**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

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**AmendmentNo. 1**

**to**

**FORM40-F**

**o****  REGISTRATION STATEMENT PURSUANT TO SECTION 12OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

**x****  ANNUAL REPORT PURSUANT TO SECTION 13(a) OR15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

**For thefiscal year ended December 31, 2006                       Commission File Number1-15142**

**NorthAmerican Palladium Ltd.**

(Exact name of Registrant as specified in itscharter)

| **Canada**                         |   | **1099**                      |   | **Not  Applicable**  |
|------------------------------------|--------|-------------------------------|--------|----------------------|
| (Province or  other Jurisdiction   |   | (Primary  Standard Industrial |   | (I.R.S. Employer     |
| of Incorporation  or Organization) |   | Classification  Code Number)  |   | Identification  No.) |

 

**130Adelaide Street West**

**Suite2116, Toronto, Ontario**

**M5H 3P5**

**(416)360-7590**

(Address and telephone number of Registrants’principal executive offices)

**CT  Corporation System**

**111Eighth Avenue**

**NewYork, NY 10011**

**(212)894-8940**

(Name, address (including zip code) and telephonenumber

(including area code) of agent for service inthe United States)

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Securitiesregistered or to be registered pursuant to Section 12(b) of the Act.

| **Title Of Each Class**          |   | **Name of  each Exchange   On Which Registered:** |
|----------------------------------|--------|---------------------------------------------------|
| **Common  Shares, No Par Value** |   | **American  Stock Exchange**                      |

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act.

**None**

Securities forwhich there is a reporting obligation pursuant to Section 15(d) of the Act.

**None**

For annualreports, indicate by check mark the information filed with this Form:

x Annualinformation form  o Audited annualfinancial statements

Indicate thenumber of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by this annual report.

**TheRegistrant had 52,947,693****Common Shares**

**outstandingas at December 31, 2006**

Indicate by checkmark whether the Registrant by filing the information contained in this Form isalso thereby furnishing the information to the Commission pursuant to Rule12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes”is marked, indicate the filing number assigned to the registrant in connectionwith such Rule.
| Yes  o  82-       |   | No  x |
|---------------------------------------------------------------------|--------|-----------------|

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the preceding 12 months (or forsuch shorter period that the Registrant was required to file such reports) and(2) has been subject to such filing requirements for the past 90 days.
| Yes  x               |   | No  o |
|------------------------------------------------------------------------------------------------------|--------|-----------------|

 

 

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**EXPLANATORYNOTE**

North American PalladiumLtd. (the “Registrant”) is filing this Amendment No. 1 to the Registrant’sAnnual Report on Form 40-F because the Registrant has filed a Revised AnnualInformation Form. The Revised Annual Information Form has been filed in orderto correct errors on page 10 relating to the effect of certain Common Shareissuances on the Initial Conversion Price of the Convertible Notes and theInitial Exercise Price of the Warrants and on page 18 to correct errorsrelating to the Registrant’s earn-in rights on the Haines-Conacher properties.

**DOCUMENTSFILED UNDER COVER OF THIS FORM**
| Document No. 1: |   | Revised Annual Information Form for the fiscal year  ended December 31, 2006, dated March 30, 2007 and amended and restated June 4,  2007. |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

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**DocumentNo. 1**

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**UNDERTAKINGAND CONSENT TO SERVICE OF PROCESS**

**A.****                                    Undertaking**

The Registrantundertakes to make available, in person or by telephone, representatives torespond to inquiries made by the Commission staff, and to furnish promptly,when requested to do so by the Commission staff, information relating to: thesecurities registered pursuant to Form 40-F; the securities in relation towhich the obligation to file an annual report on Form 40-F arises; or transactionsin said securities.

**B.****                                    Consentto Service of Process**

The Registrant haspreviously filed with the Commission a Form F-X in connection with its CommonShares, no par value.

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**SIGNATURE**

Pursuant to therequirements of the ExchangeAct, the Registrant certifies that it meets all of the requirements forfiling on Form 40-F and has duly caused this annual report to be signed on itsbehalf by the undersigned, thereto duly authorized.
|                     | **NORTH AMERICAN PALLADIUM LTD.** |
|---------------------|-----------------------------------|
| ** **          | ** **                        |
| ** **          | ** **                        |
| Dated: June 4, 2007 | By:                               | /s/ James D.  Excell |
|                | By:                               | James D. Excell |
|                | Title:                            |  President and  Chief Executive Officer |

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**EXHIBITINDEX**
| Number | ** ** | **Document**                                                                                                |
|--------|------------|-------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                        |
| 31.    |       | Certification of CEO and Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.    |       | Certification of CEO and Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

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**SIGNATURE**

Pursuant to therequirements of the ExchangeAct, the Registrant certifies that it meets all of the requirements forfiling on Form 40-F and has duly caused this annual report to be signed on itsbehalf by the undersigned, thereto duly authorized.
|                      | **NORTH AMERICAN PALLADIUM LTD.** |
|----------------------|-----------------------------------|
| ** **           | ** **                        |
| ** **           | ** **                        |
| Dated: June 4 , 2007 | /s/ G. Fraser B. Sinclair         |
|                 | By:                               | G. Fraser B. Sinclair |
|                 | Title:                            |  Chief Financial Officer |

 

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**NORTHAMERICAN PALLADIUM LTD.**

**REVISEDANNUAL INFORMATION FORM**

FOR THE YEAR ENDED DECEMBER 31, 2006

DATED MARCH 30, 2007

AMENDED AND RESTATED JUNE 4, 2007

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***EXPLANATORY NOTE:  This annual information form has been revisedto correct errors on page 10 relating to the effect of certain Common Shareissuances on the Initial Conversion Price of the Convertible Notes and the InitialExercise Price of the Warrants and on page 18 to correct the Corporation’searn-in rights on the Haines-Conacher properties.***

**TABLE OF CONTENTS**
| SPECIAL NOTE REGARDING FORWARD-LOOKING  STATEMENTS                   |   |   |
|----------------------------------------------------------------------|--------|--------|
| METRIC CONVERSION TABLE                                              |   |   |
| OTHER INFORMATION                                                    |   |   |
| CORPORATE STRUCTURE                                                  |   |   |
| GENERAL DEVELOPMENT OF THE BUSINESS AND DESCRIPTION OF  THE BUSINESS |   |   |
| Overview                                                             |   |   |
| Lac des  Iles Mine                                                   |   |   |
| Open  Pit Mining Operations                                          |   |   |
| Underground Mining Operations                                        |   |   |
| Milling  Operations                                                  |   |   |
| Facilities and Infrastructure                                        |   |   |
| Metal Sales                                                          |   |   |
| Royalty  Agreement                                                   |   |   |
| Smelting and Refining Agreement                                      |   |   |
| Financing                                                            |   |   |
| Collective Agreement with Hourly Workers                             |   |   |
| Mineral  Properties                                                  |   |   |
| Lac Des Iles                                                         |   |   |
| Environmental  Matters                                               |   |   |
| Haines-Conacher (Shebandowan) Properties                             |   |   |
| Shakespeare  Property                                                |   |   |
| Arctic  Platinum Project                                             |   |   |
| DIVIDENDS                                                            |   |   |
| CAPITAL STRUCTURE                                                    |   |   |
| MARKET FOR SECURITIES                                                |   |   |
| DIRECTORS AND EXECUTIVE OFFICERS                                     |   |   |
| Cease Trade Orders, Bankruptcies, Penalties or  Sanctions            |   |   |
| Conflicts  of Interest                                               |   |   |
| LEGAL PROCEEDINGS                                                    |   |   |
| INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL  TRANSACTIONS         |   |   |
| TRANSFER AGENT                                                       |   |   |
| MATERIAL CONTRACTS                                                   |   |   |
| INTERESTS OF EXPERTS                                                 |   |   |
| RISK FACTORS                                                         |   |   |
| AUDIT  COMMITTEE INFORMATION                                         |   |   |
| Audit  Committee Charter                                             |   |   |
| Composition of the Audit Committee                                   |   |   |
| Relevant Education and Experience                                    |   |   |
| Reliance on Certain Exemptions                                       |   |   |
| Audit Committee Pre-Approval Policies and Procedures                 |   |   |
| External  Auditor Service Fees                                       |   |   |
| ADDITIONAL INFORMATION                                               |   |   |
| AUDIT COMMITTEE CHARTER                                              |   |   |
| GLOSSARY OF TERMS                                                    |   |   |

 

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**SPECIAL NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

Thisannual information form (“AIF”) contains forward-looking statements within themeaning of the *U.S. Private SecuritiesLitigation Reform Act of 1995* and the securities legislation ofcertain of the provinces of Canada. Forward-looking statements are necessarilybased on estimates and assumptions made by the Corporation in light of itsexperience and perception of historical trends, current conditions and expectedfuture developments, as well as other factors it believes are appropriate inthe circumstances. These estimates and assumptions are inherently subject tosignificant business, economic and competitive uncertainties, many of which,with respect to future events, are subject to change. These uncertainties andcontingencies can affect actual results and could cause actual results todiffer materially from those expressed or implied in any forward-lookingstatements made by the Corporation, or on its behalf.

Inmaking the forward-looking statements in this AIF, the Corporation has appliednumerous material factors and assumptions, including, but not limited to:

·                                          the assumption that the operation of, andproduction and processing from, the underground mine in conjunction with theopen pit mine will remain viable operationally and economically;

·                                          financing is available on reasonableterms;

·                                          the assumption that the advice theCorporation 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;

·                                          the assumption that the Corporation willbe able to negotiate the renewal of/or enter into a new smelting and refiningagreement(s) and

·                                          the assumption that the Corporation’splans for sustainable recoveries from the Lac des Iles Mine, for furtherexploration at the Lac des Iles Mine and surrounding region and for explorationin Finland can proceed as expected.

Thewords “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,”“target,” “budget,” “plan,” “projection”, “strategy” and similar expressionsare intended to identify forward-looking statements in this AIF. Informationconcerning mineral reserve and mineral resource estimates also may beconsidered forward-looking statements, as such information constitutes aprediction of what mineralization might be found to be present if and when aproject is actually developed.

Inlight of the risks and uncertainties inherent in all forward-lookingstatements, the inclusion or incorporation by reference of forward-lookingstatements in this AIF should not be considered as a representation by theCorporation or any other person that its objectives or plans will be achieved.Numerous factors could cause the Corporation’s actual results to differmaterially from those in the forward-looking statements, including thefollowing, which are discussed in greater detail under the “Risk Factors”section herein:

·                                          inability to meet production volumes oroperating cost goals;

·                                          inaccurate resource and reserveestimates;

·                                          inherent risks associated with mining andprocessing operations;

·                                          failure to maintain production levels forunderground mining operations;

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·                                          failure of the exploration program toincrease reserves;

·                                          competition from other mining companies;

·                                          interruption of operations at the Lac desIles Mine;

·                                          termination or failure to renew smeltingagreement(s);

·                                          volatility in metal prices;

·                                          changes in the United States/Canadiandollar exchange rate;

·                                          failure to renew the collective agreementon acceptable terms when it expires;

·                                          costs of complying with current andfuture environmental regulation;

·                                          costs of complying with other current andfuture governmental regulation;

·                                          competition from other suppliers ofplatinum group metals;

·                                          development of new technology leading toreduced demand for palladium;

·                                          loss of key personnel;

·                                          defaults under credit facilities; and

·                                          hedging activities.

Thesefactors should be considered carefully, and readers should not place unduereliance on the Corporation’s forward-looking statements. The Corporation undertakesno obligation to release publicly the results of any future revisions it maymake to forward-looking statements to reflect events or circumstances after thedate of this AIF or to reflect the occurrence of unanticipated events, exceptas required by law.

**METRIC CONVERSION 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         |

 

**OTHER INFORMATION**

Alldollar amounts referred to herein are in Canadian dollars unless statedotherwise. Unless otherwise indicated, all financial information includedherein has been prepared in accordance with Canadian generally acceptedaccounting principles (“Canadian GAAP”), which may differ from United Statesgenerally accepted accounting principles (“U.S. GAAP”).

Descriptionsof mineral reserve and mineral resource estimates included herein underCanadian standards may not be comparable to similar information made public byU.S. companies subject to reporting and disclosure requirements of the UnitedStates Securities and Exchange Commission. See “Mineral Reserve and ResourceEstimates – Note to U.S. Shareholders” herein.

Theinformation is this AIF is presented as at March 20, 2007 unless otherwiseindicated.

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**CORPORATE STRUCTURE**

NorthAmerican Palladium Ltd. (the “Corporation”) is the successor to Madeleine MinesLtd., a company incorporated under the *QuébecMining Companies Act* by letters patent dated February 2, 1968. InJanuary 1992: (i) Madeleine Mines Ltd. was amalgamated with a wholly ownedQuébec subsidiary of 2750538 Canada Inc., a company incorporated under the *Canada Business Corporations Act* byarticles of incorporation dated September 12, 1991; (ii) the amalgamatedcompany was wound up into 2750538 Canada Inc.; and (iii) 2750538 Canada Inc.changed its name to “Madeleine Mines Ltd.” By articles of amendment dated July24, 1993, Madeleine Mines Ltd. changed its name to “North American PalladiumLtd.” The Corporation has one operating subsidiary, Lac des Iles Mines Ltd. (“LDI”),incorporated under the *Canada BusinessCorporations Act*, and wholly owned by the Corporation. Unlessotherwise indicated, all references in this AIF to the “Corporation” includeNorth American Palladium Ltd., together with its wholly-owned subsidiary, Lacdes Iles Mines Ltd. The Corporation has two additional subsidiaries, NorthAmerican Palladium Finland Oy and North American Palladium Arctic Services Oy,both Finnish corporations which are wholly-owned (see “Arctic Platinum Project”).

TheCorporation’s registered office is at Suite 2116, 130 Adelaide Street West,Toronto, Ontario M5H 3P5, telephone: (416) 360-7590, fax: (416) 360-7709. TheCorporation’s mining operations are situated approximately 85 kilometresnorthwest of Thunder Bay at Lac des Iles, in northern Ontario. The postaladdress is P.O. Box 10547, Thunder Bay, Ontario P7B 6T9, telephone: (807) 448-2000,fax: (807) 448-2001.

**GENERAL DEVELOPMENT OF THEBUSINESSAND DESCRIPTION OF THE BUSINESS**

Thefollowing description of the Corporation’s business includes many geologicalterms that may not be familiar to the reader. For a description of the meaningof some of these terms, please see the “Glossary of Terms” included in thisAIF.

