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Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934

For the month of November, 2010	 	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  o                         Form 40-F  ý
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):  o
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):  o
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  o                         Assigned File No.                                       No  ý
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 North American Palladium's registration statements on Form F-10 (File Nos. 333-158082 and 333-164512).

 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: November 10, 2010	 	By:	 	/s/ TRENT MELL

Trent C. A. Mell
Vice President, Corporate Development, General Counsel & Corporate Secretary	

 EXHIBIT INDEX

Exhibit	 	Description of Exhibit 	
1	 	Q3 2010 MD&A	
2	 	Q3 2010 Financial Statements	
3	 	News Release — "North American Palladium Reports Return to Profitability in Third Quarter"	
99.1	 	Reconciliation to Accounting Principles Generally Accepted in the United States for the three and nine months ended September 30, 2010 and 2009.	

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SIGNATURES
EXHIBIT INDEX

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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	 	1	
Our Business	 	2	
Key Financial Data	 	3	
Executive Summary	 	4	
Financial Review	 	9	
Financial Condition, Cash Flows, Liquidity and Capital Resources	 	16	
Outstanding Share Data	 	18	
Review of Operations	 	19	
Exploration Update	 	22	
Future Accounting Standards	 	25	
Risks and Uncertainties	 	32	
Internal Controls	 	32	
Other Information	 	33	
Non-GAAP Measures	 	33	

 Exhibit 1
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 "Cadiscor" refers to Cadiscor Resources Inc.
This Management's Discussion and Analysis ("MD&A") dated November 10, 2010 is intended to supplement and complement NAP's unaudited interim consolidated financial statements and related notes for the three and nine months ended September 30, 2010, which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). This MD&A should also be read in conjunction with both the audited consolidated financial statements and annual MD&A for the year ended December 31, 2009. Additional information regarding the Company, including its audited annual consolidated financial statements, the annual MD&A for the year ended December 31, 2009, and the most recent Form 40-F/Annual Information Form are on file with the U.S. Securities and Exchange Commission ("SEC") and the Canadian provincial securities regulatory authorities and are available at www.sec.gov and www.sedar.com, respectively.
All amounts are in Canadian dollars unless otherwise noted.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A, including any information as to the Company's future financial or operating performance and other statements, which include future oriented financial information, that express management's expectations or estimates of future performance, constitute '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. The words 'expect', 'believe', 'will', 'intend', 'estimate', 'plan', 'targeting', 'goal', 'vision' and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties, risks and contingencies. The Company cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements and that the forward-looking statements are not guarantees of future performance. These statements are also based on certain factors and assumptions including factors and assumptions related to future prices of palladium, gold and other metals, the Canadian dollar exchange rate, the ability of the Company to meet operating cost estimates, inherent risks associated with mining and processing, as well as those estimates, risks, assumptions and factors described in the Company's most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities. In addition, there can be no assurance that the Company's Lac des Iles and Sleeping Giant mines will operate as anticipated, or that the other properties can be successfully developed. 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
1
 3RD QUARTER REPORT 2010

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
North American Palladium Ltd. is a Canadian precious metals company focused on growing its production of palladium and gold in mining-friendly jurisdictions. As an established producer, the Company operates its two 100%-owned mines in Canada and has a pipeline of growth projects near its mine sites where both mills have excess capacity available for production growth.
Lac des Iles ("LDI"), the Company's flagship mine, is one of the world's two primary palladium producers. Located approximately 85 kilometres northwest of Thunder Bay, Ontario, LDI started producing palladium in 1993. The mine was temporarily placed on care and maintenance in October 2008 due to low metal prices, and was successfully restarted in April 2010. The Company is also currently developing the Offset Zone at the mine, which has the potential to transform LDI into a long life, low cost producer of palladium.
NAP also owns and operates the Sleeping Giant gold mine located in the Abitibi region of Quebec, near Val d'Or, where the Company has the potential to organically grow the gold division through the development of its other gold assets.
The Company has a strong portfolio of development and exploration assets near the LDI and Sleeping Giant mines, and is pursuing a significant exploration program in 2010 aimed at increasing its reserves and resources. With a seasoned senior management team, a strong balance sheet of approximately $161 million in working capital (including $114 million cash) as at September 30, 2010 and no long-term debt, NAP is well positioned to pursue its growth strategy.
NAP trades on the TSX under the symbol PDL and on the NYSE Amex under the symbol PAL.
2
 3RD QUARTER REPORT 2010

KEY FINANCIAL DATA

(expressed in thousands of dollars except total cash cost and per share amounts)	 	Three months ended
September 30	 	Nine months ended
September 30	 	 	
	 	2010	 	2009	 	2010	 	2009	 	 	
	
FINANCIAL HIGHLIGHTS	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Revenue	

 	

 	

 	

 	

Revenue after pricing adjustments	 	$	38,451	 	$	1	 	$	67,596	 	$	4,018	 	 	

Unit sales	

 	

 	

 	

 	

 	Palladium (oz)	 	 	38,123	 	 	–	 	 	62,211	 	 	–	 	 	
 	Gold (oz)	 	 	5,295	 	 	–	 	 	17,067	 	 	–	 	 	
 	Platinum (oz)	 	 	2,013	 	 	–	 	 	3,100	 	 	–	 	 	
 	Nickel (lb)	 	 	146,496	 	 	–	 	 	236,129	 	 	–	 	 	
 	Copper (lb)	 	 	238,698	 	 	–	 	 	412,184	 	 	–	 	 	

Net income (loss)	

 	

 	

 	

 	

Net income (loss)	 	$	3,185	 	$	(6,194	)	$	(22,999	)	$	(15,653	)	 	
Net income (loss) per share	 	$	0.02	 	$	(0.06	)	$	(0.17	)	$	(0.17	)	 	
EBITDA 1	 	$	5,556	 	$	(6,195	)	$	(16,213	)	$	(16,703	)	 	
Cash flow provided by (used in) operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash flow provided by (used in) operations before changes in non-cash working capital	 	$	6,022	 	$	(5,846	)	$	(14,069	)	$	(14,669	)	 	
Cash flow provided by (used in) operations before changes in non-cash working capital per share 1	 	$	0.04	 	$	(0.06	)	$	(0.10	)	$	(0.16	)	 	
Capital spending	 	$	14,589	 	$	5,647	 	$	29,222	 	$	7,755	 	 	

OPERATING HIGHLIGHTS	

 	

 	

 	

 	

Production	

 	

 	

 	

 	

 	Palladium (oz)	 	 	34,420	 	 	–	 	 	62,259	 	 	–	 	 	
 	Gold (oz)	 	 	5,287	 	 	–	 	 	15,505	 	 	–	 	 	
 	Platinum (oz)	 	 	1,830	 	 	–	 	 	3,103	 	 	–	 	 	
 	Nickel (lb)	 	 	131,154	 	 	–	 	 	236,297	 	 	–	 	 	
 	Copper (lb)	 	 	214,853	 	 	–	 	 	412,464	 	 	–	 	 	
Total cash cost 2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Palladium (US$)	 	$	218	 	 	–	 	$	253	 	 	–	 	 	
 	Gold (US$)	 	$	1,660	 	 	–	 	$	1,527	 	 	–	 	 	
	
FINANCIAL CONDITION

 	 	As at September 30
2010	 	As at December 31
2009	 	
(expressed in thousands of dollars)					 	
	
Net working capital	 	$	161,101	 	$	114,507	 	
Cash balance	 	$	113,614	 	$	98,255	 	
Shareholders' equity	 	$	264,491	 	$	192,261	 	
	
1
Earnings before interest, taxes, depreciation and amortization, which is a Non-GAAP measure. Please refer to Non-GAAP measures on page 33.

2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33
3
 3RD QUARTER REPORT 2010

EXECUTIVE SUMMARY
Increased Earnings and Cash Flow
During the third quarter of 2010, NAP returned to profitability. Net income for the quarter ended September 30, 2010 was $3.2 million or $0.02 per share compared to a net loss of $6.2 million or $0.06 per share in the same quarter last year. NAP provided cash from operating activities of $6.0 million, before changes in non-cash working capital, for the quarter ended September 30, 2010, or $0.04 per share, 2 as compared to cash used in operations of $5.8 million, before changes in non-cash working capital, or $0.06 per share, 2 for the quarter ended September 30, 2009.
1
Earnings before interest, taxes, depreciation and amortization, which is a Non-GAAP measure. Please refer to Non-GAAP measures on page 33.

2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33
EBITDA 1 was $5.6 million for the quarter ended September 30, 2010, compared to a negative $6.2 million in the same quarter last year.
Strong Balance Sheet
As at September 30, 2010, the Company has approximately $161 million in working capital (including $114 million cash on hand) and no long-term debt.
Higher Revenue
Revenue, after pricing adjustments, for the quarter ended September 30, 2010 was $38.5 million compared to a nominal amount in the same quarter last year.
LDI Mine – Operating As Expected With Lower Cash Costs
The LDI mine produced 34,420 ounces of payable palladium for the quarter ended September 30, 2010. Approximately 225,960 tonnes of ore was extracted from the LDI mine, of which 220,694 tonnes came from the Roby Zone with an average palladium grade of 6.95 grams per tonne, and 5,266 tonnes of silling ore came from the top of the Offset Zone at an average palladium grade of 9.37 grams per tonne. The LDI mill processed 198,907 tonnes of ore at an average of 6,416 tonnes per operating day at an average palladium head grade of 7.05 grams per tonne, with a palladium recovery of 82.1%, and mill availability of 91.3%. For the three months ended September 30, 2010, LDI's total cash cost 2 was US$218 per ounce palladium. The lower cash cost is due to better than expected head grades and higher revenue from byproduct credit metal prices. Similar production and grades are expected in the fourth quarter of 2010.
Sleeping Giant Mine – Focused on Development
The Company's Sleeping Giant gold mine produced 3,879 ounces of gold for the quarter ended September 30, 2010. During the third quarter, 22,494 tonnes of ore was hoisted from Sleeping Giant, with 21,645 tonnes being processed by the mill at an average head grade of 5.84 grams per tonne, with a gold recovery of 95.5%. For the three months ended September 30, 2010 Sleeping Giant's total cash cost 2 was US$1,660 per ounce gold. Since commencing operations at the Sleeping Giant mine, mining activities have been confined to zones mined by the previous owner.
Development work at Sleeping Giant continued in the third quarter, focused on implementing a number of measures to manage the mine's ramp-up issues. Tighter infill drilling is now being conducted to better manage grade control issues and shrinkage and long-hole stopes are being favoured over room and pillar stopes due to the higher certainty over grade and tonnage recovered. The Company will continue to adjust its mine plan and methods in order to optimize operations.
LDI Mine Expansion Update
In August, NAP announced plans to significantly increase LDI's mine production, supported by the positive results from a Preliminary Economic Assessment ("Scoping Study") on the Offset Zone. The ramp development into the Offset Zone is progressing according to plan. This ramp will provide a platform for exploration, raiseboring the Offset Zone
4
 3RD QUARTER REPORT 2010

shaft to surface and production from the Offset Zone until the shaft is completed. Commercial production from the shaft is targeted for the third quarter of 2012, and is expected to yield production in excess of 250,000 ounces per year and life of mine cash costs are estimated to be around US$132 per ounce. Development work for the mine expansion is well underway and is currently progressing on NAP's projected timeline. Detailed engineering of the surface hoisting plant and production shaft was initiated in May 2010 and is on schedule to be completed by the end of the year. Timing risk has been substantially diminished as the Company has already purchased the production, sinking and service cage hoists that are critical to the project. During the quarter, the Company has awarded the raiseboring contract for the shaft to Redpath Mining and to Cementation Inc. for raiseboring the ventilation raise. All senior positions of the Offset Zone project team have been hired and the team is onsite at LDI overseeing all aspects of the Offset Zone development.
The Scoping Study highlights that there is significant upside potential from continued exploration from the Offset Zone, which remains open in all directions and from the Cowboy and Outlaw zones, which were not included in the resource estimate that was used in the study. In particular, there is potential to upgrade resources in the lower mine block and to extend the zone south where an additional lens of inferred resources was modeled.
Vezza – Gold Project Acquisition Completed
In September, the Company closed an agreement to purchase the Vezza gold project in the Abitibi region of Quebec from Agnico-Eagle Mines Ltd. for $10.0 million comprised of $3.6 million in cash and $6.5 million in shares. Vezza is an advanced-stage exploration project within trucking distance to the Sleeping Giant mill. According to a recent 43-101 technical report, the property is estimated to have 288,000 contained ounces of gold in the measured and indicated categories and an additional 121,000 ounces in inferred resources. If developed, management believes that Vezza has the potential to produce approximately 40,000 to 50,000 ounces of gold per year over a 7 to 9 year mine life. The Company started a surface drilling program and initiated the process to have the shaft and underground drifts dewatered in order to conduct underground diamond drilling over the next couple of months.
Sleeping Giant Shaft Deepening
Once the deepening of the shaft by 200 metres is completed, NAP will gain access to three new mining levels and new stopes in zones that have historically provided good tonnage and higher grade feed for the Sleeping Giant mill. The shaft deepening is expected to be completed by the end of the first quarter in 2011, following which lateral development will commence.
Focused On Significant Exploration Programs
NAP is currently pursuing a significant exploration program aimed at increasing its reserves and resources at LDI and within its gold division. NAP is completing a $15 million, 68,000-metre drilling and exploration program at LDI to identify additional resources, upgrade resource classifications, and facilitate the planning of future mine development. NAP is also spending approximately $6.2 million on a 53,000-metre gold exploration program in 2010 focused on extending Sleeping Giant zones at depth, drilling the Dormex property (adjacent to the Sleeping Giant gold mine), advancing its Flordin property, drilling from surface at its Discovery property, and conducting ground geophysical surveys and drilling at its Laflamme gold property. All Quebec based gold projects are located within trucking distance of the currently underutilized Sleeping Giant mill.
Flordin Gold Property – Potential Open Pit Gold Deposit
The Flordin property's first-time NI 43-101 report (released in March 2010) estimates that the property contains 679,000 tonnes of measured and indicated resources near surface at an average grade of 4.25 grams per tonne gold for 92,814 contained ounces and an additional inferred resource of 1,451,400 tonnes grading 3.63 grams per tonne gold for a total of 169,261 contained ounces. NAP is conducting a 10,000-metre infill drill campaign to upgrade the resource classification. The Company believes that the Flordin gold property could have the potential to provide additional feed for the underutilized Sleeping Giant mill and is currently examining open pit scenarios.
5
 3RD QUARTER REPORT 2010

Discovery Gold Project
The Company recently filed an environmental impact study for the Discovery project and applied for a mining lease to continue to advance the property toward a future underground exploration program. For the remainder of the year, NAP is conducting a 4,200-metre surface drilling program to expand the gold zone intersected in 2008. An August 1, 2008 Scoping Study concluded that the project could produce 44,000 ounces of gold per year for four years with a project internal rate of return of 27%, assuming a US$850 gold price.
Dormex Gold Property
At the Dormex property, adjacent to the Sleeping Giant property, the Company continued its surface exploration program combining geophysical surveys, reverse circulation drilling of the overburden and diamond drilling.
Sleeping Giant Mill Expansion Study
NAP is currently completing a mill expansion study as the Company believes that its other gold assets (which are within trucking distance of the Sleeping Giant mill) have the potential to exceed current mill capacity if they are developed.
Outlook
The Company's management team believes it is delivering on its vision to create a diversified mid-tier precious metals producer. NAP is well positioned to benefit from the forecasted rise in the price of palladium as the LDI mine expansion is expected to significantly increase production with the development and mining the Offset Zone over the next couple of years.
The Company currently expects fourth quarter production and cash costs, net of byproduct credits, to be similar to the third quarter for both the LDI and Sleeping Giant mines. In early 2011, NAP intends to announce its 2011 guidance for annual palladium and gold production and cash costs, its budget for exploration, and the expansion plans for its gold assets.
For the remainder of the year, the Company intends to focus on:
•
Growing palladium production at LDI while continuing to optimize costs;

•
Continuing to advance the LDI mine expansion, including developing the ramp, ventilation, shaft and mining levels;

•
Continuing exploration programs aimed at increasing reserves and resources at LDI and in the gold division; and

•
Improving operating results at Sleeping Giant by continuing to implement a number of measures to mitigate the ramp-up issues and continuing the deepening of the mine shaft;

•
Determining expansion plans for NAP's gold assets and the underutilized Sleeping Giant mill.
While management is focused on organic growth, there could be attractive strategic opportunities to consider in the current environment. The Company may use its strong balance sheet to pursue PGM and/or gold acquisition and joint venture opportunities, but with discipline to ensure it pursues only those transactions that can deliver enhanced and sustainable shareholder value.
6
 3RD QUARTER REPORT 2010

Metal Prices

Palladium Price (US$/ Troy oz)	 	Gold Price (US$/ Troy oz)	
	 		
After peaking in March 2008 at US$582 per ounce, the price of palladium declined by 69% to US$183 per ounce on December 31, 2008. This significant decline prompted the Company to put the LDI mine on temporary care and maintenance in October 2008. As the price of palladium began to recover, the Company announced in December 2009 that it would restart the LDI mine, which was achieved ahead of schedule and under budget in April of this year.
During the third quarter of 2010, palladium spot prices averaged US$495 per ounce, and US$477 for the first nine months of the year. The recent price recovery can be attributed to increased investment demand, strong fabrication demand and constrained supply. Palladium is increasingly behaving like a precious metal with investment and jewelry demand, yet has the fundamental underpinning of an industrial metal. Palladium has been the best performing metal in percentage terms in 2010 and recently was at a nine year high. As of November 9, 2010, the price of palladium was US$730.
During the third quarter of 2010, the average price of gold was US$1,227 per ounce, with gold trading in a range of US$1,157 to US$1,308 per ounce. This compares to an average of US$961 per ounce in the third quarter of 2009, with a low of US$909 and a high of US$1,019 per ounce. The average price of gold for the nine months ended September 30, 2010 was US$1,177. As of November 9, 2010, the price of gold was US$1,421.
The Canadian dollar ("CAD") modestly strengthened during the third quarter from $0.94 to $0.97 relative to the US dollar ("USD"). During September, USD weakness was brought about by speculation over the potential for the Federal Reserve to announce another round of quantitative easing. However, the CAD is also fundamentally supported by its relatively strong sovereign position, strong commodity prices and positive foreign flows into Canada.
7
 3RD QUARTER REPORT 2010

Final pricing on metals settled during the three and nine months ended September 30, 2010 are set out in the following table:
Average Realized Metal Prices and Exchange Rates

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
	
Palladium – US$/oz	 	$	–	 	$	–	 	$	–	 	$	204	 	
Platinum – US$/oz	 	$	–	 	$	–	 	$	–	 	$	1,025	 	
Gold – US$/oz	 	$	1,231	 	$	–	 	$	1,172	 	$	896	 	
Nickel – US$/lb	 	$	9.35	 	$	–	 	$	9.35	 	$	4.80	 	
Copper – US$/lb	 	$	3.23	 	$	–	 	$	3.23	 	$	1.45	 	
	
Average exchange rate (Bank of Canada) – CDN$1 = US$	 	US$	0.96	 	US$	0.91	 	US$	0.97	 	US$	0.85	 	
	
Final realized prices for LDI are not determined until the refined metal is sold by the third party smelter, which is three months after delivery to the smelter for base metals and six months for precious metals. Until this time, LDI's metals are provisionally priced at month end forward prices.
For comparison purposes, the following table details the recorded spot metal prices and exchange rate for the specified metals:
Spot Metal Prices* and Exchange Rates

 	 	November 9
2010	 	September 30
2010	 	June 30
2010	 	March 31
2010	 	December 31
2009	 	September 30
2009	 	June 30
2009	 	March 31
2009	 	December 31
2008	 	
	 	
Palladium – US$/oz	 	$	730	 	$	573	 	$	446	 	$	479	 	$	393	 	$	294	 	$	249	 	$	215	 	$	183	 	
Gold – US$/oz	 	$	1,421	 	$	1,307	 	$	1,244	 	$	1,116	 	$	1,104	 	$	996	 	$	934	 	$	916	 	$	869	 	
Platinum – US$/oz	 	$	1,786	 	$	1,662	 	$	1,532	 	$	1,649	 	$	1,461	 	$	1,287	 	$	1,186	 	$	1,124	 	$	898	 	
Nickel – US$/lb	 	$	11.03	 	$	10.57	 	$	8.78	 	$	11.33	 	$	8.38	 	$	7.86	 	$	7.26	 	$	4.27	 	$	4.90	 	
Copper – US$/lb	 	$	4.01	 	$	3.65	 	$	2.95	 	$	3.56	 	$	3.33	 	$	2.78	 	$	2.31	 	$	1.83	 	$	1.32	 	
	 	
Exchange rate
(Bank of Canada) –
CDN$1 = US$	 	US$	1.00	 	US$	0.97	 	US$	0.94	 	US$	0.98	 	US$	0.96	 	US$	0.93	 	US$	0.86	 	US$	0.79	 	US$	0.82	 	
	 	
*
Based on the London Metal Exchange
8
 3RD QUARTER REPORT 2010

FINANCIAL REVIEW
Income from mining operations
Income from mining operations includes the following:

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	 	
 	 	2010	 	2009	 	2010	 	2009	 	 	
	
Revenue before pricing adjustments	 	$	33,724	 	$	–	 	$	63,334	 	$	–	 	 	
Pricing adjustments	 	 	4,727	 	 	1	 	 	4,262	 	 	4,018	 	 	
	
Revenue after pricing adjustments	 	$	38,451	 	$	1	 	$	67,596	 	$	4,018	 	 	
	
Production costs	 	$	20,452	 	$	–	 	$	53,153	 	$	–	 	 	
Smelter treatment, refining and freight costs	 	 	1,953	 	 	4	 	 	3,147	 	 	82	 	 	
Royalty expense	 	 	1,439	 	 	–	 	 	2,184	 	 	201	 	 	
Inventory pricing adjustment	 	 	(388	)	 	(639	)	 	–	 	 	(3,634	)	 	
Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	 	
Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	 	
Loss (gain) on disposal of equipment	 	 	86	 	 	(21	)	 	103	 	 	(21	)	 	
Care and maintenance costs	 	 	–	 	 	2,533	 	 	–	 	 	8,799	 	 	
	
Total operating expenses	 	$	26,858	 	$	2,103	 	$	70,272	 	$	5,944	 	 	
	
Income (loss) from mining operations	 	$	11,593	 	$	(2,102	)	$	(2,676	)	$	(1,926	)	 	
	
LDI Palladium Mine
Income from mining operations for the LDI palladium mine are summarized in the following table.

