Over the last five year, Stillwater Mining (SWC) has returned 255.2%, outperforming its industry peers who have struggled to post positive returns. The Billings, Montana-based miner is engaged in developing, extracting, processing, smelting, refining, and marketing of platinum group metals (PGM). And despite it being up 24% year-to-date, there are a handful of reasons that should propel the stock price higher.
South Africa and Russia are dominant producers of platinum group metals (PGM), contributing to as much as 80% of world production. However, recent developments in both the regions point to possible interruptions in production with far-reaching effects.
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So far there are no signs that either side is willing to concede, as a result the Russia-Ukraine crisis could lead to additional sanctions being imposed against Russia, including against palladium and platinum. The limitations on supplies could have severe impact on PGM metals’ prices and associated industries.
Improving global auto industry
While the supply-side is likely to face a few challenges, the demand for PGM metals is set to expand this year, according to study by Scotiabank. Autocatalysts account for nearly 40% of platinum demand and around 67% of palladium demand. These demands are supported by stronger than expected recoveries in the US and Chinese auto sales in recent years, a trend that is expected to continue this year.
After enduring a six-year slump, with sales falling to a two-decade low, the European auto industry is poised for a 2% to 3% upside this year. As a matter of fact, sales figures were up for six-straight months in February. A recovery in EU auto sales should further increase the demand for PGM metals. In all, Moody’s Investors service expects global light vehicle sales to growth 3.2% in 2014.
The improving consumer confidence, amid expectations of more robust global economic growth this year, is like to spur platinum demand in other sectors as well, for instance, the jewelry manufacturing that accounts for some 34% of the metal’s total demand. As might me expected, industrial demand for all PGM metals is expected to pick-up through 2014, in line with ongoing economic recoveries.
In 2013, Stillwater’s revenue grew to $1.04 billion, up 29.9% from 2012. Mine production increased to 523,900 PGM ounces from 513,700 ounces in the previous year. The company has manageable debt, which...