Palladium kicked off the new year with a fresh record high as prices touched an all-time peak of $2795 an ounce. Palladium has done extremely well as spot palladium closed at $2,443 on March 5th, 2020 locking an amazing year to date gain of 28% and rising 63% over the last 12 months. With the explosive increase in palladium price, let’s see how palladium stocks have performed over the past three years.
The majority of palladium’s demand comes from the auto sector as the metal is used in catalytic converters that reduce emissions in gasoline engines. The precious metal is currently benefitting from the overall safe-haven optimism amid rising geopolitical tensions, as well as its own tight supply-demand fundamentals.
Ultimately, what the market is trying to price in here is scarcity down the road. There is certainly isn’t a lot of new capacity coming in from the mining side. Recycling is probably steady. We expect a bit of inflection on the demand side and not really seeing significant growth on supply.
TD Securities head of global strategy Bart Melek told Kitco News back in November.
“Palladium continues to make new highs on the back of deep structural deficits,” said Rhona O’Connell, INTL FCStone head of market analysis for the EMEA and Asia regions. “Unlike the rest of the industrial complex, [palladium is] reflecting bullish fundamentals.”
The latest move up is connected to palladium tracking other precious metals higher, noted Blue Line Futures chief market strategist Phillip Streible. “All these metals are working together on the geopolitical news.”
Palladium Price in 2020
Several analysts see a steady growth trend when it comes to palladium over the next 12 months.
Palladium prices have been seeing some profit-taking lately as prices settle down after hitting a new record high in late February 2020.
According to Kitco News, Bank of America Securities thinks that the metal still has plenty of gas in its tank to continue its rocket blast higher in 2020 as pollution reduction continues to be a significant theme. In a note, Jan 27, 2020, analysts at Bank of America Securities, said that they see prices pushing to $3,500 an ounce before this rally ends. The bank ’s target represents a nearly 61% gain from current prices.
CPM Group’s Savant is bullish on Palladium:
Palladium prices are expected to continue rising over the course of 2020, albeit at a slower pace than seen over the past few years. Investors are the primary drivers of palladium prices and they are unlikely to sell their holdings unless there is a meaningful deterioration in the supply and fabrication demand fundamentals. This is not expected to occur in 2020. That said, investors are less likely to aggressively chase palladium prices higher in 2020.
While many are expecting Palladium prices to rise in 2020, there are people who expect huge price correction in near terms.
Tiggre, who is the founder of Independent Speculator, thinks it may be too late for investors to try and benefit from palladium’s movement, especially since he doesn’t see supply constraints supporting higher prices for a prolonged period.
“I’m a speculator; I’m not a wild gambler,” he said. “So since I can’t convince myself that it has to go higher, I’d rather miss that boat than jump on the bandwagon now and find out. I’m the guy who is the last one to have bought, and when the music stops I’m standing there holding the bag.”
Mercenary Geologist Mickey Fulp expects a price correction in the near term, one that may be dramatic.
I didn’t think (palladium) was going to US$1,800; I didn’t think it was going to go to US$1,200. It’s just gone out the roof. When metals go exponential, or any financial market of any kind when prices go exponential, they will go parabolic and come right back down the other side. So I wouldn’t be buying palladium right now, I would be buying platinum.
My Analysis of Palladium Prices
The price targets for palladium can be estimated by using the Fibonacci trend extension. The chart is actually showing the palladium futures prices which closely track the spot palladium prices but I used the historical spot palladium prices from Macrotrends to draw Fibonacci trend extension from the $78.5 low in May 1992 to its peak at $1100 in January 2001, then the higher-low of $150 in May 2003. It can be seen that palladium prices are in a very strong uptrend and have crossed $1800 price point which represents 161.8% Fibonacci Extension level. The next price target could be
$2824 or 261.8% Fibonacci Extension, another 48% increase from 2019 closing price of $1909 per ounce.
It is interesting to note that palladium gained 558% from its low of $167 an ounce in October 2008 to its peak of $1100 in January 2011. On its second leg upwards, it traded from $470.6 an ounce in January 2016 to the recent peak of $2139, returning an impressive gain of 354%.
