“Gold Anomaly” and the “Coming Surge in Platinum Stocks”

By Travis Johnson, Stock Gumshoe, April 28, 2017


Today we’re going back to the vault to open an older Friday File article up for everyone, since the ad I was writing about in December appears to again be circulating today. This one’s about a teaser that’s being foist upon the world by Bill pantaloon at Money Map about a “gold anomaly.”

I have made some light edits throughout, but this is largely a republication of an article that appeared in the Friday File for the Irregulars on December 2 of last year (the ad in question, though I’m being asked about it again this week, is still dated November 2016 so has presumably not been updated).

So let’s dig right in — this is the intro to the ad:

“An event so rare, it’s only happened twice in 20 years, and it’s happening again now. We call it…

“THE $13 BILLION GOLD ANOMALY

“You’ll call it the greatest wealth event in 20 years.”

So what is this “gold anomaly” that’s about to happen “For only the third time in recent history?” Well, the short answer is that it’s the fact that platinum prices have dipped below gold prices… which has only happened a few times in the last 20 years (though platinum and gold have been mostly quite close to each other since 2009, and that “rare anomaly” where platinum drops below gold and then rises back up above gold again happened a couple times in 2013 and 2014, depending on how you measure, and, despite that, platinum still dropped below the gold price in 2015 and has pretty much been below gold since then.

Platinum, like its cousin palladium (and like silver, for that matter), is a little tough to figure sometimes because it’s not purely a precious metal — despite the fact that platinum and palladium are far, far more rare than gold, their prices seem to be driven much more by industrial demand than by “flight to safety” or “currency crisis” or even “shiny jewelry” impulses among individuals. Gold has historically been “money” and holds that place in the minds of a lot of people of different cultures — not so platinum, which is mostly in demand because of its role as a catalyst in catalytic converters, and which therefore sees pricing driven largely by auto sales.

Which is not to say that it makes sense for platinum to be cheaper than gold — it doesn’t, both because we know intuitively that platinum is almost infinitely more rare than gold and much more difficult to find and mine, and because platinum has usually been significantly more expensive than gold, on a per-ounce basis, for most of recent history. Here’s a chart of the constant futures prices for platinum dividend by gold, the platinum/gold ratio, over the past 25 years — you can see that a lot of investors got used to platinum being twice gold’s price, and that the ratio is much lower than it has been in a long time:

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(That chart is still from December, but the ratio is very close to that point today — it has bounced up and down a little between 70-90% over the past six months but is back at about 75% today.)

That doesn’t mean that platinum will soar back to twice the gold price (or, indeed, that the gold price itself will rise — platinum/gold ratio could also return to 2X by gold falling to $500 and platinum sitting still)… but Patalon isn’t the only one looking at platinum and palladium as an attractive speculation right now. I also wrote about Dave Lashmet’s pitch for platinum miner Stillwater Mining (SWC) back in October, and I did personally have some SWC options as a speculation that platinum and/or palladium prices could recover sharply… either because that platinum/gold ratio goes back to historical highs or, more likely, because the auto industry demand for catalytic converters remains strong despite investor fretting about the notion that we might be past “peak auto” sales. (Stillwater was bought out by Sibanye, in a deal announced back in mid-December, about a week after I first published this article, so that ship has sailed… the deal closed just recently.)

So anyway, that bypasses much of Patalon’s sales pitch where he tries to talk you into platinum as being necessarily tied to gold, and having fallen too far. That platinum/gold chart should tell you at least that there’s been no clear and persistent connection between the prices of those two metals over the past 25 years and that other forces are clearly at play, whether it’s supply or demand or gold bug fever or whatever else, so there’s no immediate reason why what they call an “anomaly” should necessarily be forced to “snap back” in any particular time frame.

But yes, platinum is much cheaper than gold now, and that’s, at the very least, kinda weird. Whether it’s really going to “generate millions of dollars in wealth — almost instantly” as Patalon’s ad says is going a bit further than I’d be comfortable with… but let’s check out some more of the ad to see what he’s driving at:

“Because so many investors poured so much money into gold – and gold spiked so high so fast – it opened the door for this ultra-rare but powerful anomaly to occur, where another precious metal – one that like gold is often considered a safe-haven ‘currency’ – got ‘temporarily left behind.’

