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North American Palladium Ltd. Message Board

  • tellurium_001 tellurium_001 Feb 14, 2008 10:59 AM Flag

    The rightful Price of PAL and SWC, ased on Metals

    SWC and PAL both started current rally from their absolutely low rock bottom on Jan 22. Let's calculate from the lowest of the low, SWC at $7.42, and PAL at $3.28 at their multi-year lows on Jan 22.

    Platinum was at $1538 on Jan 22. Palladium was at $364. Today platinum is at $2000 and palladium at $436, according to KITCO. That's a gain of $462 for platinum, and $72 for palladium.

    Based on each share of SWC produces 0.00484 ounces of palladium and 0.0012 ounces of platinum per year. For PAL that's 0.00367 ounces of palladium and 0.00032 ounces of platinum per year per share. Use a very reasonable P/E = 10, we can calculate what each stock should have gained:

    SWC should have gained $9.03, to $16.45
    PAL should have gained $4.12, to $7.40

    Both stocks today are still way below what their rightful price should be, at conservative low level, even without consdieration of the further metal rally potential.

    Buy as much as you can!

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    • price of Palladium in Canadian Dollars looks range bound over the last years. Weak US$ makes it look like the price is exploding:

      http://www.infomine.com/investment/metalschart.asp?c=palladium&u=oz&submit1=Display+Chart&x=cad&r=5y#chart

    • Based on each share of SWC produces 0.00484 ounces of palladium and 0.0012 ounces of platinum per year. For PAL that's 0.00367 ounces of palladium and 0.00032 ounces of platinum per year per share. Use a very reasonable P/E = 10, we can calculate what each stock should have gained:

      SWC should have gained $9.03, to $16.45
      PAL should have gained $4.12, to $7.40

      ______________________
      Hi Tellurium,
      Your calculation is interesting. I have a couple of questions:
      1. Based on your price increases and production mix, I could not arrive to 9.03 or 4.12. I assume you have use some kind of selling overhead or extra bonus expense for higher price/revebue?
      2. I worked the numbers a little bit, and based on my calculations, it appears that one is much better of buying just SWC. Why even bother with PAL? My observation is strictly based on numbers given here. I don't know anything else about these two companies.
      3. For PAL to reach $100, as you calculated, the price of Paltinum must be almost 10000 an ounce and a few thousands for the other metal. Do you think that the market will and/or be able to bear those extremely high prices? or the consumers will look for other alternatives?
      Thank you.

      • 3 Replies to ynhumap
      • Here is how the calculation is done:

        There are 93M shares of SWC outstanding, and annual production is 450K oz palladium and 130K oz platinum. 14% of platinum is hedged at fixed ceiling price and hence does not contribute any profit gain due to increased metal price. So that reduces to 130K * 86% = 111.8K oz of platinum.

        Divided by share number, you arrive at 0.00484 oz palladium and 0.0012 oz palladium per share.

        Assuming SWC produces the same amount of metal at same cost. Increased sales revenue due to metal appreciation will be net increase of gross profit. The per share profit gain is:

        From palladium:
        0.00484 oz * $72 price gain = $0.3485

        From platinum:
        0.0012 oz * $462 = $0.5544

        Total annual earnings gain:
        $0.3485 + $0.5544 = $0.9029

        At a reasonable P/E ratio of 10, share price increase should be 10 times earnings increase, therefore share price should increase 10*$0.903 = $9.03, i.e., SWC share price should increase from $7.42 to $16.45, an increase of $9.03.

        Same calculation can be applied to PAL, which justify a share price gain of $4.12, to reach $7.40.

        I believe PAL is a better value than SWC, consider that it's per share price is low while mine production is relatively high per 1K of market capital.

        Each $1K worth of SWC stock controls 0.33 ounces of palladium production and 0.082 ounces of platinum.

        Each $1K worth of PAL controls 0.61 ounces of palladium production and 0.0533 ounces of platinum. On top of that, lots of base metals.

      • I don't know if Tellerium's numbers are correct, but given his degree of thoroughness, it's a pretty good bet that they are. Using just his numbers, the current prices of palladium and platinum, and the current share prices of PAL and SWC, it appears that PAL is somewhat cheaper on the basis of share price to metal value output, at this time. PAL also has a large nickel component (and some other metals) which may be relevant, though SWC also has some other metal output.

        The bottom line for me though is that if palladium closes the gap from the current ratio of over 4.5 to 1, platinum to palladium, to something more like 2 to 1 platinum to palladium (possible, given the substitution potential in catalytic converters), then this would seem to benefit PAL somewhat more than SWC.

        Personally I prefer PAL to SWC partly because of the significance of the palladium to PAL, and partly because of the Norilsk ownership in SWC. I'm not saying that I lack trust in Norilsk's ownership in SWC, but I don't truly understand that relationship, and it's hard for me to see how the "little guy" investor in SWC can feel they are full and equal participants there, while Norilsk has the dominant stake in that company. And frankly, I was an SWC investor even before Norilsk came aboard, and I can't say I was thrilled with the SWC management even back then. Though PAL's management ability has some pretty big question marks as well (based on past performance, although they seem headed in the right direction now), I realize that.

      • THey will bare it just as they have to bare 100 oil... oil use to be 10$ a barrel.

    • Great report!

    • Tellurium_O: I also am long and own both SWC and PAL. I see the logic you applied to the prices of these 2 corps and have to tell you it is flawed. There are many other items that effect the price of any commodity producing corp. There are a lot of needs to be meet, legitimate and not so before the stockholder gets an advantage. Just the fact that Corps.in general are corrupt and inefficient makes a big difference. Palladium could be $1000 on ounce and a typical screwed up corp could go down the tubes: so yes I am long but am ready to sell on the next surge towards $7. Fran

    • JJ/CIRCLES....got s stock pick for ya....its called nuclear solutions...ticker..NSOL.OB...they are involved in biodesiel..have a patented process for refing fuel from stuff like waste coal,used tires and biomass,etc. They also are a homeland security play with a patent on a hand held nuclear detection device that can read radiation signals from shielded devices...its basically an r&d company....anyways it received a takeover bid from a company called InterAmerica...for 1.50 a share about a month ago the stock spiked from .40 to .80....it has pulled back all the way back to .40 since then because everyone that thought the deal would be done by this week sold it off...i,ve been talking to a friend of mine that runs a hedgefund that specializes in trading small energy and metals plays..had him check out the deal and he says its for real...the stock will probably trade sideways a little longer till more particulars of the deal are made available but right now with the stock trading at .39 i,ve never seen a more definite double/triple than this execpt for PAL at 3.40...anyways check it and see what you think...had to share this somebody...anyways cheers...D....

    • u are right true person, no bs,u were right about FSLR,and wanna thank u save me bunch of money,im in PAL ,SWC,eom

    • Give it time. We are going much higher even if the metals do not rise any higher. We have had a lot of profit taking along the way up from the lows.

      PLUS ... the idiot Gold Killer has been selling millions of shares short to drive the price under $5 by tomorrow so he can make money on his 10 covered calls. )))))

 
PAL
0.2747+0.0147(+5.65%)Aug 29 4:02 PMEDT

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