Platinum; rare, expensive and green

Platinum, among the rarest and costliest of metals, is also one of the most green. Platinum is so rare that all of the metal ever mined would fill a room measuring less than 25 feet on each side. The metal has many critical commercial uses, but the primary demand driver today is the automotive industry. Catalytic converters that control harmful automobile emissions now account for 60% of the annual demand for platinum. What makes platinum greener still is that its use as a catalyst is, in theory, all reclaimable and recyclable.

Catalytic converter legislation is spreading quickly. In the past five years both Brazil and Chile passed legislation mandating their use.  Hong Kong, Malaysia, Singapore, Taiwan and Thailand are already on board. Higher North American, European, and Asian automobile emission standards are also expected to add pressure to automotive manufacturers to increase the use of platinum in catalytic converters.

Adam Collins, an analyst at Liberum Capital, estimates that the gradual roll-out of heavy duty diesel vehicle legislation alone could result in a 20 per cent boost to existing levels of platinum demand by as early as 2015.

60% of platinum demand is from the production of catalytic converters which regulate automobile emmissions.

Platinum catalysts are also a core component for fuel cells, a power generation technology that combines oxygen and hydrogen to form water and electricity. Fuel cells are an environmentally friendly power generation source and are viewed to be yet another key green source of future platinum demand.

Today, 75% of the world’s production of platinum comes from South Africa. It’s estimated that as much as 90% of all platinum deposits in the world are located there or in Russia. But output from South Africa has been relatively flat of late, for a variety of reasons. Closure of platinum mines, cutbacks on capital expenditures, inflation and cost pressures, ever-deepening depths of mining operations and lower grades of the ore produced have put a squeeze on the supply side of the equation. Industrial action by the labour unions has also had a negative effect on the level of production from South African producers. Platinum Australia (ASX: PLA) Managing Director John Lewins recently noted, “South Africa will obviously still dominate this area, but electricity, inflation, safety, depths and industrial unrest remaining as big issues.”

For all these reasons, the past decade has been very good for platinum, the price of the metal has increased from $588 to $1773 per troy ounce. And that premium has clearly spilled over into the equity markets.

Eastern Platinum (TSX:ELR), whose shares could be had for as little as $0.25 in 2008 have rebounded to the $1.40 mark. Late last year the company closed a massive $348 million financing and early returns suggest the money was invested wisely; Eastern Platinum recently announced a a net profit of $5,041,000 in the fourth quarter of 2010. Platinum Group Metals (TSX:PTM) closed a $125 million equity financing in late 2010 and is currently working towards putting their Western Bushveld Joint Venture platinum deposit into production. Anooraq Resources (TSXV:ARQ) is in the middle of an operational turnaround at their 51-per-cent-owned Bokoni platinum group mine in South Africa. The company reported sales of $148 million in 2010, up from $63 million in 2009. Although shares of Anooraq are trading well above 2008 lows the company’s stock has not fared well recently; it’s down roughly $0.75 from its 2010 high of $1.80. But some think Anooraq may, ultimately, shine bright.  In October, 2010 Peter Grandich called the company a “sleeping giant” with “many of the ingredients needed to benefit greatly in a sector that looks like it has lots of upside.”

As society looks at better choices for the environment, long term, tighter emission regulations appear to be fueling momentum for catalytic converters. But bullish calls from equity analysts, which are appearing with increased frequency, have investors in platinum stocks thinking of a different kind of green.

Mike Luft

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