UPDATE 2-N.American Palladium to expand flagship mine

* Expects capex for project's first phase at about $75 mln

* Shares rise 4 pct (Adds project details, share movement)

Oct 5 (Reuters) - Canada's North American Palladium said it planned to expand its flagship mine in Northern Ontario and expected capital expenditure for the first phase of the project to be around $75 million.

The company's shares rose 4 percent to C$2.30 in morning trade on Wednesday on the Toronto Stock Exchange.

North American Palladium, which also operates two gold mines in Quebec, expects to complete the first phase of the Lac des Iles (LDI) palladium mine expansion in the fourth quarter of next year.

After the completion of the first phase, the mine shaft will begin operating at a rate of 3,500 tonnes per day, the company said in a statement.

For the second phase, North American Palladium expects to sink the mine shaft deeper and raise the mining rate to 5,500 tonnes per day in the first quarter of 2015.

From the second phase onwards, the company expects production to exceed 250,000 ounces of palladium, at estimated cash costs of $200 per ounce, North American Palladium said.

The capital expenditure for the project will include underground infrastructure and exploration drilling.

The company expects total average operating costs to be about $40-44 per tonne after mining at full capacity.

The mine is located about 85 kilometres northwest of the city of Thunder Bay, and its primary deposits are palladium with some platinum, gold, nickel, and copper by-products.

Palladium , used in catalytic converters for cars, has struggled to maintain traction this year after 2010's sharp price rise as concerns over the automotive sector persist.

In 2008, during the global financial crisis, the spot price slipped below $200 an ounce and North American Palladium was forced to temporarily shut down Lac des Iles. (Reporting by Arnav Das Sharma in Bangalore; Editing by Don Sebastian, Maju Samuel)