What High Palladium Prices Mean to Mining Stocks

DENVER (TheStreet ) -- Palladium prices have popped almost 40% year to date eclipsing gold's 20% rally, but producer North American Palladium(PAL) has yet to take advantage of high prices.

North American Palladium is suffering from growing pains and will continue to do so for the next few years. On the palladium side, the company is in good shape. The Lac des Iles palladium mine is finally up and running and is expected to produce 140,000 ounces of palladium annually.

The company's Achilles' heel, however, is its gold Sleeping Giant Mine and Mill, which has been on care and maintenance since 2008. The mine produced 55,555 ounces of gold on average for the 18 years it was producing and North American Palladium is hoping to jump start the mine within the next few years.

In the meantime, the company's profits are taking the brunt of the pain. In the second quarter, North American Palladium reported a loss of 8 cents a share despite the fact that revenue grew to $21.2 million versus negative $1.3 million a year earlier.

I sat down with CEO Bill Biggar at the Denver Gold Forum to see how long these growing pains were going to last and when investors could expect a return to profitability.

Your last quarter was a little dicey. You had rising income and revenues but you reported a net loss of 8 cents a share. Why was your loss so big?

Biggar: Well, we're a company in transition. If we back up a year and a half ago we actually put our palladium mine on care and maintenance because in the credit crisis the price of palladium went from over $400 an ounce very quickly down to under $200 an ounce.

So we decided to put the mine on care and maintenance because it didn't make any sense to be depleting our valuable reserves and selling them at a loss because our production costs were about $300 an ounce. So we're just in that restart mode [and] when you do that you've got a lot of expenses which obviously go against your revenues [but] that will start to turn around because the mine is now running as expected and we're[on our way to] producing 140,000 ounces of palladium per year.

So that growing pain is over?

It's over on the palladium side now ... we have a gold division as well ... when we diversified into gold we purchased a mine that was a previously operated by IAMGOLD(IAG) and that mine had been on care and maintenance for a short period of time. So same thing, we're ramping that up and, of course, you have a lot of expenses to get it ready for production.