Palladium rodeo positions the New Age Metals cowboy for a win
For years, the colossal Norilsk Nickel mine in the Arctic Circle has upheld its status as the world’s largest supplier of nickel and palladium.
The fact that Norilsk produces more nickel than palladium has meant chaos for buyers of the material used in catalytic converters. Russian supply, accounting for 40% of the world total, comes in bursts of oversupply followed by deep shortages. Ford Motor Co. notoriously lost $1 billion in 2001 when its palladium stockpiling strategy went horribly wrong, sending its shares plummeting.
By that same token, many projects have not passed the checklist of getting bankers online, as they stare aghast at the long-term price graph heavily influenced by gushes of Siberian output, followed by acute shortages.
Without the rodeo ride that is the palladium market, New Age Metals Inc.‘s (TSXV: NAM | OTCQB: NMTLF) River Valley PGM project near Sudbury, Ontario probably would have been developed a long time ago.
Anglo Platinum, now part of Anglo American, explored the project for several years with Pacific North West Capital (now New Age Metals), drilling the site extensively and defining a resource that now stands at 4.6 million ounces (palladium equivalent), worth $4.6 billion using an estimated price of $1,000 an ounce. The price recently surpassed the $1,000 barrier in early June. The mineralization also holds significant quantities of platinum, rhodium, and cobalt. The latter two have been the best performing commodities of 2018, so far.
It is the steadfast belief in the quality of the River Valley project that has kept Chairman, CEO & Director, Harry Barr, and his team engaged with the project, even when Anglo Platinum sold out following the economic crisis of 2008, following another huge downturn in the palladium price. The development team has slowly nudged the project forward, purchasing an extension of the property from Mustang Minerals in 2016 and essentially connecting two orebodies stretching 16 kilometers in length. The company has also boosted the resource by finding new mineralization of at least equal quality at the Pine zone.
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Tellingly, two of the Anglo Platinum executives who worked extensively on River Valley, Ron Hieber and Gordon Chunnett, stayed involved with the project, working as a board member and advisory board member, respectively. The company now aims to find another joint venture partner that is capable of taking River Valley to production level.
“They both remained with the project because of their belief in it,” Paul Poggione, head of corporate development, said of Hieber and Chunnett’s involvement in the project. New Age Metals is stepping up efforts to find a new partner now that it is progressing with a preliminary economic assessment (PEA).
The company has had considerable interest from potential partners and recently raised $750,000 required to complete the PEA on River Valley by the first quarter of 2019. Meanwhile, the company continue work on defining the resource. There are similarities with North American Palladium’s Lac des Iles mine in Thunder Bay, Ontario and costs could reach the lowest quartile given that South African mines will start to be higher cost as they dig deeper, according to a report by analysts SFA Oxford.
Meanwhile, the palladium market is looking promising and Norilsk Nickel, now a London listed company with a greater responsibility to communicate to the marketplace, predicts a significant shortage in the metal. A recent survey by Thomson Reuters GFMS predicted that palladium will keep rising on a 2.5% decrease in supply from South African mines this year, and growing demand for the metal.
The trend towards the massification of electric cars might happen more slowly than expected, with car manufacturers favoring hybrid vehicles with tighter emission controls that ultimately boost the use of palladium as a filter of pollutants in catalytic converters. BMW recently announced that it will not produce all-electric cars until 2020 because currently technology is not profitable enough, according to a March announcement.
Beyond River Valley, New Age has the next palladium project set up, having secured the concession rights to an interesting new prospect in Alaska. The company’s enterprise value is at $1.24 an ounce and significantly undervalued, said Fundamental Research in a recent report. The company also has signed a joint venture to develop lithium projects that it holds in Manitoba province, diversifying the company’s exposure to the metals of the future.
Matt Craze has covered commodity markets for more than 20 years, working as a researcher at CRU International, and for over 10 years as a ... <Read more about Matt Craze>