Written by Jason Williams
Monday afternoon, my colleague, the esteemed Luke Burgess of Energy and Capital fame, sent out an article about the best performing metal of 2020.
Just a few hours before getting Luke’s email, I got a notification from a member of my neighborhood association to be on the lookout: His catalytic converter had been sawed off his car in the middle of the night, and it was going to cost him about a grand to replace it.
What’s the connection? Well, the metal that Luke was writing about is the same metal that makes those catalytic converters on your cars so tempting to steal.
And it’s only getting more and more valuable by the day…
What’s in a Name?
Go back about 50 years or so, and you couldn’t end a list of all the things named after Cecil Rhodes. Today, there are Rhodesian Ridgebacks (a breed of dog), Rhodes University (in South Africa), and rhodium (the focus of this article).
Cecil Rhodes was a British mining magnate and the Prime Minister of the Cape Colony (now South Africa) from 1890–1896. He and his British South Africa Company established the territory of Rhodesia (now Zimbabwe and Zambia) in the 1890s.
He was an ardent believer in British imperialism and made it his mission to expand the empire across the African continent. He also believed that the Anglo-Saxon race was “the first race of the world.”
While he’s a celebrated explorer, he might not have been such a great guy. But I’m not here to pass judgment on the past; I’m here to talk about the future.
And there’s a bright future for one of the things that still bears his name – rhodium.
Making Gold Look Cheap
You’ve likely heard a lot of people talking up gold prices this year. I mean they’ve been hitting all-time highs. The mining stocks have been on fire. It must be the best performing metal of 2020, right?
Wrong! So wrong it’s not even funny, in fact…
Since the start of the year, gold prices on the spot market have risen a solid 22%. They started the year at $1,527.10 per ounce. They hit a high point in August around $2,067.15 an ounce, and now gold is changing hands for around $1,860 an ounce.
Wait! 22%?! That’s what they’re bragging about?! Ummmm… forgive me for asking, but isn’t the Nasdaq up 40% this year?
Kind of makes gold’s rise seem a little less than meteoric, huh?
Well, that’s because gold really hasn’t performed even close to as well as the top metal of 2020.
That’s rhodium, and it started the year around $6,000 an ounce, dropped to around $2,000 an ounce in March, and then skyrocketed back up to where it sits today: at $16,000 per ounce.
It’s up 167% from the start of 2020, and it’s absolutely soared 700% since hitting its lows in March.
But why? What’s so special about rhodium? And why are people stealing catalytic converters to get it?
Lock Up Your Cats
Rhodium is a relatively unknown precious metal. That’s likely because somewhere around 85% of the demand for it is in the auto-catalyst market. People just don’t hear about it like gold, silver, and platinum.
But it’s one of the most highly sought-after metals on the planet. It’s the rarest of the rare. There is a good 10 times as much gold on the planet as there is rhodium.
It’s resistant to corrosion and can be used as a catalyst to speed up the process of removing harmful nitrogen oxides from vehicle exhaust. That’s why it’s one of the most important metals in the automobile market.
But it’s very rare, and usually, rhodium is a byproduct of other mining operations. It’s found with other platinum-group metals (PGMs) and typically becomes a secondary product of miners focused on platinum or palladium.
There are literally are no rhodium mines in the world. They’re all other mines that produce rhodium as a byproduct, and that keeps supply very tightly capped.
So when there’s a run-up in demand, say from international governments cracking down on vehicle emissions, it’s nearly impossible to quickly ramp up supply.
And that’s led to the massive increase in price we’ve seen this year and are likely to see for at least another few years.
So, if this price movement isn’t over, how can you profit from it?
Well, you can buy physical rhodium and hold onto it. But the rhodium we use in industry is in solution, so you’d likely have a tough time selling that bar of rhodium to a manufacturer.
Or you can invest in the companies mining this rarest of rare metals…
The Main Contenders
Nearly 90% of the world’s rhodium supply comes from mining operations in South Africa, and those operations are largely run by massive mining companies.
The three main players in the African rhodium market are Anglo American, Impala Platinum, and Sibanye Stillwater.
They’re all massive mining companies, however, and rhodium makes up just a tiny fraction of their revenues.
Anglo is the world’s largest producer of platinum, so it’s likely to have the biggest rhodium sales as well.
But when you’re talking about massive companies like these, it’s like investing in GE to get a piece of the renewable energy market — a very roundabout route.
