Palladium is the most valuable of the world's 'top four' precious metals — gold, silver, platinum, and palladium – an honor earned due to its scarcity and difficulty in mining.
Although palladium is marginally less pricey per ounce than its rarer and lesser-known cousin platinum, it is currently substantially more expensive than gold. It is one of the most actively traded commodities and Russia and South Africa are the two biggest palladium producers, and both are renowned for their mining resources.
Due to palladium's extremely restricted application and high price, it lacks specialized miners in the same way that gold and silver mining businesses do. Rather than that, it is mined as a byproduct of mining for other metals.
As a result, the primary drivers of palladium's price are frequently mining-related, such as the precious metal's supply relative to demand — something palladium traders should keep in mind.
Palladium is used in trace amounts in various applications, but its primary customer is the automotive industry, which employs it in catalytic converters and hybrid electric vehicle exhausts. However, a severe threat to palladium's popularity may come from the advent of electric vehicles (EVs), which do not require precious metals.
What Is Palladium?
Palladium is a silver-white metal mined mainly in Russia and South Africa. It is primarily mined as a byproduct of extracting other metals such as nickel and platinum. It is one of the six platinum-group metals, which also contains the elements iridium, osmium, platinum, rhodium, and ruthenium.
Palladium is most likely to be encountered while driving a vehicle, as almost 85 percent of mined palladium ends up in automobile exhaust systems. It is an integral part of the catalytic converters that convert hazardous pollutants to carbon dioxide, nitrogen, and water vapor. Additionally, palladium is utilized in dentistry, electronics, medicine, and jewelry manufacture.
Palladium is 30 times costlier than gold, and as demand grows, so do its prices.
Palladium prices have been rising steadily since 2016, reaching an all-time high of $2,714 per ounce in February 2020. As a point of reference, gold was priced at $1,575.95 an ounce at the time.
Why is palladium gaining popularity? In a nutshell, demand. When asked for a product exceeds supply, the commodity's price rises. Since 2012, palladium resources have been insufficient to meet global market.
And the good thing for investors is that demand for this metal appears to be on the rise. With our firm reliance on palladium in emissions controls and growing worldwide pressure to phase out high-emission automobiles, automakers require palladium in more significant quantities than ever before. And because palladium is not easily replaced, demand is high.
Palladium is a valuable metal, and worldwide demand trends indicate its value will continue to rise.
Palladium Investing Risks
This metal has not always been so popular despite palladium's soaring price. Indeed, the metal has a volatile past and is only valued for as long as required.
While automakers have yet to develop a palladium substitute, a replacement is not ruled out. And, given palladium's scarcity and difficulty of production, an alternative is highly plausible, considering palladium miners' inability to keep up with rising worldwide demand.
Another consideration is the increasing popularity of electric automobiles. The EV market is expanding at a breakneck pace. And this might have a substantial impact on palladium's market share, as electric vehicles do not require catalytic converters.
1. Sibanye Stillwater Ltd (SBSW)
Sibanye Stillwater, a South African mining corporation, is the world's largest platinum, palladium, and gold producer. The corporation was founded through the purchases of Stillwater, a palladium producer in the United States, and Lonmin, a competitor in the platinum mining industry. Sibanye operates palladium mines in the United States of America, South Africa, and Zimbabwe. Palladium will account for around one-third of the company's sales in 2021.
Sibanye has committed to achieving carbon neutrality by 2040 and is investing in green metals such as nickel. Sibanye announced in October 2021 that it would acquire nickel and copper mines in Brazil for $1 billion.
Sibanye is large and successful, with projected profits of $2.2 billion in 2021. The company has a very high dividend yield of about 9%. However, workers at the company's South African goldfields have been on strike since early March 2022 over salary issues.
2. Norilsk Nickel
Norilsk Nickel of Russia is the world's largest palladium producer. Additionally, it is a significant producer of platinum, nickel, and copper. Norilsk Nickel's activities have been seriously affected in 2020 and 2021 due to waterlogging at two Siberian mines.
