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Table of Contents
Palladium Price Forecast 2015 ...................................................................................................................... 2
Pressure on palladium in 2015.................................................................................................................. 2
Fundamentals going forward .................................................................................................................... 3
Palladium price forecast ........................................................................................................................... 3
Will Palladium Prices Ever Match Platinum Prices? ...................................................................................... 4
Palladium price victory unlikely ................................................................................................................ 4
Mined production ..................................................................................................................................... 5
3 Types of Palladium Investments ................................................................................................................ 6
Palladium investments: ETFs .................................................................................................................... 6
Palladium investments: Bullion................................................................................................................. 6
Palladium investments: Palladium stocks ................................................................................................. 7
A Look at North American Palladium ............................................................................................................ 8
Trouble in a tough market ........................................................................................................................ 8
Moving ahead?.......................................................................................................................................... 9
Palladium Stocks Round-Up ........................................................................................................................ 10
Stillwater Mining (NYSE:SWC) ................................................................................................................. 10
North American Palladium (TSX:PDL) ..................................................................................................... 10
Ivanhoe Mines (TSX:IVN)......................................................................................................................... 11
Wallbridge Mining (TSX:WM) ................................................................................................................. 11
Wellgreen Platinum (TSX:WG) ................................................................................................................ 11
Sama Resources (TSXV:SME) .................................................................................................................. 12
For palladium, I think it's more that people were taken by surprise by the move down earlier this
year, and were unnerved by it, he said. When it bounced back, they may have thought it was a
good time to get out of the market.
Echoing Turners statements, Tankard also admitted that commodities prices do not necessarily
always reflect long-term fundamentals.
Investment sentiment has a huge part to play in that, he said. And I think that that's exactly
what we're seeing. Over the course of this year, there's been a number of factors that have led
to market uncertainties. Some of these commodities [have been] selling off very aggressively.
Palladiums been caught up with that.
Pointing to specific factors, he noted that the US Federal Reserve continuing to hint that it may
tighten interest rates has put pressure on metals, while a stronger US dollar and concerns over
Chinese demand weighed on platinum and palladium over the summer.
We think that there are going to be several years from 2015 onwards where palladium sees an
ongoing deep physical deficit so around a million-ounce shortfall per year, Tankard said.
Part of that is due to continued rising demand for the metal, particularly from China.
On the palladium side, one of the key areas of demand growth over the coming years is likely
to be Chinas ongoing adoption of more stringent emissions regulations, he said.
A large portion of the worlds palladium is used in catalytic converters for vehicles, so combating
pollution will mean increased demand for palladium. On top of that, Tankard added that Chinas
growing population is expected to buy more and more cars as economic development continues
in the country.
In July, BMO Capital Markets revised its 2015 palladium price forecast down to US$778 from
US$818, and reduced its 2016 forecast from US$880 to US$820. Similarly, UBS (NYSE:UBS)
cut its palladium price forecast from $850 to $770 for the year.
Taking an even more recent look at price forecasts, Tankard said in October that Thomson
Reuters is calling for an average palladium price of just below $700 for 2015, picking up
marginally to average around $725 for 2016.
Certainly, while strong fundamentals persist for palladium, it appears that the metal isnt quite
out of the woods yet.
If Volkswagen were doing the same thing in Europe and if there is more to come, it would be
really bearish for the platinum market," Michael Sheehan of Orion Commodities Management
told Reuters on September 25. "At some point platinum and palladium prices will go to parity
my guess would be between $700 and $850."
Platinum prices initially dropped following the Volkswagen emissions scandal, although they
have more recently taken back some of those losses, gaining just under 11 percent in the first
few weeks of October. In late October, spot platinum was trading at about $1,003 per ounce.
However, palladium has also fallen in 2015, and a sizable gap has remained between prices for
the two metals. Is it a realistic possibility that palladium could ever match or trade above
platinum? The Investing News Network got in touch with William Tankard, director of precious
metals and mining at Thomson Reuters (TSX:TRI,NYSE:TRI), to more insight on the
relationship between the two metals.
While Tankard suggested that the price ratio between the two metals will drop lower, he
explained that higher prices for palladium relative to platinum would mitigate increasing
palladium demand. "As that ratio closes, you are going to see certain areas of demand where
palladium has enjoyed improved offtake fading back," he said. "And this very much speaks to
the automotive side."
While platinum is used for catalytic converters in diesel vehicles, palladium is used for
converters in gasoline vehicles. However, palladium is also sometimes used as a partial
substitute in catalytic converters for diesel engines, since it is the cheaper of the two metals.
"Thats something that has been very much a medium- to long-term trend," Tankard said, "and
that is something that we would consider likely to persist."
However, with palladium becoming more expensive, the incentive to use more palladium in
catalytic converters diminishes. "If palladium was to continue to rally against platinum, then the
substitution pressures would ease considerably. That would in turn speak to improved platinum
demand relative to where we find ourselves today," he said.
Mined production
Secondly, Tankard noted that with only a very small handful of exceptions, the majority of the
world's platinum-group metals mines are primary platinum mines. That makes things
complicated when looking at incentive pricing for new palladium projects.
"If the palladium price goes up, there's admittedly very few new mines going to be incentivized
to come online because of that," Tankard said. "But likewise, if the platinum price goes down,
you are going to see increasing likelihood of platinum output being taken out of the system,
whereas the associated palladium taken out at the same time would be substantially less."
Overall, Tankard stated that while palladium has traded above platinum on very brief occasions
in the past, he doesn't see that happening again in the near future.
