Seeking Alpha

Mark Anthony's  Instablog

Mark Anthony
Send Message
Mark Anthony, is an IT professional and who had a scientific research background before joining the information revolution. Visit his blog: Stockology (http://stockology.blogspot.com/)
My blog:
  • Peak Oil, Alternative Energy and Platinum Group Metals 10 comments
    Oct 26, 2010 5:30 PM | about stocks: ACI, AVL, CDE, GLD, HL, MCP, NILSY, PAL, PCXCQ, REE, SLV, SSRI, SWC, UURAF

    The world's attention is increasingly turning towards alternative energy as the reality of Peak Oil is sinking in, even though the public discussion of Peak Oil is still only just wispering, with majority of investors unware of the looming global crisis.

    Fossil fuels are cheap and convenient: they are easily produced, and the fuels themselves serve two purposes at the same time: They are both energy source, and energy storage. When you fill up your car with 15 gallons of gasoline, you acquires both the energy needed to drive your car a few hundred miles, as well as ways to store the energy: the energy is stored in the gasoline until it is burned in the internal combustion engine.

    Any alternative energy development must address these two issues as well: energy source, and energy storage. Alternative energy sources we talk about, like solar, wind, ocean wave, nuclear, addresses only the problem of energy source, but not the energy storage.

    While scientists are making some progress in developing high energy density batteries, the basic physics is that energy density in any battery could never come even close to the chemical energy density in either hydrogen, or carbohydrate fuels. The best energy storage solution we can find is to synthesize carbohydrate fuels using energy derived from solar, wind, nuclear or coal fired power plants. Such synthesized carbohydrate fuel can then be transported using the existing infrastructure before they can be utilized. Finally, fuel cell batteries can extract energy from the carbohydrates and turn it into electricity energy, at an efficiency much higher than simply burning them in a combustion engine.

    So this is the alternative energy recipe scientists have given us:
     

    1. First electricity is generated from alternative energy sources like solar, wind, ocean wave, nuclear, hydropower, etc.

    2. Second electricity is used to synthesize carbohydrate fuels, allowing the stored energy to be easily transported and utilized.

    3. Third fuel cells are used to generate electricity from carbohydrate fuels to provide end energy usage, like driving a vehicle or other electricity driven machines.


    Do you realize that for steps 2 and 3 to be possible, a category of rare and expensive precious metals are need. You need the so called PGMs (Platinum Group Metals), namely platinum and palladium. These two metals serve as catalysts in synthesizing cabohydrate fuels. They also serve as catalysts in fuel cell batteries.


    Among the two PGM metals, palladium is probably even more important. Palladium is very unique in its extreme affinity to hydrogen: one volume of palladium is capable of absorbing 900 times the volume of hydrogen. Such extreme affinity to hydrogen makes palladium an ideal catalyst in any chemical process that involves hydrogen, including, of course, the chemical process to synthesize carbohydrate fuels, or the chemical process to turn carbohydrate fuel into water, carbon dioxide and electricity, as it happens in fuel cells. There is no shortage of efforts by scientists to look for alternatives to the expensive platinum and palladium, in the last one hundred years. Unfortunately no practical substitute could be found so far.


    No wonder when President Bush advocated hydrogen economy in a State of the Union address in 2003, some one reminded us that you can NOT have a hydrogen economy without palladium, and that the USA is lucky to have one of the world's only two primary palladium mines: the Stillwater Mine (SWC) in Montana. The other palladium mine is North American Palladium (PAL). Read "The Russians Are Coming" by Mother Jones.


    Recently there is an investor mania in the sector of rare earth metals, just like the one in solar energy a few years ago, due to recent news that China is limiting production and export of rare earth metals. The rare earth metals mania is not without a good reason. The alternative energy development is a huge investment theme due to Peak Oil. In the alternative energy development, you need efficient electric motors to turn mechanical energy (like wind power or hydropower) into electricity and turn electricity into mechanical power (like in a hybrid car), and you need high energy density batteries to store the electricity energy. The high density batteries need rare earth metals. To make the strong magnets needed to build electric motors, you need rare earth metals. Not to mention the advanced electronics technology need rare earth metal as well. No wonder the whole world panicked when China begin to cut back rare earth metals expert quotas, and there is an investor mania to rush into potential rare earth mining plays like MCP, REE, AVARF.PK and UURAF.PK these days.


    But let me be clear: rare earth metals are not rare at all. China could not cut the world off on rare earth metals even if she wants to. There are plenty of rare earth resources else where in the world that can be developed. They just won't be cheap.


