AN ARTICLE IN A MINING PAPER
Regards Jim
Northwest Commentary
Demand by automakers creates investor opportunity in palladium
By A.B. Korelin
Fueled by concerns over the dependence on Russia for supply, in late February the price of a troy ounce of palladium jumped from $115.55 to $816.80 on the Nymex. Since that time it has settled into a trading range between $570 and $630 which is significantly higher than where it was trading during the past year.
Palladium is different from other precious metals in that you will not find it in jewellery. It's most common use is in the emission control devices found in cars and trucks. The demand for the metal could grow significantly along with the popularity of sport utility vehicles if the government has its way.
Back in December the Environmental Protection Agency announced plans to have these vehicles meet the same emissions and gas mileage standards as automobiles rather then the more lenient rules for trucks. Hence, more palladium could be needed by manufacturers.
The current worldwide mine output is about 4.5 million ounces of palladium per year. Analysts are predicting that because of its use in catalytic converters used to reduce automotive exhaust emissions, the demand, this year alone, could almost double to 8.5 million ounces.
Given the fact that earlier in the year palladium was trading under $450 a troy ounce, I believe that investors would do well to consider investing in either the commodity itself or in public companies involved in palladium exploration.
Three public companies that come to mind are Stillwater Mining (AMEX SWC), North American Palladium Ltd. (TSE PDL) and Starfield Resources Inc. (CDNX SRU).
Stillwater Mining mines, processes, and refines palladium, platinum and associated platinum group metals from the JM Reef, a geological formation located in southern Montana.
All of the Company's current mining operations are conducted at the Stillwater Mine in Nye, Montana and at the end of last year, the Company has proven and probable reserves which included about 25.7 million ounces of palladium and platinum in a ratio of approximately about 3.3 parts palladium to one part platinum.
In the Company's most recent fiscal period (quarter ended 3/31/00), net income rose 93 % to $20.4 million on revenues $61.3 million.
If you are looking for a producer with a proven track record, this could be the one.
North American Palladium Ltd. Operates the Lac des Iles Mine which is Canada's only primary producer of platinum group metals and is one of the largest platinum group metals deposits in the world.
For the three month period ended December 31, 1999 the Company reported net income of $3,459,000 or $0.17 per share on revenue from metal sales of $15,041,000 compared to a net loss of $2,360,000 or $0.30 per share of revenue from metal sales of $10,212,000 for the three months ended December 31, 1998.
As you can see, both Stillwater Mining and North American Palladium are doing well and an increase in the demand for the palladium should continue this trend.
For those of you who like situations that provide more upside potential, Starfield Resources is a company that you should examine.
Earlier this year, Starfield completed a $1.5 million financing that is providing it with the capital to do some serious exploration work on its assets located in the Ferguson Lake area. Management feels that this property has to potential to host one of the most significant mineral deposits in North America.
On April 26th the Company announced that it had begun its Year 2000 Exploration program at Ferguson Lake. Drilling is currently underway to obtain core samples from initial targets which were recommended for testing by the Company's consulting engineer, Dr. Nick Carter, P. Eng. These sites are down dip or along strike from the intersections obtained during 1999. The current phase of exploration is based on a compilation of results from two exploration programs which the Company conducted last year and from previous work completed by Inco Ltd.
An extensive UTEM geophysical survey is also now underway at Ferguson Lake. This survey is being conducted to define targets initially detected by an airborne magnetic survey completed by Starfield at the end of the 1999 field season, and suggested by data compilation and detailed geological mapping which was undertaken last year. The survey has been designed to explore for massive sulphide mineralization inferred to occur in a deep "Keel" environment; and to extend the nine kilometre long massive sulphide horizon defined by magnetic and UTEM geophysical surveying during the 1999 program. This "keel" may represent a source area for the known massive sulphide mineralization which was tectonically remobilized into its present location from an earlier depositional site.
A second drill was mobilized to the project in April and is now operational. This larger drill is testing for deep sulphide mineralization in the projected keel area and for possible repetitions of the know steeply plunging massive sulphide zones which have formed at repeated intervals along the extensive geological host unit.
Stillwater Mining, North American Palladium Ltd. and Starfield Resources all provide interesting opportunities for the investor. I personally have always liked companies that have not yet reached the production stage because experience has shown me that there is more room for appreciation in those types of stocks. Once companies reach production, a lot of the leverage factor is gone and investor demand usually goes down.
While you are thinking about these companies, let me offer you one last thought on investing in companies involved with platinum group metals.
The Platinum guild international in its May newsletter gave a convincing argument for an increase in Pam group metal prices. They feel that forecasted shortfalls in Pam supplies for the next five years will result in higher prices. I agree with the analysts at The Platinum Guild and suggest to readers that companies involved in the Pam group provide a good alternative to other precious metals in the area of securities in investment.
If you share my thoughts, take a look at Starfield Resources, Stillwater Mining and North American Palladium Ltd. As always remember to do your own due diligence before writing a check to your stockbroker. You can't find better insurance than your own efforts. |