 	 	 	Three months ended September 30	 	 	Nine months ended
September 30	 	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	 	
	
Revenue after pricing adjustments	 	$	33,394	 	$	1	 	$	49,462	 	$	4,018	 	 	

Operating expenses	

 	

 	

 	

 	

Production costs	 	$	13,700	 	$	–	 	$	29,834	 	$	–	 	 	
Smelter treatment, refining and freight costs	 	 	1,940	 	 	4	 	 	3,103	 	 	82	 	 	
Royalty expense	 	 	1,439	 	 	–	 	 	2,184	 	 	201	 	 	
Inventory pricing adjustment	 	 	(388	)	 	(639	)	 	–	 	 	(3,634	)	 	
Depreciation and amortization	 	 	629	 	 	69	 	 	3,708	 	 	170	 	 	
Asset retirement obligation accretion	 	 	96	 	 	94	 	 	287	 	 	283	 	 	
Loss (gain) on disposal of equipment	 	 	84	 	 	(21	)	 	105	 	 	(21	)	 	
Care and maintenance costs	 	 	–	 	 	2,533	 	 	–	 	 	8,799	 	 	
	
Total operating expenses	 	$	17,500	 	$	2,040	 	$	39,221	 	$	5,880	 	 	
	
Income (loss) from mining operations	 	$	15,894	 	$	(2,039	)	$	10,241	 	$	(1,862	)	 	
	
Revenue
Revenue is affected by sales volumes, commodity prices and currency exchange rates. Metal sales for LDI are recognized in revenue at provisional prices when delivered to a smelter for treatment. Final pricing is not determined until the refined metal is sold, which in the case of LDI base metals is three months and precious metals six months after delivery to the smelter. 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
9
 3RD QUARTER REPORT 2010

the Canadian dollar relative to the U.S. dollar will result in additional revenues and a strengthening in the Canadian dollar will result in reduced revenues.
Sales volumes of LDI's major commodities are set out in the table below.

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
	
Sales volumes	 	 	 	 	 	 	 	 	 	
 	Palladium (oz)	 	38,123	 	–	 	62,211	 	–	 	
 	Gold (oz)	 	1,553	 	–	 	2,525	 	–	 	
 	Platinum (oz)	 	2,013	 	–	 	3,100	 	–	 	
 	Nickel (lbs)	 	146,496	 	–	 	236,129	 	–	 	
 	Copper (lbs)	 	238,698	 	–	 	412,184	 	–	 	
 	Cobalt (lbs)	 	3,622	 	–	 	5,941	 	–	 	
	
Revenue from metal sales during the three and nine months ended September 30, 2010 is set out below.

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	 	
	
Revenue before pricing adjustments	 	$	28,667	 	$	–	 	$	45,200	 	$	–	 	 	
Pricing adjustments	 	 	4,727	 	 	1	 	 	4,262	 	 	4,018	 	 	
	
Revenue after pricing adjustments	 	$	33,394	 	$	1	 	$	49,462	 	$	4,018	 	 	

Revenue by metal	

 	

 	

 	

 	

 	Palladium	 	$	24,989	 	$	–	 	$	36,568	 	$	2,683	 	 	
 	Gold	 	 	2,141	 	 	–	 	 	3,425	 	 	120	 	 	
 	Platinum	 	 	3,503	 	 	–	 	 	5,296	 	 	1,063	 	 	
 	Nickel	 	 	1,984	 	 	–	 	 	2,524	 	 	5	 	 	
 	Copper	 	 	701	 	 	–	 	 	1,524	 	 	170	 	 	
 	Cobalt	 	 	61	 	 	–	 	 	106	 	 	(70	)	 	
 	Silver	 	 	15	 	 	1	 	 	19	 	 	47	 	 	
	
 	 	$	33,394	 	$	1	 	$	49,462	 	$	4,018	 	 	
	
For the three and nine months ending September 30, 2010, revenue before pricing adjustments was $28.7 million and $45.2 million respectively, compared to $nil for the same comparative periods last year, reflecting no production from the LDI mine. Due to the recovery of metal prices, the Company recommenced operations in April 2010 after being on care and maintenance since October 2008.
Revenue after pricing adjustments from metal settlements which includes the mark-to-market of accounts receivable for the three months ended September 30, 2010 was $33.4 million, reflecting a $5.7 million positive commodity price adjustment offset by a $1.0 million negative foreign exchange adjustment. This compares to nominal pricing adjustments recognized in the same period last year. For the nine months ended September 30, 2010, revenue after pricing adjustments was $49.5 million, reflecting a $5.0 million positive commodity price adjustment offset by a $0.8 million negative foreign exchange adjustment. This compares to $4.0 million of revenue recognized in the same period last year comprised of a $4.6 million favourable commodity price adjustment offset by a $0.6 million negative foreign exchange adjustment. The prior period pricing adjustments reflected final pricing on metal settlements relating to concentrate shipments made prior to the October 2008 mine shutdown.
10
 3RD QUARTER REPORT 2010

Operating Expenses
For the quarter ended September 30, 2010, total production costs at the LDI mine were $13.7 million compared to $nil in the same quarter last year, when the mine was on care and maintenance. For the nine months ended September 30, 2010, total production costs 2 were $29.8 million, which includes the operating costs to restart the Roby Zone and the LDI mill in the first quarter of 2010. The Company expensed the restart operating costs associated with the LDI palladium mine since the mine was placed on temporary care and maintenance in October 2008 and the Company retained all key senior management during the care and maintenance period in anticipation of a prompt restart when metal prices recovered. Total cash cost 2 per ounce of palladium sold, net of by product credits was US$218 and US$253 for the three and nine months ended September 30, 2010 respectively.
2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33.
For the three months ended September 30, 2010, the inventory pricing adjustment was a recovery of $0.4 million compared to a recovery of $0.6 million in the same period last year due to the increase in metal prices that were partially offset by the strengthening of the Canadian dollar. For the nine months ended September 30, 2010, the inventory pricing adjustment was $nil compared to a recovery of $3.6 million in the same period last year. The comparative periods in the prior year reflected the adjustment of ore inventories to net realizable value due to the increase in metal prices that were partially offset by the strengthening of the Canadian dollar.
Smelter treatment, refining and freight costs for the three months ended September 30, 2010 were $1.9 million compared to a nominal amount in the corresponding period in 2009. For the nine months ended September 30, 2010, smelter treatment, refining and freight costs were $3.1 million compared to $0.1 million in the same period last year, which reflected final pricing and assay adjustments on concentrate shipments made prior to placing the mine on temporary care and maintenance in October 2008.
For the three months ended September 30, 2010, royalty expense was $1.4 million compared to $nil in the same period last year. For the nine months ended September 30, 2010, the royalty expense was $2.2 million compared to $0.2 million in the same period last year, which reflected final pricing of metal settlements that was less than the mark-to-market adjustments on concentrate shipments made prior to placing the mine on temporary care and maintenance in October 2008.
Depreciation and amortization at the LDI mine for the third quarter ended September 30, 2010 was $0.6 million, which includes a reallocation of $0.1 million to crushed and broken ore and concentrate inventory, compared to $0.1 million in the corresponding period in 2009. For the nine months ended September 30, 2010, depreciation and amortization was $3.7 million, which includes a reallocation of $0.3 million to crushed and broken ore and concentrate inventory, compared to $0.2 million in the corresponding period in 2009. LDI's depreciation and amortization expense for the three and nine months ended September 30, 2010 reflects the use of vehicles and equipment relating to the production of the Roby underground mine, development of the Offset Zone underground mine, and mill operations using the unit of production and straight line methods of depreciation, whereas the comparative periods reflected depreciation of vehicles still in use while the mine was on care and maintenance.
During the three and nine months ended September 30, 2010, the loss on disposition of equipment was $0.1 million compared to a nominal gain in the comparative periods last year, which represented the disposition of certain mining equipment.
For the three and nine months ended September 30, 2010, the asset retirement obligation accretion was $0.1 million and $0.3 million respectively, which is comparable to the same periods last year.
11
 3RD QUARTER REPORT 2010

Sleeping Giant Gold Mine
Income from mining operations for the Sleeping Giant gold mine is summarized in the following table.

 	 	 	Three months ended September 30	 	 	Nine months ended September 30	 	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	 	
	
Revenue after pricing adjustments	 	$	5,057	 	$	–	 	$	18,134	 	$	–	 	 	

Operating expenses	

 	

 	

 	

 	

Production costs	 	$	6,752	 	$	–	 	$	23,319	 	$	–	 	 	
Refining and freight costs	 	 	13	 	 	–	 	 	44	 	 	–	 	 	
Depreciation and amortization	 	 	2,513	 	 	26	 	 	7,458	 	 	27	 	 	
Asset retirement obligation accretion	 	 	49	 	 	37	 	 	146	 	 	37	 	 	
Loss (gain) on disposal of equipment	 	 	2	 	 	–	 	 	(2	)	 	–	 	 	
	
Total operating expenses	 	$	9,329	 	$	63	 	$	30,965	 	$	64	 	 	
	
Loss from mining operations	 	$	(4,272	)	$	(63	)	$	(12,831	)	$	(64	)	 	
	
Revenue
Metal sales for the Sleeping Giant gold mine are recognized at the time that significant risks and rewards transfer to the purchaser.
Sales volumes are set out in the table below.

 	 	Three months ended September 30	 	Nine months ended September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
	
Sales volumes summary (payable)	 	 	 	 	 	 	 	 	 	
 	Gold (oz)	 	3,742	 	–	 	14,542	 	–	 	
 	Silver (oz)	 	14,000	 	–	 	24,000	 	–	 	
	
Revenue from metal sales during the three and nine months ended September 30, 2010 is set out below.

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
	
Revenue before pricing adjustments	 	$	5,057	 	$	–	 	$	18,134	 	$	–	 	
Pricing adjustments	 	 	–	 	 	–	 	 	–	 	 	–	 	
	
Revenue after pricing adjustments	 	$	5,057	 	$	–	 	$	18,134	 	$	–	 	
	
Revenue by metal	 	 	 	 	 	–	 	 	 	 	 	–	 	
 	Gold	 	$	4,763	 	$	–	 	$	17,661	 	$	–	 	
 	Silver	 	 	294	 	 	–	 	 	473	 	 	–	 	
	
 	 	$	5,057	 	$	–	 	$	18,134	 	$	–	 	
	
For the quarter ended September 30, 2010, revenue was $5.1 million, reflecting gold sales of 3,742 ounces with an average realized price of US$1,231 per ounce. For the nine months ended September 30, 2010, revenue was $18.1 million, reflecting gold sales of 14,542 ounces with an average realized price of US$1,172 per ounce.
12
 3RD QUARTER REPORT 2010

Operating Expenses
For the three and nine months ended September 30, 2010, total production costs at the Sleeping Giant gold mine were $6.8 million and $23.3 million, respectively. There were no production costs for the same periods last year as the mine reached commercial production January 1, 2010. Total cash cost 2 was US$1,660 and US$1,527, respectively for the three and nine months ended September 30, 2010.
Depreciation and amortization at the Sleeping Giant gold mine was $2.5 million and $7.5 million for the three and nine months ended September 30, 2010, respectively, and reflects the depreciation and amortization of its mining interests using the unit of production and straight line methods of depreciation. The comparative periods in the prior year reflected nominal amounts relating to straight line depreciation for the use of light vehicles and office equipment.
Gain on disposal of equipment for the three and nine months ended September 30, 2010 was nominal as compared to the prior periods.
For the quarter ended September 30, 2010, the asset retirement obligation accretion was nominal as compared to the same period last year. For the nine months ended September 30, 2010, the asset retirement obligation accretion was $0.1 million, compared to a nominal amount for the same comparative period.
Asset Impairment
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances arise that may result in impairments in the carrying value of those assets. Impairment is considered to exist if total estimated future undiscounted cash flows are less than the carrying amount of the asset. In the opinion of the Company's management, during the three and nine months ended September 30, 2010 there were no events or changes in circumstances giving rise to an impairment in the carrying value of long-lived assets. Assumptions underlying future cash flow estimates are subject to risk and uncertainty. Any differences between significant assumptions and market conditions such as metal prices, exchange rates, recoverable metal, and/or the Company's operating performance could have a material effect on the Company's ability to recover the carrying amounts of its long-lived assets resulting in possible additional impairment charges.
2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33.
Other Expenses
The Company's general and administration expenses for the quarter ended September 30, 2010 were $2.4 million compared to $1.8 million in the same period last year. For the nine months ended September 30, 2010, general and administration expenses were $7.7 million compared to $6.1 million in the corresponding period last year. In the current periods, the Company incurred additional administration costs as a result of the restart of the Sleeping Giant gold mine.
Exploration expenditures for the quarter ended September 30, 2010 were $7.0 million compared to $2.6 million in the same quarter last year. For the nine months ended September 30, 2010, exploration expenditures were $17.6 million compared to $8.9 million in the same period last year, and are comprised of the following:

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
	
LDI Offset Zone project	 	$	1,849	 	$	1,502	 	$	5,786	 	$	5,457	 	
Other Ontario exploration projects*	 	 	1,915	 	 	863	 	 	5,006	 	 	3,090	 	
Sleeping Giant mine property	 	 	796	 	 	–	 	 	2,265	 	 	–	 	
Other Quebec exploration projects**	 	 	2,448	 	 	258	 	 	4,537	 	 	400	 	
	
Total exploration expenditures	 	$	7,008	 	$	2,623	 	$	17,594	 	$	8,947	 	
	
*
Other Ontario exploration projects are comprised of Shebandowan and other LDI exploration projects, including the Mine Block, West Pit, South Pit, Creek Zone, North VT Rim, and the Legris option.
**
Other Quebec exploration projects are comprised of the Montbray, Harricana, Cameron Shear, Flordin, Laflamme, and Florence properties.
13
 3RD QUARTER REPORT 2010

Interest and other income for the quarter ended September 30, 2010 was $0.1 million compared to $0.2 million in the corresponding period last year, a decrease of $0.1 million. For the nine months ended September 30, 2010, interest and other income was $0.1 million, compared to $1.5 million in the same period in 2009. The reduced interest and other income was due primarily to the lower interest income earned on short term interest bearing deposits.
The foreign exchange gain for the quarter ended September 30, 2010 was nominal compared to $0.1 million in the same period last year. For the nine months ended September 30, 2010, the foreign exchange gain was nominal compared to $0.3 million in the comparative period last year. The corresponding periods in 2009 primarily related to foreign exchange gains on the translation of the Company's U.S. dollar denominated capital leases and credit facilities.
Income and Mining Tax Recovery
The income and mining tax recovery for the three and nine months ended September 30, 2010 is provided in the table below.

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
	
LDI palladium mine	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ontario resource allowance recovery	 	$	–	 	$	–	 	$	315	 	$	–	 	
Ontario transitional tax credit	 	 	–	 	 	–	 	 	280	 	 	–	 	
Corporate minimum tax credit	 	 	–	 	 	–	 	 	75	 	 	–	 	
	
 	 	$	–	 	$	–	 	$	670	 	$	–	 	

Sleeping Giant gold mine	

 	

 	

 	

 	
 	
Quebec mining duties recovery	 	$	–	 	$	–	 	$	110	 	$	–	 	
Quebec income tax recovery	 	 	–	 	 	–	 	 	26	 	 	–	 	
Mining interests timing difference expense	 	 	(456	)	 	–	 	 	(273	)	 	–	 	
	
 	 	$	(456	)	$	–	 	$	(137	)	$	–	 	

Corporate and other	

 	

 	

 	

 	
 	
Expiration of warrants	 	$	–	 	$	–	 	$	1,593	 	$	–	 	
Renunciation of flow-through exploration expenditures	 	 	1,408	 	 	–	 	 	2,732	 	 	–	 	
	
 	 	$	1,408	 	$	–	 	$	4,325	 	$	–	 	
	
 	 	$	952	 	$	–	 	$	4,858	 	$	–	 	
	
For the quarter ended September 30, 2010, the Company's income and mining tax recovery was $1.0 million compared to $nil in the corresponding period last year. In the past, the Company built up significant corporate income tax pools and has recorded benefits such as the recovery of future income taxes resulting from the renunciation of exploration expenses related to the 2009 flow-through share offering ($1.4 million), which was offset by the mining interests timing difference expense ($0.5 million). For the nine months ended September 30, 2010, the income and mining tax recovery was $4.9 million compared to $nil in the same period in 2009, due primarily to the recovery of future income taxes created on the renunciation of exploration expenses related to the 2009 flow-through share offering ($2.7 million), recovery of future income taxes created on the expiration of warrants ($1.6 million), the recovery of a tax liability arising in respect of the Ontario harmonization transition rules ($0.3 million), and the current income tax recovery relating to Ontario in respect of its estimated resource allowance ($0.3 million).
14
 3RD QUARTER REPORT 2010

Net Income
For the quarter ended September 30, 2010, the Company reported a net income of $3.2 million or $0.02 per share compared to a net loss of $6.2 million or $0.06 per share in the same period last year. For the nine months ended September 30, 2010, the Company reported a net loss of $23.0 million or $0.17 per share compared to a net loss of $15.7 million or $0.17 per share in the same period last year.
Summary of Quarterly Results
(expressed in thousands of Canadian dollars except per share amounts)

 	 	2010
	 	2009*
	 	2008

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Q3	 	Q2	 	Q1	 	Q4	 	Q3	 	Q2	 	Q1	 	Q4	 	 	
	
Revenue – before pricing adjustments	 	$	33,724	 	$	21,680	 	$	7,930	 	$	–	 	$	–	 	$	–	 	$	–	 	$	10,151	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Commodities	 	 	5,691	 	 	(666	)	 	–	 	 	2	 	 	10	 	 	373	 	 	4,229	 	 	(7,568	)	 	
 	Foreign exchange	 	 	(964	)	 	201	 	 	–	 	 	(1	)	 	(9	)	 	(1,651	)	 	1,066	 	 	9,357	 	 	
	
Revenue – after pricing adjustments	 	$	38,451	 	$	21,215	 	$	7,930	 	$	1	 	$	1	 	$	(1,278	)	$	5,295	 	$	11,939	 	 	
	
Exploration expense	 	 	7,008	 	 	6,421	 	 	4,165	 	 	4,287	 	 	2,623	 	 	3,916	 	 	2,408	 	 	4,670	 	 	
Cash provided by (used in) operations	 	 	(20,053	)	 	(18,433	)	 	(10,172	)	 	(13,097	)	 	(8,911	)	 	11,464	 	 	14,455	 	 	(16,637	)	 	
Cash provided by (used in) operations prior to changes in non-cash working capital per share 2	 	$	0.04	 	$	(0.04	)	$	(0.11	)	$	(0.11	)	$	(0.06	)	$	(0.11	)	$	0.01	 	$	(0.19	)	 	
Net income (loss)	 	 	3,185	 	 	(11,560	)	 	(14,624	)	 	(14,361	)	 	(6,194	)	 	(9,806	)	 	347	 	 	(112,419	)	 	
Net loss per share – basic and diluted	 	$	0.02	 	$	(0.08	)	$	(0.11	)	$	(0.11	)	$	(0.06	)	$	(0.11	)	$	0.00	 	$	(1.31	)	 	
	
*
Certain prior period amounts have been reclassified to conform to the classification adopted in the current period. 

2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33.
15
 3RD QUARTER REPORT 2010

FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	 	
	
Cash used in operations prior to changes in non-cash working capital	 	$	6,022	 	$	(5,846	)	$	(14,069	)	$	(14,669	)	 	
Changes in non-cash working capital	 	 	(26,075	)	 	(3,065	)	 	(34,589	)	 	31,677	 	 	
	
Cash provided by (used in) operations	 	 	(20,053	)	 	(8,911	)	 	(48,658	)	 	17,008	 	 	
Cash provided by (used in) financing	 	 	(678	)	 	46,443	 	 	92,804	 	 	41,921	 	 	
Cash provided by (used in) investing	 	 	(14,185	)	 	(5,626	)	 	(28,787	)	 	(8,869	)	 	
	
Increase (decrease) in cash and cash equivalents	 	$	(34,916	)	$	31,906	 	$	15,359	 	$	50,060	 	 	
	
For the three months ended September 30, 2010, cash provided by operations prior to changes in non-cash working capital was $6.0 million, compared to cash used in operations of $5.8 million in the same period last year, an increase of $11.8 million. This increase is due primarily to the increased net income ($12.5 million) (of which depreciation and amortization represents $3.1 million), partially offset by the future income and mining tax recoveries ($1.0 million). For the nine months ended September 30, 2010, cash used in operations prior to changes in non-cash working capital was $14.1 million, compared to $14.7 million in the same period last year, an increase of $0.6 million. This increase is due primarily to the increased net income ($3.7 million) (of which depreciation and amortization represents $11.1 million), and accrued interest and accretion on advances ($0.4 million), partially offset by the future income and mining tax recoveries ($4.1 million).
For the quarter ended September 30, 2010, non-cash working capital increased by $26.1 million compared to $3.1 million in the same period last year. The $26.1 million increase is primarily due to an increase in accounts receivable ($29.9 million), other assets ($1.1 million), inventories ($0.2 million) before a depreciation adjustment ($0.1 million), and taxes receivable ($0.1 million), offset by an increase to accounts payable and accrued liabilities ($5.3 million). For the nine months ended September 30, 2010, non-cash working capital increased by $34.6 million compared to $31.7 million in the same period last year. The $34.6 million increase is due to an increase in accounts receivable ($44.3 million), other assets ($1.2 million), and taxes receivable ($0.8 million), offset by an increase in accounts payable and accrued liabilities ($11.1 million) and a decrease in inventories ($0.9 million) before a depreciation adjustment ($0.3 million).
For the quarter ending September 30, 2010, cash used in operations was $20.1 million compared to $8.9 million in the corresponding period last year. For the nine months ending September 30, 2010, cash used in operations was $48.7 million compared to cash provided by operations of $17.0 million in the corresponding period last year.
For the quarter ending September 30, 2010, financing activities used cash of $0.7 million and reflected the scheduled repayment of capital leases, compared to cash provided of $46.4 million in the corresponding period last year, the majority of which reflected the $47.4 million net proceeds received from the September 2009 equity offering. For the nine months ending September 30, 2010, financing activities provided cash of $92.8 million of which $94.3 million related to the April 2010 equity offering, offset by the scheduled repayment of capital leases of $1.5 million, compared to cash provided of $41.9 million in the corresponding period last year, the majority of which reflected the $47.4 million net proceeds received from the September 2009 equity offering. The Company's obligations under capital leases
16
 3RD QUARTER REPORT 2010

increased to $2.6 million at September 30, 2010 from $1.1 million at December 31, 2009 due to new capital lease obligations of $2.9 million, offset by scheduled capital lease repayments of $1.4 million.
On April 28, 2010, the Company completed an equity offering of 20,000,000 units at a price of $5.00 per unit for total net proceeds of $94.2 million (issue costs $5.8 million), which included the exercise of an over-allotment option in the amount of 2,600,000 units at a price of $5.00 per unit. Each unit consists of one common share and one-half of one common share purchase warrant of the Company. Each whole warrant entitles the holder to purchase an additional common share at a price of $6.50, subject to adjustment, at any time prior to October 28, 2011. In the event that the weighted average closing price of the common shares on the TSX is greater than $7.50 per share for a period of 20 trading days at any time after the closing of the offering, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof and in such case the warrants will expire on the 30th day after the date on which such notice is given by the Company.
For the three and nine months ended September 30, 2010, investing activities required cash of $14.2 million and $28.8 million, respectively relating to additions to mining interests provided in the table below, offset by proceeds of disposition of $0.4 million. For the three months ended September 30, 2009, investing activities required cash of $5.6 million. For the nine months ended September 30, 2009, investing activities required cash of $8.9 million, of which $1.1 million was attributable to transaction costs associated with the acquisition of Cadiscor and $7.8 million related to additions to mining interests.
Additions to mining interests

 	 	 	Three months ended
September 30	 	 	Nine months ended
September 30	 	
 	 	 	2010	 	 	2009	 	 	2010	 	 	2009	 	
	
