Sticking with North American Palladium 37 comments
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Some fantastic breaking news from PAL, North American Palladium, on the evening of April 29, 2008 prompted me to write this article.
Meanwhile the agriculture selloff of the past two days requires some explanation since my last article. Of course, all eyes are on FSLR on Wednesday for their earnings release. You remember that I predict that FSLR could go out of business altogether in a few years, due to a global tellurium shortage. Goldman Saches (GS) sold off virtually their entire stake in FSLR at the end of last year, while Piper Jaffray (PJC) issued an upgrade on FSLR. This market is a strange place, isn't it? But we all know today's market is extremely rigged. If PJC upgraded FSLR to $340 target, then it will be pumped to that target. But the reality will prevail at the end of day. How many people even bother to contact FSLR and asked for a quantitative clarification on their tellurium supply? I am still waiting for a response from them and I am ready to acknowledge mistake if they can show me with data they have adequate tellurium supply. I encourage them to go public on the tellurium issue!
But first the breaking news, a rare world record breaking event that does not happen often. With no fanfair at all, PAL announced the drilling result from their Offset High Grade Zone (OHGZ), and listed a bounch of boring numbers. Few people paid attention. But those are truly stunning numbers that made me fall off the chair. Because those results exceeded the wildest dream. They break the old record of the highest grade PGM mine bodies. PAL can now proudly claim they now own the richest PGM mine in the whole world, in terms of grams of PGM metals per ton ores. And it's right in their backyard, just a few hundred feet away!!!
Let me explain it in lay man's term. Drill hole 07-007, for example, reveals PGM grade as high as 29.69 grams per ton, or almost one troy ounce per ton. 29.69 grams per ton!!!
How good is that grade? We know South Africa is the world's largest PGM metal producer, supplies 85% of the world's platinum and 35% of palladium. But typical ore grade of South African PGM ores are no more than 4 to 5 grams of PGM per ton ores. They are making handsome profit only thanks to a much higher percentage of platinum versus palladium. The Russian Norilsk (NILSY) nickel mine, the largest palladium producer in the whole world, boasts a PGM grade more than twice that of South Africa's, but Norilsk mine's PGM grade is only 10 grams per ton.
The Stillwater Mining Company, SWC, mines a structure called J-M Reef, proudly declared on their web site that they own the world's highest-grade known ore body of platinum group metals. So how high is highest? In recent quarterly reports SWC was strugglng with ore grade of approximately 0.46 to 0.50 ounces of PGM per ton, or 15 grams per ton. That ore grade made SWC the world's No. 1 in PGM ore grade.
PAL is producing metals from ores as low as 5.66 grams per ton in its underground mine, and 2 grams per ton in its open pit mine. The operation wouldn't even be economical if not because of the much higher base metal contents. But now this poor Cinderella suddenly becomes a princess! PAL will be mining up to 30 grams per ton of ore, instead of 2 grams/ton, in the near future! That completely changed the picture.
What a dramatic new development, right at a time when PAL stock price was hammered to the ground by mindless short sellers in recent weeks. I have been holding my PAL shares tight and now the patience paid off. People! It's time. Rush in to buy! It's rare to have an opportunity to buy the world's richest PGM mine, and at a price so dirt cheap it's barely above book value!
No wonder PAL insiders have been quietly buying up shares from open market, according to recent filings. They are not shy to tell the world that they have full confidence in this company's bright future. The new discovery of the world's richestPGM mines, is just icing on the cake!
The stock price of PAL has seem some nerve wrecking movement in recent months. From the high of $12+ in may 2007 when Cramer pitched PAL as the best nickel player, to the heart breaking plummet to the low $3-ish in mid December, 07, the struggle on the bottom till mid January, 08, and then a dramatic and powerful rally all the way to $9, and then fall back in the metals correction to the current low of $4.62. I have been holding firm during all the time, and struggled to add shares.
