales volume (1)	  	 	39,485	  	 	 	2,767	  	  	 	2,788	  	  	 	368,581	  	  	 	748,786	  	 	 	n.a.	  	 	 	n.a.	  	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Realized price (US$) (1)	  	$	739	  	 	$	1,419	  	  	$	1,280	  	  	$	6.53	  	  	$	3.21	  	 	 	n.a.	  	 	 	n.a.	  	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Revenue before price adjustment ($000s)	  	$	32,300	  	 	$	4,362	  	  	$	3,964	  	  	$	2,792	  	  	$	2,676	  	 	$	46	  	 	$	46,140	  	
Price adjustment ($000s):	  				 				  				  				  				 				 				
Commodities	  	 	2,481	  	 	 	179	  	  	 	126	  	  	 	145	  	  	 	(243	) 	 	 	(1	) 	 	 	2,687	  	
Foreign exchange	  	 	(684	) 	 	 	237	  	  	 	145	  	  	 	93	  	  	 	116	  	 	 	2	  	 	 	(91	) 	
	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Revenue ($000s)	  	$	34,097	  	 	$	4,778	  	  	$	4,235	  	  	$	3,030	  	  	$	2,549	  	 	$	47	  	 	$	48,736	  	

(1)  	Quantities and prices are per ounce for palladium, platinum and gold and per pound for nickel and copper.	
Revenue for the three months ended March 31, 2013

 	  	Palladium	 	 	Platinum	 	  	Gold	 	 	Nickel	 	 	Copper	 	 	Others	 	  	Total	 	
Sales volume (1)	  	 	39,760	  	 	 	2,903	  	  	 	3,076	  	 	 	391,506	  	 	 	712,277	  	 	 	n.a.	  	  	 	n.a.	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Realized price (US$) (1)	  	$	730	  	 	$	1,630	  	  	$	1,645	  	 	$	7.70	  	 	$	3.60	  	 	 	n.a.	  	  	 	n.a.	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Revenue before price adjustment ($000s)	  	$	30,128	  	 	$	4,734	  	  	$	4,992	  	 	$	3,087	  	 	$	2,564	  	 	$	45	  	  	$	45,550	  	
Price adjustment ($000s):	  				 				  				 				 				 				  				
Commodities	  	 	1,273	  	 	 	238	  	  	 	(29	) 	 	 	(28	) 	 	 	(84	) 	 	 	—  	  	  	 	1,370	  	
Foreign exchange	  	 	(187	) 	 	 	170	  	  	 	106	  	 	 	35	  	 	 	46	  	 	 	—  	  	  	 	170	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Revenue ($000s)	  	$	31,214	  	 	$	5,142	  	  	$	5,069	  	 	$	3,094	  	 	$	2,526	  	 	$	45	  	  	$	47,090	  	

(1)  	Quantities and prices are per ounce for palladium, platinum and gold and per pound for nickel and copper.	
During the first three months of 2013, the Company was sinking a shaft and completing related infrastructure while developing and transitioning to mining the Offset zone. As noted above, an increase in concentrate inventory as a result of repairs to the primary surface crusher resulted in lower concentrate sales and revenues being recognized in the first quarter of 2014. The March 31, 2014 concentrate inventory will be recognized as revenue in the second quarter of 2014. Revenue for the three months ended March 31, 2014 increased $1.6 million or 3% compared to 2013 primarily due to a weakening of the Canadian dollar partially offset by lower realized prices for all metals except palladium and lower payable metal sales for all metals except copper.
Sales of payable palladium, platinum and gold sold decreased 275, 136 and 288 ounces respectively for the three months ended March 31, 2014 compared to 2013 while sales of nickel decreased 36,509 pounds and sales of copper increased 36,509 pounds. Realized price per unit in US$ terms decreased for all metals for the three months ended March 31, 2014 compared to 2013.
Spot Metal Prices* and Exchange Rates
For comparison purposes, the following table sets out spot metal prices and exchange rates.

 	  	Mar-31	 	  	Dec-31	 	  	Sep-30	 	  	Jun-30	 	  	Mar-31	 	  	Dec-31	 	  	Sep-30	 	  	Jun-30	 	
 	  	2014	 	  	2013	 	  	2013	 	  	2013	 	  	2013	 	  	2012	 	  	2012	 	  	2012	 	
Palladium – US$/oz	  	$	778	  	  	$	711	  	  	$	726	  	  	$	643	  	  	$	770	  	  	$	699	  	  	$	642	  	  	$	578	  	
Platinum – US$/oz	  	$	1,418	  	  	$	1,358	  	  	$	1,411	  	  	$	1,317	  	  	$	1,576	  	  	$	1,523	  	  	$	1,668	  	  	$	1,428	  	
Gold – US$/oz	  	$	1,292	  	  	$	1,202	  	  	$	1,327	  	  	$	1,192	  	  	$	1,598	  	  	$	1,664	  	  	$	1,776	  	  	$	1,599	  	
Nickel – US$/lb	  	$	7.14	  	  	$	6.34	  	  	$	6.29	  	  	$	6.20	  	  	$	7.50	  	  	$	7.75	  	  	$	8.40	  	  	$	7.46	  	
Copper – US$/lb	  	$	3.01	  	  	$	3.34	  	  	$	3.31	  	  	$	3.06	  	  	$	3.44	  	  	$	3.59	  	  	$	3.75	  	  	$	3.44	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Exchange rate (Bank of Canada) – CDN$1 = US$	  	US$	0.90	  	  	US$	0.94	  	  	US$	0.97	  	  	US$	0.95	  	  	US$	0.98	  	  	US$	1.01	  	  	US$	1.02	  	  	US$	0.98	  	

*	Based on the London Metal Exchange	
 
FIRST QUARTER REPORT 2014
 
9

North American Palladium Ltd.
 
Operating Expenses from Continuing Operations
The Company continues to modify the design of the underground ore handling system which, upon completion, should increase the tonnage hoisted through the shaft and reduce mining costs. Utilization of the shaft in 2014 is expected to reduce per unit operating costs and increase underground production to 5,000 tonnes per day
As noted previously, significantly higher propane and power costs as a result of a colder than normal winter negatively impacted the first quarter of 2014 operating costs and repairs to the primary crusher which negatively impacted payable metal sales in the period and deferred the recognition of revenue from the first quarter of 2014 to the second quarter.
Production costs
For the three months ended March 31, 2014, operating expenses were $29.7 million compared to $28.9 million in 2013.
Mining costs for the first quarter of 2014 were $18.8 million, a $1.1 million (6%) increase from the same period in 2013. The increased costs were primarily due to a $1.7 million increase in propane, a $0.6 million increase in power and a $0.7 million increase in equipment rentals partially offset by a $1.8 million decrease in parts and supplies and a $0.5 million decrease in fuel costs. In 2014, there was a $2.8 million reduction in mining contractors which was offset by a $2.9 million increase in wages as the labour force has increased significantly. In the first quarter of 2013, $1.1 million of mining costs were capitalized while only $0.3 million were capitalized in 2014 – this movement accounted for an additional $0.8 million of the increase in 2014.
For the three months ended March 31, 2014, milling costs increased $1.1 million or 15% compared to 2013 primarily due to a $1.1 million increase in power costs and a 3% increase in tonnes milled.
General and administration costs in the first quarter of 2014 increased $0.9 million compared to the same period in 2013 primarily due to a $0.8 million increase in propane costs related to surface structures and the camp.
Inventory and other costs reduced production costs by $2.2 million for the three months ended March 31, 2014 compared to an increase of $0.1 million in 2013 for a net change of $2.2 million. The net change was primarily due to a $2.9 million increase in inventory in 2014 compared to 2013 partially offset by $0.7 million of net insurance proceeds received in 2013 that did not recur in 2014.
Smelting, refining and freight costs
Smelting, refining and freight costs for the three months ended March 31, 2014 were $4.2 million, compared to $3.8 million in 2013. The in crease over the prior year was primarily due to the impact of a weaker Canadian dollar and the impact of concentrate shipments in which 4,638 tonnes were shipped in the first quarter of 2014 compared to 4,505 tonnes in the same period in the prior year.
Royalty expense
For the three months ended March 31, 2014, royalty expense was $2.1 million, compared to $2.5 million in 2013. The decrease was primarily due to lower payable metal prices and quantities for most metals sold partially offset by the impact of a weaker Canadian dollar.
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2014 was $10.4 million, compared to $6.1 million in 2013. The increase over the prior year was primarily due to a significant increase in depreciable assets associated with the LDI mine expansion including the Offset zone and tailings management facilities.
Income from mining operations
For the three months ended March 31, 2014, income from mining operations was $1.9 million compared to $5.1 million in the prior year. The decreased income is primarily due to higher depreciation and amortization and production expenses partially offset by higher revenues.
 
FIRST QUARTER REPORT 2014
 
10

North American Palladium Ltd.
 
OTHER EXPENSES
Exploration
Exploration expenditures for the three months ended March 31, 2014 were $0.8 million (2013—$4.8 million). The $4.0 million decrease was primarily due to a more limited exploration program in 2014 compared with 2013. Given the recent financing and improved operating results in the first quarter of 2014, the Company is planning an expanded $10.0 million exploration program to target the lower portion of the Offset zone to increase reserves and resources and to upgrade existing reserves and resources. As at April 30, 2014, both surface and underground drilling rigs were operating at site.
General and administration
The Company’s general and administration expenses for the three months ended March 31, 2014 were $2.6 million compared to $2.9 million in the prior year. The $0.3 million decrease is primarily due to a reduction in professional fees.
Interest and other income
Interest and other income for the three months ended March 31, 2014 was nominal compared to income of $0.3 million in 2013. The decrease of $0.3 million was primarily due to a 2013 gain on renunciation of flow through expenditures.
Interest expense and other costs
Interest expense and other costs for the three months ended March 31, 2014 were $17.3 million, compared to $2.2 million in the prior year. The increase of $15.1 million for the three months ended March 31, 2014 was primarily due to a $10.0 million increase in interest expenses associated with completion of the Offset zone development project, $4.0 million of financing costs associated with financing activities in the first quarter of 2014, and $3.0 million of changes in the fair value of the convertible debentures issued in the first quarter of 2014.
Prior to the commencement of commercial production of the shaft on January 1, 2014, the Company had capitalized interest expenses related to the senior secured term loan and the revolving operating line of credit. In 2014, interest related to these loans was expensed. This was partially offset by a $0.7 million reduction of unrealized loss on palladium warrants.
Foreign exchange loss
Foreign exchange loss for the three months ended March 31, 2014 was $8.0 million, compared to $0.8 million for the prior year. The increase of $7.2 million was primarily due to the impact of exchange rate movements on the US$ denominated senior secured term loan and the US$ denominated credit facility.
Net loss from continuing operations
For the three months ended March 31, 2014, the Company reported a net loss from continuing operations of $26.7 million or $ 0.11 per share compared to $2.8 million or $0.02 per share in the same prior year period. The increase in the net loss is primarily due to the impact of increased foreign exchange losses, depreciation and amortization, and interest expenses, partially offset by decreased exploration expenses.
 
FIRST QUARTER REPORT 2014
 
11

North American Palladium Ltd.
 
SUMMARY OF QUARTERLY RESULTS

(expressed in thousands of Canadian dollars	  	2014	 	 	2013	 	 	2012	 	
except per share amounts)	  	Q1	 	 	Q4	 	 	Q3	 	 	Q2	 	 	Q1	 	 	Q4	 	 	Q3	 	 	Q2	 	
Revenue	  	$	48,736	  	 	$	39,582	  	 	$	33,348	  	 	$	33,213	  	 	$	47,090	  	 	$	42,368	  	 	$	36,193	  	 	$	40,563	  	
Production costs, net of mine restoration costs	  	 	29,735	  	 	 	29,890	  	 	 	21,663	  	 	 	25,701	  	 	 	28,941	  	 	 	25,421	  	 	 	25,852	  	 	 	27,948	  	
Exploration expense	  	 	768	  	 	 	1,360	  	 	 	3,874	  	 	 	2,192	  	 	 	4,840	  	 	 	5,962	  	 	 	2,603	  	 	 	2,764	  	
Capital expenditures	  	 	2,888	  	 	 	16,728	  	 	 	26,885	  	 	 	27,805	  	 	 	38,068	  	 	 	41,810	  	 	 	34,088	  	 	 	32,072	  	
Loss from continuing operations	  	 	(26,666	) 	 	 	(11,746	) 	 	 	(5,324	) 	 	 	(26,268	) 	 	 	(5,357	) 	 	 	(3,739	) 	 	 	(5,908	) 	 	 	(1,903	) 	
Net loss	  	 	(26,666	) 	 	 	(11,746	) 	 	 	(5,324	) 	 	 	(26,268	) 	 	 	(2,848	) 	 	 	(54,010	) 	 	 	(8,046	) 	 	 	(3,033	) 	
Cash provided by (used in) operations	  	 	(16,749	) 	 	 	4,193	  	 	 	2,022	  	 	 	(2,849	) 	 	 	3,165	  	 	 	37,970	  	 	 	5,174	  	 	 	4,833	  	
Cash provided by (used in) financing activities	  	 	31,765	  	 	 	4,289	  	 	 	(2,087	) 	 	 	51,970	  	 	 	17,096	  	 	 	1,926	  	 	 	35,280	  	 	 	46,712	  	
Cash used in investing activities	  	 	(2,888	) 	 	 	(16,723	) 	 	 	(26,710	) 	 	 	(27,805	) 	 	 	(37,078	) 	 	 	(41,831	) 	 	 	(33,864	) 	 	 	(31,829	) 	
Net loss per share from continuing operations	  				 				 				 				 				 				 				 				
– basic	  	$	(0.11	) 	 	$	(0.05	) 	 	$	(0.03	) 	 	$	(0.15	) 	 	$	(0.03	) 	 	$	(0.02	) 	 	$	(0.04	) 	 	$	(0.01	) 	
– diluted	  	$	(0.11	) 	 	$	(0.05	) 	 	$	(0.03	) 	 	$	(0.16	) 	 	$	(0.03	) 	 	$	(0.02	) 	 	$	(0.04	) 	 	$	(0.02	) 	
Net loss per share	  				 				 				 				 				 				
– basic	  	$	(0.11	) 	 	$	(0.05	) 	 	$	(0.03	) 	 	$	(0.15	) 	 	$	(0.02	) 	 	$	(0.31	) 	 	$	(0.05	) 	 	$	(0.02	) 	
– diluted	  	$	(0.11	) 	 	$	(0.05	) 	 	$	(0.03	) 	 	$	(0.16	) 	 	$	(0.02	) 	 	$	(0.31	) 	 	$	(0.05	) 	 	$	(0.03	) 	
Tonnes milled	  	 	516,511	  	 	 	544,074	  	 	 	517,157	  	 	 	483,266	  	 	 	503,585	  	 	 	511,226	  	 	 	504,022	  	 	 	528,068	  	
Palladium ounces sold	  	 	39,485	  	 	 	35,205	  	 	 	27,370	  	 	 	32,620	  	 	 	39,760	  	 	 	44,394	  	 	 	36,218	  	 	 	42,285	  	
Trends:
 
 	•	 	Revenue, production costs, tonnes milled and palladium ounces sold, varied over the last eight quarters as mining has transitioned from the Roby zone underground and the surface open pit to the Offset zone underground and surface stockpiles. Changes in tonnes, grades and sources of ore significantly impacted revenue realized, production costs, ore available for milling and palladium ounces produced.	
 