LDI palladium mine	 	 	 	 	 	 	 	 	 	 	 	 	 	
Offset Zone development	 	$	3,978	 	$	–	 	$	9,951	 	$	–	 	
Roby Zone development	 	 	1,443	 	 	–	 	 	2,425	 	 	–	 	
Offset Zone exploration costs	 	 	1,127	 	 	–	 	 	1,127	 	 	–	 	
Roby Zone exploration costs	 	 	639	 	 	–	 	 	639	 	 	–	 	
Jaw crusher	 	 	90	 	 	–	 	 	1,132	 	 	–	 	
Mill flotation redesign	 	 	2	 	 	–	 	 	798	 	 	–	 	
Tailings management facility	 	 	227	 	 	24	 	 	524	 	 	152	 	
Other equipment and betterments	 	 	806	 	 	163	 	 	1,541	 	 	422	 	
	
 	 	$	8,312	 	$	187	 	$	18,137	 	$	574	 	

Sleeping Giant gold mine	

 	

 	

 	

 	
 	
Shaft deepening	 	$	1,504	 	$	–	 	$	4,162	 	$	–	 	
Vezza project	 	 	3,743	 	 	–	 	 	3,779	 	 	–	 	
Underground and deferred development	 	 	892	 	 	3,875	 	 	2,406	 	 	5,444	 	
Other equipment and betterments	 	 	138	 	 	1,294	 	 	734	 	 	1,434	 	
	
 	 	$	6,277	 	$	5,169	 	$	11,081	 	$	6,878	 	

Corporate and other	

 	

 	

 	

 	
 	
Other equipment and betterments	 	$	–	 	$	291	 	$	4	 	$	303	 	
	
 	 	$	14,589	 	$	5,647	 	$	29,222	 	$	7,755	 	
	
In addition to the mining interests acquired by cash reflected in the above table, the Company also acquired by means of capital leases, equipment in the amount of $nil and $2.9 million for the three and nine months ending September 30, 2010. For the three and nine months ending September 30, 2010, 1,368,421 shares were issued for $6.5 million to purchase the Vezza property, in addition to $3.5 million in cash, which was added to mining interests.
17
 3RD QUARTER REPORT 2010

Capital Resources
As at September 30, 2010 the Company had cash and cash equivalents of $113.6 million compared to $98.3 million as at December 31, 2009. The funds are invested in short term interest bearing deposits at a major Canadian chartered bank.
In July, the Company obtained a $30 million operating line of credit with the Bank of Nova Scotia. The credit facility has a one year term, secured by the Company's accounts receivables and will be used for working capital liquidity and general corporate purposes. Under its smelting contract with Xstrata Nickel, NAP is entitled to receive advance payments of 70% within 60 days following the month of concentrate delivery. At September 30, 2010, both facilities are undrawn.
The cash flow from the LDI palladium mine and the Sleeping Giant gold mine, together with the Company's cash reserves and credit facilities, are expected to be sufficient to meet the Company's requirements in the near term. For the remainder of 2010, the Company intends to continue to deepen the mine shaft at the Sleeping Giant gold mine and also continue LDI's Offset Zone ramp and development. NAP will also continue spending exploration funds on its Ontario and Quebec properties.
Contractual Obligations

As at September 30, 2010	 	 	Payments Due by Period	 	
(expressed in thousands of Canadian dollars)	 	 	Total	 	 	1 Year	 	 	2-3 Years	 	 	4-5 Years	 	 	>5 Years	 	
	
Capital lease obligations	 	$	2,770	 	$	1,346	 	$	1,395	 	$	29	 	$	–	 	
Operating leases	 	 	3,733	 	 	1,681	 	 	867	 	 	675	 	 	510	 	
Purchase obligations	 	 	31,196	 	 	31,196	 	 	–	 	 	–	 	 	–	 	
	
 	 	$	37,699	 	$	34,223	 	$	2,262	 	$	704	 	$	510	 	
	
In addition to the above, the Company also has asset retirement obligations in the amount of $13.4 million that would become payable at the time of the closures of the LDI and Sleeping Giant mines. Deposits established by the Company to offset these future outlays amount to $10.5 million. As a result, $2.9 million of funding is required prior to closure of the mines.
Related Party Transactions
There were no related party transactions to report for the three and nine months ended September 30, 2010.
OUTSTANDING SHARE DATA
As of November 10, 2010, there were 149,191,315 common shares of the Company outstanding. In addition, there were options outstanding pursuant to the 1995 Corporate Stock Option Plan entitling holders thereof to acquire 3,048,050 common shares of the Company at a weighted average exercise price of $3.50 per share. As of the same date, there were also 19,200,000 warrants outstanding each warrant entitling the holder thereof to purchase one common share at a weighted average exercise price of $5.42 per share.
18
 3RD QUARTER REPORT 2010

REVIEW OF OPERATIONS
LDI Palladium Mine
The key operating results for the LDI palladium mine are set out in the following table.

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
	
Tonnes of ore milled	 	 	198,907	 	–	 	 	401,910	 	–	 	

Production	

 	

 	

 	

 	Palladium (oz)	 	 	34,420	 	–	 	 	62,259	 	–	 	
 	Gold (oz)	 	 	1,408	 	–	 	 	2,526	 	–	 	
 	Platinum (oz)	 	 	1,830	 	–	 	 	3,103	 	–	 	
 	Nickel (lbs)	 	 	131,154	 	–	 	 	236,297	 	–	 	
 	Copper (lbs)	 	 	214,853	 	–	 	 	412,464	 	–	 	
Palladium head grade (g/t)	 	 	7.05	 	–	 	 	6.41	 	–	 	
Palladium recoveries (%)	 	 	82.1	 	–	 	 	80.9	 	–	 	
Tonnes of ore mined	 	 	225,960	 	–	 	 	405,194	 	–	 	
Cost per tonne milled	 	$	69	 	–	 	$	59	 	–	 	
Total cash cost ($USD) 2	 	$	218	 	–	 	$	253	 	–	 	
	
2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33.
The LDI mine consists of an open pit, an operating underground mine (currently producing from the Roby Zone), and a mill with a nominal capacity of approximately 15,000 tonnes per day. The primary deposits on the property are the Roby Zone and the Offset Zone, both disseminated magmatic nickel-copper-platinum group metal ("PGM") deposits.
During the three months ended September 30, 2010, 225,960 tonnes of ore was extracted from the LDI mine, of which 220,694 tonnes came from the Roby Zone with an average palladium grade of 6.95 grams per tonne, and 5,266 tonnes of silling ore came from the Offset Zone at an average palladium grade of 9.37 grams per tonne. For the nine months ended September 30, 2010, 405,194 tonnes of ore was extracted, of which 399,928 tonnes came from the Roby Zone with an average palladium grade of 6.49 grams per tonne, and 5,266 tonnes of silling ore came from the Offset Zone at an average palladium grade of 9.37 grams per tonne. During the same comparative periods last year, no ore was extracted as the LDI mine was still on care and maintenance. Ore production from the Roby Zone at the LDI mine is operating at 2,600 tonnes per day, seven days per week, on two 12-hour shifts per day. The Company has a workforce of approximately 180 people at LDI and a new collective agreement with the United Steelworkers, effective until May 31, 2012.
The mining method for the underground mine is sublevel retreat longitudinal longhole stoping with unconsolidated rock fill. The mining block interval is 95 metres floor to floor with two sublevels in between and 20 metre sill pillars between blocks. Stopes average 60 metres in length with 7 to 10 metre-wide vertical rib pillars between stopes. Total intake ventilation for the mine is designed to be 205 cubic metres per second. There is one intake ventilation raise/secondary egress situated outside the ultimate open pit limits and air exhausts up the main ramp.
As currently envisaged, the Company will continue mining the Roby Zone for approximately two years while developing the Offset Zone with the objective of achieving a seamless changeover from mining in the Roby Zone to the Offset Zone.
19
 3RD QUARTER REPORT 2010

LDI Mill
For the three months ended September 30, 2010, the LDI mill processed 198,907 tonnes of ore at an average of 6,416 tonnes per operating day, producing 34,420 ounces of payable palladium at an average palladium head grade of 7.05 grams per tonne, with a palladium recovery of 82.1%, and mill availability of 91.3%. For the nine months ended September 30, 2010, the LDI mill processed 401,910 tonnes of ore at an average of 6,654 tonnes per operating day, producing 62,259 ounces of payable palladium at an average palladium head grade of 6.41 grams per tonne, with a palladium recovery of 80.9%, and mill availability of 93.8%. During the same comparative periods last year, the LDI mill was on temporary care and maintenance. Production costs, per tonne of ore milled, were $68 and $59, respectively for the three and nine months ended September 30, 2010. The mill is operating on a batch basis, with a two-week operating and a two-week shutdown schedule.
For the quarter ended September 30, 2010, the Company incurred capital costs relating to the mill of $0.2 million, which included the jaw crusher ($0.1 million), and other equipment and betterments ($0.1 million). For the nine months ended September 30, 2010, the Company incurred capital costs relating to the mill of $2.3 million, which included the jaw crusher ($1.1 million), mill flotation redesign ($0.8 million), and other equipment and betterments ($0.4 million).
LDI Mine Expansion Project Update
The Company engaged P&E Mining Consultants Ltd. ("P&E"), Nordmin Engineering ("Nordmin"), Xstrata Processing Support ("XPS"), and Scott Wilson Roscoe Postle Associates Inc. ("Scott Wilson RPA") to prepare a Preliminary Economic Assessment ("Scoping Study") on the development of the Offset Zone. On August 16, 2010, NAP announced its mine expansion plans were supported by a positive Scoping Study on the Offset Zone. Based on the work done with P&E, and recent exploration success, the Company believes that the most efficient way to mine the Offset Zone is by way of shaft access, with a capacity of approximately 5,500 tonnes or more per day. The mining method to be utilized is called "Super Shrinkage", a high volume bulk mining method similar to that used by Agnico-Eagle Limited at their Goldex mine in Quebec. This method increases the overall upfront capital requirements but is expected to significantly reduce the operating costs compared to other mining methods (to around $132 per ounce according to the Scoping Study), while allowing the Company to nearly double its production to over 250,000 ounces per year.
To reach commercial production from the Offset Zone by the third quarter of 2012, NAP intends to raisebore a shaft to surface from the 4,815 level and subsequently sink the shaft to the bottom 4,180 level. Commercial production is targeted at a mining rate of 3,500 tonnes per day, and is expected to increase to 5,500 tonnes per day in the fourth quarter of 2014.
Development work for the mine expansion is well underway and is currently progressing on NAP's projected timeline. The extension of the exploration ramp is approaching the 4800 level and raiseboring is scheduled to start in early 2011.
Detailed engineering of the surface hoisting plant and production shaft was initiated in May 2010 and is on schedule to be completed by the end of the year.
Execution risk is mitigated due to the fact that this is essentially a mine expansion, with a mill, tailings management facility, infrastructure and permits already in place. Timing risk has been substantially diminished as the Company has already purchased the production, sinking and service cage hoists that are critical to the project. During the quarter, the Company awarded the raiseboring contract for the shaft to Redpath Mining and to Cementation Inc. for raiseboring the ventilation raise.
NAP hired a very seasoned project management group with significant underground development experience from some of the industry's leading contractors. This team is responsible for all aspects of the Offset Zone development which includes leading the major construction components of the project as well as providing technical support to the contractors. All senior positions of the project team have been hired and the project group is onsite at LDI.
20
 3RD QUARTER REPORT 2010

Sleeping Giant Gold Mine
The key operating results for the Sleeping Giant gold mine are set out in the following table.

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
	
Tonnes of ore milled	 	 	21,645	 	–	 	 	71,546	 	–	 	

Production	

 	

 	

 	

Gold (oz)	 	 	3,879	 	–	 	 	12,979	 	–	 	
Gold head grade (g/t)	 	 	5.84	 	–	 	 	5.54	 	–	 	
Gold recoveries (%)	 	 	95.5	 	–	 	 	95.4	 	–	 	
Tonnes of ore hoisted	 	 	22,494	 	–	 	 	73,076	 	–	 	
Cost per tonne milled	 	$	312	 	–	 	$	326	 	–	 	
Total cash cost ($USD) 2	 	$	1,660	 	–	 	$	1,527	 	–	 	
	
2
Non-GAAP measure. Please refer to Non-GAAP Measures on page 33.
The Sleeping Giant gold mine consists of an underground mine and a mill with a capacity of 900 tonnes per operating day. For the quarter ended September 30, 2010, 22,494 tonnes of ore was hoisted from the underground mine with an average gold grade of 5.84 grams per tonne. For the nine months ended September 30, 2010, 73,076 tonnes of ore was hoisted from the underground mine with an average gold grade of 5.54 grams per tonne.
Since commencing operations at the Sleeping Giant mine, mining activities have been confined to zones mined by the previous owner. The ramp up to steady-state production in these zones has proceeded at a slower pace than expected as the tonnes and grade were not in line with initial expectations. New higher grade zones are currently under development in preparation for 2011 production, which will be accessible once the 200 metre shaft deepening and lateral development are completed. The Company's original mine plan was based on a technical report with wider drill spacing, which in consideration of the mine's geology, caused some of the challenges in accessing the higher grades.
A long-term solution is expected in the second quarter of 2011, once the Company's development team has completed a 200-metre shaft deepening and lateral development. This will allow the Company to access new stopes in zones that have historically provided good tonnage and higher grade feed for the mill.
For the balance of 2010, a number of measures have been implemented to manage the ramp-up issues. Tighter infill drilling is now being conducted to better manage grade control issues and shrinkage and long-hole stopes are being favoured over room and pillar stopes due to the greater certainty over grade and tonnage recovered. The Company will continue to adjust its mine plan and methods in order to optimize operations.
The Sleeping Giant gold mine was in production from 1988 to 1991 and from 1993 to September 2008, when it was placed on care and maintenance by its previous owner. Historically, cumulative production at the mine was approximately 960,000 ounces of gold over 20 years at an average grade of approximately 11.44 grams per tonne gold.
The mine is accessed by a four-compartment production shaft with a total depth of 1,053 metres. Levels are spaced at 45 metres from surface to a depth of 235 metres, and from there to a depth of 975 metres are spaced at 60 metres. The exploration shaft and various raises allow all portions of the mine to be ventilated with fresh air. An ore pass and a waste pass allow material to be handled and raised to the surface. The deepest working level of the mine is presently 975 metres. The mine uses 3 and 5 tonne electric locomotives and rail cars.
21
 3RD QUARTER REPORT 2010

Sleeping Giant Mill
For the quarter ended September 30, 2010, the mill processed 21,645 tonnes of ore, producing 3,879 ounces of gold at an average gold head grade of 5.84 grams per tonne, with a gold recovery of 95.5% and mill availability of 96.7%. For the nine months ended September 30, 2010, the mill processed 71,546 tonnes of ore, producing 12,979 ounces of gold at an average gold head grade of 5.54 grams per tonne, with a gold recovery of 95.4% and mill availability of 97.6%. Higher head grades are anticipated once the mine achieves steady-state production levels. Production costs per tonne of ore milled were $312 and $326, respectively for the three and nine months ended September 30, 2010.
At September 30, 2010, the mill contained approximately 1,453 ounces of gold that was included in inventory and valued at net realizable value, as it had not been sold by the end of the period. This gold is in solution and will be recovered if the mine experiences an extended shutdown.
The Sleeping Giant mill has a rated capacity of 900 tonnes per day and was operating at approximately 722 and 779 tonnes per operating day, respectively for the three and nine months ended September 30, 2010.
At steady-state production, the mill will only be operating at 71% capacity. The Company is currently completing a mill expansion study as the Company believes that its other gold assets (which are within trucking distance of the Sleeping Giant mill) have the potential to exceed current mill capacity.
EXPLORATION UPDATE
Offset Zone
The Offset Zone of the LDI property was discovered by the Company's exploration team in 2001. The Offset Zone is currently considered to be the fault-displaced continuation of the Roby Zone mineralization and is located below and approximately 250 meters to the southwest of the Roby Zone. On May 27, 2010, NAP published an updated mineral resource estimate by RPA that included the results of drilling completed in 2009. RPA concluded that the Offset Zone still remains open along strike to the north, south and at depth. The resource estimate also increased the palladium indicated resources grade in the Offset Zone by 25%, from 5.02 grams per tonne (the last published resource grade in March 2009) to 6.29 grams per tonne.
Based on work done up to the end of 2009, the estimated mineral resources of the Offset Zone are as follows:

 	 	Tonnes
(millions)	 	Pd
g/t	 	Pt
g/t	 	Au
g/t	 	Ni
%	 	Cu
%	 	Pd
(000 oz)	 	
Category															 	
	
Indicated	 	8.628	 	6.29	 	0.419	 	0.395	 	0.136	 	0.110	 	1,745	 	
Inferred	 	3.322	 	5.70	 	0.352	 	0.233	 	0.095	 	0.074	 	609	 	
	
The mineral resource calculation uses a minimum 4 grams per tonne palladium resource block cut-off.
It should be noted that the updated resource for the Offset Zone does not include drilling data from the Cowboy and Outlaw zones, as there was insufficient drill data at the time for a resource estimate. An NI 43-101 Technical Report, to be prepared by RPA, will include an updated reserve and resource estimate for the Roby Zone at LDI, and will be available in the fourth quarter of 2010.
During the third quarter of 2010, the Company continued its program of surface directional drilling with two rigs. The purpose of the drilling program is to intersect the Offset Zone between elevation 4500 and 4650, in order to increase the quality of the resource definition at these levels and eventually deeper, later in the year. Underground drilling also continued for infilling to complete the 30 metre grid on the upper part of the Offset Zone.
22
 3RD QUARTER REPORT 2010

On June 7, 2010, the Company issued a press release regarding the results of the exploration drilling on the Offset and Roby zones on which four drills have completed 63 holes totaling 20,500 meters, of which:
•
26 holes (5,485 meters) were completed from underground on the extension of the Roby Zone; and

•
37 holes (15,015 metres) were completed on the Offset Zone including:

(i)
underground on the upward extension of the Upper Offset Zone (mine elevation 4900 and higher);

(ii)
on the central Offset Zone to complete the previous drilling pattern and to follow its northern extension; and

(iii)
from surface with directional drilling, with the first deep holes into the lower Offset Zone (mine elevation 4650 and lower).
Results were positive and they expanded the Offset and Roby zones, which are still open laterally and at depth. The Offset Zone was drilled toward surface with mineralization intersected up to the 4950 level. Additional drilling is continuing on the Offset and Roby zones and an update on the exploration results will be provided before the end of the year.
On August 16, 2010, NAP announced a positive Scoping Study on the Offset Zone. Effective as of that date, the Company commenced capitalizing Offset Zone exploration costs.
Cowboy Zone and Outlaw Zone
The Cowboy Zone is located 30 to 60 metres to the west of the Offset Zone and was discovered in 2009 during infill drilling of the Offset Zone. This new discovery has the potential to extend the life of the LDI mine and could potentially favourably impact the economics of the mine. The first phase of the drilling campaign indicated that the Cowboy Zone extends for up to 250 metres along strike and 300 metres down dip. The assay results from the Phase 2 drilling extended the limit of the Cowboy Zone 50 metres farther to the north for a total strike length of 300 metres. The Outlaw Zone was intersected to the west of the Cowboy Zone and further drilling is required to explore the vertical and lateral limit of this mineralization. Additional infill drilling will be needed before resource calculations can be completed on the Cowboy and Outlaw zones. With the development of the ramp into the Offset Zone, drilling platforms will be established along this ramp to facilitate further exploration drilling of the Cowboy and Outlaw zones.
Lac Legris Property
During the second quarter of 2010, the Company signed an Option and Purchase Agreement with prospectors pursuant to which the Company can acquire a 100% interest in the Lac Legris property in exchange for cash payments totaling $0.3 million, advance royalty payments totaling $0.1 million, and royalties of 2.5% NSR. A portion of the royalty can be purchased by the Company and the Company has a right of first refusal on the sale of the royalties.
The property is adjacent to the south east portion of the Company's LDI property and is comprised of 15 claims and covering an area of approximately 4,297 hectares. The property is underlain by mafic and ultramafic rocks and was optioned for its PGE potential. The property is at a preliminary exploration stage and surface mapping, trenching and sampling started in the third quarter of 2010, with diamond drilling scheduled in the fourth quarter of 2010.
Sleeping Giant Gold Mine
The main focus of the drilling program that was conducted in the latter half of 2009 at Sleeping Giant was to demonstrate the potential to further extend the mine life. The extensional drill program resulted in additional resources both below and adjacent to the current mine workings, including an extension of the 30 West zone and the 3 zone. In 2010, the Company commenced an ongoing 30,000 metres of extensional underground drilling at a cost of approximately $2.1 million with the objective of extending the mine life further by identifying new resources and converting mineral resources to mineral reserves.
23
 3RD QUARTER REPORT 2010

