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North American Palladium shares plunge, slashes 2011 production outlook

|Includes:North American Palladium, Ltd (PAL)

North American Palladium (TSE:PDL)(AMEX:PAL) cut its 2011 production guidance  by 12% late Monday, prompting a more than 26% drop in the company's share price today.

"First quarter underground production at the Lac des Iles mine (NYSE:LDI) was essentially on plan, however weather conditions and manpower constraints adversely affected stockpile production," president and CEO William J. Biggar.

As a result, the Toronto-based company, which owns two operating palladium mines, has taken a decision to focus on the development of production at Ontario-based Lac des Iles for the remainder of the year, prompting the slash in forecast to alleviate pressure.

"The $270-million expansion of the LDI mine is our number one priority at North American Palladium to increase future production and lower cash costs per ounce," added Biggar.

The company is hoping to achieve commerical production from a new shaft at Lac des Iles by the fourth quarter of 2012.

During the first quarter, the company narrowed its losses to $10.3 million, or six cents per share, compared to losses of $18.4 million, or 14 cents per share, in the same period last year, when its mine was still on care and maintenance.

Revenue increased to $36.7 million from $7.9 million a year earlier.

North American Palladium produced 30,661 ounces of payable palladium from Lac des Iles, at total cash costs, net of byproduct credits, of US$519 per ounce, compared to planned cash costs of US$458 per ounce.

The company's Sleeping Giant palladium mine, located in Quebec, also posted a shortfall in production and higher cash costs, reflective of the challenges in hiring skilled employees, it said.

"At Sleeping Giant, the industry-wide labour challenges continue to impede production growth.

"Accordingly management has revised the mine's 2011 production profile and implemented a plan to reduce operating costs with the objective of achieving break-even operating cash flow for the balance of the year, during which time the shaft deepening and mill expansion will be completed," Biggar continued.

The $7-million expansion of Sleeping Giant's mill, from 900 tonnes per day to 1,250 tonnes per day, began during the quarter, and is expected to be completed at the end of the third quarter.

North American Palladium also owns the Vezza gold project, located near Sleeping Giant, which is currently being developed through surface and underground exploration. A production decision on Vezza is anticipated by year-end.

Shares of the company sunk to close at $4.18 on Tuesday.

Stocks: PAL