Introduction to Palladium Investing

Palladium, named after Pallas Athena, the Greek goddess of wisdom, is a rare metal that is from same group as platinum, but has the malleability and ductility of gold. It was discovered in 1803 by English chemist William H. Wollaston after he dissolved platinum in a solution of hydrochloric and nitric acids. Eventually, Wollaston was able to isolate palladium in a series of chemical reactions, ultimately extracting the metal from palladium cyanide. After anonymously selling the metal on the market place for two years, Wollaston gave a talk in front of the Royal Society of London about the properties and production of palladium and revealed himself as the metal’s discoverer.

Palladium is found in many places throughout the world, often with platinum and other platinum group metals. Deposits can be found in Russia, North and South America, Ethiopia and Australia. There are also palladium deposits found in association with the nickel–copper deposits of South Africa and Ontario.

In 2012, about 8.7 million ounces of palladium were delivered to the market. About three-quarters of this supply was from mine supply, while the remainder came from secondary recovery. Russia and South Africa supplied nearly 80 percent of the mined palladium; however, the production outlook of these locations is pessimistic. Russia is seeing a decline in its palladium production, while South Africa deals with political turmoil along with cost issues. South Africa also requires deeper mines for its production, making power and water limitations a problem. In 2012, 250,000 ounces of palladium were lost as a direct result of labor unrest in South Africa. Yet that has done nothing to deter market demand for the metal.

The automotive sector consumes two-thirds of the world’s supply of palladium every year, a number that has doubled in the last 10 years. Palladium is primarily used in catalytic converters to help reduce toxic emissions. The tightening of emissions standards worldwide has heightened palladium demand, especially in emerging economies like China, India, Brazil and Russia. Palladium can also be used in electronics, jewelry, dentistry and chemistry.

Major palladium producers

Here’s a brief look at two major palladium producers:

• North American Palladium (NYSEMKT:PAL) is an established precious metal producer that has been operating since 1993. The company’s flagship mine, Lac des Iles, is located in Ontario. It is the only deposit in the world that has a high palladium concentration with broadly disseminated mineralization. The mine is currently undergoing a major expansion due to its significant exploration potential. While the market price is rising, North American Palladium is attempting to increase production while lowering costs. As a result, the company predicts that its long-term outlook will be positive.
• Anglo American Platinum (OTC Pink:AGPPY) is located in Johannesburg, South Africa. Anglo American’s palladium sales volume was down 4 percent, to 1.36 million ounces, in 2012 while gross autocatalyst demand increased 8 percent. However, its first-quarter results for 2013 were more positive: its production increased 12 percent. The company is still in recovery from labor disruptions in South Africa, though it does foresee a return to pre-strike numbers.