    But here are these two other metals that are truely rare, and that all alternative energy technology more critically depend on, and which China has zero domestic sources. China runs the danger of being cut off by the world on these two critical metals if there is a resource war.


    Those two metals, as I just mentioned, are palladium and platinum. Supply of these two metals concentrate in just a few spots in the world: Russia's Norilsk Nickel (NILSY.PK) mine, South Africa PGM mines, and these two palladium mines in North America: SWC and PAL. Price of platinum but even more so that of palladium, have been surging up relentlessly due to strong supply/demand fundamentals. China, Japan and other nations without their domestic sources of these two metals, better begin to think about accumulate their strategic reserved of these two critical strategic industry and war time metals.


    Likewise, investors would do much better hoarding physical palladium metal bullions, than hoarding a basket of 2 dozen different rare earth metals and not knowing which one will do best in the near future.


    In the next two articles I will talking about how effects of resource peaking in two countries will impact global supply of platinum and palladium catastrophically, causing market panick in the near future, sending prices of these two metals surging to unimaginable high levels:


    Peak Coal in South African and the Global PGM Supply


    -How South Africa is running out of coal. How booing India coal demand will deplete South Africa's coal supply. And how these will impact South Africa's electricity supply and therefore constraint that country's platinum and palladium supply.


    Peak Nickel in Russia and the Russian Checkmate on Palladium


    -The Russian checkmate on global palladium supply are in two aspects: First the end of Russia strategic palladium stockpile sale, due to the stockpile depletion. Second, palladium production of Russia's Norilk Nickel (NILSY.PK) mine declines dramatically, as ore grade deteriorates. Third, More shockingly, Norilsk Nickel is now considering the more cost effective Activox Process technology, which it acquired by spending US$6.5B to acquire LionOres a few years ago. The Activox Process will dramatically cut sulphur dioxide pollution. But the new technology will only extract base metals nickel and copper, leaving platinum and palladium in the residue un-extracted, unless the price is high enough to provide the economic incentives to extract the precious metals using alternative approaches. This change would be a catastrophic loss of global palladium supply and will be sure to cause market panic.


    Disclosure: The author has large long positions in palladium mining stocks SWC and PAL, in addition to silver mining stocks like SSRI, CDE, HL, and coal mining stocks PCX and ACI. The author has no position in rare earth metal plays REE and MCP.
    Themes: coal, oil, gold, silver, platinum, palladium Stocks: ACI, AVL, CDE, GLD, HL, MCP, NILSY, PAL, PCXCQ, REE, SLV, SSRI, SWC, UURAF
Back To Mark Anthony's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (10)
Track new comments
  • nyeguy
    , contributor
    Comment (1) | Send Message
     
    Very interesting article, my father works at the Stillwater Mine. But please find someone to edit your work, one must be grammatically sound to be heard more widely.
    5 Nov 2010, 12:38 PM Reply Like
  • OKMONEY
    , contributor
    Comments (73) | Send Message
     
    You come out of the shadows every time Pd goes on a tear with the same old tired theories about how and why it's going higher. How about the fear of inflation and the flock to commodities, and, speculation. Not even a mention. By now you should know Pd is a short term trade as it always has been in the past. I can hardly wait to read your next articles "about how effects of resource peaking in two countries will impact global supply of platinum and palladium catastrophically, causing market panic in the near future, sending prices of these two metals surging to unimaginable high levels."

     

    Sounds like you're going to tell us the same fairy tales you did the time PGMs spiked.
    6 Nov 2010, 07:26 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » OKMONEY:

     

    I never hide in a shadow. I have been calling for palladium investment for almost three years. All the bullish facts I pointed out in the palladium market are FACTS. It's just that it took a little while, nearly three years, before people FINALLY begin to recognize those bullish facts. I have been vindicated. This is an ongoing palladium supply panic now, which is what is driving the price UP.

     

    In hind sight, it was NOT that I got anything wrong. It was that the market got something totally wrong. The investors, the auto makers and the producer who sold palladium at $165 per ounce merely 2 years ago were CRAZY and were deadly wrong at the time. They should have been aggressively BUYING at $165, not selling. Now merely 2 years later they have to pay $700 an ounce to buy back what they sold at $165 an ounce. So you tell me whi had bee right and who had been wrong.

     

    Had the market been rational. Had the market not been so stupid, palladium price should not have been allowed to drop to as low as $165 in the first place. It should have stayed aboue $400 and reach $1000 by now.

     

    Now after I have been vindicated and everything I said has been confirmed to be true, including the depletion ot Russian palladium stockpile, you jump in to claim that palladium is a short play and you expect the price to drop soon.

