**Exhibit 1.1**

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**NORTH AMERICAN PALLADIUM LTD.**

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**ANNUAL INFORMATION FORM**

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FOR THE YEAR ENDED DECEMBER 31, 2007

 

DATED MARCH 31, 2008

 

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**TABLE OF CONTENTS**

 
| ** **                                                                | **Page** |
|---------------------------------------------------------------------------|----------|
|                                                                      |     |
| FORWARD-LOOKING STATEMENTS                                                | 1        |
| IMPERIAL-METRIC CONVERSION TABLE                                          | 3        |
| REPORTING CURRENCY, FINANCIAL AND RESERVE INFORMATION                     | 4        |
| CORPORATE STRUCTURE                                                       | 4        |
| DESCRIPTION OF THE BUSINESS AND GENERAL DEVELOPMENTS                      | 5        |
| Three-year  History                                                       | 5        |
| Business  Overview                                                        | 7        |
| Principal Market of Platinum Group Metals                                 | 8        |
| Lac des Iles Property                                                     | 9        |
| Shebandowan West Project                                                  | 10       |
| Arctic Platinum Project                                                   | 11       |
| Grassroots Exploration                                                    | 12       |
| Mineral  Reserve and Mineral Resource Estimates                           | 12       |
| MINERAL PROPERTIES                                                        | 13       |
| Lac  des Iles Mine                                                        | 14       |
| Overview                                                                  | 14       |
| Offset High Grade Zone                                                    | 18       |
| Project Description and Location                                          | 18       |
| Accessibility, Climate, Local Resources, Infrastructure and  Physiography | 19       |
| History                                                                   | 20       |
| Geological Setting                                                        | 21       |
| Exploration                                                               | 22       |
| Mineralization                                                            | 22       |
| Drilling                                                                  | 23       |
| Sampling, Analysis and Security                                           | 23       |
| Mineral Reserve and Mineral Resource Estimates                            | 24       |
| Shebandowan  West Project                                                 | 24       |
| Overview                                                                  | 24       |
| Project Description and Location                                          | 25       |
| Accessibility, Climate, Local Resources, Infrastructure and  Physiography | 25       |
| History                                                                   | 26       |
| Geological Setting                                                        | 27       |
| Exploration                                                               | 27       |
| Mineralization                                                            | 28       |
| Drilling                                                                  | 30       |
| Sampling, Analysis and Security                                           | 31       |
| Mineral Resource Estimates                                                | 32       |
| Arctic  Platinum Project                                                  | 32       |
| Overview                                                                  | 32       |
| Project Description and Location                                          | 34       |
| Accessibility, Climate, Local Resources, Infrastructure and  Physiography | 35       |
| History                                                                   | 36       |
| Geological Setting                                                        | 37       |
| Exploration                                                               | 38       |
| Mineralization                                                            | 38       |
| Drilling                                                                  | 40       |
| Sampling, Analysis and Security                                           | 40       |
| Mineral Resource Estimates                                                | 41       |
| Grassroots  Exploration Properties                                        | 41       |

 

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| ** **                                                   | **Page** |
|--------------------------------------------------------------|----------|
|                                                         |     |
| FINANCING                                                    | 41       |
| Senior Credit Facilities                                     | 41       |
| KFOC Credit Facilities                                       | 41       |
| Convertible Note Financing                                   | 42       |
| Public Offering                                              | 43       |
| Palladium and Platinum Purchase Agreement                    | 44       |
| DIVIDENDS                                                    | 44       |
| CAPITAL STRUCTURE                                            | 45       |
| PRICE RANGE AND TRADING VOLUME                               | 46       |
| DIRECTORS AND EXECUTIVE OFFICERS                             | 46       |
| Cease Trade Orders, Bankruptcies, Penalties or Sanctions     | 50       |
| Conflicts of Interest                                        | 50       |
| LEGAL PROCEEDINGS                                            | 51       |
| INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL  TRANSACTIONS | 52       |
| TRANSFER AGENT                                               | 52       |
| MATERIAL CONTRACTS                                           | 52       |
| INTERESTS OF EXPERTS                                         | 52       |
| RISK FACTORS                                                 | 53       |
| AUDIT COMMITTEE INFORMATION                                  | 62       |
| Audit Committee Mandate                                      | 62       |
| Composition of the Audit Committee                           | 62       |
| Relevant Education and Experience                            | 62       |
| Reliance on Certain Exemptions                               | 63       |
| Audit Committee Pre-Approval Policies and Procedures         | 63       |
| External Auditor Service Fees                                | 63       |
| ADDITIONAL INFORMATION                                       | 63       |
| AUDIT COMMITTEE MANDATE                                      | 65       |
| GLOSSARY OF TERMS                                            | 69       |

 

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**FORWARD-LOOKINGSTATEMENTS**

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This AnnualInformation Form (“AIF”) contains forward-looking statements, whichincludes future-oriented financial information, within the meaning of the ‘‘safeharbor’’ provisions of the *U.S. Private SecuritiesLitigation Reform Act of 1995* and the securities legislation ofcertain of the provinces of Canada, including the *Securities Act* (Ontario). Forward-looking statements,including future-oriented financial information, are necessarily based onestimates and assumptions made by North American Palladium Ltd. (the “Company”)in light of its experience and perception of historical trends, currentconditions and expected future developments, as well as other factors it believesare appropriate in the circumstances. These estimates and assumptions areinherently subject to significant business, economic, competitive and otheruncertainties and contingencies, many of which, with respect to future events,are subject to change. These uncertainties and contingencies can affect actualresults and could cause actual results to differ materially from thoseexpressed or implied in any forward-looking statements made by the Company, oron its behalf.

 

In making the forward-looking statements,including future-oriented financial information, in this AIF, the Company hasmade several assumptions that it believes are appropriate, including, but notlimited to, the assumptions that:

 

·                  marketfundamentals will result in reasonable demand and prices for palladium andby-product metals;

 

·                  mine planscenarios will be viable and that exploration and development work, includingat the Offset High Grade Zone (the “OHGZ”), the Shebandowan West Project andthe Arctic Platinum Project (the “APP”), will proceed as expected;

 

·                  the Companywill not be subject to any environmental disasters, significant litigation,significant regulatory changes or significant labour disruptions;

 

·                  theintegrated operation of the underground mine and the open pit mine at Lac desIles will remain operationally and economically viable;

 

·                  the advicethe Company has received from its consultants and advisors relating to matterssuch as mineral reserves and mineral resources, environmental requirements andcertain legal proceedings is reliable and correct and, in particular, that themodels, dilution strategies and mining recovery estimates used to calculatemineral reserves and mineral resources are appropriate and accurate; and

 

·                  financingwill be available on reasonable terms.

 

We cannot assure you that any of theseassumptions will prove to be correct.

 

The words “expect”, “anticipate”, “estimate”,“may”, “could”, “would”, “might”, “will”, “should”, “intend”, “believe”, “target”,“budget”, “plan”, “strategy”, “goals”, “objectives”, “projection” or thenegative of any of these words and similar expressions are intended to identifyforward-looking statements. Information concerning mineral reserve and mineralresource estimates also may be considered forward-looking statements, as suchinformation constitutes a prediction of what mineralization might be found tobe present if and when a project is actually developed or as developmentcontinues.

 

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In light of the risks and uncertaintiesinherent in all forward-looking statements, including future-oriented financialinformation, the inclusion or incorporation by reference of forward-lookingstatements in this AIF should not be considered as a representation by theCompany or any other person that the Company’s objectives or plans will beachieved. Numerous factors could cause the Company’s actual results to differmaterially from those expressed or implied in the forward-looking statements,including future-oriented financial information, including the following, whichare discussed in greater detail under the heading “Risk Factors” on page 53of this AIF:

 

·                  fluctuationsin commodity prices;

 

·                  fluctuationsin foreign currency exchange rates, particularly the Canadiandollar/U.S. dollar exchange rate;

 

·                  the abilityof the Company to meet production volume or operating cost estimates;

 

·                  the accuracyof mineral reserve and mineral resource estimates;

 

·                  demand for,and cost of, exploration, development and construction services and equipment;

 

·                  risks relatedto future exploration;

 

·                  the Company’shistory of losses and the possibility of future losses;

 

·                  inherentrisks and hazards associated with mining and processing operations;

 

·                  the abilityof the Company to maintain projected production levels at the Lac desIles mine;

 

·                  interruptionof operations at the Lac des Iles mine;

 

·                  uncertaintyrelated to title of the Company’s mineral properties;

 

·                  the Company’sdependence on a third party for smelting and refining its metal;

 

·                  increasedcompetition for exploration, development and construction servicesand equipment;

 

·                  the risk thatthe Company may not satisfy the conditions to the earn-in for the APP or thatthe APP and Shebandowan properties will not be managed in a way favourable tothe Company;

 

·                  the abilityof the Company to obtain external financing to explore and develop itsproperties;

 

·                  employmentdisruptions, including the failure to renew on acceptable terms or at all thecollective agreement between the Company and the United Steelworkers ofAmerica;

 

·                  costs ofcomplying with environmental laws and regulations;

 

·                  costs ofcomplying with government regulations;

 

·                  the risk thatpermits and regulatory approvals necessary to develop and operate mines on theCompany’s properties will not be available on a timely basis, on reasonableterms or at all;

 

·                  riskassociated with the process of obtaining and renewing governmental permits;

 

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·                  the abilityof the Company to successfully renew mineral claims in Finland;

 

·                  competitionfrom larger suppliers of platinum group metals and from potential new sourcesof platinum group metals;

 

·                  thedevelopment of new technology or new alloys that could reduce the demand forpalladium or platinum;

 

·                  loss of keypersonnel;

 

·                  the abilityof the Company to comply with the terms of its credit facilities and theoutstanding convertible notes issued pursuant to a securities purchaseagreement;

 

·                  the abilityof the Company’s principal shareholder to control the Company;

 

·                  risk relatedto hedging strategy;

 

·                  lack ofinfrastructure necessary to develop the Company’s projects;

 

·                  risks theCompany faces in pursuing exploration activities abroad;

 

·                  risksinvolved in current or future litigation or regulatory proceedings; and

 

·                  the abilityof the Company to maintain adequate internal control over financial reporting.

 

These factors should be considered carefully,and readers should not place undue reliance on the Company’s forward-lookingstatements. The Company believes that the expectations reflected in theforward-looking statements, including future-oriented financial information,contained in this AIF are reasonable, but no assurance can be given that theseexpectations will prove to be correct. In addition, although the Company hasattempted to identify important factors that could cause actual actions, eventsor results to differ materially from those described in forward-lookingstatements, including future-oriented financial information, there may be otherfactors that cause actions, events or results not to be as anticipated,estimated or intended. The Company undertakes no obligation to release publiclyany future revisions to forward-looking statements, including future-orientedfinancial information, to reflect events or circumstances after the date ofthis AIF or to reflect the occurrence of unanticipated events, except asrequired by law. Additionally, theforward-looking statements, including future-oriented financial information,contained herein are presented solely for the purpose of conveying ourreasonable belief of the direction of the Company and may not be appropriatefor other purposes.

 

**IMPERIAL-METRICCONVERSION TABLE**

 

| **Imperial**          | ** ** | **Metric**              |
|-----------------------|------------|-------------------------|
| 1  troy ounce         |       | 31.103  grams           |
| 1  ton, short         |       | 0.907  tonnes           |
| 1  troy ounce per ton |       | 34.286  grams per tonne |
| 1  foot               |       | 0.305  metres           |
| 1  mile               |       | 1.609  kilometres       |
| 1  acre               |       | 0.405  hectares         |

 

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**REPORTING CURRENCY, FINANCIAL AND RESERVE INFORMATION**

 

Theinformation in this AIF is presented as at December 31, 2007 unless otherwiseindicated.

 

All dollar amounts referred to herein are in Canadian dollars unlessstated otherwise. Unless otherwise indicated, all financial informationincluded herein has been prepared in accordance with Canadian generallyaccepted accounting principles, which may differ from United States generallyaccepted accounting principles.

 

Unlessotherwise indicated, all reserve and resource estimates included in this annualinformation form have been prepared in accordance with Canadian NationalInstrument 43-101 – *Standards of Disclosurefor Mineral Projects* (“NI 43-101”) and the Canadian Institute ofMining, Metallurgy and Petroleum classification system. NI 43-101 is a ruledeveloped by the Canadian Securities Administrators that establishes standardsfor all public disclosure an issuer makes of scientific and technicalinformation concerning mineral projects. Canadian standards, including NI 43-101, differ significantly from therequirements of the United States Securities and Exchange Commission (the“SEC”), and reserve and resource information included herein may not becomparable to similar information disclosed by U.S. companies. In particular,and without limiting the generality of the foregoing, this document uses theterms “measured resources,” “indicated resources” and “inferredresources”.  U.S. investors are advisedthat, while such terms are recognized and required by Canadian securities laws,the SEC does not recognize them. Under U.S. standards, mineralization may notbe classified as a “reserve” unless the determination has been made that themineralization could be economically and legally produced or extracted at thetime the reserve determination is made. U.S. investors are cautioned not toassume that any part of a “measured resource” or “indicated resource” will everbe converted into a “reserve”.  U.S.investors should also understand that “inferred resources” have a great amountof uncertainty as to their existence and as to their economic and legalfeasibility. It cannot be assumed that all or any part of “inferred resources”exist, are economically or legally mineable or will ever be upgraded to ahigher category. Under Canadian rules, estimated “inferred resources” may notform the basis of feasibility or pre-feasibility studies except in rare cases.Disclosure of “contained ounces” in a mineral resource is permitted disclosureunder Canadian regulations. However, the SEC normally only permits issuers toreport mineralization that does not constitute “reserves” by SEC standards asin place tonnage and grade, without reference to unit measures. Therequirements of NI 43-101 for identification of “reserves” are also not thesame as those of the SEC, and reserves reported by North American Palladium incompliance with NI 43-101 may not qualify as “reserves” under SEC standards.Accordingly, information concerning mineral deposits set forth in this annualinformation form may not be comparable with information made public bycompanies that report in accordance with U.S. standards.

 

**CORPORATE STRUCTURE**

** **

North American Palladium Ltd. is the successor to Madeleine Mines Ltd.,a company incorporated under the Quebec Mining Companies Act by letters patentin 1968.  From 1969 to 1981, MadeleineMines Ltd. operated a copper mine known as the Madeleine Mine, located nearSte. Anne-des-Monts, Quebec.  In January 1992,Madeleine Mines Ltd. was amalgamated with a federally incorporated company andthe amalgamated company was wound up into the parent company, 2750538 CanadaInc.  This entity changed its name toMadeleine Mines Ltd. and, in June 1993, the name was changed to NorthAmerican Palladium Ltd.

 

In 1991, Lac des Iles Mines Ltd. was incorporated as a subsidiary ofMadeleine Mines Ltd. to hold the Lac des Iles mining claims and assets.  In 1994, Lac des Iles Mines Ltd. acquired theremaining 50% interest in the Lac des Iles property from the Sheridan PlatinumGroup Ltd. to become the sole owner of the property.

 

The Company’s head and registered office is at 2116-130 Adelaide StreetWest, Toronto, Ontario M5H 3P5, Canada, telephone: (416) 360-7590, fax:(416) 360-7709.  The Company’s miningoperations are located approximately 85 kilometres northwest of Thunder Bay atLac des Iles, in northern Ontario.

 

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** DESCRIPTION OF THEBUSINESSAND GENERAL DEVELOPMENTS**

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MadeleineMines Ltd., the predecessor of NorthAmerican Palladium Ltd., acquired a 50% interest in the Lac des Ilesproperty from the Sheridan Platinum Group Ltd. in 1986 under an optionagreement that required that the Company bring an open pit mine into productionby December 31, 1990 at a minimum production rate of 3,000 tons perday.  In 1994, Lac des Iles Mines Ltd.acquired the remaining 50% interest in the Lac des Iles property from theSheridan Platinum Group Ltd. to become the sole owner of the property.  In 2000, the Company commenced a $207 millionexpansion program, which included construction of a new concentrator with anominal capacity of approximately 15,000 tonnes per day, larger primary andancillary mining equipment, pre-production stripping, an expanded tailingsmanagement facility and new site infrastructure.  Development of an underground mine commencedin the second quarter of 2004, with commercial production being achieved on April 1,2006.

 

**Three-yearHistory**

** **

On October 18, 2005, the Company and Gold Fields Limited (“GoldFields”) announced the companies have entered into a letter of intent to form ajoint venture to further explore mining properties, if justified, and develop amine at the APP located in Finland.

 

In March 2006, the Company executed an option earn-in and jointventure with Inco Limited (now Vale Inco) for a land package that encompassedthe Shebandowan West Project.

 

Also in March 2006, the Company entered into a definitiveframework agreement for the APP with Gold Fields Limited.  The Company was granted an option to acquire upto a 60% undivided interest in APP including the Suhanko, SJ Reef and SK Reefmining properties and claims located south of Rovaniemi, Finland.  The Company’s option to acquire its interestin APP will vest upon the Company satisfying the 

 

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followingconditions on or before August 31, 2008: (i) complete a re-scopingand exploration program; (ii) complete a feasibility study; (iii) make aproduction decision and prepare the initial formal development proposal andassociated budget based on the feasibility study; (iv) incur expenditures of US$12.5million on the APP; and (v) issue 7,381,636 Common Shares toGold Fields BV in order to earn a 50% interest or 9,227,033 Common Shares toearn a 60% interest.

 

Upon theCompany’s acquisition of an interest in APP, a joint venture of APP will beformed with the Company holding a 60% interest and Gold Fields holding a 40%interest.  Gold Fields has a claw-backright to retain a 50% interest in APP and consideration for such interest willbe paid by reducing the number of the Company’s common shares issued to GoldFields by 20%, from 9,227,033 Common Shares to 7,381,636 Common Shares.  The Company will remain operator of the jointventure which will be managed under a joint venture arrangement.

 

In 2006, the Company entered into an arranged private placement ofUS$48.5 million principal amount of convertible notes (the “Convertible NotesDue 2008”) together with warrants to purchase, for four years from the date oftheir issuance, 50% of the number of common shares underlying the Notes (the “NotesWarrants”), including the placement of US$31 million of the Convertible NotesDue 2008 and related Notes Warrants with Kaiser Francis Oil Company (“KFOC”),the Company’s major shareholder.  On March 28,2006, the Company settled the pricing for US$35 million principal amount of Series IConvertible Notes Due 2008 (the “Series I Notes”) and the Notes Warrants(the “Series I Warrants”).  On June 13,2006, the Company announced that it exercised its right to require KFOC topurchase US$13.5 million convertible note (the “Series II Note”) andrelated common share purchase warrants (the “Series II Warrants”).  The offering is governed by the securitiespurchase agreement dated March 24, 2006 (the “Securities PurchaseAgreement”) among the Company, KFOC and IP Synergy Finance Inc. (“IP Synergy”).

 

On February 5, 2007, the Company announced that it had enteredinto a palladium and platinum purchase agreement with Auramet Trading, LLC (“Auramet”)a precious metals merchant, providing for the sale of an average of 10,000ounces of palladium and 500 ounces of platinum per month over a two-yearterm.  At its election, the Company mayreceive advance payments not exceeding, at any time, an aggregate maximumamount of US$25 million.

 

To secure the obligations of the Company under the agreement, theCompany granted Auramet a security interest in the concentrates (including theprecious and base metal contained therein) mined at the Lac des Iles minetogether with the proceeds arising from the sale of the concentrate, and by wayof security, an assignment of its smelting and refining agreement with XstrataNickel.

 

On June 23, 2006, the Company completed a private placement of270,000 flow-through common shares at $12.50 per share for gross proceeds of$3.38 million.  On February 27, 2007the Company completed a private placement of 550,000 flow-through common sharesat $11.00 per share for gross proceeds of $6.05 million.  The gross proceeds for the second offeringhave been and will be used to expedite work on the Shebandowan West Project.

 

On October 11, 2007, the Company announced that it had acquired a100% interest in the prospective portion of the Shawmere Anorthosite Complex,located approximately 110 kilometres southwest of Timmins, Ontario.  The property was acquired by staking 39claims containing 632 claim units in the Shawmere Anorthosite Complex.  Access to most of the claim group is providedby Highway 101 and existing forest access roads.

 

The Company is party to an optionand joint venture agreement with Vale Inco Limited (formerly CVRD Inco Limited)(“Vale Inco”)

 

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which entitled it to earn a 50% interest in the former producing Shebandowanmine and the surrounding Haines and Conacher properties, totallingapproximately 7,974 hectares.  OnDecember 10, 2007, the Company announced that it had satisfied the condition ofthe earn-in and had exercised its option to form an operating joint venturewith Vale Inco on this property, including the Shebandowan West Property,located west of Thunder Bay, Ontario and within 100 kilometres of the Company’sLac des Iles mine.  In order to earn a50% interest in the property, the Company incurred $3 million in explorationexpenditures and made cash payments totalling $200,000.  Vale Inco retains the remaining 50% interestin the joint venture.

 

On December 13, 2007, the Company announced that it had closed itspublic offering of 18,666,667 units at a price of US$4.00 per unit for totalgross proceeds of approximately US$75 million. Each unit consisted of one common share and one half of a common sharepurchase warrant of the Company.  Eachwhole warrant will entitle the holder to purchase one common share at a priceof US$5.05 per share at any time on or prior to December 13,2009.  The Company anticipates thatcurrent capital resources are sufficient to meet the needs of the existing operationsat the Lac des Iles mine as well as the development of the Shebandowan West project,the development of the upper portion of the OHGZ and further evaluation of APP.

 

On January 9, 2008, the Company issuedan additional 2,800,000 units under a 30-day overallotment option granted tothe underwriters. After taking the over-allotment exercise intoaccount, the total gross proceeds to the Company from the unit offering wereapproximately US$86 million.  KFOC alsoelected to exercise its right to subscribe for 25% of this over-allotmentoffering.

 

**BusinessOverview**

** **

The followingcontains forward-looking statements and future-oriented financial informationabout the Company’s business. Reference should be made to “Forward-LookingStatements” on page 1 and for a description of material factors that couldcause the Company’s actual results to differ materially from theforward-looking statements in the following, please see “Risk Factors”beginning on page 53. Additionally, the following description of the Company’sbusiness includes many geological terms that may not be familiar to the reader.For a description of the meaning of some of these terms, please see the“Glossary of Terms” beginning on page 69.

 

North American Palladium is Canada’s only primary producer of platinumgroup metals (“PGMs”), producing an estimated 4% of annual global palladiumproduction. While the majority of the Company’s revenue is derived from thesale of palladium, the Company also generates a considerable portion of itsrevenue from the sale of platinum, nickel, gold, and copper, all of which areby-products of the Company’s palladium mining operations. North AmericanPalladium’s principal properties and projects 

 

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are the Lac des Iles property (including the Lac des Iles mine and theOHGZ) (the “LDI Property”), the Shebandowan West Project and the APP.

 

For the financial year 2007, the Company’s revenues totalled $91.8 million for palladium, $31.0 million for platinum, $42.6 million fornickel, $13.0 million for gold and$15.0 million for copper, representing47%, 16%, 22%, 7%, and 8% respectively of its total consolidated revenues.  For the financial year 2006, the Company’srevenues totalled $75.6 million forpalladium, $24.4 million for platinum,$33.3 million for nickel, $9.8million for gold and $14.8 million for copper, representing 48%, 15%, 21%, 6%, and 9%respectively of its total consolidated revenues.

 

North American Palladium has 394 employees. Of the Company’s employees,368 work at the Lac des Iles mine, 8 work at the Company’s finance andadministration office in Thunder Bay, 10 work out of an exploration office inThunder Bay, and 8 work at the Company’s corporate head office in Toronto.  The Company is dependent on a skilled labourforce with experience and a knowledge base in the mining sector.  Whether as employees of the Company orindependent contractors, this labour force is generally available to theCompany from residents in the Thunder Bay area.

 

**PrincipalMarket of Platinum Group Metals**

** **

Palladium is one of the six platinum group metals, along with platinum,rhodium, ruthenium, iridium and osmium. Economically, the three mostsignificant PGMs are palladium, platinum and rhodium. The primary use forpalladium is in the manufacture of catalytic converters in the automotive industry.It is also used in the manufacture of jewellery and electronics, and in dentaland chemical applications.

 

*Supply*

 

Palladium is typically produced as a by-product metal from platinummines. According to the CPM Group, most of the world’s palladium is produced inRussia (35%), the Republic of South Africa (35%) and North America (12%).Global supply of palladium increased by approximately 3% in 2006 (the last yearfor which data is available) to 8,437,000 ounces. Of this total, mineproduction accounted for approximately 7,030,000 ounces (an increase of 3% fromthe prior year) and secondary recovery of palladium accounted for approximately1,407,000 ounces.

 

*Demand*

 

Global demand for palladium increased by approximately 11.0% in 2006 toapproximately 7,722,000 ounces, primarily as a result of the strong performanceof the industries that use palladium and the relative attractiveness andaffordability of palladium compared to substitutes (such as platinum, rhodiumand gold). The year 2006 represented the third consecutive year of double-digitgrowth in palladium demand, and the fifth consecutive year of growth inpalladium demand overall. Approximately 50% of the global demand for palladiumin 2006 stemmed from the automotive industry. The majority of the balance ofpalladium demand in 2006 stemmed from electronics (16%), jewellery (4%),Chinese demand for electronics and jewellery (10%), dental applications (13%)and other chemical applications (5%).

 

The primary use for palladium in the automotive industry is in themanufacture of catalytic converters, which reduce harmful vehicle exhaustemissions by converting them into less harmful carbon dioxide, nitrogen andwater vapour. Palladium, platinum and rhodium are primary components incatalytic converters. The demand for palladium in the automotive industry hasmore than doubled in the last ten years due to the larger number of vehiclesbeing manufactured and the tightening of emissions standards that require theuse of catalytic converters. Catalytic converters are now included in over 96percent of new cars. With the palladium price currently substantially belowthat of platinum, automakers have a 

 

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strong financial incentive to switch their catalyst formulations forgasoline vehicles from those based on platinum to palladium.

 

Palladium is also extensively used in the manufacture of jewellery andmay be used either on its own or as an alloy in ‘‘white gold.’’ In theelectronics industry, palladium is used mainly in the production of multi-layerceramic capacitors, which are used in electrical components for cellulartelephones, personal and notebook computers, fax machines and home electronics.In the dental industry, palladium is widely used in alloys for dentalrestoration. Additionally, various chemical applications use palladium,including the manufacture of paints, adhesives, fibres and coatings. Palladiumis also used in the manufacture of polyester.

 

A further macroeconomic trend has been increased investor demand forpalladium by virtue of its association with other precious metals (e.g.,platinum and rhodium). Strong investor sentiment for these precious metals hasprovided support for a favourable palladium pricing environment.

 

In 2000, the Company entered into a palladium sales agreement with amajor automotive manufacturer for its palladium production, containing a US$325per ounce floor price and a US$550 per ounce ceiling price.  The contract expired June 30, 2005.  Since that time, the Company has soldpalladium and platinum into the spot market, where it is a price-taker.  Its other by-product metals are sold toXstrata under the terms of a smelting agreement.  See Lac des Iles Mine – Overview – Smeltingand Refining.

 

**Lac desIles Property**

** **

*Lacdes Iles mine*

 

The Company owns and operates the Lac des Iles mine located 85kilometres from Thunder Bay, Ontario, Canada. The Lac des Iles mine consists ofan open pit mine, an underground mine and two processing plants (one of whichis currently idle). The primary deposit on the LDI Property is the Roby Zone, adisseminated magmatic nickel-copper-PGM deposit. The Company began mining theRoby Zone in 1993 using open pit mining methods. In April 2006, anunderground mine went into commercial production to access a higher gradeportion of the Roby Zone. In 2007, the Company produced 286,334 ounces ofpalladium from the Lac des Iles mine and in 2006, the Company produced 237,338ounces of palladium from the Lac des Iles mine.

