Closing prices for last week: Pd US$411/oz +$32/oz Pt US$1756/oz...

Closing prices for last week:
Pd US$411/oz +$32/oz
Pt US$1756/oz +$25/oz
(kitco.com)
The Pd breakout from US$380/oz resistance level to $411/oz was confirmed on charts last week. Also the first close above $400/oz level since December 1999. See following links:

http://kitco.com/charts/livepalladium.html
http://kitco.com/charts/historicalplatinum.html
Norilsk reduces Pd production forecast for 2008.
http://money.ninemsn.com.au/article.aspx?id=374031

The significance of this breakout from a technical perspective is potentially the bottoming and consolidation period (2001-2008) in the Pd market has ended and Pd forges and new uptrend following the rest of PGE and PM sector to new highs. Previous 380-400 resistance would become new support.

IMO the main implication here for PGM is that both Munni Munni (MM) and Skaergaard (SK) are marginal PGE deposits, especially SK, they required higher Pd and gold prices to be considered economic. Applying 2000-2003 PGM prices both projects were considered sub-economic and subsequently dumped by majors and not developed.

In 2008 (and beyond) MM and SK may progress from the majors trash to the juniors treasure.

Regarding SK and applying $400/oz Pd, a certain amount of the Pd resource reaches economic status above the assigned economic cut off grade or $/t measure. At progressively higher (assuming this happens) Pd prices say $500/oz and $600/oz, proportionally more Pd resources are economic and can be extracted and applied to PGM’s EV/share.

In this way PGM with marginal Pd resources may behave as a proxy to Pd prices going forward if the new bull trend in Pd market continues. Unfortunately this leverage does work both ways. This analysis will require PFS numbers by SRK and also more drilling to upgrade resource status going forward. Seeking a major JV partner would be a logical progression in due course to share costs and expertise IMO.

The other implication for asx investors looking for exposure to rising PGE prices is the choice is very limited compared to the group of gold or base metal production and exploration companies. The main PGE stocks with resources in the ground other than PGM are PLA AQP NKP…….and that’s it. PGM also has the lowest market cap and tight share register. Futhermore the only company from this group with significant resources outside SA. IMO the release of the awaited scoping studies could be the precursor to a sp re-rating of PGM based on the comments above. Will watch with interest. I hold positions in PGM, PLA and AQP.

Potential weaknesses for Pd market:
Increase in Pd mine production through higher prices of both Pd and/or Pt.
Russian Pd stockpile volume and more importantly future pace of Pd sales.
Substitution and/or less PGE intensive auto catalysts causing reduced demand.

DYOR