Why do I hold PAL so firm during the turbulent volatility? Because I truly believe in Warren Buffett's investment philosophy, and because I learned my lessons in PCU, and most recently in JRCC. Both stocks were some of my best holdings and I made money in them, but far from what I could have made, just becaue I could not hold for long term.
I researched copper companies in early 2006 after I discovered the topic of "Peak Copper". I was stunned to find PCU, at an incredibly low P/E of only 7.0, plus it pays a dividend as high as 10% a year. I just couldn't believe my eyes. After verifying the facts I immediately put more than half of my money into PCU. That was a split and dividend adjusted price of $28.50. Today PCU is at $111.53. Did I made 391% from PCU? No. I was scared off during the commodity correction in the summer of 2006, and sold off. Made probably 25%. Not much after paying Uncle Sam. In early 2007 I bought PCU again, and then sold in a few weeks for a 10% gain, because I perceive there were better opportunities in something else. PCU proceeded to more than doubled from where I last sold it. So PCU was a very good stock to own but I barely get much return from it because I could not hold for long term.
The most heart breaking example is the recent JRCC, a coal mining company. I watched it for a few months and finally spend 1/3 of my 401K to load up JRCC at $4. Perfect timing. Then as JRCC approached $8, I figured there may be a correction and so I sold before it hit $8. Again perfect timing. I missed the peak by just one day. JRCC proceeded to correct all the way down to $4.76 on Nov. 19, losing almost all of its gain since $4. I was watching it that day, and figured it should be a buying opportunity. But I was not in a position to buy although the timing looked good. JRCC never looked back and rallyed all the way to $25+ recently, and I could only watch it empty handed.
What a heart breaking lesson learned! The greatest investors like Warren Buffett kept telling us, do your own due diligence study, understand what you buy, and do not be swayed by irrational reactions of Mr. Market, hold patiently for long term. Blindly following the mobs, the prefered style of investment for the majority of market participants, is not much better than gambling. Fundamental based long term investment strategy is the only successful money making investment strategy. Patience is easily said than done. Holding at happy times is no patience. Being able to hold through the lows, that is what's called patience. Why there is only one Warren Buffett? It is not because he is particularly smart. He looks like an average IQ guy. But his iron cold patience in investing is nobody's match.
Now, back to the agriculture sector. In the previous article, I point out that food grain products have limited room for upward price movement, because food is quite price elastic. Poorest population, which is the majority, MUST cut back on higher prices, because they simply do not have enough money to purchase food. Likewise, I believe the fertilizers are probably over-prices, and that stocks like POT, MOS, AGU etc., are probably already over-priced as the investor's perception is based on perception of unlimited growth of these companies, which is simply not realistic. I also suspected that the global potash cartels deliberately limit production in order to raise price, which could hurt them in long term.
It looks like in the past few days, food grains see a big sell off, as well as the fertilizer sector. Even though I expressed skepticism in the first place, I do not believe recent market move is a confirmation of my skepticism yet. My vew is it's just some normal market volatility and correction, not a trend shift. Has the global food supply suddenly become abundant, or the fertilizers? Definitely NOT. I see grain prices to continue to remain high and volatile. The situation will NOT change until the coming harvest. Likewise, fertilizer players are likely to rally again. Now is not time to short any fertilizer players. The best time will probably be around harvest time. So let's wait and see.
I see POT, MOS, AGU has some more room to go up. But I would rather stick to PAL, thanks to the stunning announcement of the drill result yesterday. Remember, SWC will announce Q1,08 earnings on May 8th, and PAL on May 12th. For the first time, the great PGM metals rally which took off at late January, will finally be reflected in the quarterly performance. So now is really the best time to get on board. Nothing in the bullish fundamentals of the metals has been changed. We will be going higher for several years.
Disclosure: The author is heavily invested in PAL and SWC, and currently holds no short position in FSLR but will be shorting FSLR soon.