On 16 March 2021, the firm reported that this would result in a three- to four-month delay in mining production until the mines reopened. Palladium benefited from the announcement, with its price climbing 5% to nearly $2800 the same day — its highest level in a year. On the other hand, Norilsk did not see the same effect, with shares falling 5.5 percent.
Norilsk nonetheless reported sales of $15.5 billion for 2020, a 15% increase over 2019. While earnings before interest, taxes, depreciation and amortization (EBITDA) fell 3% to $7.7 billion and networking capital fell 28% to $700 million, the company maintained an excellent level of liquidity, with $6.6 billion in free cash flow, up 36% from the previous year.
3. Ivanhoe Mines (OTC: IVPAF)
Ivanhoe Mines Ltd, headquartered in Vancouver, Canada, explores, develops, and recovers PGMs, other metals, and minerals. The company is primarily focused on Africa. It owns a 100% interest in the Western Foreland exploration property in the Democratic Republic of Congo (DRC) and has assets in South Africa. Ivanhoe Mines has also collaborated with a Japanese consortium to acquire a controlling interest in the recently found Platreef project, which contains significant amounts of palladium, platinum, rhodium, gold, copper, and nickel. Additionally, the mining business is working on the rehabilitation the historic Kipushi mine, which is also located in the Democratic Republic of the Congo. PDF stock currently qualifies for Benzinga's stocks under the $10 list.
4. Impala Platinum Holdings (IMPUY)
Another South African miner, Impala Platinum Holdings, abbreviated Implants, is a market leader in producing platinum group metals such as platinum, palladium, and rhodium. South Africa, Zimbabwe, and Canada are all home to their mines.
Implants amalgamated with North American Palladium in 2019, purchasing Canada's palladium-rich Lac des Iles mine. The business expects to produce 1.1 million ounces of palladium in 2021. In 2021, the precious metal will contribute 31% of the miner's income, up from 37% in 2020. Implants reported $8.5 billion in revenue and $4 billion in EBITDA for 2021. The stock pays a dividend yield of 6.6 percent.
5. Platinum Group Metals (AMEX: PLG)
Platinum Group Metals Ltd., based in Vancouver, Canada, is engaged in exploring and developing palladium and platinum deposits. The company's primary concentration is on South African properties, notably a 50% stake in the Waterberg project in the Western Bushveld complex. Along with its mining and exploration activities, the business is developing next-generation palladium and platinum battery technology. PLG stock currently qualifies for Benzinga's stocks under the $5 list.
6. Anglo American Platinum
Anglo American Platinum is the world's largest producer of platinum, producing more than two million ounces each year. While platinum is the company's primary product, it is also one of the largest palladium producers in the world.
Anglo American Platinum faced some challenges in 2020 as South Africa entered a tight lockdown in March, effectively shutting down mining output for months. Then, a second plant outage at the company's platinum division impacted palladium production as well. This resulted in a 14% decline in palladium production and other precious metals production, including platinum, rhodium, and gold.
Anglo American increased its EBITDA by 39% to a record R41.6 billion in 2020. Rising platinum and palladium prices resulted in a substantial R38 billion gain in net revenue to R137.8 billion, a 72% improvement in return on capital employed.
7. North American Palladium
With a market capitalization of over $720 million, North American Palladium (PALDF) is a pure-play palladium stock that has gained more than 60%. When palladium prices peaked in March, the stock soared up to about $20 per share, more than tripling its value from the start of the year before plunging back down. While this brief stratospheric gain was likely spurred by the euphoria surrounding palladium at the time, North American Palladium's long-term potential remains excellent.
The company has only one mining asset, the Lac des Iles mine in Ontario, Canada, which has grown significantly in recent years. The facility produced 56,121 ounces of palladium last quarter, generating record quarterly income, and annual production averaged around 237,000 ounces. Net income totaled $28 million, up about 160 percent from the $10.8 million reported in Q2 2018.
The mine's palladium reserves have been revised upward from previous estimates of 36 million metric tons of ore. However, business data indicates that this amount might go as high as 40.9 million metric tons, extending the life of the mine, which is the company's lifeblood.