 	•	 	Readily available material in the Roby and open pit zones were largely mined out in the first half of 2013 while the Offset zone production has been ramping up since 2012. The transition away from the Roby and open pit zones to the Offset zone entailed processing some lower grade surface stockpile material, which negatively impacted payable metal production in the second and third quarters of 2013.	
 
 	•	 	Realized quarterly average prices for palladium have ranged from US$578 to US$770 per ounce in the last eight quarters while prices for platinum, gold, copper and nickel have generally been declining over the same period. The weakening of the Canadian dollar versus the United States dollar has resulted in generally higher revenues.	
 
 	•	 	Underground mining operations have been transitioning to a shaft based ore handling system from a ramp based one in the most recent quarters. The Company is currently moving material to surface using both the ramp and the shaft and therefore costs are somewhat higher than those expected once the ore handling system modification noted above has been completed.	
 
 	•	 	Capital expenditures have been declining for the last five quarters as the construction activities associated with the construction of the shaft and related infrastructure to process the upper Offset zone ore is virtually complete.	
 
FIRST QUARTER REPORT 2014
 
12

North American Palladium Ltd.
 
CASH FLOWS, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash

 	  	Three months ended March 31	 	
(expressed in thousands of dollars)	  	2014	 	 	2013	 	
Cash provided by operations prior to changes in non-cash working capital	  	$	9,461	  	 	$	3,031	  	
Changes in non-cash working capital	  	 	(26,210	) 	 	 	134	  	
	  	 	 	 	 	 	 	 	
Cash provided by (used in) operations	  	 	(16,749	) 	 	 	3,165	  	
Cash provided by financing	  	 	31,765	  	 	 	17,096	  	
Cash used in investing	  	 	(2,888	) 	 	 	(37,078	) 	
	  	 	 	 	 	 	 	 	
Increase (decrease) in cash from continuing operations	  	 	12,128	  	 	 	(16,817	) 	
Net cash provided by discontinued operations	  	 	—  	  	 	 	20,142	  	
	  	 	 	 	 	 	 	 	
Increase in cash and cash equivalents	  	$	12,128	  	 	$	3,325	  	
	  	 	 	 	 	 	 	 	
Operating Activities
For the three months ended March 31, 2014, cash provided by operations prior to changes in non-cash working capital was $9.5 million, compared to $3.0 million in the prior year. The increase of $6.5 million was primarily due to the $21.3 million increase in net loss, partially offset by a $4.3 million non-cash increase in depreciation and amortization, a $7.5 million non-cash unrealized foreign exchange loss, and $17.5 million relating to interest expense and other costs.
For the three months ended March 31, 2014, changes in non-cash working capital resulted in a use of cash of $26.2 million, compared to a source of cash of $0.1 million in the prior year. The decreased source of $26.3 million was primarily due to movements of $15.5 million and $10.2 million in accounts payable and accrued liabilities and accounts receivable respectively.
Financing Activities
For the three months ended March 31, 2014, financing activities resulted in a source of cash of $31.8 million consisting primarily of $28.5 million net proceeds related to the issuance of convertible debentures, which were largely converted into equity in the first quarter of 2014, and the drawdown of $6.1 million of the credit facility, partially offset by $1.5 million of interest paid and $0.8 million of finance leases repayments.
Investing Activities
For the three months ended March 31, 2014, investing activities used cash of $2.9 million (2013 - $37.1 million) primarily due to additions to mining interests of $2.9 million (2013 - $38.1 million). For 2014, the Company expects capital expenditures not ot be greater than $30.0 million. For the three months ended March 31, 2014, capital expenditures from continuing operations totaled $2.9 million, and consisted primarily of $1.8 million of Offset zone level access, engineering and other costs and $0.7 million of tailings management facility costs. Capital expenditures in the first quarter of 2014 were approximately $2.0 million below planned expenditures and this expenditure shortfall is expected to reverse later in the year.
 
FIRST QUARTER REPORT 2014
 
13

North American Palladium Ltd.
 
Liquidity and Capital Resources

 	  	As at March 31	 	  	As at December 31	 	
(expressed in thousands of dollars)	  	2014	 	  	2013	 	
Cash balance	  	$	21,921	  	  	$	9,793	  	
Net working capital	  	$	30,475	  	  	$	(174,211	) 	
Shareholders’ equity	  	$	227,139	  	  	$	222,496	  	
Total debt	  	$	268,565	  	  	$	239,086	  	
As at March 31, 2014, the Company had cash and cash equivalents of $21.9 million compared to $9.8 million as at December 31, 2013. The increase is due primarily to the sources and uses of cash as noted above. The funds are deposited with major Canadian chartered banks.
The Company has, subject to a borrowing base cap, a US$60.0 million credit facility that is secured by certain of the Company’s accounts receivables and inventory and may be used for working capital liquidity and general corporate purposes and is due July 4, 2014. As at March 31, 2014, the borrowing base calculation limited the credit facility to a maximum of US$38.6 million of which US$36.4 million was utilized.
The Company has $11.2 million of finance leases funding equipment for operations. Please also see the contractual obligations below for additional commitments.
The Company’s ability to continue operations and exploration and development activities is dependent upon the Company achieving profitable operations. The achievement of this is dependent on a number of variables including, but not limited to, metal prices, operational costs, capital expenditures, timely transition to mining by shaft, and meeting production targets. Adverse changes in any of these variables may require the Company to seek additional financing. Please also see the going concern section below.
In the first quarter of 2014, the Company closed an aggregate of $32.0 million gross principal amount of convertible unsecured subordinated debentures (the “Tranche 1 Debentures”) of the Company at a price of $1,000 per debenture, including approximately 16.8 million warrants (the “Tranche 1 Warrants”). The conversion price of the Tranche 1 Debentures is $0.635 per share and the exercise price of the Tranche 1 Warrants was initially $0.762 per share and has been adjusted to $0.5786 per share (pursuant to Tranche 1 Warrant terms). The Tranche 1 Debentures mature on January 31, 2019 and bear interest at an annual rate of 7.5%. Holders may convert their Tranche 1 Debentures into common shares of NAP at any time at a conversion rate of approximately 1,575 Common Shares per $1,000 principal amount of Tranche 1 Debentures. Holders converting their debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the debenture were held through to maturity (the “Tranche 1 Make Whole Amount”). At the Company’s option, interest and Tranche 1 Make-Whole Amounts can be paid in common shares. The Tranche 1 Warrants entitle the holders to purchase up to 33.33% of the number of common shares of the Company into which the principal amount of the Tranche 1 Debentures purchased by the holders are convertible at the initial fixed conversion price at any time before the third anniversary of the date that shareholder approval is received. Shareholder approval for the Tranche 1 Warrants was obtained on March 28, 2014.
 
FIRST QUARTER REPORT 2014
 
14

North American Palladium Ltd.
 
Subsequent to the period ended March 31, 2014, the Company closed an aggregate at $35.0 million gross principal amount of convertible unsecured subordinated debentures (the “Tranche 2 Debentures”) of the Company at a price of $1,000 per debenture, including approximately 18.9 million warrants (the “Tranche 2 Warrants”). The conversion price of the Tranche 2 Debentures is $0.4629 per share and the exercise price of the Tranche 2 Warrants is $0.5786 per share. The Tranche 2 Debentures mature on April 11, 2019 and bear interest at an annual rate of 7.5%. Holders may convert their Tranche 2 Debentures into common shares of NAP at any time at a conversion rate of approximately 2,160 Common Shares per $1,000 principal amount of Tranche 2 Debentures. Holders converting their debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the debenture were held through to maturity (the “Tranche 2 Make Whole Amount”). At the Company’s option, interest and Tranche 2 Make-Whole Amounts can be paid in common shares. The Tranche 2 Warrants entitle the holders to purchase up to 25.0% of the number of common shares of the Company into which the principal amount of the Tranche 2 Debentures purchased by the holders are convertible at the initial fixed conversion price at any time before the second anniversary of the Tranche 2 Debenture closing date.
The Company’s senior secured term loan and credit facility contain several financial covenants which, if not met, would result in an event of default. This debt also includes certain other covenants, including limits on liens, material adverse change provisions and cross-default provisions. Certain events of default result in this debt becoming immediately due. Other events of default entitle the lender to demand repayment.
Contractual Obligations
Contractual obligations are comprised as follows:

As at March 31, 2014	  	Payments Due by Period	 	
($000s)	  	Total	 	  	1-3 Years	 	  	3-5 Years	 	  	5+ Years	 	
Finance lease obligations	  	$	12,311	  	  	$	3,388	  	  	$	8,923	  	  	$	—  	  	
Operating leases	  	 	4,373	  	  	 	2,098	  	  	 	1,910	  	  	 	365	  	
Purchase obligations	  	 	1,622	  	  	 	1,622	  	  	 	—  	  	  	 	—  	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	18,306	  	  	$	7,108	  	  	$	10,833	  	  	$	365	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
In addition to the above, the Company also has asset retirement obligations at March 31, 2014 in the amount of $14.6 million for the LDI Mine. The Company also has contractual obligations reflected in accounts payable and has obligations related to its credit facility and long-term debt. The Company obtained letters of credit of $14.4 million as financial surety for these future outlays. As a result, no funding is required prior to or upon closure of these properties.
Contingencies and Commitments
Please refer to notes 15, 18 and 21 of the Company’s Financial Statements. Subsequent to the quarter end, the Company entered into a proposed settlement for $2.4 million in respect of the previously disclosed potential class action lawsuit. The proposed settlement owing will be paid by the Company’s insurer and there is no admission of wrongdoing on the part of the Company. The proposed settlement is subject to finalization of the settlement agreement and approval by the court.
Related Party Transactions
There were no related party transactions for the period ended March 31, 2014.
 
FIRST QUARTER REPORT 2014
 
15

North American Palladium Ltd.
 
OUTSTANDING SHARE DATA
As of April 30, 2014, there were 362,800,866 common shares of the Company outstanding. In addition, there were options outstanding pursuant to the Amended and Restated 2013 Corporate Stock Option Plan entitling holders thereof to acquire 3,110,086 common shares of the Company at a weighted average exercise price of $1.88 per share. In conjunction with a $72.0 million term loan issued in 2011 and repaid in June 2013, a palladium warrant consisting of 0.35 of an ounce of palladium at a strike price of US$620 per ounce was issued with each $1,000 convertible debenture representing an aggregate of 25,200 ounces of palladium. As at April 30, 2014, 12,000 palladium warrants were outstanding representing 4,200 ounces. On the exercise of the palladium warrants, in certain circumstances the Company has the option of settling the warrants with either cash or common shares.
As of April 30, 2014, $31.7 million and $27.4 million of the Tranche 1 Debentures and Tranche 2 Debentures respectively had been converted into 164,462,733 common shares.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies generally include estimates that are highly uncertain and for which changes in those estimates could materially impact the Company’s financial statements. The following accounting policies are considered critical:
 
a.	Going Concern	
The condensed interim consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. While the Company has operations that generate revenue; has recently completed an expansion that is reducing operating costs and increasing production; has exceeded plan in the first quarter of 2014; and, completed an offering of 7.5% convertible unsecured subordinated debentures for gross aggregate proceeds of $35 million subsequent to March 31, 2014, it has suffered losses from continuing operations.
The Company’s ability to continue operations and exploration and development activities is also dependent upon a number of variables including, but not limited to, meeting production targets, metal prices, operational costs, capital expenditures, achieving profitable operations of the LDI mine and meeting future covenant requirements under the Company’s credit facility and senior secured term loan.
The Company’s senior secured term loan and credit facility contain several financial covenants, which, if not met would result in an event of default. Certain events of default result in these loans becoming immediately due. Other events of default entitle the lender to demand repayment and, the senior secured term loan provides for the payment of a prepayment fee and penalty interest upon an event of default. If the Company’s lenders were to demand repayment of outstanding amounts, the Company would not have sufficient funds to repay its obligations when due. As at March 31, 2014, the Company was in compliance with the covenants of the senior secured term loan and the credit facility.
The Company’s credit facility matures in July 2014, and while the Company is in discussions with the lender about extending the credit facility, the Company does not have any committed alternative available financing in place and, while it has been successful at doing so in the past, there is no certainty that the required financing will be available or, if available, on acceptable terms.
These conditions have resulted in a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern. The condensed interim consolidated financial statements do not include adjustments to the carrying values and classifications of recorded assets and liabilities and related revenues and expenses that might be necessary should the Company be unable to continue as a going concern.
 
FIRST QUARTER REPORT 2014
 
16

North American Palladium Ltd.
 
b.	Use of estimates	
The preparation of the condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Significant estimates and assumptions relate to recoverability of mining operations and mineral exploration properties. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.
Certain assumptions are dependent upon reserves, which represent the estimated amount of ore that can be economically and legally extracted from the Company’s properties. In order to estimate reserves, assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transportation costs, commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves may change from period to period. Changes in reported reserves may affect the Company’s financial results and financial position in a number of ways, including the following:
 
 	•	 	Asset carrying values including mining interests may be affected due to changes in estimated future cash flows;	
 
 	•	 	Depreciation and amortization expensed in the statement of operations may change or be impacted where such expenses are determined by the units of production basis, or where the useful economic lives of assets change;	
 
 	•	 	Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities; and	
 
 	•	 	The carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the tax benefits.	
 
FIRST QUARTER REPORT 2014
 
17

North American Palladium Ltd.
 
c.	Impairment assessments of long-lived assets	
The carrying amounts of the Company’s non-financial assets, excluding inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. Impairment is assessed at the level of cash-generating units (“CGUs”). An impairment loss is recognized in the Consolidated Statements of Operations and Comprehensive Loss for any excess of carrying amount over the recoverable amount.
Impairment is determined for an individual asset unless the asset does not generate cash inflows that are independent of those generated from other assets or groups of assets, in which case, the individual assets are grouped together into CGUs for impairment purposes.
The recoverable amount of an asset or cash-generating unit is the greater of its “value in use”, defined as the discounted present value of the future cash flows expected to arise from its continuing use and its ultimate disposal, and its “fair value less costs to sell”, defined as the best estimate of the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, less costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognized in the Consolidated Statements of Operations and Comprehensive Loss if the carrying amount of an asset or a CGU exceeds its estimated recoverable amount.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss on non-financial assets other than goodwill is reversed if there has been a change in the estimates used to determine the recoverable amount, only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.
 
d.	Depreciation and amortization of mining interests	
Mining interests relating to plant and equipment, mining leases and claims, royalty interests, and other development costs are recorded at cost with depreciation and amortization provided on the unit-of-production method over the estimated remaining ounces of palladium to be produced based on the proven and probable reserves or, in the event that the Company is mining resources, an appropriate estimate of the resources mined or expected to be mined.
Mining interests relating to small vehicles and certain machinery with a determinable expected life are recorded at cost with depreciation provided on a straight-line basis over their estimated useful lives, ranging from three to seven years, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Straight-line depreciation is calculated over the depreciable amount, which is the cost of an asset, less its residual value.
Significant components of individual assets are assessed and, if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately using the unit-of-production or straight-line method as appropriate. Costs relating to land are not amortized.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
 
FIRST QUARTER REPORT 2014
 
18

North American Palladium Ltd.
 
e.	Revenue recognition	
Revenue from the sale of metals in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of volume adjustments. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.
Revenue from the sale of palladium and by-product metals from the LDI Mine is provisionally recognized based on quoted market prices upon the delivery of concentrate to the smelter or designated shipping point, which is when title transfers and significant rights and obligations of ownership pass. The Company’s smelter contract provides for final prices to be determined by quoted market prices in a period subsequent to the date of concentrate delivery. Variations from the provisionally priced sales are recognized as revenue adjustments until final pricing is determined. Accounts receivable are recorded net of estimated treatment and refining costs, which are subject to final assay adjustments. Subsequent adjustments to provisional pricing amounts due to changes in metal prices and foreign exchange are disclosed separately from initial revenues in the notes to the financial statements.
 
f.	Asset retirement obligations	
In accordance with Company policies, asset retirement obligations relating to legal and constructive obligations for future site reclamation and closure of the Company’s mine sites are recognized when incurred and a liability and corresponding asset are recorded at management’s best estimate. Estimated closure and restoration costs are provided for in the accounting period when the obligation arising from the related disturbance occurs.
The amount of any liability recognized is estimated based on the risk-adjusted costs required to settle present obligations, discounted using a pre-tax risk-free discount rate consistent with the time period of expected cash flows. When the liability is initially recorded, a corresponding asset retirement cost is recognized as an addition to mining interests and amortized using the unit of production method.
The liability for each mine site is accreted over time and the accretion charges are recognized as a finance cost in the Consolidated Statements of Operations and Comprehensive Loss. The liability is subject to re-measurement at each reporting date based on changes in discount rates and timing or amounts of the costs to be incurred. Changes in the liability, other than accretion charges, relating to mine rehabilitation and restoration obligations, which are not the result of current production of inventory, are added to or deducted from the carrying value of the related asset retirement cost in the reporting period recognized. If the change results in a reduction of the obligation in excess of the carrying value of the related asset retirement cost, the excess balance is recognized as a recovery through profit or loss in the period.
 
