Good Morning Condor!
Interesting idea for a thread. Hope you won't mind posts on other properties PFN and YMU have in the area though.
Have a reason for asking. PFN's Agnew property could be a winner. I'd rate it about even with RV for potential - possibly higher. Consequently, think we'll be hearing a lot more about it in the very near future. And then there's the Janes property to be drilled this year. Lots of fun!!!
Russet posted elsewhere a very interesting Barron's article about PGMs in general. Other readers may find it of interest.
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Jan 13, 2001
BARRON'S: Commodities Corner -- Glistening Prospects
Palladium Soars To $1,000 An Ounce
By Cheryl Strauss Einhorn
Unobtainium. That's what Dave Andres, head of commodity purchasing for General Motors, calls palladium
these days. And with good reason. The precious metal is so scarce and in such demand that prices last week
soared to a record $1,000 an ounce.
They aren't likely to fall soon -- nor will they give back much of their gains when they do. Blame the Russians,
who control two-thirds of the world's supply, much of it in stockpiles whose size is a state secret. And this year,
as in the past five, the Russians aren't exporting much. Bureaucratic chaos continues to hold up palladium's
global trade.
Jeff Christian at metals-research firm CPM Group says that perhaps prices could fall back to $800 an ounce
once the Russians ship some metal, but right now, "the market is broken and you can't even get prices on
options."
Supplies were so tight last year that prices, on average, were 91% above 1999 levels. Bah to the futures GM's
Andres agrees that the futures market doesn't work. "I wouldn't even check Nymex prices if I needed to buy
palladium. They only have quarterly contracts, and there isn't much activity. They have never been an accurate
barometer of prices."
Part of the problem is that Nymex trades ingot, not "sponge," the form of palladium that 80% of the world's
consumers use (and so-called because it looks like a sponge). That's helped create a dealer, or
over-the-counter, market in the metal.
Either way, the lofty prices are bad news for auto companies, like GM, which alone is estimated to account for
20% -- one million ounces -- of global demand. The metal is needed in the catalytic converters that control
pollution from vehicle engines. Each car or light truck uses one-tenth to one half-ounce of palladium.
GM is working to cut its vehicles' appetite for the expansive metal. "We're on the Jenny Craig program," Andres
says. For instance, GM is modifying its car computers to more precisely control how much fuel an engine
needs, which in turn will curb emissions.
Beginning in 2002, GM will work with German catalyst maker Degussa Metals to slash palladium usage almost
in half on vehicles built on a half-dozen of its lighttruck and passenger-car platforms. Ultimately, however, the
reduction at GM may amount to "no more than 250,000 ounces, or 5% of total demand," estimates Leanne
Baker, a precious-metals analyst at Salomon Smith Barney.
Changes in technology and the soaring popularity of laptop computers and handheld devices like cell phones
also are contributing to the surge in demand for palladium, which is used to make capacitors that store
electricity. While nickel is being substituted in some products, others still need palladium. And "these are
precisely the areas like laptops, where the growth rates of the industry are 30% per year," says Christian. "So
even if palladium is no longer used in, say, half its technology applications, the other half is growing so fast that
they are still using as much as they used to."
Bill Nettles, CEO of Colorado-based Stillwater Mining, the only significant primary producer of palladium and
platinum outside South Africa and Russia, agrees -- and should benefit from the supply crunch.
His company's share price rose about 36% last year -- it's recently been around $40 -- as palladium prices
surged, despite production problems that hurt his aggressive expansion plans and forced some customers to
"go into the futures market and buy [at market] prices."
Nettles contends that the stock is still cheap because he's negotiated long-term contracts with some car
companies that ensure hefty margins. These contracts, which stretch until 2010, cover 100% of Stillwater's
current annual production and as much as 70% of what the company will produce at the end of the decade.
The pacts have price floors and minimal price ceilings on certain percentages of Stillwater's production. For the
next three years, Stillwater's floor on palladium prices will be $500 an ounce -- versus a cost of production of
$280-$290 an ounce in the fourth quarter.
Nettles says he's comfortable with Wall Street earnings estimates of $1.70 a share for 2000. He feels good
about this year's forecast of $2.18, but cautions that results will depend on the metal market's vagaries. And he
concludes: "How many commodity companies do you know where the margins are locked in, the fundamentals
are there and where, I think, we'll have strong prices for years to come?" |
