You Say Platinum, I Say Palladium

Jun.17.09 | About: North American (PAL)

The palladium mining industry is getting drawn into the energy and carbon debate by some recent technological advances. Representatives of North American Palladium, Ltd. (PAL) told a compelling story at the NYSSA 9th Annual Mining and Minerals Conference in New York in late May 2009. The company has three mining operations in Quebec and Ontario, Canada. As a diversified precious metals company, NoAmer Palladium producers about 270,000 ounces of palladium and 20,000 ounces each of platinum and gold each year.

As sexy as gold and platinum might be for many investors, I was impressed by the story behind palladium. The somewhat scarce precious metal is used in electronics, dental, jewelry and automotive applications. Advances in diesel engine design have led to an increase in the amount of palladium used diesel fuel catalysts and a growing substitution of palladium for the more expensive platinum, to which palladium can be considered a close relative. NoAmer Palladium expects continued growth in demand from this market segment even without a recovery in the automotive sector.

The CPM Group expects a ramp in the palladium price from around $225 in 2009 to over $400 by 2012. Healthy trends in pricing seem logical given that palladium deposits are not abundant. North America holds about 12% of the world’s palladium resources. Russia with 45% and South Africa with 39% are the two serious palladium producers.

What really has investors abuzz about palladium is the recent CBS 60 Minutes news magazine report in April 2009 on recent developments in cold fusion. Long considered tenuous from a scientific standpoint, cold fusion researchers in California and Italy claim progress in creating energy with hydrogen from seawater, palladium and an electric current. As hard as it has been to test and prove, the cold fusion concept is appealing since there are no harmful by-products and the step up in energy created well exceeds the nuclear or “hot” fusion.

Even if cold fusion never advances beyond the laboratory bench of a few Quixotic scientists, the palladium story seems well illuminated by demand from the automotive market. In my view, what will aid palladium more than anything is more clarity on carbon emissions making it possible to compute costs and prices for diesel engine modification to include catalysts and other emission reducing components.

Disclosure: Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.