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Subject:  $700 Palladium Date:  11/8/2010  2:16 PM
Author:  DCWD40 Number:  28438 of 38167

Warning: There is a review of PAL (North American Palladium), which I own, in this post.

It's hard to believe that palladium just hit $713.60 an ounce. There is no massive shortage although total production from Russia and South Africa (84% of world supply) has been down every year for the last five years. But, with platinum nearing $1,800 anyone who can make the switch to palladium is probably looking in that direction.

Palladium is far from its 2001 high of $1,090 when Ford was hording palladium thinking that shortages loomed.

The last time platinum was even close to $1,800 in 2008, South Africa (41% of world supply) was rationing power to the miners. Today, there is an EFT to add to the demand side. With only 6.3 million ounces being produced annually, this is a very small market and an EFT could be very disruptive. Look at Page 13 with of this PAL company presentation to see just how disruptive this EFT has been:

PAL hit a high of $9 a share back then. The stock is $5.68, +$.20 today.

In February 2008 I was happy that palladium was finally nearing $550 -- the price I figured that PAL (a North American producer) could pull the metal out of the ground and make a profit.

The metal's low was $164 in 2008 and $171 in 2009. The 2010 low is $413 -- so times, based on price, are very different today.

There are many reasons to account for today's stock price difference. There are more shares outstanding. The company used its higher priced stock to sell shares and eliminate debt (December 2007). There is only $3 million in debt today and $150 million in cash. What is really different is that production costs, which will be $403 an ounce this year, will drop to $250 next year (and go below $100 in 2015). Obviously the market isn't expecting prices to hold or the stock would be priced differently...

The company presentation, link above, is worth reading to see production expansions and operating costs.

The Lac des Iles palladium mine was mothballed in October 2008 after palladium prices crater. It is one of the world's two primary palladium producers and was reopened in April, 2010. In the second half of 2010, it will hit its 140,000 ounce annual production rate.

PAL's also owns (new since 2008) the Sleeping Giant gold mine (a former Cadiscor and IAMGOLD mine). It is not making money (Q2 production was 4,237 ounces at $1,545) but it is being expanded to be able to produce over 100,000 ounces of gold annually.

Palladium is exploding in price. PAL's stock has responded but it provides an interesting investment if palladium's price holds or goes above today's price.

Disclosure: Own in and out of the money calls in PAL.
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