Monthly Archives: March 2013

Cambridge Resource Investment Show, Platinum Upgrade

“I Don’t know why fortune smiles on some and lets the rest go free.”
Sad Cafe/ The Eagles

In 2011, Disney World in Florida opened up a Star Wars tour attraction.  Bob Iger, President of Disney, was there, as was George Lucas, the creator of the Star Wars franchise who’d helped with the Florida project.  Over their breakfast of yogurt (Iger) and scrambled eggs (Lucas) Bob Iger asked George if he’d consider selling his company, Lucas Film.  George said something like, “Not today, but when I do, I’d love to talk.” Bob managed not to do High Fives with his yogurt spoon, and they finished up.  Then the two heavy weights went out and staged a “light saber” fight for the opening of the new attraction.  Now, how do you think Bob did in the Light Saber fight with George, a man whose company he was drooling to buy?  He lost.  And then Bob complimented George Lucas on his “sword work.”

Iger did what any good business person would do – he lowered the level of his output in a sword fight/tennis match/golf game competition in order to win a big order later. That’s why they call it “gamesmanship.”  Well, guess what the Central Banks are doing now to the owners of gold?  The CBs are gaming current gold holders, crashing the prices, in order to build positions themselves, and win the big prize later when the fundamentals push the price skyward.  The CBs know the weak hands will sell out…and Da Boyz will own the market.

With that scenario playing out as a backdrop, let us return now to those thrilling days of yesterday…and to the Resource Show in beautiful Indian Wells. There were 800 investors struggling to hold on to their beliefs and their positions in precious metals, while prices cratered on their Bloomberg podcasts.  I’ve already written a bit about how the speakers all talked about how cheap the gold and silver shares are, and how investors need some hand holding during these bear market difficulties.  And I’ve referred to the rather obvious manipulation that’s causing this turmoil. Andrew McGuire talked to King World News, about how he believes this meltdown has been coordinated by the Bank for International Settlements (BIS).

And Now For Something At Least A Little Bit Different

Rick Rule and Eric Sprott have been chatting up platinum and palladium for months now.  Last December, at the request of a big customer, Sprott created the Sprott Physical Platinum Fund (SPPP) at $10 a share.  It’s now $9.99.

On February 13th, Sprott and Rule did a webcast Round Table on precious metals, and began making the case for the Platinum Group Metals (PGMs) platinum and palladium.

On the weekend of February 23/24 Rick Rule talked about PGMs at Indian Wells.  At the March Prospectors and Developers Association Conference (PDAC) in Toronto, Rule talked about various miners, including PGMs:

I’m detecting a pattern here, and just maybe…a possible push for Sprott’s SPPP fund.  But wait, there’s more.  Let’s review the (Rick Rule) basics for PGMs:

Global mine production of platinum (Pt) in 2012 was 5,840,000 million ounces and recycling added another 1.8 million ounces.  This is a tiny market.  Gold is 80 million ounces a year, silver is 650 million ounces a year.  The two big Pt producers were South Africa 4.2 million ounces, and Russia with 790, 000 ounces.  As to supply, most of the producers in South Africa are constrained by old, and very deep shafts that run at an angle making mechanization difficult. Miners are paid some $650 dollars a month, and it ain’t enough to work in horrible conditions thousands of feet underground.  The labor strike at the third largest SA producer, Lonmin, brought government guns to the mine site last fall, and 46 miners died.  AmPlats, (AGPPY) announced in January 2013, that they were closing over 400,000 ounces of production because they couldn’t make any money on it.  Little new mine expansion is planned in SA because of low pricing, a shortage of electricity, a shortage of financing, and a distrust of the government’s Black Empowerment Initiatives.  The Pt market is in relative balance at present, and the Pd market is in deficit.  Rick Rule compares Pt and Pd to the uranium market in 2003.  With small markets, supply demand imbalances can make a big difference.

      Global mine supply of Palladium (Pd) was about 6,570,000 ounces.  Russia is the slightly larger Pd producer with 2,850,000 ounces a year, and South Africa is second with 2,400,000 ounces.  Recycling brings another 2,240,000 ounces.  The Russian stockpile of Pd is said to be almost exhausted and little supply is going to be brought online in SA or Russia for the same reason as Platinum…too costly, and the mines aren’t making any money.

