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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 (
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  • More on the Palladium Paradigm Shift 9 comments
    Aug 20, 2011 10:17 PM | about stocks: GLD, SLV, PALL, PPLT, SWC, PAL, NILSY, SSRI, CDE, PCXCQQ

    In early December, 2010, I pointed that there will be a huge paradigm shift in the supply/demand of the global palladium and platinum market. Norilsk Nickel (NILSY.PK), the largest nickel mine in the world who is also responsible for 45% of the world's palladium and 10% of platinum, is abandoning the traditional pyrometallurgy process and adopting the more efficient Activox Process, hydrometallurgy that extracts base metals from mineral ores by chemical leaching. The change is necessary due to severe pollution and deteriorating ore grade.

    Knowing the physics in mining, I saw something with hugely significance: While the new technology can extract nickel and copper at near 100% efficiency at low cost, it also means that the chemically stable PGM contents, platinum and palladium, will be extremely difficult to extract.

    Norilsk will cease to be a major supplier of palladium and platinum.

    The supply disruption will cause a panic in the global market, sending the price of palladium to the sky!!!

    After my article was published, some folks raised some questions. I have done more research on this issue and collected more information. The more I looked at it the more I am convinced of the unescapable conclusion. I will summarize the important points here:

    1. Will Norilsk Nickel switch to Activox Process if they could lose PGM revenue?

    They have to switch! Maintaining status quo is not sustainable:

    a. Due to heavy pollution thanks to the traditional pyrometallurgy, Norilsk City tops the world's most polluted places. 98% of the people are sick. There is not a single live tree within a 30 miles radius. The company is paying 2.6 times higher salary for mining workers, but still can not retain the workforce. If the cost is losing your heath and lose the ability to to raise heathy children, who would want to work in such a filthy place? The government would not turn a blind eye forever.

    b. Pyrometallurgy is extremely energy intensive. Even though the technology can extract up to 70% of the base metals and palladium, higher energy cost and deteriorating ore grade means the process could become un-profitable, even if you don't consider the cost to the environment.

    c. Activox Process consumes much less energy. The chemicals can be recycled and reused. Not to mention that it extracts nearly 100% of the base metals, versus 70% in pyrometallurgy. The lower cost, more efficient extraction of nickel and copper more than offset loss of PGM revenue. My calculation confirms it.

    d. All information indicates that Norilsk is making the switch. They paid US$6.5B cash to acquire LionOre to obtain the Activox Process technology, and rename it to Norilsk Process. They announced aggressive projects to improve mining process. They announced that beginning in 2013, the sulphur emission will be cut from nearly one million tons a year, to only 0.2 million. Such drastic pollution reduction can only happen with the switch to Activox.

    Although in the same investor presentation, Norilsk projected continued palladium and platinum production at near flat level. Many readers quoted that report and criticized my conclusion. My response is that Norilsk did not develop the technology, it purchased it. The investor report was prepared by high level management who know very little of the actual physics in mining process. From their point of view, whatever is in the ore, they assume it can be extracted. Whatever technology that do not exist today to extract certain metal content, they assume will become available some years down the road. When making long term projections you are not encumbed by limitation of what is feasible today, but you aim for the long term goal. So I don't blame Norilsk for making the projection that they are going to continue to produce palladium. But the projection is too rosy. It is unrealistic.

    But investors need to scrutinize what can or can not be done today or in the near future. We have to get to the intimate details to dig out the facts. With known physics, I do NOT see how they can continue to extract PGM metals once they switch to Activox.

    2. Is it really impossible to extract PGM metals once Activox Process is adopted

    We have to look at the basic physics of mining process. After mineral ores are collecetd from a mine, the first step, called milling, is to crush the materials into small particles so the rocks and the metal containing grains can then be separated. In traditional mining process, a technology with over a hundred years of history is used, called Froth Flotation. Let me explain it.

    Different material stick to oil or other liquid differently. Some will soak in the liquid, some will form oil like droplets as they don't stick. Using this property, we can pour the crushed mineral grains into certain water solutions, and then blow bubbles from the bottom. The metal grains will more likely stick to the bubbles and be bought to the surface, while rock particles remain on the bottom. We can then skim off the top layer which contains metal rich concentrates. This process is called froth flotation.

    Mining engineers will tell you that for effective froth flotation, the ores must be grinded to proper particle size. If it is grinded too coarsely, the metals and rocks are still mixed in the same particles. But if it is over-grinded, it results in particles so tiny that they are equally likely to stick to the bubbles, thus it fails to separate metal and non-metal content. The over-grinding is also called sliming.

    How much grinding is over-grinding? This paper and many others suggest that roughly 30 to 80 microns is the ideal particle size for optimum froth flotation recovery. For particles 10 microns or less, the recovery rate quickly falls off.

    Chemical leaching, like Activox Process, has a different grinding requirement. For effective leaching, the ores must be ultra fine grinded so as to thoroughly expose the metals to the chemical solution. Literatures on Activox, like this, and this, describe that the ores are grinded to 10 microns or less before feeding into the leach process.

    Based on the flow chart, the PGM metals are left in the solid leach residue. The material is then send to a Froth Flotation process to attempt to extract the PGM particles. That was the original design intention. In the actual Tati Nickel demostration plant, the PGM flotation unit was never actually built to test the feasibility of this extra PGM extraction step.

