Bloomberg.com

Palladium Price Poised to Soar!!!

December 10, 2010

 

September 2010 head media quote 1
September 2010 Pd Headline
2009 scroll

How Detroit's Dirty Little Secret Could Send
Palladium Prices to $3,438 an ounce

Dear Reader,

Over the next few months, a small group of investors will be getting ready to pocket +1,000% gains from the global auto industry.

But these guys don't own a single share of Ford or GM...

In fact they've got their money tied up in a completely different market.

Nevertheless, they stand to make thousands of dollars from virtually every automobile produced in the world.

You heard that right: not sold — produced.

And it doesn’t matter if it’s a Honda, Bentley, Ford, Ferrari...

They'll get paid.

Hell, if they start making Yugos again, these guys will be cashing in.

August 2010 Yugo

It's easy to understand how these investors will be able to pocket the quadruple-digit investment gains I just mentioned.

It's all linked to...

Detroit’s Dirty Little Secret

Believe it or not, the global automobile industry nearly controls the prices of two of the rarest, most expensive metals on earth.

Of course, I'm talking about platinum and palladium — both of which are used in the manufacturing of auto catalytic converters.

You see, these metals are interchangeable with each other as the main catalyst in the converters.

So when one metal gets too expensive, the auto industry simply replaces one metal with the other.

It’s a cycle that repeats every couple of years...

And if you know which metal they’re using and which companies the auto industry turns to for their supply, you’ve just unlocked the most powerful money-making seesaw an investor could dream of.

It works like this...

The Platinum-Palladium “Seesaw” Indicator

Between 1990 and 2001, the global automobile industry favored palladium over platinum as the main catalyst.

As a result, palladium prices skyrocketed 1,263% from just $80 to $1,090 an ounce.

During the same period, platinum prices fell 27% from $444 to $326 an ounce.

Take a look for yourself:

September 2010 Pd Chart 1

September 2010 Pd Chart 2

Then, with palladium prices over three times higher than platinum, global automakers retooled their catalytic converters with platinum.

And again — after only seven years of strong demand from the auto industry — platinum prices were driven 597% higher to $2,273 an ounce.

As expected, palladium prices crashed 85% to $164 an ounce.

Check it out:

September 2010 Pd Chart 3

September 2010 Pd Chart 4

You get the point...

When the price of one metal becomes too high, automakers send it crashing down by switching to the other. After switching, prices of the other metal begin to rise with demand from the auto industry.

That means the very best time to be invested in platinum or palladium is when global automakers are retooling their catalytic converters to use one or the other.

And that, my friends, is happening right now!

The Auto Industry's “Big Switch”
Could be Your Next Ten-Bagger

As I write this, automakers are already in the early stages of retooling their catalytic converters.

They actually started slowly making the switch a little over a year ago.

In 2009, the demand for platinum usage in auto catalytic converters dropped 39%.

With average platinum prices of over $2,200 an ounce — and palladium under $200/oz — the switch was inevitable.

And this time, the news media is rapidly catching on...

September 2010 media quote 2September 2010 media quote 3September 2010 media quote 4

Half of annual worldwide palladium supplies go into the production of autocatalysts.

As such, palladium demand is correlated to the health of the global auto industry, which has strongly rebounded this year.

Vehicle sales in every one of the top ten auto markets in the world are increasing:

  • ·  The U.S. auto market, where sales have climbed 8.4% in the first eight months of 2010 to almost 7.7 million units.
  • ·  China, the largest car market in the world, increased auto sales by 39.0% in the January-August 2010 period to 11.6 million units.
  • ·  Domestic monthly sales of new cars, trucks, and buses in Japan, the world's #3 auto market, increased 46.7% in August 2010 from a year earlier — the highest monthly gain since 1972. This was the 13th straight month of increased auto sales in the country.

Overall, global light vehicle production is expected to increase 60% through 2016. Take a look:

Global Auto Production 2009  1016

As the global auto industry continues to recover, the demand for palladium will increase with the growing demand for catalytic converters.

And with the global auto industry's "Big Switch" well underway, the demand for palladium will scream higher over the next several years.

But the world's palladium resources are extremely limited. About 80% of the global palladium supply comes from just two countries: South Africa and Russia.

The largest palladium reserves in the world are in the Bushveld Complex in South Africa.

But half of the global supply of palladium comes from just three sources in Russia:

  • ·  Norilsk Nickel (OTCBB: NILSY),
  • ·  the Russian State Precious Metals and Gemstones Repository (Gokhran), and
  • ·  the Russian Central Bank.

Norilsk Nickel is the largest palladium producer in the world. Each year, the company produces about 2.5 million ounces of palladium — enough to satisfy a whopping 40% of total global demand.

But Norilsk's palladium production isn't enough to meet rapidly growing demand from the auto industry, so Russia fills the deficit from Gokran and the Russian Central Bank.

However, industry insiders are now suggesting that there will be no sales from Russia's palladium stockpiles in 2011, indicating that the country's supplies are nearing depletion.

But today's palladium story has a twist that promises to send prices even higher — something that was impossible to see coming.

