Those who follow precious metals have likely taken note that gold is trading at a higher price than platinum recently. This is historically very rare and thus suggests to this author that platinum may soon rebound above gold prices. Since the mid 1990s platinum has generally traded 50% to 100% higher than gold. Right now platinum currently trades at $1516 an ounce whereas gold is now trading at $1660 an ounce. Although platinum is up approximately 13% this month, I think the current run up may have just begun. I have thus recommended considering adding physical platinum to your portfolio or investing an ETF such as (PPLT) in addition to owning physical gold and silver or the ETFs (GLD) and (SLV).
In both the gold and silver space I have been recommending investing in individual miners as a third-line approach, behind owning physical assets or the GLD and SLV. While the GLD, SLV and PPLT are up 2.2, 10.9%, and 7.5 % respectively in the last month, the miners of these metals have been outperforming the metals over the last month. Gold and silver miners as measured by the (GDX) and the (SIL) are up 8.3% and 11.9%. To my knowledge the one ETF that tracks the price of platinum miners is the (PLTM). This index in my opinion is to be avoided as it is thinly traded and has underperformed the major platinum companies. Further it is flat on the month, however, individual platinum and platinum group metals miners are performing better and I believe they could even outperform platinum, as gold and silver miners have outperformed gold and silver. In this article I wish to highlight one mid-cap and two speculative platinum miners for your consideration.
Stillwater Mining Company (SWC): SWC is the bellwether of the platinum mining space and thus represents my top recommendation for platinum miners. Briefly, the company has been in operation since 1992 and engages in "developing, extracting, processing, smelting, refining, and marketing palladium, platinum and platinum group metals." The company conducts its mining operations at the Stillwater mine located near Nye, Montana, and at the East Boulder mine located near Big Timber, Montana. It is also involved in developing Marathon, a platinum group metal and copper property located in Ontario, Canada. It is also exploring the Altar site, a copper and gold property located in San Juan, Argentina. In addition the company operates a smelter and base metal refinery located in Columbus, Montana.
The company has a large reserve of deposits from which to work from. As of December 31, 2011, SWC had proven and probable ore reserves of approximately 42.5 million tons at its Montana operations and approximately 91.4 million tons at its Marathon development project. Ongoing exploration and development of the Marathon site should provide the company with years of revenue. The reserves at Marathon are twice that of its current operations in Montana at the Stillwater and East Boulder mines. The company is also positive about the potential reserves at the Altar site in Argentina.
The company's most recent quarterly results followed the general pattern of precious metal mining companies reporting in Q2, as it reported a weaker Q2 in 2012 relative to the comparable quarter in 2011. SWC reported $18.2 million or $0.15 per share in earnings in Q2. Total revenue for the quarter was $212.8 million. This compares with the 2011 second-quarter net income of $42.7 million or $0.39 per share on revenue of $222.6 million. The Q2 2012 results reflect lower platinum prices and higher consolidated total cash costs than the comparable 2011 quarter. Total cash costs per mined platinum ounce averaged $454 in the second quarter of 2012, compared with total cash costs of $384 per ounce for the second quarter of 2011. This increase in cash costs (which was forecast prior to the quarter) was primarily a result of higher labor costs, another common theme being cited by metals mining companies in the recent earnings reporting season. Despite increased costs I believe a rising price of platinum is enough to offset these expenditures, particularly if platinum can spike high enough to once again surpass the price of gold. Should platinum continue to rise, I expect the stock to continue to outperform the metal.
The stock currently trades at $10.24 on average daily volume of 1.8 million. It trades at a p/e ratio of 14 with a PEG ratio of 1.5. The 52-week range of the stock is $7.31 to $15.95. The stock is up about 28% on the month following the trend of precious metal mining companies outperforming the assets they mine.