 

The open pit has a remaining mine life of less than two years at thecurrent rate of production. In light of favourable PGM market conditions,management is assessing the economic viability of a southern extension of theopen pit, which could prolong the mine life of the open pit by an additionaltwo to three years. The Company is contemplating commencing production from theupper portion of the OHGZ as the current underground mine ceases operations.

 

*OffsetHigh Grade Zone*

 

The OHGZ is located on the Lac des Iles property and was discovered bythe Company’s exploration team in 2001. The OHGZ is believed to be the faultdisplaced continuation of the Roby Zone mineralization and is located below andapproximately 250 meters to the west of the Roby Zone. A mineral resourceestimate was prepared by Scott Wilson Roscoe Postle Associates Inc. (“ScottWilson RPA”) in October 2007. The report showed that the OHGZ has significantlymore mineral resources than the current underground mine at the Roby Zone atsimilar grades, while still being open along strike to the north, south and atdepth.

 

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From May to October 2007, the Company completed approximately18,000 meters of infill drilling in the upper 300 meters of the OHGZ, with theobjective of upgrading that portion of the mineral resources to the measuredand indicated categories. The Company has begun to receive assay results andanticipates updating its mineral resources estimate for the OHGZ in the secondquarter of 2008. The Company’s objective is to commence production from theOHGZ as the current underground mine reaches the end of its mine life in 2010.

 

In September 2007, the Company engaged two consulting firms, MiconInternational Limited and Nordmin Engineering Ltd., to prepare a scoping study.The scoping study will examine the economic viability of several exploitationscenarios for the OHGZ, including a continuation of the ramp from the currentunderground mine, a series of conveyors or a shaft option. A report on theresults of this preliminary economic assessment is nearing completion and theCompany anticipates releasing the results during the second quarter of 2008.

 

An exploration drilling program is also currently in progress to searchfor the deep limits of the OHGZ. To date, the OHGZ has been traced to a depthof 1,300 meters below surface, and along a strike length of approximately 600meters.

 

**ShebandowanWest Project**

** **

On December 10, 2007, the Company earned a 50% interest in theformer producing Shebandowan mine and the surrounding Haines and Conacherproperties pursuant to an option and joint venture agreement with Vale Inco. Inorder to earn its 50% interest, the Company incurred $3.0 million inexploration expenditures and made $0.2 million in cash payments. The propertiescontain a series of nickel copper-PGM mineralized bodies and the land packagetotals approximately 7,974 hectares. These properties are located 90 kilometreswest of Thunder Bay, Ontario, and approximately 100 kilometres southwest fromthe Company’s Lac des Iles mine. Vale Inco retains an option to increase itsinterest from 50% to 60%, exercisable in the event that a feasibility study onthe properties results in a mineral reserve and mineral resource estimate ofthe equivalent of 200 million pounds of nickel and other metals. As currentlyenvisaged, the Shebandowan West Project will not trigger Vale Inco’s back-inright.

 

The Shebandowan West Project encompasses three shallow mineralizedzones known as the West, Road and “D” zones, all of which are located atshallow depths immediately to the west of the former Shebandowan mine in anarea known as the Shebandowan West district. The Shebandowan West Project’snickel copper-PGM mineralization is believed by management to represent thewestern extension of the Shebandowan mine orebody. The former Shebandowan mine,which was in operation from 1972 to 1998, produced 8.7 million tonnes of ore atgrades of 2.07% nickel, 1.00% copper and approximately 3.0 g/t PGM and gold.

 

Management is considering a mine development scenario that would entailexcavation of the Shebandowan West Project by means of ramp-accessedunderground mining methods at a rate of 500 to 1,000 tonnes per day, crushingthe material on site and transporting it by truck to the Lac des Iles propertyfor processing at the original mill on the Lac des Iles property. The originalmill at Lac des Iles has been idle since 2001 and the Company believes that itcould be refurbished quickly and at a relatively low cost. Preliminarymetallurgical testing supports the possibility of producing a bulk sulphideconcentrate from the Shebandowan West Project at the original mill.

 

A Technical Report in compliance with National instrument 43-101disclosing the results of a mineral resource estimate by an independent QualifiedPerson was filed on October 26, 2007. In December 2007, the Companyretained SRK Consulting to prepare a preliminary economic assessment of theramp-accessed mine scenario. The results of this report are expected in thesecond quarter of 2008.

 

10

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Community consultations and baseline environmental sampling are ongoingand completion of bulk sampling, process and design are expected to becompleted during the first half of 2008. If plans proceed as expected,production at the Shebandowan West Project could commence in 2009.

 

**ArcticPlatinum Project**

** **

The APP is an advanced stage PGM-nickel-copper exploration projectlocated approximately 60 kilometres south of the city of Rovaniemi, Finland. Todate, three areas of the APP have been explored by North American Palladium:the Suhanko deposits, the Narkaus deposits and the Penikat deposits.

 

The Company is party to an agreement with Gold Fields entitling it toearn up to a 60% interest in a series of mining licenses and claims known asthe APP. The agreement is subject to a back-in right in favour of Gold Fieldswhich, if exercised, would decrease the Company’s interest to a 50% share. Uponsatisfaction of the earn-in requirements, North American Palladium will have acasting vote at meetings of the joint venture partners, other than with respectto matters requiring a special majority vote.

 

In order to exercise the option, on or before August 31, 2008, theCompany must: (i) complete a re-scoping and exploration program; (ii) completea feasibility study; (iii) make a production decision and prepare theinitial formal development proposal and associated budget based on thefeasibility study; (iv) incur expenditures of US$12.5 million on the APP;and (v) issue 7,381,636 Common Shares to Gold Fields BV in order to earn a50% interest or 9,227,033 Common Shares to earn a 60% interest. To date, theCompany has completed the re-scoping study, incurred over US$11.6 million inexpenditures and has commissioned a feasibility study. The Company believesthat it will be in a position to satisfy the conditions of the earn-in on orbefore August 31, 2008.

 

Management has been examining a development scenario consisting of twonickel copper-PGM open pit mines at two of the deposits that comprise theSuhanko area, the Ahmavaara and Konttijarvi deposits, which are located threekilometres from each other. The nickel copper-PGM bearing material would beprocessed through a centrally located concentrator at a nominal throughput rateof 5.0 million tonnes per year. PGM-nickel copper bearing concentrate would betransported 125 kilometres by truck to a port facility located at Kemi, Finlandand shipped to smelting and refining facilities for final extraction of thecontained metals.

 

On October 30, 2007, the Company released the results of a scopingstudy by Aker Kvaerner on the two main mineral deposits in the Suhanko area,Ahmavaara and Konttijarvi, which indicated that the mineral resources couldpotentially support a 20-year mine life at approximately 7.5 million tonnes perannum. The Company has retained Aker Kvaerner to prepare a definitivefeasibility study for the Suhanko project to build upon the recommendations inthe scoping study. The Company has also contracted with a 30-year veteran ofthe mining industry to oversee the feasibility study and other work at the APPas the Company moves closer to satisfying its earn-in conditions.

 

An infill drilling campaign at the Ahmavaara deposit was completedearlier in 2007 and the assay results of the final 26 holes of the 83-holedrilling program were reported on October 22, 2007. Micon InternationalLimited has now been engaged to conduct the update of the mineral resourceestimates, which will include the results from the Ahmavaara infill drillingcampaign. Micon will also conduct the open pit designs and optimization.

 

Bulk sampling of the Ahmavaara and Konttijarvi deposits was alsocompleted in October 2007 in advance of pilot plant test work. A programof bench scale metallurgical testing has been completed in support of a pilotplant test that commenced in December 2007 and was completed in February 2008.The pilot plant test provided samples that will be tested by smelters that havebeen identified for the concentrate 

 

11

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marketing strategy and will allow the Company to pilot a flowsheet. In October 2007,the Company commenced discussions with various smelters, and follow-up meetingsare planned now that samples are available. Initial smelting proposals insupport of the feasibility study are anticipated by May 2008.

 

Grassroots Exploration

 

In addition to its operating mine and three advancedexploration projects, grassroots exploration is an important ongoing part ofthe Company’s growth strategy. 

 

North American Palladium is constantly examining PGMand nickel opportunities, particularly the exploration potential around theCompany’s Lac des Iles mine, on the Haines and Conacher property surroundingthe Shebandowan West Project and at various satellite deposits at the APP.Management believes that the Company is well positioned to partner with otherPGM exploration companies in Canada, given the existing infrastructure at theLac des Iles mine and the Company’s years of experience in mining PGM-nickeldeposits. From time to time, the Company enters into confidentiality agreementswith junior mining companies or individual prospectors to assess theprospective nature of their land holdings. In addition, management believesthat the consolidation in the nickel industry may result in joint venture oracquisition opportunities for the Company as the major nickel companies seek toshed non-core assets. 

 

The Company recently staked 39 claims containing 632claim units at the Company’s Shawmere Project, located approximately 110kilometers southwest of Timmins, Ontario, Canada. The Company intends toconduct a grassroots exploration program to assess the area’s potential forhosting PGM-nickel-copper mineralization similar to that found at its Lac desIles mine.

 

**MineralReserve and Mineral Resource Estimates**

** **

The table below sets forth estimated mineral reserves and resources asat December 31, 2007 for the Lac des Iles mine (including the OHGZ), as atAugust 9, 2007 for the Shebandowan West Project and as at September 1,2006 for the APP, in each case as calculated pursuant to National Instrument43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). Theinformation under the heading “North American Palladium Projected Share ofProject Resources” assumes a net inventory to North American Palladium of 50%for the Shebandowan West Project and 60% for the APP. The Company’s interest inthe Shebandowan West Project could be reduced to 40% upon the exercise by ValeInco of a claw-back right. Assuming successful completion of its earn-inrequirements at the APP, the Company’s interest is initially expected to be60%, which could be reduced to 50% upon the exercise by Gold Fields of aclaw-back right.

 

**Lacdes Iles Reserves(1)(2)(8)**

 
| **Property** | ** ** | **Reserves**             | ** ** | **Tonnes** | ** ** | **Pd**    | ** ** | **Pt**    | ** ** | **Au**    | ** ** | **Cu**   | ** ** | **Ni**   | ** ** | **Pd**            | ** ** | **Pt**            | ** ** |
|--------------|------------|--------------------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|----------|------------|----------|------------|-------------------|------------|-------------------|------------|
| ** **   | ** ** | ** **               | ** ** | **(000)**  | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(%)**  | ** ** | **(%)**  | ** ** | **(000 oz)** | ** ** | **(000 oz)** | ** ** |
|         |       |                     |       |       |       |      |       |      |       |      |       |     |       |     |       |              |       |              |       |
| Open Pit     |       | Proven                   |       | 5,102      |       | 2.44      |       | 0.21      |       | 0.20      |       | 0.07     |       | 0.09     |       | 399               |       | 35                |       |
|         |       | Probable                 |       | 6,139      |       | 1.31      |       | 0.14      |       | 0.11      |       | 0.04     |       | 0.07     |       | 258               |       | 29                |       |
| ** **   | ** ** | **Proven  and Probable** | ** ** | **11,241** | ** ** | **1.82**  | ** ** | **0.18**  | ** ** | **0.15**  | ** ** | **0.06** | ** ** | **0.08** | ** ** | **658**           | ** ** | **63**            |       |
| Underground  |       | Probable                 |       | 2,282      |       | 6.56      |       | 0.39      |       | 0.32      |       | 0.06     |       | 0.08     |       | 481               |       | 29                |       |

 

**North American Palladium Share ofProject Resources(2)(3)(8)**

 
| **Property**       | ** ** | **Resources**                        | ** ** | **Tonnes** | ** ** | **Pd**    | ** ** | **Pt**    | ** ** | **Au**    | ** ** | **Cu**   | ** ** | **Ni**   | ** ** | **Pd**            | ** ** | **Pt**            | ** ** |
|--------------------|------------|--------------------------------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|----------|------------|----------|------------|-------------------|------------|-------------------|------------|
| ** **         | ** ** | ** **                           | ** ** | **(000)**  | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(%)**  | ** ** | **(%)**  | ** ** | **(000 oz)** | ** ** | **(000 oz)** | ** ** |
|               |       |                                 |       |       |       |      |       |      |       |      |       |     |       |     |       |              |       |              |       |
| LDI Open Pit(1)    |       | Measured                             |       | 8,259      |       | 1.67      |       | 0.22      |       | 0.13      |       | 0.06     |       | 0.08     |       | 444               |       | 59                |       |
|               |       | Indicated                            |       | 13,775     |       | 1.18      |       | 0.15      |       | 0.09      |       | 0.04     |       | 0.06     |       | 523               |       | 68                |       |
| ** **         | ** ** | **Measured  and Indicated**          | ** ** | **22,034** | ** ** | **1.36**  | ** ** | **0.18**  | ** ** | **0.10**  | ** ** | **0.05** | ** ** | **0.07** | ** ** | **966**           | ** ** | **127**           | ** ** |
| LDI Underground(1) |       | Indicated                            |       | 4,576      |       | 6.09      |       | 0.40      |       | 0.58      |       | 0.11     |       | 0.12     |       | 896               |       | 58                |       |
|               |       | Inferred                             |       | 12,921     |       | 5.27      |       | 0.38      |       | 0.37      |       | 0.17     |       | 0.12     |       | 2,188             |       | 158               |       |
| Shebandowan(4)(5)  |       | Measured                             |       | 368        |       | 1.19      |       | 0.37      |       | 0.22      |       | 0.66     |       | 0.89     |       | 14                |       | 4                 |       |
|               |       | Indicated                            |       | 924        |       | 1.05      |       | 0.33      |       | 0.23      |       | 0.60     |       | 0.92     |       | 31                |       | 10                |       |
| ** **         | ** ** | **Measured and Indicated** | ** ** | **1,292**  | ** ** | **1.09**  | ** ** | **0.34**  | ** ** | **0.23**  | ** ** | **0.62** | ** ** | **0.91** | ** ** | **45**            | ** ** | **14**            | ** ** |
|               |       | Inferred                             |       | 171        |       | 0.97      |       | 0.27      |       | 0.18      |       | 0.61     |       | 1.11     |       | 5                 |       | 2                 |       |
| APP(6)(7)          |       | Measured                             |       | 27,644     |       | 1.08      |       | 0.26      |       | 0.11      |       | 0.17     |       | 0.07     |       | 960               |       | 231               |       |
|               |       | Indicated                            |       | 63,857     |       | 1.06      |       | 0.24      |       | 0.12      |       | 0.20     |       | 0.08     |       | 2,176             |       | 493               |       |
| ** **         | ** ** | **Measured and Indicated** | ** ** | **91,501** | ** ** | **1.07**  | ** ** | **0.25**  | ** ** | **0.12**  | ** ** | **0.19** | ** ** | **0.08** | ** ** | **3,148**         | ** ** | **735**           | ** ** |
|               |       | Inferred                             |       | 15,239     |       | 1.04      |       | 0.25      |       | 0.11      |       | 0.17     |       | 0.07     |       | 510               |       | 122               |       |

 

12

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**Total Project Resources (jointventures)(2)(3)(8)**

 
| **Property**   | ** ** | **Resources**               | ** ** | **Tonnes**  | ** ** | **Pd**    | ** ** | **Pt**    | ** ** | **Au**    | ** ** | **Cu**   | ** ** | **Ni**   | ** ** | **Pd**            | ** ** | **Pt**            | ** ** |
|----------------|------------|-----------------------------|------------|-------------|------------|-----------|------------|-----------|------------|-----------|------------|----------|------------|----------|------------|-------------------|------------|-------------------|------------|
| ** **     | ** ** | ** **                  | ** ** | **(000)**   | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(%)**  | ** ** | **(%)**  | ** ** | **(000 oz)** | ** ** | **(000 oz)** | ** ** |
|           |       |                        |       |        |       |      |       |      |       |      |       |     |       |     |       |              |       |              |       |
| Shebandowan(4) |       | Measured                    |       | 736         |       | 1.19      |       | 0.37      |       | 0.22      |       | 0.66     |       | 0.89     |       | 28                |       | 9                 |       |
|           |       | Indicated                   |       | 1847        |       | 1.05      |       | 0.33      |       | 0.23      |       | 0.60     |       | 0.92     |       | 62                |       | 20                |       |
| ** **     | ** ** | **Measured  and Indicated** | ** ** | **2583**    | ** ** | **1.09**  | ** ** | **0.34**  | ** ** | **0.23**  | ** ** | **0.62** | ** ** | **0.91** | ** ** | **91**            | ** ** | **28**            |       |
|           |       | Inferred                    |       | 342         |       | 0.97      |       | 0.27      |       | 0.18      |       | 0.61     |       | 1.11     |       | 11                |       | 3                 |       |
| APP(6)         |       | Measured                    |       | 46,074      |       | 1.08      |       | 0.26      |       | 0.11      |       | 0.17     |       | 0.07     |       | 1,600             |       | 385               |       |
|           |       | Indicated                   |       | 106,428     |       | 1.06      |       | 0.24      |       | 0.12      |       | 0.20     |       | 0.08     |       | 3,627             |       | 821               |       |
| ** **     | ** ** | **Measured  and Indicated** | ** ** | **152,502** | ** ** | **1.07**  | ** ** | **0.25**  | ** ** | **0.12**  | ** ** | **0.19** | ** ** | **0.08** | ** ** | **5,247**         | ** ** | **1,226**         |       |
|           |       | Inferred                    |       | 25,398      |       | 1.04      |       | 0.25      |       | 0.11      |       | 0.17     |       | 0.07     |       | 849               |       | 204               |       |

 

----

Notes:

 

(1)   The mineral reserve andresource estimates for the LDI Property other than the OHGZ were prepared byDavid Penna, P.Geo. (a “qualified person” under NI 43-101), using a cut-offgrade of 1.1 g/t Pd for the open pit and 4.5 g/t Pd for the underground,assuming long-term prices of US$325/oz Pd, US$1,000/oz Pt, US$550/oz Au,US$11/lb Ni and US$2.50/lb Cu. Mr. Penna is an employee of the Company, wherehe holds the position of Chief Geologist at the Lac des Iles mine. The mineralresource estimates for OHGZ were prepared by Richard E. Routledge, M.Sc., P. Geo.of Scott Wilson RPA. (a “qualified person” under NI 43-101), using a 3.6 g/t Pdequivalent cut-off grade. The open pit resources are reported as grade dilutedblocks but are stated on an in-situ basis.

 

(2)   Due to rounding differences,total contained ounces of measured and indicated resources of Pd and Pt may notbe equal to the sum of these two mineral resource categories.

 

(3)   Although “Measured Resources”,“Indicated Resources” and “Inferred Resources” are categories of mineralizationthat are recognized and required to be disclosed by Canadian regulators, theSEC does not recognize them. Mineral resources that are not mineral reserves donot have demonstrated economic viability.

 

(4)   The mineral resourceestimates for the Shebandowan West Project were prepared by F.H. Brown, CPG,Pr. Sci. Nat. (a “qualified person” under NI 43 101) using a cut-off grade ofUS$60.00 NSR and 18-month trailing average metal prices of US$300/oz Pd,US$750/oz Pt, US$400/oz Au, US$7/lb Ni and US$1.50/lb Cu.

 

(5)   Assumes a net inventory toNorth American Palladium of 50% for the Shebandowan West Project. Aftersuccessful completion of its earn-in requirements, the Company’s interest is50%, which could be reduced to 40% upon the exercise by Vale Inco of aclaw-back right.

 

(6)   The mineral resourceestimates for the APP were prepared by F.H. Brown, CPG, Pr. Sci. Nat. (a “qualifiedperson” under NI 43 101) using a cut-off grade of 1.0 g/t Pd equivalent cut-offgrade and 18-month trailing average metal prices of US$344/oz Pd, US$1,222/ozPt, US$644/oz Au, US$15.27/lb Ni and US$3.26/lb Cu.

 

(7)   Assumes a net inventory toNorth American Palladium of 60% for the APP. Assuming successful completion ofits earn-in requirements at the APP, the Company’s interest is initiallyexpected to be 60%, which could be reduced to 50% upon the exercise by GoldFields of a claw-back right.

 

(8)   Pd and Pt ounces are statedas contained ounces. Disclosure of contained ounces is permitted under Canadianregulations; however, the SEC generally permits resources to be reported onlyas in place tonnage and grade.

 

**MINERAL PROPERTIES**

** **

The Company’s material properties consist of one operating mine andthree advanced staged exploration projects. The following describes key aspectsof the Company’s material properties. Please refer to the various reportsprepared in accordance with NI 43-101 discussed below for a further descriptionof these properties, including their location, accessibility, climate, localresources, infrastructure, physiography, geological setting, mineralization,past drilling programs and history.

 

13

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** **

**Lac des Iles Mine**

** **

**Overview**

** **

At the request of the Company, Scott Wilson RPAprepared a mineral reserve and mineral resource estimate for the LDI Property,including the open pit mine, the underground mine and the OHGZ. Graham Clow, P.Eng., Leo Hwozdyk, P.Eng., Deborah A. McCombe, P.Geo. and Ian T. Blakley,P.Geo. (collectively referred to in this section as the “LDI Consultants”),prepared a report dated October 29, 2007 entitled “Technical Report on Lacdes Iles Project, Thunder Bay, prepared for North American Palladium Ltd.” (the“LDI Report”). Each of the LDI Consultants is a “qualified person” under NI43-101 and is independent of the Company.

 

The following description of Lac des Iles haslargely been summarized from the LDI Report, which is available for review onthe internet via the System for Electronic Document Analysis and Retrieval (“SEDAR”)at www.sedar.com under North American Palladium’s profile.

 

The Company owns and operates the Lac des Iles mine,which is located approximately 85 kilometres northwest of the city of ThunderBay, Ontario, Canada. The mine consists of an open pit mine, an undergroundmine, the OHGZ, a processing plant with a nominal capacity of approximately15,000 tonnes per day, and the original mill (which is currently idle) with anominal capacity of approximately 2,400 tonnes per day. The primary deposit onthe property is the Roby Zone, a PGM deposit.

 

*Mining Operations*

 

The Company began mining the Roby Zone in 1993 usingopen pit mining methods. Ore and waste from the open pit is mined usingconventional hydraulic 27 cubic metre and 23 cubic metre shovels, 190 tonnetrucks, 187 millimetre blast hole drills and a fleet of conventional ancillaryequipment. Mine waste is stockpiled outside of design pit limits.

 

Development of the underground mine began in thesecond quarter of 2004 in order to access the higher grade portion of the RobyZone. The underground deposit lies below the ultimate pit bottom of the openpit and extends to a depth of approximately 660 metres below the surface whereit is truncated by an offset fault. Commercial production from the undergroundmine began on April 1, 2006.  Forthe 2007 fiscal year, the underground mine had an average head grade of 5.79g/t Pd.

 

The chosen mining method for the underground mine issublevel retreat longitudinal longhole stoping with no fill. The mining blockinterval is 70 metres floor to floor including a 15 metre to 25 metre sillpillar below each haulage level. Stopes are 45 metres to 55 metres high by thewidth of the ore body. Total intake ventilation for the mine is designed to be205 cubic metres per minute. There is one intake ventilation raise/secondaryegress situated outside the ultimate open pit limits and air exhausts up themain ramp.

 

The open pit has a remaining mine life of less thantwo years at the current rate of production. In light of favourable PGM marketconditions, management is assessing the economic viability of a southernextension of the open pit, which could prolong the mine life of the open pit byan additional two to three years. The Company is contemplating commencingproduction from the upper portion of the OHGZ as the current underground mineceases operations.

 

14

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*Milling Operations*

 

In 2001, a new concentrator facility wascommissioned with a nominal design capacity of 15,000 tonnes per day. Theprocessing operation utilizes a conventional flotation technology to produce apalladium rich concentrate that also contains platinum, nickel, gold andcopper.

 

Ore is first crushed in a gyratory crusher andconveyed to a coarse ore stockpile. With the commissioning of the secondarycrusher in 2004, the coarse ore stream can be split so that a portion iscrushed in the secondary crusher producing a fine material feed which is thencombined with the coarse feed. This mixture of coarse and fine material feedsto the SAG mill to increase mill throughput. In 2005, modifications were madeto the secondary crusher, including the installation of a slide gate and bettercontrol feed distribution. The ore is ground to a nominal P80 (the size of anopening through which 80% of the product will pass) of 74 microns in aconventional semi-autogenous mill/ball mill/pebble crusher (SABC) circuit. Theground ore then feeds a flotation circuit that is comprised ofrougher/scavengers and four stages of cleaning. The flotation circuit in theold concentrator is currently connected to the new concentrator to provideadditional cleaner flotation capacity. The final concentrate is thickened anddewatered using two pressure filters.

 

In 2007 the concentrator processed 5,006,383 tonnesof ore or 13,716 tonnes per calendar day at an average palladium head grade of2.39 grams per tonne and an average palladium recovery of 74.8%.  In 2006, the concentrator processed 4,570,926tonnes of ore or 12,523 tonnes per calendar day at an average palladium headgrade of 2.18 grams per tonne and an average palladium recovery of 74.0%.

 

Production costs per tonne of ore milled were $24.98in 2007 and $24.60 in 2006. Cash costs, which include direct and indirectoperating costs, smelting, refining, transportation and sales costs androyalties, net of credits for by-products, were approximately 164 per ounce ofpalladium for 2007 as compared to approximately US$201.00 per ounce ofpalladium in 2006.

 

The following table sets forth the tonnes milled andthe metal production of the concentrate for each of the five years ended December 31,2007:

 
| ** **          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** | **2006****(1)** | ** ** | **2007** | ** ** |
| PALLADIUM           |       |                                       |       |   |   |   |   |   |   |   |   |
| Ore milled (tonnes) |       | 5,159,730                                  |       | 5,298,544 |   | 4,780,599 |   | 4,570,926 |   | 5,006,383 |   |
| Head grade (g/t)    |       | 2.31                                       |       | 2.41 |   | 1.66 |   | 2.18 |   | 2.39 |   |
| Recovery (%)        |       | 75.5                                       |       | 75.2 |   | 69.6 |   | 74.0 |   | 74.8 |   |
| Mill Availability   |       | 91.1                                       |       | 88.4 |   | 86.5 |   | 86.5 |   | 91.1 |   |
| Production (oz)     |       | 288,703                                    |       | 308,931 |   | 177,167 |   | 237,338 |   | 286,334 |   |
| BY-PRODUCT METALS   |       |                                       |       |   |   |   |   |   |   |   |   |
| Platinum (oz)       |       | 23,742                                     |       | 25,128 |   | 18,833 |   | 22,308 |   | 24,442 |   |
| Nickel (lbs)        |       | 4,070,785                                  |       | 4,320,970 |   | 2,353,227 |   | 2,721,042 |   | 3,066,973 |   |
| Copper (lbs)        |       | 7,142,674                                  |       | 7,836,183 |   | 5,514,670 |   | 5,155,588 |   | 5,536,044 |   |
| Gold (oz)           |       | 23,536                                     |       | 25,679 |   | 14,308 |   | 17,237 |   | 20,092 |   |

 

----

Note:

 

(1)          Theunderground mine at Lac des Iles went into commercial production on April 1,2006.

 

15

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*Facilities and Infrastructure*

 

In addition to the 15,000 tonnes per dayconcentrator, the Company’s Lac des Iles mining operation includes a 2,400tonnes per day mill, which has been idle since 2001. Nordmin Engineering Ltd.has estimated that this original mill could be refurbished and renderedoperational relatively quickly and economically. This would enable the Companyto process material from the Shebandowan West Project or elsewhere in aseparate flotation circuit, thereby ensuring that the quality of theconcentration produced from the Lac des Iles ore remains unaffected byco-mingling with secondary feeds.

 

The Company’s Lac des Iles mining operation alsoincludes an assay laboratory, a warehouse, an electrical shop, a three baytruck shop to service the larger haul trucks, an operations camp, a watertreatment plant, a propane storage facility, a fuel storage area, low gradestockpile areas, rock storage areas, tailings storage areas and an electricalsubstation. Power is delivered to the site by a 65 kilometre power line, whichties directly into the northwestern Ontario power grid.