Massive Russian Palladium
Stockpiles Now Nearly Depleted

Palladium sales from Russian stockpiles have been falling year after year, and are now at a fraction of historic values — another clear indication that Russia's palladium reserves are approaching depletion.

Palladium Looks Set to Hit $850 by Year End
July 26, 2010

WASHINGTON (Commodity Online) — Steven Zoernack, partner at GoldVest, announces revised estimate for price of Palladium to hit $850 an ounce by year-end.

Since both are used to reduce auto emissions, platinum and palladium compete with one another on price. Automakers will use whichever of these two PGMs gives them a bigger bang for their buck. In early 2001 for example, palladium made a high of $1,090 per ounce. At the same time, platinum was trading for $623 per ounce. As a result, the auto industry retooled their catalytic converters to use mostly platinum.

The impact is clearly visible in today’s prices. "As we write this," says Steven Zoernack, "palladium is trading for $550 per ounce, while platinum is trading for a whopping $1,500 per ounce (and topped $2,200 an ounce just a year ago)."

This imbalance will be corrected as automakers once again retool their production lines to accommodate the cheaper palladium. Palladium hit a low of $164 an ounce and appears to be headed significantly higher. At some point, the gap between platinum and palladium will narrow.

Bottom line: Not only is palladium a play on its historic and unsustainable discount to platinum; it is also a play on China — and the global move toward more stringent air quality standards. Because it is priced in dollars, it's also a back-door play on a weaker dollar. Should these powerful trends continue, we would not be surprised to see palladium rally back above the $1,000 per ounce level within the short to mid-term.

Without Russian stockpiles to help feed supply, global demand will be more dependent on mine production.

However, with the majority of resources concentrated into two potentially unreliable regions, increasing production to meet demand is nearly impossible.

Norilsk Nickel has published production plans as far out as 2025, and there are no plans for any substantial increase in palladium production.

South Africa is actively looking in increase palladium production by boosting the platinum: palladium production rate from 2.1:1 to 1.9:1.

However, rising production costs are discouraging miners to focus production on palladium, which they can only sell at athird of the price of platinum.

The only other country in the world with tangible upside in terms of palladium production is Zimbabwe, but the security and political risk inherent in working in Zimbabwe is not ideal.

There is, however, one other region that has the potential to become a major palladium producer...

And it's right here in North America.

Lake Superior's
$1.9 Trillion Secret

On northwestern shores of Lake Superior, boarding Ontario and Minnesota, the small port town of Thunder Bay is home to just over 100,000 people.

It's been long known that just 50 kilometers north of Thunder Bay, geologic structures are similar to those of the Russian giant Norilsk-Talnakh deposits — the largest nickel-copper-palladium deposits in the world.

For decades, there has been one major setback with any of the minerals found at Thunder Bay...

Until recently, explorers only found low-grade ore that was often uneconomical to process.

However, modern mineral exploration technology has lead the way for the discovery of several new high-grade deposits in the past few years. These deposits currently have estimated resources of:

  • ·  15.6 billion pounds of nickel,
  • ·  501.4 billion pounds of copper,
  • ·  32.9 million ounces of platinum, and
  • ·  37.4 million ounces of palladium.

In total, these resources would be worth nearly $1.9 trillion out of the ground.

The entire region now has significant potential to be a major North American nickel-copper-platinum-palladium camp, as recent discoveries have demonstrated the presence of high-grade mineralization.

Major players in the area include Rio Tinto (NYSE: RTP), Marathon PGM (TSX: MAR), and North American Palladium (AMEX: PAL).

However, there are a handful of smaller companies exploring and developing similar nickel-copper-platinum-palladium projects.

And there's one in particular that I'm especially excited about...

The Most Envied Palladium Property
in the Western Hemisphere

I recently uncovered an exciting junior exploration and development mineral company with over 100,000 hectares of mineral projects located smack-dab in between the two largest palladium deposits in North America.

To the west is North American Palladium's Lac des Iles Mine — one of the largest palladium mines in North America. Lac des Iles has 3.7 million ounces of palladium resources and is projected to produce 140,000 ounces next year.

To the east is Marathon PGM's Marathon Mine, containing 2.4 million ounces of palladium reserves plus 3.0 million ounces of palladium resources. It was just bought by Stillwater Mining (NYSW: SWC) for $118 million.

Take a look for yourself:

September 2010 Great Lake Map

These are two of the most important palladium mines in North America.

Every junior palladium explorer wants land around them.

This junior company has already made the discovery of a palladium deposit on one of its many mining claims of under 500,000 ounces of palladium.

But the company is actively working to upgrade and increase its palladium resource base.

The target: 2.6 million ounces of palladium-equivalent resources.

And it's worth 12.6 times more than the company's current market cap.

That means — when this company becomes resource-heavy and properly valued — share prices could increase 1,163%.

And that's just at current palladium prices...

The last time palladium was entering a similar bull market, prices rapidly surged from $160 to over $1,100 an ounce  a 588% increase!

Fortunately, palladium prices have pulled back quite a bit, allowing for a buying opportunity.

And if we have a similar bull market for palladium, prices could hit $3,438 an ounce!

 

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