TORONTO (miningweekly.com) – Supply constraints out of South Africa, the biggest platinum producer, coupled with shrinking palladium shipments from Russia, mean that the prices of the two metals will continue to move closer together, Stillwater Mining CEO Francis McAllister said on Tuesday.

“Nobody really knows what is left there,” he said of Russian inventories, which have accounted for one-quarter of global supplies in recent years, and which the country keeps secret.

“It would appear – both from shipments of the last couple of years and what’s taken place this year – that they’re winding down.”

McAllister said that this was the “wildcard” for palladium, and that the market had concluded that these sales were coming to an end.

Over the past 12 months, platinum has traded between $1 367/oz and $1 901/oz and palladium traded at between $563/oz and $855/oz.

Both metals are used to cut emissions from vehicles, with palladium traditionally used more in petrol cars and platinum in diesel engines, though the metals are increasingly interchangeable.

“This growing ability to substitute one-for-one palladium for platinum in applications underlines the recent strength in the market for palladium and highlights the potential for even further convergence,” McAllister commented on a conference call.

On the demand side, automobile production was forecast to continue growing in 2012, reaching record levels.

Russia is the biggest palladium producer, followed by South Africa. Both countries produce the metal as a by-product – of nickel in the case of Russia and of platinum in South Africa’s case.

Montana-based Stillwater is the only producer of the two precious metals in the US, and its production is weighted in favour of palladium.

South African producers have been struggling with surging electricity and labour costs, while government safety stoppages removed around 300 000 oz of platinum output in the country last year, according to Anglo American CEO Cynthia Carroll.

More recently, an illegal strike has kept Impala Platinum's flagship mine near Rustenburg shut for a month, costing the company at least 80 000 oz, and seeing three people killed, according to Bloomberg.

Palladium was trading at $708/oz on Tuesday, around 60% lower than the price of platinum, at $1 684/oz.

Stillwater, which owns mines in Montana, reported a record $144.3-million net profit for 2011 on Tuesday as it benefited from higher prices and production. Output dipped slightly in the last quarter.

MARATHON PROJECT

McAllister said that the Marathon platinum-group metals (PGMs) project in Ontario, which Stillwater bought in late 2010, was running about one-year later than the company had originally anticipated, with commercial production currently expected in 2016.

The mine would cost between $550-million and $650-million to build, though a detailed engineering study the company aims to complete in about a year’s time will provide a more concrete figure.

Last year, the company estimated the mine would cost $450-million to construct.

In July, Stillwater announced it agreed to buy Peregrine Metals for $487.1-million, adding the Altar copper project in Peru to its growth profile. Some analysts and investors questioned the price it paid for the asset, as well as the logic behind shifting the company’s focus.

McAllister moved to allay such concerns, stressing that the company would remain solely a primary PGM producer for the foreseeable future.

“In total, the company expects to direct far more of its economic resources into these PGM projects over the next several years than into Altar,” he said.

Stillwater anticipated it would need to raise money or partner with a third party to complete the Marathon and Altar projects, the Toronto- and New York-listed firm said.
 

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