Vezza Gold Property
The Company recently acquired the Vezza gold property from Agnico-Eagle Mines Limited ("AEM"), for consideration of $10 million. Vezza is an advanced-stage exploration project in close proximity to the Sleeping Giant mill. The project is estimated to have 288,000 contained ounces of gold in the measured and indicated categories (1,517,000 tonnes grading 5.9 grams per tonne gold) and an additional 121,000 contained gold ounces in the inferred category (754,000 tonnes grading 5.0 grams per tonne gold) (RPA 43-101 report, dated February 23, 2010). The deposit was subject to extensive surface and underground exploration and development from 1995 to 1998 by AEM. The Company is in the permitting process to have the shaft and underground drifts dewatered in order to conduct underground diamond drilling. Surface drilling started in the third quarter and will continue in the fourth quarter of 2010.
Discovery Property
At the end of 2009, the Company filed an environmental impact study for the Discovery project and applied for a mining lease to continue to advance the property toward a future underground exploration program. The permitting process continues and the Company now expects to finalize the process during the first quarter of 2011.
A 4,200-metre surface drilling program on the 1200E sector of the property was started in the second quarter of 2010 in order to expand the gold zones intersected in 2008. The program will continue into the fourth quarter of this year.
Flordin Property
The Flordin property is approximately 40 kilometres north of the town of Lebel-sur-Quévillon, Quebec, in close proximity to NAP's Discovery project and within trucking distance of the Sleeping Giant mill. Preliminary exploration drilling in 2008 intersected several mineralized zones, expanding the known dimensions of the mineralized area. InnovExplo Inc. was contracted in 2009 to prepare a NI 43-101 resource estimate on the property. The presence of several parallel gold veins near surface led to consideration of possible open pit mining scenarios. Using a 2 gram per tonne gold cut-off, the NI 43-101 report estimates that the property contains 679,000 tonnes of measured and indicated resources at an average grade of 4.25 grams per tonne gold for 92,814 contained ounces and an additional inferred resource of 1,451,400 tonnes grading 3.63 grams per tonne gold for a total of 169,261 contained ounces.
In the second quarter of 2010, NAP commenced a 10,000 metre infill drill campaign to upgrade the resource classification. The drilling campaign will continue until the end of 2010. The Company believes that the Flordin gold property could have the potential to provide additional feed for the underutilized Sleeping Giant mill.
Cameron Shear and Florence Properties
The Company has an option to earn a 50% interest in the Cameron Shear property, which is currently 100% owned by Canadian Royalties Inc. Florence is a small 100% Cadiscor-owned property that is located north and adjacent to the Cameron Shear property. These properties are adjacent and to the east of the Discovery gold deposit. A 5,000 metre drill program started in the third quarter of 2010 and will continue until the end of the year.
Dormex Property
In the third quarter of 2010, the Company continued its surface exploration program at the Dormex property, which surrounds the Sleeping Giant gold mine, combining geophysical surveys, reverse circulation drilling of the overburden and diamond drilling.
Laflamme Gold Property
During the third quarter of 2009, the Company entered into an option and joint venture agreement with Midland Exploration Inc. ("Midland") to earn an initial 50% interest in the Laflamme gold property. Strategically located between the Company's Sleeping Giant gold mine and the Comtois gold deposit in Quebec's Abitibi region, the Laflamme gold property consists of 410 claims covering a surface area of approximately 220 square kilometres west of Lebel-sur-Quevillon. Laflamme offers excellent potential for gold mineralization. A recent study conducted by the Ministère des Ressources naturelles et de la Faune du Québec has identified a list of gold-bearing targets in major
24
 3RD QUARTER REPORT 2010

structures that appear on the property. The Laflamme property stretches 20 to 60 kilometres east of the Sleeping Giant mine. In the fourth quarter of 2009, the company conducted an electro-magnetic aerial survey over the property in order to identify exploration targets. The survey results were analyzed during the first quarter of 2010. A number of targets were identified and line-cutting and ground geophysical surveys were initiated in the second quarter of 2010. A 4,000 metre drilling campaign on the anomalies started in early in the fourth quarter of 2010, following the interpretation of the ground geophysical surveys.
Shebandowan Property
The Company holds a 50% interest in the former producing Shebandowan mine and the surrounding Haines and Conacher properties pursuant to an Option and Joint Venture Agreement with Vale Inco Limited ("Vale"). The properties, known as the Shebandowan property, contain a series of nickel-copper-PGM mineralized bodies. The land package, which totals approximately 7,842 hectares, is located 90 kilometres west of Thunder Bay, Ontario, and approximately 100 kilometres southwest from the Company's LDI mine. Vale retains an option to increase its interest from 50% to 60%, exercisable in the event that a feasibility study on the property results in a mineral reserve and mineral resource estimate of the equivalent of 200 million pounds of nickel and other metals.
The Company and Vale conducted a large ground geophysical survey on the property in the first quarter of 2010. Preliminary results support further exploration work on the property and the parties have approved an 8-hole, 3,000 meters drilling program that started in the third quarter of 2010. The program will be completed by the end of the year. Nickel and copper mineralization containing PGEs are targeted.
FUTURE ACCOUNTING STANDARDS
Impact of International Financial Reporting Standards ("IFRS")
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed that Canadian GAAP for publicly accountable enterprises will be converged with IFRS effective in calendar year 2011, with early adoption allowed starting in calendar year 2009. The Company is required to adopt IFRS for the reporting of its interim and annual financial statements beginning on January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures.
The adoption of IFRS will make it possible for the Company to re-assess the fair values of assets and liabilities on its balance sheet under IFRS 1, which could impact the balance sheet significantly. Within IFRS 1 there are exemptions, some of which are mandatory and some of which are elective. The exemptions provide relief for companies from certain requirements in specified areas when the cost of complying with the requirements is likely to exceed the resulting benefit to users of financial statements. IFRS 1 generally requires retrospective application of IFRSs on first-time adoption, but prohibits such application in some areas, particularly when retrospective application would require judgments by management about past conditions after the outcome of a particular transaction is already known.
An effective conversion to IFRS requires that the Company address issues pertaining to various elements. These elements include financial reporting expertise, accounting policies, internal controls over financial reporting ("ICFR") and disclosure controls and procedures ("DC&P"), business activities, and consideration of the Company's information systems.
Financial Reporting Expertise
The Company is committed to ensuring that its board, management and employees possess the appropriate technical training to facilitate a smooth transition to IFRS. In preparation for the transition to IFRS, key members of the IFRS project team attended various seminars and information sessions and reviewed IFRS standards with a focus on identifying existing and emerging issues relating to the conversion to IFRS and ensuring their inclusion in the
25
 3RD QUARTER REPORT 2010

Company's preliminary conversion project scoping analysis. Based on the transition issues identified, the Company's IFRS project team has performed an evaluation of the impact of the adoption of IFRS on its consolidated financial statements, including the optional exemptions which may be elected by the Company under IFRS 1, the transitional standard addressing initial adoption of IFRS.
During 2009, key management personnel attended various seminars and information sessions regarding IFRS standards and related transition issues and held informal discussions with key operational and IT personnel regarding the pending changes under IFRS. Management has consulted with its external auditors regarding the evaluation of its readiness for conversion and the identification of key IFRS issues and has utilized various external resources to identify and obtain appropriate sources of IFRS guidance.
Information and update sessions were held with members of the Board of Directors (including Audit Committee members) both in 2009 and in each of the three quarters of 2010. At these information sessions, management and external consultants provided an overview of the project timeline and potential transition issues, IFRS standards and developments affecting the Company, and identified impacts on the financial statements of the Company.
Management has and will continue to monitor developments under IFRS and provide quarterly updates to the Audit Committee regarding the project status, IFRS standards, proposed policy changes, and financial impacts on balances previously reported under Canadian GAAP.
A)    Accounting Policies
During the conversion project, the Company has compared and evaluated the impacts of IFRS standards on its operations in comparison to those standards presently applied under Canadian GAAP. To transition to IFRS, the Company must apply "IFRS 1 – First Time Adoption of IFRS" that sets out the rules for first time adoption. In general, IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for the entity's first IFRS financial statements. This requires that an entity apply IFRS to its opening IFRS balance sheet as at January 1, 2010 (i.e. the balance sheet prepared at the beginning of the earliest comparative period presented in the entity's first IFRS financial statements).
The Company has determined that the IFRS 1 exemptions which are likely to be elected by the Company at the time of transition to IFRS on January 1, 2010 are those related to: business combinations; share-based payment transactions; leases; investments in subsidiaries, jointly controlled entities and associates; compound financial instruments; and decommissioning liabilities included in the cost of property, plant and equipment. The IFRS 1 elections relating to insurance contracts and assets and liabilities of subsidiaries, associates and joint ventures will not likely apply to the Company as it does not hold any insurance contracts and both the Company and its subsidiaries will transition to and adopt IFRS concurrently. In addition, IFRS 1 elections relating to fair value as deemed cost or cumulative translation differences are not expected to be applied. The Company is currently completing its review of the applicability of remaining IFRS 1 elections and will continue to review the impacts of amendments to IFRS standards regarding its present position relating to the above elections prior to the adoption of IFRS on January 1, 2011.
In addition to the identification of IFRS 1 elections, the Company has identified potential transition differences existing between Canadian GAAP and IFRS standards which may exist at January 1, 2010. However, in the period leading up to the transition to IFRS, the AcSB has issued Canadian accounting standards that are converged with IFRS standards such as IAS 2 (Inventories), IAS 16 (Capital Assets), IAS 38 (Intangible assets), and IFRS 9 (formerly IAS 32 and IAS 39) relating to the presentation, reporting and disclosure of financial instruments. This convergence has mitigated the impact of adopting IFRS at the mandatory transition date.
The following discussion outlines details of the accounting policies the Company currently expects to apply and management's preliminary estimates of the adjustments to results reported within the consolidated financial
26
 3RD QUARTER REPORT 2010

statements under Canadian GAAP at the January 1, 2010 date of transition to IFRS. The Company may choose to adopt different IFRS accounting policies, or choose to apply them only to certain transactions or circumstances in the period leading up to the final conversion to IFRS in 2011. As a result, the final transition adjustments upon conversion to IFRS may differ materially from management's current estimates.
Furthermore, the standard-setting bodies that determine IFRS have significant ongoing projects that could affect the ultimate differences between Canadian GAAP and IFRS, and their impact on the Company's consolidated financial statements. The impact IFRS has in future years will also depend on circumstances at the time.
Functional Currency
Based upon the application of IAS 21 (The Effects of Changes in Foreign Exchange Rates), the Company has determined that the Canadian dollar appropriately represents both its functional and reporting currency for the purposes of reporting under IFRS. Since this is consistent with the methodology presently applied under Canadian GAAP, no additional translation adjustments are expected as a result of the adoption of IFRS.
Mining Interests and Depreciation and Amortization
Although certain aspects of the standards under Canadian GAAP are converged with IFRS, differences still exist primarily with regards to the determination of impairment of assets under IAS 36. Under IFRS, the Company is required to identify cash generating units ("CGU's") independently for each of its consolidated entities. These CGU's represent the smallest group of assets which are capable of generating cash independently from other assets held by the Company. Specific distinction of such asset groupings is not presently applied under Canadian GAAP. As a result, management is in the process of reviewing its preliminary determinations of such groupings.
In determining whether impairment exists under Canadian GAAP, the Company performs a two-step approach that compares the net book value of assets to the undiscounted and discounted expected future cash flows from operations. Under IFRS, a one-step approach is used by which the determination of impairments require the comparison of the net book value of each of the CGU's to the recoverable amount of the CGU. The recoverable amount is determined as the higher of the fair value of the expected future cash flows from that CGU, less costs to sell ("Fair Value Less Cost to Sell") and the "Value in Use".
Under Canadian GAAP, any impairment assessed is not reversed. Under IFRS, impairments assessed must be reversed in subsequent periods should economic conditions recover.
Management has performed a preliminary analysis of the potential impact of the application of these IFRS standards on its reported mining interest balances. In accordance with IFRS 1, the Company may elect to measure certain property, plant and equipment at the date of transition to IFRSs at fair value and deem that fair value to be the cost of those assets at that date. The fair value of property, plant and equipment may be based on a previous GAAP revaluation at, or before, the date of transition to IFRSs.
Under Canadian GAAP, the carrying value of the mineral properties and fixed assets at LDI were previously impaired and were written down to fair value at December 31, 2008. In addition, the Sleeping Giant mine was acquired in 2009 and was included on the books at fair value on the date of acquisition. Based on its analysis, the Company expects to apply the IFRS 1 election on transition to IFRS to use the Canadian GAAP impaired and acquisition amounts as the deemed cost for the mineral properties and fixed assets for each mine respectively. Therefore, no adjustment is expected on transition to IFRS on January 1, 2010 as no further impairments were identified subsequent to the fair value dates for each property.
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 3RD QUARTER REPORT 2010

Financial Instruments
Although the allocation of fair values between the debt and equity components of compound financial instruments issued by the Company is performed differently under IAS 32, Financial Instruments Presentation, from the pro-rata method applied under Canadian GAAP, the measurement of the fair values of such instruments does not differ materially.
The Company is evaluating the decision to make the election available to it under IFRS 1 relating to compound financial instruments. Application of this election would eliminate the need to recognize transition variances relating to those debt instruments fully repaid prior to the January 1, 2010 transition date. As a result, only outstanding debt instruments and compound instruments denominated in foreign currencies would require retrospective restatement to comply with the standards within IAS 32 at the time of transition to IFRS on January 1, 2010.
The adoption of IAS 32 will result in material reallocations of balances within the Company's debt and equity accounts. It is the Company's preliminary assessment that, since a majority of the Company's debt and foreign denominated equity instruments matured prior to January 1, 2010, the impact of the adoption of IAS 32 will be limited primarily to the convertible notes and related embedded derivatives issued by the Company in 2006.
The convertible notes were comprised of two tranches, each consisting of notes payable, warrants, and an equity conversion option. Under Canadian GAAP, the notes were reflected as liabilities and the remaining instruments were classified as equity. Under IAS 32, since all components of the convertible notes were denominated in U.S. dollars and the notes and warrants were not issued pro-rata to all holders of its common shares, all components of this financial instrument are classified as liabilities. Since the warrants relating to the convertible notes did not mature until March and June of 2010, the IFRS 1 exemption cannot be used by the Company.
As a result, the following transitional adjustments are expected: $12.3 million recognized in contributed surplus due to non-exercise of the conversion options and $8.0 million attributed to warrant values under Canadian GAAP will be reallocated to retained earnings to reflect the gain which would have been recognized on the expiration of the liability under IFRS, with the exception of a nominal liability value of $0.1 million attributable to the outstanding fair value of the warrants at January 1, 2010.
Management is presently reviewing recent and proposed amendments to IFRS standards relating to financial instruments (IAS 32, 39, IFRS 7 and the future standard IFRS 9) which may further impact the adjustments required for conversion to IFRS. Therefore, the Company's determination of the financial impact of the final transition adjustments will be subject to its ongoing review of these amendments to IFRS standards.
Share-Based Payment Transactions
The Company has identified differences relating to the measurement of share-based payments under IFRS 2 relating to the Company's stock compensation plans. The differences between Canadian GAAP and IFRS primarily relates to the measurement of stock compensation expense relating to the Company's stock option plan and the valuation of restricted share units ("RSU") liabilities at each reporting date.
Under Canadian GAAP, stock compensation expense can be calculated on a straight-line depreciation method over the respective vesting period for each stock option. Under IFRS, stock compensation expense is recognized on a graduated method over the vesting period and a provision is generally applied against the recognized expense based on the historical rate of non-vesting of options.
Under Canadian GAAP, the fair value assigned to the liability of outstanding RSU's is the value of the Company's share price at each reporting date. Under IFRS, the fair value of the RSU liability at each reporting date is calculated to also include the intrinsic value of the underlying option of the holder to elect the timing of payment
28
 3RD QUARTER REPORT 2010

of the liability. As a result, under IFRS, the Company's determination of the fair value of each RSU at each reporting date will now also recognize the incremental value attributable to the volatility of the share price over the remaining term of each RSU. Management presently expects to utilize the Black-Scholes model to determine the option value contained in each RSU.
The Company's election under IFRS 1 relating to share-based payments will restrict the adjustments relating to the measurement of such equity instruments to only those instruments granted after November 7, 2002 and which have not vested at the date of transition of January 1, 2010.
Management's preliminary analysis suggests that the adoption of the provisions for stock options under IFRS 2 will result in the additional recognition of approximately $0.5 million in compensation expense (increase in deficit) as compared to Canadian GAAP with an equivalent increase in stock options being reflected on the Company's consolidated balance sheet at the January 1, 2010 transition date. The revaluation of the Company's outstanding RSU's in accordance with IFRS 2 is expected to result in an increase in liabilities and deficit by an additional $0.3 million at January 1, 2010.
Mine Reclamation Obligations
The measurement of decommissioning liabilities and related balances included in the cost of property, plant and equipment in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets differs from that applied by the Company under Canadian GAAP. An election by the Company under IFRS 1 would permit the measurement of these amounts as at January 1, 2010 with prospective application of IFRS standards subsequent to that date.
The methodology and assumptions used to determine the fair value of the Company's mine reclamation obligations at January 1, 2010 differ between Canadian GAAP and IFRS (IAS 37). Management's preliminary analysis estimated that an increase of approximately $0.7 million could be required to the obligation at January 1, 2010 under IFRS with a corresponding increase allocated between the mine reclamation assets and the accretion charges recognized through the Company's deficit.
In addition, under Canadian GAAP, certain of the mine reclamation assets held by the Company have been fully amortized. Under the application of the IFRS 1 election, the accumulated depreciation and amortization is recalculated by applying the appropriate depreciation rates to the restated mine reclamation asset value. It is expected that, this methodology will result in the reversal of depreciation and amortization recognized under Canadian GAAP in excess of $1 million. However, final estimates are contingent upon management's completion of the analysis of mining interests as previously discussed.
The Company is continuing to evaluate the potential impact of existing IFRS standards and proposed amendments to those standards on its reported mine reclamation obligation balances under IFRS. As a result of ongoing analyses and the potential amendments proposed to key IFRS standards, the specific impact that revisions to management's estimates will have upon the reporting and disclosures within the Company's financial statements cannot be effectively determined at this time.
Flow-Through Shares
The Company is presently reviewing its accounting policies relating to flow-through shares. Under Canadian GAAP, the accounting treatment of flow-through shares is addressed by Emerging Issues Committee (EIC) 146, Flow-Through Shares. Under IFRS, IAS 12, Income Taxes, contains no specific guidance on the appropriate accounting for flow-through shares. Therefore, entities are required to apply judgment in developing an appropriate model accounting policy based on the principles of IFRS standards.
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 3RD QUARTER REPORT 2010

SIC Interpretation 25, Income Taxes – Changes in the Tax Status of an Entity or its Shareholders, provides some additional guidance in that it requires that the current and deferred tax consequences of a change in tax status shall be included in profit or loss for the period, unless those consequences relate to transactions and events that result in a direct credit to the recognized amount of equity. The portion of tax liabilities or assets related to such recognized equity amounts which is not included in profit or loss must be charged or credited directly to equity. The Company's initial review of the above IFRS guidance and consultation with external sources, suggest that an approach similar to that applied under U.S. GAAP may be more appropriate.
Under Canadian GAAP, proceeds received from the issue of flow-through shares are included in the value of the Company's common share capital. The subsequent renunciation of tax deductions by the Company results in the recognition of a future tax liability and an equivalent charge is applied to reduce common share capital. Under U.S. GAAP, the fair value of the common shares issued is added to share capital with any excess of proceeds over the market value of the common shares being recorded as a liability. At the time of renunciations by the Company, the subsequent increases in future tax liabilities realized in excess of the initial amounts are expensed in the period of renunciation. As a result, the renunciation of tax deductions to holders of flow-through shares is treated as a future tax expense rather than as a cost of issuing equity as required by Canadian GAAP.
Based on the Company's U.S. GAAP filings, it is estimated that the above adjustments will result in an increase in share capital and deficit of approximately $1.8 million relating to flow-through shares settled prior to 2009 and an increase in accounts payable and a reduction of share capital of approximately $2 million relating to flow-through shares issued in 2009.
Management does not anticipate any material changes to its policies and procedures due to the adoption of IFRS standards for flow-through shares since it presently applies such policies and procedures through its requirement to determine and report the treatment for flow-through shares under both Canadian and U.S. GAAP.
Revenue Recognition
Revenue from the sale of palladium and by-product metals from the LDI mine is provisionally recognized based on forward pricing upon delivery of the concentrate to the smelter. Revenue from the sale of gold is recognized upon value date, which is when title transfers and the rights and obligations of ownership pass.
Since each of the above methods of revenue recognition are supported by IAS 18, and the Company recognizes revenues separately for each of the metals contained in the concentrate and doré bars, management's initial review of IAS 18 (Revenue) did not identify any significant issues which would require a material change to the Company's existing revenue recognition policies at the IFRS transition date.
Leases
Canadian GAAP and IFRS are similar standards in that they both require an entity to make a classification of leases based on whether substantially all of the benefits and risks of ownership have been transferred to the lessee. However, there are differences in how to classify leases and the terminology used in each standard.
The reporting of a lease agreement under Canadian GAAP is based upon its classification as either a capital or operating lease. This classification utilizes a specific set of quantitative criteria in the decision-making process. Although the classification under Canadian GAAP is not strictly a quantitative threshold, generally in practice these have been interpreted as bright line tests.
Under IAS 17 (Leases), no such quantitative thresholds are provided and guidance is based more on examples in which transfers of substantially all the risks and rewards incidental to ownership of an asset may exist. As a result, more judgment is required by Canadian entities when determining the classification of a lease arrangement rather than just meeting the quantitative threshold.
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 3RD QUARTER REPORT 2010

Management is reviewing its outstanding lease obligations to ensure whether the classifications applied under Canadian GAAP are appropriate for use under IFRS.
Income Taxes
Similar to Canadian GAAP, deferred tax assets and liabilities are recognized under IFRS based on temporary timing differences between the carrying value of assets and liabilities for accounting purposes and the respective value assigned to those assets and liabilities for tax purposes. As a result, the Company will need to recognize the corresponding increase or decrease in its reported tax asset or liability at the January 1, 2010 IFRS transition date based on the resultant differences between the restated carrying value of assets and liabilities under IFRS and their associated tax bases.
B)    ICFR and DC&P
Management has continually evaluated the impact of the adoption of IFRS on the reporting and disclosure processes of the Company. Throughout the conversion project, management has made those modifications to its data analysis, information systems, and reporting processes that were required to incorporate the collection of information necessary under IFRS.
As a result of the convergence of Canadian GAAP with IFRS standards, the Company has not presently incorporated any material changes to its ICFR or DC&P during the course of its conversion project. Most changes to the Company's internal controls were already incorporated incrementally over time as a result of the Company's adoption of the converged standards.
In conjunction with the analysis of the Company's January 1, 2010 opening balances under IFRS, management has implemented changes to certain of its internal reports and data analysis to facilitate the appropriate collection of data for IFRS reporting purposes. The changes were implemented in parallel to existing reporting and appropriately reconciled to previously reported totals to ensure the completeness and accuracy of the revised reports and analyses. Since these changes represented only a component part of the reporting process, no material changes to the Company's internal controls have been specifically required as a result of these modifications.
As the ongoing review of accounting policies and procedures is completed prior to the adoption of IFRS, the Company will develop or appropriately modify its policies to ensure the integrity of its internal controls. Any material changes will be communicated quarterly within the internal control discussion contained in the MD&A.
C)    Business Activities
The conversion to IFRS may result in certain consequences which are dependent upon how certain business activities are approached, monitored, or concluded by the Company. Consideration of such issues as foreign currency, hedging activities, debt covenants, compensation arrangements, and risk management practices may be required.
Whereas foreign currency considerations, compensation arrangements, and risk management issues are addressed by the Company on a regular basis, at January 1, 2010, the Company did not have any outstanding debt, with the exception of certain capital leases, and no hedging activities or contracts existed. Management will continue to monitor the impact of IFRS upon its current and future business activities.
D)    Information Systems
In order to facilitate the compilation of information required for IFRS reporting and disclosures, management has made appropriate modifications to its information gathering and analysis procedures. However, no material
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 3RD QUARTER REPORT 2010

changes to the Company's existing accounting systems have been required at present. Those changes which have been implemented generally required minor changes to reports or data analysis to ensure that additional information required for disclosures under IFRS which were not currently collected under Canadian GAAP were appropriately tracked for IFRS reporting purposes.
The Company is presently reviewing its preliminary analyses regarding the adoption of IFRS standards. Based on this review, management will prepare its final recommendations to the Audit Committee and quantify the financial impact upon the opening balance sheet at January 1, 2010.
During the three months ended September 30, 2010, management documented its position and prepared initial estimates of the quantitative impacts of the identified differences for review by its external auditors prior to final presentation to the Audit Committee. Outstanding quantifications are expected to be prepared for review in the second half of the fourth quarter. Additional disclosures of the preliminary financial impacts on the Company's opening balance sheet at January 1, 2010 will be provided in the MD&A upon receipt of approval by the Audit Committee and Board of Directors.
Reconciliations of the reported balances and the preparation of the Company's interim and annual financial statements and notes in accordance with IFRS will be prepared for review by external auditors and presented to the Audit Committee and Board of Directors for approval during the remainder of 2010 and in the first quarter of 2011. These reconciliations will be updated for any revisions to IFRS standards subsequent to the January 1, 2010 transition date and will be presented as comparative results within each of the interim and annual financial statements and notes respectively throughout the 2011 reporting year.
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.
INTERNAL CONTROLS
Disclosure Controls and Procedures
Management is responsible for the information disclosed in this management's discussion and analysis 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 three months ended September 30, 2010, the President and Chief Executive Officer and Vice President, Finance 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 President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer.
Internal Control over Financial Reporting
For the three months ended September 30, 2010, the President and Chief Executive Officer and Vice President, Finance 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 Canadian GAAP.
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 3RD QUARTER REPORT 2010