**Overview**

Thefollowing contains forward-looking statements about the Corporation’s business.Reference should be made to “Special Note Regarding Forward-Looking Statements”on page 1 and for a description of material factors that could cause theCorporation’s actual results to differ materially from the forward-lookingstatements in the following, please see “Risk Factors” commencing at page 25.

TheCorporation owns and operates an open pit and underground mine known as the Lacdes Iles Mine and a processing plant with a design capacity of 15,000 tonnesper day. The mining and processing operation produces by flotation a palladiumrich concentrate that also contains platinum, gold, copper and nickel. Theconcentrate is delivered to the Sudbury smelter operations of Xstrata Limited(formerly Falconbridge Limited) (“Xstrata”) and then further processed at itsrefining operations in Kristiansand, Norway.

Inlate 2003 the Corporation commissioned a feasibility study in response toscoping studies and a pre-feasibility study that indicated a higher gradesub-vertical ore body located directly beneath the open pit was viable as anunderground mine. The feasibility study confirmed that an underground operationwas economically viable operating concurrently with the open pit to provide ablended higher grade mill feed.

Thedevelopment of the underground mine commenced in the second quarter of 2004.Maintaining access to the original mine portal for the underground miningoperations was difficult during 2005, as a result of pit blasts that obstructedthe open pit ramp and ultimately limited underground access. The access 

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problemwas resolved by extending the main underground ramp to provide continuousaccess to the underground operation that was above the active open pit areas.Capital costs for the underground development were $36 million for direct andindirect costs (on budget).  Miningequipment accounted for an additional $10 million of capital costs and theCorporation is financing this equipment through a vendor lease program.  The Corporation began full production fromthe underground operations on April 1, 2006 and effective this date theproduction from the underground operations has been reflected in the operatingresults of the Corporation.  Theunderground production for the nine months ended December 31, 2006 averaged2,245 tonnes per day with an average palladium grade of 5.96 grams pertonne.  During the fourth quarter of2006, underground production was 2,418 tonnes per day, with an averagepalladium grade of 6.42 grams per tonne.

**Lac des Iles Mine**

TheLac des Iles property consists of four mining leases from the Government ofOntario numbered 104108 to 104111, inclusive, comprising 85 single unit miningclaims and covering an aggregate of 1,469.57 hectares. The mining leases aredated September 1, 2006 and expire on August 31, 2027.  In addition to the mining leases, theCorporation holds mining claims covering approximately 15,058.1 hectares withina 425 kilometre radius of the Lac des Iles Mine.

TheLac des Iles Mine and surrounding property are located approximately 85kilometres northwest of the City of Thunder Bay, Ontario. Paved road access isprovided by Ontario Provincial Highway 527, followed by 15 kilometres of an allweather gravel road, maintained by the Corporation. Approximately 90% of theemployees reside in the Thunder Bay area.

**Open Pit Mining Operations**

Thefollowing table sets forth information concerning the production from the Lacdes Iles Mine open pit operation for each of the five years ended December 31,2006:
| ** **                         | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Ore mined  (tonnes)                |       | 3,926,911  |       | 3,705,555  |       | 4,574,134  |       | 4,396,847  |       | 7,250,963  |       |
| Waste mined  (tonnes)              |       | 8,888,037  |       | 11,619,658 |       | 12,275,889 |       | 10,164,806 |       | 9,828,552  |       |
| Total mined  (tonnes)              |       | 12,814,948 |       | 15,325,213 |       | 16,850,023 |       | 14,561,653 |       | 17,079,515 |       |
| Stripping ratio                    |       | 2.26:1     |       | 3.14:1     |       | 2.68:1     |       | 2.31:1     |       | 1.36:1     |       |
| Average daily  production (tonnes) |       | 35,109     |       | 41,987     |       | 46,038     |       | 39,895     |       | 46,793     |       |

 

TheCorporation mines ore and waste from the open pit using conventional hydraulic25 cubic metre and 19 cubic metre shovels, 190 tonne trucks, 187 millimetreblast hole drills and a fleet of conventional ancillary equipment. Mine wasteis stockpiled outside of design pit limits.

In2006, total tonnes mined from the open pit amounted to 12.8 million tonnes orapproximately 35,000 tonnes per day of combined ore and waste compared to 15.3million tonnes or 42,000 tonnes per day in 2005. Ore production for 2006totalled 3.9 million tonnes grading 1.63 grams per tonne of palladium comparedto 3.7 million tonnes grading 1.72 grams of palladium per tonne in 2005.

During2006 the waste to ore strip ratio decreased to 2.26:1 compared to 3:14 in2005.  The waste to ore strip was higherin 2005 because of the development of the Phase 4 pit.

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Atthe end of 2006, the broken ore stockpile consisted of 609,998 tonnes grading1.81 grams of palladium per tonne containing approximately 35,000 ounces ofpalladium compared to 714,589 tonnes grading 1.78 grams of palladium per tonnecontaining approximately 41,000 ounces of palladium at the end of 2005.

Duringthe first quarter of 2006, the ultimate pit design implemented in 2004 waschanged to an interim pit design that addressed previously disclosed south pitwall instability issues. The Corporation engaged an independent geotechnicalconsultant to review the slope stability issues and his recommendations wereused by P&E Mining Consultants in designing a reconfigured open pit. TheCorporation then commenced a detailed review of its life-of-mine operating planfor the Lac des Iles Mine. As a result of the review a revised mine plan hasbeen adopted and the carrying value of the Corporation’s mining interests havebeen reviewed based upon this revised mine plan.  The Corporation’s management believes, as atDecember 31, 2006, an impairment charge and a corresponding reduction in thecarrying value of its mining interests is not required.

**Underground MiningOperations**

Theunderground portion of the Roby deposit is a continuation to depth of the RobyHigh Grade Zone that forms the core of the Roby open pit reserves. Theunderground deposit lies below the ultimate pit bottom of the Roby open pit atan elevation of 209 metres above sea level, and extends to a depth of 170metres below sea level, for a total dip length of 444 metres.

Fullproduction in the underground mine commenced April 1, 2006 and in the ninemonths ended December 31, 2006, the underground mine produced at the averagerate of 2,245 tonnes of ore per day at an average head grade of 5.96 grams ofpalladium per tonne.

Mobileequipment for the underground mine, for the Corporation and its contractorsincludes three electric hydraulic jumbo drills, two longhole drills, two 6cubic metre scooptrams, two 8.4 cubic metre scooptrams, three 60 tonne trucksand two 40 tonne trucks, along with other service and support equipment.

Thechosen mining method is sublevel retreat longitudinal longhole stoping with nofill. The mining block interval is 70 metres floor to floor including a 15 metreto 25 metre sill pillar below each haulage level. Stopes are 45 metres to 55metres high by the width of the orebody. Total intake ventilation for the mineis designed to be 205 cubic metres per second. There is one intake ventilationraise/secondary egress situated outside the ultimate open pit limits and airexhausts up the main ramp.

Workis currently being conducted using the Corporation’s workforce and contractors.The Corporation is endeavouring to replace contractors with its own employees;however, there is significant competition for skilled underground miners.  The Corporation will continue to usecontractors for production mining as it seeks to attract underground miners tothe operation. Blasthole drilling and underground development work will continueto be conducted by contractors.

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**MillingOperations**

Theconcentrator produces a palladium rich concentrate that is shipped off-site forfinal processing. See “Smelting and Refining Agreements”. The following tableset forth the tonnes milled and the metal production of the concentrate foreach of the five years ended December 31, 2006:
| **Year** | ** ** | **Milled** | ** ** | **Concentrate** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold**    | ** ** | **Copper** | ** ** | **Nickel** | ** ** |
|----------|------------|------------|------------|-----------------|------------|---------------|------------|--------------|------------|-------------|------------|------------|------------|------------|------------|
|     |       | (tonnes)   |       | (tonnes)        |       | (troy  ozs)   |       | (troy  ozs)  |       | (troy  ozs) |       | (lbs)      |       | (lbs)      |       |
| 2006     |       | 4,570,926  |       | 29,483          |       | 237,338       |       | 22,308       |       | 17,237      |       | 5,155,588  |       | 2,721,042  |       |
| 2005     |       | 4,780,599  |       | 30,698          |       | 177,167       |       | 18,833       |       | 14,308      |       | 5,514,670  |       | 2,353,227  |       |
| 2004     |       | 5,298,544  |       | 45,652          |       | 308,931       |       | 25,128       |       | 25,679      |       | 7,836,183  |       | 4,320,970  |       |
| 2003     |       | 5,159,730  |       | 36,869          |       | 288,703       |       | 23,742       |       | 23,536      |       | 7,142,674  |       | 4,070,785  |       |
| 2002     |       | 4,851,621  |       | 27,179          |       | 219,325       |       | 19,180       |       | 16,030      |       | 5,295,486  |       | 2,763,654  |       |

 

Theconcentrator facility used at the mine has a design capacity of 15,000 tonnesper day. Ore is crushed in a gyratory crusher and conveyed to a coarse orestockpile. With the commissioning of the secondary crusher in 2004, all of thecoarse ore was crushed in the secondary crusher and the finer material was fedto the SAG mill. In 2005, modifications were made to the secondary crusher,including the installation of a grizzly to enable the operators to control theamount of coarse ore processed by the secondary crusher. The ore is ground to anominal P80 (the size of an opening through which 80% of the product will pass)of 74 microns in a conventional semi-autogenous mill/ball mill/pebble crusher(SABC) circuit. The ground ore feeds a flotation circuit that is comprised ofrougher/scavengers, four stages of cleaning and includes a regrind circuit. Theflotation circuit in the old concentrator is currently connected to the newconcentrator to provide additional cleaner flotation capacity. The finalconcentrate is thickened and dewatered using two pressure filters. Tailings arecontained in the existing tailings impoundment facility which is required to beexpanded on an annual basis, throughout the life of the mine.

Theconcentrator processed 4,570,926 tonnes of ore or 12,523 tonnes per calendarday in 2006 at an average palladium head grade of 2.18 grams per tonne and anaverage palladium recovery of 74.0%. The concentrator throughput was 4,780,599tonnes of ore in 2005 at an average palladium grade of 1.66 grams per tonne andan average palladium recovery of 69.6%. The Corporation produced 237,338,177,167 and 308,931 ounces of palladium in 2006, 2005 and 2004, respectively.Palladium production increased in 2006 primarily as a result of improved headgrade due to the production from the underground mine. Recoveries were affectedprimarily by higher head grade, as well as the ongoing process of improving thethroughput and availability of the mill by addressing and systematicallyresolving previously identified issues. These included flotation circuit improvements, implementation ofproactive preventative maintenance programs, changes made to the mill flowsheet, reagent mix and the quality of recycled water.

Productioncosts per tonne of ore milled were $24.60 in 2006, $20.78 in 2005 and $19.43 in2004. Cash costs, which include direct and indirect operating costs, smelting,refining, transportation and sales costs, royalties, net of credits forby-products, were US$201 per ounce of palladium in 2006, US$359 per ounce ofpalladium in 2005 and US$159 per ounce of palladium in 2004. The decrease in the unit cash costs wascaused by a combination of improvedhead grades and metal recoveries, which led to a 34% increase in palladiumproduction to 237,338 ounces in 2006 compared to 177,167 ounces in 2005,combined with the 70% increase in revenue from by-product metals.  In addition, throughout the year there was adecrease in the open pit waste to ore strip ratio to 2.26:1 in 2006, comparedto 3.14:1 in 2005.  However, therecontinues to be pressure on costs, particularly steel, tires, power and dieselfuel.

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**Facilities andInfrastructure**

Inaddition to the concentrator, the mining operation includes an assaylaboratory, a warehouse, electrical shop, a three bay truck shop to service thelarger haul trucks, an operations camp, a water treatment plant, a propanestorage facility, a fuel storage area and an electrical substation. Power isdelivered to the site by a 65 kilometre power line, which ties directly intothe northwestern Ontario power grid.

Thepresent tailings management facility (“TMF”) has been operating since 1990.Until 1998, the dams were primarily constructed as water retaining dams,comprising rock fill, filters and glacial till or high density polyethylenefacing. In 1998 and 1999, dams at the north end of the facility were raisedusing rock fill and tailings. Further TMF expansion commenced in 2000 and wasdesigned to accommodate successive lifts when required to store the tailingsproduced over the mine life. The dams have been raised and are constructed ofnon-reactive waste rock two inch minus crushed rock and geotextile. The TMF isan industrial waste impoundment, 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 provides forclosure and reclamation of the facility.

**Metal Sales**

During2006 all palladium production was soldinto the spot market with one or more commodity dealers and manufacturers.

OnJanuary 19, 2007, LDI entered into a platinum and palladium purchase agreementwith Auramet Trading LLC.  See “Financing– Platinum and Palladium Purchase Agreement”.

TheCorporation enters into forward commodity sales contracts on its by-productmetal production from time to time to hedge the effect of changes in certainmetal prices on the Corporation’s revenues. During 2006, however, the Corporation chose to sell all of itsby-product metal production into the spot market.

**Royalty Agreement**

Productionfrom the Lac des Iles Mine is subject to a royalty agreement with The SheridanPlatinum Group Inc. and John Patrick Sheridan (together referred to as the “SheridanGroup”). Under the agreement, the Corporation is obligated to pay to theSheridan Group a royalty equal to 5% of “net cash proceeds” received fromconcentrates and other products produced at the Lac des Iles Mine. The term “netcash proceeds” is defined in the royalty agreement generally as the netproceeds of sale receivable by LDI from the production and sale of concentratesfrom the Lac des Iles Mine, after deducting the costs of sampling, assaying,transporting and insuring the concentrate; smelter, processing and refiningcharges and penalties (excluding LDI’s own processing costs) and all applicabletaxes and royalties that must be paid in respect of the mining operations.Under the royalty agreement, the Sheridan Group may elect, and has elected, toreceive payment of the royalty, in respect of palladium and platinum, in kindrather than in cash and, in respect of other metals, the Sheridan Group haselected to receive cash. All mining operations at the Lac des Iles Mine arelocated on the mining leases and are covered by the royalty agreement.

**Smelting and RefiningAgreement**

TheCorporation has a smelting and refining agreement with Xstrata pursuant towhich Xstrata purchases the Corporation’s concentrates and settles in cash or,at the Corporation’s option, makes available to the Corporation the refinedpalladium, platinum and gold at Xstrata’s refining facilities in Kristiansand,Norway. The agreement expires on April 30, 2007 and a renewal is currentlybeing negotiated.  However, 

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incertain circumstances, such as default of performance, insolvency or ceasing tocarry on business, the agreement can be terminated by the party not in default,insolvent or ceasing to carry on business. The agreement can be suspended in theevent of a force majeure.