 

The present tailings management facility (the “TMF”)at the Lac des Iles mine has been operating since 1990. The TMF is an industrialwaste impoundment structure, where erosion is minimized, runoff is managed,water is returned to the concentrator as needed and excess water is storeduntil it can be treated and released. The design of the operation is expectedto facilitate closure and reclamation of the facility at the end of mine life.An expansion of the TMF began in 2007, which is expected to have sufficientcapacity to hold all of the tailings generated until the end of the currentmine life.

 

*Smelting and Refining*

 

The Company currently delivers all of itsconcentrate to Xstrata Nickel (formerly Falconbridge Limited) (“Xstrata”) fortreatment under a contract that was renegotiated during the second quarter of2007 for a three-year term that expires on March 31, 2010. This agreementmay be extended for two additional one-year terms by the mutual agreement ofthe parties. The concentrate is delivered by truck to Xstrata’s Sudbury,Ontario smelter operations where the nickel and copper are extracted. The PGMand gold bearing material is then further processed at Xstrata’s refiningoperations in Kristiansand, Norway. Under the agreement, the Company has aprecious metal take-back of refined palladium and platinum, which the Companyhas historically exercised. The balance of the recovered metals is settled incash.

 

Sales of metals in concentrate are recognized inrevenue (net of royalties, treatment, refining and other charges) in Canadiandollars when concentrate is delivered to the Xstrata smelter in Sudbury fortreatment. Final pricing is determined by quoted market prices at the time thatthe refined metal is sold, which can be up to six months later. Accordingly,revenue in a quarter is based on current U.S. dollar denominated commodityprices for sales occurring in the quarter and ongoing pricing adjustments fromprior sales that were recognized in the Company’s revenue but remained subjectto final pricing. These final pricing adjustments result in additional revenuesin a rising commodity price environment and reductions to revenue in adeclining commodity price environment. Similarly, not including othervariables, a weakening in the Canadian dollar relative to the U.S. dollar willresult in additional revenues and a strengthening in the Canadian dollarrelative to the U.S. dollar will result in reduced revenues. Effective April 1,2007, the amount of the final pricing adjustment recognized on any commodityprice changes will also be reduced by any price participation deductions asprovided for in the Company’s smelting and refining agreements. The Companydoes not currently hedge against currency and commodity price fluctuationswhile concentrate is awaiting settlement. See “Risk Factors – Fluctuations inforeign currency exchange rates in relation to the U.S. dollar may adverselyaffect the Company’s results of operations.”

 

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*Metal Sales*

 

In 2007, the Company sold palladium both into thespot market and to Auramet, under a palladium and platinum advance purchasefacility (the “Purchase Facility”) that the Company entered into in January 2007.Palladium revenue from such sales totalled $91.8 million and represented 47% ofthe Company’s consolidated revenues for that year. The purchase facilityprovides for the sale, at the Company’s option, of an average of 10,000 ouncesof palladium and 500 ounces of platinum per month. Under the terms of thefacility, the Company may receive advance payments not exceeding, at any time,an aggregate maximum of US$25 million. The purchase price may be fixed orprovisional. For fixed pricing, the Company may price at either: (i) Auramet’scurrent market bid price at the time of the transaction, or (ii) marketlimit orders, as defined under the terms of the agreement. In the case ofprovisional pricing, it is determined based on the afternoon fixing of theLondon Bullion Marketing Association immediately preceding the purchase. Ineach case, such pricing will reflect the forward value corresponding to thescheduled delivery date. Each advance payment is subject to a discount and,upon the delivery of the precious metals to Auramet, the Company is paid thedifference between the advance payment and the purchase price. To secure theobligations of the Company under the agreement, the Company has granted toAuramet a security interest in the concentrates mined at the Lac des Iles mine,together with the proceeds arising from the sale of the concentrate, and, byway of security, an assignment of its smelting and refining agreement withXstrata.

 

In 2006, all palladium production was sold into thespot market with one or more commodity dealers and manufacturers. Revenues fromsuch sales totalled $75.6 and represented 48% of the Company’s consolidatedrevenues for that year. From January 2000 to June 2005, the Companysold all of its palladium production to an automotive manufacturer under acontract with a US$325/oz floor price and a US$550/oz ceiling price on .50% ofits production.

 

*Royalties*

 

Production from the Lac des Iles mine and any futureproduction from the OHGZ is subject to a royalty agreement with the SheridanPlatinum Group Inc. and John Patrick Sheridan (together, the “Sheridan Group”).Under the agreement, the Company is required to pay the Sheridan Group aroyalty equal to 5% of net cash proceeds received from concentrates and otherproducts produced on the Lac des Iles property. Net cash proceeds arecalculated as proceeds from the sale of concentrates after deducting; (i) thecosts of sampling, assaying, transporting and insuring the concentrate; (ii) smelterprocessing and refining charges and penalties (excluding the Company’s ownprocessing costs); and (iii) all applicable taxes and royalties that mustbe paid in respect of the mining operations. In respect of palladium andplatinum, the Sheridan Group has the option to be paid in kind and, to date,have elected to exercise this payment option.

 

*Labour Matters*

 

Employees at the Lac des Iles mine are eithersalaried or paid hourly. The hourly employees at the Lac des Iles mine, otherthan supervisors, are members of United Steelworkers of America, Local 9422. In2006, the Company and the union signed a new three-year collective agreementthat expires on February 23, 2009.

 

Employees live at the mine site during their workweek and most have homes in Thunder Bay, Ontario, a city of approximately110,000 people with an international airport, rail service and port facilitieson Lake Superior.

 

The underground development work at Lac des Iles iscurrently being conducted using contractors, given the general shortage of, andsignificant competition for, skilled underground miners. Underground miningactivities at the Lac des Iles mine are conducted by Company employees, whichmay be supplemented 

 

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from time to time by contractors for specializedprojects or during periods where manpower is insufficient to meet productionlevels**.**

 

**Offset High Grade Zone**

** **

*Overview*

 

The OHGZ is located on the Lac des Iles property andwas discovered by the Company’s exploration team in 2001. The OHGZ is believedto be the fault displaced continuation of the Roby Zone mineralization and islocated below and approximately 250 meters to the west of the Roby Zone. Amineral resource estimate prepared by Scott Wilson RPA in October 2007estimated that the OHGZ has more than three times the mineral resources of thecurrent underground mine at the Roby Zone at similar grades, while still beingopen along strike to the north, south and at depth.

 

From May to October 2007, the Companycompleted approximately 18,000 meters of infill drilling in the upper 300meters of the OHGZ, with the objective of upgrading that portion of the mineralresources to the measured and indicated categories. The Company has begun toreceive assay results and anticipates updating its mineral resources estimatefor the OHGZ in the second quarter of 2008. The Company’s objective is tocommence production from the OHGZ as the current underground mine reaches theend of its mine life in 2010.

 

In September 2007, the Company engaged twoconsulting firms, Micon International Limited and Nordmin Engineering Ltd., toprepare a scoping study. The scoping study will examine the economic viabilityof several exploitation scenarios for the OHGZ, including a continuation of theramp from the current underground mine and shaft options. A report on theresults of this preliminary economic assessment is nearing completion and theCompany anticipates releasing the results during the second quarter of 2008.

 

An exploration drilling program is also currently inprogress to search for the deep limits of the OHGZ. To date, the OHGZ has beentraced to a depth of 1,300 meters below surface, and along a strike length ofapproximately 600 meters.

 

**Project Description and Location**

** **

The LDI Property comprises approximately 86.4 squarekilometres of mineral claims and leases. The LDI Property is located atLatitude 49°10’ North, Longitude 89°37’ West, 85 kilometres northwest of thecommunity of Thunder Bay in northwestern Ontario. The mine, mill and tailingsimpoundment area lie in the Boreal Forest ecoregion, characterized by typicalnorthern Ontario forest with numerous lakes and beaver swamps.

 

The mine site straddles the Spruce River and the DogRiver/Matawin Forests. The land surrounding the mine is Crown Land with limitedaccess, and was historically used primarily for recreation, forest resourceextraction, and trapping. The Lac des Iles mine is the only developed mine inthe area. The mine area is part of a registered trap line. LDI co-operates withthe Sustainable Forest Licence holders, utilizing the area to ensure thatmarketable timber on the mine site is harvested.

 

LDI holds six mining leases comprising 3,416.3hectares. Contiguous with these leases are 54 mineral claims consisting of 331claim units covering 5,119.1 hectares, for a total property area of 8,535.3hectares. LDI owns the surface rights to some but not all the claims andleases.

 

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The Company is required to pay a royalty to theSheridan Group equal to 5% of the net cash proceeds from mining operations onthe LDI Property until the expiration of the Lac des Iles leases. All miningoperations at the Lac des Iles mine are, and all future operations at the OHGZwill be, on the mining leases covered by the royalty agreement with theSheridan Group.

 

**Accessibility, Climate, Local Resources, Infrastructure andPhysiography**

** **

*Accessibility*

 

Access to the site is via a paved provincial highwayfrom Thunder Bay and then via a 15 kilometre all-weather private road to themine site. The site itself is served by well-maintained hard surface roads.

 

*Climate*

 

The Lac des Iles area experiences hot summers andcold, snowy winters. Maximum and minimum temperatures range from an extreme lowof -30°C in the winter months to an extreme high of 38°C in the summer months.Winter lows of -30°C are not uncommon in January and February. Mean annualprecipitation at the LDI Property is approximately 714 millimetres. The area issnow-covered for approximately five and a half months per year, with monthlysnowfalls ranging from 270 millimetres to 450 millimetres in winter. Prevailingwinds at the Lac des Iles mine are from the northwest. The relative humidityranges from 50% to 77%. Weather conditions are rarely severe enough to haltmining operations and generally the only issue is related to safe traction onthe access roads and ramps within the open pit mine. Mill operations areenclosed and are therefore not exposed to the weather other than feed inputs.LDI does not budget for weather related shutdowns in the mines.

 

*Local Resources*

 

Thunder Bay, with a population of approximately110,000, is the major service center for northwestern Ontario and provides mostof the services required by the mining operation. This includes an airport withregular daily service to and from major Canadian cities, rail connections, andocean access via the Great Lakes and St. Lawrence Seaway.

 

Most mine and mill consumables including fuel,cement and propane are readily available in Thunder Bay. Due to the project’sproximity to Thunder Bay, the Lac des Iles mine has had recent success inhiring experienced staff and personnel with considerable mining and processingexpertise. Most staff operate on a 4 day on / 3 day off or 7 day on / 7 day offshift. Contract miners operate on a 28 day in / 14 day out schedule.

 

*Infrastructure*

 

The main facilities of the mine are the old camparea, the new camp area, the main office and tire shop, the old mill area, thenew mill area, which includes the open pit shops, warehouse and operationaloffices, the old concentrator building, the open pit and stockpile area, theunderground portal and related ventilation accesses, and the TMF.

 

A 324-person capacity camp and recreational complex wasbuilt in conjunction with the construction of the new mill. This facility wasexpanded in 2006 to accommodate the underground workforce and now has a460-person capacity camp.

 

All purchasing is handled by the on-site staff, withregular freight movement between the Lac des Iles mine site and Thunder Bay.On-site warehouse space accommodates spares for open pit and underground 

 

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mining as well as milling operations. The truckingcontractor maintains a transhipping warehouse in Thunder Bay for Lac des Ilesmaterial. Road access to the site is adequate for moving in most materials,including oversize mining equipment.

 

Waste dumps and ore stockpiles of various gradeshave been established on the surface near the concentrator facilities. Onesignificant aspect is that the waste rock from pit walls is relatively benignand classified as non-acid generating. Similar waste rock from the undergroundworkings is placed as fill in the mined underground stopes.

 

Tailings from the mill are deposited and waterreclaimed for use in the concentrator. The TMF is presently being expanded tomeet life of mine capacity.

 

Water and sewer services are supplied independentlyfor each facility and are considered by the Company to be adequate for currentneeds. Expansion of potable water and sewer services were completed for theunderground workforce additions. Electrical power is supplied by Hydro One viaa 118 kV line to a main substation on site. Site distribution is maintained byLac des Iles and consists of 4,160 V overhead lines around the site. There is aservices agreement with the provincial utility currently in place.

 

*Physiography*

 

The Lac des Iles mine is located in northwesternOntario which lies within the Superior Province of the Canadian PrecambrianShield, a boreal forest region typified by uplands forested mostly by blackspruce, birch, poplar and jack pine, and low areas of numerous lakes and treedswamps. Drainage is poorly integrated and generally south to Lake Superior.Local land use is primarily forestry related. The topography of the site isfavourable for the placement of facilities, being generally of low relief.Elevations on the property range from 418 metres above sea level to 550 metresabove sea level, exclusive of the open pit.

 

**History**

** **

Significant palladium mineralization was firstdiscovered in the Roby zone in 1963 by prospectors. Various explorationprograms were undertaken over the next 25 years by a number of companies,including Gunnex, Anaconda, Texas Gulf Sulphur, and Boston Bay Mines.

 

In 1990, Madeleine Mines Ltd. developed theproperty. After intermittent production and continuing capital expenditures,commercial open pit production of the Roby Zone was achieved in December 1993.The Company was formed as an outcome of corporate reorganization. In 2000, LDIcommenced an expansion program at the Lac des Iles mine and a new mill wascommissioned in the second quarter of 2001, which achieved its nominal rated15,000 tonnes per day throughput in August 2002.

 

A major Phase 4 push back of the south and east pitwall was undertaken in 2004-2005, with waste removal of upper benches completedin 2005. In 2006, the open pit mine was redesigned to address south wall stopestability issues. This pit redesign was finalized in September 2006.

 

From 1999 to 2001, the Company’s exploration armcarried out an extensive drilling campaign on behalf of LDI that identifiedmineralization at depth, below the ultimate pit bottom. The drilling identifiedtwo zones with potential for underground mining: the Main High Grade Zone andthe Offset Zone.

 

On July 31, 2003, Roscoe Postle Associates Inc.(“RPA”) completed a positive pre-feasibility study for underground mining ofthe Main High Grade Zone (down dip extension of the open pit Main Zone) at theLac des Iles mine on behalf of LDI. Subsequently, RPA completed a feasibilitystudy for the underground 

 

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mine dated February 27, 2004. The studyproposed to develop a 2,000 tonnes per day underground mine to run concurrentlywith the existing open pit mine. A NI 43-101 Technical Report by RPA dated April 2,2004, summarized LDI’s underground project at the mine as of March 31,2004.

 

Underground development on the High Grade Zone belowthe Roby pit started in 2004, with the ramp developed and the zone accessed inlate 2005. Development muck was delivered to the concentrator in December 2005and underground commercial production began in April 2006.

 

The Offset Zone was discovered in 2001 by theCompany. The Offset Zone is subdivided into the OHGZ and the adjacent RobyFootwall Zone (the “Offset Zones”). The OHGZ is the fault offset, down dipextension of the High Grade Zone that is currently being mined undergroundbelow the Roby open pit at the Lac des Iles mine. From 2001 to 2006 some 63holes totalling 62,022 metres from both underground and surface diamonddrilling programs have explored the Offset Zones. The 2006 drilling was plannedto confirm grade continuity at hole spacing in the zone of 50 metres by 50metres and upgrade a portion of the inferred resources to indicated resources. FromMay to October 2007, the Company completed approximately 18,000 meters ofinfill drilling in the upper 300 meters of the OHGZ, with the objective ofupgrading that portion of the mineral resources to the measured and indicatedcategories.

 

On February 23, 2007 Scott Wilson RPA completedan independent estimate of Mineral Resources of the Offset Zones. The OHGZ hasbeen traced from 311,600N to 312,125N on strike (525 metres) and verticallyfrom —60 RL to —550 RL (490 metres) at depths of 575 metres to 1,065 metres.The current 2007 drilling program is being completed from a 5095RL explorationdrift targeting the OHGZ and the Roby Footwall Zone.

 

**Geological Setting**

** **

*Regional Geology*

 

The Lac des Iles area is underlain by mafic toultramafic rocks of the Archean Lac des Iles Intrusive Complex. These rockshave intruded granites and greenstones of the Wabigoon Subprovince of theSuperior Province. The Lac des Iles Intrusive Complex lies immediately north ofthe Wabigoon Quetico subprovince boundary, which extends some 300 kilometresfrom Rainy Lake to Lake Nipigon. The Lac des Iles Intrusive Complex is thelargest of a series of mafic and ultramafic intrusions that occur along theboundary and which collectively define a 30 kilometre diameter circular patternin the Lac des Iles mine area.

 

*Local and Property Geology*

 

The mine lies in the southern portion of the Lac desIles Intrusive Complex, in a roughly elliptical intrusive package measuring 3kilometres long by 1.5 kilometres wide. These rocks, locally termed the MineBlock Intrusive (“MBI”), comprise a very wide range of textures and mafic andultramafic compositions. The MBI is host to a number of PGM deposits, and themost important of these is the Roby Zone. The Roby Zone consists of threesubzones: the North Roby Zone, High Grade Zone, and Breccia Zone. The main areaof economic interest for underground mining is the High Grade Zone of the RobyZone, extending beneath the open pit mine and the OHGZ, a fault displaced depthextension of the High Grade Zone.

 

High Grade Zone Ore is hosted mainly within aportion of a 15 metre to 25 metre thick unit of occasionally shearedPXN/melanogabbro. A host to high-grade PGM mineralization, it is located in theeast central portion of the Roby Zone, bounded by the barren EGAB hangingwalland HGABX hosted Breccia Ore to the west. The High Grade Zone is primarilyconfined to a 400 metre long segment of the PXN, although it does extendnorthward into the GN. The High Grade Zone, striking north northwest to 

 

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north northeast, dips near-vertically near surfaceand flattens to nearly 45o at depth. The zone appears to be terminated down dipby a relatively shallow dipping fault, the Offset Fault.

 

Below this structure, the OHGZ, a higher grade zonesimilar to the High Grade Zone, has been intersected in drill holes, where itis displaced down and approximately 300 metres to the west. Within thewireframed OHGZ, the palladium mineralization is hosted in approximately 37%heterolithic gabbro breccia, 32% pyroxenite, 16% gabbro and gabbro breccias.Approximately 3% of the zone is occupied by late dikes (dilution). Higher gradeportions of the Roby Footwall Zone, in the footwall of the OHGZ, are hosted 60%by heterolithic gabbro breccia and 31% by vari-textured gabbro, gabbro andgabbro norites with dilution by approximately 1% late dikes.

 

**Exploration**

** **

Since the early 1960s the LDI Property has beenmapped by several companies. The first detailed mapping of the Roby Zone wasconducted by LDI between 1992 and 1994. During this period, the eastern part ofthe zone was stripped of overburden, then mapped and sampled. This programcontinued in 1995 over the South Roby area. In 1998, the area between the southpit and the main pit was stripped, mapped and channel sampled. In 1999, thisprogram was expanded to the area east of the Roby pit and resulted in thediscovery of the mineralized Twilight Zone and several other zones ofmineralization. The Baker, Moore and Creek zones have been exploredsporadically over the last ten years and at present there are no plans forfurther exploration of these areas.

 

The Offset Zone was discovered in 2000 and 39 holes(35,363 metres) were drilled in, and immediately above, the zone during 2000and 2001 to explore the zone. In 2001, geological interpretations of availabledata were initiated and a large east west striking oblique-slip fault with anoffset throw of 300 metres (to the southwest) was interpreted to displace thedown plunge extent of the high grade ore. Two holes for 2,783 metres weredrilled in the zone in 2003 and 2004. Fifteen additional holes (18,230 metres)were drilled in 2005.

 

In 2006, LDI spent approximately $1.5 million fordiamond drilling to better define and upgrade a portion of the OHGZ to aninferred resource. As of 2005, drill hole intercepts within the Offset Zoneswere generally spaced at 120 metres to 140 metres. The 2006-2007 infilldrilling program was designed to tighten the spacing to approximately 50 metresby 50 metres in and around some of the wider intercepts. Eight wedge offsetholes (5,663 metres) were drilled from two surface holes to fill in on certainsections and close the hole spacing, allowing for classification of some of theinferred resources as indicated resources.

 

Development of the 5095RL underground explorationdrift that began in 2006 was completed in April 2007 at a total cost of $2million. The underground exploration drift off from 5095RL is currently beingdrilled off to access the OHGZ. The two targets are primarily the ShallowOffset High Grade Zone and the Roby Footwall Zone.

 

**Mineralization**

** **

PGM and base metal mineralization in the Lac desIles intrusion occurs in both primary and secondary situations within sulphideand silicate minerals. Mineralization appears to be dominantly strataboundalong the contact between the East Gabbro and the mineralized HeterolithicGabbro Breccia. Within the Heterolithic Gabbro Breccia, there is a high gradecore typically constrained to an easily recognized ultramafic unit know as thePyroxenite.

 

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Visible PGM mineralization is rare to nil, and difficultto predict. Palladium and platinum mineralization within the High Grade Zoneconsists primarily of fine-grained PGM sulphide, braggite and tellurideminerals, merenskyite and kotulskite.

 

Higher PGM grades (mean –7.89 g/t palladium, maximum–55.95 g/t palladium) occur in those portions of the PXN that are altered to anassemblage of amphibole (anthophyllite actinolite hornblende)-talc-chlorite.The PGM tenor is not proportional to the sulphide content, and samples free ofvisible sulphide often contain more than 10 g/t palladium. The high-grademineralization is located primarily within the western, highly altered portionof the PXN, since much of the PXN between the barren EGAB and the High GradeZone is low grade. The higher grade “High Grade Ore” is not restricted to thePXN as it commonly straddles the PXN/gabbro breccia contact to depths exceeding250 metres.

 

Platinum group and chalcophile elements occur invariable amounts in almost every ore type within the Roby Zone. The majority ofPGMs either occur within sulphides or are associated with sulphides at sulphidesilicate boundaries, occurring as discrete mineral inclusions within secondarysilicates of altered rocks (CIM Exploration Mining and Geology, Volume 10,2001).

 

**Drilling**

** **

The LDI Property has been subjected to numerousdrill campaigns since the early 1960s. From May 1997 to May 2001,Matawin Mineral Exploration Inc., under contract to LDI, managed theexploration and drilling programs on the property. In May of 2001, LDIestablished its own metals exploration division. Chibougamau Diamond Drillingwas the drill contractor until 1999. A variety of contractors have carried outdrilling on the property since then.

 

Core recovery is excellent throughout the depositand is reported to average close to 100 percent. Since 2006, the Company’sexploration division has noted core recovery on the drill logs.

 

**Sampling, Analysis and Security**

** **

Since 2003, the Lac des Iles drill hole core hasbeen prepared and analyzed by Accurassay Laboratories (“Accurassay”), adivision of Assay Laboratory Services Inc., in Thunder Bay. Accurassay is anindependent, commercial mineral laboratory and is accredited by the StandardsCouncil of Canada under ISO/IEC 17025 guidelines.

 

The sample preparation and assay procedures used byAccurassay are as follows. Core sample numbers are entered into the locallaboratory information management system. Samples are dried, if necessary, thenjaw crushed to –8 mesh (2.36 millimetre). A 250 gram to 400 gram cut is takenby riffle splitting, with the balance stored as coarse reject. The cut is platepulverized to 90%-150 mesh (106=m), and then matted to ensure homogeneity.Silica sand is used to clean out the pulverizing dishes between each sample toprevent cross contamination.

 

For precious metals assay, a one assay ton pulpsplit (±30 gram) is mixed with a lead based flux and fused in a muffle oven.The resulting lead button is placed in a cupelling furnace where all of thelead is absorbed by the cupel, and a silver bead, which contains any gold,platinum and palladium, is left in the cupel. Once the cupel has been removedfrom the furnace and cooled, the silver bead is placed in a labelled small testtube and digested using a 1:3 ratio of nitric acid to hydrochloric acid. The samplesare bulked up with 1.0 millilitres of distilled de-ionized water and 1.0millimetre of 1% digested lanthanum solution for a total volume of 3.0millilitres. The solution is cooled and vortexed and then allowed to settle.Analysis for gold, platinum, and palladium is then performed using atomicabsorption spectroscopy 

 

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(“AA”). The AA unit is calibrated for each elementusing the appropriate ISO 9002 certified standards in an air-acetylene flame.

 

For base metal assay, pulps are digested using amulti-acid digest (nitric acid, hydrofluoric acid, hydrochloric acid). Thesamples are bulked up with 2.0 millilitres of hydrochloric acid and brought toa final volume of 10.0 millilitres with distilled de-ionized water. The samplesare vortexed and allowed to settle and then analyzed for copper, nickel, andcobalt using atomic absorption spectroscopy.

 

The results for the atomic absorption are checked bythe technician and forwarded to data entry by electronic transfer, and acertificate is produced. The laboratory manager checks the data and validatesit if it is error-free. The results are then forwarded to LDI by email and inhardcopy by mail. The Exploration Office in Thunder Bay maintains hardcopylaboratory certificates and digital copies on file, the latter stored by drillhole number. The digital analytical results are compiled, formatted, andimported into the master drill hole database.

 

Core samples are secured in the logging/samplinggeology facility at the mine site. The mine itself has a gate house andbarriers to restrict public access. Core samples are trucked by explorationstaff to the Accurassay laboratory in Thunder Bay.

 

**Mineral Reserve and Mineral Resource Estimates**

** **

The mineral reserve and resource estimate andunderlying assumptions for the LDI Report are set out above. See “GeneralDevelopment of the Business and Description of the Business – Mineral Reserveand Mineral Resource Estimates”.

 

**Shebandowan West Project**

** **

At the request of the Company, Des Cullen, P.Geo.,Consulting Geologist, F.H. Brown CPG, Pr. Sci. Nat., Consulting Geologist, andLaila Sedore, P.Eng., Mill Superintendent at Lac des Iles Mines Ltd., prepareda report dated August 9, 2007 entitled “Technical Report on the ShebandowanWest Property, Thunder Bay Mining Division, Northwestern Ontario” (the “ShebandowanReport”). Each of Mr. Cullen and Mr. Brown is a “qualified person”within the meaning of NI 43-101 and is independent of the Company. Ms. Sedoreis also a “qualified person” within the meaning of NI 43-101 and is an employeeof the Company.

 

The following description of the Shebandowan WestProject has largely been summarized from the Shebandowan Report, which isavailable for review on the internet via the SEDAR website located atwww.sedar.com under North American Palladium’s profile.

 

**Overview**

** **

On December 10, 2007, the Company earned a 50%interest in the former producing Shebandowan mine and the surrounding Hainesand Conacher properties pursuant to an option and joint venture agreement withVale Inco. In order to earn its 50% interest, the Company incurred $3.0 millionin exploration expenditures and made $0.2 million in cash payments. Theproperties contain a series of nickel copper-PGM mineralized bodies and the landpackage totals approximately 7,974 hectares. These properties are located 90kilometres west of Thunder Bay, Ontario, and approximately 100 kilometressouthwest from the Company’s Lac des Iles mine. Vale Inco retains an option toincrease its interest from 50% to 60%, exercisable in the event that afeasibility study on the properties results in a mineral reserve and mineralresource estimate of the equivalent of 200 million pounds of nickel and othermetals. As currently envisaged, the Shebandowan West Project will not triggerVale Inco’s back-in right.

 

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The Shebandowan West Project encompassesthree shallow mineralized zones known as the West, Road and “D” zones, all ofwhich are located at shallow depths immediately to the west of the formerShebandowan mine in an area known as the Shebandowan West district. TheShebandowan West Project’s nickel copper-PGM mineralization is believed bymanagement to represent the western extension of the Shebandowan mine orebody.The former Shebandowan mine, which was in operation from 1972 to 1998, produced8.7 million tonnes of ore at grades of 2.07% nickel, 1.00% copper andapproximately 3.0 g/t PGM and gold.

 

Management is considering a mine developmentscenario that would entail excavation of the Shebandowan West Project by meansof ramp-accessed underground mining methods at a rate of 500 to 1,000 tonnesper day, crushing the material on site and transporting it by truck to the Lacdes Iles property for processing at the original mill on the Lac des Ilesproperty. The original mill at Lac des Iles has been idle since 2001 and theCompany believes that it could be refurbished quickly and at a relatively lowcost. Preliminary metallurgical testing supports the possibility of producing abulk sulphide concentrate from the Shebandowan West Project at the originalmill.

