Wednesday, January 6, 2010

Stillwater Mining Company Comments on Robust Outlook for Palladium in the Surging PGM Market

SWC stock gained 16.5% today:

STILLWATER MINING COMPANY (NYSE:SWC - News) today commented on the impressive 2009 recovery in platinum group metal (PGM) prices following the collapse in those prices in the fourth quarter of 2008 during the economic meltdown.

PGM (palladium, platinum and rhodium) prices have moved strongly ahead in recent days, continuing a steady recovery that began in early 2009.

Palladium, which just over a year ago had fallen 72% from its 2008 high of $582 per ounce to a 2008 fourth quarter low of $164 per ounce, today was quoted in London at $422 per ounce, up 157% from the 2008 low.

Platinum, which fell 66% from its record high of $2,273 per ounce in early 2008 to a low of $763 per ounce a few months later, today has recovered by 104% to $1,556 per ounce.

Rhodium, which fell 90% from its 2008 peak of $10,100 per ounce to bottom out at $1,000 per ounce, today was quoted at $2,750 per ounce, up 170%.

Commenting on the recent buoyancy in PGM prices, Stillwater Chairman and CEO Frank McAllister observed, "Given the severity of the 2008 economic meltdown, the depth of the corresponding downward price movement in PGMs perhaps was understandable, but the magnitude and momentum of the subsequent recovery in PGM prices clearly has caught many observers by surprise. Palladium at the moment is faring best, having fallen the least and recovered the most, currently off just 27% from its 2008 high. Platinum also has done well, at present down 32% from its high. Rhodium remains down 73%."

"Within the recovery we also see a modest convergence of the palladium price towards the platinum price. Last March palladium was trading at just 18% of the price of platinum. Today palladium is priced at 27% of platinum, having closed some of the price gap, but still priced very attractively relative to platinum and rhodium. We expect to see this price gap narrow further going forward as research from the past several years comes to market that increases the opportunity to substitute palladium for platinum and even rhodium."

McAllister continued, "Both the stronger PGM prices and the narrowing of the price gap between palladium and platinum are good for Stillwater with its 3.3 to 1 palladium to platinum mine production ratio. Recently, we have focused on the factors behind the strengthening in PGM prices over the past year, as well as the price gap between palladium and platinum. Some of these factors are outlined below and we expect to offer a more detailed analysis of the price drivers in the Stillwater 2009 Annual Report to Shareholders now in preparation."

Financial factors are having a significant influence on PGM prices in general. Those with the most impact include weakness in the U.S. dollar, a surge in precious metal sentiment and investment (both as a safe haven and as an attractive investment), and the newly approved U.S. ETF securities for both platinum and palladium.
South African PGM production has fallen steadily since making record highs in 2006, despite strong PGM pricing and earlier projections of aggressive growth. Still, South African production for 2009 will constitute 78% of the platinum, 35% of the palladium and a whopping 86% of the rhodium produced worldwide last year. The issue: multiple challenges face the PGM miners in South Africa -- work interruptions related to mine safety; shortages of and conflicting priorities for electricity and water supplies; a strong Rand (local currency); aggressive wage demands and labor actions; failure to meet increasing capital expenditure requirements needed just to maintain production in ever deepening mines; worker skill shortages; failure to develop adequate replacement mines; and political involvement in mining. Concerns about South African production have driven the stronger PGM pricing we have seen over the past year. And given the predominant role of South African production in meeting world PGM requirements, PGM pricing in the end will always be influenced by the South African PGM market basket with its 2 to 1 platinum to palladium bias, in particular during times of a market shortage of the metals. The bias also suggests a continuing need for a strong platinum price to entice the production necessary to meet world PGM requirements. Yet even today's $1,276 per ounce market basket price still leaves the cost structure and capital sustainability of many key South African mines at risk.


  1. Hello? I mentioned ANO last night, Anooraq Resources. They have the fourth largest platinum mine in the world and once they get producing, watch out. This seems extremely undervalued. It's risen a lot in the past few days, up 17% today alone, but it's one that I believe should be accumulated over the long term. This will likely be a multi-bagger over a few years but do your own DD and draw your own conclusions. GL

  2. Y! posters have been pumping that stuff for months. Isn't the issuance of the palladium ETF about the end of the price run up?

  3. I doubt that the current run in ANO has much to do with the PLT ETF although the pumping probably has had an effect. For me, it's a long term play so the run, while nice to see, doesn't mean much to me.

  4. Palladium market is 60% catalytic converters for automobiles. Does China use this technology in their cars? If not, palladium might have few fundamentals to support the run-up.