Best Palladium Stocks to Watch
Palladium has been doing great since 2008 compared to gold. In fact, I believe that gold price has been suppressed in US dollars because gold has broken its all-time highs against most major currencies last year. The majority of people believe gold will break its all-time high in US dollars and silver will follow the same trend.
When the price of gold rises, precious metals, and mining stocks perform really well and offer a leveraged investment/trading opportunity. In my earlier article, I mentioned ten gold mining companies including RNC minerals, Euro Sun Mining and Goldmining Inc. that offer great investment opportunities for 2020. Here, I am going to focus on the Palladium stocks that I started watching recently. The list currently includes three stocks:
- Generation Mining Ltd. (CNSX: GENM)
- Palladium One Mining Inc. (TSXV: PDM)
- Group Ten Metals Inc. (TSXV: PGE)
If you know any other junior miners with the major focus on palladium exploration, please let me know in the comments section. Also, please don’t take my writing as a piece of investment advice and do your own research before investing your hard-earned money in any stock.
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Generation Mining Ltd (CNSX: GENM)
Generation Mining is a mineral exploration and development company focusing on palladium, copper, zinc and molybdenum projects in Canada. The company owns a majority interest in the largest undeveloped Palladium deposit in North America, the Marathon Project in Northern Ontario. The company also holds three promising exploration projects in British Columbia, Nova Scotia, and the Northwest Territories. The company was listed on Canadian Securities Exchange on May 11, 2018, and started trading at 10 cents.
Marathon Palladium Project
The Marathon Deposit is the largest undeveloped platinum group metal Mineral Resource in North America. The Marathon Property covers a land package of approximately 22,000 hectares or 220 square kilometers. Generation Mining owns a 51% interest (with an option to earn up to an 80% interest) in the Marathon PGM deposit located near Marathon, Ontario (the “Property”). The 200 square-km Property covers nearly the entire Coldwell Complex. The Company’s property hosts several PGM-Copper deposits, including the 7.1 million ounce palladium-equivalent Marathon Deposit.
Preliminary Economic Assessment (PEA) Study
The company announced results of a positive independent Preliminary Economic Assessment Study on the Marathon Palladium and Copper Project (the “Project”) located in Northern Ontario.
Highlights (all dollar amounts in Canadian dollars on a 100% project ownership basis unless otherwise indicated). PEA was done with conservative $1,275/oz USD! 40% cheaper than the current spot price!
- The project would produce an average of 194,000 palladium-equivalent ounces per year over a 14-year mine life (including credits for copper, platinum, gold, and silver).
- The Project generates an after-tax internal rate of return (IRR) of 30.0% and an after-tax net present value (NPV)of $871 million at a 5% discount rate at Nov 30/19 two-year trailing average metal prices (base case).
- The Project generates an after-tax net present value of $1,541 million and an internal rate of return of 45.8% at a 5% discount rate at recent spot metal prices (final LBMA London price fix for precious metals; final LME bid price for copper, Dec 31, 2019)
- The Project would generate base case after-tax cash flows of $520 million in years 1-3, resulting in a 2.5-year payback period.
- Actual palladium production will average 107,000 ounces annually over the mine life, at a Cash Cost Per Ounce of $US504 and an All-in Sustaining Cost (AISC) of $US586 per ounce, net of by-product credits.
- The PEA used only Measured and Indicated Mineral Resources in the Marathon Deposit in its calculations and did not include the Geordie and Sally Deposits which are located on the same property (see News Release dated December 2, 2019). The Marathon Deposit has no outstanding royalties or financing streams registered against it.
Generation Mining Ltd announced its 2019 drill results on December 17th, 2019. The best result from the 2019 drill program on the Sally Keel Zone intersected 1.19 grams per tonne (“g/t”) palladium (“Pd”), 0.68 g/t platinum (“Pt”), 0.48 g/t gold (“Au”) and 0.143 % copper (“Cu”) which equates to a PdEq grade of 2.41 g/t PdEq over an estimated true width of 10 metres (corresponding to a 40 metre drill intercept).
Generation Mining’ shares closed at 43 cents on January 7. 2020 with a huge gain of 330% in a year and four weeks gain of 120%. The company had a market cap of $39.3 M with 91.49 million outstanding shares.