There have been no changes in the Company's internal controls over the financial reporting that occurred during the most recent period ended September 30, 2010 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 President and Chief Executive Officer and the Vice President, Finance and 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.
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.
NON-GAAP MEASURES
This MD&A refers to cash used in operating activities per share and cash cost per ounce which are not recognized measures under Canadian GAAP. Such non-GAAP financial measures do not have any standardized meaning prescribed by Canadian GAAP 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 Canadian GAAP. The following tables reconcile these non-GAAP measures to the most directly comparable Canadian GAAP measures:
(a)   Reconciliation of Cash Used in Operations per Share*

 	 	Three months ended
September 30	 	 	 	 	 	 	
(expressed in thousands of dollars			 	Nine months ended
September 30	 	 	
except per share amounts)	 	2010	 	2009	 	2010	 	2009 *	 	 	
	
Cash provided by (used in) operations prior to changes in non-cash working capital	 	$	6,022	 	$	(5,846	)	$	(14,069	)	$	(14,669	)	 	
Weighted average number of shares outstanding – basic and diluted	 	 	147,537,429	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	 	
	
Cash provided by (used in) operations prior to changes in non-cash working capital per share	 	$	0.04	 	$	(0.06	)	$	(0.10	)	$	(0.16	)	 	
	
*
Certain prior period amounts have been reclassified to conform to the classification adopted in the current period.
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 3RD QUARTER REPORT 2010

(b)   Total Cash Cost
The Company reports total cash cost on a sales basis. Total cash cost includes mine site operating costs such as mining, processing, administration, and royalties, but is exclusive of depreciation, amortization, reclamation, capital and exploration costs. Total cash cost is reduced by any by-product revenue and is then divided by ounces sold to arrive at the total by-product cash cost 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.
(i)    Reconciliation of Palladium Total Cash Cost per Ounce

 	 	Three months ended
September 30
 2010	 	Nine months ended
September 30
 2010	 	 	
(expressed in thousands of dollars
except per ounce amounts)					 	 	
	
Production costs including overhead	 	$	13,700	 	$	29,834	 	 	
Less mine startup costs	 	 	–	 	 	(6,003	)	 	
Smelter treatment, refining and freight costs	 	 	1,940	 	 	3,103	 	 	
Royalty expense	 	 	1,439	 	 	2,184	 	 	
	
 	 	 	17,079	 	 	29,118	 	 	
Less by-product metal revenue	 	 	8,405	 	 	12,894	 	 	
	
 	 	$	8,674	 	$	16,224	 	 	
	
Divided by ounces of palladium sold	 	 	38,123	 	 	62,211	 	 	
Cash cost per ounce (CDN$)	 	$	228	 	$	261	 	 	
Exchange rate (CDN$1 – US$)	 	 	0.96	 	 	0.97	 	 	
	
Cash cost per ounce (US$)	 	$	218	 	$	253	 	 	
	
(ii)   Reconciliation of Gold Total Cash Cost per Ounce

 	 	Three months ended
September 30
 2010	 	Nine months ended
September 30
 2010	 	
(expressed in thousands of dollars
except per ounce amounts)					 	
	
Production costs including overhead	 	$	6,752	 	$	23,319	 	
Refining and freight costs	 	 	13	 	 	44	 	
	
 	 	 	6,765	 	 	23,363	 	
Less by-product metal revenue	 	 	294	 	 	473	 	
	
 	 	 	6,471	 	$	22,890	 	
	
Divided by ounces of gold sold	 	 	3,742	 	 	14,542	 	
Cash cost per ounce (CDN$)	 	$	1,729	 	$	1,574	 	
Exchange rate (CDN$1 – US$)	 	 	0.96	 	 	0.97	 	
	
Cash cost per ounce (US$)	 	$	1,660	 	$	1,527	 	
	
(c)   EBITDA
EBITDA is a non-GAAP financial measure, which excludes the following from net income:
•
Income and mining tax recovery;

•
Interest and other financing costs (income);
34
 3RD QUARTER REPORT 2010

•
Depreciation and amortization;

•
Loss (gain) on disposal of equipment; and

•
Asset retirement obligation accretion.
Management believes that EBITDA is a valuable indicator of the Company's ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations, and fund capital expenditures.
EBITDA excludes the impact of cash costs 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 Canadian GAAP. Other companies may calculate EBITDA differently.

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	 	
 	 	2010	 	2009	 	2010	 	2009	 	 	
	
Net income (loss) and comprehensive income (loss) for the period	 	$	3,185	 	$	(6,194	)	$	(22,999	)	$	(15,653	)	 	
 	Income and mining tax recovery	 	 	(952	)	 	–	 	 	(4,858	)	 	–	 	 	
 	Interest and other financing costs (income)	 	 	(79	)	 	(206	)	 	(144	)	 	(1,546	)	 	
 	Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	 	
 	Loss (gain) on disposal of equipment	 	 	86	 	 	(21	)	 	103	 	 	(21	)	 	
 	Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	 	
	
EBITDA	 	$	5,556	 	$	(6,195	)	$	(16,213	)	$	(16,703	)	 	
	
35
 3RD QUARTER REPORT 2010

QuickLinks
Exhibit 1

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 Exhibit 2
Consolidated Balance Sheets
 (expressed in thousands of Canadian dollars)

	 	
	 	 	
 	 	September 30
2010	 	December 31
2009	 	 	
	
 	 	 	(unaudited	)	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	

Current Assets	

 	

 	

Cash and cash equivalents	 	$	113,614	 	$	98,255	 	 	
Accounts receivable – Note 4	 	 	44,279	 	 	–	 	 	
Taxes receivable	 	 	357	 	 	204	 	 	
Inventories – Note 5	 	 	25,054	 	 	25,306	 	 	
Other assets	 	 	3,671	 	 	2,495	 	 	
	
 	 	 	186,975	 	 	126,260	 	 	
Mining interests – Note 6	 	 	109,721	 	 	82,448	 	 	
Reclamation deposits	 	 	10,508	 	 	10,503	 	 	
	
Total Assets	 	$	307,204	 	$	219,211	 	 	

LIABILITIES AND SHAREHOLDERS' EQUITY	

 	

 	

Current Liabilities	

 	

 	

Accounts payable and accrued liabilities	 	$	22,249	 	$	11,195	 	 	
Current portion of obligations under capital leases	 	 	1,221	 	 	558	 	 	
Future income tax liability	 	 	2,404	 	 	–	 	 	
	
 	 	 	25,874	 	 	11,753	 	 	
Taxes payable	 	 	936	 	 	1,573	 	 	
Asset retirement obligations	 	 	13,443	 	 	12,921	 	 	
Obligations under capital leases	 	 	1,354	 	 	576	 	 	
Future mining tax liability	 	 	1,106	 	 	127	 	 	
	
Total Liabilities	 	 	42,713	 	 	26,950	 	 	

Shareholders' Equity –  Note 7	

 	

 	

Common share capital and purchase warrants	 	 	670,874	 	 	583,089	 	 	
Stock options	 	 	3,676	 	 	2,704	 	 	
Contributed surplus	 	 	26,080	 	 	19,608	 	 	
Deficit	 	 	(436,139	)	 	(413,140	)	 	
	
Total shareholders' equity	 	 	264,491	 	 	192,261	 	 	
	
 	 	$	307,204	 	$	219,211	 	 	
	
Subsequent event – Note 12
See accompanying notes to the consolidated financial statements
36
 3RD QUARTER REPORT 2010

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

	 	
	 	 	
 	 	Three months ended
September 30
	 	Nine months ended
September 30
	 	 	
 	 	2010	 	2009	 	2010	 	2009	 	 	
	
Revenue – before pricing adjustments	 	$	33,724	 	$	–	 	$	63,334	 	$	–	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Commodities	 	 	5,691	 	 	10	 	 	5,025	 	 	4,612	 	 	
 	Foreign exchange	 	 	(964	)	 	(9	)	 	(763	)	 	(594	)	 	
	
Revenue – after pricing adjustments –  Note 8	 	$	38,451	 	$	1	 	$	67,596	 	$	4,018	 	 	

Operating expenses	

 	

 	

 	

 	

Production costs	 	 	20,452	 	 	–	 	 	53,153	 	 	–	 	 	
Smelter treatment, refining and freight costs	 	 	1,953	 	 	4	 	 	3,147	 	 	82	 	 	
Royalty expense	 	 	1,439	 	 	–	 	 	2,184	 	 	201	 	 	
Inventory pricing adjustment – Note 5	 	 	(388	)	 	(639	)	 	–	 	 	(3,634	)	 	
Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	 	
Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	 	
Loss (gain) on disposal of equipment	 	 	86	 	 	(21	)	 	103	 	 	(21	)	 	
Care and maintenance costs	 	 	–	 	 	2,533	 	 	–	 	 	8,799	 	 	
	
Total operating expenses	 	 	26,858	 	 	2,103	 	 	70,272	 	 	5,944	 	 	
	
Income (loss) from mining operations	 	 	11,593	 	 	(2,102	)	 	(2,676	)	 	(1,926	)	 	

Other expenses (income)	

 	

 	

 	

 	

General and administration	 	 	2,432	 	 	1,790	 	 	7,739	 	 	6,059	 	 	
Exploration	 	 	7,008	 	 	2,623	 	 	17,594	 	 	8,947	 	 	
Interest and other income	 	 	(79	)	 	(206	)	 	(144	)	 	(1,546	)	 	
Foreign exchange loss (gain)	 	 	(1	)	 	(115	)	 	(8	)	 	267	 	 	
	
Total other expenses	 	 	9,360	 	 	4,092	 	 	25,181	 	 	13,727	 	 	
	
Income (loss) before taxes	 	 	2,233	 	 	(6,194	)	 	(27,857	)	 	(15,653	)	 	
Income and mining tax recovery	 	 	952	 	 	–	 	 	4,858	 	 	–	 	 	
	
Net income (loss) and comprehensive income (loss) for the period	 	 	3,185	 	 	(6,194	)	 	(22,999	)	 	(15,653	)	 	
Deficit, beginning of period	 	 	(439,324	)	 	(392,585	)	 	(413,140	)	 	(383,126	)	 	
	
Deficit, end of period	 	$	(436,139	)	$	(398,779	)	$	(436,139	)	$	(398,779	)	 	
	
Net income (loss) per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.02	 	$	(0.06	)	$	(0.17	)	$	(0.17	)	 	
	
 	Diluted	 	$	0.02	 	$	(0.06	)	$	(0.17	)	$	(0.17	)	 	
	
Weighted average number of shares outstanding	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	147,537,429	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	 	
	
 	Diluted	 	 	148,357,596	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	 	
	
See accompanying notes to the consolidated financial statements
37
 3RD QUARTER REPORT 2010

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

	 	
	 	 	
 	 	Three months ended
September 30
	 	Nine months ended
September 30
	 	 	
 	 	2010	 	2009	 	2010	 	2009	 	 	
	
Cash provided by (used in)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Operations	

 	

 	

 	

 	

Net income (loss) for the period	 	$	3,185	 	$	(6,194	)	$	(22,999	)	$	(15,653	)	 	
Operating items not involving cash	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Future income tax recovery	 	 	(1,408	)	 	–	 	 	(4,325	)	 	–	 	 	
 	Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	 	
 	Stock based compensation and employee benefits	 	 	388	 	 	168	 	 	1,200	 	 	948	 	 	
 	Accrued interest and accretion on convertible debentures	 	 	–	 	 	–	 	 	–	 	 	(359	)	 	
 	Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	 	
 	Future mining tax recovery	 	 	455	 	 	–	 	 	272	 	 	–	 	 	
 	Unrealized foreign exchange loss (gain)	 	 	–	 	 	(24	)	 	–	 	 	(111	)	 	
 	Other	 	 	86	 	 	(22	)	 	98	 	 	(11	)	 	
	
 	 	 	6,022	 	 	(5,846	)	 	(14,069	)	 	(14,669	)	 	
Changes in non-cash working capital – Note 9(a)	 	 	(26,075	)	 	(3,065	)	 	(34,589	)	 	31,677	 	 	
	
 	 	 	(20,053	)	 	(8,911	)	 	(48,658	)	 	17,008	 	 	

Financing Activities	

 	

 	

 	

 	

Issuance of common shares and warrants, net of issue costs	 	 	51	 	 	47,411	 	 	94,258	 	 	47,411	 	 	
Repayment of senior credit facilities	 	 	–	 	 	(500	)	 	–	 	 	(3,926	)	 	
Repayment of obligations under capital leases	 	 	(729	)	 	(468	)	 	(1,454	)	 	(1,564	)	 	
	
 	 	 	(678	)	 	46,443	 	 	92,804	 	 	41,921	 	 	

Investing Activities	

 	

 	

 	

 	

Investment and advances to Cadiscor Resources Inc. – Note 3	 	 	–	 	 	–	 	 	–	 	 	(1,135	)	 	
Additions to mining interests	 	 	(14,589	)	 	(5,647	)	 	(29,222	)	 	(7,755	)	 	
Proceeds on disposal of mining interests	 	 	404	 	 	21	 	 	435	 	 	21	 	 	
	
 	 	 	(14,185	)	 	(5,626	)	 	(28,787	)	 	(8,869	)	 	
	
Increase (decrease) in cash and cash equivalents	 	 	(34,916	)	 	31,906	 	 	15,359	 	 	50,060	 	 	
Cash and cash equivalents, beginning of period	 	 	148,530	 	 	61,222	 	 	98,255	 	 	43,068	 	 	
	
Cash and cash equivalents, end of period	 	$	113,614	 	$	93,128	 	$	113,614	 	$	93,128	 	 	

Cash and cash equivalents consisting of:	

 	

 	

 	

 	

Cash	 	$	113,614	 	$	77,775	 	$	113,614	 	$	77,775	 	 	
Short-term investments	 	 	–	 	 	15,353	 	 	–	 	 	15,353	 	 	
	
 	 	$	113,614	 	$	93,128	 	$	113,614	 	$	93,128	 	 	
	
See accompanying notes to the consolidated financial statements
38
 3RD QUARTER REPORT 2010

Consolidated Statements of Shareholders' Equity
 (expressed in thousands of Canadian dollars, except share amounts)
 (unaudited)

 	 	Number of
shares	 	Capital
stock	 	Shares
issuable	 	Stock
options	 	Warrants	 	Contributed
surplus	 	Deficit	 	Total
shareholders'
equity	 	 	
	
Balance, December 31, 2009	 	127,383,051	 	$	572,505	 	$	–	 	$	2,704	 	$	10,584	 	$	19,608	 	$	(413,140	)	$	192,261	 	 	

Common shares issued/issuable:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Pursuant to 2010 unit offering, net of issue costs	 	20,000,000	 	 	89,804	 	 	–	 	 	–	 	 	4,423	 	 	–	 	 	–	 	 	94,227	 	 	
 	Tax effect of flow-through shares	 	–	 	 	(5,136	)	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	(5,136	)	 	
 	Pursuant to purchase of Vezza property	 	1,368,421	 	 	6,500	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	6,500	 	 	

Warrants expired:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Pursuant to convertible notes	 	–	 	 	–	 	 	–	 	 	–	 	 	(8,038	)	 	6,445	 	 	–	 	 	(1,593	)	 	

Stock options issued:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Stock options exercised	 	24,750	 	 	33	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	33	 	 	
Fair value of stock options exercised	 	–	 	 	34	 	 	–	 	 	(34	)	 	–	 	 	–	 	 	–	 	 	–	 	 	
Fair value of stock options cancelled	 	–	 	 	–	 	 	–	 	 	(27	)	 	–	 	 	27	 	 	–	 	 	–	 	 	
Stock-based compensation expense	 	42,500	 	 	165	 	 	–	 	 	1,033	 	 	–	 	 	–	 	 	–	 	 	1,198	 	 	
Net loss for the nine months ended September 30, 2010	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	(22,999	)	 	(22,999	)	 	
	
Balance, September 30, 2010	 	148,818,722	 	$	663,905	 	$	–	 	$	3,676	 	$	6,969	 	$	26,080	 	$	(436,139	)	$	264,491	 	 	

Balance, December 31, 2008	
 	
85,158,975	
 	
$	
469,214	
 	
$	
2,080	
 	
$	
2,305	
 	
$	
14,092	
 	
$	
12,336	
 	
$	
(383,126	
)	
$	
116,901	

Common shares issued/issuable:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	On acquisition of Cadiscor	 	14,457,685	 	 	27,325	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	27,325	 	 	
 	Pursuant to conversion of convertible debenture	 	2,457,446	 	 	4,644	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	4,644	 	 	
 	For principal repayments on convertible notes payable	 	1,486,900	 	 	2,062	 	 	(2,062	)	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	
 	For interest payments on convertible notes payable	 	14,738	 	 	18	 	 	(18	)	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	
 	Pursuant to unit offering, net of issue costs	 	16,000,000	 	 	45,220	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	45,220	 	 	

Warrants issued:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	On acquisition of Cadiscor	 	–	 	 	–	 	 	–	 	 	–	 	 	1,168	 	 	–	 	 	–	 	 	1,168	 	 	
 	Pursuant to unit offering, net of issue costs	 	–	 	 	–	 	 	–	 	 	–	 	 	1,686	 	 	–	 	 	–	 	 	1,686	 	 	
 	Warrants exercised	 	215,998	 	 	575	 	 	–	 	 	–	 	 	(182	)	 	–	 	 	–	 	 	393	 	 	

Stock options issued:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	On acquisition of Cadiscor	 	–	 	 	–	 	 	–	 	 	1,014	 	 	–	 	 	–	 	 	–	 	 	1,014	 	 	
 	Stock options exercised	 	85,800	 	 	113	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	113	 	 	
Fair value of stock options exercised	 	–	 	 	139	 	 	–	 	 	(139	)	 	–	 	 	–	 	 	–	 	 	–	 	 	
Fair value of stock options cancelled	 	–	 	 	–	 	 	–	 	 	(752	)	 	–	 	 	670	 	 	–	 	 	(82	)	 	
Stock-based compensation expense	 	192,590	 	 	392	 	 	–	 	 	638	 	 	–	 	 	–	 	 	–	 	 	1,030	 	 	
Net loss for the nine months ended September 30, 2009	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	(15,653	)	 	(15,653	)	 	
	
Balance, September 30, 2009	 	120,070,132	 	$	549,702	 	$	–	 	$	3,066	 	$	16,764	 	$	13,006	 	$	(398,779	)	$	183,759	 	 	

Common shares issued/issuable:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Pursuant to 2009 unit offering, net of issue costs	 	2,400,000	 	 	6,113	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	6,113	 	 	
 	Private placement of flow-through shares (net)	 	4,000,000	 	 	14,077	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	14,077	 	 	

Warrants issued:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Pursuant to 2009 unit offering, net of issue costs	 	–	 	 	–	 	 	–	 	 	–	 	 	557	 	 	–	 	 	–	 	 	557	 	 	
 	Warrants exercised	 	899,999	 	 	2,592	 	 	–	 	 	–	 	 	(684	)	 	–	 	 	–	 	 	1,908	 	 	

Warrants expired:	

 	

 	

 	

 	

 	

 	

 	

 	
 	
 	Pursuant to 2007 unit offering	 	–	 	 	–	 	 	–	 	 	–	 	 	(6,053	)	 	6,053	 	 	–	 	 	–	 	 	
Fair value of stock options exercised	 	–	 	 	(20	)	 	–	 	 	20	 	 	–	 	 	–	 	 	–	 	 	–	 	 	
Fair value of stock options cancelled	 	–	 	 	–	 	 	–	 	 	(549	)	 	–	 	 	549	 	 	–	 	 	–	 	 	
Stock-based compensation expense	 	12,920	 	 	41	 	 	–	 	 	167	 	 	–	 	 	–	 	 	–	 	 	208	 	 	
Net loss for the year ended December 31, 2009	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	–	 	 	(14,361	)	 	(14,361	)	 	
	
Balance, December 31, 2009	 	127,383,051	 	$	572,505	 	$	–	 	$	2,704	 	$	10,584	 	$	19,608	 	$	(413,140	)	$	192,261	 	 	
	
See accompanying notes to the consolidated financial statements
39
 3RD QUARTER REPORT 2010

Notes to the Consolidated Financial Statements
 for the nine months ended September 30, 2010
 (expressed in thousands of Canadian dollars, except per share amounts and metal prices)
1.  NATURE OF OPERATIONS
North American Palladium Ltd. ("NAP" or "the Company") is a diversified precious metals company that owns two mines and various mineral properties in mining friendly jurisdictions. Its principal asset is the Lac des Iles ("LDI") palladium mine, located in the Thunder Bay District in Ontario, which commenced operations in 1993. NAP's other significant asset is the Sleeping Giant gold mine located in the Abitibi region in Quebec, Canada.
Restart activities for the LDI mine began during the first quarter of 2010 and production of concentrate commenced in April 2010. Previously the mine was on temporary care and maintenance from October 2008 to December 2009. The Company owns the Sleeping Giant gold mine as a result of the acquisition of Cadiscor Resources Inc. ("Cadiscor") in May 2009, consisting of an underground mine and a mill. The mine reached commercial production on January 1, 2010.
The Company's Quebec based holdings consisting of the Discovery, Flordin, Cameron Shear, Florence, Laflamme, Dormex, Harricana, and Vezza properties, and are located within trucking distance of the Sleeping Giant mill.
2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These unaudited consolidated financial statements have been prepared using disclosure standards appropriate for interim financial statements and do not contain all the explanatory notes, descriptions of accounting policies or other disclosures required by Canadian generally accepted accounting principles ("GAAP") for annual financial statements. Such notes, descriptions of accounting policies and other disclosures are contained in the Company's audited annual consolidated financial statements included in the Company's annual report to shareholders for the year ended December 31, 2009, except for those included in the adoption of new accounting standards section. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for 2009.
Future Accounting Standards
Impact of International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board has confirmed January 1, 2011 as the date that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP for publicly accountable enterprises. As a result, the Company will report under IFRS for interim and annual periods beginning January 1, 2011, with comparative information for 2010 restated under IFRS. Adoption of IFRS as Canadian GAAP will require the Company to make certain accounting policy choices and could materially impact the Company's reported financial position and results of operations. A detailed discussion of the impact of the adoption of IFRS is included in the Company's MD&A for the nine months ended September 30, 2010.
Business Combinations
In January 2009, the CICA issued Section 1582, Business Combinations , replacing Section 1581 of the same name. The new section will apply prospectively to business combinations for which the acquisition date is on or after January 1, 2011. Section 1582, which provides the Canadian equivalent to International Financial Reporting Standard 3, Business Combinations (January 2008) , establishes standards for the accounting for a business combination. Section 1582 requires business acquisitions (including non-controlling interests and contingent consideration) to be measured at fair value on the acquisition date, generally requires acquisition-related costs to be expensed, requires gains from bargain purchases to be recorded in net earnings, and expands the definition of a business. As Section 1582 will apply only to future business combinations, it will not have a significant effect on the Company's consolidated financial statements prior to such acquisitions.
40
 3RD QUARTER REPORT 2010