 

A Technical Report in compliance withNational instrument 43-101 disclosing the results of a mineral resourceestimate by an independent Qualified Person was filed on October 26, 2007.In December 2007, the Company retained SRK Consulting to prepare a preliminaryeconomic assessment of the ramp-accessed mine scenario. The results of thisreport are expected in the second quarter of 2008.

 

Community consultations and baselineenvironmental sampling are ongoing and completion of bulk sampling, process anddesign are expected to be completed during the first half of 2008. If plansproceed as expected, production at the Shebandowan West Project could commencein 2009.

 

**Project Description and Location**

** **

The Shebandowan West Project is located inthe Hagey and Haines Townships in the Thunder Bay Mining Division,approximately 90 kilometres west of Thunder Bay, Ontario. The UTM co-ordinatesfor the approximate centre of the property are 700500 E, 5386800 N (Datum NAD83, Zone 15); NTS 52B/9.

 

The Shebandowan property consists of sixunpatented claims (eight units) covering an area of approximately 132 hectares,and 205 patented and leased mining claims totalling approximately 7,842hectares, all of which are held 100% by Vale Inco. The Shebandowan West Projectis part of this larger land package that includes the leases hosting thecurrent Shebandowan mine workings.

 

The property includes extensive surfacerights. A power-line approximately six kilometres to the north of the propertypreviously serviced the Shebandowan mine. Also on the property are backfilledand flooding mine workings immediately east of the project area. A tailingspond, pump shack and gate house remain on the property as well.

 

No permits were required to undertake thedrilling, metallurgy and resource estimate by the Company on the ShebandowanWest Project. Permits will be required if a decision is made to develop a mine.

 

**Accessibility, Climate, Local Resources, Infrastructure andPhysiography**

** **

The Shebandowan property is locatedapproximately 90 kilometres west of Thunder Bay, Ontario, and is centred 15kilometres west southwest of the town of Shebandowan, which is situated onTrans Canada Hwy #11.

 

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Year round access to the property is availablevia the Inco Mine Road that starts at Shebandowan and crosses the property.Temperatures range from highs of 35°C in summer to lows of –30°C in winter,with snow cover between November and May. The best season for explorationis between June and October, although exploration activities of lakecovered or swampy areas such as geophysical surveys and diamond drilling mightbest be conducted after winter freeze-up.

 

Thunder Bay is a city of approximately110,000 people with an international airport with daily scheduled jet service,rail service, and port facilities at the west end of Lake Superior. Shebandowanis a town with a very small year-round population and limited servicesincluding seasonal accommodation, electrical and telephone utilities, railroad,highway and public lake access to Lower Shebandowan Lake.

 

Based on the history of the property and themine, the project area has sufficient surface rights and sufficientavailability of power, water, mining personnel and mining infrastructure tocarry out future mining operations.

 

**History**

** **

The following chronology is from MNDM MineralDeposit Files: INCO-Shebandowan. The reader is cautioned not to rely onhistoric information as its accuracy cannot be guaranteed.

 
| 1913-14   |   | Nickel is discovered by W. W. Benner at  Discovery Point. Test pits blasted by Cross Brothers.                                                                                                                                                                                                                                                                                               |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1923      |   | Samples are sent to the Ontario Department  of Mines provincial assayer.                                                                                                                                                                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1927-30   |   | Trenching, stripping and diamond drilling  is conducted by Cross Brothers. Geological mapping and diamond drilling is  performed.                                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1936-52   |   | Claims are purchased by Inco; trenching,  test-pitting, geophysical surveys and diamond drilling is conducted.                                                                                                                                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1952-65   |   | Intermittent diamond drilling is undertaken  by Inco.                                                                                                                                                                                                                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1966-67   |   | No. 1 development shaft is commenced  in spring 1966 and completed in the following year. Underground diamond  drilling is conducted. Geophysical surveys performed.                                                                                                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1966-67   |   | Inco undertakes various exploration  programs while development and production of the orebody continues,  including: geological, geophysical and geochemical surveys; stripping; and  diamond drilling in the search for both precious and base metals.                                                                                                                                      |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1993-2001 |   | The provincial and federal governments  undertake many mapping projects in the area, the most recent of which  include: geological mapping by Osmani (1993) OGS Map 2625 and 2626; airborne  geophysical survey (1991) OGS Map 81560; Lake sediment and water geochemical  survey (2001) OGS open file report 6057; and Till sampling survey (2001) OGS  open file report 6046.              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                         |
| 1972-98   |   | Aubut, Lavigne, Scott and Kita state in  “Metallurgy, Stratigraphy and Structure of the Shebandowan Greenstone Belt”  (1990) that the Shebandowan mine “has been in semi-continuous production  since 1972 at an average production rate of about 2,000 tons per day”. The  ore body is up to 150 feet wide, has a strike length of 6,200 feet and  plunges to the east. |

 

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| 1972-98   |   | Concentrate produced from the Shebandowan  mine is alternatively shipped to Sudbury, Ontario, or Thompson, Manitoba, for  smelting and refining.                               |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                           |
| 1998-2006 |   | The Shebandowan mine ceased production in  1998 and by 2006 the mine site had largely been rehabilitated with continuing  maintenance and monitoring of the tailings site.     |
|      |   |                                                                                                                                                                           |
| 1972-98   |   | Production from the Shebandowan mine  totalled 8.7 million tons at 2.07% nickel, 1.00% copper and approximately 3.0  g/t PGM and gold (B. Schnieders, personal communication). |
|      |   |                                                                                                                                                                           |

**Geological Setting**

** **

*Regional Geology*

 

The Shebandowan property is underlain by theShebandowan Greenstone Belt which is part of the Wawa Subprovince of theSuperior Structural Province of the Canadian Shield. In this area, the WawaSubprovince is fault bounded to the north by the sedimentary plutonic suites ofthe Quetico Subprovince and to the south by the Paleoproterozoic rocks of theAnimikie Group and the Keweenawan Supergroup.

 

*Property Geology*

 

The Shebandowan West Project lays immediatelywest of the past producing Shebandowan mine. The project area is located alongthe western strike extension of the former orebody and exhibits many similargeological features and controls to those found at the mine-site.

 

The Shebandowan West Project area isunderlain by east-west-striking and steeply north dipping Keewatinmetavolcanics and ultramafics with local interflow metasediments lying north ofTimiskiming metavolcanics and metasediments. A regional fault called theCrayfish Creek Fault is a dextral fault generally found along the southerncontact of the southern ultramafic, separating the Keewatin and Timiskimingrocks. The southern Timiskiming rocks consist of intensely foliated and shearedagglomerates and felsic to intermediate metavolcanics now sericite schists.

 

A younger granite called the Shebandowan LakeStock intruded the Keewatin metavolcanics and lies on the north side of theproject area. The Keewatin metavolcanics consist predominantly of crudelybanded mafic volcanics that often exhibit intense foliation and shearingassociated with strong chlorite and epidote alteration. Within the KeewatinMetavolcanic suite are ultramafic units thought to be magmatic flows or sillsthat host nickel and copper bearing sulphides and chromite mineralization. Theultramafic units strike approximately 107 degrees and dip sub-vertically. Thereare two ultramafic bodies termed the “Northern” and “Southern” Peridotites,which lie within and along the southern contact of the banded Keewatinmetavolcanics along the Crayfish Creek Fault.

 

**Exploration**

** **

*Exploration Geophysics*

 

In February of 2004, Geotech Ltd., onbehalf of the Company, flew a helicopter borne, time domain, electromagnetic (“EM”),geophysical survey over an area that included the Shebandowan West Project. Theairborne survey included collection of EM and magnetic data. The survey wasflown at 100 metre line spacings in a north south direction at 80 kilometresper hour. The data recording rates were 0.1 second for both EMs and magneticswith an EM sensor flight height of 30 metres. The mine stratigraphy was used asa base or reference to work from producing magnetic and EM anomalies. Theultramafics 

 

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within the Shebandowan West Project arehighlighted as moderate magnetic anomalies with weak to moderate local EM conductors.

 

In February 2004, on behalf on theCompany, Crone Geophysics & Exploration Ltd. conducted a Surface PulseEM survey over the D-Zone, and the western portion of the Shebandowan WestProject. A grid was cut by Nord-Ouest Exploration totalling approximately 5,350metres having 200 metre line spacing and 1,100 and 1,150 metre length linesalong with a baseline. Results of the survey produced a moderate EM anomaly inan area of known mineralization and historic drilling.

 

From September 20 to 28, 2004, GeosigInc., on behalf of the Company, conducted a detailed ground magnetometricgradiometric survey over the Road and D-Zones. The survey was carried out on aflagged grid of 30.7 line kilometres. The grid consisted of 300 metre linesspaced at 12.5 metres apart. The readings were taken along the grid lines every5 metres. Due to the location of Shebandowan Lake, the survey could only beconducted on the central to western side of the property. The intent of thesurvey was to better define the near surface geology as well as identifyimportant structures that may influence the location or emplacement of thenickel copper mineralization.

 

A small gravity survey was conducted alongShaft 1 road across the stratigraphy of Road zone by A. Spector of Allan Spector &Associates Ltd. The survey took place in July 2004 using athermostatically controlled Sodin gravimeter and a differential barometricaltimetry system at 100 metre stations along the road. A gravity anomaly wasgenerated over the ultramafics that host the Road Zone mineralization.

 

*Exploration Trenching*

 

On behalf of the Company, J & JHackl Ltd. was contracted to do trenching in the D-Zone area, which was carriedout in October 2006. Six trenches were dug with a Tanga F221 Excavator anda one yard bucket in an attempt to extend mineralization along strike of thehistoric D-Zone showing. Two out of the six trenches directly west of thehistoric showing uncovered mineralization, while the other four uncoveredbarren ultramafic rocks. Three of the six trenches were filled in due toextensive overburden depths. Various beep-mat traverses were carried out northsouth across stratigraphy to try and discover surface conductors.

 

*Exploration Drilling*

 

Throughout 2005 and 2006, three diamond drillprograms (D-Zone, Phase I and Phase II) were carried out. See “Drilling” below.All diamond drill holes were collared west of and on Discovery Point of LowerShebandowan Lake targeting the D, Road and West Zones. A total of 87 diamonddrillholes were completed totalling 13,102.3 metres.

 

**Mineralization**

** **

Nickel copper mineralization on theShebandowan West Project is believed to represent the western extension of theShebandowan mine orebody. At the Shebandowan mine, nickel copper bearingsulphide mineralization strikes 107 degrees, dipping sub-vertically and wasmined over a 2.0 kilometre strike length and to a vertical depth of 902 metres.Mineralization at the Shebandowan mine was mainly hosted within the NorthernPeridotite, along the contact with the hanging wall Keewatin metavolcanics.Nickel copper sulphide mineralization occurred generally as irregular lenses ofsemi-massive breccia style sulphides and as stringer sulphides, with morelocalized pods of massive sulphide material. In general, the massive sulphidestended to have a higher nickel tenure while the copper rich sulphides were moreassociated with PGM mineralization within the stringer style mineralizationand, where present,

 

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net-textured sulphides. The sulphidemineralization appears to gradually shallow and thins out to the west while theeastern boundary is reported to be steeply plunging with a higher sulphidecontent.

 

Nickel copper mineralization has been tracedby diamond drilling across most of the Shebandowan West Project, however themineralization appears discontinuous, forming three separate zones called WestZone, Road Zone and D-Zone (from east to west respectively).

 

*Mineralized Zones*

 

The West Zone is the largest of the threenickel copper zones on the Shebandowan West Project and lies immediately westof and includes parts of the area around Shaft 1. It has a known strike lengthof 285 metres and varies between two and 20 metres in width averaging sixmetres and has been traced from surface to a depth of 175 metres. Thismineralization strikes 107 degrees and dips sub-vertically. Nickel coppermineralization in the West Zone is comprised of disseminated to massivesulphides located along the northern or hanging wall contact of the Northern Peridotite.Common sulphide minerals within the mineralized horizon are pentlandite,pyrite, chalcopyrite, pyrrhotite, violerite, bornite and millerite.

 

There has apparently been a significantamount of remobilization associated with post mineral deformation and faulting,as a result of which the sulphide mineralization appears to pitch and swellboth along strike and in a down dip direction. This is the case for the WestZone as well as for the Road and D Zones. This pinching and swelling was also acommon feature noted in the Shebandowan mine. Inco has stated that the sulphidemineralization has been seen pinching from approximately 30 feet to two feetover the length of one round underground.

 

The Road Zone is located between West Zoneand the D-Zone. Mineralization in the Road Zone differs somewhat from the Westand D-Zone as it appears to have bifurcated and is hosted within two separatebut subparallel ultramafic units (North and Main Units). The North and MainUnits are interpreted to represent the lateral equivalent of the NorthernPeridotite. Both nickel copper zones are composed of disseminated to massivepyrrhotite, chalcopyrite, pentlandite and pyrite that vary in concentrationsand widths located at the northern or hanging wall contacts of the North andMain Units. The Road Zone mineralization is typically highly variable in widthsfrom 0.5 to 15 metres but averages four metres in width for the North Unit andfive metres in width for the Main Unit. Mineralization has been encountered indrilling down to a depth of 181 metres where it appears to be closed off andcan be traced along strike for 483 metres.

 

The D-Zone is an historic surface showingdiscovered in the late 1920s. Previous historic drilling suggests that theD-Zone represents the western most extent of near surface nickel copper bearingsulphide mineralization. Mineralization in this area is very shallow anddiscontinuous. The presence of late felsic diking and faulting has causedsignificant disruption and offsetting of the mineralization. Sulfides in thiszone vary from disseminated pyrite to massive pyrrhotite with associatedpentlandite, chalcopyrite and pyrite. Breccia style mineralization is mostcommon.

 

*Mineralization Types*

 

Nickel copper sulphide mineralizationobserved in drill core on the Shebandowan West Project generally occurs assemi-massive or breccia style sulphides and as stringer sulphides, with morelocalized pods of massive sulphide material and rarely observed net texturedsulphides. The most common sulphide minerals are pentlandite, pyrite,chalcopyrite, pyrrhotite, violerite, bornite and millerite.

 

Massive sulphides are generally less abundantthan semi-massive and stringer sulphides and comprise approximately 13% of theoverall mineralization. The massive sulphides consist of pyrrhotite with 

 

29

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common pentlandite eyes and minorchalcopyrite and pyrite. The pyrrhotite is very fine-grained and exhibits flowtextures as a result of remobilization. Round two to three millimetrepentlandite eyes are common as very lustrous, distinct grains within duller andfiner pyrrhotite. Minor chalcopyrite can be present and is usually found alongthe peridotite/ sulphide contacts.

 

The semi-massive or breccia stylemineralization is the second most common form of sulphide mineralization foundon the Shebandowan West Project, consisting of approximately 26% of the overallmineralization observed. Breccia style mineralization is commonly a mixture ofpyrrhotite, chalcopyrite and pyrite at a ratio of approximately 4:3:1respectively containing numerous clasts of the host ultramafic. The sulphidesare draped around sub-rounded ultramafic clasts that range in diameter from onemillimetre to over 10 centimetres. Very often, the clasts are coated or rimmedby fine-grained chalcopyrite and minor pyrite.

 

Stringer type mineralization is the mostcommon form of mineralization encountered throughout the Shebandowan WestProject comprising approximately 34% of the sulphide material. The stringers commonlycontain chalcopyrite with lesser pyrrhotite and pyrite and are generally one tothree centimetres in width but vary from one to two millimetres to fivecentimetres in size. Stringer mineralization is often found along the outercontacts of the breccia style and massive sulphide mineralization as splays andfine dikelets.

 

**Drilling**

** **

The Company has attempted to review thepractices and details of the historic drilling carried out by Inco on theShebandowan property since the signing of the March 2006 joint ventureagreement. No information on drilling practices was made available, but header,survey and lithological data was provided by Inco. Since 1936, Inco had diamonddrilled a total of 195 surface holes on the Shebandowan West Project totalling41,800.65 feet (12,740.80 metres). Underground drilling was conducted fromvarious levels and consisted of 1,038 holes totalling 59,202.38 feet (18,044.90metres).

 

In November 2005, four drillholes weredrilled around the historic D-Zone. The drilling was an attempt to check thevalidity of previous drilling done by Inco and to test the EM anomaly generatedin the 2004 ground pulse EM survey performed by Crone Geophysics. Two of thefour drill holes intersected semi-massive to massive sulphide. This mineralizationwas intercepted in the vicinity of historic mineralization, and there was aclose correlation with the EM anomaly produced from 2004. A total of 584 metreswere drilled in the 2005 D-Zone phase of drilling.

 

The Phase I program took place from May 31to August 3, 2006 to test previous drilling and larger gaps in historicdrilling. This Phase I drilling campaign consisted of 21 drillholes totalling4,010 metres, which targeted three zones of the Shebandowan West Project (WestZone, Road Zone and D-Zone). Sixteen holes were drilled in the West Zonetotalling 3,290 metres, three holes were drilled in the Road Zone totalling 483metres and two holes were drilled in the D-Zone totalling 237 metres. Thedrilling confirmed the presence of mineralization in all three zones within theShebandowan West Project.

 

Sixty-two holes were drilled during the PhaseII program that took place from September 27 to December 14, 2006with the use of two drills. The Phase II program totalled 8,508.3 metres ofwhich 25 holes were drilled in the West Zone for 4,815.8 metres, ten holes weredrilled in the Road Zone for 1,674.0 metres, and 23 holes were drilled in theD-zone for 1,951.5 metres and four rock characterization holes were drilledtotalling 60 metres.

 

Throughout 2005 and 2006, a total of 13,102.3metres were drilled on the Shebandowan West Project. The results of thedrilling confirm the continuity of sulphide mineralization and correlation withthe 

 

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Gemcom geological model. All drilling on theShebandowan West Project was carried out by Bradley Brothers Limited on behalfof the Company.

 

Drillhole Summary

 
| **Drilling Campaign** | ** ** | **Year Drilled** | ** ** | **Number of Holes** | ** ** | **Total Metreage** | ** ** | **Number of Samples** | ** ** |
|----------------------------|------------|-----------------------|------------|-------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| D-zone                     |       | 2005                  |       | 4                             |       | 584                     |       | 142                             |       |
| Phase I               |       | 2006                  |       | 21                            |       | 4,017                   |       | 1,103                           |       |
| Phase II              |       | 2006                  |       | 62                            |       | 8,501.3                 |       | 2,056                           |       |

 

**Sampling, Analysis and Security**

** **

*Sampling*

 

Drill core samples for assaying were selectedbased on significant mineralization or alteration through the sulphidemineralization. The logging geologist generally sampled in one-metre intervals,with exceptions at lithological contacts and always sampled a minimum of one totwo metres of barren material adjacent to the mineralization to ensure that themineralization unit was completely defined.

 

No drilling or recovery factors were noticedthat could materially impact the accuracy and reliability of the results.

 

All samples collected by the Company anddelivered to Accurassay were analyzed for precious metals by fire assay with anAA finish, while base metals were analyzed using aqua-regia.

 

*Quality Assurance and Quality ControlProcedures*

 

As a means of quality assurance qualitycontrol for each diamond drilling program, blank and standard samples wererandomly inserted into the continuous sampling series. The insertion of blankand standard materials was done to ensure the accuracy of the assay resultsagainst any laboratory bias. For each drill hole, random positions were chosenfor the blanks within each set of 20 samples (e.g. one blank sample withinsamples 001 to 020, one blank sample within samples 021 to 040, etc).Similarly, random standard sample positions were chosen within each set of 30samples (e.g. one standard sample within samples 001 to 030, one standard samplewithin samples 031 to 060, etc).

 

*Sample Security*

 

The Company took reasonable steps to ensurethe security of samples from the drill site through to the database, includingthe following:

 

·                  secure taping of box lids when boxing core at the drill site;

 

·                  careful transport of core from the drill rig to the core shack toensure jumbling does not occur;

 

·                  measures taken to ensure that the core, split samples, blanks andstandards were locked in the logging and sampling facilities;

 

·                  piecing together and orientation of each core run prior to corephotography;

 

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·                  securing of sample bags and fibre bags with electrical tape fortransport to Accurassay Laboratories in Thunder Bay;

 

·                  retention of both coarse rejects and pulps in secure locked storage;and

 

·                  retention of half core in core boxes located in sturdy storage rackson private property where they are not clearly visible from public roadways.

 

The measures discussed above do not guaranteethat the samples are completely immune from tampering, but the secure storageof the remaining half core, the coarse rejects, and the pulps means that anysuspicion of fraudulent behaviour can always be resolved by reference to theoriginal sample, which has been retained.

 

**Mineral Resource Estimates**

** **

The mineral resource estimate and underlyingassumptions for the Shebandowan West Project are set out above, based on aUS$60.00 net smelter return mineralization shell. See “General Development ofthe Business and Description of the Business — Mineral Reserve and MineralResource Estimates”.

 

**Arctic Platinum Project**

** **

At the request of the Company, Mr. EugenePuritch P.Eng, Dr. Wayne Ewert P.Geo., Mr. F.H. Brown CPG, Pr. Sci.Nat., Mr. Jason Rickard, P.Geo., and Mr. David King, P.Eng(collectively referred to in this section as the “APP Consultants”), prepared areport dated October 29, 2007 entitled “Technical Report, Mineral ResourceEstimate, and Preliminary Economic Assessment (Scoping Study) of the SuhankoProject, Northern Finland” (the “APP Report”). Each of the APP Consultants is a“qualified person” within the meaning of NI 43-101 and is independent of theCompany. The scope of the APP Report is limited to the Suhanko projects.

 

The following description of the APP (andspecifically, the Suhanko projects) has largely been summarized from the APPReport, which is available for review on the internet via the SEDAR websitelocated at www.sedar.com under North American Palladium’s profile.

 

**Overview**

** **

The APP is an advanced stage PGM-nickelcopper exploration project located approximately 60 kilometres south of thecity of Rovaniemi, Finland. To date, three areas of the APP have been exploredby North American Palladium: the Suhanko deposits, the Narkaus deposits and thePenikat deposits.

 

The Company is party to an agreement withGold Fields entitling it to earn up to a 60% interest in a series of mininglicenses and claims known as the APP. The agreement is subject to a back-inright in favour of Gold Fields which, if exercised, would decrease the Company’sinterest to a 50% share. Upon satisfaction of the earn-in requirements, NorthAmerican Palladium will have a casting vote at meetings of the joint venturepartners, other than with respect to matters requiring a special majority vote.

 

In order to exercise the option, on or beforeAugust 31, 2008, the Company must: (i) complete a re-scoping andexploration program; (ii) complete a feasibility study; (iii) make aproduction decision and prepare the initial formal development proposal andassociated budget based on the feasibility study; (iv) incur expendituresof US$12.5 million on the APP; and (v) issue 7,381,636 Common Shares toGold Fields BV in order to earn a 50% interest or 9,227,033 Common Shares toearn a 60% interest. To date, the Company has completed the re-scoping study,incurred over US$11.6 million in expenditures and has 

 

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commissioned a feasibility study. The Companybelieves that it will satisfy the conditions of the earn-in on or before August 31,2008.

 

*The Suhanko Projects*

 

The Suhanko projects are locatedapproximately 60 kilometres south of the city of Rovaniemi, which has apopulation of approximately 34,400 and, as the capital of the Province ofLapland, is a major regional centre. The town is serviced by rail, road and airwith multiple flights daily to and from Helsinki. The port of Kemi on the Gulfof Bothnia is kept open throughout the winter and is located 120 kilometressouthwest of Rovaniemi.

 

The Suhanko projects include a number ofdeposits over a total strike length of approximately 17 kilometres that havebeen demonstrated by Gold Fields to contain a number of nickel-copper-PGMdeposits. Since the discovery of nickel-copper-PGM mineralization at theYli-Portimo deposit in 1964, exploration in the Suhanko projects area in theintervening years has resulted in the discovery of the following otherdeposits: Konttijarvi, Little Suhanko, Vaaralampi, Niittilampi, Ahmavaara,Suhanko North, and Tuumasuo. Exploration and delineation work in connectionwith the Company’s preparation of a feasibility study has focused on only theKonttijarvi and Ahmavaara deposits, with the total sizes of the remainingdeposits being essentially undetermined.

 

*The Narkaus Project*

 

The Narkaus project is located approximately30 kilometres northeast of the Suhanko projects and contains a sequence offavourable rocks that have been demonstrated to be present along an aggregatestrike length of approximately 20 kilometres. To date, significantnickel-copper-PGM mineralization has been discovered at a number of deposits,including the Siika-Kämä, Kuohunki, Nutturalampi and Kilvenjärvi deposits. TheCompany continues to explore deposits in the Narkaus project area with a view topotentially improving the overall economics of the larger Suhanko projects.

 

*The Penikat Project*

 

The Penikat project is a separate intrusionlocated approximately 35 kilometres to the southwest of the Suhanko projects.Traditional reef-style nickel-copper-PGM mineralization has been discovered inthree distinct reefs over a strike length of approximately 27 kilometres. Todate, exploration has concentrated on evaluating the shallow portions(essentially above a depth of 100 metres from surface) of one of these reefswhere significant concentrations of nickel-copper-PGM mineralization located inthe northern portion of the intrusion have been discovered. The explorationpotential of the remaining two reefs, along with the depth extensions of theexplored reef, remains essentially untested.

 

*Recent Activities*

 

Management has been examining a developmentscenario consisting of two nickel copper-PGM open pit mines at two of thedeposits that comprise the Suhanko area, the Ahmavaara and Konttijarvideposits, which are located three kilometres from each other. The nickelcopper-PGM bearing material would be processed through a centrally locatedconcentrator at a nominal throughput rate of 5.0 million tonnes per year.PGM-nickel copper bearing concentrate would be transported 125 kilometres bytruck to a port facility located at Kemi, Finland and shipped to smelting andrefining facilities for final extraction of the contained metals.

 

On October 30, 2007, the Companyreleased the results of a scoping study by Aker Kvaerner on the two mainmineral deposits in the Suhanko area, Ahmavaara and Konttijarvi, whichindicated that the mineral 

 

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resources could potentially support a 20-yearmine life at approximately 7.5 million tonnes per annum. The Company hasretained Aker Kvaerner to prepare a definitive feasibility study for theSuhanko project to build upon the recommendations in the scoping study. TheCompany has also contracted with a 30-year veteran of the mining industry tooversee the feasibility study and other work at the APP as the Company movescloser to satisfying its earn-in conditions.

 

An infill drilling campaign at the Ahmavaaradeposit was completed earlier in 2007 and the assay results of the final 26 holesof the 83-hole drilling program were reported on October 22, 2007. MiconInternational Limited has now been engaged to conduct the update of the mineralresource estimates, which will include the results from the Ahmavaara infilldrilling campaign. Micon will also conduct the open pit designs andoptimization.

 

Bulk sampling of the Ahmavaara andKonttijarvi deposits was also completed in October 2007 in advance ofpilot plant test work. A program of bench scale metallurgical testing has beencompleted in support of a pilot plant test that commenced in December 2007and was completed in February 2008. The pilot plant test provided samplesthat will be tested by smelters that have been identified for the concentratemarketing strategy and will allow the Company to pilot a flowsheet. In October 2007,the Company commenced discussions with various smelters, and follow-up meetingsare planned now that samples are available. Initial smelting proposals insupport of the feasibility study are anticipated by May 2008.

 

**Project Description and Location**

** **

The Suhanko projects are locatedapproximately 60 kilometres south of the city of Rovaniemi and 30 kilometresnorthwest of Ranua on the Arctic Circle in northern Finland. The city ofRovaniemi has a population of approximately 34,400 and as the capital of theprovince of Lapland, is a major regional centre. The city is serviced by rail,road and air with multiple flights daily to and from Helsinki. The port of Kemion the Gulf of Bothnia is kept open throughout the winter and is located 120kilometres south of Rovaniemi.