FIRST QUARTER REPORT 2014
 
19

North American Palladium Ltd.
 
Adoption of New Accounting Standards
The following new accounting standards have been adopted by the Company.
IAS 32 Financial Instruments: Presentation
This standard is amended to clarify requirements for offsetting of financial assets and financial liabilities. The amendment is effective for annual periods beginning on or after January 1, 2014. This amendment did not have a material impact on the condensed interim consolidated financial statements of the Company.
IAS 36 Recoverable Amounts
This standard was amended in May 2013 to change the disclosure required when an impairment loss is recognized or reversed. The amendments require the disclosure of the recoverable amount of an asset or cash generating unit at the time an impairment loss has been recognized or reversed and detailed disclosure of how the associated fair value less costs of disposal has been determined. The amendments are effective for annual periods beginning on or after January 1, 2014 with earlier adoption permitted. This amendment did not have a material impact on the condensed interim consolidated financial statements of the Company.
IFRIC 21 Accounting for Levies Imposed by Governments
This interpretation provides guidance on the obligating event giving rise to a liability in connection with a levy imposed by a government, and clarifies that the obligating event is the activity that triggers the payment of the levy as identified by the legislation. The interpretation is effective for annual periods beginning on or after January 1, 2014. This amendment did not have a material impact on the condensed interim consolidated financial statements of the Company.
New standards and interpretations not yet adopted
The following new standards, amendments to standards and interpretations are not yet effective or have otherwise not yet been adopted by the Company. The Company is evaluating the impact, if any, adoption of the standards will have on the disclosures in the Company’s condensed interim consolidated financial statements:
IFRS 9 Financial Instruments: Classification and Measurement
In October 2010, the IASB issued IFRS 9 “Financial Instruments” which will replace IAS 39, Financial Instruments: Recognition and Measurement. The replacement standard has two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise, it is at fair value through profit or loss. An update to IFRS 9 includes guidance on financial liabilities and derecognition of financial instruments.
In November 2013, the IASB issued a new general hedge accounting standard, which forms part of IFRS 9 Financial Instruments (2013). The new standard includes a new general hedge accounting standard which will align hedge accounting more closely with risk management. This standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. A tentative mandatory effective date of January 1, 2018 has been selected and the date is still subject to confirmation and enactment. Early adoption is permitted. The Company is presently evaluating the impact of adopting this additional disclosure.
 
FIRST QUARTER REPORT 2014
 
20

North American Palladium Ltd.
 
RISKS AND UNCERTAINTIES
The risks and uncertainties are discussed within the Company’s most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities, the Company’s Short Form Base Shelf Prospectus filed on February 12, 2013, and the Company’s Prospectus Supplement filed on April 8, 2014.
INTERNAL CONTROLS
Disclosure Controls and Procedures
Management is responsible for the information disclosed in this MD&A and has in place the appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is, in all material respects, complete and reliable.
For the quarter ended March 31, 2014, the Chief Executive Officer and Chief Financial Officer certify that they have designed, or caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.
The disclosure controls and procedures are evaluated annually through regular internal reviews which are carried out under the supervision of, and with the participation of, the Company’s management, including the Chief Executive Officer and Chief Financial Officer.
Internal Control over Financial Reporting
For the quarter ended March 31, 2014, the Chief Executive Officer and Chief Financial Officer certify that they have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS.
There have been no changes in the Company’s internal controls over the financial reporting that occurred during the most recent period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent limitations and can only provide reasonable assurance, not absolute assurance, with respect to the preparation and fair presentation of published financial statements and management does not expect such controls will prevent or detect all misstatements due to error or fraud. The Company is continually evolving and enhancing its systems of controls and procedures.
Under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, management performs regular internal reviews and conducts an annual evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992).
OTHER INFORMATION
Additional information regarding the Company is included in the Company’s Annual Information Form and Annual Report on Form 40-F, which are filed with the SEC and the provincial securities regulatory authorities, respectively. A copy of the Company’s Annual Information Form is posted on the SEDAR website at www.sedar.com. A copy of the Annual Report or Form 40-F can be obtained from the SEC’s website at www.sec.gov.
 
FIRST QUARTER REPORT 2014
 
21

North American Palladium Ltd.
 
NON-IFRS MEASURES
This MD&A refers to cash cost per ounce, adjusted net income, EBITDA and adjusted EBITDA which are not recognized measures under IFRS. Such Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Management uses these measures internally. The use of these measures enables management to better assess performance trends. Management understands that a number of investors, and others who follow the Company’s performance, assess performance in this way. Management believes that these measures better reflect the Company’s performance and are better indications of its expected performance in future periods. This data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
2013 was a transition year for the Company as it was sinking the shaft and completing related infrastructure at the same time it was developing and transitioning to mining the Offset zone. As a result, the 2013 financial results would not be directly comparable to the prior or future years.
The following tables reconcile these non-IFRS measures to the most directly comparable IFRS measures:
Cash Cost Per Ounce of Palladium
The Company uses this measure internally to evaluate the underlying operating performance of the Company for the reporting periods presented. The Company believes that providing cash cost per ounce allows the ability to better evaluate the results of the underlying business of the Company.
Cash cost per ounce include mine site operating costs such as mining, processing, administration and royalties, but are exclusive of depreciation, amortization, reclamation, capital and exploration costs. Cash cost per ounce calculation is reduced by any by-product revenue and is then divided by ounces sold to arrive at the by-product cash cost per ounce of sales. This measure, along with revenues, is considered to be a key indicator of a Company’s ability to generate operating earnings and cash flow from its mining operations.
The Company’s primary operation relates to the extraction of palladium metal. Therefore, all other metals extracted in conjunction with the palladium metal are considered to be a by-product credit for the purposes of the cash cost calculation.
Reconciliation of Palladium Cash Cost per Ounce

 	  	For the three months ended	 	
(expressed in thousands of dollars except ounce and
per ounce amounts)	  	March 31
2014	 	  	December 31
2013	 	  	September 30
2013	 	  	March 31
2013	 	
Production costs including overhead	  	$	29,735	  	  	$	31,153	  	  	$	21,663	  	  	$	28,941	  	
Smelting, refining and freight costs	  	 	4,183	  	  	 	3,864	  	  	 	2,922	  	  	 	3,802	  	
Royalty expense	  	 	2,074	  	  	 	1,669	  	  	 	1,464	  	  	 	2,509	  	
Mine restoration costs, net of insurance recoveries	  	 	—  	  	  	 	—  	  	  	 	1,214	  	  	 	317	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Operational expenses	  	 	35,992	  	  	 	36,686	  	  	 	27,263	  	  	 	35,569	  	
Less by-product metal revenue	  	 	14,639	  	  	 	12,425	  	  	 	10,703	  	  	 	15,876	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	21,353	  	  	$	24,261	  	  	$	16,560	  	  	$	19,693	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Divided by ounces of palladium sold	  	 	39,485	  	  	 	35,206	  	  	 	27,370	  	  	 	39,760	  	
Cash cost per ounce (CDN$)	  	$	541	  	  	$	689	  	  	$	605	  	  	$	495	  	
Average exchange rate (CDN$1 – US$)	  	 	0.91	  	  	 	0.90	  	  	 	0.96	  	  	 	0.99	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash cost per ounce (US$), net of by-product credits	  	$	492	  	  	$	620	  	  	$	581	  	  	$	490	  	

FIRST QUARTER REPORT 2014
 
22

North American Palladium Ltd.
 
Adjusted net income
The Company uses this measure internally to evaluate the underlying operating performance of the Company for the reporting periods presented. Providing adjusted net income allows the reader the ability to better evaluate the results of the underlying business of the Company.
Adjusted net income is a Non-IFRS financial measure, which excludes the following from loss: exploration; income from discontinued operations; mine start-up costs and closure costs; asset impairment charges and insurance recoveries; mine restoration costs due to flood and retirement payments; foreign exchange loss; loss on extinguishment of debt; loss in investments held for trading; and, financing costs.

 	  	Three months ended March 31	 	
($000s)	  	2014	 	 	2013	 	
Loss and comprehensive loss for the year	  	$	(26,666	) 	 	$	(2,848	) 	
Exploration	  	 	768	  	 	 	4,840	  	
Income from discontinued operations	  	 	—  	  	 	 	(2,509	) 	
Mine restoration costs, net of (insurance recoveries) and retirement payments	  	 	—  	  	 	 	(317	) 	
Foreign exchange loss 1	  	 	7,976	  	 	 	822	  	
Financing costs	  	 	4,036	  	 	 	81	  	
	  	 	 	 	 	 	 	 	
Adjusted net income (loss)	  	$	(13,886	) 	 	$	69	  	

1	Foreign exchange loss was included in adjustments in 2014 due to the USD-denominated senior secured term loan financing in 2013.	
Adjusted EBITDA
The Company believes that EBITDA and Adjusted EBITDA are valuable indicators of the Company’s ability to generate operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.
EBITDA excludes the impact of the cost of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS.
Other companies may calculate EBITDA differently. Adjusted EBITDA is a non-IFRS financial measure, which excludes the following from loss: income and mining tax expense; interest expense and other costs; depreciation and amortization; exploration; loss (income) from discontinued operations; mine start-up and closure costs; asset impairment charges and insurance recoveries; one-time costs (mine restoration costs due to flood and retirement payments); and, foreign exchange loss (gain).

 	  	For the three months ended	 	
($000s)	  	March 31
2014	 	 	December 31
2013	 	 	September 30
2013	 	 	March 31
2013	 	
Loss and comprehensive loss from continuing operations for the year	  	$	(26,666	) 	 	$	(11,746	) 	 	$	(5,324	) 	 	$	(5,357	) 	
Income and mining tax recovery	  	 	—  	  	 	 	(2,157	) 	 	 	—  	  	 	 	—  	  	
Interest expense and other costs, net	  	 	17,318	  	 	 	1,612	  	 	 	2,999	  	 	 	2,209	  	
Depreciation and amortization	  	 	10,368	  	 	 	6,274	  	 	 	6,144	  	 	 	6,085	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	  	$	610	  	 	$	(6,017	) 	 	$	3,819	  	 	$	2,937	  	
Exploration	  	 	768	  	 	 	1,360	  	 	 	3,874	  	 	 	4,840	  	
Insurance recoveries, net of mine restoration costs and retirement payments	  	 	—  	  	 	 	—  	  	 	 	(1,214	) 	 	 	(317	) 	
Inventory price adjustment	  	 	—  	  	 	 	675	  	 	 	—  	  	 	 	—  	  	
Foreign exchange loss (gain) 1	  	 	7,976	  	 	 	5,351	  	 	 	(3,290	) 	 	 	822	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	  	$	9,764	  	 	$	1,369	  	 	$	3,189	  	 	$	8,282	  	

1  	Foreign exchange loss was included in adjustments in 2014 due to the USD-denominated senior secured term loan financing in 2013.	
 
FIRST QUARTER REPORT 2014
 
23

Exhibit 2

North American Palladium Ltd.
Condensed Interim Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)
(unaudited)

 	  	 	 	  	March 31	 	 	December 31	 	
 	  	Notes	 	  	2014	 	 	2013	 	
ASSETS	  				  				 				
Current Assets	  				  				 				
Cash and cash equivalents	  				  	$	21,921	  	 	$	9,793	  	
Accounts receivable	  	 	5	  	  	 	48,737	  	 	 	38,556	  	
Inventories	  	 	6	  	  	 	17,613	  	 	 	14,239	  	
Other assets	  	 	7	  	  	 	4,112	  	 	 	6,968	  	
	  				  	 	 	 	 	 	 	 	
Total Current Assets	  				  	 	92,383	  	 	 	69,556	  	
	  				  	 	 	 	 	 	 	 	
Non-current Assets	  				  				 				
Mining interests	  	 	8	  	  	 	448,409	  	 	 	456,239	  	
	  				  	 	 	 	 	 	 	 	
Total Non-current Assets	  				  	 	448,409	  	 	 	456,239	  	
	  				  	 	 	 	 	 	 	 	
Total Assets	  				  	$	540,792	  	 	$	525,795	  	
	  				  	 	 	 	 	 	 	 	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  				  				 				
Current Liabilities	  				  				 				
Accounts payable and accrued liabilities	  	 	10	  	  	$	29,585	  	 	$	48,797	  	
Credit facility	  	 	5	  	  	 	24,832	  	 	 	17,834	  	
Current portion of obligations under finance leases	  	 	11	  	  	 	2,877	  	 	 	2,988	  	
Current portion of long-term debt	  	 	12	  	  	 	3,862	  	 	 	173,656	  	
Current derivative liability	  	 	12	  	  	 	752	  	 	 	492	  	
	  				  	 	 	 	 	 	 	 	
Total Current Liabilities	  				  	 	61,908	  	 	 	243,767	  	
	  				  	 	 	 	 	 	 	 	
Non-current Liabilities	  				  				 				
Income taxes payable	  				  	 	125	  	 	 	1,286	  	
Asset retirement obligations	  	 	9	  	  	 	14,626	  	 	 	13,638	  	
Obligations under finance leases	  	 	11	  	  	 	8,363	  	 	 	8,744	  	
Long-term debt	  	 	12	  	  	 	228,631	  	 	 	35,864	  	
	  				  	 	 	 	 	 	 	 	
Total Non-current Liabilities	  				  	 	251,745	  	 	 	59,532	  	
	  				  	 	 	 	 	 	 	 	
Shareholders’ Equity	  				  				 				
Common share capital and purchase warrants	  	 	13	  	  	 	829,572	  	 	 	798,411	  	
Stock options and related surplus	  				  	 	9,276	  	 	 	9,128	  	
Equity component of convertible debentures, net of issue costs	  	 	12	  	  	 	6,931	  	 	 	6,931	  	
Contributed surplus	  				  	 	8,873	  	 	 	8,873	  	
Deficit	  				  	 	(627,513	) 	 	 	(600,847	) 	
	  				  	 	 	 	 	 	 	 	
Total Shareholders’ Equity	  				  	 	227,139	  	 	 	222,496	  	
	  				  	 	 	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	  				  	$	540,792	  	 	$	525,795	  	
	  				  	 	 	 	 	 	 	 	
Nature of operations and going concern – Note 1
Commitments and contingencies – Notes 15 and 18
Subsequent events – Notes 12, 13(d) and 21
See accompanying notes to the condensed interim consolidated financial statements
 
FIRST QUARTER REPORT 2014
 
1

North American Palladium Ltd.
 
