Why North American Palladium's Fallen Down in 2012

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at North American Palladium (NYSE: PAL  ) . The miner is one of just two producers of palladium, which is a precious metal used primarily in catalytic converters for vehicles, as well as jewelry use, in North America. But the stock has suffered from recent weakness in the palladium market. Let's take a quick look at how the stock is doing so far this year.

Stats on North American Palladium

2012 YTD Return (14.9%)
Market Capitalization $378 million
Revenue, Most Recent Quarter $44.7 million
Year-Over-Year Revenue Growth, Most Recent Quarter 18.2%
Net Loss, Most Recent Quarter ($0.9 million)
CAPS Rating ****

Source: S&P Capital IQ.

Why is North American Palladium losing in 2012?
North American Palladium has had a tough time of it for a while now. In 2011, steadily dropping palladium prices helped contribute to a 65% fall for the stock. Because North American Palladium's production costs are fairly high, the company is especially vulnerable to lower bullion prices, and even minimal further declines over the past six months have exacerbated the problem and sent the stock to levels it hasn't seen since the depths of the financial crisis three years ago. Moreover, its Vezza gold mine, which is scheduled to start commercial production at the end of the month, faces falling gold prices as well.

Improving economic conditions for automakers were supposed to boost demand for palladium. But even though Ford (NYSE: F  ) and General Motors (NYSE: GM  ) are both holding up reasonably well, they're facing big challenges in the European market. Moreover, they'll be reluctant to make the same mistake that Ford did more than a decade ago, when Ford locked in palladium supply at extremely high levels only to see prices sink to less than a third of their current value.

Rival Stillwater Mining (NYSE: SWC  ) is seeing many of the same challenges, but it at least remains solidly profitable. North American Palladium needs to see its expansion efforts at its primary Lac des Iles palladium mine pay off, along with success at Vezza. The stock has plenty of room to run to the upside if it can get things going for it again.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford, as well as creating a synthetic long position in Ford. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On June 27, 2012, at 1:10 PM, bellbell63 wrote:

    "Because North American Palladium's production costs are fairly high..."

    IMO they are average if not slightly below.

    PAL Pd costs are coming down sharply. 2011 was $450

    YTD 2012 $380. Est 2015 - under $200.

    PAL figures cost net of any byproducts(Pt,Cu,Ni). They have been hit hard and thus raise net costs.

    Hard to tell what other producers costs are. Most Pd comes as by-product of platinum and nickel mining and costs for Pd are not broken out.

    Stillwater has guided $500 for 2012 for (Pd+Pt)

    There may be upward pressure on Pd prices as marginal Pt mines in SA close, thus reducing the Pd as byproduct output.

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