Palladium One Mining Inc. (TSXV: PDM)
Palladium One Mining Inc. (formerly Nickel One Resources) is a Platinum Group Element (PGE) Nickel-Copper exploration and development Company. Its assets consist of the Läntinen Koillismaa PGE-Nickel-Copper Project, located in north-central Finland and the Tyko Nickel-Copper, PGE Property near Marathon, Ontario, Canada.
The Kaukua deposit of the LK project hosts 635,600 Pd_Eq ounces of Indicated Resources grading 1.80 g/t Pd_Eq* (“palladium equivalent”) contained in 11 million tonnes (@ 0.81g/t Pd, 0.27g/t Pt, 0.09g/t Au, (1.17g/t PGE), 0.15% Cu & 0.09% Ni), and 525,800 Pd_Eq ounces of Inferred Resources grading 1.50 g/t Pd_Eq contained in 11 million tonnes (@ 0.64g/t Pd, 0.20g/t Pt, 0.08g/t Au (0.92g/t PGE), 0.13% Cu, & 0.08% Ni).
Mr. Eric Sprott, as stated in the news release on December 2, 2019, beneficially owns and controls 21,300,000 Common Shares and 16,300,000 Common Share purchase warrants representing 19.4 % of the issued and outstanding common shares of the company on a non-diluted basis and 29.8 % on a partially diluted basis assuming the exercise of all such warrants.
Palladium One Mining’s share price reached 52-weeks high to 20 cents on January 2nd, 2020, a whopping 300% gain from its 52-weeks low on October 15, 2019. The company’s share price closed at 17.5 cents on January 10th, 2020. It had a market cap of $19.21 M with 109.79 million outstanding shares.
Group Ten Metals Inc. (TSXV: PGE)
Group Ten Metals Inc. is a TSX-V-listed Canadian mineral exploration company focused on the development of high-quality platinum, palladium, nickel, copper, cobalt and gold exploration assets in top North American mining jurisdictions. The company’s core asset is the Stillwater West PGE-Ni-Cu project adjacent to Sibanye-Stillwater’s high-grade PGE mines in Montana, USA. Group Ten also holds the highly prospective Kluane PGE-Ni-Cu project on trend with Nickel Creek Platinum‘s Wellgreen deposit in Canada‘s Yukon Territory, and the high-grade Black Lake-Drayton Gold project in the Rainy River district of northwest Ontario.
Group Ten Metals Inc. has received a $2.4 M financing from Sprott Asset Management and GoldSpot Discoveries with the issuance of a total of 15.4 million common shares and 7.7 million share purchase Warrants
representing 15.7 % of the issued and outstanding common shares of the company on a non-diluted basis. Management & close associates hold ~37% of the company.
Group Ten Metals Inc., as of March 05, 2020, has seen a price increase of 137% over the last three years. The stock sank to its 52-weeks low of 11.5 cents in June 2019 and spent the rest of 2019 to recover the losses in the first half of 2019. The company has 101.72 M outstanding shares with the current market cap of $19.3 M.
My Final Thoughts on Palladium Stocks
I wrote this article as a part of my stock research and came to the conclusion that diversification is key to being successful in investing. I am heavily biased towards gold and gold mining stocks and believe that gold will see its price appreciation gradually. About 60% of my TFSA and RESP portfolio is loaded with gold mining stocks. I do own some silver miners, crypto and technology stocks but will rebalance my portfolio once I reach my desired one year price target for my existing positions.
When I first published this article in January 2020, I said,
I think the palladium price will first see $2500 before seeing a major correction.
As can be seen from the Fibonacci extension chart above that Palladium has traded close to its 261.8% level. Are the prices due for a major pullback or will push higher to $3500s range? Palladium stocks, in fact, the whole mining sector saw a healthy correction in February 2020 and most stocks I am following are cheaper than their prices in January 2020. If people want to diversify their investment portfolio, high-quality mining stocks with great growth potential particularly focused on palladium, gold, and silver exploration & production are the way to go.
Disclosure: I long positions in CNSX: GENM and TSXV: PDM