Palladium Leading the Platinum-group Metals Market and Beyond

Palladium’s strong fundamentals lead the pack for platinum-group metals.

Platinum-group metals (PGMs) are six similar transitional metals that include palladium, platinum, rhodium, ruthenium, iridium and osmium. Each has similar physical and chemical properties to the others in the group, and they tend to occur together in the same deposits. Within this group, it is the palladium market that has been on the rise.

Classified as rare precious metals, PGMs have significant industrial applications, most notably in the manufacturing of catalytic converters in vehicles. While the group’s headliner is platinum, it is its sister metal, palladium, that’s been the best market performer over the past decade.

In fact, according to Bloomberg & US Global Research, between 2008 and 2017 the palladium market was the best performing of all commodities. Market trends for both palladium and platinum have been positive the past few years. “The use of platinum in industrial applications set a new record in 2017,” according to a recent report by Johnson Matthey (LSE:JMAT).

But it is the palladium market that really shines. “Automotive demand for palladium is predicted to grow by around 2 [percent] in 2018, setting a new all-time high of 8.57 million ounces.” Long-term, demand for PGMs is expected to remain robust, particularly for palladium. Today’s palladium supply is sourced mainly as a by-product, with more than three-quarters of global production coming from Russia and South Africa.

Supply concentrated mainly in South Africa and Russia

Palladium, platinum and the rest of the PGMs family rarely occur outside of nickel and copper mineralization. “Mineable deposits of PGMs are very rare in the Earth’s crust,” according to the International Platinum Group Metals Association (IPA), hence why the majority of the world’s supply of these metals comes by way of by-products. In fact, about 33 percent of global PGMs production originates from primary nickel mines.

The IPA reports that South Africa and Russia account for 58 percent and 26 percent of global PGMs production, respectively, while the US, Canada and Zimbabwe account for most of the remainder. Russia’s number-one producer is Norlisk Nickel (OTCMKTS:NILSY), while Anglo American Platinum (JSE:AMS) reigns in South Africa. Glencore (LSE:GLEN) and Vale (NYSE:VALE) dominate in North America, particularly in the prolific Sudbury jurisdiction of Ontario. There are only two primary producing palladium mines: the Stillwater Complex owned by Sibanye-Stillwater (NYSE:SBGL) in Montana, and the Lac des lles mine owned by North American Palladium (TSX:PDL) in Ontario, Canada.

Russia and North America’s deposits are generally high in palladium, while the South African and Zimbabwean deposits are high in platinum. “Primary and secondary production of PGMs create large revenues and thereby contribute greatly to the economic growth and wealth of the countries where the metals are mined and processed,” as per the IPA. However, the limited geographic concentration of PGMs-producing regions across the globe makes this market highly susceptible to supply disruptions.

Supply levels in the global palladium market took a slight hit in 2017 from some shaft closures and technical issues at key mines in South Africa, lower nickel and copper production out of Glencore and Vale’s North American operations and lower shipments out of Russia. In fact, the market saw a deficit of more than 800,000 ounces last year, boosting prices.

Russia and North America’s PGMs-containing deposits have much higher concentrations of palladium than their African counterparts, making those regions key suppliers for the market’s current demand. By-product palladium output from Canadian nickel mining is expected to take a hit as PGMs grades in Sudbury ore decline and deposits are exhausted, leaving catalytic converter manufacturers looking for new sources of supply. However, there are few PGMs-hosting projects on the map.

“The PGMs market is facing a deficit that isn’t likely to be resolved anytime soon,” said Harry Barr, chairman and CEO of New Age Metals (TSXV:NAM,OTCQB:NMTLF,FWB:P7J.F). “The world’s producing mines aren’t capable of increasing production to meet demand and the aboveground stockpiles which typically fill the gap are quite low if not entirely depleted.” New Age Metals is developing the River Valley PGMs property in Sudbury, Ontario. The project is considered the largest undeveloped primary PGMs deposit in North America.

Diverse range of industrial uses

As industrial metals, platinum and palladium are used across a broad range of industries, including chemical, electrical, glass and medical. In their double role as precious metals, the two are also in high demand from the jewelry and investment markets.