North American Palladium anticipates an average all-in sustaining cost (AISC) of $834 per ounce of palladium. Given the precious metal's current price of $1,600 an ounce, it's clear that the company might experience considerable growth as production increases and costs continue to decline. North American Palladium has maintained a clean balance sheet and is debt-free, save for capital leases to cap it all off.
8. Northam Platinum
Northam Platinum is South Africa's fourth-largest producer of platinum and a significant player in the palladium market. Unlike the majority of the other miners on our list, Northam Platinum focuses exclusively on palladium, platinum, and rhodium.
Northam stated in March 2021 that it would terminate a strategic collaboration with smaller platinum producer Zambezi Platinum by repurchasing R2 billion in preference shares. Northam's CEO, Paul Dunne, expressed hope at the announcement that the move would be accompanied by a doubling of production to one million ounces of PGMs ('platinum group metals or rare earth metals such as platinum, palladium, and rhodium) per year.
Northam's normalized headline earnings soared by 73.6 percent to R3.3 billion in 2020, while its operational profits jumped by 75% to R5.2 billion. Despite the epidemic, the firm announced operating at 'nearly full' capacity, with a 15% rise in refined metal production in 2020. Additionally, the business announced the 'first meaningful metal production' from its Booysendal South mine in March 2021, which could significantly impact future palladium production.
9. Chalice Mining Ltd (CGMLF)
Chalice is an Australian mining company focusing on developing the Julimar Project in Western Australia, which it owns 100 percent. The project includes platinum and palladium and nickel, copper, and gold. Within the project, the Gonneville deposit is the world's greatest nickel sulfide find in the last two decades and the most extensive platinum group metal discovery in Australian history. The Gonneville deposit accounts for less than 7% of the project.
The project benefits from an advantageous location in Perth, Australia, with easy access to world-class roads and other transportation facilities.
Although Chalice does not generate revenue, its world-class deposits help it maintain a market capitalization of over 2.6 billion AUD.
10. New Age Metals (OTC: NMTLF)
New Age Metals Inc., formerly Pacific Northwest Capital Group, was created in 1996 and is engaged in exploring and developing PGM, precious metal, and base metal mining sites in Canada. The Vancouver-based firm controls 100 percent of the River Valley Palladium property in Northern Ontario's Dana and Pardo townships and the Genesis polymetallic project in Southcentral Alaska. New Age Metals holds stakes in eight lithium properties located northwest of Winnipeg, Manitoba.
Introduction to Palladium Industry
There has been a severe palladium shortage for some time, with demand significantly exceeding supply. The Covid-19 pandemic has compounded this, as broad disruptions to mining – most notably Norilsk Nickel's difficulties and lockdowns in South Africa – have resulted in a reduction in world supplies.
As a result, palladium has been edging closer to new all-time highs for some months, having risen more than 15% in the first four months of 2021. Indeed, palladium spot prices increased by 2.6 percent to $2849.33 an ounce in April 2021, falling less than $35 short of the February 2020 record. 3
Although this results in a reasonably favorable medium-term view for palladium's price, the tides may be turning. Longer-term indicators may indicate a continued increase in the popularity of electric vehicles. This is because international efforts to minimize carbon footprints are increasing, and one highly-visible method is to promote the manufacturing and purchase of EVs. Palladium's primary demand driver will be eliminated if the electric vehicle movement achieves critical mass.
However, another element to consider is the widespread usage of hybrid electric vehicles (such as Priuses, the manufacture of which requires a significant quantity of palladium), which may temporarily offset EVs' disruption of palladium demand.
Final Thoughts
Palladium manufacturing was halted for many global suppliers because of the Covid-19 epidemic, resulting in record highs in the metal's price.
One of the most effective strategies to gain exposure to palladium's current prime is to trade stocks in palladium firms.
With demand set and supply uncertain, the future appears bright for palladium – but there may be a disruptor on the horizon in the form of electric vehicles, which would require far less of the rare metal's largest customer, motor production.
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