Twelve months after Mark Cutifani, CEO of Anglo American (LSE:AAL), said that he thought the palladium market had all the hallmarks of a bubble, the palladium price has very nearly doubled.
Meanwhile shares in Sylvania Platinum (LSE:SLP), a South African mining company which, as it name suggests, specialises in mining platinum metals, have slightly more than doubled.
Eurasia Mining (LSE:EUA), which operates in Russia, along the Ural Mountains and near the Finish border, has seen its share price increase 12-fold in the last year.
As for Anglo American itself, which is one the world’s leading miners of platinum and has a majority stake in Anglo American Platinum, its shares have been pretty flat over that period (more of that later).
Before we go any further, consider why platinum metals are in vogue and why I think these three companies can benefit. Three members of this family of metals — platinum, palladium and rhodium — are used in catalytic converters for cutting carbon emissions in cars. Of the three, the price per ounce is highest with rhodium, then palladium. In recent years the palladium price has rocketed, leading some analysts to see it as a bubble.
Even if this was so, the impact on platinum group metals as a whole might not be so great. As the palladium price rises, manufacturers of catalytic converters might start switching to a higher use of platinum instead. In other words, the miners in this area win either way — either the palladium price stays elevated at current prices, which will be good for them, or demand for platinum will rise, which is also good for them.
Hydrogen fuel cells
Platinum and palladium, however, have another application that may mean demand (and then prices) for the metals will rocket even further, giving a big boost to AAL, EUA and SLP. The particular properties of these metals makes them ideal catalysts in hydrogen fuel cells that may represent the future of electric cars. Many Japanese carmakers are investing heavily in this area.
That is why platinum metals are in high demand from the car industry now and likely to be so over the next decade.
Eurasia Mining (which has seen its share price double in the last week), Sylvania Platinum (which has recently unveiled another set of impressive results), and Anglo American itself could all win significantly.
Of the three, Eurasia mining may represent the biggest opportunity for investors, but also the biggest risk. Production from its mines is still relatively modest, and investors in the company are gambling on increases in production and on how rich in platinum metals the areas it operates in turn out to be. I think that the evidence presented by the company points to substantial reserves.
For me, the biggest mystery surrounding Sylvania Platinum is why the shares aren’t higher priced. It has zero debts, pays dividends, has a relatively modest P/E, has seen rapidly rising profits and another record half-year for production.
As for Anglo American, because this company has more diverse mining interests it may represent less risk, but also less potential upside, hence the static share price. Even so, as the company sheds its coal-mining interests, I think there is a lot to like about Anglo American, it’s interests in platinum metals are like the precious jewel in its crown.