Research firm Johnson Matthey reported that in 2017 the use of platinum and palladium in industrial applications reached record levels, buoyed by demand from the glass and chemical sectors. “The ‘Made in China 2025’ initiative — designed to reduce the country’s reliance on imports of chemical feedstocks — has stimulated massive investment in large new facilities integrating crude oil refining with downstream petrochemicals production, which are expected to come on stream over the next two to three years,” says Johnson Matthey in its May 2018 report on the PGMs market.

These projects are expected to require significant amounts of platinum and palladium, which are excellent catalysts for chemical reactions. In 2017, chemical producers bought more than half a million ounces of platinum for the fourth time in five years. Palladium was also highly favored by the chemicals sector, with purchases from producers up 28 percent. Growth in this sector is expected to continue supporting PGMs demand throughout 2018.

Demand for platinum from the glass-making sector was up by almost 50 percent in 2017 on new developments in the fiberglass segment of the market. Fiber-reinforced plastics are playing a larger role in several applications in vehicle and wind turbine fabrication, as well as construction. Further gains from the glass market are expected in 2018 as demand from display-glass manufacturers is predicted to reach a seven-year high.

Primary market: Vehicle catalytic converters

The primary market for platinum and palladium is in vehicle catalytic converters — the part of the car that converts harmful gases produced by hydrocarbon emissions into less-harmful substances. “Roughly 80 percent of palladium and 40 percent of platinum ends up in catalytic converters,” the Investing News Network has reported. “The catalytic converter market is set to grow at a CAGR of 8.05 percent from 2017 to 2021 and is seen reaching a market size of $55.16 billion.”

Global demand for catalytic converters is driven by the increasing number of vehicles on the road worldwide, alongside increasing government-imposed mandates aimed at reducing vehicular pollution. Catalytic converters — and the metals that make them — are still expected to have a role in the automobile market as the industry transitions to electric vehicles, as they will be necessary components for hybrid vehicles.

Global demand for PGMs in catalytic converters for the heavy-duty vehicles segment is forecast to rise by 60 percent in 2018, according to Johnson Matthey, with rapid growth projected over the next three years on rising demand from China and India.

Palladium has better thermal stability than platinum and can withstand the temperatures of gasoline exhaust. Palladium is more widely used in the catalytic converter market for gasoline-powered cars, while platinum is the go-to metal for the diesel-fueled vehicle market. Demand for diesel-powered vehicles has been shrinking, decreasing platinum demand from the catalytic converter market.

Demand for palladium from the global catalytic converter market reached a record high of 8.39 million ounces in 2017, compared to 3.29 million ounces for platinum. According to Johnson Matthey analyst predictions, demand for palladium from this sector will expand by 2 percent in 2018 to reach another record high of 8.57 million ounces, compared 3.18 million ounces for platinum.

Palladium market leading the way

Platinum may have been long recognized as the head of the PGMs family, but it’s palladium that’s now leading the way. The contrasting markets for these two metals — the strong fundamentals of the palladium market and platinum’s lagging performance — are expected to diverge further throughout 2018. As evidenced by its stellar performance in the past decade, palladium doesn’t just rule the roost in its own family, but is also leading the pack against many of the world’s hottest commodities.

Investors can expect a significant supply deficit for palladium on decreasing aboveground stocks and increasingly robust demand across a wide variety of industrial applications for the metal, specifically in the automotive industry. The concentration of the majority of palladium production into only a few regions places a great deal of emphasis on the need for a more diverse geographic supply.

This article was originally published by the Investing News Network in August 2018.

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Royalty Financing and Investing In Rapidly Emerging Commodities Outside of Gold and Silver

Investing in royalty financing and emerging commodities outside of gold and silver is increasingly attractive due to lower risk and the ability to provide commodity price leverage and exposure to in-demand commodities and their price movements.

In recent years, royalty and streaming companies have quickly emerged as a popular choice among a broad spectrum of investors. They provide the capital to finance many of the most highly prospective mining projects around the world to provide investors with a perfect storm of minimized risks and economic upside.

With unparalleled exploration, diversification, and project acquisition opportunities, this particular type of alternative financing could be set for significant expansion over the next decade.

