small-cap palladium mining company North American Palladium Ltd. (PAL) is slumping yet again after two months of gradual pickup, falling 12% as of mid-day Friday.
PAL’s Roller Coaster Stock Ride Is Losing Momentum
North American Palladium has had a rocky year. Its YTD stock graphs look like the tail end of a roller coaster, rocketing out of a slump at the end of 2013 and peaking at $0.90 just one week into 2014. However, it fell as quickly as it rose, and, from January to March 2014, North American Palladium lost 21%. It picked up again at the end of March with news of a 24% rise in palladium reserves and resources from January 2013, but it was clearly losing momentum. It peaked at $0.59 on March 24.
In the last two months, PAL has been fighting to cross $0.40 per share. It came very close on June 20, closing at $0.38. Palladium investors have historically been sensitive to analyst forecasts, and a positive Zacks report on palladium that same day may have contributed to the boost in stock value.
Unfortunately for PAL, that sensitivity appears to be working against the mining company. A severely critical review on Seeking Alpha was released the morning of June 27, and since its publication, PAL trading has been bearish. The company’s stock gapped down 4.7% from the previous day’s close and has continued to decline.
Negative News Sparks Investor Anxiety
The Seeking Alpha article’s author, Fun Trading, is identified only as a former engineer with “long experience as an independent investor.” This is not his first article on PAL, and he submitted an equally adverse analysis of PAL on April 6. The company’s stock fell the following day by 15%.
With no other current breaking news on palladium reserves or futures, the negative reviews are the most likely cause for the recent investor doubt. The most prevalent criticisms of PAL featured in the article are in regard to its debt, which has accumulated during an ongoing transition from ramp- to shaft-based underground mining.
Its most recent Q1 2014 report announced that due to improved efficiency in its facilities, production costs should have been 7% lower than they were in 2013. However, a colder-than-expected winter cost the company $2.7 million more than planned in propane and power bills. It closed the first quarter at an operating loss of $26.7 million, or $0.11 per share. Projections for Q4 2014 suggest expectations of a turnaround, placing net operating loss 56% lower at $11.75 million, or $0.05 per share.
With a similarly positive outlook, a June 20 Zacks report placed palladium on track for healthy future demand on the commodities market. Over 50% of the palladium demand is derived from the auto market — Chinese car sales are expected to expand by 11%, which would boost the demand for palladium used in catalytic converters. Overall global auto sales are projected to be up 5% this year. Additionally, Russia’s palladium stockpile has been shrinking over the past few years, explaining the rise in palladium futures prices.
Surprisingly enough, five days after the optimistic report on palladium, Zacks announced it had downgraded PAL from a “neutral” to “underperform” rating. They currently have a $0.40 target price on the stock. This target price is 33.3% higher than its current trading price of $0.30.
PAL is one of the two largest palladium producers in North America, second only to Stillwater Mining Company (SWC) . The international supply shortfall is expected to boost palladium futures prices, keeping the prospects for North American producers strong, despite PAL’s heavily criticized debt. Stillwater is reporting intraday gains of 0.53%.