TheCorporation had an agreement with Inco Limited (now CVRD Inco Limited) (“Inco”),which expired on November 30, 2005. Under the terms of the agreement, Incopurchased the Corporation’s concentrates and settled in cash or, at theCorporation’s option, made available to the Corporation the refined palladiumand platinum at Inco’s Acton Refinery in London, England.

**Financing**

***Senior Credit Facilities***

OnJune 28, 2004, the Corporation entered into a US$20 million and a $10 million seniorcredit facility (the “Senior Credit Facilities”) with a leading equipmentfinance company.  These facilities arefully drawn. The US$20 million credit facility is repayable in equal quarterlyinstalments of US$1 million which commenced on September 30, 2004 and has afinal maturity on June 30, 2009. The $10 million credit facility is repayablein equal quarterly instalments of $500,000 which commenced on February 24, 2005and has a final maturity of November 24, 2009. The Senior Credit Facilities havean interest margin of 2.5% over the 30-day LIBOR rate and the lender has afirst priority security in all of the Corporation’s existing and future assetsexcluding its production leases and claims. The Senior Credit Facilities allow,in certain circumstances, full repayment of outstanding amounts drawn at anytime during their respective terms.

***Kaiser-Francis CreditFacilities***

In December 2001,Kaiser-Francis Oil Company (“Kaiser-Francis”) provided a US$20 millionnon-revolving credit facility to finance the Corporation’s working capitalrequirements. In the second quarter of 2004, the Kaiser-Francis credit facilitywas extended 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 Corporation granted Kaiser-Francis a security interest in the assets of theCorporation, including a pledge of the LDI shares. The security interest wassubordinated to the security interests of the senior credit facility.  This credit facility was repaid on June 23,2006 pursuant to the terms of the Series II convertible note issued on thatdate (see “Convertible Note Financing” below).

OnOctober 12, 2006, the Corporation obtained from Kaiser-Francis a $US5 millionshort-term working capital loan maturing December 31, 2006.  The interest rate under the loan was the30-day LIBOR rate plus 2.5%.  TheCorporation paid a commitment fee of US$38,000 and amounts not drawn under theloan were subject to a standby fee of 0.125% per annum.  In connection with the loan, the Corporationgranted to Kaiser-Francis a first priority security interest in the inventoryand receivables of the Corporation. On December 13, 2006 the maturity date wasextended to March 31, 2007, with no other changes in terms.  The Corporation paid a commitment fee ofUS$25,000 for the extension.  As atDecember 31, 2006, the outstanding loan was $US5 million.  The loan was repaid on March 7, 2007 (see “Platinumand Palladium Purchase Agreement” below).

The amount payable toKaiser-Francis for interest, standby fees and guarantee fees on thesefacilities was $551,000 in 2006 compared to $836,000 in 2005. As at December31, 2006, US$5 million was drawn on the facilities. Kaiser-Francis holdsapproximately 50% of the outstanding Common Shares of the Corporation.

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***Convertible NoteFinancing***

OnMarch 28, 2006, the Corporation announced the execution of a securitiespurchase agreement dated March 24, 2006 (the “Securities Purchase Agreement”)relating to the private placement of up to US$58.5 million principal amount ofconvertible notes (the “Convertible Notes”) together with common share purchasewarrants (the “Warrants”) exercisable to purchase, for four years from the dateof their issuance, 50% of the number of Common Shares underlying theConvertible Notes.  Under the terms ofthe Securities Purchase Agreement, on March 29, 2006 the Corporation issued aSeries I Convertible Note in the principal amount of US$17.5 million to each ofKaiser-Francis and IP Synergy Finance Inc. (“IPSF” and, collectively withKaiser-Francis, the “Holders”).  On June23, 2006, the Corporation issued a Series II Convertible Note in the principalamount of US$13.5 million to Kaiser-Francis

TheSeries I Convertible Notes were initially convertible into 2,873,563 CommonShares representing an effective price of US$12.18 per share (the “InitialConversion Price”).  The Series IIConvertible Note was initially convertible, at the Initial Conversion Price,into 1,108,374 Common Shares.  TheInitial Conversion Price is equal to 113% of the Initial Market Price.  For the purposes of the Convertible Notes,the Initial Market Price is US$10.78, being the five day weighted averagetrading price of the Common Shares on the American Stock Exchange (the “AMEX”)immediately preceding March 24, 2006.  Inaddition, Warrants exercisable to purchase 1,436,782 Common Shares (the “SeriesI Warrants”) were issued with the Series I Convertible Notes, and common sharepurchase warrants exercisable to purchase 554,187 Common Shares (the “Series IIWarrants”) were issued with the Series II Convertible Note.  Each Warrant is exercisable to purchase oneCommon Share at an initial exercise price (the “Initial Exercise Price”) ofUS$13.48.  The Initial Exercise Price ofthe Warrants is equal to 125% of the Initial Market Price.

TheSeries I Convertible Notes bear interest at a rate of 6.5% per annum, payablebi-monthly, commencing on June 1, 2006. The Series II Convertible Note bears interest at a rate of 6.5% perannum, payable bi-monthly, commencing on August 1, 2006.  The Series I Convertible Notes are to berepaid in nine equal instalments which will commence on April 1, 2007.  The Series II Convertible Note is to berepaid in nine equal instalments which will commence on August 1, 2007.  The interest payments and/or principalrepayment amounts may be paid to each Holder, at such Holder’s option, in anycombination of cash and/or Common Shares. Common Shares issued for interest payments or in repayment of theConvertible Notes will be issued at a 10% discount from the weighted averagetrading price of the Common Shares on the AMEX for the five consecutive tradingdays immediately prior to the applicable payment date.  The Corporation has the right to defer anyprincipal repayment in cash until a later principal repayment date.  There is no limit on the length of thedeferral, other than it cannot be deferred later than the final maturitydate.  The Company must give five daysnotice of its intention to defer payment.

CommencingJune 29, 2007, in respect of the Series I Convertible Notes, and September 23,2007, in respect of the Series II Convertible Note, if the weighted averagetrading price of the Common Shares on the AMEX for each of any twenty-fiveconsecutive trading days is at least 150% of the Initial Conversion Price, theCorporation will, subject to certain conditions, have the right to force theHolders to convert all or any of the outstanding principal amount of the SeriesI Convertible Notes or the Series II Convertible Note, respectively, at thethen conversion price.

TheConvertible Notes contain customary covenants, including restrictions on theCorporation incurring debt, payment of dividends or obligations for orinvolving the payment of money in excess of certain restricted amounts.  The Convertible Notes also contain customaryanti-dilution protection (including full 

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protectionfor dividends) as well as adjustments in the event that the Corporation issuesCommon Shares or securities convertible into Common Shares at a purchase price(the “Effective Price”) per Common Share less than the Conversion Price.  In such event, the conversion price will bereduced to the Effective Price, provided that the adjusted conversion pricecannot be less than US$9.12 (adjusted as prescribed in the ConvertibleNotes).  Notwithstanding the foregoing,no adjustment is required in certain specified events, including Common Sharesissued (i) pursuant to the exercise of stock options or in connection with theCorporation’s share purchase plan, (ii) with favourable flow-through taxtreatment relating to Canadian exploration expenses under the *Income Tax Act* (Canada), or (iii) inconnection with certain transactions involving a merger or acquisition of anentity, business or assets.

TheWarrants contain anti-dilution protection similar to that of the ConvertibleNotes.  In the event that the Corporationissues Common Shares or securities convertible into Common Shares at anEffective Price per Common Share less than the exercise price of the Warrants,the exercise price of the Warrants will be reduced to the Effective Priceprovided that the adjusted exercise price cannot be less than US$10.73(adjusted as prescribed in the Warrants). The Warrants contain the same exceptions to the anti-dilution provisionsas the exceptions to the adjustment of the Conversion Price of the ConvertibleNotes set out in the previous paragraph.

TheSecurities Purchase Agreement also provided the Holders with an option toacquire a third tranche of US$10 million principal amount of convertible notes(the “Series III Convertible Notes”) on or before December 31, 2006, with eachHolder entitled to acquire one-half.  Ifeither Holder determined not to acquire its entire allotment of the Series IIIConvertible Notes, the other Holder was entitled to purchase the balance.  Warrants were also to be issued in connectionwith the Series III Convertible Notes. The Holders elected not to exercise their option to acquire the SeriesIII Convertible Notes.

OnJune 21, 2006, the shareholders of the Corporation approved the issuance of allof the Common Shares issuable to the Holders in connection with the ConvertibleNotes.

Ifa Holder elects to receive interest payments or principal repayments on theSeries I Convertible Notes or Series II Convertible Note in Common Shares andthe Corporation is, for any reason, unable to issue such Common Shares, theinterest payment or principal repayment will be made in cash.  If a Holder is restricted in its ability toreceive Common Shares upon conversion of the Series I Convertible Notes orSeries II Convertible Note, the Holder may require the Corporation to pay cashto such Holder in an amount equal to the number of Common Shares which suchHolder was not permitted to receive (the “Excess Shares”) multiplied by theaverage of the weighted average trading price of the Common Shares on the AMEXfor each of the five trading days immediately prior to the date of the payment,upon which the Corporation will have no further obligation to issue such ExcessShares.  If a Holder is restricted in itsability to receive Common Shares upon exercise of Series I or Series IIWarrants, the Corporation will be required to pay cash to such Holder in anamount equal to the binomial option pricing model of the applicable Warrantwith respect to the portion of such Warrant which is unexercisable.

Todate, the Holders have elected to receive all interest payable under theConvertible Notes in Common Shares.  Forthe year ended December 31, 2006, the Corporation issued 242,159 Common Shares to the Holdersin payment of interest due under the Convertible Notes.  An additional 68,138 Common Shares wereissued in payment of interest for the two month period ended February 1, 2007.

***Private Placement***

OnFebruary 27, 2007 the Corporation completed a private placement of 550,000 flowthrough common shares at $11.00 per share for gross proceeds of $6.05million.  The underwriter of the privateplacement 

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wasDundee Securities Corporation which received a 6% commission.  The gross proceeds will be used to expeditewok on the Shebandowan Project.

***Platinum andPalladium Purchase Agreement***

OnFebruary 5, 2007, the Corporation announced that LDI had entered into aplatinum and palladium purchase agreement dated as of January 19, 2007 (the “AurametAgreement”) with Auramet Trading, LLC (“Auramet”), a precious metals merchant,providing for the purchase and sale of an average of 10,000 ounces of palladiumand 500 ounces of platinum per month. The Corporation is a guarantor of LDI’sobligations under the Auramet Agreement. LDI may not request any purchase and sale after June 15, 2008 and allsales and payment therefor are required to be settled by December 31, 2008. LDImay receive advance payments not exceeding, at any time, an aggregate maximumof US$25 million.

Thepurchase price of the metal purchased under the Auramet Agreement may be fixedor provisional, 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, the afternoon fixing of the London Bullion Marketing Associationimmediately preceding the purchase. In each case such pricing will reflect theforward value corresponding to the scheduled delivery date. Advance payments toLDI may not exceed specified values of fixed and provisionally priced platinumand palladium. Provisional prices must be fixed prior to the scheduled deliverydate for such precious metals. Each advance payment will be subject to a discountequal to LIBOR plus 1.9% per annum for the period between the date the advancepayment is made and the scheduled delivery date. Upon the delivery of theprecious metals to Auramet, Auramet will pay to LDI the difference between theadvance payment and the purchase price.

Tosecure the obligations of LDI under the Auramet Agreement, LDI has granted toAuramet a security interest, among other things, in the concentrates (includingthe precious 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.

Thefirst advance payment was made on March 7, 2007 and was used to repay a bridgeloan from the Corporation’s major shareholder and subsequent advance paymentswill be used to finance working capital requirements.

**Collective Agreement withHourly Workers**

Followingmediation during 2006, the Corporation entered into a new collective agreementwith United Steelworkers of America, Local 9422.  The new collective agreement is for a threeyear term and expires on February 23, 2009.

**Mineral Properties**

**Lac Des Iles**

***Regional Geology***

TheLac des Iles area is underlain by Archean-age rocks of the Superior Province ofthe Canadian Shield which are overlain and intruded by rocks of theProterozoic-age Southern Province. The Superior Province can be subdivided intoareas of plutonic, granite-greenstone, metasedimentary and gneissic rocks. TheSouthern Province consists of a blanket of sedimentary rocks extensivelyintruded by gabbroic magma.

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Inthe Archean, mafic to ultramafic intrusions scattered throughout northwesternOntario host, or have the potential to host, platinum group metalmineralization. Platinum group metal mineralization of Proterozoic age is alsoknown to occur in northwestern Ontario.

Inthe Lac des Iles area, the Lac des Iles Intrusive Complex is one of manyplatinum group metal-bearing, mafic to ultramafic, intrusions that define acircular feature (of speculative origin) with a diameter of 30 kilometres. The30-square kilometre Lac des Iles Intrusive Complex consists of three separatemagma chambers partially separated by tonalite septum. The ultramafic North Lacdes Iles Intrusive Complex is centered on Lac des Iles. The gabbroic Mine BlockIntrusion and Camp Lake Intrusion occur south of Lac des Iles. The Camp LakeIntrusion is a relatively homogeneous hornblende gabbro and contains minor basemetal sulphides and platinum group metals. The Mine Block Intrusion to thenorth is complex in structure, texture and composition, and contains abundantplatinum group metal mineralization. The most significant occurrences ofplatinum group metal (PGM) mineralization are in the Mine Block Intrusion andare the Roby, Twilight, Baker and Creek zones. The Roby and Twilight zones arethe only defined areas of economic mineralization on the Lac des Iles property.

***Mine Block IntrusionGeology***

TheRoby zone is a breccia zone, currently measuring 950 metres long, 815 metreswide and 1500 metres deep, and remains open at depth. Platinum group metalmineralization is associated with pyroxenite, gabbronorite and gabbro in areasthat have been invaded and brecciated by copper-nickel-platinum groupmetal-bearing melanogabbro, which also generated abundant pegmatitic gabbro.The PGM mineralization typically contains from a trace to 5% pyrrhotite,chalcopyrite, pyrite and pentlandite. The platinum group metals includevysotskite, isomerticite, kotulskite, sperrylite, merenskyite and palladiumarsenide. Similar breccia textured mineralization occurs at other locationswithin the intrusive complex.

