TORONTO (miningweekly.com) – The platinum price could reach as high as $2 500/oz and palladium $1 400/oz, Montana-based miner Stillwater CEO and chairperson Frank McAllister said on Wednesday.

The combination of sharp cost increases in South Africa, the world’s source for 55% of platinum-group metals, and increased demand from stricter off-road vehicle emissions standards in Japan and the US meant that there would be a “monumental” shift in the market, he told Mining Weekly Online.

“I wouldn’t discount $3 000/oz for platinum, but $2 000/oz to $2 500/oz is very easy for the price to go to within the next year,” McAllister said.

Workers in South Africa’s platinum mines were demanding double-digit wage hikes and had yet to reach an agreement with their employers.

Steep increases in electricity prices and the strong local currency were also hurting producer's costs.

“These are monumental changes, game changers,” McAllister commented.

According to him, off-road vehicles in the US and Japan must this year have catalytic convertors in them, and platinum is a key ingredient in auto catalysts for diesel engines.

“That’s going to demand anywhere between one-million and 1.5-million additional ounces of platinum,” he said, pointing out that world primary platinum production is only about six-million ounces a year, with about one-million to 1.5-million ounces being recycled yearly.

And with the platinum price climbing, McAllister believes the price for its sister metal, palladium, might surge even faster, with the difference in price between platinum and palladium reaching 60% or 70%, from the current 46%.

An ounce of platinum was selling for $1 784 on Wednesday, while palladium was trading at $795/oz.

Stillwater produces palladium and platinum from two mines in the Beartooth mountains in Montana, and last year bought Canada's Marathon PGM Corp for around $118-million in cash and shares, adding the smaller company's flagship platinum-group-metals/copper project in Ontario.

COPPER CONTROVERSY

The company also announced in July that it agreed to buy Peregrine Metals for $487.1-million, in a move that irked some investors and analysts.

Peregrine owns the Altar copper and gold porphyry deposit in Argentina.

Some even asked if it was possible to scrap the deal altogether, pointing to the 37% drop in the company’s share price since announcing the plan.

McAllister’s rationale for the buyout was that the company needed to diversify from palladium and platinum to insulate it from a market that can be highly volatile.

Facing a long list of questions from investors on the issue during a conference call discussing Stillwater’s second-quarter financial results, he said that the company had suffered “a couple of near-death experiences” over the past decade, because of its dependence on palladium in particular.

He said that Stillwater had been telling shareholders for the past decade that it needed to diversify into another commodity, but that “they weren’t listening to the broader story”.

The company paid a steep premium for Peregrine, which, at more than 200%, was “one of the most extreme premiums in the mining industry”, according to a fund manager.

McAllister said that the valuation had been done based on due diligence of the Altar deposit, and not on Peregrine’s share price, which had been negatively affected by a large block of shares that became available on the market recently.

The purchase offered “tremendous potential upside for the company”, as it drills the property and adds value, he commented.

According to Stillwater’s estimates, a $2.5-billion mine there could produce 250-million pounds of copper yearly and 24 000 oz/y of gold. McAllister is hoping that spending $25-million a year on exploration at Altar might increase this significantly, particularly on the gold side.

Meanwhile, production at that project was still at least five years away, meaning that Stillwater would remain a palladium and platinum producer for the medium term.

“I know copper, but I had a transfusion and my blood runs with palladium now,” McAllister, the former CEO and chair of US and Chilean copper miner ASARCO, said.

TORONTO LISTING

Stillwater announced last week that it would float its shares on the TSX by the end of August, after having purchased Marathon PGM last year, which owns properties in Ontario.

McAllister said this operation could see first output in late 2014, and produce 37-million pounds yearly of copper and 200 000 oz/y of platinum-group metals, with more palladium than platinum, as with the company’s existing Montana mines.

He said in an interview that, at current prices, the copper alone would make the operation profitable.

“Essentially, the platinum and palladium come for free,” he said of the project, adding that it would boost his company’s production by 40%.
 

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