Sunday, December 16, 2007

Valuation of SWC and PAL Compared

Both SWC and PAL are primary PGM metal producers. They are the only major PGM metal producers outside Russia and South Africa. I expect the PGM metals, especially palladium, to be extremely bullish in the near future, due to booming demand from jewelry and fuel cell applications, or even the exotic cold fusion application. Investing in the physical palladium metal is a very good idea. But investing in the stocks of these two PGM producers may bring in much higher leveraged return.

So if you are to buy stocks of PGM producers, which one you would choose at today's price, SWC or PAL? Let me compare the two here.

First, let’s look at SWC. Stillwater mine has a mine grade of as much as 0.55 ounces of PGM metals per ton of ores. That is the highest grade PGM mine in the world. But the SWC mine is mostly palladium, about 3/4 palladium and only 1/4 is the more expensive platinum. So for now it is not as profitable as the platinum mines in South Africa.

The mine grade of PAL is much lower at about 2.5 grams PGM per ton of ores. It contains way much less platinum, too, only 1/10. But PAL does have its advantages. It is mostly an open-pit operation, so the mining cost is way much cheaper than the underground mine of SWC. PAL produces way much more base metals, especially nickel, compared with SWC. Further, PAL has quite a few ongoing exploration and new mine development projects going on, while not much new mine development is going on with SWC.

Now let's look at operating results to compare the two. SWC has a current market cap of $839.72M, compare with PAL's $273.40M (with new shares from secondary offering counted in). For the first nine month of 2007, sales revenue of SWC was $470.50M, among which only $210.877M was from mine production. $247.977M of the sales revenue came from PGM recycling business, which is profitable but really a thin profit margin business due to competition in the recycling business.

Counting only the mining production, SWC has a 9 month price/sales ratio of 3.982. Annualized it is 2.987, a low ratio. But PAL reported $149.426M (in Canadian dollars) sales revenue for the nine months. That's an annualized price/sales ratio of 1.372, way much lower (cheaper) than SWC.

I believe the price/sales ratio is more important than the current P/E ratio, because as metal prices go up, the sales revenue will go up proportionally, while cost of producing the same amount of metals remains about the same. Any increase of sales revenue due to better metal prices will directly go into pre-tax net earnings. With a price/sales ratio less than half of that of SWC, PAL is a much better value to buy here. And I called a PAL bottom last Tursday.

Some folks may like to judgement stocks only based on P/E ratio; I think P/E is less meaningful here. PAL's quarterly results are extremely volatile. In Q1, 2007, PAL reported quarterly earnings of 10 cents per share. In Q2, 2007, it reported quarterly loss of 17 cents. And then in Q3, the loss widens to 25 cents. Some may wonder how PAL could report such increasing loss at a time when PGM metals are moving up.

In reality, the fluctuation of PAL's quarterly results is due to the way how PAL did its accounting. For Q1 through Q3, based on its reported metal productions and realized sales price, the produced metal values are respectively $59.911M, $51.041M and $51.327M. Not a big variation. However the reported sales revenues are respectively $68.439M, $44.495M and $36.492M. That's a gigantic difference. No wonder PAL went from 10 cents a share profit in Q1 to 25 cents a share loss in Q3. The results are really just some temporary aberrations that do NOT reflect the real operating results of PAL from the long term point of view.

What causes those aberrations? For one thing, PAL may not sell all of the metals produced in current quarter. It may decide to hold some metals back for better prices in the future. But the cost of all metals produced in current quarter is nevertheless booked in current quarter regardless when the metal will be sold.

Another reason for the quarterly aberration is PAL records sales revenue in current quarter, using current metal prices, while the metals still need to go through smelters. The actual closing of the sale of the metals will occur about 6 months later at the new spot price, which may be higher or lower than the originally booked sales price, also the sales revenue will be converted back to Canadian dollar at the time of the actual sale, which may be converted at a different USD/CAD foreign exchange rate. Because of this reason, PAL needs to record the commodity price adjustment, as well as foreign exchange adjust, to its quarterly sales revenue. Both adjustments exaggerate the volatility of quarterly results, making one quarter particularly good and the next one particularly bad. Over the long term, both adjustments should NOT have any long lasting effect on PAL's quarterly results.