What is royalty streaming?

Marin Katusa, chairman of Katusa Research, told Kitco News in an interview, “I would start at the royalty side of things … that’s the easiest place to start because these are teams that are de-risking themselves.”

Royalty agreements and streams have similar structures at face value but key differences set them apart.

  • Royalty agreements: Also known as net smelter returns, these agreements provide royalty holders with a percentage of a specific mine’s revenue generated from production, typically hovering around one to three percent. Another common type of royalty agreement includes net profits interests, where the royalty holder receives a percentage of the profits rather than the revenue.
  • Streams: These contractual agreements provide the right to purchase a certain percent of metal production directly from the mine, typically ranging from five to twenty percent. Streams often will have a predetermined purchasing price for the metal, which is usually either a fixed dollar amount or a fixed percentage of the spot price.

An important distinction between royalty and streaming companies is that these entities are not mine operators. Instead, they seek to find untapped value through financing and working with miners to curate agreements that provide their shareholders with steady exposure to various mineral and metal markets. These agreements enable recipient mining companies to further develop or expand projects, providing greater returns for vested interests and the companies with royalties and stream agreements on the projects.

For junior mining companies, having the financing and support from more established royalty and streaming players can be especially beneficial as it may significantly boost development and exploration efforts and improve balance sheets across highly prospective project portfolios.

Risks and rewards to royalty streaming

In the case of royalty streaming, outlining major pros and cons can paint a clearer picture as to what potential downfalls these agreements have and what makes them one of the most popular financial strategies in 2021.

One of the main downfalls of royalty streaming relates to the structure of the business. Royalties and streaming companies have traditionally had intense competition competing within the precious metals space and needed a large amount of capital to invest in mines, which are raised through stocks or debt. Either companies accumulated debt on their balance sheet or issue stocks, which can involve some unfavorable stock dilution. However, there are very few royalty groups focused on clean energy metals and the costs of deals has been much lower thus far.

Another risk involves actual spot prices and mine production. If spot prices fall, so can revenue generation for royalty companies and metal selling prices for streaming. Additionally, in the case of mine delays, both types of companies may be impacted by a delay of commodity flow. Luckily, there are no costs to holding a royalty so there are no operating costs associated with shutdowns and the G&A required for running royalty companies is very low. .

By avoiding many of the operational costs, royalty and streaming companies cut out significant risks commonly associated with mining investments. While mining companies’ operational costs may rise, royalty and stream holders simply reap the potential benefits of high margins during peak pricing periods for their metals, having acquired them at lower fixed prices according to their agreement.

Another key advantage royalty and streaming companies have is advantageous portfolio diversification and the ability to be selective with their agreements. With the right management and strategic acquisition team, companies can minimize concentrated jurisdictional or asset risk and make agreements with mines already at near-term production staging. Since costs per ounce are contractually defined, this also protects streamers from cost overruns across the life of a mine.

Electric Royalties (TSXV:ELEC) is a royalty company focused on building a premium portfolio that takes advantage of the demand for a wide range of commodities and critical metals like lithium, vanadium, manganese, tin, graphite, cobalt, nickel and copper. Its focus on vital battery and base metal elements leverages the growing demand and global drive toward electrification across virtually all sectors, including transportation, rechargeable batteries, large-scale energy storage, renewable energy generation and more.

The company has a robust commodity portfolio, which helps to diversify investment and mitigate risk for investors and shareholders while leveraging exploration upside, revenue-driven business modelling and more. It currently has a portfolio of 12 royalties with exceptional exploration potential and four additional royalties currently under acquisition.

Electrification: Growing market for royalty streaming companies

The mining royalty and streaming sector have grown steadily from US$2.1 billion in 2010 to more than US$15 billion in 2019. While gold and silver take up a large portion of the streaming market, up-and-coming metals like copper and cobalt continue to show exceptional growth potential as the world shifts to greener alternatives to energy, power and more. Market researchers expect bright futures for both commodities despite disruptions in production in 2020.

