Opinions
Rick Rule
Stillwater Mining Co.
SWC-N
WEAK BUY
Aug 12, 2015
Stock price when the opinion was issued
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Basically a call on platinum and palladium prices. South Africa continues to be mired in all kinds of operating challenges. It is the largest producer of PGM products and she is seeing production declining there so is expecting PGM prices to be strong. This company has been operating since the 80s and she expects them to benefit from the strong metal prices.
(A Top Pick August 31/12. Up 10.45%.) Sold her holdings at around the $15 level, because it had reached full valuation. However, when it touched down to about $10.50-$11, she bought it back. She is a big fan of the PGM space. Palladium as well as platinum has been outperforming copper and gold. This is still a Buy.
When he looks around the platinum and palladium space, it is difficult to find opportunities to get exposure to those metals without taking on undue political risks. The real hub of PGM (?) production comes from South Africa, which has fallen by the wayside as a destination for investor capital in the mining space. Where he sees opportunities in platinum and palladium is in this company, which has a 3%-5% free cash flow yield, which is not compelling versus some of a gold mining opportunities. Jurisdiction is fantastic. The mine life runs for 20 years plus. The real question is what happens with some recent labour issues that they’ve had. If this gets resolved, this is a good way for investors to get exposure to PGM.
*SHORT* This had bottomed at $5 in January, and has now doubled in 6 weeks for no real reason, other than its Short covering. The biggest usage for palladium is in automobiles. Auto inventories are at record highs relative to sales, so the demand for palladium is going to fall. This stock is very overvalued. Also, its mines are in the US and he feels the foreign currency is going to be a disadvantage to them. Other platinum/palladium mines are in South Africa that has a very weak currency.
Not sure they have upside in the next year. He is constructive longer term on Platinum and Palladium. It is a difficult mine to mine. Prefers SPPP-N which has tax advantages for US holders.