Condensed Interim Consolidated Statements of Operations and
Comprehensive Loss
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)

 	  	 	 	 	Three months ended March 31	 	
 	  	Notes	 	 	2014	 	 	2013	 	
Revenue	  	 	16	  	 	$	48,736	  	 	$	47,090	  	
	  				 	 	 	 	 	 	 	 	
Mining operating expenses	  				 				 				
Production costs	  				 	 	29,735	  	 	 	28,941	  	
Smelting, refining and freight costs	  				 	 	4,183	  	 	 	3,802	  	
Royalty expense	  				 	 	2,074	  	 	 	2,509	  	
Depreciation and amortization	  				 	 	10,368	  	 	 	6,085	  	
Loss on disposal of equipment	  				 	 	447	  	 	 	629	  	
	  				 	 	 	 	 	 	 	 	
Total mining operating expenses	  				 	 	46,807	  	 	 	41,966	  	
	  				 	 	 	 	 	 	 	 	
Income from mining operations	  				 	 	1,929	  	 	 	5,124	  	
	  				 	 	 	 	 	 	 	 	
Other expenses	  				 				 				
Exploration	  				 	 	768	  	 	 	4,840	  	
General and administration	  				 	 	2,554	  	 	 	2,913	  	
Interest and other income	  	 	17	  	 	 	(21	) 	 	 	(303	) 	
Interest expense and other costs	  	 	17	  	 	 	17,318	  	 	 	2,209	  	
Foreign exchange loss	  				 	 	7,976	  	 	 	822	  	
	  				 	 	 	 	 	 	 	 	
Total other expenses	  				 	 	28,595	  	 	 	10,481	  	
	  				 	 	 	 	 	 	 	 	
Loss from continuing operations before taxes	  				 	 	(26,666	) 	 	 	(5,357	) 	
Income and mining tax recovery	  				 	 	—  	  	 	 	—  	  	
	  				 	 	 	 	 	 	 	 	
Loss and comprehensive loss from continuing operations for the period	  				 	$	(26,666	) 	 	$	(5,357	) 	
Income and comprehensive income from discontinued operations for the period	  	 	4	  	 	 	—  	  	 	 	2,509	  	
	  				 	 	 	 	 	 	 	 	
Loss and comprehensive loss for the period	  				 	$	(26,666	) 	 	$	(2,848	) 	
	  				 	 	 	 	 	 	 	 	
Loss per share	  				 				 				
Basic	  				 	$	(0.11	) 	 	$	(0.02	) 	
Diluted	  	 	13	(d)	 	$	(0.11	) 	 	$	(0.02	) 	
	  				 	 	 	 	 	 	 	 	
Loss from continuing operations per share	  				 				 				
Basic	  				 	$	(0.11	) 	 	$	(0.03	) 	
Diluted	  				 	$	(0.11	) 	 	$	(0.03	) 	
	  				 	 	 	 	 	 	 	 	
Income from discontinued operations per share	  				 				 				
Basic	  				 	$	—  	  	 	$	0.01	  	
Diluted	  				 	$	—  	  	 	$	0.01	  	
	  				 	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	  				 				 				
Basic	  	 	13	(d) 	 	 	232,873,928	  	 	 	177,450,837	  	
Diluted	  	 	13	(d) 	 	 	232,873,928	  	 	 	177,450,837	  	
	  				 	 	 	 	 	 	 	 	
See accompanying notes to the condensed interim consolidated financial statements
 
FIRST QUARTER REPORT 2014
 
2

North American Palladium Ltd.
 
Condensed Interim Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
(unaudited)

 	  	 	 	 	Three months ended March 31	 	
 	  	Notes	 	 	2014	 	 	2013	 	
Cash provided by (used in)	  				 				 				
Operations	  				 				 				
Loss from continuing operations for the period	  				 	$	(26,666	) 	 	$	(5,357	) 	
Operating items not involving cash	  				 				 				
Depreciation and amortization	  				 	 	10,368	  	 	 	6,085	  	
Accretion expense (recovery)	  	 	17	  	 	 	(210	) 	 	 	954	  	
Share-based compensation and employee benefits	  	 	13	(f) 	 	 	476	  	 	 	413	  	
Unrealized foreign exchange loss	  				 	 	7,538	  	 	 	—  	  	
Loss on disposal of equipment	  				 	 	447	  	 	 	—  	  	
Interest expense and other	  	 	17	  	 	 	17,508	  	 	 	936	  	
	  				 	 	 	 	 	 	 	 	
	  				 	 	9,461	  	 	 	3,031	  	
Changes in non-cash working capital	  	 	19	  	 	 	(26,210	) 	 	 	134	  	
	  				 	 	 	 	 	 	 	 	
	  				 	 	(16,749	) 	 	 	3,165	  	
	  				 	 	 	 	 	 	 	 	
Financing Activities	  				 				 				
Issuance of common shares, net of issue costs	  				 	 	(38	) 	 	 	—  	  	
Issuance of convertible debentures, net of issue costs	  	 	12	  	 	 	28,464	  	 	 	—  	  	
Credit facility	  	 	5	  	 	 	6,085	  	 	 	23,000	  	
Repayment of obligations under finance leases	  	 	11	  	 	 	(796	) 	 	 	(1,315	) 	
Interest paid	  				 	 	(1,451	) 	 	 	(4,589	) 	
Other financing costs	  				 	 	(499	) 	 	 	—  	  	
	  				 	 	 	 	 	 	 	 	
	  				 	 	31,765	  	 	 	17,096	  	
	  				 	 	 	 	 	 	 	 	
Investing Activities	  				 				 				
Additions to mining interests, net	  				 	 	(2,888	) 	 	 	(38,068	) 	
Proceeds on disposal of mining interests, net	  				 	 	—  	  	 	 	990	  	
	  				 	 	 	 	 	 	 	 	
	  				 	 	(2,888	) 	 	 	(37,078	) 	
	  				 	 	 	 	 	 	 	 	
Increase (decrease) in cash from continuing operations	  				 	 	12,128	  	 	 	(16,817	) 	
Net cash provided by discontinued operations	  	 	4	  	 	 	—  	  	 	 	20,142	  	
	  				 	 	 	 	 	 	 	 	
Increase in cash	  				 	 	12,128	  	 	 	3,325	  	
Cash and cash equivalents, beginning of period	  				 	 	9,793	  	 	 	20,168	  	
	  				 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  				 	$	21,921	  	 	$	23,493	  	
	  				 	 	 	 	 	 	 	 	
Cash and cash equivalents consisting of:	  				 				 				
Cash	  				 	$	21,921	  	 	$	23,493	  	
Short-term investments	  				 	 	—  	  	 	 	—  	  	
	  				 	 	 	 	 	 	 	 	
	  				 	$	21,921	  	 	$	23,493	  	
	  				 	 	 	 	 	 	 	 	
Foreign exchange included in cash balance	  				 	$	1,072	  	 	$	90	  	
	  				 	 	 	 	 	 	 	 	
See accompanying notes to the condensed interim consolidated financial statements
 
FIRST QUARTER REPORT 2014
 
3

North American Palladium Ltd.
 
Consolidated Statements of Shareholders’ Equity
(expressed in thousands of Canadian dollars, except share amounts)
(unaudited)

 	  	Notes	 	 	Number
of shares	 	  	Capital
stock	 	 	Stock
options	 	  	Equity
component
of
convertible
debentures	 	  	Contributed
surplus	 	  	Deficit	 	 	Total
shareholders’
equity	 	
Balance, January 1, 2013	  	 	13	  	 	 	177,127,833	  	  	$	776,632	  	 	$	9,125	  	  	$	6,931	  	  	$	8,873	  	  	$	(554,661	) 	 	$	246,900	  	
Common shares issued:	  				 				  				 				  				  				  				 				
Settlement of obligations relating to production targets	  				 	 	709,220	  	  	 	1,000	  	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	1,000	  	
Transaction costs related to previous issuances of common and flow-through shares	  				 	 	—  	  	  	 	(52	) 	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	(52	) 	
Stock based compensation:	  				 				  				 				  				  				  				 				
Stock-based compensation	  	 	13	(b) 	 	 	245,351	  	  	 	304	  	 	 	113	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	417	  	
Net loss and comprehensive loss for the period ended March 31, 2013	  				 	 	—  	  	  	 	—  	  	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	(2,848	) 	 	 	(2,848	) 	
	  				 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Balance, March 31, 2013	  				 	 	178,082,404	  	  	$	777,884	  	 	$	9,238	  	  	$	6,931	  	  	$	8,873	  	  	$	(557,509	) 	 	$	245,417	  	
	  				 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
January 1, 2014	  				 	 	197,109,924	  	  	$	798,411	  	 	$	9,128	  	  	$	6,931	  	  	$	8,873	  	  	$	(600,847	) 	 	$	222,496	  	
Common shares issued:	  				 				  				 				  				  				  				 				
Pursuant to conversion of convertible debentures (Tranche I)	  	 	12	  	 	 	76,407,816	  	  	 	30,871	  	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	30,871	  	
Private placement of flow-through shares, net of issue costs	  				 	 	—  	  	  	 	(38	) 	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	(38	) 	
Stock based compensation:	  				 				  				 				  				  				  				 				
Stock-based compensation	  	 	13	(b) 	 	 	474,409	  	  	 	328	  	 	 	148	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	476	  	
Net loss and comprehensive loss for the period ended March 31, 2014	  				 	 	—  	  	  	 	—  	  	 	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	(26,666	) 	 	 	(26,666	) 	
	  				 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Balance, March 31, 2014	  				 	 	273,992,149	  	  	 	829,572	  	 	 	9,276	  	  	 	6,931	  	  	 	8,873	  	  	 	(627,513	) 	 	 	227,139	  	
	  				 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
See accompanying notes to the condensed interim consolidated financial statements
 
FIRST QUARTER REPORT 2014
 
4

North American Palladium Ltd.
 
Notes to the condensed interim consolidated financial statements
(expressed in thousands of Canadian dollars, except per share amounts and metal prices)
1. NATURE OF OPERATIONS AND GOING CONCERN
North American Palladium Ltd. (“NAP”) is domiciled in Canada and was incorporated on September 12, 1991 under the Canadian Business Corporations Act. The address of the Company’s registered office is 200 Bay Street, Suite 2350, Royal Bank Plaza South Tower, Toronto, Ontario, Canada, M5J 2J2. The Company’s 100%-owned subsidiary is Lac des Iles Mines Ltd. (“LDI”).
NAP operates the LDI palladium mine, located northwest of Thunder Bay, Ontario, which started producing palladium in 1993. The Company is transitioning the LDI mine from mining via ramp access to mining via shaft while utilizing bulk mining methods.
The Company also previously held 100% ownership of NAP Quebec Mines Ltd. (“NAP Quebec”) and on March 22, 2013, the Company completed the sale of NAP Quebec resulting in the disposition of all gold division assets.
The condensed interim consolidated financial statements for the Company as at March 31, 2014 and for the three month period ended March 31, 2014, include the Company and its significant subsidiaries (collectively referred to as the “Company”).
The condensed interim consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. While the Company has operations that generate revenue, has recently completed an expansion that is reducing operating costs and increasing production, has exceeded plan in the first quarter of 2014, and completed an offering of 7.5% convertible unsecured subordinated debentures for gross aggregate proceeds of $35 million (note 21) subsequent to March 31, 2014, it has suffered losses from continuing operations for the three month period ended March 31, 2014.
The Company’s ability to continue operations and exploration and development activities is dependent upon a number of variables including, but not limited to, meeting production targets, metal prices, operational costs, capital expenditures, achieving profitable operations of the LDI mine and meeting future covenant requirements under the Company’s credit facility and senior secured term loan.
The Company’s senior secured term loan (note 12) and credit facility (note 5) contain several financial covenants, which, if not met would result in an event of default. Certain events of default result in these loans becoming immediately due. Other events of default entitle the lender to demand repayment and the senior secured term loan provides for the payment of a prepayment fee and penalty interest upon an event of default. If the Company’s lenders were to demand repayment of outstanding amounts, the Company would not have sufficient funds to repay its obligations when due. As at March 31, 2014, the Company was in compliance with the covenants of the senior secured term loan and the credit facility.
The Company’s credit facility matures in July 2014, and while the Company is in discussions with the lender about extending the credit facility, the Company does not have any committed alternative available financing in place and, while it has been successful at doing so in the past, there is no certainty that the required financing will be available or, if available, on acceptable terms.
These conditions have resulted in a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern. The condensed interim consolidated financial statements do not include adjustments to the carrying values and classifications of recorded assets and liabilities and related revenues and expenses that might be necessary should the Company be unable to continue as a going concern.
 
FIRST QUARTER REPORT 2014
 
5

North American Palladium Ltd.
 
2. BASIS OF PRESENTATION
Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), applicable to the preparation of these financial statements, including IAS 34, Interim Financial Reporting.
These condensed interim consolidated financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2013, which have been prepared in accordance with IFRS as issued by the IASB.
Basis of Measurement
These condensed interim consolidated financial statements have been prepared on the historical cost basis, except for the following items in the consolidated balance sheet:
 
 	(i)	Accounts receivable and related derivative instruments are measured at fair value.	
 
 	(ii)	Financial instruments at fair value through profit or loss are measured at fair value.	
 
 	(iii)	Liabilities for cash-settled share-based payment arrangements are measured at fair value.	
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies disclosed in the Company’s annual financial statements for the year ended December 31, 2013 have been applied consistently by all of the Company’s entities for all periods presented in these condensed interim consolidated financial statements, unless otherwise indicated.
Basis of Consolidation
These condensed interim consolidated financial statements include the accounts of NAP and its wholly-owned subsidiaries.
Adoption of New Accounting Standards
The following new accounting standards have been adopted by the Company.
IAS 32 Financial Instruments: Presentation
This standard is amended to clarify requirements for offsetting of financial assets and financial liabilities. The amendment is effective for annual periods beginning on or after January 1, 2014. This amendment did not have a material impact on the condensed interim consolidated financial statements.
IAS 36 Recoverable Amounts
This standard was amended in May 2013 to change the disclosure required when an impairment loss is recognized or reversed. The amendments require the disclosure of the recoverable amount of an asset or cash generating unit at the time an impairment loss has been recognized or reversed and detailed disclosure of how the associated fair value less costs of disposal has been determined. The amendments are effective for annual periods beginning on or after January 1, 2014 with earlier adoption permitted. This amendment did not have a material impact on the condensed interim consolidated financial statements of the Company.
IFRIC 21 Accounting for Levies Imposed by Governments
This interpretation provides guidance on the obligating event giving rise to a liability in connection with a levy imposed by a government, and clarifies that the obligating event is the activity that triggers the payment of the levy as identified by the legislation. The interpretation is effective for annual periods beginning on or after January 1, 2014. This amendment did not have a material impact on the condensed interim consolidated financial statements of the Company.
 
