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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/)
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  • Global PGM Supply - Lights Going Out in South Africa Agagin? 20 comments
    Jan 10, 2011 3:18 PM | about stocks: SWC, PAL, PCXCQ, ACI, ICO

    Many platinum and palladium investors remember the spectacular rally of platinum and palladium prices in the first few months of 2008, when electricity crisis in South Africa forced the PGM mining industry in the country to shut down for 5 days, causing a market panic that sent platinum price to $2300 per ounce and palladium to near $600 in short order.

    While the world's attention is focused on the Australian flood which disrupts the country's coal supply, causing a big rally in international coal price, few notice that it rains on South Africa's coal mines just as well, just as it did 3 years ago!

    Are we setting up for a re-run of the early 2008 PGM panic rally? How is South Africa's electricity grid coping today, comparing with early 2008?

    I pointed out that South Africa has reached Peak Coal. So the coal and electricity supply situation in South Africa will get worse, not better, in the coming years.

    I pointed out that ESKOM, the semi-governmental national electricity company of South Africa, could not solve the electricity problem because it does not have the money. Even after several boosts of electricity tariff, South Africans are still paying the lowest electricity tariff in the world: about 0.29 rands per kwh, or US$0.04 per kwh, while international coal price is running at $129 per ton and going higher. It costs 0.55kg of coal to generate one kwh of electricity. So if fuel cost is half of the cost of generating electricity, a fair electricity price should be US$0.14 per kwh. According to the latest ESKOM annual report, they paid roughly $25 per ton for coal acquisition. So imagine what kind of low quality discard coal they have been burning over the years if that's the kind of coal price they have been paying!

    In response to concerns of ESKOM's coal supply, amid the disruption due to heavy raining, and due to increased export demand, here is what ESKOM said: "Eskom is buying high-quality coal for affected stations and taking steps to improve operating procedures in the coal stockyards. We are upgrading operating processes and procedures for the power station coal stockyard to improve coal handling in wet weather".

    I am pretty sure ESKOM is paying $25 per ton and getting the kind of high quality discard coal, wet and mixed with free dirty mud, while the Chinese and Indians, turned away from Australian coal export harbors, are paying $125 per ton and they are getting the low quality coal with no freebie dirts. I will believe that ESKOM is getting guaranteed supply of high quality coal, when I see that they are paying a price that tops the offers of the Indians and the Chinese.

    I think we are probably set up for a re-run of the 2008 PGM supply panic soon. To leverage this investment opportunity, investors should acquire physical physical platinum and palladium metal bullions and coins, as well as stocks of the only primary PGM mining companies outside South Africa, namely SWC and PAL.
     



    Disclosure: I am long SWC, PAL, PCX, ACI, ICO.
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Comments (20)
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  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » LOL, now ESKOM is complaining that the kind of "High Quality Coal" they get are inferior:

     

    Eskom complaints about ‘inferior coal’
    www.pretorianews.co.za...

     

    I say PAY UP, ESKOM, or quite complaining. You just have to cope with it. Looks like another electricity crisis in South Africa is now looming and ESKOM can't solve the problem, as they don't have the money to solve the problem.

     

    Eskom’s bid to keep lights on held up
    www.pretorianews.co.za...

     

    But for how much longer?

     

    More on this from Bloomberg:

     

    Eskom Says Heavy Rains Affecting Volume, Quality of Coal Shipped to Plants
    www.bloomberg.com/news...
    13 Jan 2011, 03:15 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » ESKOM loudly complains about getting inferior coal, cutting its electricity generating capacity:

     

    www.pretorianews.co.za...

     

    What is to complain, ESKOM, when you are paying only $25 per ton while international users are willing to pay $125 per ton for coal?
    14 Jan 2011, 12:42 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Just wish I had more money to put into Stillwater. Between your research, which is basically the most insightful I've ever seen on this website in regards to commodities, and my own, the palladium sector seems to be as sure a bet as we're ever going to see. Coal also looks good, especially PCX. Might buy into that company after the situation in Australia stabilizes.

