How You Can Profit From the Revenge of Rare Earths

Dear Retail Investor,

The time was 2008.

The place, a supermarket in DeSoto, Texas.

Anita Ortez had just finished shopping there and was ready to head home.

But as she started her Toyota 4Runner, she knew something was very wrong.

“I turned it on and it made a ‘whooom’ noise,” she recalled in an NBC interview. “I jumped back thinking it was going to explode.”

Turns out a thief had stolen her vehicle’s catalytic converter while she shopped.

The reason?

Like all catalytic converters, it contained platinum, palladium and rhodium – rare industrial metals that are part of what’s known as the platinum group of metals (PGMs).

Prices for these three metals were skyrocketing at the time, resulting in a rash of catalytic converter thefts across the U.S.

Rhodium prices had gone especially crazy.

From 2004 to 2008, rhodium shot up from $440 to $10,100 an ounce, a rise of 2,195%.

During that time platinum rose 276%, while palladium went up 283%.

Well guess what?

Prices of these industrial metals are blasting up again

Of the three, platinum is a relative bargain right now at $1,174 an ounce (at the time of writing this article on April 13th).

That’s about the same price it sold for back in September 2008.

Palladium goes for more than double that at $2,690, which is near an all-time high.

And rhodium?

It sells for a whopping $27,800 an ounce at the time of writing this, nearly triple its 2008 high.

So what causes prices of these three PGMs to spike like mad?

Back in 2008 the world’s biggest supplier of these metals, South Africa, was largely to blame.

South Africa is the world’s biggest producer of rhodium

South Africa has 82% of the world’s known reserves of this rare metal.

It also supplies the world with 40% of its palladium and 38% of its platinum.

Obviously, any disruption from such a huge supplier of these rare metals could easily cause prices to surge.

And that’s exactly what happened in January 2008, when a power grid crisis caused rolling blackouts across South Africa.

As these blackouts became more widespread, the government declared a national emergency that forced the closure of important PGM mines (as well as gold and silver mines).

The mining world freaked out in response, with the Association of Mining Analysts warning that a global shortage of industrial and precious metals was at hand.

Result? Fear overcame reason in the PGM market, and triggered panic buying.

The reasons for today’s explosion in PGM prices

Stricter worldwide auto emissions standards have much to do with today’s record prices.

These stricter standards have caused a surge in demand for catalytic converters… and by extension, the PGMs in them.

Adding fuel to the fire is the rising demand for PGMs coming from other sectors, as the metals are used to make a host of consumer and industrial products like flat panel monitors, glass fiber, medical tools and computer hard drives.

And now, with the world economy bouncing back from pandemic-related economic restrictions, analysts expect demand for products that rely on PGMs to accelerate.

This will likely put more upward pressure on PGM prices in the coming months and years.

So now perhaps you’re wondering how to invest in them

Can you invest in rhodium?

The answer is… kinda.

First off, you have to understand a few things about rhodium.

Nobody in the world mines for this strange metal exclusively.

That’s because rhodium is typically produced alongside nickel and platinum mining.

The reason – it’s always bound to these (and other) metals, which makes rhodium extremely difficult to produce.

It’s also why the rhodium market is so tiny – only 25 tons are produced a year.

(You can get that much onto a single tractor-trailer!)

As a result of its scarcity, opportunities to invest directly in rhodium are extremely limited… not to mention expensive and volatile.

Yes, you could buy shares in db Physical Rhodium ETC (LON: XRHO)… but they’re $2,407 each as I write this.

And they’re EXTREMELY volatile, with average daily volume wallowing at a measly 348 shares.

Consider that rhodium prices plunged 90% after the 2008 economic crash!

So – unless you’ve got nerves of titanium and a fat bankroll – I’d advise you to fuhgeddaboudit.

That leaves…

Platinum and palladium investing

The markets of these two PGMs are gigantic compared to rhodium (172 tons and 210.2 tons respectively), but tiny compared to gold and silver.

You can play both of these metals via exchange traded funds (EFTs).

In the U.S. there are three platinum ETFs to consider:

  • PTLM (GraniteShares Platinum Trust)
    This fund is backed by physical platinum and tracks the price of the metal’s spot market.
  • PPLT (Aberdeen Standard Physical Platinum Shares)
    This fund is also backed by physical platinum and, like PTLM, it tracks the spot price of the metal.
  • PGM (iPath Series B Bloomberg Platinum Subindex Total Return ETN)
    Unlike PPLT and PTLM, PGM isn’t backed by physical platinum. Instead, the fund invests in futures contracts.

Palladium only offers one ETF for prospective investors – PALL (Aberdeen Standard Physical Palladium Shares ETF).

PALL is designed to track the spot price of palladium bullion, and it’s backed by the physical metal.

All four of these ETFs are up for the year, with PPLT at 7%; PGM at 12.3%; PALL at 10.5%; and PLTM at 7.6%.

Decent gains to be sure… but if you’re looking for home runs, junior PGM miners offer you a much better chance.

Back in the early 2000s, some historic gains were made in this space…

  • Eastern Platinum Ltd. (TSE: ELR) exploded from 90 cents in August 2003 to $40.70 in 2008 – a rise of 4,422%.
  • Anglo American Plc (LON: AAL) shot up from $585.18 in July 2002 to $3,294 in April 2008, gaining 463%).
  • African Rainbow Minerals Ltd (JO: ARI) rose from $214 in 2004 to $2,418 in 2008, a gain of 1,029%.

Obviously, if you’re hunting for these kinds of gains, you have to be prepared to take on big risk.

But if you do your homework, you can reduce that risk considerably.

How to reduce your risk investing in junior PGM miners

To increase the odds that your junior mining company investments profit, you should make sure the company features…

  • Strong Growth Prospects — Companies that are significantly growing production are worthy of consideration (buying before big growth kicks in can bring in hefty returns).
  • A Minimum of Political Risk — Many countries are hiking taxes and royalty requirements on miners. While no jurisdiction is perfect, you should target companies working in countries that are unlikely to embrace anti-mining laws.
  • Strong Finances or Access to Adequate Capital — Does the company you’re vetting have enough cash to weather a downturn in metals prices, advance its projects, and make acquisitions? If not, steer clear.
  • Potential Catalysts That Can Drive Prices Higher — Before buying a junior mining stock, it’s wise to see if there’s anything in the works that can boost prices quickly (like a potential buyout). If there is, it warrants additional consideration.
  • Sound Management — Has the management team had any big successes? Are they competent and well organized? Do they have experience navigating financial, regulatory, legal, environmental, and accounting issues? If these questions aren’t answered to your satisfaction, stay away.

Here at Dear Retail, we keep our ear to the ground for high-probability profit opportunities in mining (as well as other sectors).

So stay tuned – we’ll keep you in the loop as these opportunities present themselves.

That’s it for this edition of The Diary.

To your financial success,

Doug Fogel, Contributing Editor, Dear Retail

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