TheRoby zone contains two distinct types of mineralization separated by a zone ofsheared and mineralized pyroxenite that trends north-northwest. North of theshear zone, the North Roby ore is hosted by varitextured gabbro andgabbronorite that strikes northeast and dips to the east-southeast variably at45 to 60 degrees. This mineralization tends to be sulphide-poor. Southwest ofthe shear zone the breccia ore (the “Breccia Ore”) is hosted by a heterolithicgabbro breccia with abundant pegmatitic and varitextured gabbro. From thepyroxenite contact, the grades diminish gradually to the west. This zone ofBreccia Ore typically contains 2% to 5% sulphides. The pyroxenite is wellmineralized and contains high grade ore associated with intense alteration. TheMain High Grade Zone occurs at the eastern boundary of the central portion ofthe Roby Zone and extends below the economic limits of the Roby pit. This nearvertical planar zone has a strike length exceeding 350 metres with thicknessaveraging 12 metres and is ideal for exploitation by underground miningmethods. It is continuous to a depth of 675 metres where it is truncated andoffset to the west by a fault. Below this fault, the faulted extension known asthe Offset High Grade zone has been traced to a depth of 1,200 metres, over astrike length of 600 metres, and remains open down plunge and to a large degreedown dip.  As well, a second mineralizedzone, known as the Footwall Roby Zone, has been located on the footwall side,and in immediate proximity to the Offset High Grade Zone.

TheTwilight zone lies 50 to 70 metres east of the east boundary of the Roby zone.The Baker zone is located one kilometre east of the Roby zone and the CreekZone is located less than two kilometres from the Roby Zone.

***Exploration***

In2006, exploration drilling on the Offset High Grade Zone totalled 5,662.5metres in 8 drill holes that were wedged from previously completed drill holes.The drilling was conducted by Bradley Brothers 

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Limitedand supervised by employees of the Corporation. The Offset High Grade Zone hasnow been intersected over a 700 metre vertical height and approximately 600metres along strike.

Theresults from the drilling program carried out in 2006 were announced in twopress releases dated June 20, 2006 and September 14, 2006 and are summarized intabular form below:
| ** **       | ** ** | **(metres)** | ** ** | **(grams per tonne)** | ** ** | **%**        | ** ** | **%**         | ** ** |
|------------------|------------|--------------|------------|---------------------------------|------------|--------------|------------|---------------|------------|
| **Hole ID** | ** ** | **From**     | ** ** | **To**                          | ** ** | **Interval** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Nickel** | ** ** | **Copper** | ** ** |
|             |       |         |       |                            |       |         |       |          |       |   |   |   |   |   |   |   |   |
| 05-006W2         |       | 1021.35      |       | 1096.00                         |       | 74.65        |       | 7.231         |       | 0.465 |   | 0.622 |   | 0.145 |   | 0.153 |   |
| incl             |       | 1024.00      |       | 1064.00                         |       | 40.00        |       | 10.375        |       | 0.648 |   | 0.968 |   | 0.210 |   | 0.223 |   |
| 05-006W3         |       | 1043.70      |       | 1069.00                         |       | 25.30        |       | 7.606         |       | 0.557 |   | 0.645 |   | 0.161 |   | 0.123 |   |
| incl             |       | 1053.00      |       | 1066.00                         |       | 13.00        |       | 10.244        |       | 0.658 |   | 0.724 |   | 0.155 |   | 0.103 |   |
| 05-006W4         |       | 1068.00      |       | 1164.00                         |       | 96.00        |       | 6.310         |       | 0.429 |   | 0.454 |   | 0.162 |   | 0.153 |   |
| incl             |       | 1068.00      |       | 1081.35                         |       | 13.35        |       | 15.194        |       | 0.754 |   | 1.003 |   | 0.153 |   | 0.230 |   |
| 05-006W5         |       | 1050.00      |       | 1070.00                         |       | 20.00        |       | 6.610         |       | 0.526 |   | 0.394 |   | 0.130 |   | 0.144 |   |
| incl             |       | 1114.00      |       | 1127.00                         |       | 13.00        |       | 7.369         |       | 0.326 |   | 0.264 |   | 0.134 |   | 0.097 |   |
| 05-016W1         |       | 986.60       |       | 995.00                          |       | 8.40         |       | 6.268         |       | 0.518 |   | 0.794 |   | 0.230 |   | 0.349 |   |
| and              |       | 1012.75      |       | 1060.00                         |       | 47.25        |       | 5.083         |       | 0.339 |   | 0.400 |   | 0.181 |   | 0.217 |   |
| incl             |       | 1024.00      |       | 1038.20                         |       | 14.20        |       | 8.600         |       | 0.424 |   | 0.250 |   | 0.090 |   | 0.159 |   |
| and              |       | 1083.00      |       | 1094.00                         |       | 11.00        |       | 7.337         |       | 0.384 |   | 0.222 |   | 0.055 |   | 0.081 |   |
| 05-016W2         |       | 965.75       |       | 975.15                          |       | 9.40         |       | 9.560         |       | 0.669 |   | 0.769 |   | 0.273 |   | 0.269 |   |
| and              |       | 982.00       |       | 994.00                          |       | 12.00        |       | 5.381         |       | 0.373 |   | 0.322 |   | 0.090 |   | 0.217 |   |
| 05-016W3         |       | 1021.00      |       | 1071.00                         |       | 50.00        |       | 6.446         |       | 0.465 |   | 0.360 |   | 0.096 |   | 0.077 |   |
| incl             |       | 1021.00      |       | 1048.00                         |       | 27.00        |       | 8.198         |       | 0.585 |   | 0.387 |   | 0.100 |   | 0.072 |   |
| incl             |       | 1021.00      |       | 1033.00                         |       | 12.00        |       | 10.197        |       | 0.690 |   | 0.338 |   | 0.091 |   | 0.069 |   |
| 05-016W4         |       | 1066.60      |       | 1216.50                         |       | 149.90       |       | 5.372         |       | 0.384 |   | 0.456 |   | 0.175 |   | 0.180 |   |
| incl             |       | 1066.60      |       | 1080.50                         |       | 13.90        |       | 10.281        |       | 0.741 |   | 0.947 |   | 0.300 |   | 0.274 |   |
| and              |       | 1127.00      |       | 1151.00                         |       | 24.00        |       | 7.306         |       | 0.493 |   | 0.753 |   | 0.193 |   | 0.216 |   |

 

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Explorationfor 2007 at Lac des Iles is expected to focus on completion of sufficientdrilling so as to allow upgrading of the mineral resources contained in theupper portion of the Offset High Grade Zone and the Footwall Roby Zone intoMeasured and Indicated mineral resource categories  The drilling program is expected to commencein the second quarter of 2007.  Themineral resources will then be re-estimated using all availableinformation.  This work is expected to becompleted in the fourth quarter of 2007.

***Mineral Reserve andMineral Resource Estimates***

Thefollowing contains forward-looking statements about the Corporation’s mineralreserve and mineral resource estimates. Reference should be made to “SpecialNote Regarding Forward-Looking Statements” on page 1 and for a description ofmaterial factors that could cause the Corporation’s actual results to differmaterially from the forward-looking statements in the following, please see “RiskFactors” commencing at page 3.

Themineral resource and mineral reserve estimates prepared by the Corporationconform to the definitions adopted by the Canadian Institute of Mining,Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources andReserves - Definitions and Guidelines adopted by the CIM Council on August 20,2000 which classifies resources into measured, indicated and inferredconfidence categories and classifies reserves as proven and probable.  These mineral resource and mineral reserveestimates are disclosed in compliance with National Instrument 43-101 StandardsOf Disclosure For Mineral Projects (“National Instrument 43-101”)..

***Note to U.S. Shareholders***

TheCorporation is required under Canadian law (National Instrument 43-101 of theCanadian securities administrators) to report mineral reserves and resourcesusing the classification system set out in the CIM Standards for MineralResources and Mineral Reserves (as amended on December 11, 2005).  These guidelines establish definitions forthe reporting of mineral resources and mineral reserves in Canada. Thesedefinitions have not been adopted for use in the United States by theSecurities and Exchange Commission (the “SEC”).

TheCIM definitions of proven and probable reserves are substantially similar tothe definitions of proven and probable reserves as set out Industry Guide No. 7under the U.S. Securities Act of 1933, as amended. In addition, Canadian lawrequires disclosure of mineral resources if such resources are material to thecompany. While the terms “mineral resource”, “measured mineral resource”, “indicatedmineral resource” and “inferred mineral resource” are recognized by Canadiansecurities administrators, they are not defined terms under the standards inthe United States. As such, the information contained in this AIF (and inparticular the sections entitled “Mineral Reserves” and “Mineral Resources”)concerning descriptions of mineralization and resources under Canadianstandards may not be comparable to similar information made public by U.S.companies subject to reporting and disclosure requirements of the SEC. “Measuredmineral resources”, “Indicated mineral resources” and “inferred mineralresources” have variable amounts of uncertainty as to their existence and as totheir economic and technical viability. It cannot be assumed that all or anypart of an “indicated mineral resource” or “inferred mineral resource” will everbe upgraded to a higher category. Investors are cautioned not to assume thatall or any part of the mineralization classified in these categories will everbe reclassified as reserves.

***Mineral Reserves***

Mineralreserves are presently defined on a palladium-only basis for the open pit andunderground mines. The deposit is polymetallic by nature, with economicallyrecoverable credits for platinum, gold, copper, 

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nickeland cobalt. A significant portion of revenue is derived from palladium,averaging about 48% of revenues in 2006.

Thefollowing table sets forth the estimated open pit reserves at the Lac des IlesMine as at December 31, 2006:
| **Reserves**               | ** ** | **Tonnes** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Copper** | ** ** | **Nickel** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** |
|----------------------------|------------|------------|------------|---------------|------------|--------------|------------|----------|------------|------------|------------|------------|------------|---------------|------------|--------------|------------|
|                       |       | (000)      |       | (g/t)         |       | (g/t)        |       | (g/t)    |       | (%)        |       | (%)        |       | (000  oz)     |       | (000  oz)    |       |
| Proven                     |       | 6,853      |       | 2.353         |       | 0.221        |       | 0.188    |       | 0.072      |       | 0.085      |       | 518           |       | 49           |       |
| Proven  Stockpiles         |       | 604        |       | 1.772         |       | 0.195        |       | 0.156    |       | 0.058      |       | 0.076      |       | 34            |       | 4            |       |
| Probable                   |       | 2,616      |       | 2.060         |       | 0.215        |       | 0.173    |       | 0.075      |       | 0.087      |       | 173           |       | 18           |       |
| Total Proven and  Probable |       | 10,073     |       | 2.242         |       | 0.218        |       | 0.182    |       | 0.072      |       | 0.085      |       | 725           |       | 71           |       |

 

Thefollowing table sets forth the estimated underground reserves at the Lac desIles Mine as at December 31, 2006:
| **Reserves**               | ** ** | **Tonnes** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Copper** | ** ** | **Nickel** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** |
|----------------------------|------------|------------|------------|---------------|------------|--------------|------------|----------|------------|------------|------------|------------|------------|---------------|------------|--------------|------------|
|                       |       | (000)      |       | (g/t)         |       | (g/t)        |       | (g/t)    |       | (%)        |       | (%)        |       | (000  oz)     |       | (000  oz)    |       |
| Proven  (Stockpile)        |       | 5.68       |       | 5.844         |       | 0.380        |       | 0.439    |       | 0.103      |       | 0.106      |       | 1             |       | 0.07         |       |
| Probable                   |       | 2,695      |       | 6.580         |       | 0.400        |       | 0.330    |       | 0.070      |       | 0.080      |       | 570           |       | 35           |       |
| Total Proven and  Probable |       | 2,701      |       | 6.578         |       | 0.400        |       | 0.330    |       | 0.070      |       | 0.080      |       | 571           |       | 36           |       |

Notes:

1.The Mineral Reserves for the underground mine were prepared under thesupervision of Mr. David Penna, P. Geo and by Dr. Will Bawden, Ph. D., P.Eng.  Mr. Penna holds the position ofSenior Geologist at LDI while Dr. Bawden is independent of LDI and theCorporation.

2.The dilution factors were taken from the Technical Report disclosing theresults of the Feasibility Study for Underground Mining as prepared by Mssrs.Graham Clow and David Rennie of Roscoe Postle and Associates (2004), a copy ofwhich is available on SEDAR.

3.The mineral reserves are calculated at a cut-off grade of 4.5 grams ofpalladium per tonne for the underground mine, assuming an average long-termpalladium price of US$325 per ounce and includes by-product metal credits.

4.The palladium and platinum metal ounces are on a contained basis withoutadjustment for processing or smelting recoveries.

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See“Note to U.S. Shareholders” above.

***Mineral Resources***

Thefollowing table sets forth the estimated open pit resources at the Lac des IlesMine as at December 31, 2006:
| **Resources**                 | ** ** | **Tonnes** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Copper** | ** ** | **Nickel** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** |
|-------------------------------|------------|------------|------------|---------------|------------|--------------|------------|----------|------------|------------|------------|------------|------------|---------------|------------|--------------|------------|
|                          |       | (000)      |       | (g/t)         |       | (g/t)        |       | (g/t)    |       | (%)        |       | (%)        |       | (000  oz)     |       | (000  oz)    |       |
| Measured                      |       | 8,259      |       | 1.671         |       | 0.222        |       | 0.126    |       | 0.062      |       | 0.078      |       | 444           |       | 59           |       |
| Measured (Stockpile)          |       | 12,045     |       | 0.963         |       | 0.122        |       | 0.081    |       | 0.034      |       | 0.055      |       | 373           |       | 47           |       |
| Indicated                     |       | 4,726      |       | 1.608         |       | 0.215        |       | 0.113    |       | 0.058      |       | 0.076      |       | 244           |       | 33           |       |
| Total Measured  and Indicated |       | 25,030     |       | 1.318         |       | 0.173        |       | 0.102    |       | 0.048      |       | 0.067      |       | 1,061         |       | 139          |       |
| Inferred                      |       | —     |       | —        |       | —       |       | —   |       | —     |       | —     |       | —        |       | —       |       |

 

1.The Mineral Resources for the open pit mine were prepared under the supervisionof Mr. David Penna, P. Geo., who holds the position of Senior Geologist at LDI.

2.The mineral resources are calculated at a cut-off grade of 1.1 grams ofpalladium per tonne for the open pit, assuming an average long-term palladiumprice of US$325 per ounce and includes by-product metal credits.

3.Mineral resources are in addition to Mineral Reserves. Resources which are notreserves do not have demonstrated economic viability.

