Palisade Research - Fri, Jun 16, 2017

Surging Palladium Prices Predict $2,450 Price for Platinum

picture of an ounce bar of platinum

Palladium has been on a tear this year, up 35% to date. In fact, it is the second best performing commodity, second only to cobalt.

More curiously, the metal has outperformed its counterpart, platinum, and is now almost identical in price. Palladium rallying in the face of weak platinum prices seems counter-intuitive. So we set about looking back in time to see if this has happened before. And indeed, it has.

line chart showing historical prices of gold, platinum and palladium from 1990 to 2016

In August 2001, palladium, having experienced a sustained move since 1997, crossed the platinum price.

From January 1997 to January 2001, Palladium outperformed soaring from $120 to $1,090. But a strange thing happened. As soon as palladium overtook platinum in price, platinum began to rally as well, entering a bull market that would last the better part of a decade and witness a 450% move.

Could History Repeat?

The current price of platinum is $940/oz, while palladium is trading at $890/oz. That provides a current ratio of 1.06, compared to the historical average of 2.76.

line chart showing the historical platinum to palladium ratio from 1990 to 2017

If palladium holds steady at current prices, platinum would have to appreciate to $2,450/oz to revert back to the historical mean! $2,450 would be a record-breaking move for platinum. But the outlook could get even better if palladium continues its current ascent.

Another historical relationship worth examining is the gold to platinum ratio. Historically, platinum has traded higher than gold 94% of the time. Bucking the historical trend, gold has traded higher than platinum since the end of 2014.

line chart showing the historical gold to platinum ratio from 1990 to 2017

If gold were to hold steady at current levels (something we seriously doubt), platinum must rise to $1,600/oz to revert back to the historical mean, 0.81. If gold continues to rally, platinum should provide significant leverage as the bull market plays out.

Historical ratios are not the only thing pointing towards higher platinum prices. In addition to being oversold, platinum is witnessing a decline in supply growth. South Africa, which accounts for 75% of the world's output of platinum, has averaged almost zero growth since 2010. Mines in the country have been facing serious operational issues as well.

Platinum and Palladium In North America

Platinum and palladium production is geographically constrained to just a handful of countries, including South Africa and Russia. That is because platinum and palladium are rarely found in abundance.

That is why we pounced at the opportunity to finance one of Canada's largest undeveloped platinum and palladium deposits earlier this year.

New Age Metals (CVE:NAM, OTCMKTS:PAWEF) is a junior exploration that owns 100% of the River Valley PGM Project, which hosts a 3.1 million ounce resource of PGMs and gold. The project is located within 100 road kilometers of a world-class Metal Recovery facility in the city of Sudbury, and is road accessible with power and rail infrastructure nearby.

For these reasons, the asset is one of the most coveted PGM assets worldwide. And thanks to treacherous market conditions, we were able to refinance the company at just a $3.0M valuation. That is despite over $40M of past work completed on the project.

Additionally, we saw significant promise in the recent appointment of Trevor Richardson as President and COO, spelling a new direction for New Age Metals. Mr. Richardson is a co-founder of Caracle Creek International Consulting, an International Geological consulting firm, with offices in South Africa and Canada. He has extensive exploration experience in Africa and Canada, in precious metals, more specifically platinum and palladium.

property map for New Age Metals' River Valley Project and Target T2 Discovery

Part of that new direction includes a high-grade discovery. In 2015, New Age announced a new find at its flagship River Valley PGM Project, which included 3.91 g/t palladium and platinum over 9 meters in drill hole 2015-DN002. This discovery was confirmed in 2016 when New Age announced 4.07 g/t palladium plus platinum over 9 meters in drill hole DN-T2-06.

Prior to these two drill holes, River Valley constituted a low-grade, optionality play, highly leveraged to PGM prices. Optionality plays can provide fantastic returns for investors in rising price environments. But this new discovery opens up the potential for a near surface, high-grade PGM zone. That means economics at current prices and massive leverage in rising commodity prices.

In May of 2017, Palisade provided the lead order to a $2.7M financing for New Age Metals. Much of that money will be allocated towards further drilling at the high-grade zone. New Age is planning to drill up to 5,000 metres over 20 holes, beginning in the summer/fall of 2017.

table of contained metal contents

Converting its platinum to a gold equivalent, the company hosts 3.6 million ounces gold equivalent, or at a value of $2.36 per ounce!

Compared to the current market average of $24.80 per ounce, NAM is very much under the radar. The company has the advantage of being a precious metal play, and in the position to take advantage of the inevitable green revolution.

Thanks to surging palladium prices, investors in the Palisade led financing are up 80% in just 2 months. This move in PGMs is in its infancy and we believe New Age Metals offers investors great upside to platinum and palladium.

It is worth noting that the company also holds a portfolio of lithium assets in southeast Manitoba. Management is committed to finding homes for these projects in the near term, which will allow shareholders to benefit from the advancement of the lithium division, while minimizing dilution. Investor interest in the lithium assets should not be downplayed.

line chart showing New Age Metals' share prices from January to June 3 2017

Palisade Global Investments Limited holds shares of New Age Metals. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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