 

In order to acquire the mineral rights of thehighly prospective margin of the Portimo Intrusive Complex (composed of theSuhanko, Konttijärvi, and Narkaus intrusive bodies), Gold Fields Arctic PlatinumOy (“GFAP”) has acquired a total of 258 contiguous claims with a total area of22,260.2 hectares. Fifteen of these claims (1,388.1 hectares) are subject to apurchase agreement with South Atlantic Resources Ltd. GFAP also has nine activeclaim applications, covering an area of 740.4 hectares, that are undergoing therenewal process. With its large landholding GFAP controls virtually the entireextent of the Marginal Phases of the Portimo Intrusive Complex.

 

The Suhanko projects are one of severalactive GFAP projects within the Portimo Intrusive Complex. Being the mostactive of the projects, the Suhanko project area is protected not only by theclaims but also by a mining license application covering 4,145.4 hectares (thislease application has gone through the approval process and only the concessioncertificate is pending).

 

All properties are currently in good standingor are undergoing the lease renewal process. The tenements covered by mininglicenses have been legally surveyed while individual mining claims outside ofthe mining leases, having been acquired through a government regulated stakingprocess, have not been surveyed.

 

The Finnish government has no free carriedinterest in the partnership between GFAP and the Company and no royalties arepayable to the State. Regular corporate income tax will be payable at a ratewhich is currently 29% but which is scheduled to be reduced incrementally. Forthe claim rights, GFAP must pay 

 

34

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annual claim compensations to the privatelandowners and annual surface area based fees to the State. The total annualamount for current claim coverage is approximately €383,110.

 

The final meeting regarding the execution ofthe Suhanko mining lease was held on May 29, 2006. The minutes of themeeting were published on July 24, 2006 and became legally valid in early September 2006.Granting of a concession certificate is pending in the Ministry of Trade andIndustry.

 

The Northern Finland Environmental PermitAuthority granted the environmental permit for the Suhanko projects on December 7,2005. Two appeals were made against the permit concerning the amounts ofcompensation for land for two small properties. GFAP submitted its statement ofdefence in February 2006. The decision from the administrative court iscurrently being awaited.

 

The Energy Market Authority issued aconstruction permit for the Petäjäskoski–Konttijärvi 110 kV overheadtransmission line on August 12, 2004. Yet to be applied for are theacceptance for the general plan for mining from the Safety TechnologyAuthority, the construction license for buildings and workshops, theenvironmental permit for fuel storage as well as a number of other minorpermits.

 

The rehabilitation bond to be deposited uponinitiation of the construction of the tailings basin and waste rock stockpilingareas is €6,620,000. There are no current environmental obligations ofsignificance outstanding. At the Ahmavaara trial mine the pumping waters andtheir impact on local surface waters are required to be monitored until the2006 year end or as long as dewatering is continued. In case the Suhankoprojects stop, the pit can be left to flood to ground water level.Rehabilitation of other test pits has been completed.

 

The Suhanko Environmental Permit and therehabilitation bond have been decided and, despite the two appeals, areeffective. As long as the appeals remain unresolved, they cause restrictionsfor construction of certain water areas and hence influence parts of thetailings storage facility and waste rock areas.

 

**Accessibility, Climate, Local Resources, Infrastructure andPhysiography**

** **

The Konttijärvi and Ahmavaara properties areexamined in the context that they are the most significant discoveries foundto-date within the Suhanko projects.

 

Access to both Konttijärvi and Ahmavaara isvia a sealed road to within 15 kilometres of the project location, followed bya well-maintained gravel road passable by logging trucks and similar vehicles.All-weather access on the non-sealed roads will be guaranteed by the use ofsnowploughs during the autumn and winter months.

 

The site is situated just south of the ArcticCircle where the climate is characterized by seasonal changes in temperatureand daylight. The climate is, however, moderated by the Gulf Stream. Usefuldaylight varies from continuous light for a period of around 6 weeks in summerto around 6 hours per day in late December. Average temperatures range from-20oC to +20oC with occasional short duration cold spells of below -40oC

 

There are no major towns or villages on orclose to the layered complexes. However, there are a few scattered homesteadsand summer cottages on farms and near lakes located in the project area. Theaverage population density in the area is about two people per squarekilometre. Forestry is the main industry and very little primary forest ispreserved except in proclaimed reserves.

 

The topography of the lease area is generallyflat as a result of various glaciation events. The layered complexes are coveredby overburden that ranges in thickness from 0 to 30 metres. Outcrop is rare and

 

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the average thickness of till is 5 to 10metres. As a result of the low relief and poor drainage, peat bogs cover largeareas such that off-road vehicle access in some areas is only possible duringthe winter months when the surface is frozen. Elevations are relative to meansea level.

 

**History**

** **

Outokumpu Oy (“Outokumpu”) commenced a coppernickel exploration program in the Suhanko area using magnetic and electromagnetic ground geophysical survey methods in conjunction with extensivegeological mapping and drilling in 1964. Exploration continued until 1981, andfocused on the disseminated and massive sulphide mineralization in the basalpart of the Suhanko Intrusion. Exploration of the marginal seriesmineralization was extended to other prospective areas of the Portimo IntrusiveComplex which included Niittylampi and Suhanko. The smaller Konttijärviintrusion block was discovered following geological mapping and assaying, whichled to the first indications of the presence of PGM from sulphide bearingsamples.

* *

*Past Exploration — Konttijärvi*

 

Further work by Outokumpu in 1981 thatverified the historical PGM assays of outcrop samples taken in the 1970sdetermined that true values were three to four times higher than firstreported. This motivated a small drilling campaign and the first drillholedrilled in September 1981 intersected significant sulphide hosted PGMmineralization. A further four drill holes were completed all of whichintersected significant PGM mineralization. Consequently, Konttijärvi becamethe first significant PGM discovery in Finland.

 

Following these successful results, the areawas covered by a ground magnetic survey and also by a small number ofgeochemical till sampling lines. Since 1981, Outokumpu has completed 189diamond drill holes with a total length of 13,617 metres at the Konttijärvi andAhmavaara deposits. This drilling was conducted during three phases, from 1981to 1983; 1986 to 1989; and finally in 1995.

 

*Past Exploration — Ahmavaara*

 

The Ahmavaara deposit was discovered byapplying the exploration model developed from the Konttijärvi data. Based onthis model, and with the results from a ground magnetic survey that identifiedthe location of the all-important peridotite marker, the first seven drillholes were completed. Laboratory scale metallurgical test results, supported bya microscopic study of the mineralogy in samples taken from the later drillholes, showed that nickel, copper and PGM could be concentrated at fairly goodrecovery rates at Ahmavaara. An additional 12 holes were drilled at theAhmavaara area in 1995 to search for nickel-rich occurrences. The total amountof drilling at Ahmavaara before the formation of the Company’s partnership withGold Fields was 29 holes for 3,322 metres.

 

*GFAP Activity*

 

Since its inception on March 17, 2000,GFAP has carried out both exploration and sterilization drilling, and has alsoused a variety of other exploration techniques to develop and explore theKonttijärvi and Ahmavaara deposits. These include airborne magnetic, electromagnetic and ground induced polarization (“IP”) surveys.

 

Prior to June 2004, GFAP completed 1,246drill holes with a total length of 154,021 metres in the Suhanko projects area.Of this total, 986 diamond drill holes totalling 108,369 metres in length werecompleted on the Konttijärvi and Ahmavaara deposits and 260 drill holestotalling 45,742 metres in length were completed on the SK reef. A recentprogram of “in-seam” drilling conducted on the Konttijärvi and Ahmavaaradeposits since the Lycopodium Feasibility Study in 2005 and prior to the 

 

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involvement of the Company in February 2006has added a further 11,594 metres of drilling and 67 drill holes, bringing thetotal amount of diamond drilling on the Suhanko projects to 119,963 metres and1,053 drill holes. In seam drilling is a technique whereby drill holes aredesigned to intersect the target stratigraphy at a shallow angle rather thanthe traditional approach of intersecting the stratigraphy in a perpendicularorientation. In this manner, a greater volume of sample is provided foranalysis by each drill hole.

 

Some 121 drill holes, with a total length of8,502 metres (6.97% of the total Suhanko drilling), were drilled forgeotechnical, metallurgical and site investigation requirements.

 

**Geological Setting**

** **

*Regional Geology*

 

The Suhanko Konttijärvi layered intrusion comprisesthe south-western parts of the Portimo layered intrusion complex which consistsof the Suhanko Konttijärvi, Narkaus and Siika Kama intrusions, and dykes ofapproximately the same age that are named Portimo dykes. The Portimo IntrusiveComplex is composed of several megacyclic units that have crystallized from twodistinct parental magma types. The first intruded magma type was a highChromium-high magnesium oxide magma, which was followed by intrusion of lowChromium-low magnesium oxide magma. Hangingwall gabbroic cumulates exposed atthe present erosion level in the Suhanko intrusion belong to a low Chromium-lowmagnesium oxide megacyclic unit known as the third cycle. The northeasternparts of the Portimo Intrusive Complex were uplifted to a higher elevation bythe tectonic movements after crystallization, and are more deeply eroded. Inspite of the regional amphibolitefacies metamorphism and mineral alteration,igneous textures are generally well preserved in the Suhanko Konttijärvilayered series rocks. The basement rocks are mainly banded gneisses and lateArchean-aged granitoids, which are mostly comprised of diorite andgranodiorite.

 

*Local Geology*

 

The Suhanko Konttijärvi intrusion consists oftwo bodies separated by Archean basement rocks. The small Konttijärvi depositis situated 3.5 kilometres northwest of the larger Suhanko body while theAhmavaara deposit is located at the western edge of the Suhanko Intrusion. TheKonttijärvi intrusive is regarded as a faulted offset and subsequent erosionalremnant of the Suhanko intrusion, because of the similar stratigraphicsuccession and style of mineralization as Ahmavaara.

 

*Property Geology*

 

The stratigraphy of the Suhanko Konttijärviintrusion consists of a thick layered series sequence that is dominated bygabbroic rocks with nearly horizontal layering, and a marginal series with amineralized unit at the base, extending into the basement.

 

The Konttijärvi deposit has a strike lengthof approximately 1,000 metres. The deposit dips north at between 10o and 20o inthe eastern part and between 30o and 40o in the central and western parts. Thenorthern part of the mineralized body, Konttijärvi North, is divided from themain body by the Konttijärvi fault, which brings the mineralized successionback to surface on the northern side of the fault. Konttijärvi North is dividedinto two fault blocks by a reverse fault. The northern extent of KonttijärviNorth is terminated against a second normal fault. Both normal faults areinclined towards the south at approximately 50o, although local variations anda faulted zone are present. A reverse fault, in the western part of theKonttijärvi deposit, results in fault block 1, which hosts the deepest knownmineralization 

 

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present. The deepest known layered seriesmineralization is found approximately 250 metres below surface.

 

The Ahmavaara deposit has an approximatestrike length of 2,700 metres, of which the easternmost 1,000 metres is termedAhmavaara East. The western part of the deposit dips to the northeast with dipsranging from 70o along the southwestern margin to 5o in the northeastern sideof the deposit. Ahmavaara East dips north with fairly constant 10 25o dips. Thedeposits’ western and southern limits are defined by fault disruptedlithological contacts with Achaean basement rocks. The northern extent islimited by a normal fault, and the northeastern part is currently terminatedagainst a smaller reverse fault. The deepest known layered series mineralizationat Ahmavaara is approximately 500 metres below surface.

 

**Exploration**

** **

A mineralogical study titled “Mineralogicaland Geochemical Study of the Konttijärvi and Ahmavaara Deposits, ArcticPlatinum Project Finland” was completed September 28, 2006 was completedby J. Rickard on behalf of the Company. The focus of this in-situ mineralogicalstudy was to identify PGM mineral associations and grain interlocking texturesthat may prove to be problematic in milling and affect PGM recoveries. Ofparticular interest are the host sulphide and silicate minerals and therelative amount of PGMs locked-up in silicates.

 

Thin section samples were prepared from newdedicated samples of both the Konttijärvi and Ahmavaara deposits. This studyhas the following results:

 
|   | 1)     | PGMs are found i) completely enclosed by sulphide, ii) along sulphide  silicate grain boundaries, iii) completely enclosed by silicates, iv)  scattered as “clusters” within sulphides and silicates;    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                               |
|   | 2)     | The majority of PGM are associated with sulphides, with a smaller  proportion being completely enclosed by silicates;                                                                                              |
|   |   |                                                                                                                                                                                                               |
|   | 3)     | The PGM distribution (association with sulphides/silicates) is  similar between the Konttijärvi and Ahmavaara deposits;                                                                                       |
|   |   |                                                                                                                                                                                                               |
|   | 4)     | The average grain size of the PGMs is 12.06=μm (n=272), with a range  of 0.81=μm to 118.0=μm;                                                                                                       |
|   |   |                                                                                                                                                                                                               |
|   | 5)     | PGMs have a strong correlation with chalcopyrite with lesser amounts  associated with pyrrhotite, pentlandite, and pyrite, and only a few grains  were observed to be attached to sphalerite, galena or millerite; |
|   |   |                                                                                                                                                                                                               |
|   | 6)     | PGMs have a strong correlation with amphibole, with a lesser numbers  associated with feldspar, chlorite, epidote, and biotite, and a minor amount  with quartz and pyroxene; and                                  |
|   |   |                                                                                                                                                                                                               |
|   | 7)     | The three gabbroic units at Ahmavaara are all quite similar in terms  of composition.                                                                                                                              |

 

**Mineralization**

** **

*Overview and Base Metal Sulphides*

 

The PGM mineralization at both Ahmavaara andKonttijärvi is associated with copper and nickel mineralization in the form ofbase metal sulphides. The typical sulphide assemblage is pyrrhotite 

 

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chalcopyrite pentlandite, and accessorysulphides include pyrite, sphalerite, galena and molybdenite. The main oxidesare magnetite and ilmenite, with chromite present in trace amounts. The gradesof PGM mineralization roughly correspond with the abundance of sulphides,particularly chalcopyrite, and are generally higher at Konttijärvi than atAhmavaara.

 

Four principal types of PGM mineralizationhave been identified.

 

·                  Sulphide mineralization in the basal parts of the Layered Series (PeridotiteMarker, Konttijärvi and Ahmavaara Pyroxenite);

 

·                  Sulphide mineralization in the Marginal Series (MarginalGabbro, Marginal Upper Gabbro);

 

·                  Sulphide mineralization in the Konttijärvi Basement; and

 

·                  Predominantly massive pyrrhotite mineralization located close to thebasal contact of the Ahmavaara intrusion. Mineralization occurs parallel to theintrusion layers.

 

Sulphides present in the Peridotite Markerare pyrrhotite dominated and are low in abundance. The sulphides in thishorizon generally occur as fine grained disseminations in trace amounts.Sulphide grains are interstitial to former cumulate olivine grains in anassemblage now dominated by talc carbonate chlorite after olivine. PGM gradesvary from weak to moderate in the basal two to eight metres of the PeridotiteMarker, to higher amounts in the upper parts of the sequence. In the underlyingPyroxenite, sulphides are finely intergrown with amphibole(tremoliteactinolite) and chlorite, with minor talc. Sulphide assemblages inthe Pyroxenite are dominated by fine grained chalcopyrite, with PGM gradesgenerally higher than in the Peridotite Marker.

 

Sulphides in the Ahmavaara and Konttijärvimarginal sequences are dominated by an assemblage of pyrrhotite chalcopyritepentlandite and occur as medium grained (in Ahmavaara also coarse grained),disseminated aggregations. Generally, the abundances of pyrrhotite andchalcopyrite in Ahmavaara are about equal, though with increasing sulphide abundancethe ratio of pyrrhotite to chalcopyrite increases. PGM grades in the AhmavaaraMarginal Series vary, being moderate to high in the Marginal Upper andMarginal Lower units. In the Marginal Central unit both the abundance ofsulphides and associated PGM grades are generally low. At Konttijärvi, in theMarginal Series and Transition Zone, chalcopyrite is generally dominantover pyrrhotite and pentlandite. PGM grades there usually vary from moderate tohigh.

 

Massive sulphide concentrations occur asveins or lenses close to the basal contact of the Ahmavaara intrusion withinboth the Marginal Lower and the Basement units. These massive sulphideconcentrations comprise dominantly pyrrhotite, with chalcopyrite lamellae andlenses present within the units. PGM grades are high, with individual assays upto 80g/t 2PGM+Au being recorded. In the Marginal Series and Basement unitsof the Konttijärvi intrusion the sulphides rarely become concentrated intomassive sulphide veins or large patches.

 

The thickness of the Basement hostedmineralization at Konttijärvi varies, reaching widths of 30 to 40 metres.Sulphides usually occur as fine-medium grained chalcopyrite and pyrrhotitedisseminations in the Basement unit and in cross cutting gabbroic pyroxeniticintrusives. Pyrite is also present. PGMs are associated with the sulphides, andthe highest values occur in chalcopyrite-rich domains. Upon moving deeper intothe Basement, pyrite becomes a dominant sulphide and PGM values decrease tobelow detection limits. At Ahmavaara, the Basement hosted mineralization occursas fine-grained disseminations or as medium grained sulphide veins. In contrastto the Konttijärvi Basement, the sulphides have relatively high pyrrhotite tochalcopyrite ratios and the PGM ratio is usually low.

 

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* *

*PlatinumGroup Minerals*

 

Most of theplatinum group minerals at Ahmavaara and Konttijärvi are arsenides,bismutotellurides, and arsenoantimonides. Native forms and alloys are absent.PGMs are included in base metal sulphides, magnetite, and silicates, and alsooccur along gangue mineral grain boundaries. Palladium bearing minerals includeisomertieite, members of the kotulskite sobolevskite solid solution,palladoarsenide, majakite, paolovite, and fengluangite. The principal platinumbearing mineral is sperrylite.

 

Platinum groupsulphides are rare in the Suhanko Konttijärvi intrusion and those that havebeen identified belong to the vysotskite — braggite series.

 

**Drilling**

** **

As of theeffective date of the APP Report, the Company had not conducted any drilling oneither the Konttijärvi or Ahmavaara deposits. However, diamond drill programshave since been conducted and drilling results for Ahmavaara were reported in October 2007.

 

**Sampling, Analysis and Security**

** **

GFAP currentlyuses two main laboratories for assays from the Suhanko projects — the GTK(Finnish Geological Survey) laboratory located in Rovaniemi, and Genalysislocated in Perth. All sample preparation is being carried out at GTK and pulpsare then shipped to Perth for umpire sampling. Traditionally, PGMs (effectivelypalladium and platinum) and gold are determined by conventional fire assayfusions, using a standard lead flux at both GTK and at Genalysis. The analysisis carried out using the ICP method at both laboratories — GTK uses an optical emissionspectrometer (“ICP-OES”) while Genalysis uses a mass spectrometer (ICP-MS).Base metal assays are also carried out at both laboratories on a second splitof the pulp. Both laboratories use an aqua regia digestion followed by ICP-OESfinish. It is noted that the aqua regia only provides a partial digestion — inother words, base metals in sulphide and sulphate form are extracted, but notthose silicate hosted species.

 

Snowden MiningIndustry Consultants (“Snowden”) carried out two studies of the assay qualityassurance data generated by GFAP in 2002 and again in 2004. The 2002 reportcovered the historical Quality Assurance Quality Control (“QA-QC”) data up to July 2002,and resulted in a number of conclusions and recommendations which, for the mostpart, were implemented and the issues peripherally re-examined by Dr. BarrySmee in his 2003 investigation and again in the 2004 Snowden study. Both theSnowden 2002 and 2004 studies note that, overall, the QA-QC data shows that theprimary (GTK) laboratory is preparing and assaying for PGMs, gold, and basemetals diligently. Snowden has also reviewed GFAP’s internal core handling,data processing and QA-QC procedures and notes that these are of a very highstandard.

 

In February 2003,Dr. Barry Smee of Smee and Associates (Vancouver, Canada) was commissionedto conduct a review of the projects QA-QC procedures. Dr. Smee isacknowledged as a leader in the field of assay QA-QC practices. Dr. Smeeconcluded that, overall, analysis of quality control data for platinum,palladium and gold has not identified any critical issues which would adverselyaffect the material outcome of on-going resource estimations.

 

In Snowden’s(2004) opinion, GFAP takes reasonable steps to ensure the security of samplesfrom the drill site through to the database.

** **

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** **

**Mineral Resource Estimates**

** **

The mineralresource estimate and underlying assumptions for the APP are set out above,based on 719 diamond drill holes. See “General Development of the Business andDevelopment of the Business – Mineral Reserve and Mineral Resource Estimates.”

 

**Grassroots Exploration Properties**

** **

In addition toits operating mine and three advanced exploration projects, North AmericanPalladium is constantly examining PGM and nickel opportunities, particularly inthe areas surrounding the Company’s Lac des Iles mine.

 

Managementbelieves that the Company is well positioned to partner with other PGMexploration companies in Canada, given the existing infrastructure at the Lacdes Iles mine and the Company’s years of experience in mining nickel-copper-PGMdeposits. From time to time, the Company enters into confidentiality agreementswith junior mining companies or individual prospectors to assess theprospective nature of their land holdings. In addition, management believesthat the consolidation in the nickel industry may result in joint venture oracquisition opportunities for the Company as the major nickel companies seek toshed non-core assets.

 

The Company isalso active in grassroots exploration and recently staked 39 claims containing632 claim units at the Company’s Shawmere Project, located approximately 110kilometres southwest of Timmins, Ontario, Canada. The Company intends toconduct a grassroots exploration program to assess the area’s potential forhosting nickel-copper-PGM mineralization similar to that found at its Lac desIles mine. Further exploration is also anticipated in the area surrounding theLac des Iles mine.

 

** FINANCING**

** **

**Senior Credit Facilities**

** **

On June 28,2004, the Company entered into a US$20 million and a $10 million senior creditfacility (the “Senior Credit Facilities”) with a leading equipment financecompany.  These facilities are fullydrawn. The US$20 million credit facility is repayable in equal quarterlyinstalments of US$1 million which began on September 30, 2004 and whichwill reach final maturity on June 30, 2009. The $10 million creditfacility is repayable in equal quarterly instalments of $0.5 million whichbegan on February 24, 2005 and will reach final maturity of November 24,2009. The Senior Credit Facilities have an interest margin of 2.5% over the30-day LIBOR rate and the finance company has a first priority security in allof the Company’s existing and future assets excluding its production leases andclaims. The Senior Credit Facilities allow, in certain circumstances, fullrepayment of outstanding amounts drawn at any time during their respectiveterms.

 

**KFOC Credit Facilities**

** **

In December 2001, KFOC provided a US$20 millionnon-revolving credit facility to finance the Company’s working capitalrequirements. In the second quarter of 2004, the KFOC credit facility wasextended to****June 30, 2006 as part of a debtrestructuring plan. Interest was based upon the 30-day LIBOR rate plus 2.50%and there was a stand-by fee of 0.125% per annum. In connection with the loan,the Company granted KFOC a security interest in the assets of the Company,including a pledge of the LDI shares. The security interest was subordinated tothe security interests of the senior credit facility.  This credit facility was repaid on June 23,2006 pursuant to the terms of the Series II Note issued on that date.  See “Convertible Note Financing”.

 

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On October 12,2006, the Company obtained from KFOC a US$5 million short-term working capitalloan maturing December 31, 2006. The interest rate under the loan was the 30-day LIBOR rate plus2.5%.  The Company paid a commitment feeof US$38,000 and amounts not drawn under the loan were subject to a standby feeof 0.125% per annum.  In connection withthe loan, the Company granted to KFOC a first priority security interest in theinventory and receivables of the Company. On December 13, 2006 the maturitydate was extended to March 31, 2007, with no other changes in terms.  The Company paid a commitment fee ofUS$25,000 for the extension.  As at December 31,2006, the outstanding loan was US$5 million. The loan was repaid on March 7, 2007.  See “Palladium and Platinum PurchaseAgreement”.

 

The amountpayable to KFOC for interest, standby fees and guarantee fees on thesefacilities was $551,000 in 2006 compared to $836,000 in 2005. KFOC holdsapproximately 41% of the outstanding common shares of the Company (the “CommonShares”).

 

**Convertible Note Financing**

** **

On March 29,2006, the Company issued US$48.5 million principal amount of convertible notes(the “Convertible Notes Due 2008”) together with warrants to purchase, for fouryears from the date of their issuance, 50% of the number of common sharesunderlying the Notes (the “Notes Warrants”), including the placement of US$31million of the Convertible Notes Due 2008 and related Notes Warrants with KFOC,the Company’s major shareholder.  On March 28,2006, the Company settled the pricing for US$35 million principal amount of Series INotes Due 2008 (the “Series I Convertible Notes”) and the Notes Warrants(the “Series I Warrants”).  On June 13,2006, the Company announced that it exercised its right to require KFOC topurchase US$13.5 million convertible note (the “Series II Note”) andrelated common share purchase warrants (the “Series II Warrants”).  The offering is governed by the securitiespurchase agreement dated March 24, 2006 (the “Securities PurchaseAgreement”) among the Company, KFOC and IP Synergy Finance Inc. (“IP Synergy”).  The Securities Purchase Agreement alsoprovided the Holders with an option to acquire a third tranche of US$10 millionprincipal amount of convertible notes (the “Series III Convertible Notes”)on or before December 31, 2006.  TheHolders elected not to exercise their option to acquire the Series IIIConvertible Notes.

 

The Series INotes were initially convertible into 2,873,563 common shares of the Company atany time by the holder at US$12.18 per share. Series I Warrantsexercisable to purchase 1,436,782 common shares were issued with the Series INotes, each warrant being exercisable to purchase one common share at anexercise price of US$13.48 until March 29, 2010 (see anti-dilutionprovisions below).

 

The Company, atits option, had the right to sell to KFOC up to US$13,500 principal amount a Series IINote on or before June 30, 2006, which would be used to repay a loan underan existing KFOC credit facility. On June 23, 2006, the Company exercisedthis right and issued to KFOC US$13,500 aggregate principal amount a Series IINote, which was initially convertible into 1,108,374 common shares of theCompany at any time by the holder at US$12.18 per share. Series IIWarrants exercisable to purchase 554,187 common shares were issued with the Series IINote, with each warrant being exercisable to purchase one common share at aninitial exercise price of US$13.48 until June 23, 2010 (see anti-dilutionprovisions below).

 

The ConvertibleNotes Due 2008 contain customary covenants, including restrictions on theCompany incurring debt, payment of dividends or obligations for or involvingthe payment of money in excess of certain restricted amounts.

 

The notes bearinterest at a rate of 6.5% per annum payable bi-monthly. The Series INotes and Series II Note are repayable in nine equal instalmentscommencing April 1, 2007 and August 1, 2007, respectively. 

 

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The interestpayments and/or repayment amounts may be paid, at the purchaser’s option, inany combination of cash and/or common shares. If common shares are issued forinterest payments or in repayment of the convertible notes they will be issuedat a 10% discount from the weighted average trading price of the common shareson the AMEX for the five consecutive trading days immediately prior toapplicable payment date. The Company has the right to defer any principalrepayment in cash until a later principal repayment date, up to no later thanthe final maturity date. During 2007, the Purchasers elected to receive commonshares in settlement of both their interest and principal repayments.

 

To date, theHolders have elected to receive all interest payable under the ConvertibleNotes Due 2008 in Common Shares.  For theyear ended December 31, 2007, the Company issued 341,530 CommonShares to the Holders in payment of interest due under the Convertible NotesDue 2008.  An additional 65,385Common Shares were issued in payment of interest for the two month period endedFebruary 1, 2008. As at December 31, 2007, the principal amountoutstanding on the Series I and Series II Note was US$17,500 (2006 –US$35,000) and US$9,000 (2006 – US$13,500) respectively.

 

The ConvertibleNotes Due 2008 and the related Series I and Series II Warrantscontain “full ratchet” anti-dilution provisions. Under these provisions, if atany time prior to August 1, 2008 the Company issues securities (includingcommon shares or warrants convertible into common shares) at an effective priceper share less than a stated amount, the conversion/exercise price of theoutstanding convertible notes and Series I and Series II Warrants isreduced downward to equal the effective price, subject to a floor price ofUS$9.12 for the Series I Notes, US$6.67 for the Series II Note,US$10.73 for the Series I Warrants and US$7.85 for the Series IIWarrants. On account of the unit offering that closed on December 13,2007, the conversion price of the Series I Notes, the Series II Note,the Series I Warrants and the Series II Warrants decreased to theirrespective floor prices.

