RENO--(Mineweb.com) Stillwater Mining President and CEO Frank McAllister forecast as much as 8.3 million ounces of palladium demand this year, including 1.6 million ounces of palladium consumption for jewelry.
"Palladium is becoming the Cinderella precious metals story," he declared to shareholders, as the metal hit record prices earlier this year.
McAllister has been at the forefront of establishing an international palladium alliance, which was first made public in January, will make its Chinese debut in Shanghai this spring, and formally be announced at the major JCK jewelry show in Las Vegas next month. While the development of the Chinese palladium market has largely been conducted in second, third and fourth-tier cities, John Stark, Stillwater Vice President and General Counsel told analysts Monday that a palladium jewelry marketing program is being developed for the first-tier cities of Beijing and Shanghai this year.
McAllister explained that "there's a more prestigious [jewelry] market in these bigger cities" of China. "Much of the jewelry which is offered in second, third, and fourth-tier cities is delicate, less expensive jewelry," he added.
Stark said both consumers and sellers will be educated about the use of palladium as a jewelry metal. "We have hopes of seeing some very substantial growth in palladium jewelry," he declared to analysts during a conference call Monday to discuss Stillwater's first quarter results.
In 2005, there was a demand for 8 million ounces of palladium and a supply of 7.6 million ounces including 1.1 million ounces of destocking. This year, McAllister estimated that 563,000 ounces of palladium will come from stocks.
Stillwater's 2006 operating plan calls for 595,000 to 626,000 ounces of PGM production at total cash costs ranging between $300 and $315/ounce. McAllister told shareholders and analysts that Stillwater has also exhausted the last of its 2003 Norilsk Nickel palladium inventory.
"Norilsk Nickel's palladium equity investment was intended to provide transparency and confidence in palladium availability, and today the auto industry worldwide continues to use palladium for catalytic converters," he noted, adding that the inventory liquidation amounted to more than 6% of new palladium metal in the marketplace for the past two years. "With the liquidation now finished, this source of palladium, including any market overhang it represented, has been eliminated," McAllister declared.
Nevertheless, the Norilsk inventory was used to improve Stillwater's financial structure, provided funding for mine development, and to market palladium as a jewelry metal. "With this overhang eliminated and a new use for palladium established in jewelry, the markets are responding to the reduced supply and new demand with higher prices," McAllister stated in a news release.
Meanwhile, Stillwater continues to pursue its selective mining plan, requiring $107 million in capital expenditures this year. Stillwater Executive Vice President and COO Steve Lange said mine plans call for 40,000 feet of primary development and 600,000 feet of diamond drilling this year. He hopes to increase selective mining 16% or 330 tpd at the Stillwater mine, and 8% and 120tpd at the East Boulder mine.
With selective mining, Lange is striving for less dilution, increase recovery of the deposit, decreasing the amount of development required, and reducing the reliance on mobile equipment. The ultimate goal is to reduce capital expenditures and support costs, he told shareholders at the company's annual general meeting.
Lange also noted that, during a time when mining cash costs are soaring, Stillwater anticipates lowering its cash costs by 10% this year.
McAllister told shareholders during the AGM that he intends to reduce the company's profile by moving it away "from being a one-product, one resource company." However, he noted that, since PGM opportunities are scarce," Stillwater's search for diversification is not limited to PGMs. During the first quarter of this year, Stillwater entered into an exploration agreement with a Canadian junior exploration company to conduct a program in northwestern Ontario for PGM, nickel and copper mineralization.
Stillwater reported a net income of $600,000 or 1-cent per share for the first quarter of 2006, compared to a net loss of $1.2 million or 1-cent per share for the first quarter of 2005. The 2006 first quarters results reflect higher overall PGM prices despite lower than market realizations due to forward platinum sales, which reduced earnings by $5.4 million.
As of March 31, 2006, the company had forward contracts for a total of 173,500 ounces of platinum at an overall average price of $902 per ounce through June 2008, representing about 40% of the company's anticipated platinum production during that time.
During the first quarter of this year, Stillwater reported cash, cash equivalents and other liquid cash investments of $140.1 million.
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