“I’m not talking about silver…

“In fact, silver also saw a big spike after Brexit when investors plowed into precious metals for protection from falling currencies.

“Rather, I’m talking about another precious metal that is exceedingly rare – 30 times rarer than gold – occurring at a concentration of only .005 parts per million in the earth’s crust….

“… industrial demand consumes 50% of annual production, as nearly everything we use or manufacture either contains this metal or requires this metal for its own production.

“I’m talking about platinum.”

He gives a few examples of when the platinum price dropped below gold and dropped that platinum/gold ratio to “anomalous” levels and then were followed by a big rise in the price of platinum, so there is at least some correlation in this ratio sometimes… though I don’t know if that correlation really means causation or gives any particularly strong guidance about when the ratio might meaningfully shift and put platinum prices back even with or above gold prices.

There are a lot of things that seem to have meaning when you look at charts that don’t necessarily work out the way you thought they might, or on the timeline you were expecting — if car sales go down dramatically, for example, then platinum prices probably aren’t going to spike much higher no matter where gold prices go. Or maybe precious metals investors will step in and put money into platinum just because of the attractive symmetry of the platinum/gold ratio chart, or platinum jewelry will take off in India and supplant that country’s long-held believe in gold as the ultimate store of value. I dunno… so even though I think platinum is likely to rise in relation to gold at some point, characterizing that as “inevitable” because a “rare anomaly” can’t last for some reason doesn’t do any of us any good. We should leave room in our minds for the notion that lots of things that seem like “rare anomalies” when you put them on paper can last for generations — betting on historical trends to return to some average is not necessarily a bad idea, but you have to do it consistently and be pretty disciplined and diversified to make it work, “out of wack” trends sure don’t return to the average every time, or on your timetable.

The projection from Patalon is quite clear:

“Over the past decade, the price of platinum has averaged a 34% premium over gold.

“So if gold is selling for $1,259 an ounce, then platinum should be selling for $1724 an ounce.

“But it’s not. As of this writing, it’s selling for less than $920 per ounce.

“That’s insane… and represents a 45% discount to its historical value.

“That’s why platinum prices are set to take off and why I believe so many institutions and insiders are staking out their positions now.

“Not just because I see the gold/platinum ratio returning to normal and platinum rising to a historical value of $1,598 an ounce…

“But because I see it more than doubling in value.

“Now, nothing in the markets is guaranteed, and nobody’s research is 100%. But there’s one thing I am absolutely unwavering about in my conviction: This Gold Anomaly is a HUGE opportunity for you to make a fast fortune.

And it’s not just that ratio, thankfully — Patalon does note that the supply of platinum in global stockpiles is falling thanks to several years without investments in new mining, and that demand is growing on the industrial side, not just for catalytic converters but also for electronics and, perhaps, jewelry. So there is a real supply-demand argument to be made, not just a price-tracking anomaly to be corrected. He includes a platinum price estimate of $2,178 an ounce by 2020 (and $7,591 an ounce if gold goes to $5,665).

So, with that conviction from Money Map Press, what would they have us do? Invest in small platinum miners.

“I’ve discovered a way for you to cash in ASAP.

“You see, the last two times this gold anomaly hit, small platinum miners were the biggest winners.

“For example, take a look at Stillwater Mining Company, a small platinum producer.

“The first time this anomaly presented itself, Stillwater Mining Company saw its stock price rise 313%.”

And he lists a few other examples of junior platinum names that soared during past platinum bull markets… but, of course, what we’re interested in is the top-secret stock he starts hinting at next:

“… taking a stake today in a little-known $1 platinum mining stock I’ve just discovered could make you a millionaire before the ratio reverses itself… and a multimillionaire down the road.

“And it’s all because of what our research and projections clearly show…

“This company is weeks away from capturing its own $86 million windfall from its platinum group metal mining operations this year…

“And a whopping $235,700 million windfall every year after that – and for the next 22 years!”

Sounds pretty exciting, right? So how about some more clues about this little miner? Here you go:

“… this company hit pay dirt in 2004 and 2011 with two mine sites we’ve estimated to be worth billions based on available resources and reserves.

“The first mine is large enough to support a 22-year mine life and produce 250,000 ounces of platinum group metals a year. That comes to nearly $5.2 billion based on our projections.