Two palladium ETFs launched in South Africa in 2014 AfricaPalladium (JSE:ETFPLD) and
the Absa Capital Palladium ETF were quite popular following their inception. Reuters
reported in September 2014 that holdings in both ETFs broke 1 million ounces (569,838 ounces
for AfricaPalladium and 443,949 ounces for the Absa Capital Palladium ETF) on the back of
rising palladium prices last year.
However, palladium ETFs have not been faring so well lately, with the Volkswagen
(ETR:VOW3) diesel emissions scandal fueling concerns over lower demand for both metals.
Bloomberg reported that October saw record outflows from both platinum and palladium ETFs,
with palladium holdings in exchange-traded products losing 8.3 tonnes in October.
Palladium bars and wafers are another option, but eBullion cautions that these are not as
readily available.
Still, there are at least two primary palladium miners in North America: Stillwater Mining
(NYSE:SWC) and North American Palladium (TSX:PDL). Furthermore, palladium mining stocks
offer an alternative for those not interested in ETFs or bullion.
Ivanhoe Mines (TSX:IVN) which is developing the massive Platreef project in South
Africa.
Wallbridge Mining (TSX:WM) which is currently producing copper and PGMs at its
Broken Hammer mine in Sudbury, Ontario, along with gold and silver. Its also exploring
for nickel, copper and PGMs at its Parkin properties in Ontario, with exploration work
funded by Lonmin (LSE:LMI).
Earlier in 2015, North American Palladium temporarily suspended milling operations at LDI due
to water balance issues. Combined with the impact from a reduction in low-grade material being
processed, North American Palladium has reduced its production guidance from 185,000 to
205,000 ounces of palladium down to 160,000 to 170,000 ounces.
However, other factors have affected North American Palladiums ability to weather the storm.
At least one author has written extensively about the company on Seeking Alpha, questioning
how the LDI mine could have been uneconomic when palladium prices were still flying high.
In particular, the author takes issue with North Americans recapitalization deal with Brookfield
Asset Management (TSX:BAM.A), noting that the arrangement will leave existing shareholders
owning just 2 percent of the companys stock.
Jim Gallagher, former COO of North American Palladium, took over as president and CEO this
past summer less than a week after the recapitalization was completed. Former CEO Phil du
Toit and CFO David Langille resigned.
Gallagher told Northern Ontario Business on November 2 that when he joined the company in
2013, he saw a good orebody and large mining facility, but less than perfect management and
not enough good engineering.
Moving ahead?
However, Gallagher has plans to move the company forward. In an October interview with the
Northern Miner (subscription) he detailed plans for growth at the mine, including an exploration
strategy using funds from Brookfield. North American Palladium also completed a rights offering
on September 15 raising $50 million, with funds earmarked for repaying part of its bridge loan
facility with Brookfield, and for ongoing operations at LDI.
Furthermore, the CEO told Northern Ontario Business that LDI could potentially mine palladium
for another 15 years should prices rebound.
Time will tell whether or not things turn around for North American Palladium, but at least for his
part, Gallagher seems optimistic. Most recently, the company reported a 39-percent increase in
revenues for Q3, year-over-year, and noted that its total debt had decreased from $405.5 million
to $43.7 million as of September 30, in large part due to August's recapitaliztion transaction.
"This was a key quarter for the Company," Gallagher said in a statement. "Our operations
performed well but can still do better following the return to regular production after a difficult
second quarter."
From its August share recapitalization and restructuring to early November, North American
Palladiums share price fell 17.53 percent, to about $4. For the same period, it traded between
$3.85 and $6.44.
Here's a sample of palladium mining companies and junior palladium stocks, along with what
they've been up to lately. Most of the world's platinum-group metals (PGMs) are produced in
South Africa and Russia by major producers like Anglo American Platinum
(OTCMKTS:AGPPY,LSE:AAL), Lonmin (LSE:LMI) and Impala Platinum Holdings
(OTCMKTS:IMPUY), but there are certainly other companies that have an interest in the metal
as well.
Stillwater has seen some losses this year, in line with the falling palladium price. Its share price
is down 37.72 percent year-to-date. It has also struggled to come to a labor agreement with
union employees at its facilities. In August, the company reported that it would reduce its
workforce by 119 employees, citing a deteriorating PGMs market. It has also modified its mine
plan to focus on the most profitable areas within the Stillwater mine.
However, it too has seen troubles in recent years. "Fun Trading" has written extensively about
the company on Seeking Alpha, citing high production costs at LDI. That said, others have been
more positive on the company in the past.
In its second-quarter results, North American Palladium states that a shutdown at the LDI mill
from May 8 to June 26 "had a materially adverse impact on operating and financial results for
the period." It reported a 42-percent decrease in production of payable palladium and a 46-
percent decrease in revenues year-over-year.
However, the company is also developing the massive Platreef project in South Africa, for which
it released a prefeasibility study in January. According to Ivanhoe, the mine is slated to be the
lowest-cost producer of PGMs in Africa. In February, the company reported that box cutting was
underway ahead of construction of shaft collar infrastructure for the mine.
There has not been much further news from the company in 2015, although it did provide a
project update at the end of May, stating that preparations are underway for a $4.2-million
Phase 1 drill program at Wellgreen.
In April, Sama reported results of a drill program at Samapleu, with highlights including 8 meters
of massive sulfide grading 4.08 percent nickel, 2.43 percent copper and 0.74 g/t palladium.