Two factors pushed PAL from its recent high of $12.65 to recent low of $3.40, the seemingly disappointing Q3 result is one factor, and the recent secondary offering to dilute shares is another factor. Now let's see how bad the secondary offering dilution is.

Before the offering, PAL had 55.23M shares. After the offering, there is 18.67M extra shares, so the new number of shares is 73.9M. 55.23M divided by 73.9M is about 75%. So that's a share value dilution of 25%.

But don't forget that the secondary offering also brings in $74M in cash. That's an increase of book value of about $1 per share. PAL's current price is $3.70. Subtracting the $1 extra cash, the market is pricing PAL at $2.70 a diluted share, or $3.60 per share before dilution. That is a rather ridiculous valuation consider that PAL has been trading between $6 to $12.65 before this secondary offering fiasco!

In summary, I believe PAL is deeply oversold. People should jump right in and buy as much as they can afford at current price level.

Disclosure: The author owns a lot of long positions in PAL and some long positions in SWC.

Wednesday, December 12, 2007

PAL Investors Were Mooned to Lose Shares

In a previous article I discussed that palladium could be the best commodity investment, and that I recommend people to buy the stocks of SWC and PAL for leveraged long term profit from the coming palladium super bull. These two North American mining companies are the only primary PGM metal producers outside Russia and South Africa. I discussed the major reasons why palladium is super bullish. The reasons include the end of Russian stockpile sale soon; some determined investors have been loading quietly since 2003; auto companies switchign to the cheaper palladium for catalysts converters; emerging PGM metal applications including the red hot fuel cell batteries in vehicles, as well as in mobile electronics; and the more exotic prospective that cold fusion could become a commercial reality, bringing the palladium price to unimaginable level if that happens.

As of this writing, the stock price of PAL has been pushed from recent high of $12.65 to a multi-year low of only $3.40, while prices of its metal products are near multi-year highs. I have sufficient reasons to believe this is a deliberate stock price manipulation.

This is an extremely rare opportunity that investors need to seize immediately and load up PAL at this incredibly low entry price, I urge people to rush in to buy. For all those folks who could not bear the pain and sold, now is time to buy back your shares. Don't let some one else steal your shares at this dirt cheap price.

PAL started the drop from $8.05 a share, on Nov. 5th, 2007, when a Q3 loss of 25 cents was reported, far worse than estimates. The plummet worsened when PAL announces a $100M secondary public offer on Nov. 27, 2007, with the offer units and price yet to be determined at the time. PAL reached the low of $4.04 on Dec. 10, and the secondary offer price was fixed at $4 that evening, number of offer unit was fixed at 14M, for a total of $56M.

The next day, on Nov. 11th, PAL saw extremely high volume of trade, more than one million shares were traded in just the first 5 minute. More than 7.89M shares traded that day, and the stock was pushed to the low of $3.40 a share at close. The next day, Dec. 12 saw reduced but still significant trade volume, and the stock price recovered some to close at $3.54.

It looks like a well defined bottom upon the conclusion of secondary offer. Once the offer is closed, which is on Dec. 13, 2007, the conventional wisdom is the stock should rally back up.

I believe the PAL's Q3 loss result, as well as the secondary offer announced right after a bad quarterly result, were deliberately planned for the sole purpose of depressing stock price and get the secondary offering priced as low as possible, so as to allow certain big stake holders to increase their stakes at the lowest cost possible, and shake out retail investors. There was also carefully timed and concerted market manipulations going on to mercilessly hammer the stock down during the trading hours for the last few weeks.