4.The open pit reserves are reported as grade-diluted blocks but are stated on anin-situ basis.

5.The palladium and platinum metal ounces are on a contained basis withoutadjustment for processing or smelting recoveries.

Thefollowing table sets forth the estimated underground resources for the RobyHigh Grade Zone at the Lac des Iles Mine as at December 31, 2006:
| **Resources** | ** ** | **Tonnes** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Copper** | ** ** | **Nickel** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** |
|---------------|------------|------------|------------|---------------|------------|--------------|------------|----------|------------|------------|------------|------------|------------|---------------|------------|--------------|------------|
|          |       | (000)      |       | (g/t)         |       | (g/t)        |       | (g/t)    |       | (%)        |       | (%)        |       | (000  oz)     |       | (000  oz)    |       |
| Indicated     |       | 1,337      |       | 7.65          |       | 0.44         |       | 0.37     |       | 0.07       |       | 0.08       |       | 329           |       | 19           |       |
| Inferred      |       | —     |       | —        |       | —       |       | —   |       | —     |       | —     |       | —        |       | —       |       |

 

Notes:

1.The Mineral Resources for the underground mine were prepared under thesupervision of Mr. David Penna, P. Geo., who holds the position of SeniorGeologist at LDI.

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2.Mineral resources are in addition to Mineral Reserves. Resources which are notreserves do not have demonstrated economic viability.

3.Mineral resources are calculated at a cut-off grade 4.5 grams of palladium pertonne for the underground mine, assuming an average long-term palladium priceof US$325 per ounce and includes by-product metal credits. The cut-off gradesreflect the current estimated life-of-mine costs of mining and processing, inconjunction with smelting and transportation costs consistent with currentcontracts.

4.The palladium and platinum metal ounces are on a contained basis withoutadjustment for processing or smelting recoveries.

Thefollowing table sets forth the estimated Offset High Grade Zone resources atthe Lac des Iles Mine as at February 23, 2007:
| **Resources** | ** ** | **Tonnes** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** | **Gold** | ** ** | **Copper** | ** ** | **Nickel** | ** ** | **Palladium** | ** ** | **Platinum** | ** ** |
|---------------|------------|------------|------------|---------------|------------|--------------|------------|----------|------------|------------|------------|------------|------------|---------------|------------|--------------|------------|
|          |       | (000)      |       | (g/t)         |       | (g/t)        |       | (g/t)    |       | (%)        |       | (%)        |       | (000  oz)     |       | (000  oz)    |       |
| Indicated     |       | 3,239      |       | 5.45          |       | 0.38         |       | 0.39     |       | 0.121      |       | 0.133      |       | 568           |       | 40           |       |
| Inferred      |       | 12,794     |       | 5.25          |       | 0.38         |       | 0.37     |       | 0.108      |       | 0.124      |       | 2,160         |       | 156          |       |

 

Notes:

1.Richard E. Routledge, M.Sc., P. Geo. of Scott Wilson Roscoe Postle Associates (“ScottWilson RPA”) is a qualified person under NI 43-101 and prepared the Offset HighGrade Zone resource estimate.

2.Resources are in addition to reserves. Resources which are not reserves do nothave demonstrated economic viability.

3.Mineral resources are calculated at a cut-off grade of 3.6 grams of palladiumequivalent per tonne for the Offset High Grade Zone, assuming an averagelong-term palladium price of US$300 per ounce and includes by-product metalcredits (platinum = US$875 per ounce, gold = US$500 per ounce, copper = US$1.50per pound and nickel = $US7.00 per pound) . Palladium Equivalent = Pd (g/t) + 2.49 x Pt (g/t) + 1.38 x Au (g/t) +2.72 x Cu (%) + 7.35 x Ni (%).

4.The palladium and platinum metal ounces are on a contained basis withoutadjustment for processing or smelting recoveries.

5.Mineral resources are stated on a combined basis of the Offset High Grade Zoneand the Roby Footwall Zone.

See“Note to U.S. Shareholders”

**Environmental Matters**

Theexpansion of operations at the Lac des Iles Mine in 2000 and 2001 involvedamending the then existing closure plan under the *Mining Act* (Ontario), which included an increase in theamount of financial assurance required by the Ministry of Northern Developmentand Mines (“MNDM”). The closure plan and financial assurance agreement weresubmitted to the MNDM in April 2001. Under the financial assurance agreement,the Corporation is required to provide financial assurance of $7.8 millionpayable in installments of $100,000 per month over six years. As at December31, 2006, the Corporation had approximately $8.0 million on deposit with theMNDM.

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TheCorporation has designed the expanded operations so as not to infringe on anynavigable waters or fish habitat. Consequently, management believes no federalapprovals or permits are required pursuant to either the *Navigable Waters Protection Act* or the *Fisheries Act*. In addition, becausefederal approvals are not required, an environmental assessment under the *Environmental Assessment Act* should not benecessary. However, if production increases beyond 15,000 tonnes per day,federal permits may be necessary.  Thiswould trigger an environmental assessment which may be in the form of acomprehensive study.

Minimumpermitting and approvals were required for the underground mine as it is anextension of the much larger and higher impact open pit operations. The currentLand Use Permit was expanded by the Ministry of Natural Resources toaccommodate the additional parking lot, camp facilities and a portion of thetailings management facility. Notices of material change regarding theextension of the mine underground and the east waste dump were submitted to theMNDM and an amendment to the Certificate of Approval (Air) for the secondarycrusher and underground operations were submitted to and approved by theMinistry of the Environment.

Anamendment to the closure plan for the extension of the mine underground wassubmitted to the MNDM on December 7, 2005. The closure costs for the combinedopen pit and underground mine were reviewed by an independent engineering firmwhich determined that the estimate of $7.8 million was sufficient.

**Haines-Conacher(Shebandowan) Properties**

OnDecember 3, 2003, the Company entered into an option and joint ventureagreement with Inco Limited (now CVRD Inco Limited) on the Haines-Conacherproperties which surrounds the past producing Shebandowan mine.  The agreement was subsequently amended March31, 2006 to include the mine.  TheHaines-Conacher properties are located approximately 80 kilometres southwest ofThunder Bay.  In order to earn a 50%interest in the property, the Corporation must make cash payments aggregating$200,000 and incur exploration expenditures of $3 million on or before March31, 2008.  Under certain conditions, CVRDInco Limited may exercise a back-in right to increase its interest from 50% to60%.

Nickel-copper-PGMmineralization at Shebandowan occurs as stringer, breccia and massive sulphidesthat are hosted within highly altered and deformed ultramafic bodies which havebeen interpreted as basaltic komatiites. In the immediate area around theShebandowan mine, two significant ultramafic units have been recognized, a “Northern”or “Main” unit which was the principle host to the nickel-copper mineralizationat Shebandowan and a “South” unit.

Asa follow up to a short 4-hole, diamond drill program totalling 584 metres inlength in 2005 around the historic “D Zone” located approximately 1,500 metreswest of the old mine workings, the Corporation completed an eighty-three holedrill campaign in 2006 totalling 12,511 metres in length.  This was an expansion of the originally proposedfifteen hole program that focused on testing an area west of the Number 1 Shaftimmediately to the west and along strike of the Shebandowan mine containing the“West” Zone and “Road” Zone.  The initialresults of this drilling program were disclosed in a press release datedSeptember 12, 2006.  The drilling programwas completed in late December, 2006 with final checking of the data from theinternal Quality Control procedures nearing completion.

Encouragingintersections encountered in the South unit (including 20.1 metres grading1.93% nickel, 1.02% copper, 0.94 g/t palladium, 0.18 g/t platinum, 0.16 g/tgold and 0.05% cobalt from one hole) warrant further investigation.  An infill drill program for the West and RoadZones was initiated around 

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thehigher grade intercepts to enable a reliable resource estimate to be completedon the West, Road and D Zones, in addition to the verification of all historicdata.

Compositedrill core samples have been submitted to SGS Lakefield for preliminarymetallurgical test work to examine the amenability of processing Shebandowanmineralization through the Lac des Iles concentrator.  A Technical Report prepared in compliancewith the requirements of National Instrument 43-101 which will disclose theresults of the mineral resource estimate at Shebandowan is expected to beavailable in the first half of 2007.

Managementbelieves that the mining and trucking to the Lac des Iles mill of smalltonnages daily of the high nickel-in-sulphide type mineralization fromShebandowan could have beneficial impacts on the cash flow and the life of mineof the Lac des Iles Mine.  To date, theCorporation has spent $1.9 million on exploration on the properties. Incoretains the right to increase its interest from 40% to 60%, exercisable in theevent that a feasibility study on the properties defines a significant nickeldeposit, by funding the feasibility study implementation costs equal to 200% ofthe Corporation’s total expenditures.

**Shakespeare Property**

OnSeptember 29, 2005 the Corporation and Ursa Major Minerals Corporation (“URSA”)entered into an option and joint venture agreement to evaluate and explore anickel, copper and PGE property known as the Shakespeare property located 120kilometres west of the city of Sudbury, Ontario. The property is hosted withinthe Nipissing aged Shakespeare Intrusive.

Theagreement provided that the Corporation could acquire a 60% undivided interestin URSA’s interest in the Shakespeare property and become the operator bymaking payments to URSA aggregating $1.5 million, making a production decisionand securing the project financing for commercial production.

InMarch 2006, URSA presented to the Corporation the completed feasibility studyon a contemplated open-pit mine and 4,500 tonne per day concentrator.  Although the feasibility study was positive,the rate of return indicated in the study did not meet the Corporation’sinvestment criteria and, consequently, the Corporation terminated itsinvolvement in the project in September 2006.

**Arctic Platinum Project**

OnMarch 24, 2006, the Corporation entered into an agreement (the “AcquisitionAgreement”) with Gold Fields Exploration B.V. (“GFBV”) and Gold Fields FinlandOy (“GFF”) providing for the acquisition by the Corporation of approximately50% of GFF and, in certain circumstances, a 60% interest in GFF and settled theterms of a shareholders agreement (the “Shareholders Agreement”) under whichthe Corporation and GFBV will hold their shares of GFF if the Corporationacquires an interest in GFF. The Corporation will be the project operator. GFFowns platinum group metal properties in Finland known as the Arctic PlatinumProject (“APP”). During the option period the Corporation will further exploreand investigate the development of a mining operation at the APP.

Inorder to exercise the option, on or before August 31, 2008 the Corporationmust: (i) complete a rescoping and exploration program; (ii) complete afeasibility study; (iii) make a production decision and prepare the initialformal development proposal and associated budget based on the feasibilitystudy; (iv) incur expenditures of US$12.5 million on the APP; and (v) issue7,381,636 Common Shares to GFBV in order to earn a 50% interest or 9,227,033Common Shares to earn a 60% interest. The Corporation will advance the earn-inexpenditures to the APP through North American Palladium Finland Oy, itswholly-owned subsidiary.

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TheAPP covers several advanced stage exploration properties including theKonttijarvi and Ahmavaara open pit projects, together known as the SuhankoProject, that were the subject of a feasibility study (the “2005 FeasibilityStudy”) prepared by Gold Fields in 2005. The exploration target at Suhanko isfor bulk tonnage, disseminated to locally semi massive base metals and platinumgroup elements occurring near the base of the Konttijarvi-Suhanko Intrusive.

TheAPP also includes the nearby Narkaus and the Penikat Projects, both of whichhost significant platinum group and base metal mineralization.

TheCorporation commenced work on the APP late in the first quarter of 2006. Threedrills were mobilized into the Narkaus area to commence exploration and infilldrilling on the Siika Kama, Kuohunki and Nutturalampi targets and 49 holestotalling 8,716 metres were completed and the results from this program werereleased on October 30, 2006.  AtSuhanko, which was the subject of the 2005 Feasibility Study, updated resourcemodels are underway. The Corporation has engaged Aker Kvaerner ASA to complete therescoping study and P&E Mining Consultants Inc. to conduct the open pitdesigns and optimization. The Corporation expects the results of the re-scopingstudy to be released in a Technical Report, prepared in compliance withCanadian National Instrument 43-101 in the second quarter of 2007.

**DIVIDENDS**

TheCorporation has not paid any dividends to date on its Common Shares. Inaddition, the payment of dividends on the Common Shares is restricted under theterms of the Securities Purchase Agreement (see “Financing – Convertible NoteFinancing”). Accordingly, it is not anticipated that the Corporation will payany dividends on its Common Shares in the near future. The actual timing,payment and amount of any dividends will be determined by the board ofdirectors from time to time based upon, among other things, cash flow, resultsof operations and financial condition, the need for funds to finance ongoingoperations and such other business considerations as the board of directors mayconsider relevant.

**CAPITAL STRUCTURE**

Theauthorized share capital of the Corporation consists of an unlimited number ofCommon Shares and an unlimited number of special shares, issuable in series.There are no special shares outstanding.

TheCorporation’s directors may, by resolution, fix the number of shares in, thedesignation of, and determine the rights, privileges, restrictions andconditions attaching to, each series of special shares. The special shares ofeach series rank on a parity with the special shares of any other series inrespect of dividends or the return of capital. The holders of special sharesare entitled to receive, in priority to the holders of common shares and theshares of any other class ranking junior to the special shares, as and whendeclared by the directors, dividends in the amounts specified or determinablein accordance with the provisions of the series of which such special sharesform a part. In the event of the liquidation, dissolution or winding-up of theCorporation, whether voluntary or involuntary, before any amount is paid to theholders of Common Shares or shares of any other class ranking junior to thespecial shares, the holders of special shares shall be entitled to receive, tothe extent provided for with respect to such series, an amount equal to theprice at which such shares were issued, such premium, if any, as has beenprovided for with respect to such series, and all unpaid cumulative dividendsor declared and unpaid non-cumulative dividends. The special shares of anyseries may also be given such other preferences over the Common Shares and anyother class of shares ranking junior to the special shares as may be determinedin the case of such series. The holders of special shares are not entitled tovote separately as a class and the holders of any series of special shares arenot entitled to vote separately as a series except as required by the *Canada Business Corporations Act*.

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EachCommon Share entitles the shareholder to one vote at all meetings ofshareholders other than meetings at which only the holders of another class orseries of shares are entitled to vote. Each Common Share entitles the holderthereof, subject to the prior rights of the holders of the special shares, toreceive any dividends declared by the board of directors and the remainingproperty of the Corporation upon dissolution.

**MARKET FOR SECURITIES**

TheCommon Shares are listed on the Toronto Stock Exchange under the symbol “PDL”and on the American Stock Exchange under the symbol “PAL”.