 

Commencing June 29,2007 for Series I and September 23, 2007 for Series II, if theweighted average trading price of the common shares for each of any 25consecutive trading days is 150% or more of the initial conversion price (asadjusted for any stock dividend or split, or similar transaction), the Companywill have the right to force the Purchasers to convert all or any of theoutstanding principal amount of the convertible notes at the conversion price.

 

**Public Offering**

** **

On December 13,2007, the Company announced that it had closed its public offering of18,666,667 units at a price of US$4.00 per unit for total gross proceeds ofapproximately US$75 million.  Each unitconsisted of one common share and one half of a common share purchase warrant ofthe Company.  Each whole warrant willentitle the holder to purchase one common share at a price of US$5.05 per shareat any time on or prior to December 13, 2009. The Company anticipates thatcurrent capital resources are sufficient to meet the needs of the existingoperations at the Lac des Iles mine as well as the development of theShebandowan West project, the development of the upper portion of the OHGZ andfurther evaluation of APP.

 

Under the termsof the securities purchase agreement dated March 24, 2006 between theCompany, KFOC and IP Synergy Finance Inc. (‘‘IP Synergy’’) relating to theCompany’s Convertible Notes Due 2008 (see “Financing – Convertible Note Financing”),KFOC and IP Synergy each had a right to subscribe at the public offering pricefor up to 12.5% of the total securities being offered by the Company in thisoffering. If either KFOC or IP Synergy subscribed for less than its 12.5%share, the unused right was to be offered to the non-declining party, KFOC orIP Synergy, as the case may be. IP Synergy elected not to participate in thisoffering pursuant to its pre-existing participation right, and, in accordancewith the terms of the securities purchase agreement, KFOC elected to subscribefor 25% of this offering.

 

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On January 9,2008, the Company issued an additional 2,800,000 units under a 30-dayoverallotment option granted to the underwriters. After taking theover-allotment exercise into account, the total gross proceeds to the Companyfrom the unit offering were approximately US$86 million.  KFOC also elected to exercise its right tosubscribe for 25% of this over-allotment offering.

 

**Palladium and Platinum Purchase Agreement**

** **

On February 5,2007, the Company announced that LDI had entered into a platinum and palladiumpurchase agreement dated as of January 19, 2007 (the “Auramet Agreement”)with Auramet, a precious metals merchant, providing for the purchase and saleof an average of 10,000 ounces of palladium and 500 ounces of platinum permonth. The Company is a guarantor of LDI’s obligations under the AurametAgreement.  LDI may not request anypurchase and sale after June 15, 2008 and all sales and payment thereforare required to be settled by December 31, 2008. LDI may receive advancepayments not exceeding, at any time, an aggregate maximum of US$25 million.

 

The purchaseprice of the metal purchased under the Auramet Agreement may be fixed orprovisional, determined in the case of fixed by: (i) Auramet’s currentmarket bid price at the time of the transaction, and/or (ii) market limitorders by LDI to Auramet that have been concluded; and in the case ofprovisional pricing, the afternoon fixing of the London Bullion MarketingAssociation immediately preceding the purchase. In each case such pricing willreflect the forward value corresponding to the scheduled delivery date. Advancepayments to LDI may not exceed specified values of fixed and provisionallypriced platinum and palladium. Provisional prices must be fixed prior to thescheduled delivery date for such precious metals. Each advance payment will besubject to a discount equal to LIBOR plus 1.9% per annum for the period betweenthe date the advance payment is made and the scheduled delivery date. Upon thedelivery of the precious metals to Auramet, Auramet will pay to LDI thedifference between the advance payment and the purchase price.

 

To secure theobligations of LDI under the Auramet Agreement, LDI has granted to Auramet asecurity interest, among other things, in the concentrates (including theprecious and base metals contained therein) mined at the Lac des Iles mine,together with the proceeds arising from the sale of the concentrate, and, byway of security, an assignment of its smelting and refining agreement withXstrata.

 

The first advancepayment was made on March 7, 2007 and was used to repay a bridge loan fromthe Company’s major shareholder and subsequent advance payments are being usedto finance working capital requirements.

 

**DIVIDENDS**

** **

The Company hasnot paid any dividends to date on the Common Shares. The payment of dividendson the Common Shares is restricted under the terms of the Company’s creditfacilities and the Securities Purchase Agreement. Further, the Company intendsto retain its earnings, if any, to finance the growth and development of itsbusiness. Accordingly, the Company does not expect to pay any dividends on itsCommon Shares in the near future. The actual timing, payment and amount of anydividends will be determined by the Company’s board of directors from time totime based upon, among other things, cash flow, results of operations andfinancial condition, the need for funds to finance ongoing operations and suchother business considerations as the Company’s board of directors may considerrelevant.

 

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** CAPITAL STRUCTURE**

** **

The authorizedshare capital of the Company consists of an unlimited number of Common Shares,an unlimited number of special shares, issuable in series. There are no specialshares outstanding.  Additionally, theCompany has issued common share purchase warrants pursuant to a publicoffering.

 

The Company’sdirectors may, by resolution, fix the number of shares in, the designation of,and determine the rights, privileges, restrictions and conditions attaching to,each series of special shares. The special shares of each series rank on aparity with the special shares of any other series in respect of dividends orthe return of capital. The holders of special shares are entitled to receive,in priority to the holders of Common Shares and the shares of any other classranking junior to the special shares, as and when declared by the directors,dividends in the amounts specified or determinable in accordance with theprovisions of the series of which such special shares form a part. In the eventof the liquidation, dissolution or winding-up of the Company, whether voluntaryor involuntary, before any amount is paid to the holders of Common Shares orshares of any other class ranking junior to the special shares, the holders ofspecial shares shall be entitled to receive, to the extent provided for withrespect to such series, an amount equal to the price at which such shares wereissued, such premium, if any, as has been provided for with respect to suchseries, and all unpaid cumulative dividends or declared and unpaidnon-cumulative dividends. The special shares of any series may also be givensuch other preferences over the Common Shares and any other class of sharesranking junior to the special shares as may be determined in the case of suchseries. The holders of special shares are not entitled to vote separately as aclass and the holders of any series of special shares are not entitled to voteseparately as a series except as required by the *Canada Business Corporations Act*.

 

Each Common Shareentitles the shareholder to one vote at all meetings of shareholders other thanmeetings at which only the holders of another class or series of shares areentitled to vote. Each Common Share entitles the holder thereof, subject to theprior rights of the holders of the special shares, to receive any dividendsdeclared by the board of directors and the remaining property of the Companyupon dissolution.

 

Pursuant to thepublic offering of December 13, 2007 and the exercise of theover-allotment option of January 9, 2008, the Company has issued10,733,333 Warrants.  The Warrants wereissued in registered form under, and will be governed by, an indenture dated December 13,2007 (the “Warrant Indenture”) and available under the Company’s profile onSEDAR at www.sedar.com between the Company, on the one hand, and ComputershareTrust Company of Canada, on the other hand, as warrant trustee.  Each whole Warrant entitles the holder topurchase one Common Share at an exercise price of US$5.05, subject toadjustment as described below. The Common Shares underlying the Warrants, whenissued upon exercise of the Warrants, will be fully paid and non-assessable.

 

The holders ofthe Warrants will not possess any rights as shareholders of the Company untilsuch holders exercise the Warrants. The Warrants do not contain provisions forcashless exercise and there is no minimum or maximum amount which may beexercised at any one time. The Warrants may be transferred or assigned.  The Warrant Indenture will provide foradjustment in the number of Common Shares issuable upon the exercise of theWarrants and/or the exercise price per Common Share upon the occurrence ofcertain events as fully described in the Warrant Indenture.

 

The Warrantholders may be expected to exercise the Warrants at a time when the Companywould, in all likelihood, be able to obtain any needed capital by an offeringof Common Shares on terms more favourable than those provided for by theWarrants.  The Warrants are listed on theAMEX and the Toronto Stock Exchange (the “TSX”).

 

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All of theforegoing statements are subject to the more detailed provisions of the WarrantIndenture.

 

** PRICE RANGE AND TRADING VOLUME**

** **

The Common Sharesare listed for trading on the AMEX under the trading symbol “PAL” and the TSXunder the trading symbol “PDL”. The following table sets out the market pricerange and trading volumes of the Common Shares on the AMEX and the TSX for theperiods indicated.

 
| ** ** | ** ** | **AMEX**  | ** ** | **TSX**   | ** ** |
|------------|------------|-----------|------------|-----------|------------|
| ** ** | ** ** | **High**  | ** ** | **Low**   | ** ** | **Volume** | ** ** | **High** | ** ** | **Low** | ** ** | **Volume** | ** ** |
| ** ** | ** ** | **(US$)** | ** ** | **(US$)** | ** ** | ** ** | ** ** | **(Cdn.$)** | ** ** | **(Cdn.$)** | ** ** | ** ** | ** ** |
| **2007**   |       |      |       |      |       |   |   |   |   |   |   |   |   |
| January    |       | 8.22      |       | 6.72      |       | 4,951,900 |   | 9.71 |   | 7.98 |   | 1,044,367 |   |
| February   |       | 8.40      |       | 7.45      |       | 4,259,914 |   | 9.86 |   | 8.80 |   | 907,357 |   |
| March      |       | 7.88      |       | 6.65      |       | 4,031,538 |   | 9.17 |   | 7.81 |   | 987,688 |   |
| April      |       | 10.48     |       | 7.21      |       | 8,822,643 |   | 11.75 |   | 8.35 |   | 2,053,292 |   |
| May        |       | 12.36     |       | 9.40      |       | 18,649,203 |   | 13.65 |   | 10.45 |   | 2,555,256 |   |
| June       |       | 11.49     |       | 9.00      |       | 6,276,925 |   | 12.14 |   | 9.56 |   | 1,244,705 |   |
| July       |       | 10.73     |       | 8.70      |       | 5,237,900 |   | 11.21 |   | 9.18 |   | 882,105 |   |
| August     |       | 8.92      |       | 6.13      |       | 7,104,100 |   | 9.42 |   | 6.61 |   | 1,598,095 |   |
| September  |       | 8.00      |       | 6.81      |       | 5,589,300 |   | 7.98 |   | 7.09 |   | 797,662 |   |
| October    |       | 8.72      |       | 7.07      |       | 7,293,100 |   | 8.31 |   | 7.07 |   | 1,353,204 |   |
| November   |       | 8.12      |       | 5.26      |       | 6,602,724 |   | 7.84 |   | 5.25 |   | 1,401,033 |   |
| December   |       | 5.50      |       | 3.40      |       | 27,146,936 |   | 5.40 |   | 3.43 |   | 4,154,965 |   |
| **2008**   |       |      |       |      |       |   |   |   |   |   |   |   |   |
| January    |       | 4.82      |       | 3.28      |       | 27,930,559 |   | 4.83 |   | 3.25 |   | 4,880,059 |   |
| February   |       | 9.43      |       | 4.55      |       | 75,510,256 |   | 9.45 |   | 4.6 |   | 11,031,270 |   |

 

The Warrants arelisted for trading on the AMEX under the trading symbol “PAL.WS” and the TSXunder the trading symbol “PDL.WT”.  Thefollowing table sets out the market price range and trading volumes of theWarrants on the AMEX and the TSX for the periods indicated

 
| ** ** | ** ** | **AMEX**  | ** ** | **TSX**   | ** ** |
|------------|------------|-----------|------------|-----------|------------|
| ** ** | ** ** | **High**  | ** ** | **Low**   | ** ** | **Volume** | ** ** | **High** | ** ** | **Low** | ** ** | **Volume** | ** ** |
| ** ** | ** ** | **(US$)** | ** ** | **(US$)** | ** ** | ** ** | ** ** | **(Cdn.$)** | ** ** | **(Cdn.$)** | ** ** | ** ** | ** ** |
| **2007**   |       |      |       |      |       |   |   |   |   |   |   |   |   |
| December   |       | 1.00      |       | 0.18      |       | 1,468,900 |   | 0.70 |   | 0.15 |   | 132,160 |   |
| **2008**   |       |      |       |      |       |   |   |   |   |   |   |   |   |
| January    |       | 1.50      |       | 0.53      |       | 616,100 |   | 1.41 |   | 0.62 |   | 917,960 |   |
| February   |       | 5.40      |       | 1.13      |       | 945,900 |   | 5.29 |   | 1.25 |   | 1,983,010 |   |

 

** DIRECTORS AND EXECUTIVE OFFICERS**

** **

The followingtable sets forth information about the directors and executive officers of theCompany:

 
| **Name  and municipality of residence**         | ** ** | **Position(s) held** | ** ** | **Principal  occupation**                        |
|-------------------------------------------------|------------|---------------------------|------------|--------------------------------------------------|
|                                            |       |                      |       |                                             |
| Steven R. Berlin, C.P.A.(1)(4)*Tulsa, Oklahoma* |       | Director                  |       | Part-time consultant                             |
|                                            |       |                      |       |                                             |
| C. David A. Comba(2)(4)*Burlington, Ontario*    |       | Director                  |       | Graduate geologist and retired   executive       |
|                                            |       |                      |       |                                             |
| André J. Douchane(4)(5)*Toronto, Ontario*  |       | Chairman and Director     |       | President and CEO, Starfield Resources Inc. |

 

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| Robert J. Quinn(2)(3)*Houston, Texas*                         |   | Director                                                   |   | Partner, Quinn & Brooks LLP |
|---------------------------------------------------------------|--------|------------------------------------------------------------|--------|-------------------------------------------|
|                                                          |   |                                                       |   |                                      |
| Gregory J. Van Staveren, C.A., C.P.A.(2)(3)*Toronto, Ontario* |   | Director                                                   |   | President, Strategic Financial   Services |
|                                                          |   |                                                       |   |                                      |
| William J. Weymark (3)(4)*West Vancouver, British**Columbia*  |   | Director                                                   |   | Professional Engineer                     |
|                                                          |   |                                                       |   |                                      |
| James D. Excell *Kelowna, British Columbia*                   |   | President and Chief Executive Officer                      |   | Officer of the Company                    |
|                                                          |   |                                                       |   |                                      |
| G. Fraser B. Sinclair, C.A., C.A. (S.A.) *Oakville, Ontario*  |   | Vice President, Finance and   Chief Financial Officer      |   | Officer of the Company                    |
|                                                          |   |                                                       |   |                                      |
| Trent C.A. Mell, B.C.L., LL.B. *Toronto, Ontario*             |   | Vice President, General   Counsel and Corporate  Secretary |   | Officer of the Company                    |
|                                                          |   |                                                       |   |                                      |
| David J. Passfield *Ajax, Ontario*                            |   | Vice President, Operations                                 |   | Officer of the Company                    |
|                                                          |   |                                                       |   |                                      |
| William E. Stone *North Vancouver, British Columbia*          |   | Vice President, Exploration                                |   | Officer of the Company                    |
|                                                          |   |                                                       |   |                                      |
| Michael C. Thompson, F.C.C.A. *Thunder Bay, Ontario*          |   | Senior Controller and   Manager, Administration            |   | Officer of the Company                    |

 

----

Notes:

 

(1)          Observer at meetings of the Audit Committee.

 

(2)          Member of the Audit Committee.

 

(3)          Member of the Governance, Nominating and CompensationCommittee.

 

(4)          Member of the Technical, Environment, Health and SafetyCommittee.

 

(5)          Observer at meetings of the Governance, Nominating andCompensation Committee

 

 

*StevenR. Berlin*:  Mr. Berlinwas first appointed to the board of directors of the Company in February 2001.Mr. Berlin is also a director of Orchids Paper Products, an AMEX listedcompany. In 2006, Mr. Berlin retired as Vice-President of KFOC where heworked part-time for two years following four years of full-time work asVice-President and Chief Financial Officer. Prior to joining KFOC, Mr. Berlintaught at the University of Tulsa for three years where he also served a yearas acting associate Dean of the College of Business as well as acting Directorof the School of Accounting. Prior to that, Mr. Berlin spent 25 years withCitgo Petroleum Corporation, retiring as Senior VP Finance and Administrationand Chief Financial Officer. Mr. Berlin has a bachelor’s degree fromDuquesne University, an MBA from the University of Wisconsin Madison and hascompleted the Executive Management program at Stanford University.  Mr. Berlin’s current term as directorwill expire on May 22, 2008.

 

*C.David A. Comba*:  Mr. Combawas first appointed to the board of directors of the Company in March 2006.Mr. Comba has over four decades of experience as an exploration advocateand senior mining executive. As Chief Exploration Geologist of FalconbridgeLimited in Sudbury, Ontario, he led the discovery team for Falconbridge Limited’sThayer Lindsley Mine. Prior to its takeover by Kinross Gold Corporation, Mr. Combawas Vice-President, Exploration of Falconbridge Gold Corporation. Following thetakeover, he became President and Chief Executive Officer of a Kinrosscontrolled junior exploration company listed on the TSX. From 1998 to 2005, Mr. Combawas Director of Issues Management with the 

 

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Prospectors andDevelopers Association of Canada, where he led the successful lobby effort forthe re-introduction of enhanced or “super” flow-through shares. Mr. Combahas bachelors and masters degrees in geology from Queen’s University inKingston, Ontario. Mr. Comba’s current term as director will expire on May 22,2008.

 

*AndréJ. Douchane*:  Mr. Douchanewas first appointed to the board of directors of the Company in April 2003.Mr. Douchane is a mining engineer with over 30 years of mining experiencemanaging precious metals operations. In addition to serving as the Company’sPresident and Chief Executive Officer from April 2003 to January 2006,he has held senior management positions with several international publiclytraded precious metal mining companies including Vice-President Operations ofFranco and Euro-Nevada (Newmont Mining Corporation). Prior to April 2002, Mr. Douchanewas President of Management Inc., a management consulting firm. In January 2007,Mr. Douchane was appointed President and Chief Executive Officer ofStarfield Resources Inc., an exploration and development company in Nunavut,Canada. Mr. Douchane’s current term as director will expire on May 22,2008.

 

*RobertJ. Quinn*:  Mr. Quinnwas first appointed to the board of directors of the Company in June 2006.A founding partner of the Houston mining transactional law firm Quinn &Brooks, LLP, he has over 25 years legal and management experience, including asVice-President and General Counsel for Battle Mountain Gold Explorations Inc.He also has extensive experience in M&A transactions, corporate governance,public disclosure, governmental affairs, environmental law and land management.Mr. Quinn has a Bachelor of Science degree in Economics from theUniversity of Denver, a juris doctorate degree from the University of DenverCollege of Law and completed two years of graduate work in Mineral Economics atthe Colorado School of Mines. Mr. Quinn currently serves as a director onthe board of three other public companies. Mr. Quinn’s current term asdirector will expire on May 22, 2008.

 

*GregoryJ. Van Staveren*:  Mr. Van Staveren was first appointed tothe board of directors of the Company in February 2003. Mr. VanStaveren is currently the President of Strategic Financial Services, a privateconsulting company providing business advisory services. Mr. Van Staverenis a Chartered Accountant and a Certified Public Accountant and holds aBachelor of Math (Honours) degree from the University of Waterloo. From February 1998until September 2001, Mr. Van Staveren was the Chief FinancialOfficer of MartinRea International Inc. (MRE-TSX), and prior to that he waspartner in the mining group of KPMG, where he provided accounting, and advisoryservices to his clients. He had been with KPMG since 1980. Mr. VanStaveren currently acts as an independent director on the board of three otherpublic companies and acts as the Chief Financial Officer on a part-time basisfor Starfield Resources Inc., a TSX listed company (SRU-TSX). Mr. VanStaveren’s current term as director will expire on May 22, 2008.

 

*WilliamJ. Weymark*:  Mr. Weymarkwas first appointed to the board of directors of the Company in January 2007.  Mr Weymark is President of WeymarkEngineering Ltd, a private engineering and consulting company.   From1991 to 2007, Mr. Weymark was employed by Vancouver Wharves Ltd.  BCR Marine, a marine transportation companylocated on the west coast of British Columbia (from 1991 to 1996 as VicePresident, Operations; from 1996 to 2003 as President and Chief OperatingOfficer; and from 2004 to 2007 as President and Chief Executive Officer). Priorto joining Vancouver Wharves, Mr. Weymark spent 14 years in the miningindustry throughout western Canada working on the start-up and operation ofseveral mines. Currently, Mr. Weymark is a Director of the Vancouver Boardof Trade, the VGH & UBC Hospital Foundation and a Member of theIndustry Advisory Committee for the Norman B. Keevil Institute of MiningEngineering at the University of British Columbia. Mr. Weymark obtained adiploma in Mining from the British Columbia Institute of Technology and adegree in Mining and Mineral Process Engineering from the University of BritishColumbia. Mr. Weymark’s current term as director will expire on May 22,2008.

 

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*JamesD. Excell*:  Mr. Excellwas appointed as President and Chief Executive Officer of the Company in January 2006.Mr. Excell previously served on the Company’s board of directors from June 2004to December 2005. Mr. Excell spent more than three decades with BHPBilliton, having served at one point as the President and Chief OperatingOfficer of BHP Billiton Diamonds Inc. Mr. Excell serves as a Director forFortune Minerals Ltd. and Diamondex Resources Ltd., and acted as the Chairmanof BHP Billiton Diamonds Inc. until June 2005. Prior to December 31,2005, Mr. Excell was President of Narego Solutions Inc., a consultingcompany that provides strategic planning services to junior mining companies.

 

*G.Fraser B. Sinclair*:  Mr. Sinclair was appointed as the VicePresident, Finance and Chief Financial Officer of the Company in April 2007.Mr. Sinclair brings over 20 years of diverse senior management experiencewith TSX and NASDAQ listed companies, comprising financial management,strategic planning, acquisitions and corporate restructurings. Prior to joiningNorth American Palladium, Mr. Sinclair ran his own independent consultingpractice providing senior level financial and business advisory services. From July 2001to April 2004, Mr. Sinclair was the Chief Financial Officer andCorporate Secretary of Cedara Software Corp. Mr. Sinclair earned his CAdesignation with Arthur Young & Company and has a Bachelor of Commercedegree from the University of the Witwatersrand in Johannesburg, South Africa.

 

*TrentC.A. Mell*:  Mr. Melljoined the Company in April 2007 as Vice President, General Counsel andCorporate Secretary, having previously worked in the corporate head offices ofBarrick Gold Corporation where he acted as corporate counsel, and SherrittInternational Corporation where he was Associate General Counsel and AssistantSecretary. Prior to joining the mining industry, Mr. Mell worked in theToronto offices of Stikeman Elliott LLP, where he practiced with the firm’ssecurities law group. He holds a Bachelor of Arts in Economics and PoliticalScience, a Bachelor of Civil Law and a Bachelor of Common Law, all from McGillUniversity. Mr. Mell is currently completing a Masters of Law degree inSecurities Law at Osgoode Hall Law School and recently published an articleentitled “Mineral Resources and Mineral Reserves: The Case for InternationalReporting Standards” (Rocky Mountain Mineral Law Foundation Journal, vol. 43-2at 253).

 

*DavidJ. Passfield*:  Mr. Passfieldwas appointed Vice President, Operations of the Company in October 2006. Mr. Passfieldis a professional engineer with almost 30 years experience in open-pit andunderground mining operations. Mr. Passfield has held management positionswith numerous mining operations located across Canada and overseas, includingthe Diavik Diamond Mine in the Northwest Territories. Additionally, he workedas a consultant for several Canadian mining and construction companies where headvised on production and maintenance planning, equipment selection andthroughput optimization. Prior to October 2006, Mr. Passfield wasVice-President and General Manager of Grande Cache Coal Corporation, anoperating metallurgical coal mining company located in Alberta, Canada. Priorto May 2005 he was Manager, Mining for Diavik Diamond Mines Inc., asubsidiary of Rio Tinto plc., which operates the Diavik Diamond Mine in theNorthwest Territories.

 

*WilliamE. Stone*.  Dr. Stonehas a Ph.D. in Geology from the University of Western Ontario and brings overtwenty-five years of exploration experience to the Company, includingsignificant experience with platinum group metals and nickel-coppersulphides.  In addition to formerly serving as Principal Geologist and VicePresident of Exploration with several Canadian and Australian listed firms, Dr. Stonealso taught economic geology and geochemistry at the University of WesternAustralia in Perth.  Dr. Stone joined North American Palladium in March 2008and will lead all of the Company’s exploration activities, including work atCanadian properties such as the Lac des Iles mine, the Shebandowan West projectand Shawmere as well as exploration activities at the Arctic Platinum Projectin Finland.

 

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*MichaelC. Thompson*:  Mr. Thompsonwas first appointed Senior Controller and Manager, Administration of theCompany in October 2003. Mr. Thompson is a professional accountantwith over 30 years of experience in all facets of executive financial andoperations management. Mr. Thompson joined the Company in 2000 and iscurrently responsible for managing the administration, finance, IT andmaterials functions. Mr. Thompson’s previous experience includes positionsas Vice-President, Finance and Administration with Provincial Papers Inc. andVice-President of Finance for Baxter Corporation, Canada.

 

The number ofCommon Shares beneficially owned, directly or indirectly, or over which controlor direction is exercised, by all directors and senior officers of the Companyis 60,011, which is less than 1% of the Common Shares issued and outstanding.KFOC owns approximately 41% of the Company’s outstanding Common Shares.

 

**Cease Trade Orders, Bankruptcies, Penaltiesor Sanctions**

** **

Mr. Berlinwas a director of Ozark Airlines, Inc., doing business as Great PlainsAirlines, Inc., which filed a voluntary Bankruptcy Petition under Chapter11 of the United States Bankruptcy Code in an Oklahoma court on January 23,2003. Mr. Berlin resigned from the board of directors of Ozark Airlines onDecember 14, 2004. Ozark Airlines filed a motion to convert the bankruptcyto Chapter 7, which was granted by the Court on March 11, 2005.

 

In July 2002,the Ontario Securities Commission issued a cease trading order against BlackPearl Minerals Consolidated Inc. for failure to file required financialstatements and reports. On October 3, 2002, the Ontario SecuritiesCommission revoked this cease trading order. Another cease trading order wasissued by the Ontario Securities Commission against Black Pearl MineralsConsolidated Inc. on February 3, 2004 for failure to file financialstatements. This cease trading order was revoked on February 18, 2004.David Comba, a director of the Company, was a director of Black Pearl MineralsConsolidated Inc. from December 1998 to April 2004.

 

**Conflicts of Interest**

** **

There may bepotential conflicts to which the directors of the Company are subject inconnection with the business and operations of the Company. The individualsconcerned are governed in any conflicts or potential conflicts by applicablelaw. As of the date hereof, the following directors and officers of the Companyhold positions with other companies that explore for or produce PGMs or haveother business interests which may potentially conflict with the interests ofthe Company.

 

In the past, Mr.Berlin sat on the board of directors of the Company as a nominee of KFOC, whichowns approximately 41% of the outstanding common shares of the Company.  Although Mr. Berlin is no longer a nominee ofKFOC, he is not considered independent as that term is defined by virtue of thefact that prior to January 1, 2006, Mr. Berlin served as an executive officerof KFOC.  Mr. Berlin does satisfy therequirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934.

 

In January 2007,Mr. Douchane was appointed President and Chief Executive Officer ofStarfield Resources Inc., a TSX Venture Exchange listed company. StarfieldResources is involved in the exploration and development of its 100% ownedFerguson Lake nickel copper cobalt palladium platinum property located inNunavut, Canada. Additionally, on September 14, 2007, Mr. VanStaveren was appointed part-time Chief Financial Officer of StarfieldResources.

 

Mr. Comba isa director of First Nickel Inc., a TSX-listed company, which operates theLockerby Mine in Sudbury, Ontario, Canada. First Nickel Inc. is a nickel,copper and cobalt producer with platinum group credits that is activelyexploring for nickel deposits in Sudbury and south-eastern, Ontario.

