A rapid recovery in the price of palladium to more than $2300 an ounce since a Covid-19 sell-0ff earlier this year has seen it reclaim top spot in the precious metals family, outperforming gold and platinum.
One of the biggest winner from the revival, which has seen palladium rise by 33% since April, is a small explorer which appears to have made Australia’s first significant palladium discovery.
Chalice Gold caught my eye earlier this year which it first reported high grades of palladium, nickel, cobalt and gold from its Julimar project about 70 miles north of Perth on Australia’s west coast.
Chalice Keeps Rising
Within weeks of the first assays being announced Chalice shares rose by 400% from 15 cents to 78 cents. Today, they’re trading at $1.40, up another 80%, and they could continue to move higher if valued using the latest prices for the cocktail metals in the discovery.
Macquarie Bank, which sent a representative to inspect the Julimar discovery site last week, calculated that if current metal prices were applied Chalice shares would have a net present value of $2.35.
Work at Julimar over the next six months will mainly involved drilling to establish the size and quality of the discovery with the aim being to publish a maiden resource statement by the middle of next year.
Interesting as that calculation might be Chalice has a long way to go before it can be confident of turning a wild card discovery into a commerciall viable mine.
A Fresh Chapter In Australian Mining
But if the transition can be made Chalice will have written a fresh chapter in Australia’s geological history with palladium one of the few missing links in the country’s extensive portfolio of commodities.
What’s driving palladium is its primary use as a catalyst in the exhaust systems of gasoline engines, with jewelry a secondary market.
Until 2015 palladium played second fiddle to its sister metal, platinum, which is favoured as a catalyst in diesel engines, but a scandal which saw Volkswagen cheat on diesel emissions crushed demand for diesel-powered vehicles.
The shift to gasoline engines stretched the supply of palladium which is mainly supplied by Russia, whereas platinum is a specialty of South Africa.
Palladium And Platinum Can Be Switched
By early this year the palladium price had rocketed past that of platinum to be selling for around $1840/oz on its way to a peak of $2700/oz in March when the Covid-19 pandemic hit vehicle demand and the price collapsed back to $1770/oz before regaining most of the lost ground to trade above $2300/oz.
Platinum was also hit by the fall in vehicle sales, dropping from as high as $1025/oz in January to $607/oz, before moving back to the latest price of $943/oz.
Theoretically, the palladium/platinum price gap should narrow because it is now so wide that car makers are being incentivized to swap their palladium coated exhaust systems with platinum, though there is an initial tooling up cost.
If the switchover starts to happen then platinum could reclaim the ground lost after the Volkswagen scandal, creating an interesting buying opportunity for investors prepared to take a fresh look at platinum.