The strength of PGM's to grow as Strikes,production...

The strength of PGM's to grow as Strikes,production problems,lower grades mined,Zimbabwe where the government was reported to have plans to seize control of foreign owned mines without paying for them as part of a $7 billion asset grab following Robert Mugabe's election victory last week. - See more at: http://www.platinum.matthey.com/prices/weekly-price-bulletins#sthash.7HY2yy8Y.dpuf
Supply and demand will continue this year for another deficit

Wage negotiations: Sprott Asset Management’s David Franklin said in a recent note that on June 5, the South Africa National Union of Mineworkers will “present a demand for a wage increase of ‘no less than 10% and up to 60%’ for its industry members to take effect from July.” He believes that request will be “difficult, if not impossible” for the major platinum miners to meet.
Government intervention: Susan Shabangu announced last week that in order to maintain the viability of its platinum and gold industries, South Africa may make unspecified “interventions” into the sectors.
PGM share price has been belted and is ripe for the picking.
Some charts

Rick is now part of Sprott Asset Management, one of the most respected natural resource investors around. Rick also had a ridiculously good long-term track record in managing money before joining Sprott.
The thesis is simple, as most good ones tend to be…
“What we discovered in about four weeks’ work,” Rick told me, “is that the platinum and palladium mining industry as a whole does not earn its cost of capital. What that means is that either the price of platinum and palladium go up or there is less and less of it going forward.”

Another way to say it is that the platinum and palladium business, as is, doesn’t pay investors enough for the risks they take compared with alternatives. So it means people will not invest new dollars in the sector. No new investment in mining means depletion of existing mines with no new sources of supply. Eventually, the price has to go up as rising demand (or flat demand) presses on a diminished supply.

What’s unique here is that platinum and palladium face particularly challenging supply constraints.

“Gold and silver come from many countries and many geologies and as a byproduct with other metals,” Rick says by way of analogy. “But about 90% of platinum and palladium supplies come from South Africa, Zimbabwe and Russia. And they are enormously constrained.”

How constrained? Well, South Africa is by far the most important producer. Let’s start there.

“First, it doesn’t earn its cost of capital,” Rick says. “And that has manifested itself in a few ways, but the most important is that the industry by its own estimate has deferred between $6-8 billion in capital investment.”

No surprise, then, that production has fallen 19% in six years. “We’re not talking about a set of circumstances that is going to affect production at some future date. We’re talking about a set of circumstances that is already driving higher production costs and lower production.”

Rick took me through the situation in South Africa in some detail. The mining industry there is labor-intensive for reasons both historical and geological. Workers are poorly paid. Labor conditions are truly awful. “Workers are crawling across broken rock on their hands and knees, often carrying 125-150 pounds of hand-operated drills with them,” Rick says. “Worker mortality was always disgusting in South Africa, but it’s becoming frightful now.”

Workers have almost certainly seen a co-worker killed, if not maimed. “The point of all this,” Rule says, “is that workers’ wages have to go up. But because the industry can’t earn its cost of capital, wages can’t go up.”

It’s a hard spot to be in — but it seems clear that something has to give. Once again, the price of the metals has to go up or production will continue to dwindle as rising costs put these miners out of business.

Mining is, of course, energy intensive. And the power industry has a political mandate to provide cheap power for people who can’t afford it. So the mining industry pays more for power but is also the first one to be interrupted. There have been no capacity upgrades in 12 years, Rick says. Meanwhile, demand keeps rising. Antiquated power plants struggle to keep up with demand.

Not a promising picture for the most important supplier of mine production of platinum and palladium in the world.

Then there is Zimbabwe. “Which I can dismiss very quickly,” Rick said. “Zimbabwe had a viable platinum and palladium industry 10 years ago. Robert Mugabe took care of that.”

The industry “de-capitalized itself,” as Rick put. “It can’t be turned around in any reasonable amount of time with any reasonable amount of money.” Moreover, when Mugabe dies, the struggle to succeed him could well paralyze the country for years.
“I don’t see Zim affecting platinum or palladium supplies for at least a decade,” Rick sums up.

The final alternative is Russia. “I believe it is getting better,” Rick said, “but it is getting better from a low starting point. The problem there isn’t political, it’s geological. The ore bodies of Norilsk, which are the biggest PGM ore bodies in the world, are 80 years old. They are long in the tooth, started by Stalin. And as you get deeper and deeper, the concentration of palladium declines.”