North American Palladium (PAL). PAL engages in the exploration, mining and production of precious metal properties in Canada. The company explores for palladium, platinum, gold and other metals at its mining sites. Its principal property includes Lac des Iles palladium mine located northwest of Thunder Bay, Ontario. While the company is not primarily platinum oriented it is poised to do well from rising prices of platinum and related group metals. Unlike some of the miners that operate in South Africa who are increasingly faced with geopolitical risk and hyper-inflationary cost challenges, PAL operates in a mining friendly jurisdiction with lower political risk, stable government policies, moderate cost inflation and available labor.
The company's most recent quarterly report was weaker than the comparable 2011 quarter, mostly due to lower precious metal prices along with increased labor and production costs. PAL produced 2,930 ounces of platinum along with 2,643 ounces of gold. PAL produced 40,017 ounces of palladium at a cash cost of $429 per ounce. Palladium sold at an average price of $622 per ounce during the quarter yielding a palladium operating margin of $193 per ounce. The company took a loss for the quarter of $3.1 million or $0.02 per share compared with earnings of $5.4 million or $0.03 per share in the comparable quarter last year.
The company has moderate debt levels and maintains an ability to finance working capital to support funding exploration and development investment activities. The stock currently trades at $1.76 on average daily volume of 1.01 million shares. The stock has a 52-week range of $1.47-$4.05. While slightly underperforming platinum on the month as PAL is only up 5% since August 1st, I think that there is a large potential upside for this stock moving forward, particularly as the price of platinum rises. With a low geopolitical risk mining environment and progress being made at its sites I think it's a good speculative entry point at current levels.
Platinum Group Metals (PLG): PLG a highly speculative company in the platinum and platinum group metals space. PLG is engaged in the acquisition, exploration and development of platinum properties with interests in the western and northern limbs of the Bushveld Complex in South Africa and in Ontario, Canada. PLG's primary focus is its getting its Project 1 platinum mine into full production. Project 1 is located in the Western Bushveld Complex of South Africa. Projects 1 and 3 of the Western Bushveld Complex include activities at War Springs and Tweespalk, North Limb, Sable Joint Venture and Waterberg Venture all in South Africa. The other operations take place in Lac Des Iles, Ontario, Canada and the Northwest Territories in Canada.
One of the reasons this company represents a potentially fantastic speculative stock is that it is attempting to expand its interests in and ownership of platinum and related metal property sites. In February 2011 PLG announced it acquired a right to earn up to a 75% interest in Benton Resources Corp's (BNRJF.PK) Bark Lake platinum and palladium project. In September of 2011 PLG announced an acquisition of 100% ownership in the Providence Lake nickel, copper, and platinum property in the Northwest Territories of Canada from Arctic Star Exploration Corporation. The company continues to explore and expand its property holdings and progress has been made at its project sites in the last year.
In its most recent quarterly report PLG gave investors a summarization of its last nine months of progress. Speculative stocks of this nature tend to trade off of news, progress and new finds. Over the last three quarters (Q3 ended May 31, 2012) PLG incurred a net loss of $7.03 million. This loss is less than what was lost in the prior fiscal year's first three quarters ending May 31, 2011, which was a net loss of $9.24 million. Loss per share for the first three quarters was $0.04 per share compared with a loss of $0.06 per share for the comparative period of fiscal 2011. Total expenditures by PLG for development and purchases of property and equipment for Project 1 during the period totaled $24.34 million. The Waterberg project's development costs were approximately $3.29 million and the Sable joint-venture project costs were $0.48 million. Progress is coming along at these sites and the stock will continue to trade off of news releases relative to continued developments of these projects in addition to fluctuating with the price of platinum.
PLG has had its stock battered down 39% in the last year. Currently the stock is in the bargain bin at a paltry $0.80 per share. The stock trades on average daily volume of 100,000 shares a day and has a 52-week trading range of $0.75-$1.72. I expect platinum to continue its ascent toward $2000 over the next year and PLG's stock price should rise in tandem over the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.