FIRST QUARTER REPORT 2014
 
6

North American Palladium Ltd.
 
4. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
On March 22, 2013, the Company divested of its interest in its gold division through the disposal of all of the shares of its wholly-owned subsidiary, NAP Quebec. As a result, the Company has presented the condensed interim consolidated financial statements to segregate the gold division as discontinued operations from those balances relating to the Company’s continuing operations for the period to March 22, 2013.
5. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Accounts receivable	  	$	48,737	  	  	$	38,364	  	
Unrealized gain on financial contracts 1	  	 	—  	  	  	 	192	  	
	  	 	 	 	  	 	 	 	
Accounts receivable	  	$	48,737	  	  	$	38,556	  	

1	As at March 31, 2014, a total of 39,000 ounces of past palladium production delivered and sold to a smelter, was priced using forward prices for the month of final settlement at an average price of $820 per ounce of palladium (December 31, 2013 – 31,000 ounces of past palladium production at an average price of $768 per ounce). Refer to note 10.	
Accounts receivable represents the value of all platinum group metals (“PGMs”), gold and certain base metals contained in LDI’s concentrate shipped for smelting and refining, using the March 31, 2014 forward metal prices and foreign exchange rates applicable for the month of final settlement, and for which significant risks and rewards have transferred to third parties.
All of the accounts receivable are due from two customers at March 31, 2014 (March 31, 2013 – two customers). A reserve for doubtful accounts has not been established, as in the opinion of management, the amount due will be fully collected. The Company is not economically dependent on its customers, refer to note 16 .
First priority security on accounts receivable and inventories of concentrate, crushed and broken ore and second priority security on the fixed assets have been pledged as security against a credit facility with a Canadian chartered bank, which matures July 4, 2014, and which is to be used for working capital liquidity and general corporate purposes. The maximum that can be utilized under the facility is the lesser of US$60 million and an amount determined by a borrowing base calculation. At March 31, 2014, US$36.4 million was borrowed under the facility. The credit facility contains certain financial covenants, as defined in the agreement, including senior debt to earnings before interest, taxes, depreciation and amortization ratios, which are effective in the fourth quarter of 2014, and adjusted current ratio requirements, minimum tangible net worth requirements and capital expenditure limits which became effective June 7, 2013 which, if not met, would result in an event of default. The loan also includes certain other covenants, including material adverse change provisions and cross-default provisions with the senior secured term loan. Certain events of default result in the credit facility becoming immediately due, while other events of default entitle the lender to demand repayment. As of March 31, 2014, the Company was in compliance with the covenants
Under the credit facility, as of March 31, 2014, the Company utilized US$13.9 million for letters of credit, primarily for reclamation deposits and has drawn down US$22.5 million ($24.8 million). During the three months ended March 31, 2014, net US$5.5 million ($6.1 million) was drawn down.
 
FIRST QUARTER REPORT 2014
 
7

North American Palladium Ltd.
 
6. INVENTORIES
Inventories consist of the following:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Supplies 1	  	$	10,496	  	  	$	10,320	  	
Concentrate inventory 1	  	 	5,182	  	  	 	2,157	  	
Crushed and broken ore stockpiles 1,2	  	 	1,935	  	  	 	1,762	  	
	  	 	 	 	  	 	 	 	
Total	  	$	17,613	  	  	$	14,239	  	

1  	This portion of inventories has been pledged as security on the Company’s credit facility. Refer to note 5.	
2  	Crushed and broken ore stockpiles represent coarse ore that has been extracted from the mine and is available for further processing.	
All inventory amounts are carried at cost as at March 31, 2014.
7. OTHER ASSETS
Other assets consist of the following:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Prepaids	  	$	1,363	  	  	$	1,488	  	
HST receivable	  	 	1,655	  	  	 	4,420	  	
Investments 1	  	 	150	  	  	 	150	  	
Other	  	 	944	  	  	 	910	  	
	  	 	 	 	  	 	 	 	
	  	$	4,112	  	  	$	6,968	  	

1  	On March 22, 2013, the Company sold its investment in NAP Quebec. A portion of the proceeds on the sale was equity-settled by the purchaser. Any gain or loss in the value of the investments is recognized in the consolidated statements of operations and comprehensive loss. The fair value of the investments at initial recognition was $1.4 million and was $0.2 million at March 31, 2014 and December 31, 2013.	
 
FIRST QUARTER REPORT 2014
 
8

North American Palladium Ltd.
 
8. MINING INTERESTS
Mining interests are comprised of the following:

 	  	Plant and
equipment	 	  	Underground
mine
development 1	 	  	Equipment
under
finance
lease	 	  	Mining
leases and
claims,
royalty
interest, and
development	 	  	Total	 	
Carrying amounts	  				  				  				  				  				
As at December 31, 2013	  	$	56,181	  	  	$	377,749	  	  	$	11,559	  	  	$	10,750	  	  	$	456,239	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As at March 31, 2014	  	$	56,473	  	  	$	370,104	  	  	$	11,334	  	  	$	10,498	  	  	$	448,409	  	

1  	No interest was capitalized to mining interests for the three month period ended March 31, 2014. For the year ended December 31, 2013, $19.6 million of interest costs on long-term debt was capitalized to mining interests. On November 29, 2013, the Company amended its loan agreement. As a result, capitalized borrowing costs, due to the change in estimated timing of cash flows, were increased by an additional $9.0 million.	
Depreciation and amortization
As a result of the finalization of the technical report for the LDI mine, which was released on March 31, 2014, the Company has revised its estimate of in-situ ounces of palladium used as the denominator for amortization of certain of its assets under the unit-of-production method. The revised estimate was based on the inclusion of proven and probable reserves and measured resources expected to be converted to reserves based on prior conversion rates. This change in estimate has been prospectively applied for all amortization calculations for March 2014 onward.
Asset restrictions and contractual commitments
The Company’s assets are subject to certain restrictions on title and property, plant and equipment. Certain assets are pledged as security for credit agreement arrangements and senior secured lenders. See notes 5, 12 and 18.
 
FIRST QUARTER REPORT 2014
 
9

North American Palladium Ltd.
 
9. ASSET RETIREMENT OBLIGATIONS AND RECLAMATION DEPOSITS
At March 31, 2014, the changes in asset retirement and the related mine restoration deposit are as follows:

Asset retirement obligation (“ARO”), beginning of period – Continuing Operations	  	$	13,638	  	
Change in discount rate and estimated closure costs	  	 	894	  	
Accretion expense	  	 	94	  	
	  	 	 	 	
Asset retirement obligation, end of period – continuing operations	  	$	14,626	  	

																					
Property	  	Expected timing
of cash flows	 	  	Asset
retirement
obligation	 	  	Mine closure
plan
requirement	 	  	Letter of credit
outstanding	 	  	Undiscounted
asset
retirement
obligation	 	
Continuing Operations:	  				  				  				  				  				
LDI mine 1	  	 	2023	  	  	$	14,626	  	  	$	14,224	  	  	$	14,055	  	  	$	18,511	  	
 
1  	Including a letter of credit for Shebandowan West project, the total ARO-related letters of credit outstanding are $14.4 million.	
The key assumptions applied for determination of the ARO obligation are as follows as at:

 	  	At March 31	 	 	At December 31	 	
 	  	2014	 	 	2013	 	
Continuing Operations:	  				 				
Inflation	  	 	2.00	% 	 	 	2.00	% 	
Market risk	  	 	5.00	% 	 	 	5.00	% 	
Discount rate	  	 	2.41	% 	 	 	2.75	% 	
The asset retirement obligation may change materially based on future changes in operations, costs of reclamation and closure activities, and regulatory requirements.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are comprised of:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Accounts payable and accrued liabilities	  	$	28,035	  	  	$	48,797	  	
Unrealized loss on financial contracts 1	  	 	1,550	  	  	 	—  	  	
	  	 	 	 	  	 	 	 	
Accounts payable and accrued liabilities	  	$	29,585	  	  	$	48,797	  	

1  	As at March 31, 2014, a total of 39,000 ounces of past palladium production that had been delivered and sold to a smelter, was priced using forward prices for the month of final settlement at an average price of $820 per ounce (December 31, 2013 – 31,000 ounces at an average price of $768 per ounce). An unrealized loss of $1.6 million has been recorded in accounts payable and accrued liabilities at March 31, 2014 (December 31, 2013 – unrealized gain of $0.2 million was recorded in accounts receivable). Refer to notes 5 and 14.	
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
11. LEASES
At the respective reporting dates, the Company was party to the following lease arrangements:
FINANCE LEASES (OBLIGATIONS UNDER FINANCE LEASES)
The Company leases production equipment under a number of finance lease agreements. Some leases provide the Company with the option to purchase the equipment at a beneficial price. The leased equipment secures the lease obligations. The net carrying amount of leased plant and equipment at each reporting date is summarized in Note 8 under the category of equipment under finance leases.
The following is a schedule of future minimum lease payments under finance leases together with the present value of the net minimum lease payments at each reporting date:

 	  	March 31, 2014	 	  	December 31, 2013	 	
 	  	Future
minimum
lease
payments	 	  	Interest	 	  	Present
value of
minimum
lease
payments	 	  	Future
minimum
lease
payments	 	  	Interest	 	  	Present
value of
minimum
lease
payments	 	
Less than one year	  	$	3,388	  	  	$	511	  	  	$	2,877	  	  	$	3,542	  	  	$	554	  	  	$	2,988	  	
Between one and five years	  	 	8,923	  	  	 	560	  	  	 	8,363	  	  	 	9,418	  	  	 	674	  	  	 	8,744	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
	  	$	12,311	  	  	$	1,071	  	  	$	11,240	  	  	$	12,960	  	  	$	1,228	  	  	$	11,732	  	
Less current portion	  				  				  	 	2,877	  	  				  				  	 	2,988	  	
	  				  				  	 	 	 	  				  				  	 	 	 	
	  				  				  	$	8,363	  	  				  				  	$	8,744	  	
	  				  				  	 	 	 	  				  				  	 	 	 	
OPERATING LEASES
The following schedule provides the future minimum lease payments under non-cancellable operating leases outstanding at each of the reporting dates:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Less than one year	  	$	2,098	  	  	$	1,892	  	
Between one and five years	  	 	2,275	  	  	 	2,545	  	
More than five years	  	 	—  	  	  	 	11	  	
	  	 	 	 	  	 	 	 	
	  	$	4,373	  	  	$	4,448	  	
	  	 	 	 	  	 	 	 	
The total minimum lease payments recognized in expense during each of the stated three month end periods are as follows:

 	  	Three months ended	 	
 	  	March 31	 	  	March 31	 	
 	  	2014	 	  	2013	 	
Minimum lease payments expensed	  	$	862	  	  	$	387	  	

FIRST QUARTER REPORT 2014
 
11

North American Palladium Ltd.
 
12. LONG-TERM DEBT
Long-term debt is comprised of the following as at each reporting date:

 	  	At March 31	 	  	At December 31	 	
 	  	2014	 	  	2013	 	
Senior secured term loan	  	$	191,994	  	  	$	173,656	  	
Convertible debentures (2012)	  	 	36,246	  	  	 	35,864	  	
Convertible debentures (2014—Tranche 1)	  	 	4,253	  	  	 	—  	  	
	  	 	 	 	  	 	 	 	
	  	$	232,493	  	  	$	209,520	  	
Less current portion 1	  	 	3,862	  	  	 	173,656	  	
	  	 	 	 	  	 	 	 	
	  	$	228,631	  	  	$	35,864	  	

1	Subsequent to December 31, 2013, following receipt of waivers from the Company’s senior secured term lender for covenant violations disclosed in the Company’s financial statements for the year ended December 31, 2013, the current portion was reclassified as non-current.	
Senior secured term loan
On June 7, 2013, the Company closed a US$130 million senior secured term loan financing with Brookfield Capital Partners Ltd. (“Brookfield”) which bore interest at 15% per annum and is due June 7, 2017. The loan is secured by first priority security on the fixed assets and second priority security on accounts receivable and inventory. NAP has the option to accrue interest during the first two years of the loan; in which case, the interest rate on the loan and accrued interest would increase by 4%. The loan contains covenants, as defined in the agreement, including senior debt to earnings before interest, taxes, depreciation and amortization ratios, which are effective in the fourth quarter of 2014, and minimum tangible net worth requirements and capital expenditure limits which became effective June 7, 2013 which, if not met, would result in an event of default.
At closing, the Company exercised an option to defer a commitment fee of US$3.9 million for a period of up to two years. As a result, the balance of the commitment fee was added to the principal outstanding with interest on the outstanding fee compounding monthly until repaid.
In addition to the term loan and the commitment fee included in the principal, the loan agreement also included provision for the payment of an exit fee equal to 5% of term loan principal settlements at the time of repayment.
On November 29, 2013, the Company amended its US$130 million senior secured term loan with Brookfield resulting in an additional advance of US$21.4 million of cash. The cash received consisted of an additional US$15.0 million added to the existing facility and a refund of US$6.4 million of cash interest previously paid to Brookfield.
Pursuant to the amendment, the interest rate was recalculated as if NAP had elected to accrue interest on the loan from the date of the original closing on June 7, 2013, resulting in a 4% increase of the interest rate from 15% to 19% until the Company voluntarily reverts to cash interest payments. After the Company voluntarily reverts to cash interest payments, and upon payment of interest and fees which have been deferred, the interest rate returns to 15% per annum on the principal amount outstanding. The exit fee contained in the original loan was replaced by an amendment fee and all interest accrued up to and including March 31, 2014 has been capitalized to principal along with the amendment and commitment fees. Prepayment of any principal (including capitalized interest and fees) is subject to a prepayment fee and voluntary prepayment conditions. In addition to the breaches of the financial covenants, the loan also includes certain other events of default, including material adverse changes, limits on liens, additional debt, payments and cross-default provisions. Certain events of default result in the loan becoming immediately due, together with the prepayment fee and penalty interest of 5% above the applicable rate while unpaid, and other events of default entitle the lender to demand repayment of the loan together with the prepayment fee and penalty interest.
The amendment resulted in an increase of the US$133.9 million principal of the loan at November 29, 2013 for capitalized interest of US$12.7 million, an additional loan of US$15.0 million, and amendment fee of US$8.1 million for a total revised principal of US$169.7 million. Capitalized borrowing costs, due to the change in estimated timing of cash flows, were increased by $9.0 million. Refer to note 8.
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
The loan is measured at amortized cost. Interest on the loan was originally recorded at an effective interest rate of 16.7%. As a result of the amendment to the term loan agreement, the amended effective interest rate was adjusted to 18.0%.
The loan amendment also included modifications to the covenants.
Senior secured notes
During the fourth quarter of 2011, the Company issued $72.0 million of senior secured notes by way of a private placement for net proceeds of $69.6 million. The notes, which were due to mature on October 4, 2014, with a one year extension at the option of the Company, were issued in $1,000 denominations and bore interest at a rate of 9.25% per year, payable semi-annually, with 1 palladium warrant attached for each $1,000 note.
On June 7, 2013, the debt component of the senior secured notes was fully repaid using the proceeds from the senior secured term loan. The total payment amounted to $80.5 million and included settlement of the principal outstanding of $72.0 million, accrued interest of $1.3 million, and a redemption premium of $7.2 million. The repayment resulted in the recognition of a loss on extinguishment of $11.0 million.
The palladium warrants originally issued with the senior secured notes were not settled. A total of 72,000 palladium warrants were issued which entitle the holders to purchase 0.35 ounces of palladium at a purchase price of US$620 per ounce (the “Strike Price”), anytime up to October 4, 2014. If exercised, the Company will pay the warrant holder an amount equal to the average of the U.S dollar palladium afternoon fixing price per ounce on the London Platinum and Palladium Market for the ten trading days prior to the exercise date less the Strike Price, multiplied by 0.35. The Company has the option, subject to certain conditions, to pay the amount owing in common shares priced at a 7% discount to the volume weighted average price on the Toronto Stock Exchange for the five trading days prior to the date of exercise.
During June 2013, a total of 13,000 palladium warrants were exercised, resulting in a settlement payable of $0.6 million. The Company elected to apply the equity-settlement option, resulting in the issuance of 574,738 common shares. In July 2013, an additional 47,000 palladium warrants were exercised resulting in a $1.7 million cash settlement.
The derivatives relating to the outstanding palladium warrants are recorded at fair value through profit or loss at each reporting date. At March 31, 2014 and December 31, 2013, the 12,000 outstanding palladium warrants and related options were valued using a binomial model which included the following key assumptions:

 	  	March 31	 	 	December 31	 	
 	  	2014	 	 	2013	 	
Market price of palladium	  	$	778	  	 	$	711	  	
Strike price	  	$	620	  	 	$	620	  	
Volatility 1	  	 	16	% 	 	 	21	% 	
Risk free rate	  	 	1.07	% 	 	 	1.13	% 	
Expected life (in years)	  	 	0.51	  	 	 	0.76	  	
 
1  	Expected volatility is estimated by considering historic average palladium price volatility based on the remaining life of the warrants.	
The value of the derivative liability is $0.8 million at March 31, 2014 ($0.5 million – December 31, 2013).
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
Convertible Debentures (2012)
On July 31, 2012, the Company completed an offering of 43,000 convertible unsecured subordinated debentures of the Company at a price of $1,000 per debenture, for total gross proceeds of $43.0 million ($40.8 million net proceeds). The debentures mature on September 30, 2017 and bear interest at a rate of 6.15% per year, payable semi-annually. At the option of the holder, the debentures may be converted into common shares of the Company at any time prior to maturity at a conversion price of $2.90 per common share.
The convertible debentures are compound financial instruments, consisting of the debt instrument and the equity conversion feature. The debt instrument was valued at amortized cost using the effective interest rate method at a discount rate of 10.5%. The excess of the proceeds of $43.0 million over the value assigned to the debt instrument was allocated as the fair value of the equity component of the convertible debentures. Transaction costs were netted against the debt instrument and equity component based on the pro-rata allocation of the fair value of each instrument at initial recognition.
Of the net proceeds of $40.8 million, $33.9 million has been allocated to long-term debt, and the remaining portion of $6.9 million has been allocated to the equity component of the convertible debentures at the time of issuance.
Convertible Debentures (2014 – Tranche 1)
On January 31, 2014 and February 10, 2014, the Company closed a public offering with the aggregate sale of $32.0 million gross principal amount of convertible unsecured subordinated debentures (the “2014 Tranche 1 Debentures”) of the Company at a price of $1,000 per Debenture, including approximately 16.8 million common share purchase warrants (the “2014 Tranche 1 Warrants”). Net proceeds received were $28.5 million. The conversion price of the 2014 Tranche 1 Debentures is $0.635, and the exercise price of the 2014 Tranche 1 Warrants is $0.762.
The 2014 Tranche 1 Debentures will mature on January 31, 2019, unless redeemed or converted earlier, or unless extended, and will bear interest at an annual rate of 7.5% payable semi-annually in arrears on January 31 and July 31 of each year, commencing July 31, 2014. The first interest payment on the 2014 Tranche 1 Debentures will include accrued and unpaid interest for the period from and including January 31, 2014 to, but excluding, July 31, 2014. Holders may convert their 2014 Tranche 1 Debentures into common shares of the Company at any time at a conversion rate of approximately 1,575 Common Shares per $1,000 principal amount of 2014 Tranche 1 Debentures, representing 50.4 million common shares of the Company. Holders converting their debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the 2014 Tranche 1 Debentures were held through to maturity (the “Make Whole Amount”). At the Company’s option, interest and Make Whole Amounts can be paid in common shares.
Each 2014 Tranche 1 Warrant entitles the holder thereof to purchase one common share of the Company at any time before March 28, 2017.
Due to the existence of multiple derivative instruments embedded within the contract, the Company has elected to account for the 2014 Tranche 1 Debentures and all related derivatives as one instrument at fair value through profit or loss, with future changes in fair value being recognized as derivative gains or losses through profit or loss. As a result of this election, transaction costs of $3.5 million were expensed in the period as financing costs.
 
FIRST QUARTER REPORT 2014
 
14

North American Palladium Ltd.
 
The initial fair value of the debt of $28.4 million was determined based on the publicly traded market price of the 2014 Tranche 1 Debentures, while the fair value of the 2014 Tranche 1 Warrants approved on March 28, 2014 was assigned a value of $3.6 million using the Black-Scholes model with the following key assumptions:

 	  	March 31,	 	 	January 31,	 	
 	  	2014	 	 	2014	 	
Market price common shares of NAP (PDL)	  	$	0.54	  	 	$	0.53	  	
Strike price	  	$	0.76	  	 	$	0.76	  	
Volatility 1	  	 	78	% 	 	 	75	% 	
Risk free rate	  	 	1.24	% 	 	 	1.14	% 	
Expected life (in years)	  	 	2.99	  	 	 	3.00	  	
 
1  	Expected volatility is estimated by considering historic average daily price volatility of the common shares of the Company based on the remaining life of the warrants.	
At March 31, 2014, $31.7 million of the outstanding 2014 Tranche 1 Debentures, including accrued interest and make-whole provisions, had been converted into 76,407,816 common shares of NAP. Debentures with an initial face value of $0.3 million were outstanding at March 31, 2014. All warrants issued were also outstanding at March 31, 2014. The fair value of the remaining debentures outstanding and the outstanding warrants as at March 31, 2014 is $0.4 million and $3.9 million, respectively, and these amount are recorded in the statement of financial position in long term debt and current portion of long term debt, respectively. The change in fair value from the transaction date to March 31, 2014 are included in interest and other income in the statement of comprehensive loss (refer to note 17).
On April 11, 2014 and April 17, 2014, the Company completed the second tranche issuance of securities (the “2014 Tranche 2 Debentures”). Refer to subsequent event disclosures in note 21. The conversion price of the 2014 Tranche 2 Debentures is $0.4629, and the exercise price of the 2014 Tranche 2 Warrants is $0.5786. As a result of this security offering, the anti-dilution clause within the 2014 Tranche 1 Debentures agreement resulted in an adjustment of the original exercise price for the 2014 Tranche 1 Warrants to $0.5786.
13. SHAREHOLDERS’ EQUITY
a) Authorized and Issued Capital Stock
The authorized capital stock of the Company consists of an unlimited number of common shares.
b) Group Registered Retirement Savings Plan
The Company has a group registered retirement savings plan, in which eligible employees can participate in at their option. Union employees are entitled to an employer contribution of either: (a) $1.00 for each $1.00 contribution up to a maximum of 5% of base salary for employees who have been employed for 6-18 months (maximum $2,500 per year); or (b) $2.00 for each $1.00 contribution up to a maximum of 10% of base salary for employees who have been employed for greater than 18 months (maximum $5,000 per year). Non-union employees are entitled to an employer contribution equal to 3% of base salary plus an employer matching contribution of up to a maximum of 2% of base salary for employees who have been employed for greater than 90 days. The Company contributions are made either in cash or treasury shares of the Company on a quarterly basis. The maximum number of common shares available for grant shall not exceed 3,000,000 common shares of the Company. If the matching contribution is made in treasury shares, the price per share issued is the 5-day volume weighted average trading price of the common shares on the Toronto Stock Exchange (“TSX”) preceding the end of the quarter. During the three months ended March 31, 2014, the Company contributed 474,409 shares with a fair value of $0.3 million, which was equal to the market value of the shares on the contribution date (2013 – 245,351 shares with a fair value of $0.3 million).
 
FIRST QUARTER REPORT 2014
 
15

North American Palladium Ltd.
 
c) Corporate Stock Option Plan
The Company has a Corporate Stock Option Plan (the “Plan”), under which eligible directors, officers, employees and consultants of the Company may receive options to acquire common shares. The Plan is administered by the Board of Directors, which will determine after considering recommendations made by the Compensation Committee, the number of options to be issued, the exercise price (which is the 5-day volume weighted average trading price of the common shares on the TSX on the trading day prior to the grant date), expiration dates of each option, the extent to which each option is exercisable (provided that the term of an option shall not exceed 10 years from the date of grant), as well as establishing the time period when an optionee ceases to be an “Eligible Person” as set forth in the conditions of the Plan. One third of options granted vest on each of the first three anniversary dates of the date of grant.
The maximum number of common shares available for grant shall not exceed 8,000,000 common shares of the Company. As at March 31, 2014, 6,443,246 options (December 31, 2013 – 6,240,779 options) were available to be granted under the Plan.
The following summary sets out the activity in outstanding common share purchase options:

 	  	March 31, 2014	 	  	December 31, 2013	 	
 	  	Options	 	 	Weighted
Average
Exercise Price	 	  	Options	 	 	Weighted
Average
Exercise Price	 	
Outstanding, beginning of period	  	 	3,359,221	  	 	$	1.91	  	  	 	4,207,249	  	 	$	3.68	  	
Granted	  	 	—  	  	 	 	—  	  	  	 	2,473,387	  	 	$	1.07	  	
Cancelled/forfeited	  	 	(202,467	) 	 	$	2.08	  	  	 	(3,286,665	) 	 	$	3.53	  	
Expired	  	 	—  	  	 	 	—  	  	  	 	(34,750	) 	 	$	3.86	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Outstanding, end of period	  	 	3,156,754	  	 	$	1.90	  	  	 	3,359,221	  	 	$	1.91	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Options exercisable at end of period	  	 	825,837	  	 	$	4.07	  	  	 	822,508	  	 	$	4.05	  	
	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
No options were exercised during the three month period ended March 31, 2014.
The following table summarizes information about the Company’s stock options outstanding at March 31, 2014:

Exercise price range	  	Average remaining
contractual life (years)	 	  	Options Outstanding at
March 31, 2014	 	  	Options Exercisable at
March 31, 2014	 	
$1.00-2.50	  	 	6.10	  	  	 	2,272,587	  	  	 	—  	  	
$2.51-3.00	  	 	2.82	  	  	 	178,334	  	  	 	120,004	  	
$3.01-6.00	  	 	3.63	  	  	 	508,333	  	  	 	508,333	  	
$6.01-8.87	  	 	1.68	  	  	 	197,500	  	  	 	197,500	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
	  	 	5.24	  	  	 	3,156,754	  	  	 	825,837	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
(d) Reconciliation of the diluted number of shares outstanding:

 	  	Three months ended March 31	 	
 	  	2014	 	 	2013	 	
Net loss available to common shareholders	  	$	(26,666	) 	 	$	(2,848	) 	
Effect of dilutive securities	  	 	—  	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Adjusted net loss available to common shareholders	  	$	(26,666	) 	 	$	(2,848	) 	
	  	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	  	 	232,873,928	  	 	 	177,450,837	  	
Effect of dilutive securities	  	 	—  	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Weighted average diluted number of shares outstanding	  	 	232,873,928	  	 	 	177,450,837	  	
	  	 	 	 	 	 	 	 	
Diluted net loss per share	  	$	(0.11	) 	 	$	(0.02	) 	

FIRST QUARTER REPORT 2014
 
16

North American Palladium Ltd.
 
On April 11, 2014 and April 17, 2014, the Company completed an offering consisting of a second tranche of convertible debentures. The calculation of the weighted average number of shares outstanding and the net profit or net loss to common shareholders will be impacted in future periods upon the assumed conversion of the convertible debentures. Refer to note 21.
For the three month periods ended March 31, 2014 and March 31, 2103, the dilutive effects of the palladium warrants, convertible debentures, warrants and stock options have not been included in the determination of diluted loss per share because to do so would be anti-dilutive.
(e) Other Stock-Based Compensation – Restricted Share Unit Plan
The Company has a Restricted Share Unit (“RSU”) Plan under which eligible directors, officers and key employees of the Company are entitled to receive awards of RSUs. Each RSU is equivalent in value to the fair market value of a common share of the Company on the date of the award and a corresponding liability is established on the balance sheet. The RSU Plan is administered by the Board of Directors, which will determine after considering recommendations made by the Compensation Committee, the number and timing of RSUs to be awarded and their vesting periods, not to exceed three years. The value of each award is charged to compensation expense over the period of vesting. At each reporting date, the compensation expense and liability are adjusted to reflect the changes in market value of the liability based on the fair values of RSU’s for each vesting period determined using the Black-Scholes model.
As at March 31, 2014, 1,002,817 (December 31, 2013 – 708,609) restricted share units had been granted and were outstanding at an aggregate value of $0.5 million (December 31, 2013 – $0.5 million).
(f) Summary of Share-based compensation and employee benefits
The following table details the components of share-based compensation expense relating to continuing operations:

 	  	Three months ended March 31	 	
 	  	2014	 	  	2013	 	
Registered retirement savings plan	  	$	328	  	  	$	266	  	
Common share stock options	  	 	148	  	  	 	147	  	
Restricted share units	  	 	12	  	  	 	225	  	
	  	 	 	 	  	 	 	 	
	  	$	488	  	  	$	638	  	
	  	 	 	 	  	 	 	 	
14. FINANCIAL INSTRUMENTS
Fair Values
The Company’s financial assets and liabilities consist of cash and cash equivalents, accounts receivable, sales taxes receivable (included in other assets), accounts payable and accrued liabilities, credit facility, current derivative liabilities, obligations under finance leases and long-term debt.
Cash and cash equivalents are stated at fair value. The carrying value of accounts receivable, other assets, and trade accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments.
Derivatives
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
Fair values reflect the credit risk of the instrument and include adjustments to take into account the credit risk of the Company entity and counterparty when appropriate.
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
The Company enters into financial contracts to mitigate the smelter agreements’ provisional pricing exposure to rising or declining palladium prices and an appreciating Canadian dollar for past production already sold. For substantially all of the palladium delivered to customers under smelter agreements, the quantities and timing of settlement specified in the financial contracts matches final pricing settlement periods. The palladium financial contracts are being recognized on a mark-to-market basis as an adjustment to revenue.
The derivative liability relating to the palladium warrants issued in connection with the 2011 senior secured note issuance are measured at fair value using a binomial model.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
The fair values of the non-derivative financial liabilities as of March 31, 2014 are the senior secured term loan ($199.8 million), convertible debentures ($43.0 million) and finance leases ($11.2 million).
Fair Value Hierarchy
The table below details the assets and liabilities measured at fair value at March 31, 2014:

 	  	Notes	 	  	Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)	 	 	Significant
Other
Observable
Inputs (Level 2)	 	 	Significant
Unobservable
Inputs (Level 3)	 	  	Aggregate Fair
Value	 	
Financial assets	  				  				 				 				  				
Cash and cash equivalents	  				  	$	21,921	  	 	$	—  	  	 	$	—  	  	  	$	21,921	  	
Investments	  	 	7	  	  	 	150	  	 				 				  	 	150	  	
Accounts receivable	  	 	5	  	  				 	 	48,737	  	 				  	 	48,737	  	
Financial liabilities	  				  				 				 				  				
Fair value of financial contracts*	  	 	10	  	  				 	 	(1,550	) 	 				  	 	(1,550	) 	
Fair value of current derivative liability	  	 	12	  	  				 	 	(752	) 	 				  	 	(752	) 	
Fair value of convertible debentures	  	 	12	  	  	 	(391	) 	 	 	(3,862	) 	 				  	 	(4,253	) 	
	  				  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net carrying value	  				  	$	21,680	  	 	$	42,573	  	 	$	—  	  	  	$	64,253	  	

*	As detailed in note 10, the liability relating to the mark-to-market on financial contracts is included in the carrying value of accounts payable on the balance sheet at March 31, 2014.	
15. COMMITMENTS
(a) Sheridan Platinum Group of Companies (“SPG”) Commitment
The Company is required to pay a 5% net smelter royalty to SPG from mining operations at the Lac des Iles mine. This obligation is recorded as royalty expense.
(b) Operating Leases and Other Purchase Obligations
As at March 31, 2014, the Company had outstanding operating lease commitments and other purchase obligations of $4.4 million and $1.6 million, respectively (December 31, 2013 – $4.4 million and $1.0 million, respectively) the majority of which had maturities of less than five years (see note 11).
 