 

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** **

** LEGAL PROCEEDINGS**

** **

The following isa summary of material legal proceedings of which the Company is or has been aparty.

 

In 2000, LDI andB.R. Davidson Mining & Development Ltd. (“Davidson”) entered into acontract whereby Davidson agreed to construct an expanded tailings managementfacility at the Lac des Iles mine site. LDI declared Davidson to be in defaultof the contract on February 2, 2001 and made a demand under a labour andmaterial payment bond issued by AXA Pacific Insurance Company (“AXA”). Davidsonwas the principal named in the bond and the indemnitors were B.R. DavidsonMining, Atikokan Ready Mix Ltd., Blaine R. Davidson, Bruce R. Davidson andMarlene Davidson. AXA commenced an action against the indemnitors. All of theindemnitors other than Marlene Davidson commenced a third party action againstLDI, Sitka Corp., LDI’s engineers, and Aon Reed Stenhouse, the bond broker. Inthis third party action, Davidson claims under the contract in the amount of$7.9 million, general damages for breach of contract in the amount of $3million, aggravated, punitive or exemplary damages in the amount of $500,000,loss of equity and equipment in the amount of $3 million by reason of LDI’sfailure to pay, contribution and indemnity for any amounts which the indemnitorsare required to pay as a result of AXA’s claim against Davidson, costs, andinterest. For its part, LDI has two default judgments against Davidson andnoted Davidson in default in eight other actions in connection with subtradeclaims made against Davidson which were assigned to LDI. LDI’s subtradeactions, costs orders and interest against BR Davidson total approximately $2million.

 

The Company,along with J. Patrick Sheridan, Minerales De Copan and two other individuals,are defendants in an action brought by Cambridge Resources Corp. (“Cambridge”)in the Superior Court of Justice (Ontario). In its amended statement of claimdated September 27, 1991, Cambridge claims damages in the amount of $20million, punitive and exemplary damages in the amount of $5 million, adeclaration that the defendants hold any interest in an unidentified miningconcession located in Honduras, about forty miles southeast of Tegucigalpa(defined therein as the “Mining Property”), on constructive trust forCambridge, a mandatory order requiring the defendants to deliver up allproceeds, equity interest, security or debenture interest in whatever formrelating to the Mining Property, prejudgment and post-judgment interest andcosts. The Company filed a statement of defence dated February 7, 1992which states, among other things, that the Mining Property was previously knownto one of the individual defendants to be of insufficient quality to meritcommercial development and that, accordingly, the Company had declined to proceedany further with the investigation or purchase of the Mining Property. Partialdiscoveries of certain of the parties were conducted on October 6, 7 and8, 1993. There have been no further proceedings in the action and it has beendormant for over 14 years. No provision in the financial statements of theCompany has been made in respect of any possible loss from the action asmanagement believes that the Company has a valid defence and the Sheridan Grouphas indemnified the Company.

 

The Company hasfiled a claim with its insurance company relating to losses incurred inconnection with the failure of the primary crusher in 2002. During 2004, theCorporation received $7.15 million as an interim payment against this claim andhas included this amount in income from mining operations. The Company ispursuing the balance of its insurance claim and will record any additionalrecovery in income if and when received.

 

From time totime, the Company is involved in other litigation, investigations orproceedings related to claims arising out of its operations in the ordinarycourse of business. In the opinion of the Company’s management, these claimsand lawsuits individually and in the aggregate, even if adversely settled,would not be expected to have a material effect on the results of operations orfinancial condition of the Company and would not exceed ten percent of thecurrent assets of the Company.

 

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** INTERESTS OF MANAGEMENT AND OTHERS IN MATERIALTRANSACTIONS**

** **

No director,executive officer, shareholder owning, directly or indirectly, or exercisingcontrol or direction over, 10% or more of the voting securities of the Companyor any associate or affiliate of any of the foregoing has or had a material interest,direct or indirect in any transaction since January 1, 2006 that hasmaterially affected or will materially affect the Company, except as follows:

 

(i)                                   KFOC is a party to the creditfacilities described under “Financing – KFOC Credit Facilities”.

 

(ii)                                KFOC is a party to theSecurities Purchase Agreement described under “Financing – Convertible NoteFinancing”.

 

(iii)                            KFOC exercised its pre-emptiveright pursuant to the Securities Purchase Agreement to subscribe for 25% of theunits at the public offering price of the offering of December 13, 2007and the subsequent over-allotment option of January 9, 2007.  See “Financing-Public Offering” above.

 

** TRANSFER AGENT**

** **

ComputershareInvestor Services Inc. is the registrar and transfer agent of the Common Sharesin Canada, and Computershare Trust Company, N.A. is the co-transfer agent forthe Common Shares in the United States. Computershare Trust Company of Canadais the trustee and transfer agent for the Warrants

 

** MATERIAL CONTRACTS**

** **

The Senior CreditFacilities, the Securities Purchase Agreement, the Palladium and PlatinumPurchase Agreement with Auramet described in the section titled “Financing”,and the agreement with Gold Fields described under “Arctic Platinum Project”are the only contracts that are material to the Company and are still ineffect.

 

** INTERESTS OF EXPERTS**

** **

Informationrelating to the Company’s mineral properties in this AIF has been derived fromreports prepared by Scott Wilson RPA, Graham Clow, Leo Hwozdyk, Deborah A.McCombe, Ian T. Blakley, Aker Kvaerner, P&E Mining Consultants Inc., EugenePuritch, Wayne Ewert, F.H. Brown, David King, Laila Sedore David Penna and DesCullen and has been included in reliance on such persons’ expertise. Each ofGraham Clow, Leo Hwozdyk, Deborah A. McCombe, Ian T. Blakley, Eugene Puritch,Wayne Ewert, F.H. Brown, David King, Laila Sedore and Des Cullen is a qualifiedperson as such term is defined in NI 43-101 and, with the exception of LailaSedore and David Penna who are employees of the Company, is independent fromthe Company.  None of Scott Wilson RPA,Graham Clow, Leo Hwozdyk, Deborah A. McCombe, Ian T. Blakley, Aker Kvaerner,P&E Mining Consultants Inc., Eugene Puritch, Wayne Ewert, F.H. Brown, DavidKing, Laila Sedore and Des Cullen, each being companies or persons who haveprepared or supervised the preparation of reports relating to the Company’smineral properties, or any director, officer, employee or partner thereof, asapplicable, received or has received a direct or indirect interest in theproperty of the Company or of any associate or affiliate of the Company. As atthe date hereof, the aforementioned persons and persons at the companiesspecified above who participated in the preparation of such reports, as agroup, beneficially own, directly or indirectly, less than one percent of theoutstanding securities of the Company.

 

The auditors ofthe Company are KPMG LLP (“KPMG”), Chartered Accountants, of Toronto,Ontario.  KPMG report that they areindependent of the Company in accordance with the Rules of Professional 

 

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Conduct of theInstitute of Chartered Accountants of Ontario and in accordance with theapplicable rules and regulations of the SEC. KPMG is registered with thePublic Company Accounting Oversight Board.

 

Neither theaforementioned persons, nor any director, officer, employee or partner, asapplicable, of the aforementioned companies or partnerships, is currentlyexpected to be elected, appointed or employed as a director, officer oremployee of the Company or of any associate or affiliate of the Company.

 

** RISK FACTORS**

** **

The Company’ssecurities are subject to the following risks. If any of the risks occur, theCompany’s business, operating results and financial condition could bematerially adversely affected, the trading price of the Common Shares coulddecline and all or part of any investment may be lost.

 

***TheCompany’s financial results are directly affected by commodity prices.***

 

The Company’searnings are directly related to commodity prices as its revenues are derivedfrom sales of palladium and, to a lesser extent, by-product metals, includingplatinum, nickel, copper and gold. The Company’s current policy and practice isnot to sell forward its future production. Commodity prices fluctuate widelyand are affected by numerous factors beyond the Company’s control, includinginventory sales, producer hedging activities, global and regional demand andpolitical and economic conditions. In addition, the price of palladium is affectedby global supply and demand for products containing palladium, availability andcost of substitutes, production levels and costs in major PGM producingcountries, particularly Russia and South Africa, and any decision by theRussian government to dispose of substantial amounts of PGMs. Further, theprice of palladium has on occasion been subject to very rapid short-termchanges because of the smaller size of the market relative to other metals. Theaggregate effect of these factors is impossible to predict with any accuracy.

 

Fluctuations incommodity prices, particularly palladium, may adversely affect the Company’sfinancial performance and results of operations. The Company’s primary sourceof revenue is the sale of palladium, which accounted for approximately 47% ofthe Company’s revenues in 2007 and 48% of its revenues for 2006. Historically,changes in the market price of palladium have significantly impacted theCompany’s profitability and the trading price of the Common Shares. If themarket prices of palladium and by-product metals fall below the Company’s totalcash costs of production at that time and remain so for any sustained period,the Company will experience losses and/or may curtail or suspend some or all ofits exploration, development and operations.

 

***Fluctuationsin foreign currency exchange rates in relation to the U.S. dollar may adverselyaffect the Company’s results of operations.***

 

The Company’soperating results and cash flows are significantly affected by changes in theCanadian dollar/U.S. dollar exchange rate. Exchange rate movements can have asignificant impact as all of the Company’s revenues are earned in U.S. dollarsbut most of its operating and capital costs are incurred in Canadian dollars.As a result, a strengthening Canadian dollar relative to the U.S. dollar willresult in reduced revenues for the Company. The Canadian dollar/U.S. dollarexchange rate has varied significantly over the last several years. The Companydoes not currently use foreign currency options and forward foreign exchangecontracts to purchase Canadian dollars in order to hedge against the effects ofcurrency fluctuations. In addition, a significant portion of the Company’sexpenditures at the APP in Finland will be denominated in Euros. The Euro hasvaried significantly against the U.S. dollar over the past several years. Therecan be no assurance that foreign exchange fluctuations will not materiallyadversely affect the Company’s financial performance and results of operations.

 

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***TheCompany may not meet its production level and operating cost estimates and, ifit does not, its results of operations may be adversely affected.***

 

Plannedproduction levels and operating costs are estimated based on the Company’sexperience in operating the Lac des Iles mine. These estimates are subject tonumerous uncertainties, many of which are beyond the Company’s control. TheCompany cannot give assurances that its actual production levels will not besubstantially lower than its estimates or that its operating costs will not bematerially higher than anticipated.

 

***Ifmineral reserve and resource estimates are not accurate, production may be lessthan estimated which would adversely affect the Company’s financial conditionand results of operations.***

 

Reserve estimatesare imprecise and depend on geological analysis based partly on statisticalinferences drawn from drilling, which may prove unreliable, and assumptionsabout operating costs and metal prices, which may prove incorrect. The Companycannot be certain that its mineral reserve and resource estimates are accurateand cannot guarantee that it will recover the indicated quantities of metals.Future production could differ dramatically from such estimates for thefollowing reasons:

 

·                  actualmineralization or ore grade could be different from those predicted bydrilling, sampling and feasibility studies or technical reports;

 

·                  declines in themarket price of palladium or other metals may render the mining of some or allof the reserves uneconomic;

 

·                  increases in thecapital or operating costs of the mine;

 

·                  changes in thelife-of-mine plan or ultimate pit design; or

 

·                  the grade of oremay vary over the life of the mine and the Company cannot give any assurancesthat any particular level of metal may be recovered from the reserves.

 

The occurrence ofany of these events may cause the Company to adjust its reserve estimates orchange its mining plans, which could negatively affect the Company’s financialcondition and results of operations. Moreover, short-term factors, such as theneed for additional development of the ore body or the processing of new ordifferent grades, may impair the Company’s profitability.

 

***Highmetal prices from 2004 to 2007 have encouraged increased mining exploration,development and construction activity, which has increased demand for, and costof, exploration, development and construction services and equipment.***

 

The strength ofmetal prices over the past four years has encouraged increases in mining exploration,development and construction activities around the world, which has resulted inincreased demand for, and cost of, exploration, development and constructionservices and equipment. The costs of such services and equipment may continueto increase if current trends continue. Increased demand for services andequipment could result in delays if services or equipment cannot be obtained ina timely manner due to inadequate availability, and may cause schedulingdifficulties due to the need to coordinate the availability of services orequipment, any of which could materially increase project exploration,development and/or construction costs.

 

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***Futureexploration at the Lac des Iles mine or at the Company’s exploration propertiesmay not result in increased reserves, which would prevent the Company fromsustaining its targeted production levels and continuing as a going concern.***

 

As mines havelimited lives based on proven and probable mineral reserves, the Company isactively seeking to replace and expand its reserves, primarily throughexploration and development and potentially through strategic acquisitions andjoint ventures. The Company conducts exploration programs at and surroundingthe Lac des Iles mine, the Shebandowan West Project and the APP with theobjective of increasing the mineral resources and mineral reserves at theseprojects. Exploration for minerals is highly speculative in nature, involvesmany risks and is frequently unsuccessful. Among the many uncertaintiesinherent in any exploration and development program are the location ofeconomic ore bodies, the development of appropriate metallurgical processes,the receipt of necessary governmental permits and the construction of mining andprocessing facilities. In addition, substantial expenditures are required topursue such exploration and development activities. Assuming discovery of aneconomic ore body, depending on the type of mining operation involved, severalyears may elapse from the initial phases of drilling until commercialoperations are initiated and during such time the economic feasibility ofproduction may change. Accordingly, there can be no assurance that the Company’scurrent exploration and development programs will result in any neweconomically viable mining operations or yield new reserves to replace andexpand current reserves. In the event that new mineral resources or mineralreserves are not discovered and developed, the Company may not be able tosustain production beyond 2010 or earlier. In addition, should the Companyincur significant losses in future periods, it may be unable to continue as agoing concern.

 

***TheCompany has a history of losses and no immediately foreseeable earnings.***

 

The Company has ahistory of losses, and there can be no assurance that it will ever beprofitable. The Company expects to continue to incur losses unless and untilsuch time as it develops and commences mining operations at the OHGZ, theShebandowan West Project or the APP. The development of each of these projectswill require the commitment of substantial financial resources. The amount andtiming of expenditures will depend on a number of factors, including theprogress of ongoing exploration and development, the results of consultantanalysis and recommendations, the rate at which operating losses are incurredand the execution of any joint venture agreements with strategic partners, someof which are beyond the Company’s control. There can be no assurance that theCompany will ever achieve profitability.

 

***Therisks and hazards associated with mining and processing may increase theCompany’s costs and reduce its profitability in the future.***

 

Mining andprocessing operations involve many risks and hazards, including, among others:

 

·                  environmentalhazards;

 

·                  industrialaccidents;

 

·                  metallurgical andother processing problems;

 

·                  unusual andunexpected rock formations;

 

·                  pit slopefailures or underground cave-ins;

 

·                  fires;

 

·                  flooding andperiodic interruptions due to inclement or hazardous weather conditions orother acts of nature;

 

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·                  mechanicalequipment and facility performance problems; and

 

·                  the availabilityof materials and equipment.

 

These risks couldresult in:

 

·                  damage to, ordestruction of, the Company’s properties or production facilities;

 

·                  personal injuryor death, including to the Company’s employees;

 

·                  environmentaldamage;

 

·                  delays in mining;

 

·                  increased productcosts;

 

·                  asset writedowns;

 

·                  monetary losses;and

 

·                  possible legalliability.

 

The Companycannot be certain that its insurance will cover the risks associated withmining or that it will be able to maintain insurance to cover these risks ataffordable premiums. The Company might also become subject to liability forpollution or other hazards against which it cannot insure or against which theCompany may elect not to insure because of high premium costs or other reasons.Losses from such events may increase costs and decrease profitability.

 

***If theCompany fails to maintain projected production levels for its underground oropen pit mining operations at Lac des Iles, its ability to generate revenue andprofits will be adversely affected.***

 

The Company’sfuture prospects will be negatively affected if the underground or open pitmine at Lac des Iles fails to maintain projected production levels. Unforeseenconditions or developments could arise during the ongoing development andoperation of the underground or open pit mine which could increase costs andadversely affect the Company’s ability to generate revenue and profits. Theseevents may include, among others:

 

·                  shortages orunanticipated increases in the cost of equipment, materials or skilled labour;

 

·                  delays indelivery of equipment or materials;

 

·                  labourdisruptions;

 

·                  adverse weatherconditions or natural disasters;

 

·                  accidents; and

 

·                  unforeseen engineering,design, environmental or geological problems.

 

***TheCompany depends on a single mine to generate revenues and, if mining operationsare interrupted or if any adverse condition affects the operation of that mine,the Company’s business will suffer.***

 

All of theCompany’s revenues are derived from its mining operations at the Lac des Ilesmine, which is the Company’s only operating mine. If there were to be aninterruption in operations at the Lac des Iles mine, or if the Company would nolonger be able to extract ore from this mine for any reason, the Company’sbusiness would suffer significantly. In addition, any adverse conditionaffecting mining operations at the Lac des Iles mine could have a materialadverse effect on the Company’s financial performance and results ofoperations.

 

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***Titleto the Company’s mineral properties cannot be guaranteed and may be subject toprior recorded and unrecorded agreements, transfers or claims and other defectsand potential aboriginal rights claims.***

 

The Companycannot guarantee that title to its properties will not be challenged. Titleinsurance is generally not available for mineral properties and the Company’sability to ensure that it has obtained secure claim to individual mineralproperties or mining concessions may be severely constrained. The Company’smineral properties may be subject to prior recorded and unrecorded agreements,transfers or claims, and title may be affected by, among other things,undetected defects. Additionally, there can be no guarantee that potentialaboriginal rights claims to the Company’s mineral properties will not createdelays in project approval, unexpected interruptions in project progress orresult in additional costs to advance the project. A successful challenge tothe area and location of these claims could result in the Company being unableto operate on its properties as permitted or being unable to enforce its rightswith respect to its properties.

 

***TheCompany is dependent on a third party for smelting and significantly refiningits palladium. If the third party is unable to accommodate the Company’ssmelting and refining requirements or the existing contract is terminated ornot renewed, the Company’s ability to generate revenues could be harmed.***

 

The Company has asmelter agreement with Xstrata, which provides for the smelting and refining ofthe principal metals contained in the concentrates produced at the Lac des Ilesmine. The existing agreement with Xstrata expires on March 31, 2010 butmay be extended for two additional one-year terms. Xstrata may terminate theagreement earlier if treatment of the concentrate becomes subject toregulations which result in increased costs to Xstrata, and new terms have notbeen established within sixty days of a request to renegotiate the agreement.The termination of the agreement or the failure to renew the agreement onacceptable terms, or at all, could have a material adverse effect on theCompany’s financial performance and results of operations until such time asalternative smelting and refining arrangements could be made or alternativepurchasers of the Company’s concentrates could be found. If the Company isrequired to make alternative refining arrangements or to find alternativepurchasers, there can be no assurance that such arrangements would be on termsas favourable to the Company as its existing agreement with Xstrata.

 

***Increasedcompetition could adversely affect the Company’s ability to acquire suitableproducing properties or prospects for mineral exploration in the future.***

 

The miningindustry is intensely competitive. Significant competition exists for theacquisition of properties producing, or capable of producing, palladium orother metals. The Company may be at a competitive disadvantage in acquiringadditional mining properties because it must compete with other individuals andcompanies, many of which have greater financial resources, operationalexperience and technical capabilities than the Company. As a result, forreasons beyond its control, the Company may not be able to acquire miningproperties in the future.

 

***TheCompany cannot assure investors that it will satisfy the conditions to itsearn-in for the APP or that the APP and Shebandowan West Project propertieswill be managed in a way favourable to the Company.***

 

The Company is aparty to a framework agreement with subsidiaries of Gold Fields to earn a 60%interest in the APP; however, there can be no assurance that the conditionsnecessary to earn this interest will be satisfied. Moreover, the APP frameworkagreement is subject to a claw-back right in favour of Gold Fields which, ifexercised, would decrease the Company’s interest in the APP to 50%. The Companyand 

 

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Gold Fields arediscussing certain clarifications to the earn- in conditions set forth in theAPP framework agreement, but no such clarifications have been finalized. Inaddition, if Vale Inco or Gold Fields were to be appointed project managers ofthe Shebandowan West Project or the APP, respectively, the Company would not beable to fully predict or control the pace or the scale of the permitting andfuture development and operation, if any, of the respective projects. There canbe no assurance that either Vale Inco or Gold Fields would manage theShebandowan West Project or the APP, as the case may be, in a manner consistentwith the Company’s vision for such projects.

 

***Theexploration and development of the Company’s properties will require substantialadditional financing.***

 

The explorationand development of the Company’s properties will require substantial additionalfinancing. Failure to obtain sufficient financing may result in the delay orindefinite postponement of exploration activities, development or production onany or all of the Company’s properties or even a loss of property interest.There can be no assurance that additional capital or other types of financingwill be available if needed or that, if available, the terms of such financingwill be favourable to the Company.

 

***TheCompany’s inability to renew its collective agreement on acceptable terms uponits expiry in February 2009 could have a material adverse effect on theCompany.***

 

The Company’scollective agreement with the United Steelworkers of America, the unionrepresenting the employees at the Lac des Iles mine (other than employees at orabove the rank of foreman, safety coordinator, surveyors, dispatchers,technical staff and office, clerical and security personnel), will expire in February 2009.The inability to renew the agreement on acceptable terms could have a materialadverse effect on the Company. In addition, work stoppages or strikes atthe Lac des Iles mine could have a material adverse effect on the results ofoperations and financial performance of the Company.

 

***TheCompany is subject to extensive environmental legislation and the costs ofcomplying with these applicable laws and regulations may be significant.***

 

The Company’soperations are subject to extensive environmental legislation. This legislationrequires the Company to obtain various operating approvals and licenses andalso imposes standards and controls on activities relating to the exploration,development and production of palladium and by-product metals. The cost to theCompany of obtaining operating approvals and licenses and abiding byenvironmental legislation, standards and controls may be significant. Further,if the Company fails to obtain or maintain such operating approvals or licensesor breaches such legislation, standards or controls, it may not be able tocontinue its operations in its usual manner or at all, and the Company may besubject to fines or other liabilities which may have a material adverse impacton its operations or financial results.

 

The Company willbe responsible for all costs of closure and reclamation at the Lac des Ilesmine. Under applicable legislation, the Company has established a trust fund toprepare for closure and reclamation. The current amended mine closure planrequires the payment by the Company of $7.8 million for clean-up andrestoration of the mine site. The trust fund is maintained by the OntarioMinistry of Northern Development and Mines and will become available to theCompany when the mine closure is completed. At December 31, 2007,approximately $8.3 million (including accrued interest) had been deposited bythe Company into the trust fund.

 

Development ofthe underground mine and changes to the design of the TMF at Lac des Ilesrequired an amendment to the existing mine closure plan and may result in anincrease in the amount of financial assurance required by the Ontario Ministryof Northern Development and Mines. The actual amount needed for the closure ofthe Lac des Iles mine may be materially more than the original estimate.

 

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Additionally,changes in environmental legislation or in its enforcement, new information onexisting environmental conditions or other events, including changes inenvironmental controls or standards or in their enforcement, may increasefuture environmental expenditures or otherwise have a negative effect on theCompany’s financial condition and results of operations. In addition toexisting requirements, it is expected that other environmental legislation maybe implemented in the future with the objective of further protecting humanhealth and the environment. New environmental legislation or changes inexisting environmental legislation could have a negative effect on productionlevels, product demand, product quality and methods of production anddistribution. The complexity and breadth of these issues make it difficult forthe Company to predict their impact. The Company anticipates capitalexpenditures and operating expenses would likely increase as a result ofcompliance with new or more stringent environmental legislation.

 

Failure to complywith environmental legislation may result in the issuance of governmentalorders, the imposition of penalties, liability for related damages and the lossof operating licenses or approvals. The Company cannot give assurances that itwill at all future times be in compliance with all federal and provincialenvironmental legislation or that steps to bring the Company into compliance wouldnot have a negative effect on its financial condition and results ofoperations.

 

***Compliancewith current and future government regulations may cause the Company to incursignificant costs and slow its growth.***

 

The Company’sactivities are subject to extensive Canadian federal and provincial legislationgoverning various matters relating to mine safety, occupational health, labourstandards, prospecting, exploration, production, exports, toxic substances,explosives, management of natural resources, price controls, land use, wateruse and taxes. Compliance with these and other legislation could require theCompany to make significant capital outlays which may slow its growth bydiverting its resources. The enactment of new adverse legislation or more stringentenforcement of current legislation may increase costs, which could have anegative effect on the Company’s financial position. The Company cannot makeassurances that it will be able to adapt to these regulatory developments on atimely or cost effective basis. Violations of these laws, regulations and otherregulatory requirements could lead to substantial fines, penalties or othersanctions including possible shut-downs of the Lac des Iles mine and futureoperations, as applicable.

 

***TheCompany is required to obtain and renew governmental permits in order toconduct mining operations, which is often a costly and time-consuming process.***

 

In the ordinarycourse of business, the Company is required to obtain and renew governmentalpermits for the exploration, operation and expansion of existing operations orfor the commencement of new operations. Obtaining or renewing governmentalpermits is a complex and time-consuming process. The duration and success ofefforts to obtain and renew permits are contingent upon many variables notwithin the Company’s control, including the interpretation of applicablerequirements implemented by the applicable permitting authority. The Companymay not be able to obtain or renew permits that are necessary to its operations,or the cost to obtain or renew permits may exceed the Company’s expectations.Any unexpected delays or costs associated with the permitting process coulddelay the development or impede the operation of a mine, which could materiallyadversely affect the Company’s revenues and future growth.

 

***TheCompany is subject to the mineral claim renewal process in Finland, which maypresent challenges with respect to the ongoing development of the APP.***

 

Under Finnishlaw, a mineral claim has an initial term of one to five years, and is subjectto a three-year renewal. To renew a mineral claim, the applicant mustdemonstrate valid grounds for such renewal, and 

 

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landowners andother interested parties are given the opportunity to express their views onthe renewal application. Each application is dealt with on a case by case basisand the Company can give no assurances as to the outcome of any suchapplication. Upon the expiry of the three-year renewal term, the claimholdermust either apply for a mining concession or apply for a new one to five yearmineral claim to continue exploration work. Any such application must besubmitted in a timely manner prior to the expiration of the previous claim.Failure on the part of the Company to submit a timely application may open thepossibility to third parties making priority claims.

 

***TheCompany faces competition from other larger suppliers of platinum group metalsand from potential new sources of platinum group metals.***

 

The Companycompetes globally with other suppliers of platinum group metals, some of whichare significantly larger and have access to greater mineral reserves andfinancial resources. In addition, new mines may open which would increase thesupply of palladium and platinum. An industry has also developed for therecovery of platinum group metals from scrap sources, mostly from spentautomobile and industrial catalysts. Despite that the Company is currently wellpositioned among its competitors, it may not be successful in competing withthese existing and emerging platinum group metal suppliers and sources.

 

***Thedevelopment of new technology or new alloys could reduce the demand forpalladium and platinum.***

 

Demand forpalladium and platinum may be reduced if manufacturers in industries such asthe automotive sector, the electronics sector and dentistry find substitutesfor palladium or platinum. The development of a substitute alloy or syntheticmaterial which has catalytic characteristics similar to PGMs would likelyresult in a decrease in demand for palladium and platinum. Furthermore, thedevelopment by the automobile industry of automobiles that do not use catalyticconverters could significantly reduce the demand for palladium and platinum.The electronics industry has already experienced advances in new technologywhich use base metals as a substitute for palladium in certain component parts.High prices for palladium would create an incentive for the development ofsubstitutes. Any such developments could have a material adverse effect on theCompany’s financial condition and results of operations.

 

***Ifthe Company loses key personnel or is unable to attract and retain additionalpersonnel, the Company’s mining operations and prospects could be significantlyharmed.***

 

The Company isdependent upon the services of a small number of members of senior managementincluding James D. Excell, the Company’s President and Chief Executive Officer.The Company’s current mining operations and its future prospects depend on theexperience and knowledge of these individuals. The Company does not maintainany “key man” insurance. The loss of one or more of these individuals couldhave a material adverse effect on the Company’s mining operations and resultsof operations.