     

    Well then, be my guest. Go ahead and short palladium and short SWC. See how much money you can bear to lose.

     

    To me, the palladium super bull is only just getting started. I think this bull market should last for at least ten years, before any potential supply can catch up to meet the demand.

     

    India's strong demand sucking coal away from South Africa made the PGM supply problem much worse.

     

    Russian Norilsk Nickel mine moving away from pyro-metallurgy and moving toward the chemical based Activox Process, will dramatically cut palladium supply. This two combined will send palladium to crazy price level. Any one resisting that trend will be crushed mercilessly. Just mark my words.
    8 Nov 2010, 01:23 PM Reply Like
  • TheTurk
    , contributor
    Comments (42) | Send Message
     
    MA:

     

    Thanks for the palladium advise. You made me some good money on SWC and PAL. If I had your conviction, I would have made a lot more.

     

    Norilsk has a huge portion of SWC and then moves away from pyro-metallurgy. That makes sense. What do you think of picking up some NILSY.PK? I'm kinda scared of investments in Russia, but what do you think of NILSY.PK for the nickel play?
    9 Nov 2010, 08:24 AM Reply Like
  • OKMONEY
    , contributor
    Comments (73) | Send Message
     
    So, Mark, the market was wrong, not you! Pray tell, just where is this great demand coming from? Mark, the market is always right, whether it be irrational or not. Pd is not on a slow steady rise; it's on a speculative tear. Just watch! It'll follow the same pattern it always does, spike and drop.
    9 Nov 2010, 12:34 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » The market was wrong. GM was wrong. Both GM and FORD was stupid. They sold palladium at $165 barely two years ago, now they have to pay $700 an ounce to buy the same palladium they sold to produce cars. Had they had an ounce of intelligence in their collective brains they would have bought palladium hands over fist when the price was at $165. Actually had more market players have an ounce of intelligence, they would all have bought physical palladium hands over fists, at $165 per ounce. Actually palladium price should NEVER have been dropped to that low level. Such a low price is just unsustainable. It was foolish to sell at that price, and very smart to buy when you saw that price.

     

    I was pounding on the table to urge people to buy at the low, few people in the world would listen. Now I am vindicated every one else suddenly discovered palladium today. Where have they been two years ago?

     

    So yes I was smarter than the market at the time, and still am today. As Mr. Wallen Buffett famously said, Mr. Market is stupid.
    10 Nov 2010, 07:45 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » TheTurk:

     

    Conviction comes from doing your own due diligence study and collect the information by yourself. No one can convince yourself better than your own self.

     

    We are only at the beginning of the palladium super bull market. I don't know how high it can go. But at least it should last till the supply/demand fundamental finally begin to tilt towards equilibrium. We are still a far way awy from that. I say maybe ten years out.

     

    As for nickel. I think nickel market is bullish as the Chinese begin to decorate their homes. But I have not done as much research on the global nickel market trend. Unlike palladium, where the world has so few resources, nickel mines can be found in many places and if there is demand, the supply can catch up fast, given enough price insentives. So I like the palladium bull market much better than nickel, due to all the price inelasticity.
    10 Nov 2010, 07:50 PM Reply Like
  • OKMONEY
    , contributor
    Comments (73) | Send Message
     
    That says it all, Mark; you're smarter than the market!
    11 Nov 2010, 01:48 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5076) | Send Message
     
    I have great respect for you, Mark. IMO, you are way off base with your evaluation of the REE space. I suggest you read Tripleback's instablogs on REE to educate yourself. When it comes to platinum analysis, you're the "go to guy". When it comes to rees...
    not so much. Best regards.
    11 Jan 2011, 04:02 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Optionsgirl:

     

    I admit that I do not know enough about REE to comment on it. A while ago I commented on some one else's Seeking Alpha article and said that I feel close to the author's opinion that REE seems to be a bubble, but I said it's premature to short it even if it is over-priced. I did not enter any position. I appreciate your tip on Tripleback's instablog on REE and will read it soon. Again I do not know enough of REE to make a correct judgement now.
    13 Jan 2011, 12:59 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • Jim Rogers favors water investment! California is in a water crisis. Cardiz (CDZI) is up almost 50% today on news: http://tinyurl.com/qpddql
    Jun 5, 2009
  • China is still buying US T-Bonds and Yuan is pegged to dollar. WHY? Read my shocking discovery: http://tinyurl.com/rcuofx Enjoy!
    Jun 4, 2009
  • PEIX, a once hot ethanol play, goes Ch.11 today, as expected. Recent unusual price moves must lured speculators in. Good lesson learned.
    May 18, 2009
More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.