The BarkerLetter

December 12, 2007

Greetings investors

A reader wants to know what I think of North American Paladium, trading under the symbol PAL on the AMEX, and also as PDL on the Toronto Stock Exchange (TSX).

I always approach these deals from three angles: Chart technicals, company fundamentals, and the underlying strength or weakness of the commodity in question.

I take a top down appraoch, so let’s look at palladium first. A quick glance at the chart shows a steep price rise last spring until the sell off in August. Since then prices have made slow, incremental progress upwards and I expect this to continue for the foreseeable future, based on the highs and lows over the past  90 days.

The technicals for PAL itself show the stock to be under distribution, which has taken the price from $12 or so down to its current $4  per share range. Based on the longer range chart indicators I expect the stock to move back up to $4.80 /$5.50 but I think it will go lower before that happens. In any case I haven’t seen any signs of a reversal to the current downtrend.

I’m not rushing out to buy PAL at the present time. Basically, I’m waiting for the momentum indicator to reverse before I do. If you’re a longer-term, risk-tolerant investor you may want to take a position now and accumulate on any subsequent dips.

Let’s go back to the larger issue of PGMs (platinum group metals) for a moment. I don’t know about you but shiny objects fascinate me, and I’m always looking for the chance to learn more about them.  The Spanish conquistadors considered platinum a by-product or ‘impurity’ of silver, and tossed it out during the refining process. 

Here’s what else I’ve gleaned from Infomine’s palladium portal:

The catalytic properties of the six platinum group metals (PGM)- iridium, osmium, palladium, platinum, rhodium, and ruthenium - are outstanding.  Platinum’s wear and tarnish resistance characteristics are well suited for making fine jewelry.   Other distinctive properties include resistance to chemical attack, excellent high-temperature characteristics, and stable electrical properties.   All these properties have been exploited for industrial applications.   Platinum, platinum alloys, and iridium are used as crucible materials for the growth of single crystals, especially oxides.  The chemical industry uses a significant amount of either platinum or a platinum-rhodium alloy catalyst in the form of gauze to catalyze the partial oxidation of ammonia to yield nitric oxide, which is the raw material for fertilizers, explosives, and nitric acid.   In recent years, a number of PGM have become important as catalysts in synthetic organic chemistry.  Ruthenium dioxide is used as coatings on dimensionally stable titanium anodes used in the production of chlorine and caustic.   Platinum supported catalysts are used in the refining of crude oil, reforming, and other processes used in the production of high-octane gasoline and aromatic compounds for the petrochemical industry.  Since 1979, the automotive industry has emerged as the principal consumer of PGM.  Palladium, platinum, and rhodium have been used as oxidation catalyst in catalytic converters to treat automobile exhaust emissions.  A wide range of PGM alloy compositions is used in low-voltage and low-energy contacts, thick- and thin-film circuits, thermocouples and furnace components, and electrodes.

The market got excited about PGMs last year when their use in catalytic converters in the manufacture of car engines increased, which fueled a rise in price.  Personally, I think the use for these fine metals will grow as the world becomes increasingly electronic and fuel efficient.

Fundamentally, I like PAL. The company just closed a whopping $75 million Cdn financing at $4 per share, which is substantially higher then the anticipated $56 million Cdn. Someone at least thinks the stock is drastically oversold at the present time, and is prepared to put money on it.

Bullish!

Careful out there.

Kb