A new player enters the palladium race
You’re probably wondering how can I play this price spike in Palladium? Recently palladium traded at an all-time high of US$ 2,786 per ounce on February 19th, 2020 and closed at US$ 2,615 per ounce with the metal up 14% in the past 30 days. But maybe you already missed the opportunity, palladium was up 60% in 2017 ending at US$ 1,125 per ounce; was up only 14% in 2018 to US$ 1,250 per ounce; up 50% in 2019 to about US$ 1,900 per ounce; up 30% to its early high in 2020; and its up a spectacular 485% in the past 10 years. As the price goes up there is a potential decline in percent appreciation. As the price goes up there is the real issue of substitution – the long-term market and industrial relationship between palladium and platinum.
The primary use of palladium, and platinum, at around 85%, is in automotive catalysts for the reduction of noxious air pollutants, through oxidation and turning them into water vapor and plant food, for internal combustion engines (ICE). As air emissions standards were introduced in the 1970s and then strengthened the need for palladium and platinum increased and it is expected to continue to grow. Even EVs use 10 to 15% more palladium then traditional ICE cars, but here as part of their circuitry. The substitution issue remains as you need approximately two times the palladium vs. platinum in a catalyst and now palladium is trading at greater than 2 times the price of platinum at US$ 2,597 vs US$ 985 per ounce. But then you have to change your production line too. Where does this price differential overcome the production line change cost?
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Not many are calling for the market to weaken as demand for palladium is fundamentally driven and the supply is constrained following years of market deficits. Most palladium comes from primary nickel mines and platinum mines where the palladium is also contained in the ore. Mine supply has fallen since 2004. Other market forces that should keep the price in check are the current low inventory levels, even with an additional 3 tons of supply from Norilsk Nickel, the largest producer. Even with this generosity to the market, much of the current supply coming from higher-risk jurisdictions like Russia, Zimbabwe, and the Republic of South Africa account for over 75%.
Where can investors play this market in Canada? You used to be able to hold North American Palladium shares but it was sold to Impala Platinum at the end of 2019. This producer deal highlighted the potential of northwest Ontario for platinum-group elements (PGE) projects and now you can look at this area again. There’s a new company currently forming to fill this investment gap. It’s now called Clean Air Metals Incorporated, changed from Regency Gold Corp. (TSXV: RAU.H). Clean Air is acquiring two projects to the southeast of the operating Lac des Ilse mine that is host to platinum-group element + Nickel + copper mineralization and resources. The company is taking over the acquisition agreements for these projects from Benton Resources Inc. (TSXV: BEX) in return. Benton will hold 24,615,284 shares in the company, or 19.7% and a 0.5% NSR on certain claims. Clean Air is acquiring the Thunder Bay North property via Benton from Panoramic Resources for C$9 million. This project holds the Current Lake deposit with a 2012 JORC compliant resource of 741,000 oz at 2.3 g/t platinum equivalent indicated and 49,000 oz at 2.9 g/t platinum equivalent inferred. This is a large property with significant drilling along a multi kilometer-long mineralization corridor hosting the deposit and numerous other targets including a possible feeder zone. Clean Air is also acquiring via Benton the Escape Lake property that is contained within the Thunder Bay North property from Rio Tinto Explorations Canada for C$6 million. This property is also extensively drilled with many unreported high-grade intercepts, one reported hit of 33.4m at 7.284 g/t palladium +platinum + gold and 2.26% copper + nickel. This property and the intercepts lie along the identified feeder structure. The deal puts the whole system into one company. There are currently 11 mineralized zones along the over 10 km long system.
The system provides many targets to expand the resource with upcoming drilling programs already planned. This new player in the platinum-group elements sector is headed by Thunder Bay local mining executive Abraham Drost, P.Geo. as CEO. He is joined by Jim Gallagher P. Eng., as Executive Chairman. Jim was most recently the president and CEO of North American Palladium — bringing his experience in the sector and with PDL’s investors to the new company. They are backed by a technical team with direct experience on the properties and in platinum-group element + nickel-copper deposit exploration.
The projects are well located, 50km north-east from Thunder Bay and 60 km south of the Impala Lac des Isle mine. The market likes the project, team and opportunity, as indicated by the increase in their initial offering from $10 million to $15 million. The financing deal closed on February 11 and is awaiting exchange approval for the relisting to create this new palladium player in Canada.
Ronald Wortel, MBA, P.Eng. is a mining investment professional with extensive experience in analysis of companies, projects and markets. He worked as both a sell-side ... <Read more about Ron Wortel>