Tuesday, September 6, 2011

The North American Palladium (PAL) (PDL.to) class action

Big fun over at North American Palladium (PAL) (PDL.to) today, with a big fat class action stuck on their tushes by people severely miffed about the company's practices and the way its largest shareholder dumped large quantities of stock before the bad news about its Lac Des Iles (LDI/LDL) property was known. Below we have the summary of the situation, pasted out from the statement of claim pages 6 to 8 :

3. North American Palladium owns and operates LDL Between November 10,2010 and May 9, 2011, North American Palladium disseminated four press releases and the P&E Report about the LDI Mining Project. These five documents distorted the investment quality of the Company and the LDI Mining Project as reflected by the price of North American Palladium shares as traded on the TSX and AMEX.

4. The economic viability of the LDI mining project was based upon the P&E Report, including the ability to engineer and manage how North American Palladium would expand its mining operations from the bottom of the Roby Zone into the deeper Offset Zone while concurrently processing ore, in a cost-efficient manner, from the Roby Zone and stockpiles.

5.An error in interpreting or following the P&E Report would expose North American Palladium to additional costs for and delays with the LDI Mining Project. The Company, therefore, retained qualified experts, management and laborers to manage the LDI Mining Project. The Company expressly represented that it hired a very seasoned project manager group with significant underground development experience from some of the industry's leading contractors and had all the necessary labor manpower to continue the ongoing processing of ore from the Roby Zone and stockpiles as well as to expand into the Offset Zone.
6.During the Class Period, North American Palladium misled the Class Members about the economic viability of the LDI Mining Project, including its ability to concurrently process ore located at the lower section of the Roby Zone and stockpiles and expand its mining operations into the upper section of the Offset Zone.

7.The defendants made the Misrepresentation and failed to disclose the true facts because they knew or ought to have known the effect these facts would have on the share price and the investment quality of the Company.

8.Additionally, the defendants made the Misrepresentation because they wanted to re-elect Biggar and Berlin as directors as well as adopt a new shareholder rights plan. On May 7, 2011 they had disseminated a proxy to Class Members in this regard and understood that the information referred to in paragraph 9 below, if disclosed, would likely diminish support for the Company's recommendations.

9.After the market closed on May 9, 2011, North American Palladium disclosed for the first time that it could not meet its first quarter and projected annual production levels and cost guidance and that it had encountered delays in expanding into the Offset Zone. The three reasons cited by the Company were that during the first quarter and prior to the dissemination of the May 7 proxy: (1) there had been an unusually harsh winter resulting in delays and increase costs; (2) it lacked the necessary manpower to concurrently process ore and expand the mine into the Offset Zone, and (3) it had underestimated the skill necessary to concurrently process ore from one section and engineer the expansion of another section of the LDI. The Company also admitted that it had to revisit the P&E Report with respect to how it could engineer the mining expansion into the Offset Zone.

10.During the Class Period, North American Palladium's Misrepresentation caused its common stock to trade on the TSX at a share price as high as $7.77. Within ten (10) days after the close of the Class Period, the share price had dropped as low as $3.39. During the Class Period, KFOC, the Company's largest shareholder and former employer of director Berlin, sold 11,427,300 shares of North American Palladium valued at over $70,000,000.

IKN back: In the considered opinion of this humble corner of cyberspace, North American Palladium (PAL (PDL.to) is deep in the doo-doo on this.