“Their 2011 discovery was another jackpot winner containing more than 22 million inferred resource ounces of platinum group metals we estimate is worth another $15.8 billion based on their 58% ownership.

“Our projections don’t include an extension mine they found that is estimated to contain another 6.8 million inferred resource ounces of platinum, palladium, rhodium, and gold.”

He goes on with some more clues, but that’s enough for us today — here Patalon is hinting about Platinum Group Metals (PLG, PTM in Toronto), which is currently ramping up production at the Maseve mine and has development plans for the Waterberg mine, both in the heart of platinum country in South Africa (though both are primary palladium mines, with a bit more palladium expected than platinum… which isn’t necessarily bad, palladium has been outperforming platinum recently and both serve most of the same end markets).

You can see the latest investor presentation from April here (if you wish to see what has changed since December, which isn’t much, the investor presentation from back then is available here here). PGM is indeed a “ramp up” producer, and it should be expected to be pretty highly levered to any big advances in the platinum or palladium price, partly because their mine won’t be at full production for a couple years and is fairly expensive. Platinum prices that drop much more would start to make the mine uneconomic, it appears, and I imagine that’s part of the reason why the shares have come down this year despite the relatively good news that they put $500 million or so to work in building this mine and are actually digging up precious metals out of the ground now, and will soon be selling them. They also did an offering for $40 million late last year, and another $20 million just this month, both of which also hurt the share price (the value of the company in terms of market capitalization is about the same now as it was back in December, just shy of $200 million, but that market cap is spread among more shares so the share price has dropped by about 30%) .

So yes, PLG is a $1 (ish — it’s actually at $1.22 this morning, it was near $1.80 back in December) stock with an emerging platinum/palladium mine and some expansion potential. I don’t have enough deep knowledge of this particular company or its mines to tell you whether it’s a great idea or a crazy idea, but it is at least the majority owner and operator of a mine that is financed and built and will be producing platinum and palladium soon, and the largest owner of another potential mine nearby, both of which are in one of the world’s two major platinum group metals producing regions (the other is in Russia, the two essentially have a duopoly on primary platinum and palladium mines with only a couple lonely exceptions out there, like the American Stillwater). My sense is that they’re pretty levered to palladium, so a big price spike over the next year or two should be really nice for their bottom line, but it’s only a $200 million company and it has a little tiny share price and will need a substantial amount of capital if they’re going to build their second mine, so they could easily be buffeted by shifting waves of passion for platinum group metals if there are price spikes that send speculators looking for any stock with “platinum” in its name or, on the flip side, if financing dries up for such projects.

I don’t know if platinum will soar above gold again, or if you’ll see mega-gains — but there is some real leverage potential on both the upside and downside for PLG (“downside” means “if platinum keeps falling, the stock could get crushed”). And this is a real emerging producer, not just a junior explorer, so there is at least some “there” there. And, as the ad also hints at if you make it that far in their presentation, PLG does have some experienced management — some of the folks who were behind big profits in MAG Silver, West Timmins Mining, and a few others, so that helps, partly because investors in the mining industry love to follow management teams who’ve had past success in building (and hopefully selling) mining companies in the past.

And though electric vehicles are a substantial concern, since the bulk of the marginal demand for platinum and palladium comes from new gasoline and diesel-powerd car sales and we’re seeing a big push for battery-powered vehicles, particularly in China (“battery powered” means “don’t need a catalytic converter” for emissions control, which is what platinum and palladium are used for in autos), the market share gains for electric cars over the next couple of years will probably not be all that dramatic in the context of platinum or palladium demand — probably the larger concern is that auto sales in general could fall if the global economy weakens, a worry that has consumed most auto investors over the past year or two as we fret about whether or not we’re at “peak auto.”

So there’s your little miner for a weekend’s consideration — we can’t tell you whether Patalon will be right about this becoming a billion-dollar company, or going from $1 to $100, but if you’ve got any thoughts on platinum in general, or on Platinum Group Metals or any of the other miners in the platinum space from explorers to producers, please let us know with a comment below (Sibanye, North American Palladium, Ivanhoe Mines, Anglo American Platinum, PolyMet Mining and Norilsk Nickel are just a few other names that are likely to crop up in your research… or toss others on the pile if you like).