Thefollowing table sets out the reported high and low closing prices and aggregatetrading volume of the Common Shares on the TSX for the periods indicated:
|                         | ** ** | **High** | ** ** | **Low** | ** ** | **Volume** | ** ** |
|-------------------------|------------|----------|------------|---------|------------|------------|------------|
| **2006**                |       |     |       |    |       |       |       |
| January                 |       | $        | 13.00      |    | $          | 9.70       |       | 1,505,791 |   |
| February                |       | 14.60    |       | 10.90   |       | 2,140,121  |       |
| March                   |       | 14.88    |       | 10.82   |       | 1,979,853  |       |
| April                   |       | 14.54    |       | 11.89   |       | 1,383,671  |       |
| May                     |       | 12.85    |       | 9.22    |       | 1,847,910  |       |
| June                    |       | 10.30    |       | 7.76    |       | 828,066    |       |
| July                    |       | 10.13    |       | 7.62    |       | 645,969    |       |
| August                  |       | 8.95     |       | 7.27    |       | 631,942    |       |
| September               |       | 9.51     |       | 7.52    |       | 471,755    |       |
| October                 |       | 9.50     |       | 7.83    |       | 401,057    |       |
| November                |       | 10.95    |       | 8.59    |       | 927,969    |       |
| December                |       | 10.22    |       | 8.50    |       | 846,554    |       |
| **2007**                |       |     |       |    |       |       |       |
| January                 |       | 9.71     |       | 7.98    |       | 1,045,100  |       |
| February                |       | 9.86     |       | 8.80    |       | 980,300    |       |
| March 1 – March 20 |       | 9.17     |       | 7.81    |       | 682,100    |       |
|                         |            |          |            |         |            |            |            |  |  |

 

**DIRECTORS AND EXECUTIVE OFFICERS**

Thefollowing table sets forth certain information with respect to the directorsand executive officers of the Corporation:
| **Nameand  municipality  of residence**             | ** ** | **Position(s) held** | ** ** | **Principal occupation**        | ** ** | **Director since** |
|-----------------------------------------------------|------------|----------------------|------------|---------------------------------|------------|--------------------|
|                                                |       |                 |       |                            |       |               |
| Michael P.  Amsden, P.Eng. (4)  Oakville, Ontario   |       | Director             |       | Retired senior mining executive |       | April 1995         |
|                                                |       |                 |       |                            |       |               |
| Steven R.  Berlin, C.P.A.(1)(2)(3)  Tulsa, Oklahoma |       | Director             |       | Part-time consultant            |       | February 2001      |

 

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| **Name and  municipality  of residence**                               | ** ** | **Position(s) held**                         | ** ** | **Principal occupation**                                        | ** ** | **Director since** |
|------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------|
|                                                                   |       |                                         |       |                                                            |       |               |
| C. David A.  Comba (1)(4)  Toronto, Ontario                            |       | Director                                     |       | Graduate geologist and retired executive                        |       | March 2006         |
|                                                                   |       |                                         |       |                                                            |       |               |
| André J.  Douchane(4)  Sante Fe, New Mexico                       |       | Chairman and director                        |       | Consultant                                                      |       | April 2003         |
|                                                                   |       |                                         |       |                                                            |       |               |
| Robert J. Quinn (1)(2)(3)  Kingwood, Texas                             |       | Director                                     |       | Director, Quinn & Brooks LLP,                               |       | June 2006          |
|                                                                   |       |                                         |       |                                                            |       |               |
| Gregory J. Van  Staveren, C.A., C.P.A (1)(2)(3)  Toronto, Ontario |       | Director                                     |       | Strategic financial consultant                                  |       | February 2003      |
|                                                                   |       |                                         |       |                                                            |       |               |
| William J.  Weymark  West Vancouver, British Columbia                  |       | Director                                     |       | President and Chief Executive Officer, Vancouver  Wharves Ltd., |       | January 2007       |
|                                                                   |       |                                         |       |                                                            |       |               |
| James D. Excell  Kelowna, British Columbia                             |       | President and Chief Executive Officer        |       | Officer of the Corporation                                      |       | —             |
|                                                                   |       |                                         |       |                                                            |       |               |
| Michael C.  Thompson, F.C.C.A.  Thunder Bay, Ontario                   |       | Manager Administration and Senior Controller |       | Officer of the Corporation                                      |       | —             |
|                                                                   |       |                                         |       |                                                            |       |               |
| David Passfield  Ajax, Ontario                                         |       | Vice President, Operations                   |       | Officer of the Corporation                                      |       | —             |
|                                                                   |       |                                         |       |                                                            |       |               |
| Reno Pressacco  Oakville, Ontario                                      |       | Vice President Exploration                   |       | Officer of the Corporation                                      |       | —             |

 

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(1)           Member ofthe Audit Committee

(2)           Member ofthe Compensation Committee

(3)           Member ofthe Governance and Nominating Committee

(4)           Member of the TechnicalCommittee

Theterm of office for each director expires at each annual meeting ofshareholders.

Eachdirector or officer listed above has held the same principal occupation duringthe past five years except as described below:

Mr.Berlin, prior to January 2006, was a Vice President of Kaiser-Francis Oil, theCorporation’s principal shareholder. Prior to January 30, 2004, he was alsoChief Financial Officer and Treasurer of PetroCorp Incorporated, an oil andnatural gas company. Mr. Berlin is the nominee of Kaiser-Francis, which hasadvised the Corporation that it intends to vote the Common Shares which it ownsin favour of his re-election as a director at the 2007 annual meeting ofshareholders.

Mr.Comba, prior to May 2005, was an industry association executive.

Mr.Douchane, prior to January 2006, was President and Chief Executive Officer ofthe Corporation and, prior to April 2002, was President of Management Inc., amanagement consulting firm.  In January2007, Mr. Douchane was appointed President and CEO of Starfield Resources Inc.an exploration and development company in Nunavut.

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Mr.Excell, prior to December 31, 2005, was President of Narego Solutions Inc., aconsulting company that provides strategic planning services to junior miningcompanies and, prior to January 2004, was President and Chief Operating Officerof EKATI Diamond Mine, operated by BHP Billiton Diamonds Inc. BHP BillitonDiamonds Inc., a diamond mining company, is part of the BHP Billiton Group, adiversified resource company.

Mr.Passfield, prior to October 2, 2006 was Vice President and General Manager of Grande Cache Coal Corporation, an operating  metallurgical coalmining company located in Alberta, Canada. Prior to May 2005 he was Manager,Mining for Diavik Diamond Mines Inc., a subsidiary of Rio Tinto plc., whichoperates the Diavik Diamond Mine in the Northwest Territories.

Mr.Pressacco, prior to February 19, 2007, was Senior Geologist with MiconInternational Limited, a consulting firm that provides full services to themining industry world-wide.  Prior to October 2003, Mr. Pressaccomaintained a private practice, providing geological services to miningcompanies operating in northeastern Ontario and, prior to February 2003, wasSenior Geologist with Agrium Inc, Kapuskasing Phosphate Operations whichprovided concentrates of rock phosphate as feedstock for the preparation ofphosphate fertilizer.

Thenumber of Common Shares beneficially owned, directly or indirectly, or overwhich control or direction is exercised, by all directors and senior officersof the Corporation is 29,286, which is less than 1% of the Common Shares issuedand outstanding.

**Cease Trade Orders,Bankruptcies, Penalties or Sanctions**

Mr.Berlin was a director of Ozark Airlines, Inc., doing business as Great PlainsAirlines, Inc. (“Great Plains”), which filed a voluntary Bankruptcy Petitionunder Chapter 11 of the United States Bankruptcy Code in an Oklahoma court onJanuary 23, 2003. Mr. Berlin resigned from the board of directors of OzarkAirlines on December 14, 2004. Ozark Airlines filed a motion to convert thebankruptcy to Chapter 7, which was granted by the Court on March 11, 2005.

**Conflicts of Interest**

Thereare potential conflicts to which the directors of the Corporation are subjectin connection with the business and operations of the Corporation. Theindividuals concerned are governed in any conflicts or potential conflicts by applicablelaw. As of the date hereof, the following directors and officers of theCorporation hold positions with other companies that explore for or produceplatinum group metals or have other business interests which may potentiallyconflict with the interests of the Corporation.

Mr.Berlin is the nominee of Kaiser-Francis, the Corporation’s principalshareholder, on the board of directors of the Corporation. Kaiser-Francis hasalso been a lender to the Corporation (see “Financings”).

Mr.Douchane was appointed President and CEO of Starfield Resources Inc., a TSXVenture exchange listed company in January 2007.  Starfield Resources is focused on explorationand development of its 100% owned Ferguson Lake nickel-copper-cobalt-palladium-platinumproperty located in Nunavut.

Mr.Comba is a director of First Nickel Inc., a TSX listed company, which operatesthe Lockerby Mine in Sudbury, Ontario, a nickel, copper and cobalt producerwith platinum group credits and is actively exploring for nickel deposits in Sudburyand Timmins, Ontario.

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**LEGAL PROCEEDINGS**

TheCorporation, along with J. Patrick Sheridan, Minerales De Copan and two otherindividuals, 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 $20 million,punitive and exemplary damages in the amount of $5 million, a declaration thatthe defendants hold any interest in an unidentified mining concession locatedin Honduras, about forty miles southeast of Tegucigalpa (defined therein as the“Mining Property”) on constructive trust for Cambridge, a mandatory orderrequiring the defendants to deliver up all proceeds, equity interest, securityor debenture interest in whatever form relating to the Mining Property,pre-judgment and post-judgment interest and costs. The Corporation filed astatement of defense dated February 7, 1992 which states, among other things,that the Mining Property was previously known to one of the individualdefendants to be of insufficient quality to merit commercial development andthat, accordingly, the Corporation had declined to proceed any further with theinvestigation or purchase of the Mining Property. Partial discoveries ofcertain of the parties were conducted on October 6, 7 and 8, 1993. There havebeen no further proceedings in the action and it has been dormant for 10 years.No provision in the financial statements has been made in respect of anypossible loss from the action as management believes that the Corporation has avalid defence and the Sheridan Group has indemnified the Corporation.

TheCorporation has filed a claim with its insurance company relating to lossesincurred in connection with the failure of the primary crusher in 2002.  During 2004, the Corporation received$7,148,000 as an interim payment against this claim and has included thisamount in income from mining operations. The Corporation is pursuing the balance of its insurance claim and willrecord any additional recovery in income if and when received.

Fromtime to time, the Corporation is involved in other litigation, investigationsor proceedings related to claims arising out of its operations in the ordinarycourse of business. In the opinion of the Corporation’s management, theseclaims and lawsuits in the aggregate, even if adversely settled, will not havea material effect on the consolidated financial statements of the Corporation.

**INTERESTS OF MANAGEMENT AND OTHERSIN MATERIAL TRANSACTIONS**

Nodirector, executive officer, shareholder owning, directly or indirectly, orexercising control or direction over, 10% or more of the voting securities ofthe Corporation or any associate or affiliate of any of the foregoing has orhad a material interest, direct or indirect in any transaction since January 1,2006 that has materially affected or will materially affect the Corporation,except as follows:

1.                                       Kaiser-Francisis a party to the credit facilities described under “Financing – Kaiser-FrancisCredit Facilities”.

2.                                       Kaiser-Francisis a party to the Securities Purchase Agreement described under “Financing –Convertible Note Financing”.

**TRANSFER AGENT**

ComputershareInvestor Services Inc. is the registrar and transfer agent of the Common Sharesin Toronto, Ontario, Canada and Computershare Trust Company, Inc. is theregistrar and co-transfer agent for the Common Shares in Golden, Colorado,United States.

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**MATERIAL CONTRACTS**

TheSenior Credit Facilities, the Securities Purchase Agreement and the Platinumand Palladium Purchase Agreement described in the section titled “Financings”,and the Acquisition Agreement described under “Arctic Platinum Properties” arethe only contracts that are material to the Corporation and are still ineffect.

**INTERESTS OF EXPERTS**

ScottWilson RPA was engaged to prepare the the mineral resource estimate for theOffset High Grade Zone as at February 23, 2007. Neither of Mr. Routledge orScott Wilson RPA owned securities of the Corporation when the services wereprovided and no securities of the Corporation were issued to Mr. Routledge orto Scott Wilson RPA as compensation for their services in connection with themineral reserve and resource estimates.

KPMGLLP, the external auditors of the Corporation, prepared the “Auditor’s Reportto the Shareholders of North American Palladium Ltd.” with respect to theconsolidated financial statements of the Corporation as at December 31, 2004,2005 and 2006 and for each of the years then ended. KPMG LLP is independent inaccordance with the auditors’ rules of professional conduct of Ontario, and hascomplied with the United States Securities and Exchange Commission’s rules onauditor independence.

**RISK FACTORS**

TheCorporation’s securities are subject to the following risks. If any of therisks occur, the Corporation’s business, operating results and financialcondition could be materially adversely affected, the trading price of theCommon Shares could decline and all or part of any investment may be lost.

*The Corporation cannot assure that it will meet its goalsfor production and operating costs and if it does not, its operating resultswill be adversely affected.*

Plannedproduction levels and operating costs are estimated based on the Corporation’sexperience in operating its mine.  Theseestimates are subject to numerous uncertainties, many of which are beyond theCorporation’s control.  The Corporationcannot make assurances that its actual production levels will not besubstantially lower than its estimates or that its operating costs will not bematerially higher than anticipated.

*If mineral resource and mineral reserve estimates are notaccurate, production may be less than estimated which would adversely affectthe Corporation’s financial condition and results of operations.*

Mineralresource and mineral reserve estimates are imprecise and depend on geologicalanalysis based partly on statistical inferences drawn from drilling, which mayprove unreliable, and assumptions about operating costs and metal prices.  The Corporation cannot be certain that the mineralresource or mineral reserve estimates are accurate and cannot guarantee that itwill recover the indicated quantities of metals.  Future production could differ dramaticallyfrom such estimates for the following reasons:

·                                          mineralization or formations at the minecould be different from those predicted by drilling, sampling and similarexaminations;

·                                          declines in the market price of palladiumor by-product metals may render the mining of some or all of the reservesuneconomic;

·                                          changes in the life-of-mine plan and/orultimate pit design; and

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·                                          the grade of ore may vary significantlyfrom time to time and the Corporation cannot give any assurances that anyparticular quantity of metal will be recovered from the reserves.

Theoccurrence of any of these events may cause the Corporation to adjust themineral resource or mineral reserve estimates or change its mining plans, whichcould negatively affect the Corporation’s financial condition and results ofoperation.  Moreover, short-term factors,such as the need for additional development of the ore body or the processingof new or different grades, may impair its profitability in any particularaccounting period.