So while these companies are likely to benefit from the rhodium demand imbalance, they’re so well-diversified that we probably won’t see much movement in the share price.
So if the big players aren’t the best investments, where can someone go to get a purer play on the growing demand for this expensive metal?
You’ve got to look around and see where the rest of the rhodium is coming from. If 90% of it comes from South Africa, then 10% of it comes from somewhere else.
And it’s those companies exploring for new deposits that have the biggest potential for massive growth.
The Little Guys from “Down Undah”
There are only a couple of companies exploring specifically for rhodium (and other PGMs), and they’re mostly based outside of Africa.
First off, I’ve got two Australian firms that have combined forces on a joint venture in Western Australia called the Munni Munni Project.
The project is a joint venture between Platina Resources (ASX: PGM; OTC: PTNUF) and Artemis Resources (ASX: ARV; OTC: ARTTF). Platina owns 30%, and Artemis owns the other 70%.
The Munni Munni joint venture is located in the Pilbara region of Western Australia and, according to the companies’ websites, is one of the most significant undeveloped platinum group metal occurrences on the continent.
The site has been the subject of numerous historical drilling programs, scoping studies, metallurgical testing programs, and resource estimates.
The companies have stepped up operations and exploration in order to take advantage of the increase in palladium, gold, and most importantly, rhodium prices.
Artemis operates the site while Platina holds a minority interest, but both stand to benefit if their project can start to deliver precious rhodium while demand is high.
Of the two, I prefer Artemis because of its majority interest in the Munni Munni Project and its liquidity.
The OTC shares currently trade for about $0.09 but have been up as high as $0.12 in just the past month as interest in rhodium picks up.
It wouldn’t take much for them to get back up there in the near future. And once they break that resistance, it should be a relatively short path to $0.15.
Platina could be a good speculative play also, but it has very low volume, so any big purchases could have an undue effect on the share price and will need to be made very carefully.
Not Right in My Back Yard
Most people prefer not to have things right in their back yard. But when it’s a metal that’s so necessary for an industry as big as auto-catalysts, it’s not bad to have some in your back yard.
And that’s exactly what Canadian exploration firm New Age Metals (TSXV: NAM; OTC: NMTLF) thinks it has found with its Genesis PGM and River Valley PGM projects.
Genesis is located in Alaska and is a road accessible, under explored, highly prospective, multi-prospect drill-ready property. New Age owns 100% of the mining claims in the area and is stepping up exploration as rhodium prices continue to rise.
The other project, River Valley, is located in northern Ontario and is also easily accessible from pre-existing paved roads. Perhaps more importantly, it has a strong established infrastructure and the support of the local community.
The project is, once again, 100% owned by New Age Metals. The company discovered significant PGM occurrences on the property in the late-1990s. Recent studies have shown that the mine should have a life of around 14 years, and a feasibility study completed in late-2019 returned profitable results even with the metals priced far lower than they are now.
Being close to industrial economies like the U.S. and Canada and with easy access to roads, New Age Metals looks like a very good speculative investment in rising rhodium prices.
The OTC shares currently trade around $0.07 but have been as high as $0.11 earlier this year.
With increasing interest in rhodium and limited investments available, we’re likely to see those shares head back up to their former highs and perhaps even set new records in the coming year.
The End Is Near
But as our revered leader, Brian Hicks, put it when I was talking to him about rhodium prices this week: “The future is electric.” He’s right, and that means this rhodium trade has a limited lifespan.
Eventually, we’re going to phase out all the vehicles that require catalytic converters. When that happens, the demand for rhodium will plummet.
But until those ICE vehicles are all off the road, we can also expect much tighter regulations on emissions. And that means more rhodium in more catalytic converters.
The best part of this trade is that rhodium can be replaced with palladium, but they both come from the same mining operations. So betting on a company to win the rhodium battle is also betting on a company that mines the only potential replacement for the metal.
It’s almost a win-win, but it’s not going to last forever.
As EVs continue to make up more of the global vehicle fleet, the demand for metals in catalytic converters will fall. It will be a slow fall, like that of the major oil companies, but it’ll end the same way.
So, if you’re hoping to turn a profit from the rhodium imbalance, you’ve only got a few years to squeeze out as much profit as you can.
After that, we’ll likely be entering the decline, and all you’ll wrack up is losses. Unless we end up needing rhodium for some EV thing we don’t know about yet, that is.
Got to love investing. There’s always the possibility of something new cropping up tomorrow and changing everything.
