Calling a North American Palladium Bottom

| About: North American (PAL)

In a previous article I discussed that palladium could be the best commodity investment and I recommend that people buy the stocks of Stillwater Mining Company (NYSE:SWC) and North American Palladium (NYSEMKT:PAL) for leveraged long term profit from the coming palladium super bull. These two North American mining companies are the only primary PGM metal producers outside Russia and South Africa. I discussed the major reasons why palladium is super bullish, including the end of the Russian stockpile sale soon; some determined investors have been loading quietly since 2003; auto companies switching to the cheaper palladium for catalysts converters; emerging PGM metal applications including the red hot fuel cell batteries in vehicles, as well as in mobile electronics; and the more exotic prospective that cold fusion could become a commercial reality, bringing the palladium price to unimaginable level if that happens.

As of this writing, the stock price of PAL has been pushed from recent high of $12.65 to a multi-year low of only $3.40, while prices of its metal products are near multi-year highs. I have sufficient reasons to believe this is a deliberate stock price manipulation.

This is an extremely rare opportunity that investors need to seize immediately and load up PAL at this incredibly low entry price, I urge people to rush in to buy. For all those folks who could not bear the pain and sold, now is time to buy back your shares. Don't let some one else steal your shares at this dirt cheap price.

PAL started the drop from $8.05 a share, on November 5th, 2007, when a Q3 loss of 25 cents was reported, far worse than estimates. The plummet worsened when PAL announces a $100M secondary public offer on November 27, 2007, with the offer units and price yet to be determined at the time. PAL reached the low of $4.04 on December 10, and the secondary offer price was fixed at $4 that evening, number of offer unit was fixed at 14M, for a total of $56M.

The next day, on December 11th, PAL saw extremely high volume of trade, more than one million shares were traded in just the first 5 minute. More than 7.89M shares traded that day, and the stock was pushed to the low of $3.40 a share at close. The next day, December 12 saw reduced but still significant trade volume, and the stock price recovered some to close at $3.54.

It looks like a well defined bottom upon the conclusion of secondary offer. Once the offer is closed (today, December 13, 2007), the conventional wisdom is the stock should rally back up.

I believe the PAL's Q3 loss result, as well as the secondary offer announced right after a bad quarterly result, were deliberately planned for the sole purpose of depressing stock price and get the secondary offering priced as low as possible, so as to allow certain big stake holders to increase their stakes at the lowest cost possible, and shake out retail investors. There was also carefully timed and concerted market manipulations going on to mercilessly hammer the stock down during the trading hours for the last few weeks.

Why do I believe that the Q3 result was deliberately depressed? I examined the financial report for the third quarter, and discovered that the sales revenue reported is way much lower than that in first quarter, during which PAL reported a 10 cents per share profit. The Q1 sales revenue was $68.4M, while the Q3 sales revenue was only $36.492M. It was way much less!

Further, the $36.492M sales revenue in Q3 just does not look right, judging from the amount of metals produced and their realize prices. For the calculation I used the metal producton numbers from page 3; Palladium sales price from page 2; byproduct metal prices from page 6, and the sales revenue break down from page 25. I did the calculation, and found that indeed the numbers do not look right:

So we see that the total value of metals produced was $51.33M, but the actual sales revenue was only $36.492M. The shortcoming is as high as $14.84M, more than the reported quarterly loss of $14M. Clearly, the PAL management did not sell all of the metals produced. They held some metals back, and reported reduced sales revenue as well as quarterly loss. The quarterly loss was an intended result!

Once we understand that the quarterly loss was a planned result, it's now easy to understand why the management chose to announce a secondary offering right after a bad quarterly result depressed the stock price, knowing full well that such an announcement of secondary offering could only further depress the share price, and dilute share value.

Because a share price drop must be the intended result! There must be some internal pressure from certain big share holders to produce the quarterly loss they want to see, and then a secondary offer announcement to depress stock price.

Because somebody must want to load cheap shares to increase their stake at as low a cost as possible. That is why! Folks, now you understand why you are forced to sell your shares at dirt cheap price? Somebody wants to grab your cheap shares!

People need to wake up and hurry to buy back the shares they lost! Now is the right time!

Full Disclosure: The author is holding long positions in both PAL and SWC stocks.