FIRST QUARTER REPORT 2014
 
18

North American Palladium Ltd.
 
(c) Letters of Credit
As at March 31, 2014, the Company had outstanding letters of credit of $15.4 million, consisting of $14.4 million for various mine closure deposits and $1.0 million for a regulated energy supplier (December 31, 2013—$15.4 million outstanding letter of credit, consisting of $14.4 million for various mine closure deposits and $1.0 million for a regulated energy supplier).
16. REVENUE FROM METAL SALES

 	  	Total	 	 	Palladium	 	 	Platinum	 	  	Gold	 	 	Nickel	 	 	Copper	 	 	Other
Metals	 	
2014	  				 				 				  				 				 				 				
Three months ended March 31	  				 				 				  				 				 				 				
Revenue – before pricing adjustments	  	$	46,140	  	 	$	32,300	  	 	$	4,362	  	  	$	3,964	  	 	$	2,792	  	 	$	2,676	  	 	$	46	  	
Pricing adjustments:	  				 				 				  				 				 				 				
Commodities	  	 	2,687	  	 	 	2,481	  	 	 	179	  	  	 	126	  	 	 	145	  	 	 	(243	) 	 	 	(1	) 	
Foreign exchange	  	 	(91	) 	 	 	(684	) 	 	 	237	  	  	 	145	  	 	 	93	  	 	 	116	  	 	 	2	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue – after pricing adjustments	  	$	48,736	  	 	$	34,097	  	 	$	4,778	  	  	$	4,235	  	 	$	3,030	  	 	$	2,549	  	 	$	47	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2013	  				 				 				  				 				 				 				
Three months ended March 31	  				 				 				  				 				 				 				
Revenue – before pricing adjustments	  	$	45,550	  	 	$	30,128	  	 	$	4,734	  	  	$	4,992	  	 	$	3,087	  	 	$	2,564	  	 	$	45	  	
Pricing adjustments:	  				 				 				  				 				 				 				
Commodities	  	 	1,370	  	 	 	1,273	  	 	 	238	  	  	 	(29	) 	 	 	(28	) 	 	 	(84	) 	 	 	—  	  	
Foreign exchange	  	 	170	  	 	 	(187	) 	 	 	170	  	  	 	106	  	 	 	35	  	 	 	46	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue – after pricing adjustments	  	$	47,090	  	 	$	31,214	  	 	$	5,142	  	  	$	5,069	  	 	$	3,094	  	 	$	2,526	  	 	$	45	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
During 2014, the Company delivered all of its concentrate to two customers under the terms of the respective agreements (2013 – two customers).
Although the Company sells its bulk concentrate to a limited number of customers, it is not economically dependent upon any one customer as there are other markets throughout the world for the Company’s concentrate.
17. INTEREST EXPENSE & OTHER COSTS AND OTHER INCOME

 	  	Three months ended March 31	 	
 	  	2014	 	 	2013	 	
Interest expense & other costs	  				 				
Interest on finance leases	  	$	150	  	 	$	184	  	
Asset retirement obligation accretion	  	 	94	  	 	 	62	  	
Accretion expense on long-term debt	  	 	(304	) 	 	 	892	  	
Financing costs	  	 	4,036	  	 	 	81	  	
Interest expense	  	 	10,042	  	 	 	40	  	
Change in fair value of convertible debentures	  	 	2,732	  	 	 	—  	  	
Change in fair value of warrants	  	 	308	  	 	 	—  	  	
Unrealized loss on palladium warrants	  	 	260	  	 	 	950	  	
	  	 	 	 	 	 	 	 	
	  	$	17,318	  	 	$	2,209	  	
	  	 	 	 	 	 	 	 	
Other income	  				 				
Gain on renouncement of flow-through expenditures	  	$	—  	  	 	$	(276	) 	
Interest income	  	 	(21	) 	 	 	(27	) 	
	  	 	 	 	 	 	 	 	
	  	$	(21	) 	 	$	(303	) 	
	  	 	 	 	 	 	 	 	
	  	$	17,297	  	 	$	1,906	  	

FIRST QUARTER REPORT 2014
 
19

North American Palladium Ltd.
 
18. CONTINGENCIES
There were no significant changes in contingencies in the three month period ended March 31, 2014. The contingencies are described in note 21 of the Company’s audited consolidated financial statements for the year ended December 31, 2013. Refer to note 21.
19. OTHER DISCLOSURES
Statement of Cash flows
The net changes in non-cash working capital balances related to operations are as follows:

 	  	Three months ended March 31	 	
 	  	2014	 	 	2013	 	
Cash provided by (used in):	  				 				
Accounts receivable	  	$	(10,181	) 	 	$	(4,108	) 	
Inventories	  	 	(2,273	) 	 	 	(1,152	) 	
Other assets	  	 	2,856	  	 	 	497	  	
Accounts payable and accrued liabilities	  	 	(15,451	) 	 	 	3,947	  	
Taxes payable	  	 	(1,161	) 	 	 	—  	  	
Other financial liabilities	  	 	—  	  	 	 	950	  	
	  	 	 	 	 	 	 	 	
	  	$	(26,210	) 	 	$	134	  	
	  	 	 	 	 	 	 	 	
20. SEGMENT INFORMATION
Following the sale of its discontinued gold operations on March 22, 2013 (see note 4), the Company has one reportable segment. The Company’s revenue by significant product type is disclosed in Note 16.
21. SUBSEQUENT EVENTS
Securities offering
On April 11, 2014 and April 17, 2014, the Company closed a public offering with the aggregate sale of $35.0 million gross principal amount of convertible unsecured subordinated debentures (the “2014 Tranche 2 Debentures”) of NAP at a price of $1,000 per 2014 Tranche 2 Debenture, including approximately 18.9 million common share purchase warrants (the “2014 Tranche 2 Warrants”). This offering represented Tranche 2 of the offering. Proceeds received, net of estimated fees, were $32.8 million. The conversion price of the 2014 Tranche 2 Debentures is $0.4629, and the exercise price of the 2014 Tranche 2 Warrants is $0.5786.
The 2014 Tranche 2 Debentures will mature on April 11, 2019, unless redeemed or converted earlier, or unless extended, and will bear interest at an annual rate of 7.5% payable semi-annually in arrears on March 31 and September 30 of each year, commencing September 30, 2014. The first interest payment on the 2014 Tranche 2 Debentures will include accrued and unpaid interest for the period from and including April 11, 2014 to, but excluding, September 30, 2014. Holders may convert their 2014 Tranche 2 Debentures into common shares of NAP at any time at a conversion rate of approximately 2,160 Common Shares per $1,000 principal amount of Debentures. Holders converting their debentures will receive all accrued and unpaid interest, as well as interest that would have been paid if the 2014 Tranche 2 Debentures were held through to maturity (the “Make Whole Amount”). At the Company’s option, interest and Make-Whole Amounts can be paid in common shares.
Each 2014 Tranche 2 Warrant will entitle the holders thereof to purchase one common share of the Company at any time before the second anniversary of the date of issue.
If the outstanding debentures and warrants were fully converted, approximately 94.5 million additional common shares of the Company would be issued. As of April 30, 2014, $27.4 million of the 2014 Tranche 2 Debentures had been converted into 88.1 million common shares, representing the conversion and Make-Whole Amount common shares.
 
FIRST QUARTER REPORT 2014
 
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North American Palladium Ltd.
 
Proposed Class Action Settlement
On April 28, 2014, the Company entered into a proposed settlement agreement, subject to certain conditions, for $2.4 million related to the previously disclosed potential class action lawsuit. The settlement will be paid or reimbursed by the Company’s insurer.
 
FIRST QUARTER REPORT 2014
 
21

			
	  	Exhibit 3	
		
 	  	NEWS RELEASE	
North American Palladium Announces First Quarter 2014 Results
All figures are in Canadian dollars except where noted.
Toronto, Ontario, May 1, 2014 – North American Palladium Ltd. (“NAP” or the “Company”) (TSX: PDL) (NYSE MKT: PAL) today announced the operating, development, and financial results for the first quarter ended March 31, 2014 (“Q1”).
Q1, 2014 Results Summary
 
 	•	 	Produced 42,641 ounces of payable palladium at a cash cost per ounce (1) of US$492;	
 
 	•	 	Realized palladium selling price of US$739 per ounce, giving a palladium operating margin of US$247 per ounce, or US$10.5 million;	
 
 	•	 	Revenue of $48.7 million;	
 
 	•	 	Adjusted EBITDA (1) of $9.8 million;	
 
 	•	 	Invested $2.9 million in capital expenditures and $0.8 million in exploration;	
 
 	•	 	Underground ore mined at LDI was 275,845 tonnes at an average grade of 5.0 g/t palladium.	
 
 	•	 	Processed 254,294 tonnes of low grade surface stockpile at LDI at an average grade of 1.0 g/t palladium.	
 
 	•	 	Underground production during the quarter averaged 3,065 tonnes per day, ahead of the Company’s operating guidance for the first half of 2014.	
 
 	•	 	LDI mill processed 516,511 tonnes of ore at an average palladium head grade of 3.3 g/t palladium and a record recovery rate of 84.5%.	
 
 	•	 	Published an updated LOM plan for LDI.	
 
 	•	 	Completed a $32 million financing during the quarter.	
 
 	•	 	Subsequent to quarter end, completed a $35 million financing, and entered into a proposed settlement in respect of the previously disclosed potential class action lawsuit.	
“During the first quarter we made significant improvements across our operations. Key metrics including underground production, mill recoveries, average palladium grades and ounces of payable palladium produced were all in line with or ahead of our full year guidance,” said Phil du Toit, President and Chief Executive Officer. “These operational improvements demonstrate that our ramp-up efforts at LDI are progressing well and trending in the right direction. We remain focused on finalizing improvements to the underground ore handling system to help drive further increases in production rates in the coming quarters.”
“Steps were also taken to improve our liquidity during and subsequent to the quarter through two financings. We also published an updated reserve and resource and life of mine plan for LDI which gives us a clearer roadmap for enhancing shareholder value,” added Mr. du Toit.
www.nap.com

Lac des Iles Operations
Q1 2014 Production
In the first quarter of 2014, the Company’s LDI mine produced 42,641 ounces of payable palladium at a total cash cost of US$492 per ounce (1) . The cash cost is well below our full year guidance of US$550 and was positively impacted by higher underground grade, lower operating costs, higher mill recoveries and the effects on by-product credits of a weaker Canadian dollar, partially offset by$2.7 million of propane and power costs above plan which are attributable to the extreme winter conditions experienced during the quarter.
Payable palladium production in the first quarter was ahead of our ramp up profile and in line with management’s full year guidance for 2014, as the mine continued to balance production volumes between surface and underground ore sources during the transition period. During the first quarter, 530,139 tonnes of ore were mined at LDI, of which 275,845 tonnes came from underground sources (with an average palladium grade of 5.0 grams per tonne), and 254,294 tonnes came from surface stockpiles (with an average palladium grade of 1.0 grams per tonne). During the first quarter, the LDI mill processed 516,511 tonnes of ore at a combined average palladium mill head grade of 3.3 grams per tonne, at an 84.5% palladium recovery rate, and at a total cost of $62 per tonne milled.
Guidance
Given the recent financings, the Company is increasing its guidance for exploration spending by $6 million to $10 million for 2014. The increased exploration spending is to expand the current drill program for the Offset zone to increase reserves and resources and to upgrade existing reserves and resources.
The following table provides a summary of operating results to date for Q1 2014 versus full year guidance for 2014:

 	  	2014
Guidance	 	 	First Quarter
2014 Results	 	
Palladium production – payable oz	  	 	170,000-175,000	  	 	 	42,641	  	
US$ cash cost per palladium oz sold – year/Q4	  	US$	550/US$450	  	 	US$	492 (US$422	(*) ) 	
Production cost per tonne milled	  	$	51 to $55	  	 	$	62 ($56	*) )	
Underground mining	  				 				
Tonnes mined per day	  	 
 	3,000 ramping
up to 5,000	 
  	 	 	3,065	  	
Tonnes	  	 	1.3 million	  	 	 	276,000	  	
Palladium head grade (g/t)	  	 	4.2	  	 	 	5.0	  	
Surface stockpile processing	  				 				
Tonnes	  	 	1.0 million	  	 	 	254,000	  	
Palladium head grade (g/t)	  	 	1.0	  	 	 	1.0	  	
Milling	  				 				
Palladium head grade (g/t)	  	 	3.0	  	 	 	3.3	  	
Palladium recovery	  	 	82.0	% 	 	 	84.5	% 	
Capital expenditures ($millions)	  	 	Under $30	  	 	$	2.9	  	
Exploration expense ($ millions)	  				 				
Original	  	$	4.0	  	 	$	0.8	  	
Revised	  	$	10.0	  	 				
 
(*)	After adjusting for the impact of approximately $2.7 million of power and propane costs associated with an unusually cold winter, see Highlight section in the MD&A for additional details.	
 
www.nap.com
 
2

The following table includes quarterly results for the first quarter of 2014 and for all four quarters in 2013 and demonstrates some of the key trends in the business.