    In Norilsk ores, 99.98% of the metal content is nickel and copper. Platinum and palladium is only 0.02%. Starting with 10 microns metal particles, going through chemical leaching which dis-solves 99.98% of the nickel and copper, there is just a tiny bit of the original metal particles remaining. I calculated the resulting PGM particles will be less than 0.6 microns in diameter.

    The 0.6 microns number assumes that during the chemical leaching, metal particles do not break down into bits, but remain whole grains. Most likely the particles do break into bits, thus the PGM content probably will become such tiny dusts that they are simply lost within the leach waste. It's just not possibel to recover anything through the conventional froth flotation method, which requires 30 to 120 microns particles. There is no other known technology to pick up such metal dusts efficiently from the waste material.

    So the inevitable conclusion, based on physics, is: Norilsk Nickel can NOT produce platinum and palladium any more once they move towards Activox. But they must switch over to the process!

    3. How do you leverage the opportunity?

    Buy any palladium coins or metal bars you can find; Purchase the PALL and PPLT, which are ETFs backed by physical palladium and platinum metals. But more attractive is to buy shares of the world's only primary palladium producers: Stillwater Mining (SWC) and North American Palladium (PAL).

    I encourage metals analysts, and experts from major PGM metal industry users, to really look into this looming palladium supply issue, and consult mining experts to verify my conclusion.


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Comments (9)
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  • btorbik
    , contributor
    Comments (24) | Send Message
    Mark, do you know what proportion of Russian output is accounted for by Norilsk? And, if their Pd or Pt output does decline to practically nothing, as you suggest, what proportion of global output does it represent?
    21 Aug 2011, 10:48 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
    Author’s reply » Norilsk is the world's largest nickel mine and the only one with significant PGM (platinum and palladium) content. So it is a very unique nickel mine.


    This one single company is responsible for virtually the entirety of all of Russia's nickel and PGM outputs.


    Their palladium production, currently about 2.7M ounces a year accounts for about 45% of the world's palladium mining production.


    You can get more info from Platinum Today web site:


    Implatz has some basic supply and demand numbers:
    22 Aug 2011, 11:31 PM Reply Like
  • Gaucho
    , contributor
    Comments (879) | Send Message
    Thank you Mark.


    This answers many of my remaining questions. I will remain in Palladium after reading this article. I followed your advice when Palladium was in the low 200s and that was one of my best investments.


    People like you keep me reading Seeking Alpha.
    21 Aug 2011, 10:49 PM Reply Like
  • Davis Waldo
    , contributor
    Comments (59) | Send Message
    What's your view of 2012+ Russia sales of palladium from reserves?
    22 Aug 2011, 11:48 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
    Author’s reply » Most likely the Russian government palladium reserve is gone.


    Some people think the stockpile palladium is still shipping. They got the false impression from Johnson Matthey's annual PGM metal review. In which they accounted for a large batch of shipment in the summer/fall of 2008, split the amount into three parts and apply them each to 2008, 2009, 2010 as Russian palladium stickpile sale.


    In reality, there was no more Russian palladium stockpile shipment since 2008. It's simply exhausted, after more than 20 years of annual sale.
    22 Aug 2011, 11:34 PM Reply Like
  • TheTurk
    , contributor
    Comments (43) | Send Message
    SWC isn't the pure PGM play that it was with their latest acquisition. IMO they overpaid and purchased in a country (Argentina) where doing business is very different from what they are used to. The stock has been pounded and I'm not sure that it isn't justified.
    23 Aug 2011, 05:04 AM Reply Like
  • Mark Anthony
    , contributor
    Comments (3595) | Send Message
    Author’s reply » There is still only two palladium mining play: SWC and PAL. SWC is still the only one with very significant palladium production. The peregrine acquisition did not take away any palladium ounces.


    The plummet in SWC is not justified. Any one who truely believe in the palladium story may be resentful but willnot sell SWC. Because how else do you play palladium? Those who sold obviously just do not want to play palladium any more. Let them go. The next rally could only be stronger without the weak hands who know nothing.
    23 Aug 2011, 02:37 PM Reply Like
  • minorman
    , contributor
    Comments (245) | Send Message
    Hey Mark


    Have you seen that JM now (finally) thinks the Russian stockpile sale is over?


    I've written up my take on it here:


    Comments welcome. (I'm looking forward to a veery good run here.)
    25 Oct 2011, 11:24 PM Reply Like
  • Shigidim
    , contributor
    Comment (1) | Send Message
    Hello Mark,


    It is always a great pleasure reading your articles which are packed with very interesting data and analysis.


    As for Activox, I became so interested in what you had written about this technology, that decided to give a ring to Norilsk Nickel and ask them about Activox's future prospects directly. They replied back that the technology is NOT actually suitable for treatment of the ores from the Russian mines. These refractory ores contain too many sulfide minerals which trap palladium particles making it difficult for the chemical leach solution to release the precious metal. As such, Activox, which is indeed hydrometallurgy that extracts metals from mineral ores by chemical leaching, is too weak and therefore has failed.


    On top of that, proceedings from palladium sales amount to approx. 25% of the company's profits, so they are not even thinking of loosing such a huge piece of their income stream. Especially, against the background of falling nickel grades.


    Sorry, if I have disappointed you and other fellow readers, but this is how the things stand at the moment.
    13 Nov 2011, 11:18 PM Reply Like
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