Why do I believe that the Q3 result was deliberately depressed? I examined the financial report for the third quarter, and discovered that the sales revenue reported is way much lower than that in first quarter, during which PAL reported a 10 cents per share profit. The Q1 sales revenue was $68.4M, while the Q3 sales revenue was only $36.492M. It was way much less!

Further, the $36.492M sales revenue in Q3 just does not look right, judging from the amount of metals produced and their realize prices. For the calculation I used the metal producton numbers from page 3; Palladium sales price from page 2; byproduct metal prices from page 6, and the sales revenue break down from page 25. I did the calculation, and find that indeed the numbers do not look right:

Average Price$344.00$1377.00$742.00$14.08$3.66
Metal Value$23,833,352$8,187,642$3,802,750$10,336,325$5,167,078$51,327,147
Sales Revenue$15.038M$6.673M$3.385M$7.037M$4.000M$36.492M

So we see that the total value of metals produced was $51.33M, but the actual sales revenue was only $36.492M. The shortcoming is as high as $14.84M, more than the reported quarterly loss of $14M. Clearly, the PAL management did not sell all of the metals produced. They held some metals back, and reported reduced sales revenue as well as quarterly loss. The quarterly loss was an intended result!

Once we understand that the quarterly loss was a planned result, it's now easy to understand why the management chose to announce a secondary offering right after a bad quarterly result depressed the stock price, knowing full well that such an announcement of secondary offering could only further depress the share price, and dilute share value.

Because share price drop must be the intended result! There must be some internal pressure from certain big share holders to produce the quarterly loss they want to see, and then a secondary offer announcement to depress stock price.

Because somebody must want to load cheap shares to increase their stake at as low a cost as possible. That is why! Folks, now you understand why you are forced to sell your shares at dirt cheap price? Somebody wants to grab your cheap shares!

People need to wake up and hurry to buy back the shares they lost! Now is the right time!

Full Disclosure: The author is holding long positions in both PAL and SWC stocks.

Thursday, November 29, 2007

Tellurium: A Supernova In The Making

Tellurium, one of the rarest elements on earth, was once not thought to be very useful. According to USGS and a Mining Journal Review article, half of its traditional use is as an alloying agent in iron and steel to improve machinability; 25% of it is in catalysts and chemical use; 10% of it in alloying with non-ferrous metals like copper and lead; 8% of it is in electronic application and the remaining 7% in other applications, including as pigment agent in ceramics.

Annual global tellurium production is about 170 tons to 200 tons, based on various different estimates. It's mainly produced from the anode slime accumulated during electrolytic process of copper refining. According to this detailed analysis, copper produced from different places contain vastly different tellurium content. Typically, one ton of copper contains 100 grams of tellurium and only 33 grams are extracted and produced using existing technology. That caps the current global tellurium production at no more than 400 tons, without major investment to improve the tellurium extraction efficiency, assuming globally 12.4 million tons of copper is produced using electrolytic process per year. Because of the low quantity and thin revenue of tellurium in comparison to the revenue from main copper product, copper refineries are UNLIKELY to invest money, time and effort to improve the tellurium extraction rate, unless tellurium price goes up a lot from here, approaching gold price levels.

According to USGS, tellurium price started 2004 at $10 a pound. By the year-end it reached $22.50 a pound. In 2005 the price quickly rallied to $130-$180 a pound in mid year, then flat down to $100-$130 a pound. In 2006, it once again ran up to $155 a pound and then settled for the year at $50-$75 a pound.

So what prompted the rapid price raise? First Solar's (FSLR) CdTe solar panel was one of the demand factors. FSLR produced 60 MW in 2006 and about 20 MW in 2005. At 8 grams of tellurium per panel and 60 watts per panel, that's 8 tons tellurium consumed in 2006 and 2.7 tons in 2005. That's barely 4% and 1.4% of the supply. It's a factor in demand increase, but not the major factor.