 

***TheCompany’s credit facilities and convertible notes provide for events ofdefault, some of which are beyond the Company’s control.***

 

The Company hasborrowed funds under its credit facilities to finance its operations. Thecredit facilities and the Convertible Notes Due 2008 issued pursuant to theSecurities Purchase Agreement between the Company and KFOC, a privately-heldoil and gas company based in Tulsa, Oklahoma, and IP Synergy, contain certainevents of default, some of which are beyond the Company’s control, theoccurrence of which could require the Company to pay back immediately allamounts borrowed under the credit facilities and convertible notes.

 

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*** ***

***TheCompany’s principal shareholder has the ability to direct the Company’s affairsand business and, because the principal shareholder owns approximately 41% ofthe Common Shares, third parties may be deterred from acquiring the Company.***

 

To the Company’sknowledge, KFOC owns Common Shares representing approximately 41% of the totalnumber of Common Shares outstanding as at February 22, 2008. KFOC,therefore, has the ability to direct the affairs and business of the Companyand it cannot be assumed that the interests of KFOC will coincide with those ofthe Company. This concentration of ownership results in KFOC’s ability to electthe Company’s board of directors and may have the effect of delaying orpreventing a change in control of the Company, which may deprive the Company’sshareholders of a control premium that might otherwise have been realized inconnection with an acquisition of the Company. Alternatively, if KFOC sells itsshareholdings to a third party, the new purchasing shareholder would obtain aconsiderable controlling interest in the Company. There can be no assurancethat the interests of such a shareholder would be consistent with the plans ofthe Company as described in this AIF or that such a sale would not decrease thevalue of the Common Shares.

 

***TheCompany’s hedging activities or its decision not to hedge could expose it tolosses.***

 

From time totime, the Company may engage in hedging activities to manage its exposurerelated to currencies, interest rates and commodity prices. While hedgingrelated to realized metal prices may protect the Company against low metalprices, it may also limit the price the Company can receive on hedged products.As a result, the Company may be prevented from realizing possible revenues inthe event that the market price of a metal exceeds the price stated in aforward sale or call option contract. In addition, the Company may experiencelosses if a counterparty fails to purchase under a contract when the contractprice exceeds the spot price of a commodity.

 

***Lackof infrastructure could delay or prevent the Company from developing itsprojects.***

 

Completion of thedevelopment of the Company’s advanced exploration projects is subject tovarious requirements, including the availability and timing of acceptable arrangementsfor electricity or other sources of power, water and transportation facilities.The lack of availability on acceptable terms or the delay in the availabilityof any one or more of these items could prevent or delay development of theCompany’s advanced exploration projects. If adequate infrastructure is notavailable in a timely manner, there can be no assurance that:

 

·                  the developmentof the Company’s projects will be completed on a timely basis, if at all;

 

·                  the resultingoperations will achieve the anticipated production volume; or

 

·                  the ongoingoperating costs associated with the development of the Company’s advancedprojects will not be higher than anticipated.

 

***TheCompany may experience difficulties as it pursues exploration activitiesabroad.***

 

In respect of theAPP, the Company has no significant business experience in Finland orinternationally. Finland operates under different laws and regulations andthere exist cultural and language differences between Finland and Canada. Also,the Company will face challenges inherent in efficiently managing an increasednumber of employees over large geographical distances, including the challengesof staffing and managing exploration and development operations in multiplelocations and implementing appropriate systems, policies, benefits andcompliance programs. There can be no assurance that difficulties associatedwith the Company’s foreign operations can be successfully managed.

 

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***Currentand future litigation and regulatory proceedings may impact the revenue andprofits of the Company.***

 

The Company maybe subject to civil claims (including class action claims) based on allegationsof negligence, breach of statutory duty, public nuisance or private nuisance orotherwise in connection with its operations or investigations relating thereto.While the Company is presently unable to quantify its potential liability underany of the above heads of damage, such liability may be material to the Companyand may materially adversely affect its ability to continue operations.

 

In addition, theCompany may be subject to actions by governmental or regulatory authorities inconnection with its activities at the Lac des Iles mine or relatedinvestigations. Such actions may include prosecution for breach of relevantlegislation or failure to comply with the terms of the Company’s licenses andpermits and may result in liability for pollution, other fines or penalties,revocations of consents, permits, approvals or licenses or similar actions,which could be material and may impact the results of operations of theCompany. The Company’s current insurance coverage may not be adequate to coverany or all the potential losses, liabilities and damages that could result fromthe civil and/or regulatory actions referred to above. Please refer toadditional information under the heading “Legal Proceedings” in this AIF.

 

** AUDIT COMMITTEE INFORMATION**

** **

**Audit Committee Mandate**

** **

The AuditCommittee mandate is set out beginning on page 65.

 

**Composition of the Audit Committee**

** **

The Audit Committeeis comprised of Mr. Gregory J. Van Staveren (Chairman), Mr. David Comba and Mr.RobertQuinn, Mr. “Van Staveren, Mr. Comba and Mr. Quinn areindependent as such term is defined in Multilateral Instrument 52-1.10 – AuditCommittees (“MI 52-110”).

 

Mr. Berlin attendsthe meetings of the Committee in the capacity of an observer but he is not amember of the Audit Committee and he does not exercise any voting powers. Hehas been provided with observer status as a result of his significant financialexpertise, particularly with respect to U.S. accounting matters. Mr. Berlinis not considered independent, as that term is defined by virtue of the factthat prior to January 1, 2006, Mr. Berlin served as an executiveofficer of KFOC, which owns approximately 41% of the outstanding common sharesof the Company.  Mr. Berlin doessatisfy the requirements of Rule 10A-3 under the U.S. Securities ExchangeAct of 1934 (the “Exchange Act”). Further, Mr. Berlin is a certified public accountant and hasconsiderable experience in corporate finance.

 

**Relevant Education and Experience**

** **

Each of themembers of the Audit Committee is financially literate. Each of Mr. VanStaveren and Mr. Berlin satisfies the criteria required to be a financialexpert and Mr. Van Staveren is designated as the Audit Committee’sfinancial expert. Mr. Van Staveren is a chartered accountant and acertified public accountant. He was Chief Financial Officer of MartinreaInternational Inc. an automotive parts manufacturer from February 1998 to September 2001and currently provides strategic financial services to various companies. Priorto February 1998, Mr. Van Staveren was a partner with KPMG.

 

Mr. Berlinis a certified public accountant and, prior to January 1, 2006, was a VicePresident of KFOC and prior to December 2004 was Co-Chief FinancialOfficer of KFOC. Mr. Berlin also served as Chief Financial Officer andTreasurer of PetroCorp Incorporated, an oil and gas company prior to January 2004.

 

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Both Mr. Combaand Mr. Quinn have extensive management experience with extensive focus inthe mining sector.

 

**Reliance on Certain Exemptions**

** **

The Company isrelying on the exemption contained in section 3.5 (*Death, Disability or Resignation of Audit Committee Member*)of MI 52-110 in connection with Mr. Berlin’s attendance at meetings of theAudit Committee.

 

**Audit Committee Pre-Approval Policies andProcedures**

** **

All audit andnon-audit services performed by the Company’s external auditors arepre-approved by the Audit Committee.

 

**External Auditor Service Fees**

** **

***Audit Fees***

*** ***

The aggregatefees billed by KPMG, the Company’s external auditors for the fiscal years endedDecember 31, 2007 and 2006, for professional services that are normallyprovided by the external auditors in connection with statutory and regulatoryfilings or engagements for that year were $545,771 and $442,160, respectively.

 

***Audit-Related Fees***

*** ***

The aggregatefees billed by KPMG for the fiscal years ended December 31, 2007 and 2006for assurance and related services rendered by it that are reasonably relatedto the performance of the audit or review of the Company’s financial statementsengagements for that year were $362,400 and $185,714, respectively. In 2007,such fees were paid for services rendered in connection with a prospectusoffering ($194,250), services in connection with French translation of theprospectus ($76,650) and services in connection with an interest payment baseshelf prospectus ($91,500).

 

***Tax Fees***

*** ***

The aggregatefees billed by KPMG for the fiscal years ended December 31, 2007 and 2006for professional services rendered by it for tax compliance, tax advice, taxplanning and other services were $19,300 and $39,503, respectively. Taxservices provided included preparation of corporate tax returns and review oftax provisions. In 2007, such fees were paid for preparation offederal/provincial tax returns and an Ontario mining tax return for December31, 2006 ($16,500) and correspondence and discussions related to investments inFinland ($2,800).

 

***All Other Fees***

*** ***

Other productsand services provided included accounting support. The aggregate fees billed byKPMG for the fiscal years ended December 31, 2007 and 2006 for productsand services provided by KPMG, other than the services reported in thepreceding three paragraphs, were $nil and $nil, respectively.

 

**ADDITIONAL INFORMATION**

** **

We are requiredto file with the securities commission or authority in each of the applicableprovinces of Canada annual and quarterly reports, material change reports andother information. In addition, we are subject to the informationalrequirements of the Exchange Act, and, in accordance with the Exchange Act, wealso file reports with, and furnish other information to, the SEC. Under amultijurisdictional disclosure system adopted by the United States, thesereports and other information (including financial information) may be preparedin accordance with the disclosure requirements of Canada, which differ incertain respects from those in the United States. As a foreign private issuer,we are exempt from the rules under 

 

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the Exchange Actprescribing the furnishing and content of proxy statements, and our officers,directors and principal shareholders are exempt from the reporting and shortswing profit recovery provisions contained in Section 16 of the ExchangeAct. In addition, we are not required to publish financial statements aspromptly as U.S. companies.

 

You may read anydocument we file with or furnish to the securities commissions and authoritiesof the provinces of Canada through SEDAR and any document we file with orfurnish to the SEC at the SEC’s public reference room at Station Place, 100 FStreet, N.E., Washington, D.C. 20549. You may also obtain copies of the samedocuments from the public reference room of the SEC at 450 Fifth Street, N.W.,Washington D.C. 20549 by paying a fee. Please call the SEC at l-800-SEC-0330for further information on the public reference rooms. Certain of our filingsare also electronically available from the SEC’s Electronic Document Gatheringand Retrieval System, which is commonly known by the acronym EDGAR, and whichmay be accessed at www.sec.gov, as well as from commercial document retrievalservices.

 

Additionalinformation, including directors’ and officers’ remuneration and indebtedness,principal holders of the Company’s securities and securities authorized forissuance under equity compensation plans, is contained in the Company’smanagement proxy circular. As well, additional financial information isprovided in the Company’s annual financials statements for the year ended December 31,2007 and management’s discussion and analysis of operations and financialresults.

 

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** AUDIT COMMITTEE MANDATE**

** **

**1.**              Composition

** **

The AuditCommittee shall consist of a minimum of three directors of the Corporation.

 

The AuditCommittee shall be comprised entirely of independent directors, as such term isdefined by applicable laws and related rules and regulations, and rules ofrelevant stock exchanges (collectively referred to as “Applicable Laws”).  For clarity, US Applicable Laws means thoseapplicable to foreign private issuers.

 

Notwithstandingthe foregoing sentence, a member is exempt from the independence requirementsif permitted by Applicable Laws.  Theappointment of the non-independent director shall be disclosed in the nextproxy circular mailed to shareholders. If there is reliance on curingprovisions, notice shall be given to the stock exchanges immediately uponlearning of the circumstances that resulted in the non-compliance.

 

a)              A quorum for the transaction of business at allmeetings of the Audit Committee shall be a majority of members.

 

**2.**              Qualifications and Experience

** **

At the time ofappointment or within a reasonable period of time following appointment, eachmember of the Committee must be financially literate, having the ability toread and understand a set of financial statements that present the breadth andlevel of complexity or accounting issues that are generally comparable to thebreadth and complexity of the issues that can be reasonably be expected to beraised by the Corporation’s financial statements.

 

a)              At least one member (the “financial expert”) ofthe Committee must have:

 

i.                 An understanding of financial statements and accountingprinciples used by the Corporation to prepare its financial statements;

 

ii.             The ability to assess the general application of suchaccounting principles in connection with the accounting for estimates, accrualsand reserves;

 

iii.          Experience preparing, auditing, analyzing or evaluatingfinancial statements that present a breadth and level of complexity ofaccounting issues that are generally comparable to the breadth and complexityof issues that can reasonably be expected to be raised by the Corporation’sfinancial statements, or experience actively supervising one or more personsengaged in such activities;

 

iv.          An understanding of internal controls and procedures forfinancial reporting; and

 

v.             An understanding of audit committee functions.

 

b)             The financial expert must have acquired theforegoing attributes through one or more of the following:

 

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i.                 Education and experience as a principal financial officer,principal accounting officer, controller, public accountant or auditor orexperience in one or more positions that involve the performance of similarfunctions;

 

ii.             Experience actively supervising a principal financialofficer, principal accounting officer, controller, public accountant, auditoror person performing similar functions;

 

iii.          Experience overseeing or assessing the performance of companiesor public accountants with respect to the preparation, auditing or evaluationof financial statements; or

 

iv.          Other relevant experience.

 

**3.**              Mandate and Responsibilities

** **

The AuditCommittee shall:

 

a)              Review and assess the adequacy of the AuditCommittee mandate on an annual basis;

 

b)             Meet with the Corporation’s external auditors asnecessary and before the submission of the audited annual financial statementsto the Board and communicate to external auditors that they are ultimatelyaccountable to the Board and the Audit Committee as representatives ofshareholders;

 

c)              Review the annual financial statements of theCorporation and “management’s discussion and analysis” and recommend thefinancial statements for approval to the Board;

 

d)             Review and approve interim financial statementsof the Corporation and “management’s discussion and analysis” prior to filingwith the securities regulatory authorities and delivery to shareholders;

 

e)              Obtain explanations from management on all thesignificant variances between comparative reporting periods and, in respect theannual financial statements, question management and the external auditorregarding the significant financial reporting issues discussed during thefiscal period and the method of resolution;

 

f)                Be responsible for:

 

i.                Ensuring that a written statement is obtained from theexternal auditor describing all relationships between the external auditor andthe Corporation;

 

ii.             Discussing with the external auditor any disclosedrelationships or services that may impact the objectivity and independence ofthe external auditor; and

 

iii.         Determining that the external auditors have a process inplace to address the rotation of the lead partner and other audit partnersserving the account as required under Canadian independence standards and theSEC independence rules, as applicable to foreign private issuers;

 

g)             Assess the performance of the external auditorsand recommend to the Board annually or as they may otherwise determine a dulyqualified external auditor to be nominated (for appointment or retention) forthe purpose of preparing or issuing an audit report or performing other audit,review or attest services for the Corporation;

 

h)             Review the plan and scope of the audit to beconducted by the internal (if any) and external auditors of the Corporation;

 

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i)                 Approve, or recommend to the Board for approval,the compensation of the external auditors;

 

j)                Directly oversee the work of the externalauditors, including reviewing the Corporation’s critical accounting policiesand practices, material alternative accounting treatments and material writtencommunications between the external auditors and management, and the resolutionof disagreements between management and the external auditor regardingfinancial reporting;

 

k)             Pre-approve all audit and permitted non-auditservices to be provided to the Corporation or its subsidiary entities by itsexternal auditors or the external auditors of the Corporation’s subsidiary, inaccordance with Applicable Laws;

 

l)                Review all post-audit or management letterscontaining the recommendations of the external auditor and management’sresponse or follow-up of any identified weakness;

 

m)          Meet separately, periodically, with management,with internal auditors (or other personnel responsible for the internal auditfunction) and with external auditors;

 

n)             Oversee the governance of management’sDisclosure Committee;

 

o)             Review all annual and interim earnings press releases;

 

p)             Determine that adequate procedures are in placefor the review of the Corporation’s disclosure of financial informationextracted or derived from the Corporation’s financial statements, other thandisclosure in the Corporation’s financial statements, management’s discussionand analysis and earnings press releases, and periodically assess the adequacyof these procedures;

 

q)             Establish procedures for:

 

i.                 The receipt, retention and treatment of complaints receivedby the Corporation regarding accounting, internal accounting controls, orauditing matters; and

 

ii.              The confidential, anonymous submission by employees of theCorporation of concerns regarding questionable accounting or auditing matters;

 

r)               Enquire as to the adequacy of the Corporation’ssystem of internal controls and review periodic reports from management aboutinternal controls, including an assessment of risk with respect to financialreporting;

 

s)              Review and approve all related partytransactions;

 

t)                Review and approve the Corporation’s hiringpolicies regarding employees and former employees of the present and formerexternal auditors of the Corporation;

 

u)             Have such other duties, powers and authorities,consistent with the provisions of the Canada Business Corporations Act, as theBoard may, by resolution, delegate to the Audit Committee from time to time.

 

**4.**              Authority

** **

The AuditCommittee shall have the authority:

 

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a)             For the purpose of performing their duties, toinspect all of the books and records of the Corporation and its affiliates andto discuss such accounts and records and any matters relating to the financialposition or condition of the Corporation with the officers and internal (ifany) and external auditors of the Corporation and its affiliates;

 

b)            To engage independent counsel and other advisorsas it determines necessary to carry out its duties;

 

c)             To set and pay the compensation for any advisorsemployed by the Audit Committee, including without limitation, compensation toany public accounting firm engaged for the purpose of preparing or issuing andaudit report or performing other audit, review or attest services for theCorporation;

 

d)            To set and pay the ordinary administrativeexpenses of the Audit Committee that are necessary or appropriate in carryingout its duties; and

 

e)             To communicate directly with the internal (ifany) and external auditors.

 

**5.**             Proceedings

** **

The followingshall apply to the proceedings of the Audit Committee.

 

a)             The business of the Audit Committee shall betransacted either at meetings thereof or by conference telephone or othercommunications facilities that permit all persons participating in the meetingto hear each other, or by resolution in writing.  All questions at a meeting shall be decidedin accordance with the vote of a majority of those present and the Chairman ofthe meeting shall not have a second or casting vote.

 

b)            A resolution in writing signed by all members ofthe Audit Committee entitled to vote on that resolution at a meeting of theAudit Committee shall be as valid as if it had been passed at a duly called andconstituted meeting.  Such resolutions inwriting may be in one or more counterparts, all of which, when taken together,shall be deemed to constitute one resolution.

 

c)             The Audit Committee Chairman shall periodicallyreport to the Board of Directors on the activities of the Audit Committee.

 

d)            The external auditor of the Corporation shall,at the expense of the Corporation, be entitled to attend and be heard at or maybe invited to any meeting of the Audit Committee.

 

e)             The external auditor and senior management shallhave the opportunity or may be invited to meet separately with the AuditCommittee.

 

f)               The minutes of the proceedings of the AuditCommittee and any resolutions in writing shall be kept in a book provided forthat purpose which shall always be open for inspection by any director of the Corporation.

 

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** GLOSSARY OF TERMS**

** **

The following isa glossary of certain terms used in this document.

 

“**APP**” means Arctic Platinum Project, which is an advancedstage PGM-nickel-copper exploration project located approximately 60 kilometressouth of the city of Rovaniemi, Finland.

 

“**ball mill**” means a rotary grinding millwhich uses metal balls to reduce ore to a fine particle size.

 

“**breccia**” means a textural description of arock which is composed of angular rock fragments.

 

“**catalyst**” is a substance which, whenpresent in small amounts, modifies the rate or efficiency of a chemicalreaction of other substances without being consumed in the process.

 

“**catalytic converter**” means a pollutioncontrol device, fitted to the exhaust systems of vehicles powered by internalcombustion engines. This device contains platinum, palladium and sometimesrhodium, which assist in the conversion (oxidation) of carbon monoxide andhydrocarbons into carbon dioxide and water.

 

“**concentrate**” means a product containing thevaluable metal and from which most of the waste material in the ore has beenremoved.

 

“**concentrator or processing plant**” means aplant or facility which processes ore brought from the mine and removes most ofthe valuable mineral or metal from the ore and discards most of the barrenportion of the ore as tailings.

 

“**cut-off grade**” is determined by thefollowing formula parameters: estimates over the relevant period of miningcosts, ore treatment costs, general and administrative costs, refining costs,royalty expenses, process and refining recovery rates and PGM prices.

 

“**diamond drilling**” means rotary drillingusing diamond impregnated bits to produce a solid continuous core sample of theunderlying rock.

 

“**EM**” means electromagnetic.

 

“**feasibility study**” means a program toestablish whether a mineral deposit can be successfully mined consideringtechnical and economic parameters.

 

“**flotation circuit**” means a series offlotation tanks or cells which recover metal by means of flotation. Flotationis a milling process by which some mineral particles are induced to float andothers to sink. The valuable minerals are thereby concentrated and separatedfrom the worthless waste.

 

“**gabbro**” means a dark, course-grainedintrusive rock usually composed of angular rock fragments.

 

“**gabbronorite**” means a type of gabbro whichcontains the mafic minerals clinopyroxene (Ca-Mg rich silicate) andorthopyroxene (Mg-rich silicate).

 

“**grade**” means a particular quantity of oreor mineral relative to other constituents, in a specified quantity of rock.

 

“**head grade**” means the quantity of valuablemineral or metal contained in each ton of ore delivered to the concentrator.

 

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“**indicated resource**” means that part of amineral resource for which quantity, grade or quality, densities, shape andphysical characteristics, can be estimated with a level of confidencesufficient to allow the appropriate application of technical and economicparameters, to support mine planning and evaluation of the economic viabilityof the deposit. The estimate is based on detailed and reliable exploration andtesting information gathered through appropriate techniques from locations suchas outcrops, trenches, pits, workings and drill holes that are spaced closelyenough for geological and grade continuity to be reasonably assumed.

 

“**inferred resource**” means that part of amineral resource for which quantity and grade or quality can be estimated onthe basis of geological evidence and limited sampling and reasonably assumed,but not verified, geological and grade continuity. The estimate is based onlimited information and sampling gathered through appropriate techniques fromlocations such as outcrops, trenches, pits, workings and drill holes.

 

“**intrusion/intrusive**” means a mass ofigneous rock that was injected and solidified within the earth’s crust.

 

“**iridium**” means hard, brittle, silver-whiteplatinum group metal used for pen tips, jewellery, resistance wiring,electronic contacts and electrodes.

 

“**KFOC**” mean Kaiser Francis Oil Company, the Company’s majorshareholder.

 

“**mafic rocks**” means rocks composed of 40 to90% mafic minerals. (PGM deposits are usually hosted in mafic and untramaficintrusive rocks).

 

“**measured mineral resource**” means that partof a mineral resource for which quantity, grade or quality, densities, shape,physical characteristics are so well established that they can be estimatedwith confidence sufficient to allow the appropriate application of technicaland economic parameters, to support production planning and evaluation of theeconomic viability of the deposit. The estimate is based on detailed andreliable exploration, sampling and testing information gathered throughappropriate techniques from locations such as outcrops, trenches, pits,workings and drill holes that are spaced closely enough to confirm bothgeological and grade continuity.

 

“**measured resource**” means that part of a mineral resource forwhich quantity, grade or quality, densities, shape and physical characteristicsare so well established that they can be estimated with confidence sufficientto allow the appropriate application of technical and economic parameters tosupport production planning and evaluation of the economic viability of thedeposit.  The estimate is based ondetailed and reliable exploration, sampling and testing information gatheredthrough appropriate techniques from locations such as outcrops, trenches, pits,workings and drill holes that are spaced closely enough to confirm bothgeological and grade continuity.

 

“**mineral reserve**” means the economically mineablepart of a measured or indicated resource demonstrated by at least a preliminaryfeasibility study. This study must include adequate information on mining,processing, metallurgical, economic and other relevant factors thatdemonstrate, at the time of reporting, that economic extraction can bejustified. A mineral reserve includes diluting materials and allowances forlosses that may occur when the material is mined.

 

“**mineral resource**” means a concentration oroccurrence of natural, solid, inorganic or fossilized organic material in or onthe Earth’s crust in such form and quantity and of such a grade or quality thatit has reasonable prospects for economic extraction. The location, quantity,grade, geological characteristics and 

 

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continuity of amineral resource are known, estimated or interpreted from specific geologicalevidence and knowledge.

 

“**mineralization**” means the concentration ofmetals and their chemical compounds within a body of rock.

 

“**net smelter return royalty**” means a royaltybased on the gross proceeds received from the sale of minerals less the cost ofsmelting, refining, freight and other related costs.

 

“**OHGZ**“means Offset High Grade Zone, a mineralized zonelocated below and approximately 250 meters to the west of the Lac des Ilesunderground mine ore body.

 

“**open pit**” means a mine worked at thesurface.

 

“**ore**” means a mixture of valuable andworthless minerals from which at least one of the minerals can be mined andprocessed at an economic profit.

 

“**osmium**” means a rare, hard white metal.

 

“**ounce**” or “**oz.**” is a unit of weight measure. In the precious metalsindustry a troy ounce is equal to one-twelfth part of a pound or 31.103 grams.

 

“**overburden**” means unconsolidated materialthat overlies a mineral deposit and must be removed prior to mining.

 

“**palladium**” means a white, ductile,malleable precious metal that does not tarnish at normal temperatures. Wideapplications range from electronics, dentistry, jewellery and automotivecatalytic converters.

 

“**PGMs**” means “**Platinum Group Metals**”. Platinum Group Metals includeplatinum, palladium, rhodium, ruthenium, osmium and iridium. All PGMs havecatalytic qualities and resist corrosion and are chemically inert over a widerange of temperatures.

 

“**probable mineral reserve**” means theeconomically mineable part of an indicated, and in some circumstances ameasured mineral resource demonstrated by at least a preliminary feasibilitystudy. This study must include adequate information on mining, processing,metallurgical, economic, and other relevant factors that demonstrate, at thetime of reporting, that economic extraction can be justified.

 

“**professional association**”, for the purposesof the definition of a qualified person below, means a self-regulatoryorganization of engineers, geoscientists or both engineers and geoscientiststhat

 

(a)                                  has been given authority or recognition bystatute;

 

(b)                                 admits members primarily on the basis of theiracademic qualifications and experience;

 

(c)                                  requires compliance with the professionalstandards of competence and ethics established by the organization; and

 

(d)                                 has disciplinary powers, including the power tosuspend or expel a member.

 

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“**proven mineral reserve**” means theeconomically mineable part of a measured mineral resource demonstrated by atleast a preliminary feasibility study. This study must include adequateinformation on mining, processing, metallurgical, economic, and other relevantfactors that demonstrate, at the time of reporting, that economic extraction isjustified.

 

“**pyroxenite**” means an ultramafic rock whichpredominantly contains the mafic mineral pyroxene (Mg-rich silicate).

 

“**qualified person**” means an individual who

 

(a)                                  is an engineer or geoscientist with at leastfive years of experience in mineral exploration, mine development or operationor mineral project assessment, or any combination of these;

 

(b)                                 has experience relevant to the subject matter ofthe mineral project and the technical report; and

 

(c)                                  is a member in good standing of a professionalassociation.

 

“**rhodium**” means a silver-white metal of theplatinum family resistant to tarnishing and used as an electrode posit, oralloyed with platinum to manufacture thermocouples.

 

“**SAG mill**” means a semi-autogenous grindingmill. A SAG mill is one in which steel balls are added to the mill charge tosupplement the grinding capabilities of the larger pieces of ore.

 

“**strip ratio**” means the ratio of units ofwaste material required to be removed to facilitate the mining of one unit ofeconomic material.

 

“**tailings impoundment**” means a containment area constructedto hold tailings.

 

“**tailings**” means that portion of the orewhich remains after the valuable minerals have been extracted. “tailingsimpoundment” means a containment area constructed to hold tailings.

 

“**ton**” means a short ton, equivalent to 2,000pounds.

 

“**tonne**” means a metric measure consisting of2,204.6 pounds or 1,000 kilograms.

 

“**ultramafic**” means rocks composed of greaterthan 90% mafic minerals. (PGM deposits are usually hosted in mafic andultramafic intrusive rocks.)

 

“**UTM**” means the Universal Transverse Mercator coordinatesystem, a grad coordinate system.

 

“**waste**” means barren rock in a mine, ormineralized material that is too low in grade to be mined and milled at aprofit.

 

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