Platinum and palladium moving back to centre stage

Platinum and palladium usually circle each other with one’s price rising as the other falls due to their close chemistry and interchangeability in industrial applications (reports Tim Treadgold on Small Caps).

Palladium

Platinum and palladium, two of the ‘missing links’ in Australia’s world-class commodity chain, are moving back onto investors’ radar screens as local projects make progress and threats to supply promise to deliver a price spike.

Chalice Mining’ (ASX: CHN) Julimar project in Western Australia did the most this week to revive interest in platinum and palladium, but in the background there was encouraging news from Galileo Mining (ASX: GAL) and Future Metals (ASX: FME).

That trio of stocks, plus other players in the platinum group metals (PGM) sector, which incorporates platinum, palladium, rhodium, osmium, ruthenium and other elements, are hoping to plug a 140-year-old gap by developing Australia’s first commercially viable PGM project.

It won’t be easy, for several reasons.

PGM processing technology is complex as I saw in South Africa 20 years ago, and, as Chalice has effectively admitted by launching a search for a partner with the technical know-how to separate the mix of metals in its Julimar orebody.

The complexity of Julimar has caused analysts to refer to the project (at different times) as either a palladium project, when the price hit US$3,100 an ounce (A$4,630/oz) last year, but not today with the price down to US$1,408/oz (A$2,103/oz) , or as a nickel project as nickel currently appears to be the most valuable metal in the cocktail.

Prices, as seen in the rise and fall of palladium over the past few years, can be erratic and that makes choosing the metals to focus on important before building the process plant and that will not be an easy decision for management.

Then there’s the market dominance of two primary players in a tightly controlled business, Russia and South Africa, with decisions they make able to significantly affect metal prices.

Never an easy family of metals to follow, or find attractive investment entry points, platinum and palladium are twins which circle each other, often with one rising as the other falls thanks to their close chemistry and interchangeability in industrial applications.

Dieselgate, the infamous emissions fraud committed by Volkswagen five years ago, highlighted the point that both metals can be used to neutralise the exhaust gas produced by an internal combustion engine with platinum preferred in diesels and palladium on petrol engines.

In killing demand for diesel cars, VW also killed the price of platinum (it dropped by 50% between 2015 and 2018) causing severe problems in South Africa (the world’s biggest producer of the metal) while delivering boom-time prices for palladium which is dominated by Russia.

There are other wild cards in the PGM pack, including the rise of electric vehicles (EVs) which do not produce exhaust gases (a negative for PGMs) and the growing role of PGMs in clean energy such as their use in producing green hydrogen.

The role of Russia, a wild card in the PGM pack if ever there was, was recently played by investment bank Citi, which sees the early signs of an attempt by Moscow to “weaponise” its control of palladium, along with two other metals, aluminium and uranium.

All three of those metals have, so far, been free of western world sanctions over Russia’s war in Ukraine which means they remain freely traded despite signs that car makers might have been taking evasive action.

The 22% collapse in the palladium price from US$1,804/oz (A$2,694/oz) three months ago to US$1,407/oz (A$2,101/oz) can be seen as a continuation of the market normalising after the US$3,100/oz (A$4,630/oz) spike at the start of the Ukraine war.

But it could also be a result of car makers re-configuring their production lines to use more South African platinum in the exhaust systems of their cars while limiting exposure to a potential Russian squeeze on palladium exports.

What Russia does next could light a fire under the PGM sector, triggering the sort of price spike seen at this time last year when it invaded Ukraine.

Citi said earlier this month that any move by Russia to restrict exports would send shockwaves through commodity markets, disrupt supply chains and create problems for manufacturers, especially car makers.

Perhaps most significantly, the bank believes “weaponising Russian metal exports might be just around the corner”, according to Citi’s head of European and Middle East commodities Max Layton.

“Russia’s use of gas, and more recently talk about oil production cuts, has gone straight to the big-ticket items,” he told London’s Financial Times newspaper.

“There are a number of other commodities that are in between, that has kind of slipped past.”

Investing on the basis of what an unpredictable country such as Russia might do (never forget Winston Churchill’s Russian analogy: “a riddle, wrapped in a mystery, inside an enigma”) which is one reason to treat PGMs with care.

Then there is the annoying fact that Australia has tried many times before to develop a PGM industry, and failed, even after a few years of modest production as far back as the 1880s from alluvial material near Fifield in New South Wales.

This time around Chalice, which is not a small cap at a market value of $2.65 billion, is unquestionably the most promising player in the local PGM space but it has hurdles to clear, including funding, finding a profitable process route, and selecting a partner with the right skill set.

Future Metals, with a value of $19 million, fits the small cap mould, but it too has a challenge in commercialising the Panton Sill in WA’s Kimberley region which has been around long enough to have earned a reference in one of my early geology text books – and it is still undeveloped decades later.

The latest news from Panton, which was once the primary project of Platinum Australia, is of a promising result from drilling 350 metres beyond the known resource, including 22.4m at 1.5g/t of PGMs from a depth of 786m.

Galileo, which enjoyed a 6% share price bump up to $0.73 on Tuesday, is attracting interest with its latest drill results which included 72m at 1.16g/t of platinum, palladium and gold (3E), plus useful copper and nickel readings from work at its Callisto project in the south of WA.

For Australian investors, the PGM family of metals have been a frustration since Fifield blossomed and faded more than 140 years ago.

This time, it might be different. Fingers crossed.

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