Ride the Platinum Profit Rocket

by Sean Brodrick
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We’re headed into a supply squeeze for platinum. Get on the right side of it to ride your own profit rocket.

First, you need to know that platinum is rare. Consider that the world’s annual output of gold was 2,700 metric tons last year. Platinum output is a mere fraction of that, at 150-200 tons.

If anything happens to the supply of platinum, this metal can really heat up.

Well, find your oven mitts, because the heat is on!

Platinum already went into a supply deficit in 2012. It got worse in 2013, rising 40% to about 605,000 ounces.

So how does supply look this year? Not good. The supply/demand situation may get another 10% tighter due to a bunch of factors …

Russian Supply Squeeze

Russia provided 13.6% of global platinum supply last year, according to Johnson Matthey.

This week, Russia annexed Crimea. That’s a part of neighboring Ukraine that was historically part of Russia. As a result, geopolitical tensions with Russia are boiling over. Western nations have threatened sanctions against Russia. This may put a crimp on supplies of both platinum and palladium.

South African Strike

South Africa mines 70% of the world’s platinum. Now, 70,000 union miners at the big platinum mines in South Africa are on strike. This is already the single-biggest work stoppage in that country since the end of apartheid in 1994.

And the workers seem to be settling in for the long haul. Appeals from management and through traditional leaders have had no impact. The workers want a much bigger share of the profits. The companies say there just isn’t that much profit to share.

The companies involved have some stockpiles. But one of the biggest miners, Impala, says its stored platinum will run out at the end of this month.

And that could be dynamite for platinum prices.

So you can see that supply is squeezed. Meanwhile, demand is getting stronger all the time.

Industrial demand

More than half of the world's annual platinum output is used in auto catalytic converters. And that demand could be about to head higher.

New emissions rules in Europe, set to take effect from September 2014 to 2015, will significantly boost the amount of platinum required in catalytic converters in cars sold in Europe.

That’s because Europeans drive more diesel vehicles. Diesel requires platinum for emission control; gasoline engines can often get by with palladium for catalytic converters.

There are plenty of other uses for platinum -- jewelry, electronics, investment and more.

ETF Demand

Platinum holdings in physically backed exchange-traded funds have hit a record high. ETFs backed by physical platinum metal now hold a record 2.215 million ounces. That’s 69 metric tons.

Heck, the U.S. Mint just announced it is going to start selling platinum coins again. That’s more demand.

How You Can Play This Trend

You could buy a platinum miner. But investing in platinum is as easy as buying ETFS Physical Platinum Shares (NYSE: PPLT).

 

 

This fund is backed by platinum bullion, and tracks its movements. It has an expense ratio of 0.6%. Looking at the chart, you can see it has trended higher in the short-term. In fact, it seems to be breaking out.

My price target on this fund is $166.20.

Good investing,

Sean Brodrick

P.S. These are extraordinary times in natural-resource investing and subscribers to my monthly newsletter, Oxford Resource Explorer, have been raking in the profits. We’ve had six double-digit winners in just two months. Our next issue will almost complete. To learn how to get it, click here.

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How to Play the Uranium Boom

Another mined resource that’s experiencing a price-friendly confluence of supply-demand problems is uranium. And subscribers to Oxford Resource Explorer have benefited from Sean’s recommendation of uranium miner Cameco Corp. (NYSE: CCJ), which is up more than 10% since Sean picked it up on Jan. 22.

It had a huge move last month, which Sean explains below:

“Cameco roared more than 8% higher yesterday, and on strong volume, too. Next, it has to take out the January high of $23.19. We could see another pullback before that happens. Anyone who wants to be on this rocket should be onboard before that happens.

“So why is this happening?

“Japan is finally restarting the nuclear power plants it shut down in the wake of the earthquake and tsunami that badly damaged atomic power plants in Fukushima back in March 2011. It was the worst nuke crisis since Chernobyl in 1986.

“Now Japan is finally ready to restart 48 reactors that weren't damaged. The goal is to restart one in every five reactors this year after safety reviews. By this time next year, 17 may be running again.

“As a result of this, The Bank of Nova Scotia (NYSE: BNS) expects prices of uranium to climb more than 40% by the end of the year. Uranium prices were cut in half after the Fukushima disaster, and were recently at $35.70 per pound... But Japan isn't the end of the story:

  • China has 28 reactors under construction. Five will connect to the grid this year.
  • Worldwide, more reactors are under construction, planned and proposed than before the Fukushima incident.
  • Longer term, JPMorgan Chase (NYSE: JPM) and others have warned that the market must recover to $75 to $80 per pound of uranium to incentivize the development of new projects…

“Cameco's share price pulled back [in January] as the company said that it was selling a stake in a power plant for $450 million to focus on uranium mining. That now looks like a smart move. Japan will need more uranium, the world needs a lot more uranium, and Cameco is one of the premiere companies in the space.

Cameco bought the Yeelirrie uranium deposit in Western Australia from BHP Billiton Limited (NYSE: BHP) in 2012, and its Cigar Lake Mine in Canada is one of the world's best uranium deposits.

Cameco recently announced its financial results for the fourth quarter and full year. Profits dropped 36% year over year. But that was due to lower uranium prices. The company achieved record production.

So what do you think will happen to the company's bottom line when uranium prices go higher? I'd say profits will soar. And I'd say this could be a white-hot stock indeed.”

- Bob Keaveney with Alexander Green

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