     

    Anthony, what would it take for ESKOM to begin charging higher rates per KW/h? Are its electrical rates determined by the SA government, and if so, what would it take for ESKOM to convince the SA government to begin charging more?
    14 Jan 2011, 03:14 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » To answer you:

     

    ESKOM is a semi-governmental national electricity company in South Africa. They can not just raise the electricity rate as they wish. There is fierce opposition to ESKOM raising rate from the public. The political opposition force is very strong. The general public resentment is particularly strong because big industry users are paying only a fraction of what the average Joe Bloke in South Africa is paying. Frankly, if PGM mining companies begin to pay fair electricity price based on cost, they would stop making profit at all at current PGM prices, they would need to see much higher PGM metal prices to justify the cost. That is because South African PGM mines are really low grade ores, containing roughly 3 grams or less PGM metals per ton of raw ores. Among the 3 grams per ton, roughly 70% can ultimately be extracted as end product.
    7 Feb 2011, 01:11 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Are there any junior PGE miners outside of sub-Saharan Africa you'd think are worth researching? For instance, there are several PGE ore bodies around the Sudbury basin in Canada, and I've heard of others in the general area of Stillwater's operations. I just don't know much about them yet.

     

    So, in short, you think that ESKOM will only be allowed to raise its rates after an energy crisis emerges in SA? It seems as though that's what it would take to break the legislative deadlock.
    7 Feb 2011, 05:42 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » In the immediate future, looming South African truck driver strike is another challenge that could cripple ESKOM, causing another panic rally in PGM metals:

     

    www.capeargus.co.za/tr...

     

    Truck drivers vote to strike
    January 28 2011 at 09:19am

     

    ESKOM relies on truck drivers to bring coal to its power stations.
    7 Feb 2011, 07:09 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Well, Mark, ESKOM has apparently gotten permission to raise its rates 25% per year for three years. The company has gotten a breather for now, but this is, again, highly bullish for the price of the white metals, as the costs of production are now all that much higher. You're no doubt right that there was a lot of opposition to this measure, as it's now going to be difficult for SA miners to compete on a cost basis while still using their inefficient roasting processes, meaning that ESKOM probably really was heading for the end-game scenario you postulated in this article, until the leadership took notice.

     

    blogs.timeslive.co.za/.../
    22 Feb 2011, 03:42 AM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    And, yeah, you're right in that the Bushveld complex has really low PGE grades. For example, the primary Stillwater mine has average grades of about .67g/ton, whereas a lot of the SA PGE miners I've read on have about .22-.28g/ton. I expect North American miners to have better and faster profits than SA miners in the future.
    22 Feb 2011, 03:45 AM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Mark,

     

    I eagerly await your next article. Interesting developments are occurring in the PGE industry, and furthermore, the last two months of range trading and consolidation, in my opinion, aren't going to last for much longer.
    14 Mar 2011, 08:30 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark, PGM metals are going to reach its price peak and a great sell-off is coming. Better sell all of them to lock in profit now. Otherwise, they will be beaten down very hard and you will lose a lot. Fundamental Analysis is useless for trading in very volatile markets and could lead you into a trap that will just suck all your money. Be very careful. Forget about electricity problems, just look at the markets themselves. My two cents.
    26 Apr 2011, 01:26 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    That sell off will occur after the Chinese market crash, which is going to represent a dip I'll buy all day and night long. Mark is right on the supply and demand fundamentals long-term. Demand is climbing by the year, will continue to do so, and frankly, there isn't a hell of a lot of supply out there.
    26 Apr 2011, 10:00 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » I am not worried about the fundamentals of PGM metals at all. South Africa's ESKOM can not solve their electricity problem as international buyers are taking their coal away, paying four times the price that ESKOM is paying. And then in Russia, ore grade drop and a move to the Activox Process to produce nickel chemically, skipping PGM metals altogether, means the Russian supply is an even worse problem for the global market. Not to mention investors hoarding the metals to hedge against inflation.
    27 Apr 2011, 12:24 AM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Sure, every market will rebound after a crash occurs. However, being bullish all the time like Mark did is not going to help you earn money from the market. Markets are in fact driven by the sentiments of investors, not fundamentals. Talking about electricity problems in South Africa won't help you earn money in PGM markets. As a proof. Since this article was published, the PGM markets have become very volatile and if you hold your positions, you have almost gained nothing. However, based on Mark's analysis, the prices should have gone to the moon now.

     

    The markets of PGM metals will continue this rally in the coming months. However, it has been very close to a peak and the upward potential is very limited. A trend reversal will occur some time this year. Then the prices will start a free fall. Folks, although electricity problems are still going to be there in south africa. Your loss will also be real if you hold your positions throughout the year.

     

    Good luck in Investing for all of you.
    27 Apr 2011, 09:03 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » "Physicist":

     

    What's the point you try to make?

