International Palladium Production and the Key Companies Mining It

In 2010 80% of the world's palladium primary production (6.8M ounces forecast in 2011 down 5.4% from 7.1M oz in 2010 & 7.6M oz in 2009 (2010: 6.3M oz in mined production) came from Russia (2.7-2.9 million ounces, steady from 2008 and 2009 but down 16% from 2006) and South Africa (2.485M ounces same as the previous year but down 11.3% from 2007). Total production of platinum group metals was only 16% as much as gold in 2009 when gold production was at 2572 tonnes (same as 2005) but now it relies more on China (production from the 3 other main sources (USA, South Africa, Australia) down 21.1% since 2005). Countries that experienced big percentage increases in gold production over the last couple decades include China, Peru, Mali and Indonesia with the opposite happening in Russia & South Africa. (Goldsheet - Historical World Gold Production)
According to stats compiled by Stillwater Mining 2010 palladium end-market demand came from auto catalysts (54%), electronics (14%), investment (9%), dental (9%) & jewelry (8%). The average market price of palladium in 2009 was $257/oz, 27.6% lower than 2008 (spot platinum averaged 23.6% lower on the year (1199) & 8.6% lower than 2007 however spot gold rose 13.2%, the only metal with an ISO currency code to do so; rhodium dropped like a rock to $1,509/oz from $5,174/oz in 2008 (-70.8%). For 2012 though, a couple of the world's top banks (JP Morgan and Credit Suisse) are forecasting palladium prices will reach $938/oz and $950/oz respectively (the lowest forecasts were made by UBS ($825) and BNP Paribas ($810) *of note RBC lowered its outlook from $1000/oz to $860/oz. In 2010 72 million light vehicles were produced and that number is expected to grow to 88 million by 2013 reaching 100 million by 2016. Strict pollution controls mandate the use of catalytic converters. North American Palladium October 2011 Presentation) Palladium's historic high price was $1,090/oz reached in 2001. Palladium ETF's started in 2007, currently trade in Europe (Zurich, London), the United States (NYC) and Japan & hoard about 2 million ounces of the metal. Total supply of palladium was as high as 8.58 million ounces in 2007 (down to 7.1m oz in 2009) down 17.2% even though total gross demand only fell by 7.4%; Total supply from Russia dropped 19.93% over that time accounting for 61.15% of the total drop in supply (1.48m ounces). (Aquarious Platinum)

Palladium supply from the three main sources (Russia, South Africa, North America) is down 18% in just four years (2006: 6980M oz vs 2010: 5545M oz). There are a number of problems regarding supply, firstly mine depletions particularly in Russia where Norilsk has become the only major producer, also Russian stockpiles are dwindling which is significant given that traditionally it has been the largest source of non mined production. Also of concern: increasingly difficult working conditions in South Africa where mines are deeper and so there's safety concerns, the country is also struggling with foreign exchange rates affecting currency losses. (Stillwater Mining Company: March 2011 Presentation) Palladium primary production has fallen even faster than it has for platinum (-15% vs -12% since 2006). Stockpiles in Russia, the source of 17% of Pd supplies since 1984 are almost entirely exhausted.

In catalytic converters, palladium now accounts for over 95% of the catalysts used, up from 85% in 2007 meaning that the automotive industry (a growing industry sector with 40-50 million people entering the middle class each year in China, Brazil and other rapidly developing countries) is becoming ever more reliant on palladium (6% increase in palladium use by automakers in 2011, 5.5M ounces, each catalytic converter uses 4 grams of palladium + platinum).
Between October 2008 and September 4, 2011 spot palladium increased by over 290% compared to 133% for platinum, 200% for gold and 0% for rhodium. Despite similar production (over 6M ounces), demand for palladium by end market users exceeded platinum demand by 24.0% (7.0 vs 5.72 million ounces). (Stillwater March 2011 Presentation) 91% of the world's 6.8M ounces of annual palladium supply comes from South Africa (42%), Russia (40%), and North America (9%) (includes about 1.3M ounces of secondary supply, mine production considered alone boosts America up to 11%). (North American Palladium October 2011 Presentation)

In terms of palladium use in diesels, its share rose modestly to 20% compared to 7% in 2007 eroding away at platinum's dominant position (down to 80% from 86% and 93% the previous twoo years). Between June 2010 and June 2011 3.1 million ounces of platinum was demanded by automakers (compared 5.4M ounces for palladium), but jewelry platinum demand fell 15% to 2.4M ounces (palladium jewelry demand fell 20% to 0.6M ounces), that's in contrast to late 2008-mid 2009 when lower prices boosted demand by jewelry by 70% with growth recorded in China. (Northram Platinum Ltd July 2011 Annual Report. Angloplatinum 2009 Report) Northam Platinum a NZ company which sells PGM's reported 2010/2011 declines in sales of most of the PGM including -17.8% for rhodium (732 kg), -22.0% for palladium (2,821 kg), -18.9% for platinum (6,118 kg), -26.1% for ruthenium (999 kg) and -17.7% for iridium (241 kg).

