Tuesday, June 02, 2009

You Say Platinum, I Say Palladium

This post on palladium is a bit of an interruption of the somewhat dull and plodding series of posts on carbon (sadly stock research is more a matter of slogging through boring details, unlike the more entertaining and mostly useless drivel that comes from Internet pundits and talking heads on television). Our detour is not too far out of the way. The palladium industry is getting drawn into the energy and carbon debate by some recent technological advances.

Representatives of North American Palladium, Ltd. (PAL: NYSE Amex and PDL: TSX) told a compelling story at the NYSSA 9th Annual Mining and Minerals Conference in New York this week. The company has three mining operations in Quebec and Ontario, Canada. As a diversified precious metals company, NoAmer Palladium produces about 270,000 ounces of palladium and 20,000 ounces each of platinum and gold each year.

As sexy as gold and platinum seem for many investors, I was impressed by the story behind palladium. The somewhat scarce precious metal is used in electronics, dental devices, jewelry and automotive applications. Advances in diesel engine design have led to an increase in the amount of palladium used in diesel fuel catalysts and a growing substitution of palladium for its more expensive cousin, platinum. NoAmer Palladium expects continued growth in demand from this market segment even without a recovery in the automotive sector.

The CPM Group expects a ramp in the palladium price from around $225 in 2009 to over $400 by 2012. Healthy trends in pricing seem logical given that palladium deposits are not abundant. North America holds about 12% of the world’s palladium resources. Russia with 45% and South Africa with 39% are the two serious palladium producers.

What really has investors abuzz about palladium is the recent CBS 60 Minutes news magazine report in April 2009 on recent developments in cold fusion. Long considered tenuous from a scientific standpoint, cold fusion researchers in California and Italy claim progress in creating energy with hydrogen from seawater, palladium and an electric current. As hard as it has been to test and prove, the cold fusion concept is appealing since there are no harmful by-products and the step up in energy created well exceeds the nuclear or “hot” fusion.

Even if cold fusion never advances beyond the laboratory bench of a few Quixotic scientists, the palladium story seems well illuminated by demand from the automotive market. In my view, what will aid palladium more than anything is more clarity on carbon emissions making it possible to compute costs and prices for diesel engine modification to include catalysts and other emission reducing components.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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