Year-to-date:

  • Lithium prices are up 313 percent
  • Copper prices are up 25 percent
  • Zinc prices are up 22 percent
  • Nickel prices are up 18 percent
  • Tin prices are up 82 percent
  • Cobalt prices are up 75 percent

These raw materials expose prospective investors and many royalty streaming companies to multiple sectors, including new economy drivers like electric vehicles, batteries, energy storage, personal electronics and renewable energy platforms including wind and solar. .

Nova Royalty (TSXV:NOVR) is a royalty company focused on copper and nickel discovery as the foundational building blocks in clean energy decarbonization. With a rich portfolio of base metal royalty assets operating out of mining-friendly and highly prospective mining jurisdictions, Nova could become a leading royalty company in the transition to the future of sustainable energy.

With the battery revolution and growing demand for copper and nickel, the company has also strategically positioned itself as a potential frontrunner in the transition to an electric-powered world. As a royalty company, it has a decreased risk across a global portfolio.

Royalty financing: Economic upside potential for investors

For investors, royalty and streaming companies continue to be increasingly attractive due to their lower risk and ability to provide commodity-price leverage and exposure in-demand commodities and their price movements. In addition, investors in streaming companies advantageously leverage the ability to contract metal prices and delivery and tailor metals exposure more than royalty companies can.

Innovative companies are leveraging the momentum behind the transition for decarbonization into green power and investing in these companies outside of precious metal markets like gold and silver. With unprecedented demand and growth in prices for these raw commodities, market researchers predict more money investment opportunities coming into the sector for royalty and streaming companies exposed to these commodities.

Takeaway

Royalty and streaming companies present unparalleled investment opportunities with benefits of low risk, stable metal and mineral market diversified exposure and support for highly prospective mining projects across the globe. With no exposure to issues such as operating cost pressures or capital cost overruns due to predetermined metal pricing and revenue generation agreements, it comes as no surprise that royalty financing has become a significant strategy utilized by new and experienced investors.

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ESG investing best fits socially conscious investors looking for ESG companies focused on environmentally friendly practices to benefit from carbon credits.

Investing in companies based solely on in-depth financial analysis isn’t the only way to evaluate a company these days. Environmental, social and governance (ESG) investing is a trending investment strategy in which an investor assesses a company’s social presence as it relates to profitability and future returns before making an investment decision.

In 2020, the total worldwide. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025 –– showing no sign of slowing down any time soon. Some of the top ESG stocks, according to RBC Capital Markets, include large companies like Salesforce (NYSE:CRM), Microsoft (NASDAQ:MSFT), NVIDIA (NASDAQ:NVDA) and Gilead Sciences (NASDAQ:GILD) — to name a few.

It is clear that ESG investing has a role to play for the more socially-conscious investors out there. Read on to learn more about the basics of ESG investing and why this trend continues to grow in popularity.

What is ESG investing?

ESG stands for environmental, social and governance. ESG includes a variety of actions and responsibilities that a company takes towards building a more sustainable future. ESG initiatives typically come in the form of company policies, dedication to best practices or responsible operations.

Environmental impact includes all investments that support preservation and conservation of the natural world including climate change, carbon emissions, air and water pollution, biodiversity protection, deforestation, energy efficiency, waste management and water supply.

Social impact includes all investments that support the people and communities affected by a company’s operations including customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights and labor standards.

Lastly, governance issues include investments in standards in which the company operates by, including board composition, board diversity, board independence, audit committee structure, risk and governance committee structure, compensation committee structure, health & safety committee structure, anti-bribery and anti-corruption bodies, lobbying, political contributions and whistleblower schemes.

ESG funds and stocks reduce portfolio risk and increase returns

Portfolios that include ESG investments have proven to have greater long-term success than those that do not. Part of this is because ESG funds have had progressively higher returns on investment due to resilience in the face of conventional market disruptions. For example, companies with strong ESG track records had less stock price volatility than non-ESG companies during the COVID-19 pandemic.

Research has also found that ESG stocks produce similar if not better financial results than non-ESG stocks. According to Arabesque, the top quintile S&P 500 companies with ESG initiatives performed more than 25 percent better than the bottom quintile companies from 2014 to 2018.