     

    The first of your paragraphes are correct but useless nonsense. The second paragraph are groundless and delusive speculations worse than useless. I have not lost anything and I am making very very good profits over the long term. I will exit my PGM investments once full profit potential has been reached. We are far from there yet, we have barely fulfilled 5% of the full profit potential so far.

     

    I am not selling any share if that's what you try to persuade me to do. Once I receive my tax refund this year I am buying more.
    27 Apr 2011, 12:49 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark,

     

    Why you got so angry? You have to agree with me on a fact that since you posted this bullish call on Jan, 10. Palladium has fell a lot and Platinum remained unchanged. Then can you explain why the prices were just going sideways? Using your bullshits can only cause loss to most investors. Still remembered your bullish calls in year 2008? I think you are going to repeat that again this time.

     

    For example, why the prices of both metals fell with the stock market in Feb 18-Mar 16? Was that because the electricity problems in south africa are alleviated? Then why the markets started rallying after that? was that because the electricity problems in south africa got worse again? See, using your bullshits can not do any good but to fool investors and help you lose money.
    27 Apr 2011, 01:10 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » I could care less what the short term moves are or why it goes up or down in a particular day. If the time frame of your investment is something like 10 years why would you worry?

     

    During the plummet of 2008 I did not sell a single share of my SWC or PAL position in my 401K account. I just bought more shares each month when fresh cash is deposited in, and I maximized my contribution each month. So I ended up acquiring shares 20 times faster than I do now. I still have not sold any share and I still keep buying shares each month. My 401K account now looks five times prettier than it was just 4 years ago. If you buy at one moment and then sell the next, you are better off visiting a casino, at least the turn around is faster.

     

    If you are betting on a replay of 2008 I advice you to put it 100% all in to short stocks. I will enjoy seeing you lose money.
    27 Apr 2011, 01:57 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark,
    If you have followed my suggestions a few days ago, you would have saved up big money. See what just happened to the markets? Can you still explain it with your electricity theories. On the contrary, I was on the short side and earned big money and do not have to wait for 4 years to gather my profits. Of course, I will turn bullish when the time comes.

     

    At this time, I even doubt what would happen after 4 years, are you really going to be able to gather your profits you have claimed today? In a volatile markets, buy-and-hold strategy would not work and would only cause huge losses to many investors. On the other hand, are you really sure your fundamentals would not change during the coming 4 years? Did you see what just happened to silver?

     

    Although this sell-off is big, I believe it is still possible that the real peak of PGM metals have not been reached yet. But again, the upside potential is very limited for the coming months and a much bigger correction will happen after they peak. Do you still want to hold and view your losses? Think again.
    5 May 2011, 04:21 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Eh, fair enough. The China crash is going to afford some wonderful buying opportunities.
    5 May 2011, 09:47 PM Reply Like
  • Where_Art_Thou
    , contributor
    Comments (54) | Send Message
     
    Physicist,

     

    You're an idiot. That's really all I can say. No sh*t the PGEs are moving sideways; Japan just took it up the rear courtesy of an earthquake that damaged the nation's car production. No one could have seen that coming. However, even that calamity won't effect the baseline supply and demand fundamentals. Speaking of which, " Markets are in fact driven by the sentiments of investors, not fundamentals."

     

    ...

     

    This is why you're never going to be on the leading edge. Sentiments are a lagging indicator. Fundamentals aren't. That's really all I can say. The fact that you'd say something like this is a strike against your investment competence. It's pathetic. Until you can stop speaking in generalized conjecture, and actually show us some hard data supporting your assertions, anything you say is worse than useless.

     

    Personally, Mark, I'm predicting a really disastrous collapse in the Chinese economy occurring in the near future. I intend to take advantage of this dip by buying PGEs on as much margin as I can muster for the short time that, like in '08, their price falls below marginal cost. I'd suggest you watch this. It's a really good interview of Jim Chanos on China.

     

    www.charlierose.com/vi...
    27 Apr 2011, 06:34 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    The markets will prove who are in fact idiots. This is the last warning sign I will put here for those people who are still holding PALL, PPLT, or PAL. etc. GET OUT AS QUICKLY AS POSSIBLE! Why? because a huge sell off is ahead of us. A big crash is coming and if you don't want to be wiped out. You may still have a few weeks to do that. But this is your last chance to do so before the crash.

     

    I am such a nice person and do not want to see nice but naive people get fooled by the so called fundamentals. The markets in the coming years will be extremely dangerous and volatile. Many people will be wiped out. I don't want Mark or any of you to be one of them. Take care and good luck!
    11 May 2011, 10:51 AM Reply Like
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