Consolidated Financial Statements and Non-controlling Interests
In January 2009, the CICA issued Section 1601, Consolidated Financial Statements , and Section 1602, Non-controlling Interests , which together replace the existing Section 1600, Consolidated Financial Statements , and provide the Canadian equivalent to International Accounting Standard 27, Consolidated and Separate Financial Statements (January 2008) . The new sections will be applicable to the Company on January 1, 2011. Section 1601 establishes standards for the preparation of consolidated financial statements, and Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The Company is assessing the impact, if any, of the adoption of these new sections on its consolidated financial statements. On adoption of these new sections, the Company does not expect the impact to be material.
3.  ACQUISITION OF CADISCOR RESOURCES INC.
In May 2009, the Company acquired all of the outstanding common shares of Cadiscor in an all-equity transaction.
The following table summarizes the fair value of the assets acquired and liabilities assumed as at the date of acquisition:

ASSETS	 	 	 	 	

Current Assets	

 	
 	
Cash and cash equivalents	 	$	7,248	 	
Taxes recoverable	 	 	461	 	
Inventories	 	 	420	 	
Other assets	 	 	559	 	
Future mining tax asset	 	 	203	 	
	
 	 	 	8,891	 	
Mining interests	 	 	40,090	 	
Reclamation deposit	 	 	1,769	 	
	
 	 	$	50,750	 	
	
LIABILITIES	 	 	 	 	

Current Liabilities	

 	
 	
Accounts payable and accrued liabilities	 	$	3,531	 	
Current portion of obligation under capital lease	 	 	7	 	
	
 	 	 	3,538	 	
Asset retirement obligation	 	 	4,291	 	
Long-term debt	 	 	11,066	 	
Obligation under capital lease	 	 	27	 	
	
 	 	$	18,922	 	
	
Net assets acquired	 	$	31,828	 	
	
TOTAL PURCHASE CONSIDERATION	 	 	 	 	
Common share capital	 	$	27,325	 	
Stock options	 	 	1,014	 	
Purchase warrants	 	 	1,168	 	
Convertible rights on convertible debenture	 	 	1,437	 	
Transaction costs	 	 	884	 	
	
Total purchase price	 	$	31,828	 	
	
41
 3RD QUARTER REPORT 2010

4.  ACCOUNTS RECEIVABLE
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, valued at the September 30, 2010 forward metal prices, including 62,211 ounces of palladium.
All of the accounts receivable is due from one domestic customer at September 30, 2010. A reserve for doubtful accounts has not been established, as in the opinion of management, the amount due will be fully realized.
5.  INVENTORIES
Inventories consist of the following:

 	 	September 30
2010	 	December 31
2009	 	
	
Supplies	 	$	11,884	 	$	12,555	 	
Gold inventory*	 	 	3,198	 	 	4,890	 	
Crushed and broken ore stockpiles	 	 	9,950	 	 	7,861	 	
Concentrate inventory	 	 	22	 	 	–	 	
	
 	 	$	25,054	 	$	25,306	 	
	
*
Gold inventory is comprised of unprocessed ore on surface, in stockpiles or bins, unrecovered gold in either carbon or solution within the milling circuit, and gold-silver doré bars produced but not sold as at the reporting date.
Supplies inventory of $4,444 (2009 – $175) were expensed during the three months ended September 30, 2010 and $12,075 during the nine months ended September 30, 2010 (2009 – $1,156).
The Company recognized a write-up of crushed and broken ore stockpiles of $388 (2009 – $639 write-up) during the three months ended September 30, 2010 and $nil (2009 – $3,634 write-up) during the nine months ended September 30, 2010.
6.  MINING INTERESTS
(a)
Mining interests are comprised of the following:

 	 	September 30
2010	 	December 31
2009	 	 	
	
Plant and equipment, at cost	 	$	397,657	 	$	389,153	 	 	
Underground mine development, at cost	 	 	116,093	 	 	85,359	 	 	
Accumulated depreciation and impairment charges	 	 	(430,122	)	 	(416,917	)	 	
	
 	 	 	83,628	 	 	57,595	 	 	
	
Equipment under capital lease, at cost	 	 	3,430	 	 	5,912	 	 	
Accumulated depreciation and impairment charges	 	 	(358	)	 	(3,453	)	 	
	
 	 	 	3,072	 	 	2,459	 	 	
	
Mining leases and claims, royalty interest, and development, at cost	 	 	102,274	 	 	100,993	 	 	
Accumulated amortization and impairment charges	 	 	(79,253	)	 	(78,599	)	 	
	
 	 	 	23,021	 	 	22,394	 	 	
	
Mining interests, net	 	$	109,721	 	$	82,448	 	 	
	
42
 3RD QUARTER REPORT 2010

7.  SHAREHOLDERS' EQUITY
(a)
Authorized and Issued Capital Stock
The authorized capital stock of the Company consists of an unlimited number of common shares, issuable in series. As of September 30, 2010 there were 148,818,722 common shares issued and outstanding.
(b)
Common share purchase warrants
The changes in issued common share purchase warrants for the period end are summarized below:

 	 	September 30 2010	 	December 31 2009	 	 	
 	 	Warrants	 	 	Amount	 	Warrants	 	 	Amount	 	 	
	
Balance beginning of period	 	12,286,665	 	$	10,584	 	13,489,898	 	$	14,092	 	 	
 	Issued pursuant to unit offering, net of issue costs	 	10,000,000	 	 	4,423	 	9,200,000	 	 	2,243	 	 	
 	Issued pursuant to acquisition of Cadiscor	 	–	 	 	–	 	1,445,997	 	 	1,168	 	 	
 	Warrants exercised	 	–	 	 	–	 	(1,115,997	)	 	(866	)	 	
 	Warrants expired	 	(2,756,665	)	 	(8,038	)	(10,733,233	)	 	(6,053	)	 	
	
Balance, end of period	 	19,530,000	 	$	6,969	 	12,286,665	 	$	10,584	 	 	

 	 	Exercise Price	 	 	 	
Number of Warrants			 	Expiry Date	 	
	
     330,000	 	$	2.12	 	December 31, 2010	 	
  9,200,000	 	$	4.25	 	September 30, 2011	 	
10,000,000	 	$	6.50	 	October 28, 2011	 	
	
19,530,000	 	 	 	 	 	 	
	
On May 26, 2009, in conjunction with the acquisition of Cadiscor, all of Cadiscor's outstanding warrants as at the date of acquisition were exchanged for equivalent instruments in the Company. The Company issued 1,445,997 warrants of which 1,115,997 were exercised in 2009. See Note 12 regarding the subsequent exercise of the 330,000 warrants.
On September 30, 2009, the Company completed an equity offering of 16,000,000 units at a price of $3.15 per unit for total net proceeds of $46,455 (issue costs $3,945). On October 8, 2009, the Company issued an additional 2,400,000 units under a 30-day over-allotment option granted to the underwriters at an exercise price of $3.15 per unit, for total net proceeds of $7,121 (issue costs $438). Each unit consists of one common share and one-half of one common share purchase warrant of the Company. Each whole warrant entitles the holder to purchase an additional common share at a price of $4.25, subject to adjustment, at any time on or prior to September 30, 2011, subject to early termination in certain circumstances. The total fair value of the warrants issued was $2,243. In the event that the weighted average closing price of the common shares on the TSX is greater than $5.75 per share for a period of 20 trading days at any time after the closing of the offering, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof and in such case the warrants will expire on the 30th day after the date on which such notice is given by the Company.
On April 28, 2010, the Company completed an equity offering of 20,000,000 units at a price of $5.00 per unit for total net proceeds of $94,227 (issue costs $5,773), which included the exercise of an over-allotment option in the amount of 2,600,000 units at a price of $5.00 per unit. Each unit consists of one common share and one-half of one common share purchase warrant of the Company. Each whole warrant entitles the holder to purchase an additional common share at a price of $6.50, subject to adjustment, at any time prior to October 28, 2011. In the
43
 3RD QUARTER REPORT 2010

event that the weighted average closing price of the common shares on the TSX is greater than $7.50 per share for a period of 20 trading days at any time after the closing of the offering, the Company may accelerate the expiry date of the warrants by giving notice to the holders thereof and in such case the warrants will expire on the 30th day after the date on which such notice is given by the Company.
In March 2010, 1,805,016 warrants, and in June 2010, 951,649 warrants, relating to the convertible notes issued in 2006 expired and the carrying values of $4,870 and $1,575, respectively, were reclassified to contributed surplus.
(c)
Corporate Stock Option Plan
The following summary sets out the activity in outstanding common share purchase options:

 	 	September 30, 2010	 	December 31, 2009	 	
 	 	Options	 	 	Weighted-
Average
Exercise
Price	 	Options	 	 	Weighted-
Average
Exercise
Price	 	
	
Outstanding, beginning of period	 	3,057,800	 	$	3.50	 	1,461,100	 	$	5.10	 	
Issued pursuant to acquisition of Cadiscor	 	–	 	 	–	 	917,400	 	 	2.42	 	
Granted	 	40,000	 	 	3.53	 	1,180,000	 	 	3.16	 	
Exercised	 	(24,750	)	 	1.32	 	(85,800	)	 	1.32	 	
Cancelled/forfeited	 	(25,000	)	 	5.09	 	(414,900	)	 	6.26	 	
	
Outstanding, end of period	 	3,048,050	 	 	3.50	 	3,057,800	 	$	3.50	 	
	
Options exercisable at end of period	 	1,579,716	 	$	3.81	 	1,217,967	 	$	3.96	 	
	
(d)
Other Stock-Based Compensation – Restricted Share Unit Plan
The Company has an RSU Plan under which eligible directors, officers and key employees of the Company are entitled to receive awards of restricted share units. Each restricted share unit 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 restricted share units 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.
As at September 30, 2010, 133,950 (December 31, 2009 – 256,882) restricted share units have been granted and are outstanding at an aggregate value of $420 (December 31, 2009 – $737).
44
 3RD QUARTER REPORT 2010

8.  REVENUE FROM METAL SALES

 	 	 	Total	 	 	Palladium	 	 	Platinum	 	 	Gold	 	 	Silver	 	 	Nickel	 	 	Copper	 	 	Cobalt	 	 	
	
2010	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended September 30	 	$	33,724	 	$	20,834	 	$	3,324	 	$	6,786	 	$	308	 	$	1,878	 	$	528	 	$	66	 	 	
Revenue – before pricing adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodities	 	 	5,691	 	 	4,876	 	 	275	 	 	184	 	 	1	 	 	150	 	 	208	 	 	(3	)	 	
Foreign exchange	 	 	(964	)	 	(721	)	 	(96	)	 	(66	)	 	–	 	 	(44	)	 	(35	)	 	(2	)	 	
	
Revenue – after pricing adjustments	 	$	38,451	 	$	24,989	 	$	3,503	 	$	6,904	 	$	309	 	$	1,984	 	$	701	 	$	61	 	 	
	
2009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended September 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue – before pricing adjustments	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodities	 	 	10	 	 	–	 	 	–	 	 	–	 	 	10	 	 	–	 	 	–	 	 	–	 	 	
Foreign exchange	 	 	(9	)	 	–	 	 	–	 	 	–	 	 	(9	)	 	–	 	 	–	 	 	–	 	 	
	
Revenue – after pricing adjustments	 	$	1	 	$	–	 	$	–	 	$	–	 	$	1	 	$	–	 	$	–	 	$	–	 	 	

 	 	 	Total	 	 	Palladium	 	 	Platinum	 	 	Gold	 	 	Silver	 	 	Nickel	 	 	Copper	 	 	Cobalt	 	 	
	
2010	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nine months ended September 30	 	$	63,334	 	$	32,804	 	$	5,129	 	$	20,923	 	$	491	 	$	2,439	 	$	1,437	 	$	111	 	 	
Revenue – before pricing adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodities	 	 	5,025	 	 	4,346	 	 	241	 	 	211	 	 	1	 	 	121	 	 	109	 	 	(4	)	 	
Foreign exchange	 	 	(763	)	 	(582	)	 	(74	)	 	(48	)	 	–	 	 	(36	)	 	(22	)	 	(1	)	 	
	
Revenue – after pricing adjustments	 	$	67,596	 	$	36,568	 	$	5,296	 	$	21,086	 	$	492	 	$	2,524	 	$	1,524	 	$	106	 	 	
	
2009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nine months ended September 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue – before pricing adjustments	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	$	–	 	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodities	 	 	4,612	 	 	3,134	 	 	1,199	 	 	215	 	 	62	 	 	(61	)	 	139	 	 	(76	)	 	
Foreign exchange	 	 	(594	)	 	(451	)	 	(136	)	 	(95	)	 	(15	)	 	66	 	 	31	 	 	6	 	 	
	
Revenue – after pricing adjustments	 	$	4,018	 	$	2,683	 	$	1,063	 	$	120	 	$	47	 	$	5	 	$	170	 	$	(70	)	 	
	
45
 3RD QUARTER REPORT 2010

9.  STATEMENT OF CASH FLOWS
(a)
The net changes in non-cash working capital balances related to operations are as follows:

 	 	2010	 	2009	 	2010	 	2009	 	 	
 	 	Three months ended
September 30
	 	Nine months ended
September 30

Cash provided by (used in):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable	 	$	(29,931	)	$	55	 	$	(44,279	)	$	42,992	 	 	
Inventories	 	 	(121	)	 	(3,166	)	 	602	 	 	(5,715	)	 	
Other assets	 	 	(1,140	)	 	398	 	 	(1,176	)	 	2,309	 	 	
Accounts payable and accrued liabilities	 	 	5,259	 	 	27	 	 	11,054	 	 	(8,029	)	 	
Taxes receivable	 	 	(142	)	 	(379	)	 	(790	)	 	120	 	 	
	
 	 	$	(26,075	)	$	(3,065	)	$	(34,589	)	$	31,677	 	 	
	
(b)
During the three and nine months ending September 30, 2010, the Company capitalized mining interests expenditures of $21,089 and $38,617 (2009 – $5,647 and $7,755) of which $nil and $2,895 (2009 – $nil and $nil) related to capital leases. During the three and nine months ending September 30, 2010, $6,500 relating to the acquisition of the Vezza property was acquired by the issuance of common shares.
10.  SEGMENT INFORMATION
The Company is Canadian-based and is in the business of exploring and mining PGMs, gold and certain base metals. Its operations are organized into three reportable segments: palladium operations include the LDI palladium mine and mill, gold operations include the Sleeping Giant gold mine and mill, and corporate and other. The palladium and gold operations include activities related to exploration, evaluation and development, mining, and milling. The corporate and other segment includes general corporate expenses and other projects not allocated to the other segments. The Company's revenue by significant product type is disclosed in Note 8. The Company's segments are summarized in the following table.
As at and during the periods ending as shown, the segmented information is presented as follows:

 	 	 	As at September 30, 2010	 	 	As at December 31, 2009	 	
 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	
 							 	Total							 	Total	 	
	
Cash and cash equivalents	 	$	2,182	 	$	7,150	 	$	104,282	 	$	113,614	 	$	689	 	$	576	 	$	96,990	 	$	98,255	 	
Accounts receivable	 	 	44,279	 	 	–	 	 	–	 	 	44,279	 	 	–	 	 	–	 	 	–	 	 	–	 	
Inventories	 	 	19,988	 	 	5,066	 	 	–	 	 	25,054	 	 	19,649	 	 	5,657	 	 	–	 	 	25,306	 	
Other current assets	 	 	1,868	 	 	1,489	 	 	671	 	 	4,028	 	 	708	 	 	1,510	 	 	481	 	 	2,699	 	
Mining interests	 	 	48,252	 	 	61,219	 	 	250	 	 	109,721	 	 	31,815	 	 	50,300	 	 	333	 	 	82,448	 	
Other non-current assets	 	 	8,410	 	 	1,769	 	 	329	 	 	10,508	 	 	8,406	 	 	1,769	 	 	328	 	 	10,503	 	
	
Total assets*	 	$	124,979	 	$	76,693	 	$	105,532	 	$	307,204	 	$	61,267	 	$	59,812	 	$	98,132	 	$	219,211	 	
	
*
Total assets do not reflect intercompany balances, which have been eliminated on consolidation
46
 3RD QUARTER REPORT 2010

 	 	 	Three months ended
September 30, 2010	 	 	Three months ended
September 30, 2009	 	 	
 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	 	
 							 	Total							 	Total	 	 	
	
Revenue – after pricing adjustments	 	$	33,394	 	$	5,057	 	$	–	 	$	38,451	 	$	1	 	$	–	 	$	–	 	$	1	 	 	
Operating expenses	 	 	16,871	 	 	6,816	 	 	–	 	 	23,687	 	 	1,971	 	 	37	 	 	–	 	 	2,008	 	 	
Depreciation and amortization	 	 	629	 	 	2,513	 	 	29	 	 	3,171	 	 	69	 	 	26	 	 	–	 	 	95	 	 	
	
Income (loss) from mining operations	 	 	15,894	 	 	(4,272	)	 	(29	)	 	11,593	 	 	(2,039	)	 	(63	)	 	–	 	 	(2,102	)	 	
Other expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administration	 	 	39	 	 	24	 	 	2,369	 	 	2,432	 	 	(120	)	 	219	 	 	1,691	 	 	1,790	 	 	
Exploration	 	 	3,669	 	 	3,244	 	 	95	 	 	7,008	 	 	2,339	 	 	257	 	 	27	 	 	2,623	 	 	
Other	 	 	49	 	 	–	 	 	(129	)	 	(80	)	 	(96	)	 	(3	)	 	(222	)	 	(321	)	 	
	
Income (loss) before taxes	 	 	12,137	 	 	(7,540	)	 	(2,364	)	 	2,233	 	 	(4,162	)	 	(536	)	 	(1,496	)	 	(6,194	)	 	
Income and mining tax recovery (expense)	 	 	–	 	 	(456	)	 	1,408	 	 	952	 	 	–	 	 	–	 	 	–	 	 	–	 	 	
	
Net income (loss) and comprehensive income (loss) for the period	 	$	12,137	 	$	(7,996	)	$	(956	)	$	3,185	 	$	(4,162	)	$	(536	)	$	(1,496	)	$	(6,194	)	 	
	
47
 3RD QUARTER REPORT 2010

 	
 	 	 	Nine months ended
September 30, 2010	 	 	Nine months ended
September 30, 2009	 	 	
 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	 	
 							 	Total							 	Total	 	 	
	
Revenue – after pricing adjustments	 	$	49,462	 	$	18,134	 	$	–	 	$	67,596	 	$	4,018	 	$	–	 	$	–	 	$	4,018	 	 	
Operating expenses	 	 	35,513	 	 	23,507	 	 	–	 	 	59,020	 	 	5,710	 	 	37	 	 	–	 	 	5,747	 	 	
Depreciation and amortization	 	 	3,708	 	 	7,458	 	 	86	 	 	11,252	 	 	170	 	 	27	 	 	–	 	 	197	 	 	
	
Income (loss) from mining operations	 	 	10,241	 	 	(12,831	)	 	(86	)	 	(2,676	)	 	(1,862	)	 	(64	)	 	–	 	 	(1,926	)	 	
Other expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administration	 	 	138	 	 	90	 	 	7,511	 	 	7,739	 	 	164	 	 	329	 	 	5,566	 	 	6,059	 	 	
Exploration	 	 	10,452	 	 	6,802	 	 	340	 	 	17,594	 	 	8,423	 	 	400	 	 	124	 	 	8,947	 	 	
Other	 	 	83	 	 	5	 	 	(240	)	 	(152	)	 	361	 	 	(6	)	 	(1,634	)	 	(1,279	)	 	
	
Loss before taxes	 	 	(432	)	 	(19,728	)	 	(7,697	)	 	(27,857	)	 	(10,810	)	 	(787	)	 	(4,056	)	 	(15,653	)	 	
Income and mining tax recovery (expense)	 	 	670	 	 	(137	)	 	4,325	 	 	4,858	 	 	–	 	 	–	 	 	–	 	 	–	 	 	
	
Net income (loss) and comprehensive income (loss) for the period	 	$	238	 	$	(19,865	)	$	(3,372	)	$	(22,999	)	$	(10,810	)	$	(787	)	$	(4,056	)	$	(15,653	)	 	
	
As at and during the periods as shown, the additions to mining interests is presented as follows:

 	 	 	Three months ended
September 30, 2010	 	 	Three months ended
September 30, 2009	 	
 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	
 							 	Total							 	Total	 	
	
Additions to mining interests	 	$	8,312	 	$	6,277	 	$	–	 	$	14,589	 	$	187	 	$	5,169	 	$	291	 	$	5,647	 	

 	 	 	Nine months ended
September 30, 2010	 	 	Nine months ended
September 30, 2009	 	
 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	Palladium
operations	 	Gold
operations	 	Corporate
and other	 	 	 	
 							 	Total							 	Total	 	
	
Additions to mining interests	 	$	18,137	 	$	11,081	 	$	4	 	$	29,222	 	$	574	 	$	6,878	 	$	303	 	$	7,755	 	
	
11.  COMPARATIVE FIGURES
Certain of the prior period figures have been reclassified to conform to the presentation adopted in 2010.
12.  SUBSEQUENT EVENT
On October 27, 2010, 330,000 warrants were exercised for total proceeds of $700.
48
 3RD QUARTER REPORT 2010

QuickLinks
Exhibit 2

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 Exhibit 3

News Release

 North American Palladium Reports Return to Profitability in Third Quarter
Lac des Iles Palladium Mine Operating Smoothly with Lower Cash Costs
All figures are in Canadian dollars except where noted.
Toronto, Ontario, November 10, 2010 — North American Palladium Ltd. ("NAP" or the "Company") (TSX: PDL) (NYSE Amex: PAL) today announced financial results and operational updates for the third quarter ended September 30, 2010.
"We are pleased to report that NAP has returned to profitability in the third quarter," said William J. Biggar. "I think this milestone is indicative of the Company's transformation over the last two years as we pursue our vision to become a mid tier precious metals producer. The execution of our strategic plan to optimize operations and reduce costs at LDI has driven improved financial performance. LDI is operating efficiently and the mine expansion is progressing on schedule."
Highlights
•
Produced 34,420 ounces of payable palladium at a cash cost of US$218 per ounce; 

•
Since restart of mine production in May 2010, produced 62,258 ounces of payable palladium at a cash cost of US$253 per ounce; 

•
Net income in Q3 of $3.2 million or $0.02 per share; 

•
Announced Lac des Iles ("LDI") mine expansion plans, expected to nearly double palladium production while significantly reducing cash costs and extend mine life; 

•
Mine expansion commenced and progressing on schedule, targeting production from the shaft by third quarter 2012; 

•
Achieved a significant safety milestone at LDI of a two-year track record without a single injury that resulted in lost time; and 

