Stillwater Mining stock and palladium not affected by GM bankruptcy slap

Federal bankruptcy court may have granted General Motors (NYSE: GM) the legal right to terminate its original precious metals contract in 2009 with Stillwater Mining Company (NYSE: SWC), but it did not affect anything except the moral peace between the two companies.
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Good news is, peace has been restored between GM and the Montana mining company that provides precious metals for emission-reducing catalytic converters.

According to the 8-K filing with the US Securities and Exchange Commission, the two companies entered into an agreement on December 17, but did not become effective until January 1. Terms were set under which Stillwater will return to selling and delivering palladium to GM over a fixed period.

Those terms stated that Stillwater will sell to GM contractually determined fixed quantities of palladium in each of the years 2011, 2012 and 2013 for a price to be calculated based on the London PM Fix Monthly Average for palladium at the time of each sale.

For the record, the largest use of palladium today is for automobile catalytic converters. Based upon some estimates, the 450 million automobiles in the world today is projected to more than double in the next 30 years requiring a growing use of palladium. Although some forecasters suggest palladium can be recycled from scrapped-out automobiles, it will not be enough to support the supply/demand price equation for palladium in coming years.

One area where palladium is seeing increased use is post processing of exhaust with diesel engines.

Technical Analysis

Looking at the monthly chart for SWC, the trend since 2009 has been biased to the long side. The worst pullback was in May and June of 2010. So, it appears the cost of palladium has not hurt Stillwater from losing GM’s business.

Further, with palladium currently at a steep discount to platinum there is an economic incentive to develop technology using palladium; meaning the fundamental story is in line with the technicals.

Perhaps that’s why the Motley Fool website thinks it’s “the perfect stock.” Their thinking is, there are too many positive factors, not to mention the exchange-traded ETFS Physical Platinum (NYSE: PPLT) and ETFS Physical Palladium (NYSE: PALL) each have about $600 million in platinum and palladium. So, it's clear the demand is there.

Full Disclosure: At the time of this writing, Frank does not have any open, short or option positions in SWC. He is author of "Awaken Your Speculator Mind" and the creator of the chart.

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