The manufacture of auto catalysts continues to be the primary use for palladium, with its consumption comprising approximately 50% of estimated global demand.

Palladium is also used by the following industries:
Electronics - multi-layer ceramic capacitors (MLCCs), computer hard disks, electronic components (14% of demand).
Chemical - catalyst gauze for nitric acid, catalysts for silicones, electrode coatings, process catalysts (5% of demand).
Dental - alloys for dental restoration (13% of demand).
Jewellery - used independently for fabrication, or of with platinum and gold, offering better casting and machining properties ( 14% of demand).

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North American Palladium believes that the fundamentals for palladium will continue to improve as major automotive company's increase their substitution away from platinum due to the latter's current price levels above US$900/oz. In addition, greater use of palladium in diesel catalysts and jewellery, particularly in China are expected over the next few years.

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The Company continues to benefit from its high by-product metal prices, particularly platinum, gold, nickel and copper. As to the palladium supply contract that expired in June 2005, the Company continues to negotiate with various automotive companies and catalyst fabricators to arrange for the sale of palladium metal in the second half of the year. Although these contracts may include a provision for hedging the price of palladium, at current price levels the Company would not enter into a floor price arrangement, as management is optimistic that the palladium prices will again rise to sustainable levels.

For 2005, the Company has entered into various hedge positions in platinum, gold, nickel and copper for volumes that are between 50and 80% of the Company's estimated payable metal production. These hedges were entered into at prices that are approximately equal to the current spot price for these metals and are expected to contribute to maintaining the Company's cash cost of production at approximately US$200 per ounce of palladium during 2005.

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Development of the underground mine is underway and we expect full commercial production during the first quarter of 2006. The integration of underground production combined with the open pit operation is expected to provide enhanced economics and increased production over the expected mine life.

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