•
Management further strengthened through appointment of Greg Struble as Vice President and Chief Operating Officer.
Financial Results
During the third quarter of 2010, NAP returned to profitability with increased earnings and cash flow. Net income for the quarter ended September 30, 2010 was $3.2 million or $0.02 per share compared to a net loss of $6.2 million or $0.06 per share in the same quarter last year.
EBITDA was $5.6 million for the third quarter, compared to a negative $6.2 million in the same quarter last year.
Revenue, after pricing adjustments, increased to $38.5 million in the third quarter, compared to a nominal amount in the same quarter last year. Revenue was $33.4 million from LDI, and $5.1 million from Sleeping Giant.
In the third quarter, NAP provided cash from operating activities of $6.0 million, before changes in non-cash working capital, or $0.04 per share,* as compared to cash used in operations of $5.8 million, before changes in non-cash working capital, or $0.06 per share,* for the quarter ended September 30, 2009. This increase is due primarily to the increased net income of $12.5 million (of which amortization represents $3.1 million), partially offset by the future income and mining tax recoveries ($1.0 million).
For the third quarter, cash used in operations was $20.1 million compared to $8.9 million in the corresponding period last year.
1

As at September 30, 2010, the Company has approximately $161 million in working capital (including $114 million cash on hand) and no long-term debt.
During the third quarter in July, the Company also entered into a $30 million operating line of credit with the Bank of Nova Scotia. The credit facility has a term of one year and is secured by the Company's accounts receivables, intended to be used for working capital liquidity and general corporate purposes.
"NAP showed improved financial performance in the third quarter with the achievement of our return to profitability," said Jeffrey A. Swinoga, Vice President, Finance and CFO. "The increased cash flow from LDI supports our funding strategy as we begin to invest over $200 million over the next couple of years to grow our palladium production, reduce our cash costs per ounce, and expand our operating margin."
NAP's consolidated financial statements for the third quarter ended September 30, 2010 are available in the Appendix of this news release. Certain prior period amounts have been reclassified to conform to the presentation adopted in 2009. 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.
* Non-GAAP measure. Please refer to Non-GAAP Measures in the MD&A.
Operational Updates
Lac des Iles Palladium Mine
The LDI mine continues to perform very well with improved head grades at the mill. During the third quarter, NAP produced 34,420 ounces of payable palladium, at total cash costs of US$218 per ounce. LDI's cash costs were less than the Company's forecast due to better than expected head grades and higher revenue from the mine's byproduct credit metals (platinum, gold, nickel and copper). Since the restart of mine production in May, LDI has produced 62,259 ounces of palladium to September 30, 2010 at a cash cost of US$253 per ounce.
Of the 225,960 tonnes of ore that was extracted from the LDI mine during the quarter, 220,694 tonnes came from the Roby Zone with an average palladium grade of 6.95 grams per tonne, and 5,266 tonnes of silling ore came from the top of Offset Zone at an average palladium grade of 9.37 grams per tonne. The average palladium head grade at the mill was 7.05 grams per tonne with a palladium recovery of 82.1%.
During the quarter, NAP announced its LDI mine expansion plans with the objective of achieving a seamless changeover from mining in the Roby Zone (via ramp access) to the Offset Zone (via shaft access). A third party Scoping Study forecasts that the mine expansion will result in palladium production in excess of 250,000 ounces per year at significantly reduced cash costs averaging around US$132 per ounce. The Company is targeting to achieve commercial production from the Offset Zone by the third quarter of 2012 and initial development is underway, progressing on NAP's projected timeline.
Detailed engineering of the surface hoisting plant and production shaft was initiated in May 2010 and is on schedule to be completed by the end of the year. Timing risk has been substantially diminished as the Company has already purchased the production, sinking and service cage hoists that are critical to the project. During the quarter, the Company awarded the raiseboring contract to Redpath Mining for the shaft construction, and a contract to Cementation Inc. for raiseboring the ventilation raise. All senior positions of the Offset Zone project team have been hired and the team is onsite at LDI overseeing all aspects of the Offset Zone development.
NAP's $15-million, 68,000-metre drilling and exploration program for LDI is ongoing, and an exploration update on the 2010 program is expected later in November. The exploration update will also include an updated reserve classification on the Roby Zone.
Sleeping Giant Gold Mine
During the third quarter, 3,879 ounces of gold were produced at a cash cost of US$1,660 per ounce. The average gold grade was 5.8 grams per tonne, below the average resource grade of 9.3 grams per tonne at the mine, with gold recovery of 95.5%. For the nine months ended September 30, 2010, Sleeping Giant produced 12,979 ounces of gold.
Since commencing operations, mining activities have been confined to zones mined by the previous owner. The ramp up to steady-state production in these zones has proceeded at a slower pace as the tonnes and grade were not in line with initial expectations. The Company's original mine plan was based on a technical
2

report with wider drill spacing, which considering the mine's geology, caused some of the challenges in accessing the higher grades.
Development work at Sleeping Giant continued in the third quarter, focused on implementing a number of measures to manage the mine's ramp-up issues. Tighter infill drilling is now being conducted to better manage grade control issues and shrinkage and long-hole stopes are being favoured over room and pillar stopes due to the higher certainty over grade and tonnage recovered. The Company will continue to adjust its mine plan and methods in order to optimize operations.
New higher grade zones are currently under development in preparation for 2011 production. A long-term solution is expected in the second quarter of 2011, once the Company's development team has completed a 200-metre shaft deepening. This will allow the Company to access new stopes in zones that have historically provided good tonnage and higher grade feed for the mill.
The Company is also currently completing a mill expansion study of its Sleeping Giant mill. If developed, NAP's other gold assets, in conjunction with the Sleeping Giant mine, have the potential to collectively produce in the range of 125,000 ounces of gold per year from an expanded Sleeping Giant mill.
Over 30,000 metres of underground extensional drilling has been completed at Sleeping Giant to September 30, 2010. An additional 5,000 metres are planned for the fourth quarter. The goal of the 2010 drilling is to define and extend the zones within the current mine and at depth. Results will be released in the first quarter of 2011.
Outlook
During the third quarter of 2010, spot palladium prices averaged US$495 per ounce, and US$477 for the first nine months of the year. As a result of strong investment and fabrication demand and constrained supply, palladium has been the best performing metal in 2010 and recently was at a nine year high of over US$700 per ounce. NAP is well positioned to benefit from the forecasted rise in the price of palladium as the LDI mine expansion is expected to significantly increase production.
In the near term, the Company will focus on:
•
Growing palladium production at LDI while continuing to optimize costs; 

•
Continuing to advance the LDI mine expansion, including development work on the ramp, ventilation, shaft and mining levels; 

•
Continuing exploration programs aimed at increasing reserves and resources at LDI and in the gold division; 

•
Improving operating results at Sleeping Giant by continuing to implement a number of measures to mitigate the ramp-up issues, and continuing the deepening of the mine shaft to facilitate development of new zones at depth; and 

•
Determining expansion plans for NAP's gold assets and the underutilized Sleeping Giant mill.
The Company currently expects fourth quarter production and cash costs, net of byproduct credits, to be similar to the third quarter for both the LDI and Sleeping Giant mines. In early 2011, NAP intends to announce its 2011 guidance for annual palladium and gold production and cash costs, its budget for exploration, and the expansion plans for its gold assets.
Conference Call and Webcast

Date:	 	Thursday, November 11, 2010	
Time:	 	2:00 p.m. ET	
Webcast:	 	www.nap.com	
Dial in:	 	416-340-2218 or 866-226-1793	
Replay:	 	416-695-5800 or 800-408-3053 (Passcode: 5365634)	
The conference call replay will be available until midnight on November 25, 2010. An archived audio webcast of the call will also be posted to NAP's website.
3

About North American Palladium
NAP is a Canadian precious metals company focused on growing its production of palladium and gold in mining-friendly jurisdictions. The Company's flagship mine, Lac des Iles, is one of the world's two primary palladium producers. NAP also owns and operates the Sleeping Giant gold mine located in the prolific Abitibi region of Quebec. The Company has extensive landholdings adjacent to both its Lac des Iles and Sleeping Giant mines, and a number of exploration projects. NAP trades on the NYSE Amex under the symbol PAL and on the TSX under the symbol PDL.
For further information please contact:
Camilla Bartosiewicz
Manager, Investor Relations and Corporate Communications
Telephone: 416-360-7590 Ext. 7226
Email: camilla@nap.com
4

Consolidated Balance Sheets 
(expressed in thousands of Canadian dollars)

 	 	September 30
2010	 	December 31
2009	 	
 	 	(unaudited)	 	 	 	
ASSETS	 	 	 	 	 	 	 	
Current Assets	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	113,614	 	$	98,255	 	
Accounts receivable	 	 	44,279	 	 	—	 	
Taxes receivable	 	 	357	 	 	204	 	
Inventories	 	 	25,054	 	 	25,306	 	
Other assets	 	 	3,671	 	 	2,495	 	
 	 	 	 	 	 	
	 	 	186,975	 	 	126,260	 	
Mining interests	 	 	109,721	 	 	82,448	 	
Reclamation deposits	 	 	10,508	 	 	10,503	 	
 	 	 	 	 	 	
Total Assets	 	$	307,204	 	$	219,211	 	
 	 	 	 	 	 	
LIABILITIES AND SHAREHOLDERS' EQUITY	 	 	 	 	 	 	 	
Current Liabilities	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities	 	$	22,249	 	$	11,195	 	
Current portion of obligations under capital leases	 	 	1,221	 	 	558	 	
Future income tax liability	 	 	2,404	 	 	—	 	
 	 	 	 	 	 	
	 	 	25,874	 	 	11,753	 	
Taxes payable	 	 	936	 	 	1,573	 	
Asset retirement obligations	 	 	13,443	 	 	12,921	 	
Obligations under capital leases	 	 	1,354	 	 	576	 	
Future mining tax liability	 	 	1,106	 	 	127	 	
 	 	 	 	 	 	
Total Liabilities	 	 	42,713	 	 	26,950	 	
Shareholders' Equity	 	 	 	 	 	 	 	
Common share capital and purchase warrants	 	 	670,874	 	 	583,089	 	
Stock options	 	 	3,676	 	 	2,704	 	
Contributed surplus	 	 	26,080	 	 	19,608	 	
Deficit	 	 	(436,139	)	 	(413,140	)	
 	 	 	 	 	 	
Total shareholders' equity	 	 	264,491	 	 	192,261	 	
 	 	 	 	 	 	
	 	$	307,204	 	$	219,211	 	
 	 	 	 	 	 	
5

Consolidated Statements of Operations,
Comprehensive Income and Deficit 
(expressed in thousands of Canadian dollars, except share and per share amounts)
(unaudited)

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
Revenue — before pricing adjustments	 	$	33,724	 	$	—	 	$	63,334	 	$	—	 	
Pricing adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Commodities	 	 	5,691	 	 	10	 	 	5,025	 	 	4,612	 	
 	Foreign exchange	 	 	(964	)	 	(9	)	 	(763	)	 	(594	)	
 	 	 	 	 	 	 	 	 	 	
Revenue — after pricing adjustments	 	$	38,451	 	$	1	 	$	67,596	 	$	4,018	 	
 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	
Production costs	 	 	20,452	 	 	—	 	 	53,153	 	 	—	 	
Smelter treatment, refining and freight costs	 	 	1,953	 	 	4	 	 	3,147	 	 	82	 	
Royalty expense	 	 	1,439	 	 	—	 	 	2,184	 	 	201	 	
Inventory pricing adjustment	 	 	(388	)	 	(639	)	 	—	 	 	(3,634	)	
Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	
Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	
Loss (gain) on disposal of equipment	 	 	86	 	 	(21	)	 	103	 	 	(21	)	
Care and maintenance costs	 	 	—	 	 	2,533	 	 	—	 	 	8,799	 	
 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	26,858	 	 	2,103	 	 	70,272	 	 	5,944	 	
 	 	 	 	 	 	 	 	 	 	
Income (loss) from mining operations	 	 	11,593	 	 	(2,102	)	 	(2,676	)	 	(1,926	)	
 	 	 	 	 	 	 	 	 	 	
Other expenses (income)	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administration	 	 	2,432	 	 	1,790	 	 	7,739	 	 	6,059	 	
Exploration	 	 	7,008	 	 	2,623	 	 	17,594	 	 	8,947	 	
Interest and other income	 	 	(79	)	 	(206	)	 	(144	)	 	(1,546	)	
Foreign exchange loss (gain)	 	 	(1	)	 	(115	)	 	(8	)	 	267	 	
 	 	 	 	 	 	 	 	 	 	
Total other expenses	 	 	9,360	 	 	4,092	 	 	25,181	 	 	13,727	 	
 	 	 	 	 	 	 	 	 	 	
Income (loss) before taxes	 	 	2,233	 	 	(6,194	)	 	(27,857	)	 	(15,653	)	
Income and mining tax recovery	 	 	952	 	 	—	 	 	4,858	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Net income (loss) and comprehensive income (loss) for the period	 	 	3,185	 	 	(6,194	)	 	(22,999	)	 	(15,653	)	
Deficit, beginning of period	 	 	(439,324	)	 	(392,585	)	 	(413,140	)	 	(383,126	)	
 	 	 	 	 	 	 	 	 	 	
Deficit, end of period	 	$	(436,139	)	$	(398,779	)	$	(436,139	)	$	(398,779	)	
 	 	 	 	 	 	 	 	 	 	
Net income (loss) per share	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.02	 	$	(0.06	)	$	(0.17	)	$	(0.17	)	
 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	$	0.02	 	$	(0.06	)	$	(0.17	)	$	(0.17	)	
 	 	 	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	147,537,429	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	
 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	148,357,596	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	
 	 	 	 	 	 	 	 	 	 	
6

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

 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	2010	 	2009	 	2010	 	2009	 	
Cash provided by (used in)	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operations	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) for the period	 	$	3,185	 	$	(6,194	)	$	(22,999	)	$	(15,653	)	
Operating items not involving cash	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Future income tax recovery	 	 	(1,408	)	 	—	 	 	(4,325	)	 	—	 	
 	Depreciation and amortization	 	 	3,171	 	 	95	 	 	11,252	 	 	197	 	
 	Stock based compensation and employee benefits	 	 	388	 	 	168	 	 	1,200	 	 	948	 	
 	Accrued interest and accretion on convertible debentures	 	 	—	 	 	—	 	 	—	 	 	(359	)	
 	Asset retirement obligation accretion	 	 	145	 	 	131	 	 	433	 	 	320	 	
 	Future mining tax recovery	 	 	455	 	 	—	 	 	272	 	 	—	 	
 	Unrealized foreign exchange loss (gain)	 	 	—	 	 	(24	)	 	—	 	 	(111	)	
 	Other	 	 	86	 	 	(22	)	 	98	 	 	(11	)	
 	 	 	 	 	 	 	 	 	 	
	 	 	6,022	 	 	(5,846	)	 	(14,069	)	 	(14,669	)	
Changes in non-cash working capital	 	 	(26,075	)	 	(3,065	)	 	(34,589	)	 	31,677	 	
 	 	 	 	 	 	 	 	 	 	
	 	 	(20,053	)	 	(8,911	)	 	(48,658	)	 	17,008	 	
 	 	 	 	 	 	 	 	 	 	
Financing Activities	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common shares and warrants, net of issue costs	 	 	51	 	 	47,411	 	 	94,258	 	 	47,411	 	
Repayment of senior credit facilities	 	 	—	 	 	(500	)	 	—	 	 	(3,926	)	
Repayment of obligations under capital leases	 	 	(729	)	 	(468	)	 	(1,454	)	 	(1,564	)	
 	 	 	 	 	 	 	 	 	 	
	 	 	(678	)	 	46,443	 	 	92,804	 	 	41,921	 	
 	 	 	 	 	 	 	 	 	 	
Investing Activities	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment and advances to Cadiscor Resources Inc.	 	 	—	 	 	—	 	 	—	 	 	(1,135	)	
Additions to mining interests	 	 	(14,589	)	 	(5,647	)	 	(29,222	)	 	(7,755	)	
Proceeds on disposal of mining interests	 	 	404	 	 	21	 	 	435	 	 	21	 	
 	 	 	 	 	 	 	 	 	 	
	 	 	(14,185	)	 	(5,626	)	 	(28,787	)	 	(8,869	)	
 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash and cash equivalents	 	 	(34,916	)	 	31,906	 	 	15,359	 	 	50,060	 	
Cash and cash equivalents, beginning of period	 	 	148,530	 	 	61,222	 	 	98,255	 	 	43,068	 	
 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	 	$	113,614	 	$	93,128	 	$	113,614	 	$	93,128	 	
 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents consisting of:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash	 	$	113,614	 	$	77,775	 	$	113,614	 	$	77,775	 	
Short-term investments	 	 	—	 	 	15,353	 	 	—	 	 	15,353	 	
 	 	 	 	 	 	 	 	 	 	
	 	$	113,614	 	$	93,128	 	$	113,614	 	$	93,128	 	
 	 	 	 	 	 	 	 	 	 	
7

Consolidated Statements of Shareholders' Equity 
(expressed in thousands of Canadian dollars, except share amounts)
(unaudited)

 	 	Number of
shares	 	Capital
stock	 	Shares
issuable	 	Stock
options	 	Warrants	 	Contributed
surplus	 	Deficit	 	Total
shareholders'
equity	 	
Balance, December 31, 2009	 	 	127,383,051	 	$	572,505	 	$	—	 	$	2,704	 	$	10,584	 	$	19,608	 	$	(413,140	)	$	192,261	 	
Common shares issued/issuable:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pursuant to 2010 unit offering, net of issue costs	 	 	20,000,000	 	 	89,804	 	 	—	 	 	—	 	 	4,423	 	 	—	 	 	—	 	 	94,227	 	
 	Tax effect of flow-through shares	 	 	—	 	 	(5,136	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(5,136	)	
 	Pursuant to purchase of Vezza property	 	 	1,368,421	 	 	6,500	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	6,500	 	
Warrants expired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pursuant to convertible notes	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(8,038	)	 	6,445	 	 	—	 	 	(1,593	)	
Stock options issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Stock options exercised	 	 	24,750	 	 	33	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	33	 	
Fair value of stock options exercised	 	 	—	 	 	34	 	 	—	 	 	(34	)	 	—	 	 	—	 	 	—	 	 	—	 	
Fair value of stock options cancelled	 	 	—	 	 	—	 	 	—	 	 	(27	)	 	—	 	 	27	 	 	—	 	 	—	 	
Stock-based compensation expense	 	 	42,500	 	 	165	 	 	—	 	 	1,033	 	 	—	 	 	—	 	 	—	 	 	1,198	 	
Net loss for the nine months ended September 30, 2010	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(22,999	)	 	(22,999	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, September 30, 2010	 	 	148,818,722	 	$	663,905	 	$	—	 	$	3,676	 	$	6,969	 	$	26,080	 	$	(436,139	)	$	264,491	 	

																											
 	 	Number of
shares	 	Capital
stock	 	Shares
issuable	 	Stock
options	 	Warrants	 	Contributed
surplus	 	Deficit	 	Total
shareholders'
equity	 	
Balance, December 31, 2008	 	 	85,158,975	 	$	469,214	 	$	2,080	 	$	2,305	 	$	14,092	 	$	12,336	 	$	(383,126	)	$	116,901	 	
Common shares issued/issuable:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	On acquisition of Cadiscor	 	 	14,457,685	 	 	27,325	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	27,325	 	
 	Pursuant to conversion of convertible debenture	 	 	2,457,446	 	 	4,644	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	4,644	 	
 	For principal repayments on convertible notes payable	 	 	1,486,900	 	 	2,062	 	 	(2,062	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	For interest payments on convertible notes payable	 	 	14,738	 	 	18	 	 	(18	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
 	Pursuant to unit offering, net of issue costs	 	 	16,000,000	 	 	45,220	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	45,220	 	
Warrants issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	On acquisition of Cadiscor	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1,168	 	 	—	 	 	—	 	 	1,168	 	
 	Pursuant to unit offering, net of issue costs	 	 	—	 	 	—	 	 	—	 	 	—	 	 	1,686	 	 	—	 	 	—	 	 	1,686	 	
 	Warrants exercised	 	 	215,998	 	 	575	 	 	—	 	 	—	 	 	(182	)	 	—	 	 	—	 	 	393	 	
Stock options issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	On acquisition of Cadiscor	 	 	—	 	 	—	 	 	—	 	 	1,014	 	 	—	 	 	—	 	 	—	 	 	1,014	 	
 	Stock options exercised	 	 	85,800	 	 	113	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	113	 	
Fair value of stock options exercised	 	 	—	 	 	139	 	 	—	 	 	(139	)	 	—	 	 	—	 	 	—	 	 	—	 	
Fair value of stock options cancelled	 	 	—	 	 	—	 	 	—	 	 	(752	)	 	—	 	 	670	 	 	—	 	 	(82	)	
Stock-based compensation expense	 	 	192,590	 	 	392	 	 	—	 	 	638	 	 	—	 	 	—	 	 	—	 	 	1,030	 	
Net loss for the nine months ended September 30, 2009	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(15,653	)	 	(15,653	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, September 30, 2009	 	 	120,070,132	 	$	549,702	 	$	—	 	$	3,066	 	$	16,764	 	$	13,006	 	$	(398,779	)	$	183,759	 	
Common shares issued/issuable:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pursuant to 2009 unit offering, net of issue costs	 	 	2,400,000	 	 	6,113	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	6,113	 	
 	Private placement of flow-through shares (net)	 	 	4,000,000	 	 	14,077	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	14,077	 	
Warrants issued:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pursuant to 2009 unit offering, net of issue costs	 	 	—	 	 	—	 	 	—	 	 	—	 	 	557	 	 	—	 	 	—	 	 	557	 	
 	Warrants exercised	 	 	899,999	 	 	2,592	 	 	—	 	 	—	 	 	(684	)	 	—	 	 	—	 	 	1,908	 	
Warrants expired:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pursuant to 2007 unit offering	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(6,053	)	 	6,053	 	 	—	 	 	—	 	
Fair value of stock options exercised	 	 	—	 	 	(20	)	 	—	 	 	20	 	 	—	 	 	—	 	 	—	 	 	—	 	
Fair value of stock options cancelled	 	 	—	 	 	—	 	 	—	 	 	(549	)	 	—	 	 	549	 	 	—	 	 	—	 	
Stock-based compensation expense	 	 	12,920	 	 	41	 	 	—	 	 	167	 	 	—	 	 	—	 	 	—	 	 	208	 	
Net loss for the year ended December 31, 2009	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(14,361	)	 	(14,361	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, December 31, 2009	 	 	127,383,051	 	$	572,505	 	$	—	 	$	2,704	 	$	10,584	 	$	19,608	 	$	(413,140	)	$	192,261	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
8

QuickLinks
Exhibit 3
North American Palladium Reports Return to Profitability in Third Quarter
Lac des Iles Palladium Mine Operating Smoothly with Lower Cash Costs

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 Exhibit 99.1
Reconciliation to Accounting Principles Generally Accepted in the United States.
        The Company's unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2010 and 2009 have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), which differ in some respects from those in the United States. The following table presents amounts that would have been reported had the Company's unaudited interim consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"):
Consolidated Statement of Operations
 (expressed in thousands of Canadian dollars, except share and per share amounts)