With supply flat or declining, rising demand could make a huge difference.  Pt and Pd are predominantly used in automobiles, except that Pd has a higher melting point, and since it is cheaper – selling for about $775 an ounce today – it’s used with gas cars more frequently. Vehicles use slightly over 3 million ounces a year of Pt for catalytic converters, and use 6.4 million ounces of Pd each year.  But the tipping point could be China, currently the largest producer and buyer of cars in the world today…over 13 million cars a year are sold there.

China, as of February 1st, 2013 has tightened emissions standards on all new cars to meet the European Union Standard V (5 actually).  This change will require some $200 worth of PGMs per vehicle over there, and lots more PGM buying by Chinese auto manufacturers.  Plus, the Chinese like and buy Platinum jewelry.  AND the biggest factor in favor of rising PGM prices is that Central Banks are NOT out there trying to smother prices like they are with gold and silver.  Rule’s conclusion was that PGM prices must rise because of current costs; they can rise because of relative free market fundamentals; therefore, prices will rise…soon.  And if the car companies do like Ford Motor did a few years ago, there may even be hoarding.

With good fundamentals in play, Foghorn’s conclusions are that the Sprott Physical Fund (SPPP) is probably the conservative play.  The South African PGM producers, AmPlats (AGPPY), Impala (IMPUY), and Lonmin ((LNMIY), and the North American companies Stillwater (SWC), and North American Palladium (PAL) and Platinum Group Metals (PLG) are options, each having pluses and minuses.  Another company that Rick Rule liked and Robert Friedland, the sometimes controversial billionaire mine builder, is involved with is Ivanplats (IVP.TO, IVPAF) See Robert’s March 6, 2013 interview:

Robert Friedland: “If you think back to just, more than, say, ten years ago, there was conflict and wars raging all over the continent.  Now, particularly in southern Africa, there is relative peace.

As you look at the mega cities of the world now, not only are they wildly consumptive of copper and steel and iron and molybdenum, but look at the air.  And if you want to clean that air, the environmental metals are copper, platinum and palladium.  If you want to have a hybrid car, if you want to have an electric car, if you want to have solar, or wind or tide–whatever energy method you want–you need copper, and if you are going to burn hydrocarbon, you need platinum and palladium.  Recently, the air in Beijing, one of the megacities, was so diabolically bad that the Chinese government has decided to really do something about it and the solution rests with platinum and palladium.

So if you’re looking for a place that is growing, if you’re looking for a place where there is a dynamic future, it’s got to be the southern part of Africa.  Investors have now started a new scramble for Africa.  If you just read The Financial Times, global inflows of capital to Africa are currently at a two-year peak.  No less an authority than Christine Lagarde, who is the head of the IMF, has said: “Sub-Saharan Africa is one of the fastest growing regions in the world.  In less than 30 years, Africa will have a workforce of more than a billion people, and it has demographic destiny on its side.”

South Africa would find something 100 years ago, and today we would mine what we mined yesterday, and tomorrow we’d mine what we found today.  They mined the UG-2 and the Merensky Reef for 100 years.  By looking outside the already explored areas, we found Ivanplats’ Platreef project in South Africa.  The Platreef discovery is an entirely transformative precious metals discovery, the most important part about it is that it’s flat, and it’s thick and it’s continuous.  It’s as thick as an eight-story building, it’s entirely unlike any of the platinum that has been mined in South Africa for the last 100 years.  It’s time to begin Africa’s decade.”

FF feels he should note that Mr. Friedland, as an owner/developer, is talking his book with Ivanplats, and he’s been proclaiming that commodity growth must match population growth since I first heard him at a San Francisco gold show back in about 2004 talking about Mongolia.  He shares good sales guy characteristics with a guy named Bob Iger.  Also, while cheap at $4 a share, Ivanplats will need YEARs to permit and build its mine(s), and dilution is probable.

Otherwise, Indian Wells was a small but very good mining conference.  Lots of gold and silver mining companies are cheap.  And there’s perhaps a real opportunity coming with PGMs.  Don’t get gamed by low current prices.  As Warren Buffett has said, “Aren’t bear markets the time when stuff is on sale?”

Michael McGowan
The Financial Foghorn, and author of
“Financial Foghorn’s Guide to Gold-
Get Rich, Get Happy, and Get to Heaven with Monetary Metals.”