Lots of eyes turned to platinum. I wrote a report on platinum back after my trip to South Africa.
“White gold” is extremely rare, and yet it’s used in a lot of key industries. In fact, the Department of Defense lists platinum as a strategic precious metal.
South Africa is one of only a handful of countries in the world that produce large amounts of platinum. Indeed, the country holds 88% of the world’s reserves.
In my report, I talked about a supply disruption. South Africa had been seeing huge mining strikes. Workers were demanding higher pay and companies were slashing employees by tens of thousands. The last time something this drastic had happened to the mining industry in South Africa, platinum production dropped by 6%.
That sent share prices of platinum mining companies through the roof… and not only for the companies doing business in South Africa. Platinum producers around the world had big price jumps.
Now, mining strikes and supply disruptions aside, precious metal prices have been red hot over the past two years.
Let’s take a look at what that’s meant for platinum producers and other platinum investments.
There are a couple ways to invest in platinum. We’ll look at one of each.
Three Platinum Investments
You can buy shares of a big mining company that goes after all kinds of precious metals. You can also find a couple platinum-specific mining companies. And there are things called exchange-traded notes, similar to ETFs. There are a couple that track the price of platinum.
One ETN is the E-TRACS UBS Long Platinum ETN (NYSE:PTM). Here’s a look at how this ETN has performed since mid-2009.
PTM was trading at just about $15.50 when I wrote my report. Now it’s up to $20.81, a gain of 34.5%.
Anglo American (London:AAL) (AAUKY.PK) is a well-known mining company with a lot of different operations around the world. Most of them are in South Africa. The company has 14 platinum projects in that country.
Anglo American is the world’s largest producer of platinum, with a 39% market share.
Here’s the company’s performance.
Over the past two years, Anglo American has climbed about 87.5%!
So how about a pure platinum mining company? Let’s look at Stillwater Mining Company (NYSE:SWC). This company is the only platinum and palladium producer in the U.S. SWC had ties to General Motors, too, as platinum is used in catalytic convertors and other industrial applications.
SWC has certainly been the winner over the past two years.
Since writing my report, share prices for SWC have climbed more than 144%. Not bad!
But what about now? Are these companies still good investments? And if you bought in January, should you be holding them even at a loss?
What About Now?
Here’s the platinum situation. Things are starting to get tight. In 2009 and 2010, when precious metal prices were really on fire, platinum producers put their nose to the grindstone. By the end of 2009, there was a surplus of 635,000 ounces.
In 2010, though, demand started to pick up. By the end of 2010, we only had a surplus of 20,000 ounces.
What’s really interesting, though, is that miners produced only 0.6% more platinum in 2010 than they did in 2009. Demand jumped by 16%!
This demand will keep growing, and there are fears that supplies could dry up.
Walter de Wet, head of commodities research at Standard Bank in South Africa, told the Financial Times, “There’s a massive underinvestment in mines: it’s not biting yet, but we think it will in 2012 and 2013.”
He should know. Standard Bank is the largest lender in the natural resources industry in South Africa.
Problems for Production
And get this… Johnson Matthey (London:JMAT), a major platinum refiner who publishes a key industry report on platinum supply and demand, said the platinum prices will be higher in 2011 than in 2010.
In 2010, platinum prices climbed from $1,500 an ounce to $1,755. That’s a gain of only 17%, which is why the E-TRACS UBS Long Platinum ETN (NYSE:PTM) only gained 34.5% compared to the other two companies.
Since then, prices have reached $1,858, but have fallen back to $1,753 an ounce.
Johnson Matthey says platinum prices could average $1,870 an ounce over the next six months. That should push share prices of platinum producers higher.
How high? That will depend on how serious the mining situation is in South Africa. Keep an eye on Zimbabwe, too. Mining companies have been struggling with production, and the country is trying to grab a hold on mining rights from foreign mining companies.
Basically, they are trying to nationalize their platinum reserves. This could weigh down production even more.
Buy, Hold or Sell
For investors holding a loss? I can only say work your plan. As Jared said yesterday, having a clear time horizon is important for any investment. That included specific points — price, gains or losses, and time frames.
Someone who might have invested in Stillwater Mining Company two years ago might have a different timeline from someone who invested only in January 2011.
They also might have different stop-losses now that they’re looking at a gain.
In my opinion, Stillwater still has a ton of potential. Of the three, I like that it’s based in the U.S. That gets you away from all those mining issues in South Africa and Zimbabwe. That said, the recovery in the U.S. will have to keep building in order for demand to stay strong.
A weaker economy could dampen the short-term outlook for SWC.
In the end this could be a good thing. SWC might be a little overvalued. Look for a rocky couple of months, though, before we find out how strong demand is.
Another thing… The earthquakes in Japan have slammed production of a lot of things that use platinum — cars and electronics come to mind. This could mean a drop in industrial demand for the time being. But once Japan starts rolling again, we could see a quick and major boost in demand.
Related Tickers: SPDR Gold Shares Trust (NYSE:GLD), iShares Silver Trust (NYSE:SLV), ETFS Physical Platinum Shares (NYSE:PPLT), ETFS Physical Palladium Shares (NYSE:PALL).
As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities. Sara Nunnally’s diverse background includes studies in history, computer science, literature and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, Bloomberg and CNBC’s Squawk Box, as well as numerous radio shows around the country.
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