The main Te demand increase was from other applications. CD-RW discs use tellurium, as do DVD-RW discs. And even later, ReWritable Blu-Ray DVD discs were developed by Panasonic, using a material called tellurium-suboxide-palladium.

Recently, Intel (INTC) announced a new type of phase change memory chips to start mass production in later 2007. This also uses tellurium. To understand the background of this break through, you need to read an old article: A 30-year memory problem solved?

All those electronic applications mentioned above, CD, DVD and memory chips, relate to the same phase change material called chalcogenide, which contains tellurium. Chalcogenide, the material used in ovonics, is really the cultimation of decades of scientific research on amorphous materials, which was once considered of very little practical use, but of academic interest only.

I originally connected these dots from an article I read entitled "Is There a Tellurium Rush in the Making?". Kudos to Sergio Garcia de Alba for submitting the article Energy Conversion Devices: An Amorphous Gem, which finally allowed me to connect the dots. It's all related to tellurium. Energy Conversion Devices Inc. (ENER) was funded by Stanford Ovshinsky, who invented the amorphous semiconductor materials and coined the name Ovonics. He has numerous important inventions. Chalcogenide, which is a tellurium containing material, is one of them.

Today, after many decades of quiet research and perfection, chalcogenide has suddenly become a very very useful material, having revolutionized and is continuely revolutionizing the whole electronic industry. I like to compare the precious element tellurium to a supernova. It's been quiet and ignored for so long, but all of a sudden it erupts into an extremely bright superstar. The tellurium supernova shines so brightly that it could KILL.

Let's follow the ENER article a little bit:

...a little company called Ovonyx...licensed its memory technology to
semiconductor giants like Intel (which is a partner in Ovonyx), Samsung, Elpida,
Hynix, Qimonda, and ST Microelectronics. The memory technology is based on
chalcogenidephase change memory. It is expected to replace NOR flash memory, and could also eventually replace DRAM and NAND flash. Samsung has announced
production of a 512Mbit part in 2008, and Intel a 128Mbit part that could arrive
as soon as the end of this year or early 2008 (Intel's part codename is
Alverstone). ...What's interesting for investors is that phase change memory
could become a $40 billion+ market in a few years.
This phase change material thing is really HUGE! $40B+ market just in memory chips and we have not even included all the rewritable CDs, DVDs and Blu-Ray DVDs. And it ultimately could also replace the hard disk drives so future computers would no longer need a hard disk drive.
If you are not shocked so far, then read this article about phase change memory. Let me quote from page 2:

A person using a computer with PRAM could turn it off and back on and pick up
right where he left off -- and he could do so immediately or 10 years later.
Such computers would not lose critical data in a system crash or when the power
went out unexpectedly. 'Instant-on' would become a reality, and users would no
longer have to wait for a system to boot up and load DRAM. PRAM memory could
also significantly increase battery life for portable devices.

How wonderful it would be!

Needless to say, this whole new chalcogenide based electronic industry will consume a lot of tellurium, probably all the global tellurium production and then some more. It will drive the price of tellurium to a crazily high level, maybe at gold price, maybe at platinum price, and in doing so, it will kill a lot of trivial, low added value industry users of tellurium.

The kill of this tellurium supernova will probably include FSLR. This company is most vulnerable because it uses a lot of tellurium in its solar panels, any dramatic tellurium price will increase its cost to the level that it can no longer have a profit margin. When a business no longer has a profit margin, it cannot survive. But the tellurium kill probably will go behind that. Tellurium as an alloying agent will probably have to end, as will tellurium used in portable electronic beverage coolers.

My advice to people would be to buy and hoard some tellurium metal ingots if you can still find anything at decent price. If you have FSLR long positions, I recommend that you sell them before it is too late. Tellurium, such a scarce and precious natural resource, is one of nature's best gifts to human kind, and it was never meant to be used on trivial things like generating a few watts of solar electricity; rather, it should only be used in high value added and far more useful things like advanced computer memory chips.

