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North American Palladium (TSX: PDL) Sells Gold Division

Palladium Mining Focus

Written by Brian Hicks
Posted April 5, 2013

North American Palladium Ltd. (TSX: PDL) has finalized the sale of NAP Quebec Mines Ltd., the company's gold division.

NAP Quebec mines is inclusive of the Vezza mine, the Sleeping Giant mine and mill complex, and several regional exploration properties. All are being sold to Maudore Mineral Ltd. (TSX-V: MAO).

The entire deal is estimated to be worth $18 million in cash, as well as 1.5 million common shares from Maudore. The latter is listed on the TSX Venture Exchange, and is presently in a four-month hold period, as is usual for Canadian securities.

platinum palladiumFurther payments are likely to be made, reports MarketWire, to NAP after closing, due to fluctuations in gold and silver purchase prices. It appears that NAP will use the deal to push ahead with expanding its Lac des Iles palladium mine, located in Ontario.

From MarketWire:

"Through the divestiture of the gold division, North American Palladium can now be completely focused on the Lac des Iles expansion and operation," said André Douchane, Interim Chief Executive Officer. "The Lac des Iles mine is a world class palladium asset that is expected to be the main source of our future growth in production and cash flow."

What’s instructive here is that a company is selling off its gold mine and associated properties and instead choosing to focus on expanding its operations in palladium mining. You would think that with gold’s traditional attraction as a safe haven investment, a company wouldn’t want to let go of the golden goose. But let’s look at what’s going on.

As recently as March 8, gold remained fairly flat, with fresh figures indicating some slight improvements overall in the U.S. economy but nothing to make the Fed wind down its stimulus program.

Meanwhile, palladium shot up 3 percent to its highest in 19 months, riding on a combination of concerns regarding supply shortages and exploding auto demand.

Remember, palladium is used extensively in the automobile manufacturing process. Specifically, it’s used in the manufacture of catalytic converters in gasoline-driven vehicles (platinum is also used for this purpose, but is more effective in diesel vehicles).

Thus we saw U.S. palladium futures deliveries going up, a highly suggestive indication of increasing demand.

Reuters’ data for Friday, March 8 indicates that U.S. gold futures for April were up $1.80 per ounce, at $1,576.90. Palladium, meanwhile, was up 3.4 percent at around $780.97 per ounce. And in fact, palladium ETF sales have been riding high so far this year. Reuters reported that year-to-date, four big global palladium ETFs saw their holdings go up 10 percent.

Against this background of palladium performing extremely well, physical gold funds reported impressive quantities of outflows; it seems investors are increasingly trending toward platinum and palladium rather than gold.

In terms of numbers, palladium ETPs in March saw an inflow of 127,855 ounces. That’s their biggest monthly total ever. Consider that the average figure for monthly inflow, since 2010, has been around 41,693 ounces—it’s an increase of nearly threefold.

Some 90 percent of that inflow went into ETF Securities’ European palladium fund and the New York fund that is controlled by its U.S. unit.

And in that same month, reports Reuters, gold ETFs experienced a dismal time—SPDR Gold Fund (NYSE: GLD), the largest such fund, dropped by its biggest amount ever over February.

From Reuters:

"I think it is part of the broader rotation by investors into more cyclically geared assets that started late last year as investors become more confident about the global macro outlook," ETF Securities' head of research Nicholas Brooks told the Reuters Global Gold Forum on Friday.

"At the same time that gold ETFs have been seeing outflows there have been strong inflows within commodity ETFs into copper, platinum, palladium and broad commodity index trackers."

Clearly, there’s a shift toward investment that favors metals popular in industry. ETPs appear to be an excellent way to get in on the action. ETPs provide securities backed by physical gold (or, for a palladium-backed product, that metal), and investors can be exposed to the actual metal’s performance without the trouble of having to store it and insure it.

Thus far, palladium has outperformed the entire precious metals sector, rising 8 percent compared to platinum’s 3.9 percent and definitely outdoing gold’s drop of 5.7 percent.

 

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