Here is why I think Au oz for Pd exhange merits execution at this time:
Russia has been stockpiling Pd, which is what helped drive it to lofty heights at $2370/oz in the last 2 years. Those prices were achieved by trapped shorts (GLOBAL car manufacturers primarily) in the futures market who couldn't get their hands on Pd for catalytic converter usage for love nor money.
Then Russia's Central Marketing Agency began to let out Pd and the price predictably fell. HOWEVER...
The Ruskies a SHARP SOPHISTICATED set of precious metals traders. Always have been, even back in the cold war days.
Back in the early 80s when I was a commodity broker for a US Brokerage House--Chicago based Heinhold Commodities-- we used to talk about what we then called the "gold signal"
We got the "gold signal" i.e., an unexplained but PRONOUNCED PoG price dip, at the PRECISE TIME Russia would BOOK wheat tender business from the USA and book the freighters.
What we are seeing in my personal opinion is this: a PALLADIUM SIGNAL, and I'll tell you why:
Russia's gigantic Norlisk Mining Company just stepped up on Nov 20,2002-- barely over a month ago--and BOUGHT controlling interest in a NON-HOSTILE TAKEOVER offer of USA's only Primary Palladium Mine, that of Stillwater in the Pacific Northwest, our state of Montana. Picturing Russia as a "white knight for SWC takes some doing, but that is indeed what has transpired.
That purchase price was agreed for $100 in cash PLUS 870,000 to 1 MILLION ounces of Palladium at the then price of $270 per oz, to seal the 51% acquisition of SWC stock. It is scheduled to close after the first of the year, with Russia's Norlisk Mine (their primary Pt and Pd producer in Siberia) also writing into the contract 2 more cuties:
1) an additional 5% equity stake taking them to 56% ownership, and
2) the price of palladium/number of ounces to be determined--based upon prevailing market pricing--and to be calculated and adjusted AT CLOSING.
Makes sense!
So, here's what is happening.
1) The Russian's supply overhang from the lofty $2370 oz withhold from the market has suddenly been "absorbed" by the purchase of Stillwater. Normal industry speculators haven't noodled this out nor capitalized on it...I suspect they are blinded by gold's glaring rally and just not looking at Pd.
2) Stillwater has had outstanding commitments to the USA auto industry for Pd catalysis use which it has NOT been able to deliver. SWC needs physical Ruskie/Norlisk supply via this deal to honor outstanding contractual delivery obligations.
3) Russia ticked off the USA car manufacturing giants with its $2370 Pd stunt and has NOT been able to get back into the US Car Mfgrs good graces since. This has been reflected in the growing stockpile with which they purchased equity control in Stillwater. There was a Russian newspaper article to this effect I reprinted on this my SI-Platinum Price Monitor thread
There aren't many posts there as speckie players are not tracking less sexy Pd at this time. but that is fine--that is how undervalued opportunities start--little fanfare.
4) Norlisk has achieved "back door NYSE listing" as the result of their buyout of SWC--circumventing alllll kinds of regulatory hassles and delays inorder to legitimatize their business dealings with Detroit--Pretty Smooth execution of strategy in my books,
5) Stillwater has had production difficulties which it has had neither the money nor the expertise to solve. Norlisk is the 900# gorilla in the Pt/Pd mining space, with both money and expertise to turn SWC around and in spades.
6) This cute little mining deal was THE primary trade trophy brought home by Bush from his personal visit to Russia just 6 weeks ago. Now what does THAT tell you about the changing political attitudes in Washington DC toward mining in general in this great land?
7) As a legitimate hard rock miner myself out here in the Great Pacific Northwest, I can vouchsafe first hand of bureaucratic red tape and governmental permitted environmental hassle of my industry almost to the point of certain extinction under the Clinton/Gore destructive years.
8) You cannot believe the breath of fresh air the Bush administration has brought to this mining sector out here-- prior to this Norlisk buyout! And the powerful signal Bush bringing home this Norlisk buyout of SWC personally has given to mining as a whole in this region has just began to be felt out here!
There will be NO hassle permitted by greenies nor paper-pushing no-nothings where Russia's Norlisk is concerned. Just as Placer Dome and Newmont have kept the mining industry open for us little guys/gals here in America, now Russia's Norlisk has been added to the mix. YAY!!!!
9) I have statistics that PROVE, as of the Paris Automotive Show-Sept 2002-- that not only has production of cars GLOBALLY gone down, BUT that usage of Pd in catalytic converters, etc., has GONE UP, which only means one thing. The world is insisting on MORE Pd, not less, as clean air standards, especially in Europe has increased. And the catalytic converter requirement for Diesel trucks in Europe is CERTAIN to spread to USA in the future in my opinion! This will only increase demand for Pd, the cheapest catalysis currently known.
10) In point of fact, my personal research and recovery of catalytic converters shows this increasing usage of Pd per unit to be fact. Whereas we formerly got a great deal of Pd per C/C 20 years ago, we are now seeing MORE yield per C/C in the last 8-10 months, similar to or in excess--in statistically significant amounts--which EXCEED per C/C application of 20 years ago.
In summary:
The futures markets are used by big automotive players, yes Detroit and her global competitiors--through London Metal Exchange--to SYTHETICALLY TAKE DELIVERY by selling Pd short into the market. Yes, this is similar to what we have seen in the gold market for years and years.
Then when the product is actually delivered to Detroit, the shorts will and are lifted. Doing so helps prices return to "clear the market levels," which I assure you are MUCH higher than $224-240 per troy ounce currently witnessed.
Therefore, it is my argument what we are seeing in the Pd market IS the old Russian "Gold/Wheat" signal with a twist: it is now "Palladium/Detroit Auto" signal.
The PoPd price reversal could come as soon as the deal is concluded, the final price fixed to close at deal signing early 2003. And I see this undervalued Pd window closing no later than 1 year from now. This is a very low risk/very high reward investment strategy in my opinion.
This is a DANDY opportunity to pick up a substantially undervalued commodity, Palladium, at bargain prices for stellar future returns, similar to what has been seen when the gold hedges started to be lifted after the successful completion of the Euro into pocket change reality 3/31/02 signalled the lifting of the gold hedges and shorting, which drove the gold market down to $254-270 trading range.
The only monkey wrench in the works in my way of thinking is the LACK of viable Palladium investment bars/coins inventory currently available. Re-allocation now, while Pd is undervalued makes a great deal of sense before the upward price correction occurs. There is always a buyers market for profit-takers. People can contact me for reputable buyers if they like when that time comes. mailto:goldtutor@aol.com
The short answer is YES: swap some Au oz for Pd oz. You won't be sorry as I have argued above.
For more ideas on ways to capitalize on Platinum Group Metals opportunities, click through on the following link:
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Editor, Zack Hansen, is the creator of the Gold Enthusiast eZine and Platium Enthusiast eZine, a FREE monthly email publication available only by email request to the editor. mailto:zeehansen@aol.com
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