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Marc Pearsall
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Marc Pearsall

PLG was a $45 stock in 2008, $27 in 2010 and $9.50 as recently as 2015. This looks to me like a deep value play and I think it’s worth a small (lottery) position. Not rent money by any means, but the risk/reward @ $1.20 is tremendous, imho.

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cavemann
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cavemann

After the dilution fiasco the management of North American Palladium made in running and expanding their mine, I am very hesitant to get into PLG even at their current low level. They are diluting the stock at an astonishing rate while trying to get one mine up and going. Their mine management has to be called into question, not to mention their ethics as they consistently miss the production guidance quarter after quarter. I wonder if these guys are invested in protecting the stockholder interest or their own paychecks.

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summersalt
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summersalt

Impala Platinum (IMPUY) is another one to look at. Was over $5. in Sept 2016. Now $3.21. Paid $1.88 in Nov 2015. Wish I had sold in Sept.. Hind sight is great.

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hendrixnuzzles
Member
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Platinum…$IVPAF…long…anyone interested in platinum should look at Ivanhoe Mines, oft discussed on another thread. Grades are off the chart as are reserves.

Their deposit is many times as big, thick and rich as the Merensky reef and there is no issue with mine financing. Or construction…they are sinking a second shaft and have the plans to go from 4 million tpy, to 8 mtpy, to 12 million tpy as market conditions demand.

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takeprofits
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AGREED: Ivanhoe is one of my best picks in 2016, up well over 300% over my entry price, and still has plenty of room to run given it reserves of cobalt as well as copper and under the capable hands of Robt. Friedland and his team who have generated several billion dollar companies in the past. I don’t know either whether platinum prices will exceed gold again, but as Doug Casey multi-million speculative investor would label it, I consider it an INTELLIGENT SPECULATION worth a small stake. At current prices I consider a small stake in PLG as Marc Pearsall… Read more »

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Alan Krasberg
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Alan Krasberg

Ivanhoe: C$0.53 in mid-Jan 2016. I got in at 84 cents
C$5.47 on 12 Apr 2017
C$4.61 today, and looks very much like a bottom

This company is a T-Rex and might have another factor of 5-10 to go.

Langdale Pike
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Langdale Pike

The best and wisest sentence in this article is this: “We should leave room in our minds for the notion that lots of things that seem like ‘rare anomalies’ when you put them on paper can last for generations — betting on historical trends to return to some average is not necessarily a bad idea, but you have to do it consistently and be pretty disciplined and diversified to make it work, ‘out of wack’ trends sure don’t return to the average every time, or on your timetable.” So very, very true! Just look at interest rates, for example, which… Read more »

Jeff Sullivan
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Jeff Sullivan

Why mess with these names. Ivanhoe has an excellent PGM project in development overshadowed by an even stronger copper project plus a world class zinc project

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William
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William

Now if we take the argument for platinums value based on gold and switch it all around, and base the value of gold on where platinum is we have a similar valid argument that says gold is overvalued…

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dougal
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dougal

Been watching platinum for a while, kind of like Wellgreen WG nice safe area (Yukon) with new management (from Romarco)

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Wim
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Wim

What is the real futures of PGM when we all drive in lithium powered cars?
once the shift begins there is far less need for them.

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carbon bigfoot
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carbon bigfoot

I am a hard metal investor who never shelled out $$ on a platinum purchase. I don’t know why? Luck? But always interested in small speculations–wagers. This seemed interesting until I read the attachment:
https://seekingalpha.com/article/4063107-platinum-group-metals-clueless-management-running-excuses.
Comments??

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hendrixnuzzles
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hendrixnuzzles

Ivanhoe Platreefs is a monster multi-metallic project that headlines platinum. There are six economical metals there.

But it is only one of three projects, so if you are not wild about platinum, Ivanhoe is still a tremendous value. Unless you don’t believe in copper or zinc either.

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Charles casaburi
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Charles casaburi

I would be very careful about any South Africa stock today. The current head of state is a bold Marxist & open admirer of Robert Mugabe the leader of the Marxist basket case Zimbabwe. Even after seeing what happened in Zimbabwe he is following this path & appears even more of an ant white zealot than Mugabe himself is . Most of the skilled mining engineers are white & expropriation & crushing taxes are real possibilitys

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hendrixnuzzles
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True enough but some people might say the same about the USA.