*The risks and hazards associated with mining and processingmay increase costs and reduce profitability in the future.*

Miningand processing operations involve many risks and hazards, including amongothers:

·                                          environmental hazards;

·                                          mining and industrial accidents;

·                                          metallurgical and other processingproblems;

·                                          unusual and unexpected rock formations;

·                                          pit slope failures;

·                                          flooding and periodic interruptions dueto inclement or hazardous weather conditions or other acts of nature;

·                                          mechanical equipment and facilityperformance problems; and

·                                          unavailability of materials, equipmentand personnel.

Theserisks could result in, among other things:

·              damageto, or destruction of, the Corporation’s properties or production facilities;

·                                          personal injury or death;

·                                          environmental damage;

·                                          delays in mining;

·                                          increased product costs;

·                                          asset write downs;

·                                          monetary losses; and

·                                          possible legal liability.

TheCorporation cannot be certain that its insurance will cover the risksassociated with mining or that it will be able to maintain insurance to coverthese risks at affordable premiums.  TheCorporation might also become subject to liability for pollution or otherhazards against which it cannot insure or against which the Corporation mayelect not to insure because of premium costs or other reasons.  Losses from such events may increase costsand decrease profitability.

*If the Corporation fails to maintain projected productionlevels for its underground mining operations, its ability to generate revenueand profits will be adversely affected.*

TheCorporation’s future prospects will be negatively affected if the undergroundmine fails to maintain projected production levels.  Unforeseen conditions or developments couldarise during the operation of the underground mine which would increaseoperating costs and adversely affect the Corporation’s ability to generaterevenue and profits.  These events mayinclude, among others:

·                                           shortages of equipment, materials orlabour;

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·                                          delays in delivery of equipment ormaterials;

·                                          labour disruptions;

·                                          adverse weather conditions or naturaldisasters;

·                                          unanticipated increases in costs oflabour, supplies and equipment;

·                                          accidents; and

·                                          unforeseen engineering, design,environmental or geological problems.

*Future exploration at Lac des Iles Mine or elsewhere may notresult in increased reserves, which would prevent the Corporation fromsustaining its targeted production levels.*

TheCorporation conducts exploration programs at and surrounding the Lac des IlesMine with the objective of increasing its mineral resources and mineralreserves.  Mineral exploration involvessignificant risks over a substantial period of time, which even a combinationof careful evaluation, experience and knowledge may not eliminate.  Even if the Corporation discovers a valuabledeposit of minerals, it may be several years before production is possible andduring that time it may become economically unfeasible to produce thoseminerals.  There is no assurance thatcurrent or future exploration programs will result in any new economicallyviable mining operations or yield new reserves to replace and expand currentreserves at the Lac des Iles Mine.  Inthe event that new mineral resources or mineral reserves are not discovered,the Corporation may not be able to sustain production beyond 2010 or earlier.

*The Corporation faces strong competition from other miningcompanies for the acquisition of new properties.*

Mineshave limited lives and, as a result, the Corporation continually seeks toreplace and expand its reserves through the acquisition of new properties.  In addition, there is a limited supply ofdesirable mineral lands available in areas where the Corporation would considerconducting exploration and/or production activities.  Because the Corporation faces strongcompetition for new properties from other mining companies, many of which havegreater financial resources than it, the Corporation may be unable to acquireattractive new mining properties on terms acceptable to it.

*The Corporation depends on a single mine to generaterevenues and, if mining operations are interrupted, the Corporation’s businesswill suffer.*

Allof the Corporation’s revenues are derived from its mining operations at the Lacdes Iles Mine, which is the Corporation’s only mine and the only place it hasreserves.  If there is an interruption inoperations at the Lac des Iles Mine, or if the Corporation can no longerextract ore from this mine for any reason, the Corporation’s business willsuffer significantly.  In addition, anyadverse condition affecting mining conditions at the Lac des Iles Mine couldhave a material adverse effect on the Corporation’s financial performance andresults of operations until such time as the condition is remedied.

*The Corporation is dependent on a third party for smeltingand refining its palladium and if the third party is unable to accommodate theCorporation’s smelting and refining requirements or the existing contract isterminated or not renewed the Corporation’s ability to generate revenues couldbe harmed.*

TheCorporation has a smelter agreement with Xstrata which provides for thesmelting and refining of the principal metals contained in the concentratesproduced at Lac des Iles Mine. The existing agreement with Xstrata expires onApril 30, 2007.  The agreement withXstrata can be terminated in certain circumstances, such as default ofperformance.  The inability to renew thisagreement under similar terms or the termination of the agreement could have amaterial adverse affect on the Corporation’s financial 

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performanceand results of operations until such time as alternative smelting and refiningarrangements can be made or alternative purchasers of the Corporation’sconcentrates can be found.

*The Corporation’s vulnerability to changes in metal pricesmay cause the Common Share price to be volatile and may affect the Corporation’soperations and financial results.*

TheCorporation’s primary source of revenue is the sale of palladium.  In fiscal 2006, sales of palladium accountedfor approximately 48% of the Corporation’s revenues.  Historically, changes in the market price of palladiumhave significantly impacted the Corporation’s profitability and Common Shareprice. The Corporation’s financial results are very sensitive to externaleconomic criteria related to the palladium price.  A major risk will arise if there is a significantweakening of the U.S. dollar combined with a prolonged period of lowerpalladium prices.  Many factors beyondthe Corporation’s control influence the market price of palladium.  These factors include:

·                                          global supply and demand;

·                                          availability and costs of metalsubstitutes;

·                                          speculative activities;

·                                          international political and economicconditions; and

·                                          production levels and costs in otherplatinum group metal-producing countries, particularly Russia and South Africa.

Economicand political events in Russia could result in declining market prices.  If Russia disposes of substantial amounts ofpalladium, platinum, rhodium, ruthenium, osmium and iridium, which are referredto as platinum group metals, from stockpiles or otherwise, the increased supplycould reduce the market prices of palladium and platinum and adversely affectthe Corporation’s profitability and Common Share price.  Russia’s economic problems make Russianstockpiles difficult to predict and the risk of sales from stockpiles moresignificant.

*Since the Corporation’s revenues are in United Statesdollars and expenditures are in Canadian dollars, the Corporation is subject tofluctuations in exchange rates between the United States and Canadian dollars.*

Currencyfluctuations may affect cash flow since the Corporation’s production currentlyis sold in United States dollars, whereas the Corporation’s administration,operating and exploration costs are incurred in Canadian dollars.  Exploration costs and other property costswill also be incurred in Euros. Significant long term fluctuations in relative currency values couldadversely affect the Corporation’s results of operations.  In particular, the Corporation may beadversely affected by a significant strengthening of the Canadian dollar againstthe United States dollar.  In addition,the Corporation’s financial results are sensitive to fluctuations in theexchange rate.  A major risk will ariseif there is a significant weakening of the U.S. dollar combined with aprolonged period of lower palladium spot prices.

*The Corporation’s inability to renew its collectiveagreement on acceptable terms upon its expiry in February 2009 could have amaterial adverse affect on the Corporation.*

TheCorporation’s collective agreement with the United Steel Workers of America,the union representing the employees at the Lac des Iles mine (other thanemployees at or above the rank of foreman, safety coordinator, surveyors,dispatchers, technical staff and office, clerical and security personnel), willexpire in February 2009.  The inabilityto renew the agreement on acceptable terms could have a material adverse affecton the Corporation, including the affect of work stoppages or strikes on theresults of operations and financial performance of the Corporation.

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*The Corporation is subject to extensive environmentallegislation and the costs of complying with these regulations may besignificant.*

Environmentallegislation relating to land, air and water affects nearly all aspects of theCorporation’s operations.  Thislegislation requires the Corporation to obtain various operating licenses andalso imposes standards and controls on activities relating to the exploration,development and production of palladium and associated metals.  The cost of obtaining operating licenses andabiding by standards and controls on its activities may be significant.  Further, if the Corporation fails to obtainor maintain such operating licenses or breaches such standards or controlsimposed on its activities, it may not be able to continue its operations in itsusual manner, or at all, or the Corporation may be subject to fines or otherclaims for remediation which may have a material adverse impact on itsoperations or financial results.

TheCorporation will be responsible for all costs of closure and reclamation at theLac des Iles Mine.  Under applicableenvironmental legislation, the Corporation had to establish a trust fund toprepare for closure and reclamation.  Thecurrent amended mine closure plan requires $7.8 million for clean-up andrestoration of the mine site.  The trustfund, maintained by the Ontario Ministry of Northern Development and Mines, isdesigned to collect $7.8 million through instalments of $100,000 per month. Themoney in the trust fund will become available to the Corporation as the mineclosure is completed.  At February 20,2007, approximately $8.0 million including accrued interest was on deposit inthe trust fund.  Development of theunderground mine as planned required an amendment to the existing closure planand may result in an increase in the amount of financial assurance required bythe Ontario Ministry of Northern Development and Mines. The actual amountneeded for the closure of the Lac des Iles Mine may be materially more than theoriginal estimate.  Changes in theProvince of Ontario mining regulations may require the Corporation to provide aletter of credit or other financial instrument as security for the closure ofthe Lac des Iles Mine.

*Changes in environmental legislation could increase thecosts of complying with applicable regulations and reduce levels of production.*

Changesin environmental laws, new information on existing environmental conditions orother events may increase future compliance expenditures or otherwise have anegative effect on the Corporation’s financial condition and results ofoperation.  In addition to existingrequirements, it is expected that other environmental regulations will likelybe implemented in the future with the objective of further protecting human healthand the environment.  Some of the issuescurrently under review by environmental agencies include reducing orstabilizing air emissions, mine reclamation and restoration, and water quality.  Other changes in environmental legislationcould have a negative effect on production levels, product demand, productquality and methods of production and distribution.  The complexity and breadth of these issuesmake it difficult for the Corporation to predict their impact.  The Corporation anticipates capital expendituresand operating expenses will increase as a result of compliance with theintroduction of new and more stringent environmental regulations.  Failure to comply with environmentallegislation may result in the issuance of clean up orders, imposition ofpenalties, liability for related damages and the loss of operatingpermits.  The Corporation cannot giveassurances that it will at all future times be in compliance with all federaland provincial environmental regulations or that steps to bring the Corporationinto compliance would not have a negative effect on its financial condition andresults of operation.

*Compliance with current and future government regulationsmay cause the Corporation to incur significant costs and slow its growth.*

TheCorporation’s activities are subject to extensive Canadian federal andprovincial laws and regulations governing matters relating to mine safety,occupational health, labour standards, prospecting, exploration, 

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production,exports and taxes.  Compliance with theseand other laws and regulations could require the Corporation to makesignificant capital outlays which may slow its growth by diverting itsfinancial resources.  The enactment ofnew adverse regulations or regulatory requirements or more stringent enforcementof current regulations or regulatory requirements may increase costs, whichcould have a harmful effect on the Corporation. The Corporation cannot make assurances that it will be able to adapt tothese regulatory developments on a timely or cost effective basis.  Violations of these regulations andregulatory requirements could lead to substantial fines, penalties or othersanctions.

*The Corporation is required to obtain and renew governmentalpermits in order to conduct mining operations, which is often a costly andtime-consuming process.*

Inthe ordinary course of business, the Corporation is required to obtain andrenew governmental permits for the operation and expansion of existingoperations or for the commencement of new operations.  Obtaining or renewing the necessarygovernmental permits is a complex and time-consuming process.  The duration and success of the Corporation’sefforts to obtain and renew permits are contingent upon many variables notwithin the Corporation’s control including the interpretation of applicablerequirements implemented by the permitting authority and aboriginalconsultation.  The Corporation may not beable to obtain or renew permits that are necessary to its operations, or thecost to obtain or renew permits may exceed what the Corporation expects.  Any unexpected delays or costs associatedwith the permitting process could delay the development or impede the operationof a mine, which could adversely affect the Corporation’s revenues and futuregrowth.

*The Corporation faces competition with other largersuppliers of platinum group metals and from potential new sources of platinumgroup metals.*

TheCorporation competes with other suppliers of platinum group metals, many ofwhich are significantly larger than it is and have access to greater mineralreserves and financial resources than it does. In addition, new mines may open which would increase supply of palladiumand platinum.  Furthermore, in certainindustrialized countries an industry has developed for the recovery of platinumgroup metals from scrap sources, mostly from spent automobile and industrialcatalysts.  The Corporation may not besuccessful in competing with these existing and emerging platinum group metalproducers.

*The development of new technology or new alloys could reducethe demand for palladium and platinum.*

Thedevelopment of a substitute alloy or synthetic material which has catalyticcharacteristics similar to platinum group metals would result in a decrease indemand for palladium and platinum. Furthermore, the development by theautomobile industry of automobiles that do not use catalytic converters couldreduce the demand for palladium and platinum. Demand might also be reduced by manufacturers in such industries asautomobiles, electronics and dentistry finding substitutes for palladium.  The dentistry and electronics industries havealready experienced advances in new technology which use base metals as asubstitute for palladium in certain component parts.  High prices for palladium would create anincentive for the development of substitutes. Any such developments could have a material adverse effect on theCorporation’s financial condition and results of operations.

*If the Corporation loses key personnel or is unable toattract and retain additional personnel, the Corporation’s mining operationsand prospects could be harmed.*

TheCorporation is dependent upon the services of a small number of members ofsenior management including James D. Excell, the President and Chief ExecutiveOfficer. The Corporation’s current mining operations and its future prospectsdepends on the experience and knowledge of these individuals.  The 

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Corporationdoes not maintain any “key man” insurance. The loss of one or more of these individuals could have a materialadverse affect on the Corporation’s mining operations.

*The Corporation’s credit facilities have events of default,some of which are beyond the Corporation’s control.*

TheCorporation has borrowed funds under its credit facilities to finance its operations.  The credit facilities and the ConvertibleNotes contain certain events of default, some of which are beyond theCorporation’s control, the occurrence of which could require the Corporation topay back immediately all amounts borrowed under the credit facilities.

*The Corporation’s hedging activities or its decision not tohedge could expose it to losses.*

Fromtime to time, the Corporation engages in hedging activities in connection withthe metals it produces, such as forward sales contracts and commodity put andcall option contracts, to partially offset the risk of declines in metal priceson its operating results.  While thesehedging activities may protect the Corporation against low metal prices, they mayalso limit the price it can receive on hedged products.  As a result, the Corporation may be preventedfrom realizing possible revenues in the event that the market price of a metalexceeds the price stated in a forward sale or call option contract.  In addition, the Corporation may experiencelosses if a counterparty fails to purchase under a contract when the contractprice exceeds the spot price of a commodity.

