Which way to vote?
Another player in the Industrial metal space is Stillwater Mining (NYSE: SWC). It operates in the palladium, platinum and platinum group metals, and has some copper and gold exposure too. At the end of February the company released fourth quarter earnings that didn't quite set the world alight, keeping the stock tied to a decline initiated mid-February. However, the company is the largest primary producer of palladium in the world.
Palladium prices have been far more robust than aluminum, recovering strongly from the 2000-02 sell off. The metal trades around $800 an oz, about 30% off its peak price. Palladium has become increasing important for use in catalytic converters. It competes against the once dominant platinum for this space, but as palladium trades at about half the value of platinum, it's a no brainer preference. The use of palladium in catalysts has helped fuel the rally in the metals' price.
Stillwater Mining expects demand for catalysts is expected to increase by 25% over the next 3 years. Given 80% of palladium supply is consumed in catalytic production, the company is looking for demand for the metal to continue. Competition in the provision of palladium comes from Russia and South Africa. Russian supply is falling, and the South Africa situation has labor-related, political and operational issues to consider.
However, the perceived lack of progress by the company has irked large shareholders, and a question on it was quickly rebuffed on the earnings call. The disillusion in the direction the company is heading was helped by lower year-on-year earnings and revenue. A 10.7% drop in metal basket prices and a 15% rise in extraction costs for the same period were blamed, although net income was sharply lower at $55 million compared to $144 million the year before. There was also large cash costs in 2012 which are expected to carry over into 2013. Beyond that, the company didn't offer guidance.
Despite the shareholder troubles, Silverwater Mining appears to have it easy. Other public palladium stocks find themselves in greater trouble. North American Palladium (NYSEMKT:PAL) was a $1 billion market cap stock a couple of years ago, but now finds itself a sub-$0.3 billion company. The company has consistently reported annual losses for the past 5 years, although a net loss of $11.4 million for 2012 is a significant improvement over the $65 million loss reported the year before. The question is whether it can stick around long enough before it's lost in the sub-$1 quagmire of penny-stock-hood.
Platinum Group Metals (NYSEMKT: PLG) is another sub-billion market cap stock flirting with true penny stock status, having already spent part of this year trading below $1 a share. It has mine exposure in South Africa and Canada, which offers some diversity. However, last year it reported its worst earnings in five years with a $10.6 million loss.
The uncertainty inside the Stillwater Mining boardroom may be casting a shadow over the stock, but this is not a reason to think a directorship shuffle would necessarily be bad for the company. The company has an apparent lock on the North American PMG market, with competitors heading towards situations when they may need to divest their assets. The question is whether the existing executive is capable of maximizing the situation for Silverwater Mining's benefit.