 	 	 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	Note	 	2010
(unaudited)	 	2009
(unaudited)
Recast — see
note (a)	 	2010
(unaudited)	 	2009
(unaudited)
Recast — see
note (a)	 	
Net income (loss) under Canadian GAAP	 	 	 	$	3,185	 	$	(6,194	)	$	(22,999	)	$	(15,653	)	
 	Transaction costs relating to a business combination	 	(a)	 	 	—	 	 	—	 	 	—	 	 	(884	)	
 	Future income tax expense relating to business combination	 	(a)	 	 	—	 	 	—	 	 	—	 	 	8,500	 	
 	Future mining tax expense (including business combination adjustments)	 	(a)	 	 	252	 	 	—	 	 	424	 	 	—	 	
 	Amortization of mining interests	 	(a)	 	 	(290	)	 	—	 	 	(397	)	 	—	 	
 	Amortization of capitalized interest	 	(c)	 	 	(13	)	 	—	 	 	(78	)	 	—	 	
 	Tax liability on flow-through financing	 	(e)	 	 	—	 	 	—	 	 	(3,050	)	 	—	 	
 	Fair value adjustment on warrants	 	(h)	 	 	—	 	 	84	 	 	(995	)	 	774	 	
 	Fair value adjustment on share purchase warrants — liability	 	(i)	 	 	—	 	 	753	 	 	(542	)	 	3,178	 	
 	Exploration costs	 	(j)	 	 	(1,286	)	 	—	 	 	(1,286	)	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) under U.S. GAAP	 	 	 	$	1,848	 	$	(5,357	)	$	(28,923	)	$	(4,085	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) per share under U.S. GAAP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	$	0.01	 	$	(0.05	)	$	(0.21	)	$	(0.04	)	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	$	0.01	 	$	(0.05	)	$	(0.21	)	$	(0.04	)	
 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	 	 	147,537,429	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Diluted	 	 	 	 	148,357,596	 	 	104,099,989	 	 	138,814,869	 	 	94,592,696	 	
 	 	 	 	 	 	 	 	 	 	 	 	
1

Consolidated Balance Sheets
(expressed in thousands of Canadian dollars)

 	 	Note	 	September 30
2010
(unaudited)	 	December 31
2009
(unaudited)
Recast — see
note (a)	 	
Total assets under Canadian GAAP	 	 	 	$	307,204	 	$	219,211	 	
 	Increase in mining interests relating to a business combination	 	(a)	 	 	13,716	 	 	14,455	 	
 	Increase (decrease) in mining interests relating to amortization	 	(a)	 	 	(387	)	 	10	 	
 	Increase in goodwill relating to a business combination	 	(a)	 	 	8,500	 	 	8,500	 	
 	Pre-production costs, net	 	(b)	 	 	(3,313	)	 	(3,313	)	
 	Amortization during the pre-production period	 	(b)	 	 	(1,651	)	 	(1,651	)	
 	Increase in capitalized interest	 	(c)	 	 	2,421	 	 	2,421	 	
 	Increase in accumulated amortization of capitalized interest	 	(c)	 	 	(1,566	)	 	(1,488	)	
 	Decrease in mining interests relating to capitalized exploration costs	 	(j)	 	 	(1,286	)	 	—	 	
 	 	 	 	 	 	 	 	
Total assets under U.S. GAAP	 	 	 	$	323,638	 	$	238,145	 	
 	 	 	 	 	 	 	 	
Total liabilities under Canadian GAAP	 	 	 	$	42,713	 	$	26,950	 	
 	Increase (decrease) in future mining tax liability	 	(a)	 	 	(252	)	 	911	 	
 	Tax liability on flow-through financing	 	(e)	 	 	—	 	 	2,000	 	
 	Fair value of share purchase warrants — liability	 	(h)	 	 	—	 	 	56	 	
 	 	 	 	 	 	 	 	
Total liabilities under U.S. GAAP	 	 	 	$	42,461	 	$	29,917	 	
 	 	 	 	 	 	 	 	
Shareholders' equity under Canadian GAAP	 	 	 	$	264,491	 	$	192,261	 	
 	Cumulative adjustments under U.S. GAAP relating to prior years	 	 	 	 	15,967	 	 	(88	)	
 	Increase in equity instruments relating to a business combination	 	(a)	 	 	—	 	 	14,428	 	
 	Increase (decrease) in common share capital relating to liability on flow-through financing	 	(e)	 	 	5,050	 	 	(2,000	)	
 	Increase (reduction) of purchase warrants relating to fair value adjustment on share purchase warrants — liability	 	(h), (i)	 	 	1,593	 	 	(3,909	)	
 	Adjustments to current year net income (loss) under U.S. GAAP	 	 	 	 	(5,924	)	 	7,536	 	
 	 	 	 	 	 	 	 	
Shareholders' equity under U.S. GAAP	 	 	 	$	281,177	 	$	208,228	 	
 	 	 	 	 	 	 	 	
2

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

 	 	 	 	Three months ended
September 30	 	Nine months ended
September 30	 	
 	 	Note	 	2010
(unaudited)	 	2009
(unaudited)	 	2010
(unaudited)	 	2009
(unaudited)	 	
Cash provided by (used in) operations under Canadian GAAP	 	 	 	$	(20,053	)	$	(8,911	)	$	(48,658	)	$	17,008	 	
 	Transaction costs relating to a business combination	 	(a)	 	 	—	 	 	—	 	 	—	 	 	(884	)	
 	Exploration costs	 	(j)	 	 	(1,286	)	 	—	 	 	(1,286	)	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by (used in) operations under U.S. GAAP	 	 	 	$	(21,339	)	$	(8,911	)	$	(49,944	)	$	16,124	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by (used in) financing activities under Canadian GAAP	 	 	 	$	(678	)	$	46,443	 	$	92,804	 	$	41,921	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by (used in) financing activities under U.S. GAAP	 	 	 	$	(678	)	$	46,443	 	$	92,804	 	$	41,921	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by (used in) investing activities under Canadian GAAP	 	 	 	$	(14,185	)	$	(5,626	)	$	(28,787	)	$	(8,869	)	
 	Decrease in acquisition costs associated with Cadiscor Resources Inc. transaction costs	 	(a)	 	 	—	 	 	—	 	 	—	 	 	884	 	
 	Exploration costs	 	(j)	 	 	1,286	 	 	—	 	 	1,286	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Cash provided by (used in) investing activities under U.S. GAAP	 	 	 	$	(12,899	)	$	(5,626	)	$	(27,501	)	$	(7,985	)	
 	 	 	 	 	 	 	 	 	 	 	 	
3

Notes to the consolidated financial statements
(a)     The U.S. GAAP requirements for reporting transactions relating to a business combination vary from those utilized by the Company in its consolidated financial statements prepared on the basis of Canadian GAAP. Under U.S. GAAP, the following disclosure would have been reported:
Acquisition of Cadiscor Resources Inc. ("Cadiscor")
        In May 2009, the Company acquired all of the outstanding common shares of Cadiscor in an all-equity transaction. Prior to the acquisition, the Company advanced to Cadiscor $7.5 million, consisting of a $5.4 million 12% convertible debenture, and a $2.1 million 12% debenture, the proceeds of which would be used by Cadiscor to bring the Sleeping Giant gold mine in Quebec back into production.
        The results of Cadiscor's operations have been included in these consolidated financial statements since the date of acquisition.
        Pursuant to the acquisition agreement, Cadiscor shareholders received 0.33 common shares of the Company for each common share of Cadiscor. The Company issued 14.5 million common shares on closing at a price of $2.66 per share based on the closing stock price of the Company's common shares on May 26, 2009, as such price is determined under U.S. GAAP.
        In addition, all of Cadiscor's outstanding stock options and warrants as at the date of acquisition were exchanged for equivalent instruments in the Company. Approximately 0.9 million stock options and 1.4 million warrants were issued by the Company in the exchange. Under U.S. GAAP, the Company would record $1.6 million and $2.0 million as part of the purchase consideration, representing the fair value of these stock options and warrants respectively. The Company also assumed the equity conversion option relating to convertible debentures with an assigned fair value of $3.3 million under U.S. GAAP at the date of acquisition.
4

        The following table summarizes the fair value of the assets acquired and liabilities assumed as at the date of acquisition, as determined under U.S. GAAP.

ASSETS	 	 	 	 	
Current Assets	 	 	 	 	
Cash and cash equivalents	 	$	7,248	 	
Taxes recoverable	 	 	461	 	
Inventories	 	 	420	 	
Other assets	 	 	559	 	
Future mining tax asset	 	 	31	 	
 	 	 	 	
	 	 	8,719	 	
Mining interests	 	 	53,806	 	
Mine restoration deposit	 	 	1,769	 	
Goodwill	 	 	8,500	 	
 	 	 	 	
	 	$	72,794	 	
 	 	 	 	
LIABILITIES	 	 	 	 	
Current Liabilities	 	 	 	 	
Accounts payable and accrued liabilities	 	$	3,531	 	
Current portion of obligation under capital leases	 	 	7	 	
 	 	 	 	
	 	 	3,538	 	
Mine restoration obligation	 	 	4,291	 	
Long-term debt	 	 	11,066	 	
Obligation under capital leases	 	 	27	 	
Future income tax liability	 	 	8,500	 	
 	 	 	 	
	 	$	27,422	 	
 	 	 	 	
Net assets acquired	 	$	45,372	 	
 	 	 	 	
TOTAL PURCHASE CONSIDERATION	 	 	 	 	
Common share capital	 	$	38,457	 	
Stock options	 	 	1,582	 	
Purchase warrants	 	 	2,003	 	
Convertible rights on convertible debenture	 	 	3,330	 	
 	 	 	 	
Total purchase price	 	$	45,372	 	
 	 	 	 	
        Under Canadian GAAP, the Company applied a closing common share price of $1.89 per share based on the volume weighted average closing stock price of the Company's common shares for the period from March 27, 2009 to April 2, 2009.
        As a result of using that share price, under Canadian GAAP, the stock options and warrants exchanged for equivalent instruments in the Company were recorded at a value of $1.0 million and $1.2 million respectively and the equity conversion option relating to convertible debentures was assigned a fair value of $1.4 million at the date of acquisition.
        In addition, under Canadian GAAP, transaction costs of $0.9 million incurred as part of a business combination were included in the acquisition price. These transaction costs are expensed as incurred under U.S. GAAP.
        During the six month period ended June 30, 2010, management finalized the purchase allocation for the acquisition of Cadiscor. In accordance with U.S. GAAP, the impact of the finalization of the purchase equation has been reflected as if the accounting for the business combination was completed at the acquisition date and accordingly, the December 31, 2009 consolidated balance sheet has been recast to reflect such adjustments. This has resulted in an increase in future mining tax assets of $31, an increase in
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accounts payable of $1,799, an increase in the mine restoration obligation of $1,754, and a corresponding net increase in mining interests of $3,522 on the acquisition date.
        In addition, a future income tax liability of $8.5 million was recognized, with a corresponding increase in goodwill for U.S. GAAP at the acquisition date. As a result of the recognition of this future income tax liability, management reversed an equivalent amount for the valuation allowance recorded against existing tax loss carryforwards. Under U.S. GAAP this reversal has been recognized in the income statement.
        Goodwill is evaluated for impairment, at a minimum, on an annual basis by management. Additional periodic analyses and adjustments may also be performed as management identifies key developments which suggest impairment may exist under U.S. GAAP.
        In addition to the balance sheet adjustments at the acquisition date, as reflected above, the net impact of the finalization of the purchase equation on the reported balance sheet totals at December 31, 2009 also included an increase in amortization of mining interests of $305, a reduction of other assets of $880 relating to previously reported future tax asset reconciliations between Canadian and U.S. GAAP, and a corresponding decrease in mining interests of $1,185.
        The following unaudited supplemental pro-forma information is presented to illustrate the effects of the acquisition on the operating results for the year ended December 31, 2009 under U.S. GAAP, as if the acquisition had occurred at the beginning of the year.

Revenue from metal sales — after pricing adjustments	 	$	6,140	 	
 	 	 	 	
Net loss	 	$	(23,177	)	
 	 	 	 	
Basic and diluted loss per share	 	$	(0.23	)	
 	 	 	 	
(b)     Under Canadian GAAP, the Company capitalizes all costs incurred, net of realized revenue, relating to the Sleeping Giant gold mine prior to commercial production and does not amortize assets under the unit of production method prior to achieving commercial production. Under U.S. GAAP, the Company is required to begin recognizing such revenues, costs, and amortization in the income statement from the first date production occurs.
        The Company's Sleeping Giant gold mine in Quebec achieved its first gold pour on October 6, 2009, but did not achieve commercial production until January 1, 2010. As a result, revenues of $2,322 and costs of $5,635 for the period of October 6 to December 31, 2009 have been capitalized under Canadian GAAP and no amortization has been taken during that period. Under U.S. GAAP, net production costs of $3,313 and amortization of $1,946 are recognized in the income statement.
(c)     Under Canadian GAAP, the Company capitalizes interest on major projects where direct indebtedness has occurred and commences amortization upon reaching commercial production. Under U.S. GAAP, interest is capitalized as it arises from indebtedness incurred, directly or indirectly, to finance development and construction activities on assets that are not yet subject to amortization or depletion. For 2009, interest of $nil (2008 — $nil), respectively, has been capitalized related to the investment in the underground development at the Lac des Iles ("LDI") mine, which reached commercial production during the first quarter of 2006. Upon the underground mine reaching commercial production, the Company commenced amortization of interest capitalized for the underground development, in addition to the amortization of interest amounts previously capitalized under U.S. GAAP.
        For the year ended December 31, 2009, the LDI mine, to which the above capitalized interest relates, remained on care and maintenance. As a result, no production existed and no amortization was recorded based on the mine's use of the unit of production method to amortize its mining assets. Amortization of capitalized interest resumed on April 1, 2010 following the successful restart of operations at the LDI mine.
(d)     Canadian GAAP allows for the reduction of the stated capital of outstanding common shares with a corresponding offset to deficit. This reclassification, which the Company made in 1991, is not permitted by U.S. GAAP and results in an increase in both capital stock and deficit of $6,098 as at September 30, 2010 and December 31, 2009.
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(e)     Under Canadian GAAP, proceeds received from the issue of flow-through shares are included in the value of the Company's common share capital and subsequent renunciation of tax deductions is applied to reduce common share capital as a cost of issuing equity.
        Under U.S. GAAP, the fair value of the common shares issued is added to share capital with any excess of proceeds over fair value of the common shares being recorded as a liability. The renunciation of tax deductions to holders of flow-through shares is treated as a future tax expense rather than as a cost of issuing equity as required by Canadian GAAP.
(f)     U.S. GAAP requires that amounts totaling 5% or more of current liabilities be identified separately. As at September 30, 2010, these amounts were as follows: trade payables and accruals — $15,932 (December 31, 2009 — $9,779); other accruals — $6,317 (December 31, 2009 — $1,416).
(g)     U.S. GAAP does not permit the disclosure of subtotal of cash from operations before changes in non-cash working capital.
(h)     Under Canadian GAAP, the components of the convertible notes payable must be bifurcated and accounted for separately as debt and equity instruments. The attached warrants are separable from the convertible notes and are accounted for in accordance with EITF 07-5 as discussed in note (i) below.
        Under U.S. GAAP the Company allocated the residual amount of the gross proceeds received to the convertible notes payable after the separate fair value measurement of the warrants and embedded derivatives. The Company allocated the Series I proceeds as follows: US$18,504 to the debt, US$10,060 to the embedded derivatives and US$6,436 to the warrants. The Company allocated the Series II proceeds as follows: US$9,952 to the debt, US$2,092 to the embedded derivatives and US$1,456 to the warrants.
        Differences in U.S. GAAP and Canadian GAAP result from the initial allocation differences and the subsequent accretion expenses, amortization of deferred financing costs and from the fair value re-measurement of the warrant and embedded derivatives as liabilities each reporting period under U.S. GAAP. These convertible notes were fully repaid prior to December 31, 2008. As a result, these differences only affect reported balances relating to 2008, with the exception of the warrants that must be adjusted to fair value at each reporting date.
(i)     Under U.S. GAAP, common share purchase warrants denominated in a foreign currency are presented as a liability and subsequent changes in fair value are recorded in the consolidated statements of loss and deficit at each reporting date. Additional disclosure is also included regarding the Company's current year adoption of Codification Topic 815-40 —  Contracts in entity's own equity (formerly EITF 07-5 — Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock) below.
(j)     In March 2009, the EIC issued EIC-174, "Mining Exploration Costs", which provides guidance on capitalization of exploration costs related to mining properties. EIC 174 refers to CICA Handbook Section 3061 "Property, Plant and Equipment", paragraph .21 which states that for a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment. EIC 174 then states that a mining enterprise that has not established mineral reserves objectively, and therefore does not have a basis for preparing a projection of the estimated cash flow from the property is not precluded from considering the exploration costs to have the characteristics of property, plant and equipment. EIC 174 also sets forth the Committee's consensus that a mining enterprise in the exploration stage is not required to consider the conditions of AcG-11, "Enterprises in the Development Stage", regarding impairment in determining whether exploration costs may be initially capitalized. With respect to impairment of capitalized exploration costs, if an enterprise has not established mineral reserves objectively, and therefore does not have a basis for preparing a projection of the estimated cash flow from the property it is not obliged to conclude that capitalized costs have been impaired. However, such an enterprise should consider the conditions set forth in AcG-11 and CICA Handbook Section 3063, "Impairment of Long-lived Assets", in determining whether subsequent write-down of capitalized exploration costs related to mining properties is required.
        Under Canadian GAAP, the Company considers that certain exploration costs incurred during the three month period ending September 30, 2010 have the characteristics of property, plant and equipment and,
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accordingly, deferred such costs. Furthermore, pursuant to EIC 174, deferred exploration costs would not automatically be subject to regular assessment of recoverability, unless certain conditions exist.
        Under United States GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Commercial feasibility is established in compliance with the U.S. Securities and Exchange Commission Industry Guide 7, and consists of identifying that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized.
(k)     The fair value hierarchy established by ASC Subtopic 820-10 establishes three levels to classify the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

 	 	 	
Level 1	 	Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.	
 	 	 	
Level 2	 	Inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means.	
 	 	 	
Level 3	 	Inputs are unobservable (supported by little or no market activity).	
        The Company utilizes the market approach to measure fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
        The following table sets out the Company's financial assets and (liabilities) measured at fair value by level within the hierarchy as at September 30, 2010:

Description 	 	Level 1	 	Level 2	 	Level 3	 	Total	 	
Cash and cash equivalents	 	$	113,614	 	$	—	 	$	—	 	$	113,614	 	
Accounts receivable	 	 	—	 	 	44,279	 	 	—	 	 	44,279	 	
Warrants on shares	 	 	—	 	 	(6,969	)	 	—	 	 	(6,969	)	
Stock options	 	 	—	 	 	(3,676	)	 	—	 	 	(3,676	)	
        The Company's cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash instruments that are valued based on quoted market prices in active markets are primarily money market securities. Due to the short maturity of cash, carrying amounts approximate fair values.
        The Company's accounts receivable are classified within Level 2 of the fair value hierarchy because they consist of outstanding metal settlements which are provisionally priced and marked to market at the end of each month at forward pricing and foreign exchange rates.
        The Company's warrants on shares and stock options are valued using pricing models and the Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including market price of common shares, measures of volatility, risk free interest rates and correlations of such inputs. Such instruments are typically classified within Level 2 of the fair value hierarchy.
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Adoption of new United States accounting pronouncements
FASB Accounting Standards Codification ("ASC")
        On July 1, 2009, the Company adopted the FASB Accounting Standard Codification ("ASC") (formerly SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162"). The ASC is the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification reorganized the thousands of GAAP pronouncements into accounting topics and displays them using a consistent structure. Also included in the Codification is relevant Securities and Exchange Commission ("SEC") guidance organized using the same topical structure in separate sections within the Codification. On the effective date of the ASC, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non grandfathered non-SEC accounting literature not included in the Codification became non authoritative. The ASC was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the ASC changed the Company's references to U.S. GAAP accounting standards but did not have any impact on the consolidated financial statements.
Codification Topic 815-40 —  Contracts in entity's own equity
        In June 2008, the FASB ratified Codification Topic 815-40, (formerly EITF 07-5, "Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock"). Codification Topic 815-40 provides guidance in determining whether or not derivative financial instruments are indexed to a Company's own stock. It is effective the first fiscal year beginning after December 15, 2008, including interim periods within those fiscal years. On January 1, 2009, the Company adopted Codification Topic 815-40 which defines when adjustment features within contracts are considered to be equity-indexed, in order to determine whether an instrument meets the definition of a derivative under Codification Topic 815, (formerly SFAS 133). The adoption of Codification Topic 815-40 affects the accounting for the U.S. dollar denominated common share purchase warrants, which are considered derivative instruments and are required to be measured at fair value. There is no similar requirement under Canadian GAAP. The cumulative effect of the change in accounting principle for U.S. GAAP is recognized as a reclassification of $3.9 million to Share Purchase Warrant-Liability and an adjustment to the opening balance of retained earnings of $2.1 million with a corresponding $6.0 million decrease in Share Purchase Warrants as at January 1, 2009.
Codification Topic 820-10 —  Improving disclosures about fair value measurements
        In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements, which provides amendments to Subtopic 820-10, Fair Value Measurements and Disclosures (formerly SFAS No. 157, Fair Value Measurements). The new disclosures now required by the amended guidance include the amounts of significant transfers in and/or out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, and a reconciliation of the activities in Level 3 fair value measurements on a gross basis. In addition, this ASU clarifies the existing disclosure requirements for level of disaggregation, and disclosures about inputs and valuation techniques. The new disclosures and clarifications of existing disclosures are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. Those disclosures are effective for fiscal years beginning after December 15, 2010. The adoption of this guidance had no impact on the consolidated financial statements. Disclosure relating to these fair values is included in note (j).
Codification Topic 855 —  Subsequent events
        In May 2009, the FASB updated the ASC guidance for subsequent events to establish general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. As a result, SEC registrants will not disclose the date through which management evaluated subsequent events in
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the financial statements. This change for SEC registrants was effective immediately. The adoption of the updated guidance had no impact on the Company's financial statements.
Amendments and technical corrections to various codification topics
        In February 2010, the Financial Accounting Standards Board ("FASB") updated Accounting Standards Codification ("the Codification" or "ASC") guidance which contains amendments and technical corrections to certain Codification topics. While the guidance does not significantly alter U.S. GAAP, it may result in limited change to existing practice. The clarifications of the guidance on embedded derivatives and hedging are effective for fiscal years beginning after December 15, 2009. The adoption of the updated guidance had no impact on the Company's financial statements.
Recently issued United States accounting pronouncements
Codification Topic 605 —  Multiple-deliverable revenue arrangements
        In September 2009, the FASB issued authoritative guidance regarding multiple-deliverable revenue arrangements. This guidance addresses how to separate deliverables and how to measure and allocate consideration to one or more units of accounting. Specifically, the guidance requires that consideration be allocated among multiple deliverables based on relative selling prices. The guidance establishes a selling price hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence and (3) estimated selling price. This guidance is effective for annual periods beginning after June 15, 2010 but may be early adopted as of the beginning of an annual period. The Company is currently evaluating the effect that this guidance will have on consolidated financial position and results of operations.
Codification Topic 718 —  Compensation — stock compensation
        In April 2010, the FASB issued ASU 2010-13, Compensation — Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This ASU provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore an entity would not classify such an award as a liability if it otherwise qualifies as equity. The guidance also clarifies that disclosures currently required are applicable to a share-based payment award, including the nature and terms of share-based payment arrangements. The amendments in this ASU are effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2010 and the Company is currently evaluating the effect that this guidance will have on consolidated financial position and results of operations.
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Exhibit 99.1