Stillwater Mining produces 63% of the palladium coming out of North America (or 5.7% of the global supply) 3/4 of Stillwater's production coming from the Stillwater Mine (the rest from East Boulder: 133,000 oz). which is notable since North America is the world's #1 source of palladium demand (29% in 2010 ahead of China at 20%). Stillwater's reserves are at 19.9M ounces (palladium and platinum). In 2010 metals recycling contributed 6.8% of total revenue ($11.5m/$168.5m) down from 7.9% in 2009 ($6.5m/$81.8m). Average price realization per ounce of metal produced: $1,046 up 34.3% from the year before ($779/oz). Since 2002 it has had business relations with Norilsk, that has opened the door to more investment from abroad. 2011 capex at $120 million up 139% in just the last year (though sales of palladium received from Norilsk ended in 2006). Stillwater is a primary producer of platinum and palladium meaning that anything else that it mines (rhodium, gold, nickel, silver and copper) is produced as a byproduct.

Norilsk (52% of revenue comes from nickel) - 11% of platinum/20% of worldwide palladium production. 2P reserves: 68.457M ounces of palladium (55.018M oz) + platinum (13.439M oz). (Norilsk 2011 Fact Sheet) In 2010 9% of Norilsk's revenue came from palladium (compared to 12% for platinum; largest was nickel at 53% and copper at 24%, gold was only 1%). Norilsk accounts for virtually all of Russia's production right now with the other 3 Russian companies having resource problems. In Russia and South Africa palladium is produced as a by product of other production (platinum/nickel). Only a couple of the world's mines focus on palladium as the primary source.

Anooraq Resources - Assets in South Africa (July 2009 acquires control of the Bokoni platinum mine) 350 NE of Johannesburg; Grade 4.2 g/t vs industry avg of 3.5 g/t. There are also two other major projects nearby. Bokoni produces 120,000 oz of PGM annually but is forecast to rise to 220,000 ounces by 2014 due to phase 1 expansion. It is a 200M oz resources but only 1.76M ounces have been extracted from it since 1973. The other project Impala has operated since 1969 and has a resource of 68M oz. Platinum contributes 60% of revenue with palladium at 16%. Capital expenditure is currently $45.7M rising to $47.6M in 2012 and $48.3M in 2013. (Anooraq Resources BMO Capital February 2011)

Anglo Platinum - One of only a few companies that actually increased palladium production in 2010 (by 9% up to 1.485 million ounces - 2.5699 million ounces for platinum also up but by half as much 4.8%). Rhodium produced: 329,000 oz down from 350,000 oz in 2009. 2P ore reserves (platinum, palladium and rhodium (2011): 165.5M oz down from 170.5M oz in Jan. 2010: 53% of 100% owned production reserves are at UG2 Reef (there are four sources in total). There's also another 0.8M ounces at a tailings facility and about 5M ounces stemming from interests in a mine named Unki. In addition there are antoher 620M ounces of measured and indicated resources. In fiscal 2009 Anglo's revenue fell 28% to R36,947M under R39,000M for the first time since 2005; gross profit margin down to 5.4% from 33.7% owing to the global financial crisis reducing demand and prices starting in late 2008; prices and demand didn't recover until the second half of 2009. Cash from operations fell from over R18,000M to under R6,000M in 2009 the lowest level in more than five years. Anglo Platinum ranks third among major producers in terms of its PGM reserve life, 36 years which lags only Anooraq (47) and Stillwater (40).