Potentially, there is another deposit, but it is about 400 miles from Norilsk, which itself is in western Siberia and is fairly remote. Rick speculates that it will happen in 10 years and take billions of dollars. Short story: It’s not going to happen anytime soon.

As Rick says, this is not a resource story that’s going to take place in two-three years. It’s a story that’s already taken place over the last five-six years.

I asked about recycling.

Rick told me that recycling makes up about 30% of supply. “It is the only source of supply that has been growing,” he says. “It has increased as a percentage of total supply by 50% in the last 10 years.”

What about substitution? “Substitution doesn’t make sense at anything less than a 100% increase in price,” he guesses.

And the demand scenario? Compelling. “Platinum and palladium go out a tailpipe, go up a smokestack or get turned into jewelry — that’s what happens to it,” Rick says.

They are incredibly useful metals. “The social trade-off is really platinum versus smog,” Rick says. “I mean that’s really what it’s about. The air quality we enjoy today in Western Europe and North America and Japan is a function of catalytic conversion. It takes only about $200 of PGMs at today’s prices to afford the air quality we all enjoy. And that’s $200 against a median sticker price of $27,400 for a new car in the U.S. If the price doubled, the demand implication would be de minimis.”

The emerging markets are a big potential source of demand. China eclipsed the U.S. as the largest auto market last year. But its use of platinum and palladium remains a small fraction of North American consumption.

“The price has to go up, and can go up,” is the pithy summation Rick offers up.

“It’s a thesis that is really, really difficult to poke holes in.” Unless the Western world goes off an economic cliff and vehicle sales get cut in half, it is hard to imagine anything less than a 50-100% increase in price.
“Police in one New Jersey city are warning about a rise in catalytic converter thefts in vehicles at train stations, schools and other areas” New York’s Fox 5 reports.

Byron King, our globetrotting geologist, passed the story along earlier this week — it points to an ongoing trend among thieves: forget gold, steal platinum!

Today we’ll take a look at why both metals may fall short to a dark horse in the precious metal race. And no, I’m not talking about silver…

“The thieves are targeting larger vehicles” the news report continues “especially SUVs like the Jeep Cherokee. Police say that’s because the converters are larger and contain more platinum, which is currently valued on the open market at approximately $1,500 per ounce. They are also easier to crawl under to get to the converters.”
Catalytic converters contain a substantial amount of platinum — anywhere from $100-400 bucks worth. When pollutant-filled exhaust from your car’s engine passes through a platinum-lined catalytic converter, the final emitted product is less harmful to the environment.
So you see, even with a general pullback in metal prices, thieves are still hot on the trail of exhaust pipe components. If metal prices are down, no one told these thieves!
But a closer look at the details and you’ll realize that these street-thugs may be on to something. Fact is, the price of platinum is slightly higher than it was this time last year — that’s a far cry from the fallout in the gold and silver market.

More important, platinum isn’t near as promising as the metal we’ll cover today…

What’s the Most Promising Precious Metal?

Palladium, much like platinum is also a catalyst metal. Both metals are used as a catalyst for light duty vehicles that run on gasoline. But more and more palladium is moving into the market for heavy duty vehicles that run on diesel.

Palladium in particular is the best performing metal by far, year over year. And the reason is simple:
Industrial use for gold, silver, platinum and palladium

Considering gold, silver, platinum and palladium, it’s clear that the most “industrial” metal is palladium. Over 91% of palladium goes into industrial processes, namely catalysts like catalytic converters.

Indeed, it’s no wonder when you look at the past year’s performance — what, with the divergence of precious metals from the S&P — that an industrial metal like palladium would be the highest gainer in the group. Palladium prices are up over 21% year over year — unlike the 15% drop for gold or the 24% drop for silver (platinum is holding on to a 1% gain.)

Going forward we can expect solid underpinning for the palladium market. With more vehicles set to hit the road (mainly from emerging markets) and more regulations set to hit the emerging markets, the need for palladium-laced catalytic converters looks set to soar.
What’s the outlook like for heavy duty and non-road catalysts? Take a look at this forecast:

Demand for non-road and heavy duty catalysts

China and Eastern Europe are set to propel the heavy-duty and non-road catalyst market into high gear. According to data from JD Power and Johnson Matthey, total sales for the industry are set to grow over 17% per year. That’s a growth story if I’ve ever seen one.