This reduction in portfolio risk is believed to partly stem from the fact that ESG companies are less likely to be involved in controversies –– whether it be environmental, social or governance due to proactive management.

Environmental is the leading ESG factor

According to recent survey data, among all ESG factors, pollution and waste management ranked top in importance and support from ESG investors. Investor prioritization of pollution and waste management is likely linked to growing concerns around climate change. Both large and smaller companies have responded to this growing concern by either launching or shifting to green models.

Steelcase (NYSE:SCS) is a company that produces furniture and architectural elements. Steelcase minimizes waste through smart product designs that easily allow for product disassembly for use in refurbishing and recycling. Steelcase produces very little waste in addition to reducing pollution through the use of renewable energy and water efficiency.

Hewlett Packard (NYSE:HPE) has also established a recycling program that spans 73 countries and has collected and recycled 90 million kilograms of plastic. The initiative has substantially cut back on landfill waste and reduced heavy metal pollution. Hewlett Packard has also reduced its greenhouse gas emission and water consumption through the use of 100 percent renewable energy in its manufacturing process.

Northstar Clean Technologies (TSXV:ROOF,TSXV:ROOF.WT) is an emerging clean technology company focused on the recovery and repurposing of single-use asphalt shingles. The company has developed a proprietary design process at its Empower Facility in Delta, BC for taking discarded asphalt shingles, otherwise destined for already over-crowded landfills, and extracting the liquid asphalt, aggregate sands and fiber. Northstar’s mission is to become the leading shingle material recovery provider in North America, extracting 99% of the recovered components from single-use asphalt shingles that would otherwise be sent to a landfill.

Carbon credits for ESG investments

The Canadian government recently announced an upcoming Canadian Federal Greenhouse Gas Offset System that will provide carbon credits to a variety of industries. Companies with ESG investments will be well primed for successful carbon credit trading given the expected rising costs of carbon under the Trudeau government.

For companies with ESG-focused models, a federalized carbon credit system will not only provide additional working capital but can improve profitability, growth and ROI potential.

Takeaway

ESG is considered to be crucial to business success. Industries that have not adopted ESG initiatives have received criticism and pressure from various stakeholders. As ESG takes off with billions of dollars in investment, investors may find ESG companies to be of more interest, specifically ESG companies with a focus on environmentally-friendly practices that are well-suited to benefit from carbon credits.

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The industrial applications of silver make it an ideal material for driving the green revolution.

Silver is one of the oldest precious metals known to humanity, rivaled only by gold. And like gold, silver demand comes from a variety of different markets that go far beyond traditional jewelry and currencies. This precious metal is heavily used in high-technology, electrical, thermal and many industrial spaces. With such usage versatility, especially in our increasingly electrified world, investors can expect silver demand to grow exponentially.

There are many technology use cases for silver today. Analysts project silver will play a pivotal role in the “green revolution,” playing a fundamental role in green technologies, as well as in the fintech space with its applications in crypto mining and the broader cryptocurrency market.

Before we dive into why silver is a worthwhile investment, it’s important to understand how silver is used in technology today, from its industrial applications to more modern technology products.

Silver’s unique properties in technology

Silver has the highest thermal and electrical conductivity of all metals which makes it highly used in electronics and technological applications today.

Electronics demand silver of the highest purity at 99.99 percent silver. During processing, the precious metal can either be smelted and refined from ore into bars or grains or dissolved in nitric acid to produce silver nitrate, which can be formed into powder or flakes. This material can then be fabricated into contacts or silver pastes, like conductive paste made with a silver-palladium alloy.

How is silver used in today’s technology products?

The number one use of silver in the technology industry is in electronics, making up 35 percent of total silver usage in the United States. The precious metal’s unsurpassed thermal and electrical conductivity among metals means it is a superior metal to less expensive alternatives.

Silver’s role as a superconductor makes its uses varied tremendously across the electronic and technology space. Small quantities of silver are used in electronic applications such as contacts in electrical switches and wires, nanosilver conductive inks in printed electronics, automotive innovation, silver oxide high-weight and high-capacity batteries and many everyday consumer devices.