North American Palladium - It's main operating mine LDI opened in 1993 and has produced 2.5 million ounces of Pd since then though it's the underground mining portion which began in 2006, that the company is currently extracting from. Cash costs at LDI were as high as $519/oz in 2011 Q1 but that's forecast to decrease with the fiscal year average at $450/oz (the mine was shut down for 17 months in 2009/2010 before reopening in October 2010). The second quarter of 2011 produced 28.9% more ore than in Q1 and at a 29.4% higher grade (cash costs fell 35.5% quarter to quarter). The company also produces more than 15,000 ounces/yr at the Sleeping Giant mine in Quebec (cash costs are high though, has 110 employees); just north of Sleeping Giant is Vezza, gold resource which neighbors major base metal mines (the whole region contains 1.379 million ounces of M&I + Inferred gold but 2P reserves are only at 52,000 oz so a lot of investment is needed to upgrade resources). Sleeping Giant gold production expected to rise to over 30,000 oz by 2012 then in 2013 NAP commences production at Vezza which will double gold production that year to over 80,000 ounces. Palladium production: 95,057 oz (2010), 145-165,000 oz (2011). About 90% of revenue comes from palladium (4Q10 revenue: $35.2M from LDI, $4.2M from Sleeping Giant).

Lonmin Ltd - About half of production (0.75/1.5M ounces of PGM total) is in platinum. 8.9% of 2010 revenue was in palladium ($141/$1585m) that's up from 6.4% ($68/$1062m) in 2009. Revenue by continent is balanced with Europe ($529m) and America ($453 double what it was in 2009) leading the way. Though revenue expanded 49.25% cost of sales increased by only 13.60%. Although revenue improved in 2010 it is still relatively low as compared to previous years (ranged from $1855m-$2231m from 2006 to 2008). Underlying earings per share have also suffered (between 282.4 and 335.8 cents btw 2006 & 2008 but in 2010 they were just 70.2 cents (56.9c basic). Only about 40 people work for the company. read more at North American Interests: Palladium is widely used similar to platinum but a lot cheaper Northern Platinum Ltd was merged into Prophecy Coal Ltd mid 2011. Some of the world's biggest companies also have reserves of palladium but the metal is of only minor importance (at Vale for example only 1% of its revenue from PGM metals comes from palladium; Vale's Pd reserves are 4.0M ounces).

Palladium Is Widely Used, Similar to Platinum and A Lot Cheaper than Gold & Platinum Group Metals (Rhodium) so Bullion Investment Should Increase; 2011 Production Down 5.4% but Automotive Demand Up 6.7%

Palladium is a widely used durable and versatile metal. Though useful in plating jewelry, clothes fasteners and engines systems (aircraft and automotive) its main uses are as a catalyst (mainly catalytic converters, useful due to its light weight, high boiling point, is an oxidizing agent) and in electronic applications where it is the preferred metal for plating electrodes used in capacitors (used either alone or in conjunction with silver); The only alternative to palladium is nickel but nickel has its limitations, it can only be used in less demanding applications. In automobile circuits palladium holds silver plated conductive tracks in place. (Platinum today: Electric Components) Some types of jewelry prefer palladium to gold/platinum for reasons which include color (44% whiter than platinum), weight (38% lighter than gold), hardness (harder than gold meaning even at high purity it is more resistant to scratches), and price (cheaper than gold and platinum). Even with those advantages, in jewelry it is used mostly just as a hardening agent alloyd with Gold (white gold can't be made without platinum group metals like palladium which is notable considering that white gold is gaining popularity particularly among brides preferring white gold wedding rings). The rising popularity of fuel cells could also hike up the price of palladium because fuel cells require catalysts and palladium is a lot cheaper than its alternatives (about 3X less than either rhodium or platinum).

The process of transforming yellow gold to white gold is made easier when gold-palladium alloys are used (highly soluble in one another). Palladium is also used to purify hydrogen gas because when heated, the metal allows hydrogen to diffuse through it, a process that's made easier by the metals' high melting point. Other info: One of its earliest discoveries was made by the Spanish when they mined for silver in Colombia. Palladium was first isolated by WH Wollaston in 1803, at the same time he discovered Rhodium. As recently as 2000 concerns regarding the lack of palladium supply drove up the price

Most of its demand comes from catalytic converters where it acts as a catalyst, stimulating an oxidation reaction that converts toxic combustion byproducts into carbon dioxide and water (reduction of NO to O and N is by rhodium). Palladium accounts for 90 to 95 % of precious metals used in gasoline catalytic converters. Each catalytic converter uses 4 grams of palladium and platinum. (businessweek.com: Palladium Rising 15% as Russian Shipments Drop) As a bullion investment, palladium has yet to reach the popularity of platinum and gold but that's bound to change given the near record high spot prices for platinum, gold and rhodium and that palladium remains only one of four metals to have an ISO currency code (XPD). Palladium shares many characteristics with platinum, not surprising given that palladium is one of six transition metallic elements comprising the Platinum Group of the periodic table. The other four are rhodium, ruthenium, osmium and iridium. Among their similarities: all are great catalysts, are hard metals making them resistant to scratches. They also have high boiling points and are noted for their electrical properties.