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1. If insiders knew this is going to be such a increadible deal; they would be telling their friends, hence, we are going to see it in the chart
2. The fact that we don't see any up-ticking move in the charts but on opposite, means that a) the author is manipulating us by "selling" or b) someone is manipulating him
I've been watching and investing in PAL occassionally, and reading Mark's articles. Back in Feb. he published another of his continuing saga's on PAL/SWC and the PGM's supply/demand scenario:
seekingalpha.com/artic...
Is it possible this article caused PAL's stock to surge from $5 to $9 in a two week period? Possible, but not probable. It seems more likely that other factors such as the concommitent spike in Pd prices and the electrical outages affecting the S. African mines had more affect. Yes, the author has a flare for the dramatic and is passionate on his topic. But he also openly admits to owning as much PAL/SWC as possible. Take it all with a grain of salt, but I'd not write him off.
As for today, don't overlook that PAL released Q1 '08 today, maybe that moved all things PAL just a little today?
Mark - 'forest' has a good point. I noticed too that you picked the best hole results. The average is probably closer to 12g/ore ton? Overall, thank you for the time and effort you put into the PGMs story, very interesting (and profitable).
I doubt it.
But just in case.....
eTrade is going to $100.00 a share by month end. Don't be left out. Buy Buy Buy!!!!!
churning your own portfolio just for the sake of 'chasing money' is NEVER going to work. seems like you do all kinds of research and then just abandon it. wtf good does that do?
gl.
I take your advice. I have learned my lessons in PCU and JRCC. You are right I need better investment discipline. If one is convinced of the fundamentals then it is a shame to sell of shares and miss the boat. I am holding PAL firm so I will not repeat the mistake I made on JRCC.
To folks who suspect that I cherry pick the best grade from the drilling result, I did not. Conventional sense is you want to average things. But averaging is not how you judge drilling result.
If you drill all holes right through the richest part of the center of the ore body, you would of course obtain some pretty consistent high grade number. But that would be a waste of exploration expense. One hole in the center should be enough to tell you the highest mine grade at the center. Two or three extra holes at different locations of the main ore body should be enough to confirm that the result is correct. Most of the holes will be drilled near the edge of the ore body, hence result in lower grade. The purpose of such perimeter drilling is NOT to determine the main ore grade, but to determine where is the boundary of the mine body and how big it extends.
So you should NOT look at the average grade, but rather the highest grade, especially when it is confirmed by more than one holes. That is the grade of the main ore body of the mine.
If you want to speed it up, concentrate on the short term and long term fundamentals of the PGM metals themselves, especially palladium. If the fundamentals of the metals mandate that price must go up, then the performance of the company MUST improve overtime. The rest are just details. Read these two article to understand the palladium market fundamentals:
seekingalpha.com/artic...
And:
seekingalpha.com/artic...
Now there are only two currently producing mining companies who can claim palladium as their main product. SWC and PAL. PAL is unhedged and SWC is hedged. Both will see a great Q1, on May 8 and May 12. Both enjoy much higher metal prices in Q1. SWC gets extra boost because 11.5K platinum going off the forward sale edge. PAL gets an even bigger boost due to the way they account for commodity price adjustment quarterly. So now is a good time to buy both PAL and SWC.
Although I like to make as much off a trade as possible, I also like to wait and confirm the bottom, rather than risk the loss. Personally, i'll wait for gold to turn around before jumping into mining/metals.
Either that, or get access to Cramer's scripts and buy the day before and sell at the end of the day he broadcasts!!
When it comes down to it, I have to wait for everyone ELSE to be a little convinced (okay, maybe not EVERYONE, but lots of others at least... While I'm not trying to chase tops, I'm not trying to guess the bottom either)... otherwise I have to ride the stock down further, then wait for the recovery to come back into the black. I'm better off waiting for the recovery and jumping in early.
Thank you for putting PAL on my radar.
Thank you for further explaining the drill hole results, that indeed makes a lot of sense. Keep up the great work.
relentless selling. No shortage of shares available.
No credit for the incredible deposit? What's with that?
xs227.xs.to/xs227/0819...