Silver’s versatility also extends to the booming cryptocurrency industry. Unsurprisingly, the metal plays a vital role in the function of circuit boards inside computers and their accompanying keyboards. A computer’s cooling system needs silver’s superconductive thermal properties to keep the system from overheating while expanding the massive amount of energy computers need to compute. Crypto mining rigs run massive clusters of graphic processing units across a network of computers day and night so the necessity for silver conductivity cannot be understated.

Industrial Applications of Silver

According to market research, industrial buyers drive more than 50 percent of silver demand. In 2020 alone, industrial fabrication reached over 486.8 million ounces in demand. With rapid global efforts to decarbonize and electrify the world, three specific areas present highly prospective and high-level silver consumption.

These industries include the automotive sector and electric vehicles, including the associated infrastructure, the solar energy industry and the fifth-generation (5G) broadband cellular networks. By 2025, silver demand in 5G technology could more than double to 16 million ounces and, by 2030, triple to 23 million ounces, according to estimates by Precious Metals Commodity Management.

Additionally, the metal’s high tensile strength and ductility make it an ideal option for brazing and soldering or flattening into sheets for employment across different industries, including chemical production, medicine, photography and more. With so many applications, the highly valuable metal presents exceptional market demand and outlook as a commodity of the future.

Silver in today’s technology markets

At multiple levels of production, silver presents stellar economic growth and investor upside potential. Despite a global pandemic, silver proved its status as a safe-haven asset for investment portfolios, rising to 47.89 percent in 2020. However, before silver becomes a viable resource in the latest technology and industrial applications, markets need silver exploration and development companies to produce the valuable commodity.

Lakewood Exploration (CSE:LWD) is a silver exploration company focused on becoming a multi-mine silver producer. Its growing asset portfolio includes the recently acquired past-producing Silver Strand and Burnt Cabin mines located in the renowned Silver Valley mining district in Idaho, USA–a district that has produced over 1.2 billion ounces of silver and hosts some of the world’s largest silver mines; the Eliza project located adjacent to the historic Hamilton silver district, in Nevada, which produced 40M oz silver in the 1800s; the past-producing Silverton Silver mine also located in Nevada within the same trend as numerous multi-100M oz silver deposits;and the early-stage Lacy gold-silver project in British Columbia.

In August 2021, the company reported high-grade surface samples including 11.79g/t gold and 255g/t silver to further extend the mineralized trend at Silver Strand. “We are very excited with these results which confirm widespread alteration and gold-silver mineralization throughout the property and along the 5.5 km strike,” commented Lakewood Resources President Morgan Lekstrom.

Hecla Mining (NYSE:HL) is a mineral exploration and development company operating silver mines in Alaska, Idaho and Mexico. The company has a variety of exploration properties and pre-development projects in six silver- and gold-mining districts in North America. Hecla leverages North America’s politically stable and mining-friendly jurisdictions to meet the demands of current silver markets.

Santacruz Silver Mining (TSXV:SCZ,OTC Pink:SZSMF) is poised to become Mexico’s next mid-tier silver producer. It currently operates its Rosario project and Zimapan project in top mining districts in Mexico. Both properties benefit significantly from exceptional infrastructure, with road accessibility, utility networks, skilled labor, and significant exploration upside and discovery potential in one of the world’s richest silver-producing countries.

Takeaway

Today, silver presents exceptional versatility in usage across some of the world’s most dominant sectors. As a superconductor, the precious metal boasts the highest thermal and electrical conductivity of all metals, which makes it an ideal material for driving the “green revolution” and meeting the demands of increasingly electrified industries and popular crypto mining technologies. Investors could see tremendous economic upside gaining exposure to this safe-haven asset and the exploration companies that supply it to the world.

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MARKETS

Markets
TSX20659.99-489.01
TSXV939.44-14.82
DOW34483.72-652.22
S&P 5004567.000.00
NASD15537.69-245.14
ASX7256.00+16.20

COMMODITIES

Commodities
Gold1789.38+16.00
Silver22.77-0.03
Copper4.29+0.01
Palladium1749.50+4.00
Platinum950.57+12.07
Oil68.16+1.98
Heating Oil2.13+0.07
Natural Gas4.43-0.14