Catalyzed (no pun intended) by strong demand for more fuel efficient gasoline powered vehicles in BRIC countries and tight supply, palladium (the other platinum group metal) reached a fresh all-time high above US$1,090/ounce today:
The trend is impressive and palladium has many of the classic characteristics of a bull market (persistently overbought conditions, extreme bullish sentiment readings, finds support at rising 50-day moving average on pullbacks). The question for equity investors is how does one play the palladium story?
The answer is that there is no good answer to that question. There really isn’t a palladium pure play stock and with ~80% of global palladium production coming from either Russia or South Africa (two countries that don’t rank highly for mining investors) there isn’t much palladium production left to which investors can gain exposure.
Some companies with palladium production (either current or anticipated once companies’ projects get into production):
PolyMet Mining (TSX:POM, AMEX:PLM) – One of the better charts in the platinum group metals (PGMs) space, however, PolyMet will still only offer investors exposure to less than 100,000 ounces of palladium production per year once they get the NorthMet Project into production (this seems to be at least 2-3 years away).
Platinum Group Metals (TSX:PTM, AMEX:PLG) – In South Africa which makes the stock almost an automatic “stay away,” toss in a brutal long term downtrend and PTM is really difficult to even consider taking a small position in.
Sibanye-Stillwater (NYSE:SBGL) – Sibanye is on the verge of becoming the 2nd largest platinum producer in the world with its proposed acquisition of Lonmin. With its completed purchase of Stillwater Mining, Sibanye has over 200,000 ounces per year of palladium production. Moreover, Sibanye is a precious metals behemoth with 102 million ounces of gold resources and 126 million ounces of PGM resources. Simply stated Sibanye is the stock that hedge funds will have to own in a platinum group metals bull market, however, platinum and gold represent much larger portions of Sibanye’s revenues than palladium.
There is no easy or effective way to play palladium via publicly traded mining shares, which helps to explain the growth in open interest in palladium futures and the success of the Physical Palladium Shares ETF (NYSE:PALL).
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