**AUDIT COMMITTEE INFORMATION**

**Audit Committee Charter**

TheAudit Committee charter is set out commencing at page 34.

**Composition of the AuditCommittee**

TheCommittee is comprised of Gregory J. Van Staveren (Chairman), David Comba,Robert Quinn and Steven R. Berlin.  Mr. Van Staveren,Mr. Comba and Mr. Quinn are independent as such term is defined in MultilateralInstrument 52-110 – Audit Committees (“MI 52-110”).  Mr. Berlin is not a voting member of theaudit committee and serves in the capacity of an observer.  Mr. Berlin is not consideredindependent, as that term is defined by virtue of the fact that prior toJanuary 1, 2006, Mr. Berlin served as an executive officer of Kaiser FrancisOil Registrant, which owns approximately 50% of the outstanding common sharesof the Corporation.  Mr. Berlin doessatisfy the requirements of Rule 10A-3 under the Exchange Act.  Further, Mr. Berlin is a certified publicaccountant and has considerable experience in corporate finance.

**Relevant Education andExperience**

Eachof the members of the Committee is financially literate. Each of Mr. VanStaveren and Mr. Berlin satisfies the criteria required for the financialexpert and Mr. Van Staveren is designated as the audit committee financialexpert. Mr. Van Staveren is a chartered accountant and a certified publicaccountant. He was Chief Financial Officer of Martinrea International Inc. anautomotive parts manufacturer from February 1998 to September 2001 andcurrently provides strategic financial services to companies. Prior to February1998, Mr. Van Staveren was a partner with KPMG LLP.

Mr.Berlin is a certified public accountant and, prior to January 1, 2006, was aVice President of Kaiser-Francis and prior to December 2004 was Co-ChiefFinancial Officer of Kaiser-Francis. Mr. Berlin also 

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servedas Chief Financial Officer and Treasurer of PetroCorp Incorporated, an oil andgas company prior to January 2004.

BothMr. Comba and Mr. Quinn have extensive management experience with extensivefocus in the mining sector

**Reliance on CertainExemptions**

Asnoted above, the Corporation is relying on the exemption contained in section3.5 (*Death, Disability or Resignation ofAudit Committee Member*) of MI 52-110 in connection with Mr. Berlin’scurrent membership on the Audit Committee.

**Audit CommitteePre-Approval Policies and Procedures**

Allaudit and non-audit services performed by the Corporation’s external auditors arepre-approved by the Audit Committee.

**External Auditor ServiceFees**

***Audit Fees***

Theaggregate fees billed by KPMG LLP (“KMPG”), the Corporation’s external auditorsfor the fiscal years ended December 31, 2006 and 2005, for professionalservices that are normally provided by the external auditors in connection withstatutory and regulatory filings or engagements for that year were $442,160 and$329,640, respectively.

***Audit-Related Fees***

Theaggregate fees billed by KPMG for the fiscal years ended December 31, 2006 and2005 for assurance and related services rendered by it that are reasonablyrelated to the performance of the audit or review of the Registrant’s financialstatements engagements for that year were $185,714 and $30,820, respectively.

***Tax Fees***

Theaggregate fees billed by KPMG for the fiscal years ended December 31, 2006 and2005 for professional services rendered by it for tax compliance, tax advice,tax planning and other services were $39,503 and $12,075, respectively. Taxservices provided included preparation of corporate tax returns and review oftax provisions.

***All Other Fees***

Otherproducts and services provided included accounting support. The aggregate feesbilled by KPMG for the fiscal years ended December 31, 2006 and 2005 forproducts and services provided by KPMG, other than the services reported in thepreceding three paragraphs, were $nil and $nil, respectively.

**ADDITIONAL INFORMATION**

Additionalinformation relating to the Corporation may be found on SEDAR at www.sedar.com.Additional information, including directors’ and officers’ remuneration andindebtedness, principal holders of the Corporation’s securities and securitiesauthorized for issuance under equity compensation plans, is contained in theCorporation’s management proxy circular. As well, additional financial 

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informationis provided in the Corporation’s annual financials statements for the yearended December 31, 2006 and management’s discussion and analysis of operationsand financial results.

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**AUDIT COMMITTEE CHARTER**

**1.**              Composition

a)              TheAudit Committee shall consist of a minimum of three directors of theCorporation.

TheAudit Committee shall be comprised entirely of independent directors, as suchterm is defined by applicable laws and related rules and regulations, and rulesof relevant stock exchanges (collectively referred to as “Applicable Laws”).For clarity, US Applicable Laws means those applicable to foreign privateissuers.

Notwithstandingthe foregoing sentence, a member is exempt from the independence requirementsif permitted by Applicable Laws. The appointment of the non-independentdirector shall be disclosed in the next proxy circular mailed to shareholders.If there is reliance on curing provisions, notice shall be given to the stockexchanges immediately upon learning of the circumstances that resulted in thenon-compliance.

b)             Aquorum for the transaction of business at all meetings of the Audit Committeeshall be a majority of members.

**2.**              Qualificationsand Experience

Atthe time of appointment or within a reasonable period of time followingappointment, each member of the Committee must be financially literate, havingthe ability to read and understand a set of financial statements that presentthe breadth and level of complexity or accounting issues that are generallycomparable to the breadth and complexity of the issues that can be reasonablybe expected to be raised by the Corporation’s financial statements.

a)              Atleast one member (the “financial expert”) of the Committee must have:

i.                  Anunderstanding of financial statements and accounting principles used by theCorporation to prepare its financial statements;

ii.               Theability to assess the general application of such accounting principles inconnection with the accounting for estimates, accruals and reserves;

iii.            Experiencepreparing, auditing, analyzing or evaluating financial statements that presenta breadth and level of complexity of accounting issues that are generallycomparable to the breadth and complexity of issues that can reasonably be expectedto be raised by the Corporation’s financial statements, or experience activelysupervising one or more persons engaged in such activities;

iv.           Anunderstanding of internal controls and procedures for financial reporting; and

v.              Anunderstanding of audit committee functions.

b)             Thefinancial expert must have acquired the foregoing attributes through one ormore of the following:

i.                  Educationand experience as a principal financial officer, principal accounting officer,controller, public accountant or auditor or experience in one or more positionsthat involve the performance of similar functions;

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ii.               Experienceactively supervising a principal financial officer, principal accountingofficer, controller, public accountant, auditor or person performing similarfunctions;

iii.            Experienceoverseeing or assessing the performance of companies or public accountants withrespect to the preparation, auditing or evaluation of financial statements; or

iv.           Otherrelevant experience.

**3.**              Mandateand Responsibilities

TheAudit Committee shall:

a)              Reviewand assess the adequacy of the Audit Committee Charter on an annual basis;

b)             Meetwith the Corporation’s external auditors as necessary and before the submissionof the audited annual financial statements to the Board and communicate toexternal auditors that they are ultimately accountable to the Board and theAudit Committee as representatives of shareholders;

c)              Reviewthe annual financial statements of the Corporation and “management’s discussionand analysis” and recommend the financial statements for approval to the Board;

d)             Reviewand approve interim financial statements of the Corporation and “management’sdiscussion and analysis” prior to filing with the securities regulatoryauthorities and delivery to shareholders;

e)              Obtainexplanations from management on all the significant variances betweencomparative reporting periods and, in respect the annual financial statements,question management and the external auditor regarding the significantfinancial reporting issues discussed during the fiscal period and the method ofresolution;

f)                Beresponsible for:

i.                  Ensuringthat a written statement is obtained from the external auditor describing allrelationships between the external auditor and the Corporation;

ii.               Discussingwith the external auditor any disclosed relationships or services that mayimpact the objectivity and independence of the external auditor; and

iii.            Determiningthat the external auditors have a process in place to address the rotation ofthe lead partner and other audit partners serving the account as required underCanadian independence standards and the SEC independence rules, as applicableto foreign private issuers;

g)             Assessthe performance of the external auditors and recommend to the Board annually oras they may otherwise determine a duly qualified external auditor to benominated (for appointment or retention) for the purpose of preparing orissuing an audit report or performing other audit, review or attest servicesfor the Corporation;

h)             Reviewthe plan and scope of the audit to be conducted by the internal (if any) andexternal auditors of the Corporation;

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

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j)                 Directlyoversee the work of the external auditors, including reviewing the Corporation’scritical accounting policies and practices, material alternative accountingtreatments and material written communications between the external auditorsand management, and the resolution of disagreements between management and theexternal auditor regarding financial reporting;

k)              Pre-approveall audit and permitted non-audit services to be provided to the Corporation orits subsidiary entities by its external auditors or the external auditors ofthe Corporation’s subsidiary, in accordance with Applicable Laws;

l)                 Reviewall post-audit or management letters containing the recommendations of theexternal auditor and management’s response or follow-up of any identifiedweakness;

m)           Meetseparately, periodically, with management, with internal auditors (or otherpersonnel responsible for the internal audit function) and with externalauditors;

n)             Reviewall annual and interim earnings press releases;

o)             Determinethat adequate procedures are in place for the review of the Corporation’sdisclosure of financial information extracted or derived from the Corporation’sfinancial statements, other than disclosure in the Corporation’s financialstatements, management’s discussion and analysis and earnings press releases,and periodically assess the adequacy of these procedures;

p)             Establishprocedures for:

i.                  Thereceipt, retention and treatment of complaints received by the Corporationregarding accounting, internal accounting controls, or auditing matters; and

ii.               Theconfidential, anonymous submission by employees of the Corporation of concernsregarding questionable accounting or auditing matters;

q)             Enquireas to the adequacy of the Corporation’s system of internal controls;

r)                Reviewand approve all related party transactions;

s)              Reviewand approve the Corporation’s hiring policies regarding employees and formeremployees of the present and former external auditors of the Corporation;

t)                Havesuch other duties, powers and authorities, consistent with the provisions ofthe *Canada Business Corporations Act*,as the Board may, by resolution, delegate to the Audit Committee from time totime.

**4.**              Authority

TheAudit Committee shall have the authority:

a)              Forthe purpose of performing their duties, of inspecting all of the books andrecords of the Corporation and its affiliates and of discussing such accountsand records and any matters relating to the financial position or condition ofthe Corporation with the officers and internal (if any) and external auditorsof the Corporation and its affiliates;

b)             Toengage independent counsel and other advisors as it determines necessary tocarry out its duties;

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c)              Toset and pay the compensation for any advisors employed by the Audit Committee,including without limitation, compensation to any public accounting firmengaged for the purpose of preparing or issuing an audit report or performingother audit, review or attest services for the Corporation;

d)             Toset and pay the ordinary administrative expenses of the Audit Committee thatare necessary or appropriate in carrying out its duties; and

e)              Tocommunicate directly with the internal (if any) and external auditors.

**5.**              Proceedings

Thefollowing shall apply to the proceedings of the Audit Committee.

a)              Thebusiness of the Audit Committee shall be transacted either at meetings thereofor by conference telephone or other communications facilities that permit allpersons participating in the meeting to hear each other, or by resolution inwriting. All questions at a meeting shall be decided in accordance with thevote of a majority of those present and the Chairman of the meeting shall nothave a second or casting vote.

b)             Aresolution in writing signed by all members of the Audit Committee entitled tovote on that resolution at a meeting of the Audit Committee shall be as validas if it had been passed at a duly called and constituted meeting. Suchresolutions in writing may be in one or more counterparts, all of which, whentaken together, shall be deemed to constitute one resolution.

c)              TheAudit Committee Chairman shall periodically report to the Board of Directors onthe activities of the Audit Committee.

d)             Theexternal auditor of the Corporation shall, at the expense of the Corporation,be entitled to attend and be heard at or may be invited to any meeting of theAudit Committee.

e)              Theexternal auditor and senior management shall have the opportunity or may beinvited to meet separately with the Audit Committee.

f)                Theminutes of the proceedings of the Audit Committee and any resolutions inwriting shall be kept in a book provided for that purpose which shall always beopen for inspection by any director of the Corporation.

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**GLOSSARY OF TERMS**

Thefollowing is a glossary of certain terms used in this document.

“**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 parametres: estimates over the relevant period of miningcosts, ore treatment costs, general and administrative costs, refining costs,royalty expenses, process and refining recovery rates and PGMs prices.

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

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

“**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.

“**indicated mineral resource**” means that partof a mineral resource for which quantity, grade or quality, densities, shapeand physical characteristics, can be estimated with a level of confidencesufficient to allow the appropriate application of technical and economicparametres, 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 

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outcrops,trenches, pits, workings and drill holes that are spaced closely enough forgeological and grade continuity to be reasonably assumed. See “Note to U.S.Shareholders”.

“**inferred mineral resource**” means that partof a mineral resource for which quantity and grade or quality can be estimatedon the basis of geological evidence and limited sampling and reasonablyassumed, but not verified, geological and grade continuity. The estimate isbased on limited information and sampling gathered through appropriatetechniques from locations such as outcrops, trenches, pits, workings and drillholes. See “Note to U.S. Shareholders”.

“**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, jewelery, resistance wiring, electroniccontacts and electrodes.

“**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 parametres, 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. See “Note to U.S. Shareholders”.

“**mineral reserve**” means the economicallymineable part of a measured or indicated resource demonstrated by at least apreliminary feasibility study. This study must include adequate information onmining, 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. See “Note to U.S.Shareholders”.

“**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 continuity of a mineral resource areknown, estimated or interpreted from specific geological evidence andknowledge. See “Note to U.S. Shareholders”.

“**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.

“**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.

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“**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, malleableprecious metal that does not tarnish at normal temperatures. Wide applicationsrange from electronics, dentistry, jewelry and automotive catalytic 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. See “Note to U.S.Shareholders”.

“**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)                                  hasbeen given authority or recognition by statute;

(b)                                 admitsmembers primarily on the basis of their academic qualifications and experience;

(c)                                  requirescompliance with the professional standards of competence and ethics establishedby the organization; and

(d)                                 hasdisciplinary powers, including the power to suspend or expel a member.

“**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. See “Note to U.S. Shareholders”.

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

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

(a)                                  isan engineer or geoscientist with at least five years of experience in mineralexploration, mine development or operation or mineral project assessment, orany combination of these;

(b)                                 hasexperience relevant to the subject matter of the mineral project and thetechnical report; and

(c)                                  isa member in good standing of a professional association.

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“**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**” 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.)

“**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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