Annual palladium production is about the same as it is for platinum (6M ounces) which is less than a tenth of gold production. All the palladium ever extracted amounts to only about 1/12th that of gold.
September 2011: HSBC, the world's #2 bank outside China, raised its 2012 price forecast for palladium by 8% to $810/oz citing the fact that demand will outstrip supply (in stark contrast to the previous two years). Long term price forecast raised by 21% to $850/oz.

South Africa is home to some of the biggest platinum-palladium mines in the world (namely Bushveld Igneous Complex); In 2008 South Africa produced 80% of the world's platinum (4.725M ounces). (South African PGM Platinum Group Metals Stock) Bullion palladium is the best way to take a long position on the metal (physical investments).
More Reason To Like Palladium: Shipments to Switzerland (1 of only 2 main hubs in Europe for storage of the metal) from Russia (world's largest primary producer of palladium) are down to 500,000 ounces in 2010 (average 1.3M ounces for the last 20 years); The main reason for the decline is that Russia's four big palladium mining companies have depleted mines (the largest of them, OAO GMK Norilsk Nickel is expected to be deplete of palladium by 2012). For 2011 mine output is forecast to fall by 5.4% to 6.8M ounces even though demand from carmakers alone will increase 6.7% to 5.5M ounces. Russian stockpiles form the fourth biggest source of palladium supply.

If you wanted to invest in a company here are a few to keep in mind:

North American Palladium (tsx:PDL, amex:PAL) (41% fall in stock price over last 12 months means it has a high beta value) - The company is Canada's only primary palladium producer. Flagship mine is in N.Ontario (Lac des Iles) which is currently (October 2011) undergoing expansion. Production is on track to reach 250,000 ounces per year by 2015 at a cost of $200/oz (relatively low). First phase of project will begin producing the end of 2012. 2012 production at LDI is expected to be in the range of 190-200,000 ounces. The company's other mine (Vezza) is part of its gold division and is located in Quebec. The sleeping Giant has very high cast costs (over 1550/oz) because ore grades have been low (but will climb due to deeper access later on). Sleeping Giant was acquired in 2009 from iamgold (expected to produce 40-50,000 ounces in 2012). (Miningweekly: NAP expects palladium output to rise 75% this year) Total palladium production by NAP was 95,100 ounces in 2010 but is forecast to increase by 75% in 2011 to 165,000 ounces. The company eyes annual production of 250,000 ounces by 2012. The cost to expand shaft 1 at Ile de Lac is $250 million. NAP has operated in Thunder Bay for over 17 years. Overall production costs for NAP are forecast to drop to $125/oz from $325/oz in 2009 (60% decrease). (ThunderBaybusiness.ca: North American Palladium Mine Celebrates Reopening)

Between November 2010 and February 2011 North American Palladium stock increased by 51% on the back of higher palladium prices (week of January 30,2011 spot price was above $800/oz).

Anooraq Resources - Has the 3rd largest platinum group metals resource in South Africa. It's listed in both the US & Canada, produces all six platinum group metals & mines in South Africa's biggest platinum resource area (Bushveld Igneous Complex). It assumed control of the Bokoni mine on July 1, 2009.

Other palladium companies: Platinum Group Metals Ltd, Stillwater Mining, Anglo Platinum.
The world's main producer of palladium, b>Russia's Norilsk produced about 2.7M ounces of palladium in 2010, with a 10% decline in just three years due both to mine depletions and a shift by the company over to nickel rich ore from the cuprous type at the expense of its platinum metals group producing Polar Division (Norilsk wants to raise nickel production and cut production costs a lot of which come from mining cuprous ore). Though there has been some increase in cuprous ore mined (up 42.7% since 2005 up to 5236 metric tonnes in 2009) a natural increase there was expected given that palladium grades are lower a direct result of mine depletion (since 2005 palladium production by Norilsk is down 14.6% even though it extracted 42.7% more platinum rich cuprous ore). Platinum production by Norilsk is around 800,000 ounces.