Platinum Group Metals


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SOME HISTORICAL NOTES

Platinum

Platinum was fabricated in Egypt as long ago as the 7th Century B.C. An ancient casket found at Thebes dates back to that time. Made of an alloy of platinum and other metals, it was dedicated to Queen Shapenapit. More recently, some 400 years ago, the natives of the Upper Amazon made fishhooks and other artifacts from a gold alloy containing platinum.

The discovery of platinum as a separate metal, however, only took place when the Spanish conquered South America. Stream beds in Colombia produced what the Conquistadors called “platina”, or “little silver”. Colombia remained the only known source for the metal until 1823, when placer deposits in the Russian Urals proved to contain greater quantities. In 1924, the discovery of platinum in South Africa’s Merensky Reef surpassed all previous finds and eventually made possible the metal’s use in modern industry.

Today, platinum has an importance in our everyday lives that is recognized by very few people — and by a few very astute investors.

Palladium

It was in 1803 that a British scientist found evidence of other metals in a crude sample of platinum ore. One of them was palladium. He named it after a newly discovered asteroid, “Pallas”, which itself was named after Pallas Athenae, the protectress of ancient Troy. Also silvery white, palladium looks very much like the element platinum and, like platinum, it is malleable and ductile and has a variety of unusual properties. In spite of this, it was not widely used for industrial purposes until modern times and it has only become available to private investors in recent years.

Other Platinum Group Metals

Iridium, osmium, rhodium and ruthenium all have a great variety of unusual industrial applications. In fact, modern technology could not exist without them. They are scarce, their supply sources are unstable, and their price behavior is extremely volatile. Unfortunately, none of these metals are suitable for investment because no liquid international market exists at present, nor are there any shares of producing companies which could give you a direct interest.

fact:

The characteristics of individual platinum group metals vary considerably. Iridium, the “rainbow” metal, produces a brilliant colour-effect when dissolved. Osmium takes its name from “osme”, or odor, because it gives off a pungent and toxic smell. Osmium is the heaviest substance found under natural conditions.

THE FUNCTION OF PLATINUM AND PALLADIUM

Both platinum and palladium have the characteristics and, to a lesser degree, the history of a store of wealth. They are rare, precious, have a high density and, in some countries, there are extremely well developed platinum and palladium markets. In Switzerland, for instance, some of the bullion dealing banks often transact more platinum than silver. In Japan, jewelry made out of platinum is at least as popular as gold.

In North America, the investment climate for platinum and palladium is changing rapidly. The refinery and bullion dealing industries have geared up to provide a liquid market for these metals as, increasingly, they are recognized to be a store of wealth like silver and gold.

The functions of platinum or palladium, however, remain largely industrial. If all the world’s gold mines closed down tomorrow, the price of bullion would skyrocket but present technology would not suffer much because more than a sufficient amount of gold is already available on the surface. Not so with platinum or palladium. Both metals have become of vital importance to the daily lives of people everywhere. A sharp cutback in their production would force radical industrial changes since, as a recent us, research council study points out, these two metals are used as a catalyst in the manufacture of nearly twenty percent of all goods.

In particular, platinum and palladium greatly increase the supply, and reduce the cost, of the world’s food and fuel. Virtually all nitric acid — the basis for modern agricultural fertilizers is made with catalysts using platinum or palladium alloys. As you are probably aware, all North American cars are now equipped with catalytic converters which use substantial quantities of platinum and palladium, but it is not generally realized that most petroleum refining techniques depend on these two metals as well. In addition, they are used extensively in the defense, transportation, communications and medical industries. In other words, these metals are of critical importance to our industrial survival.

THE PRICES OF PLATINUM AND PALLADIUM

Like other precious metals, platinum and palladium prices steadily gained throughout the Sixties and Seventies. This was largely attributable to ever increasing inflation and steadily growing political unrest. By early 1980, when both metals reached their peaks, platinum had soared to over $1,000 an ounce while palladium traded near $350. The subsequent global recession weakened industrial demand while high real interest rates discouraged hoarding. The platinum price fell back to $240, while palladium was available for as little as $50. Although both metals have since appreciated considerably, they are still inexpensive when compared with their recent highs. But then, all the precious metals appear inexpensive when compared with the panic prices they commanded in early 1980. So let us use a somewhat more realistic standard.

When I evaluate the real value of a commodity, I always compare its market price with its cost of production. Seldom in history has it been possible to find a vital commodity that sells for less than what it costs to dig it out of the ground and bring it to the marketplace. But when you find such a commodity, the chances are that you’ve hit on an excellent long-term investment opportunity.

As with any other business, a mining operation must generate a profit to survive. When the price of its product falls below the cost of production, there are only two alternatives. One is to stockpile the product and wait for prices to recover (an unlikely option for most companies because patient shareholders are even rarer than precious metals!) The other alternative is to curtail production, perhaps even cutting it back to zero.

Both alternatives have the same effect: they reduce the supply of the commodity and eventually drive up its price. With this in mind, let’s look at platinum. The metal’s production Cost is between $260 and $320 per ounce. In June of 1982, poor industrial demand and fading investor interest brought the price below cost. Predictably, the world’s two largest producers of the metal were forced to reduce their output.

From this viewpoint, palladium has been even more interesting. Neither South Africa nor Russia release detailed statistics, but a Conservative estimate indicates that their cost of production ranges from $100 to $125 an ounce. This means that palladium, for months and months, was selling at a very attractive discount! Even at cur rent prices, platinum and palladium offer excellent value. As the recovery gains momentum and inflation creeps back into the sys tem, the price of both metals will rapidly gain. Earlier on, I said that silver had a good chance to outperform gold. Platinum and palladium have even greater potential — they could easily become the greatest precious metals investments of this decade!

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