 	  	Q1, 2013	 	 	Q2, 2013	 	 	Q3, 2013	 	 	Q4, 2013	 	 	Q1, 2014	 	
Payable palladium produced	  	 	38,654 oz	  	 	 	35,428 oz	  	 	 	30,097 oz	  	 	 	30,979 oz	  	 	 	42,641 oz	  	
Cash cost per ounce	  	US$	490	  	 	US$	564	  	 	US$	581	  	 	US$	621	  	 	US$	492	  	
Tonnes of ore mined	  	 	540,694	  	 	 	433,580	  	 	 	542,917	  	 	 	576,478	  	 	 	530,139	  	
Tonnes Mined – surface	  	 	295,038	  	 	 	301,974	  	 	 	334,820	  	 	 	345,132	  	 	 	254,294	  	
Tonnes Mined – underground	  	 	245,656	  	 	 	131,606	  	 	 	208,097	  	 	 	231,346	  	 	 	275,845	  	
Tonnes of ore milled	  	 	503,585	  	 	 	483,266	  	 	 	517,157	  	 	 	544,074	  	 	 	516,511	  	
Average milled head grade	  	 	3.3 g/t Pd	  	 	 	3.1 g/t pd	  	 	 	2.5 g/t Pd	  	 	 	2.4 g/t Pd	  	 	 	3.3 g/t Pd	  	
Palladium mill recovery	  	 	80.1	% 	 	 	80.7	% 	 	 	80.7	% 	 	 	81.5	% 	 	 	84.5	% 	
Development Update
Capital expenditures in the first quarter amounted to $2.9 million, compared to $38.1 million in the same period in 2013.
Exploration
In the first quarter, NAP invested $0.8 million in exploration and infill drilling. For 2014, the Company is planning an exploration program to target the lower portion of the Offset zone in support of an anticipated preliminary economic assessment to be completed later in 2014 or early 2015. As at April 30, 2014, both surface and underground drilling rigs were operating at site.
Financial Results (2)
Revenue for the first quarter was $48.7 million compared to $47.1 million in the first quarter of 2013. The increase in revenue was primarily due to more favourable exchange rates partially offset by lower payable metals sales at lower realized prices for all metals except palladium. During the first quarter, the Company realized a palladium selling price of US$739 per ounce.
Net loss for the quarter was $26.7 million or $0.11 per share compared to a net loss of $2.8 million or $0.02 per share in the same quarter last year. The increase in the net loss is primarily due to the impact of increased foreign exchange losses, depreciation and interest expenses, partially offset by decreased exploration expenses.
EBITDA (1) was $1.0 million for the first quarter, compared to $2.9 million in the same quarter last year. Adjusted EBITDA (1) (which excludes interest expenses and other costs, depreciation and amortization, exploration, foreign exchange gains and losses and mine restoration costs net of insurance recoveries) was $9.8 million in the first quarter, compared to $8.3 million in first quarter last year.
 
www.nap.com
 
3

During the first quarter, the Company closed the first $32.0 million tranche related to its previously announced convertible unsecured subordinated debenture financing. As at March 31, 2014, the Company had cash and cash equivalents of $21.9 million compared to $9.8 million as at December 31, 2013. The Company’s credit facility availability was limited by the borrowing base to US$38.6 million of which US$36.4 million was utilized.
Subsequent to quarter end, the Company entered into a proposed settlement in respect of the previously disclosed potential class action lawsuit pending in the Ontario Superior Court of Justice. Under the terms of the settlement, the Company’s insurance will pay $2.4 million for the benefit of the settlement class and for legal costs. There has been no admission of any wrongdoing by the Company or its officers and directors; however the Company is of the view that the settlement is favorable given the significant cost and management time associated with defending the action. The settlement is subject to finalization of the settlement agreement and approval by the Court.
While the Company has operations that generate revenue, it has not yet achieved consistently profitable operations and incurred a net loss of $26.7 million for the three months ended March 31, 2014. The achievement of this is dependent on a number of variables including, but not limited to, metal prices, operational costs, capital expenditures, timely transition to mining by shaft, and meeting production targets. Adverse changes in any of these variables may require the Company to seek additional financing.

Q1 2014 Conference Call & Webcast Details	
		
Date:	  	Thursday, May 1, 2014	
Time:	  	8:30 a.m. ET	
Webcast:	  	www.nap.com	
Live Call:	  	1-866-229-4144 or 1-416-216-4169 (PIN: 8347419, followed by # sign)	
Replay:	  	1-888-843-7419 or 1-630-652-3042 (PIN: 8347419, followed by # sign)	
The conference call replay will be available for 90 days after the live event. An archived audio webcast of the call will also be posted to NAP’s website.
About North American Palladium
NAP is an established precious metals producer that has been operating its Lac des Iles mine (LDI) located in Ontario, Canada since 1993. LDI is one of only two primary producers of palladium in the world, and is completing a major expansion to increase production and reduce cash costs per ounce. The Company’s shares trade on the NYSE MKT under the symbol PAL and on the TSX under the symbol PDL.
For further information please contact:
John Vincic
Investor Relations
Telephone: 416-360-7374
Email: jvincic@nap.com
 
www.nap.com
 
4

(1)	Non-IFRS measure. Please refer to Non-IFRS Measures in the MD&A.	
 
(2)	NAP’s condensed interim consolidated financial statements for the first quarter ended March 31, 2014 are available in the Appendix of this news release. These financial statements should be read in conjunction with the notes and management’s discussion and analysis available at www.nap.com, www.sedar.com, and www.sec.gov.	
Cautionary Statement on Forward Looking Information
Certain information contained in this news release constitutes ‘forward-looking statements’ within the meaning of the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. The words ‘potential’, ‘anticipate’, ‘contemplate’, ‘target’, ‘may’, ‘will’, ‘would’, ‘could’, ‘intend’, ‘estimate’ and similar expressions identify forward-looking statements. Forward-looking statements in this news release include, without limitation: information pertaining to the Company’s strategy, plans or future financial or operating performance, such as the ramp-up at the Company’s LDI mine, timelines, production plans, projected expenditures, operating cost estimates, proposed mining methods, expected mining rates and other statements that express management’s expectations or estimates of future performance. The Company cautions the reader that such forward-looking statements involve known and unknown risk factors that may cause the actual results to be materially different from those expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to: the risk that the Company may not be able to obtain sufficient financing to fund capital needs including capital expenditures required to continue the LDI mine expansion at depth, the risk that the Company will not be able to meet its financial obligations as they become due, the possibility that metal prices and foreign exchange rates may fluctuate, inherent risks associated with development, exploration, mining and processing including risks to tailings capacity, ground conditions, environmental hazards, uncertainty of mineral reserves and resources, the possibility that the LDI mine may not perform as planned, changes in legislation, regulations or political and economic developments in Canada and abroad, risks related to employee relations and the availability of skilled labour, litigation, and the risks associated with obtaining necessary licenses and permits. For more details on these and other risk factors see the Company’s most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities.
Forward-looking statements are necessarily based upon a number of factors and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The factors and assumptions contained in this news release, which may prove to be incorrect, include, but are not limited to: that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business, that metal prices and exchange rates between the Canadian and United States dollar will be consistent with the Company’s expectations, that there will be no material delays affecting operations or the timing of ongoing projects including the LDI mine ramp-up, that prices for key mining and construction supplies, including labour costs, will remain consistent with the Company’s expectations, and that the Company’s current estimates of mineral reserves and resources are accurate. The forward-looking statements are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events or otherwise, except as expressly required by law. Readers are cautioned not to put undue reliance on these forward-looking statements.
 
www.nap.com
 
5

Condensed Interim Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)
(unaudited)

 	  	March 31	 	 	December 31	 	
 	  	2014	 	 	2013	 	
ASSETS	  				 				
Current Assets	  				 				
Cash and cash equivalents	  	$	21,921	  	 	$	9,793	  	
Accounts receivable	  	 	48,737	  	 	 	38,556	  	
Inventories	  	 	17,613	  	 	 	14,239	  	
Other assets	  	 	4,112	  	 	 	6,968	  	
	  	 	 	 	 	 	 	 	
Total Current Assets	  	 	92,383	  	 	 	69,556	  	
	  	 	 	 	 	 	 	 	
Non-current Assets	  				 				
Mining interests	  	 	448,409	  	 	 	456,239	  	
	  	 	 	 	 	 	 	 	
Total Non-current Assets	  	 	448,409	  	 	 	456,239	  	
	  	 	 	 	 	 	 	 	
Total Assets	  	$	540,792	  	 	$	525,795	  	
	  	 	 	 	 	 	 	 	
LIABILITIES AND SHAREHOLDERS’ EQUITY	  				 				
Current Liabilities	  				 				
Accounts payable and accrued liabilities	  	$	29,585	  	 	$	48,797	  	
Credit facility	  	 	24,832	  	 	 	17,834	  	
Current portion of obligations under finance leases	  	 	2,877	  	 	 	2,988	  	
Current portion of long-term debt	  	 	3,862	  	 	 	173,656	  	
Current derivative liability	  	 	752	  	 	 	492	  	
	  	 	 	 	 	 	 	 	
Total Current Liabilities	  	 	61,908	  	 	 	243,767	  	
	  	 	 	 	 	 	 	 	
Non-current Liabilities	  				 				
Income taxes payable	  	 	125	  	 	 	1,286	  	
Asset retirement obligations	  	 	14,626	  	 	 	13,638	  	
Obligations under finance leases	  	 	8,363	  	 	 	8,744	  	
Long-term debt	  	 	228,631	  	 	 	35,864	  	
	  	 	 	 	 	 	 	 	
Total Non-current Liabilities	  	 	251,745	  	 	 	59,532	  	
	  	 	 	 	 	 	 	 	
Shareholders’ Equity	  				 				
Common share capital and purchase warrants	  	 	829,572	  	 	 	798,411	  	
Stock options and related surplus	  	 	9,276	  	 	 	9,128	  	
Equity component of convertible debentures, net of issue costs	  	 	6,931	  	 	 	6,931	  	
Contributed surplus	  	 	8,873	  	 	 	8,873	  	
Deficit	  	 	(627,513	) 	 	 	(600,847	) 	
	  	 	 	 	 	 	 	 	
Total Shareholders’ Equity	  	 	227,139	  	 	 	222,496	  	
	  	 	 	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	  	$	540,792	  	 	$	525,795	  	

www.nap.com
 
6

Condensed Interim Consolidated Statements of Operations and
Comprehensive Loss
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)

 	  	Three months ended March 31	 	
 	  	2014	 	 	2013	 	
Revenue	  	$	48,736	  	 	$	47,090	  	
	  	 	 	 	 	 	 	 	
Mining operating expenses	  				 				
Production costs	  	 	29,735	  	 	 	28,941	  	
Smelting, refining and freight costs	  	 	4,183	  	 	 	3,802	  	
Royalty expense	  	 	2,074	  	 	 	2,509	  	
Depreciation and amortization	  	 	10,368	  	 	 	6,085	  	
Loss on disposal of equipment	  	 	447	  	 	 	629	  	
	  	 	 	 	 	 	 	 	
Total mining operating expenses	  	 	46,807	  	 	 	41,966	  	
	  	 	 	 	 	 	 	 	
Income from mining operations	  	 	1,929	  	 	 	5,124	  	
	  	 	 	 	 	 	 	 	
Other expenses	  				 				
Exploration	  	 	768	  	 	 	4,840	  	
General and administration	  	 	2,554	  	 	 	2,913	  	
Interest and other income	  	 	(21	) 	 	 	(303	) 	
Interest expense and other costs	  	 	17,318	  	 	 	2,209	  	
Foreign exchange loss	  	 	7,976	  	 	 	822	  	
	  	 	 	 	 	 	 	 	
Total other expenses	  	 	28,595	  	 	 	10,481	  	
	  	 	 	 	 	 	 	 	
Loss from continuing operations before taxes	  	 	(26,666	) 	 	 	(5,357	) 	
Income and mining tax recovery	  	 	—  	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Loss and comprehensive loss from continuing operations for the period	  	$	(26,666	) 	 	$	(5,357	) 	
Income and comprehensive income from discontinued operations for the period	  	 	—  	  	 	 	2,509	  	
	  	 	 	 	 	 	 	 	
Loss and comprehensive loss for the period	  	$	(26,666	) 	 	$	(2,848	) 	
	  	 	 	 	 	 	 	 	
Loss per share	  				 				
Basic	  	$	(0.11	) 	 	$	(0.02	) 	
Diluted	  	$	(0.11	) 	 	$	(0.02	) 	
	  	 	 	 	 	 	 	 	
Loss from continuing operations per share	  				 				
Basic	  	$	(0.11	) 	 	$	(0.03	) 	
Diluted	  	$	(0.11	) 	 	$	(0.03	) 	
	  	 	 	 	 	 	 	 	
Income from discontinued operations per share	  				 				
Basic	  	$	—  	  	 	$	0.01	  	
Diluted	  	$	—  	  	 	$	0.01	  	
	  	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	  				 				
Basic	  	 	232,873,928	  	 	 	177,450,837	  	
Diluted	  	 	232,873,928	  	 	 	177,450,837	  	

www.nap.com
 
7

Condensed Interim Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
(unaudited)

 	  	Three months ended March 31	 	
 	  	2014	 	 	2013	 	
Cash provided by (used in)	  				 				
Operations	  				 				
Loss from continuing operations for the period	  	$	(26,666	) 	 	$	(5,357	) 	
Operating items not involving cash	  				 				
Depreciation and amortization	  	 	10,368	  	 	 	6,085	  	
Accretion expense (recovery)	  	 	(210	) 	 	 	954	  	
Share-based compensation and employee benefits	  	 	476	  	 	 	413	  	
Unrealized foreign exchange loss	  	 	7,538	  	 	 	—  	  	
Loss on disposal of equipment	  	 	447	  	 	 	—  	  	
Interest expense and other	  	 	17,508	  	 	 	936	  	
	  	 	 	 	 	 	 	 	
	  	 	9,461	  	 	 	3,031	  	
Changes in non-cash working capital	  	 	(26,210	) 	 	 	134	  	
	  	 	 	 	 	 	 	 	
	  	 	(16,749	) 	 	 	3,165	  	
	  	 	 	 	 	 	 	 	
Financing Activities	  				 				
Issuance of common shares, net of issue costs	  	 	(38	) 	 	 	—  	  	
Issuance of convertible debentures, net of issue costs	  	 	28,464	  	 	 	—  	  	
Credit facility	  	 	6,085	  	 	 	23,000	  	
Repayment of obligations under finance leases	  	 	(796	) 	 	 	(1,315	) 	
Interest paid	  	 	(1,451	) 	 	 	(4,589	) 	
Other financing costs	  	 	(499	) 	 	 	—  	  	
	  	 	 	 	 	 	 	 	
	  	 	31,765	  	 	 	17,096	  	
	  	 	 	 	 	 	 	 	
Investing Activities	  				 				
Additions to mining interests, net	  	 	(2,888	) 	 	 	(38,068	) 	
Proceeds on disposal of mining interests, net	  	 	—  	  	 	 	990	  	
	  	 	 	 	 	 	 	 	
	  	 	(2,888	) 	 	 	(37,078	) 	
	  	 	 	 	 	 	 	 	
Increase (decrease) in cash from continuing operations	  	 	12,128	  	 	 	(16,817	) 	
Net cash provided by discontinued operations	  	 	—  	  	 	 	20,142	  	
	  	 	 	 	 	 	 	 	
Increase in cash	  	 	12,128	  	 	 	3,325	  	
Cash and cash equivalents, beginning of period	  	 	9,793	  	 	 	20,168	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	21,921	  	 	$	23,493	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents consisting of:	  				 				
Cash	  	$	21,921	  	 	$	23,493	  	
Short-term investments	  	 	—  	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
	  	$	21,921	  	 	$	23,493	  	
	  	 	 	 	 	 	 	 	
Foreign exchange included in cash balance	  	$	1,072	  	 	$	90	  	

www.nap.com
 
8