Plus, if you look at the supply demand picture for palladium, you’ll see there’s plenty of reason for prices to head higher.

In particular “gross demand for palladium rose by 16% to 9.90 million ounces in 2012? while “palladium supply fell by 11% in 2012 to 6.55 million ounces, the lowest since 2002? according to an industry report from Matthey.

Some back of the envelope math tells us that there’s a lot more demand than there is mine supply. Even when you add in the recycled palladium (2.28 million ounces in 2012) the market was still experiencing a deficit over one million ounces.

Simply put if the economy and demand for auto catalysts continues gaining strength and even a fraction of the emerging market demand that Matthey forecasts comes online, there’s a strong case for skyrocketing palladium costs.

Add it all up and Johnson Matthey is the elephant in the room when it comes to playing global growth in catalytic converters — and when you add in the company’s refining capability, it’s a great way to play palladiums rise.
RUSSIAN INVENTORY
Palladium reserves in Russia, the world’s largest producer of the metal, are “pretty much exhausted” and sales this year may be only 3 metric tons, according to Johnson Matthey Plc. (JMAT)

Russian inventory sales dropped 68 percent to 250,000 ounces last year from 775,000 ounces in 2011, according to Johnson Matthey. Sales from state stockpiles are expected to range from “zero to several tons” in 2013, Anton Berlin, deputy chief of ZAO Normetimpex, OAO GMK Norilsk Nickel’s sales arm, told RBC TV yesterday.

“Maybe 3 tons this year, and that will be it,” Peter Duncan, general manager of market research at Johnson Matthey, told reporters in London today. Three tons is equivalent to 96,452 troy ounces. “Russian state stockpiles have been dwindling and are now pretty much exhausted.”

Shrinking Russian stockpiles at a time when output is falling helped send the metal into the biggest shortage in 12 years. Output in South Africa, the second-biggest producer, was disrupted by labor disputes and strikes, while lower grades contributed to a decline in Russia.

Palladium for immediate delivery gained 0.5 percent to $731.50 an ounce by 3:44 p.m. in London, rebounding from losses earlier today of as much as 0.6 percent. Palladium, last quarter’s best-performing precious metal, has risen 3.9 percent this year after advancing 7.5 percent in 2012.
Supply Disruptions

Palladium supply declined 12 percent in 2012 to 6.48 million ounces on the South African disruptions, Duncan said. That compared with 6.57 million ounces forecast by Johnson Matthey in a Nov. 13 report, when the company said supply would lag demand by 915,000 ounces in 2012, the most since 2000.

Platinum supply dropped 10 percent to 5.68 million ounces because of declines in top producer South Africa, coming to less than the 5.84 million ounces forecast in November, according to Johnson Matthey, which publishes research on platinum and related metals and produces catalysts that use the metals to reduce harmful auto emissions. Zimbabwe was the only major producing nation to increase output, Duncan said.

Platinum supply probably will be curbed further because of difficulties in South Africa, while autocatalyst demand is expected to stay “flat” this year, before a “much stronger” 2014, Duncan said. Platinum use in off-road vehicles will expand from about 100,000 ounces a year to several hundred thousand ounces in coming years, he said.

Global net demand for platinum grew by about 4 percent to 6.17 million ounces, down from the previously forecast 6.24 million ounces, Duncan said. Gross automotive industry demand was steady at 3 million ounces in 2012 despite Europe’s economic slump, he said.
ASX palladium stocks
AQP (producer with lots of problems)
ZIM (producer with lots problems Government to seize mines)
PGM (share price sold down,ripe for the picking)
NKP (had lots of problems,looks ok if strategic investor comes good)
MORE DIAGRAMS

Costs are going up so price will have to.

Supply and Demand 2013 largest Deficit expected

Ordinary shares listing: ASX: PGM
Shares on issue: 132 Million
Unlisted Options: 2.75 Million
SP 4.5c
Cash at June 30: AUD $1.78 Million
Market cap AUD $6M

Skaergaard World Class $15 Billion resource

Share price has been decimated in recent times but with the wind of change knocking on the doorstep there is a chance to buy at the bottom with real gains.
Potential for bulk tonnage mining operation incl. Fe-Ti-V credits