Mackie Research: Sell rating and $0.00 target price
According to Mackie Research:
3Q/14 production light due to lower grade: PDL reported Q3/14 production of 32,560 Koz of payable palladium, which was well below our estimate of 43,505 Koz entirely due to lower- grade material supplied from underground. Operating costs were $589/oz sold, or by our back calculation, ~$650/oz produced. In 3Q/14, ounces sold were 36,430 Koz, allowing for EPS loss of $0.05 and cash flow of $0.01, which were roughly in-line with our forecast. For the year, PDL are holding to annual guidance which means 4Q/14 underground production needs to be at record tonnage levels at grades of ~4.1 g/t.
All about the balance sheet and level of debt: In 3Q/14 PDL made a special total interest and fee payment of $32.2 million, allowing the annual interest rate on a senior secure loan to fall from an accrued rate of 19% to a cash rate of 15%. At quarter-end this debt amount was $179.9 million out of $220.2 million total debt. Including retirement obligations and capital leases, total long-term debt is $247.2 million, of which $10.9 million is current. In addition there is a current facility (secured by receivables) of $25.1 million. At quarter-end working capital was $24.8 million, of which $11.8 million was cash. While at quarter-end PDL was in compliance with all loan covenants, we recognize the total amount of debt is too high and too expensive. Just to service debt interest seriously hampers PDL’s operating flexibility, requiring development expenditures to be seriously restricted. The future of PDL is entirely within debt holders’ control, and for PDL to remain a going concern, a refinancing/recapitalization needs to occur, perhaps by 1Q/15 at the latest.
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Sentiment: Strong Sell