FSLR started on the wrong technology using the wrong material, the extremely toxic cadmium plus the extremely rare tellurium, a deadly combination leading this otherwise aggressively growing company onto a death march. It's a tragedy of nature's making, not the management's fault. But the FSLR management really need to wise up and realize that their sole CdTe product will lead them to nowhere. They must diversify into other technologies, or they may have to shut down business just a few years down the road.

Full disclosure: I currently do not have any ENER position but is looking for opportunity to buy some. I have short positions in FSLR and am planning to short more when it starts the eventual collapse. I am also actively buying physical tellurium metal ingots as investment.

P.S. This article is now on Seeking Alpha.

Monday, November 26, 2007

Cadmium Telluride Casts Shadow of Death on First Solar

First Solar Inc. (FSLR) produces CdTe (Cadmium Telluride) based solar panels as their sole product. In a previous Seeking Alpha article I wrote that although Cadmium is extremely toxic, but the mildly toxic tellurium is lethal to FSLR, due to a potential global tellurium shortage. It comes out that cadmium is indeed not just extremely toxic to human, but more fatal to FSLR as well, once I discover and understand what is RoHS and what it means to FSLR.

In simple words, the RoHS directive is a European Union environmental regulation that took effect on July 1, 2006. It deals with not any average hazadous material, but only the worst of the worst, the evil of the evils, only 6 hazadous materials made it into the top wanted list, cadmium is one of them. Needless to say, the restriction and enforcement is very tough, bringing any offending business to their knees. The full text of RoHS is only 5 pages and is pretty clear. The last page lists a very short list of products that are exempt from the restriction. FSLR's CdTe solar panel does NOT make it to that short list.

Read the wikipedia entry on RoHS! The restrictions are very tough. It separates a product into individual parts of homogeneous materials. Each part must not contain the banned substance exceeding a maximum concentration limit. The limit is 1000 ppm (parts per million) for other 5 materials but only 100 ppm for cadmium. For example, if a radio contains one little screw which contains more than 1000 ppm of lead, the whole radio is banned for sale in the EU. No matter that the lead in the screw inside the radio is unlikely leaked out during usage.

Clearly all products must fall into one of three categories:

1. It is in full RoHS compliance and hence not restricted.
2. It does not comply with RoHS, and hence must be put in a restricted product list.
3. It does not comply with RoHS, but an exemption is granted and is on the exemption list.

Since FSLR's solar panels are mainly sold in Europe, where does it stand on RoHS? Let's look at their Aug. 13, 2007 SEC filing 424B3, on bottom of page 17, regarding the risks with the RoHS directive:

The use of cadmium in various products is also coming under increasingly stringent governmental regulation. Future regulation in this area could impact the manufacture and sale of cadmium-containing solar modules and could require
us to make unforeseen environmental expenditures or limit our ability to sell
and distribute our products. For example, the European Union Directive
2002/96/EC on Waste Electrical and Electronic Equipment, or the “WEEE
”, requires manufacturers of certain electrical and electronic
equipment to be financially responsible for the collection, recycling, treatment
and disposal of specified products sold in the European Union. In addition,
European Union Directive 2002/95/EC on the Restriction of the Use of Hazardous
Substances in electrical and electronic equipment, or the “RoHS Directive”,
restricts the use of certain hazardous substances, including cadmium, in
specified products. Other jurisdictions are considering adopting similar
legislation. Currently, photovoltaic solar modules in general are not subject to
the WEEE or RoHS Directives
; however, these directives allow for future
amendments subjecting additional products to their requirements and the scope, applicability and the products included in the WEEE and RoHS Directives are
currently being considered and may change. If, in the future, our solar
modules become subject to requirements such as these, we may be required to
apply for an exemption
. If we were unable to obtain an exemption, we would be
required to redesign our solar modules in order to continue to offer them for
sale within the European Union, which would be impractical. Failure to comply
with these directives could result in the imposition of fines and penalties, the
inability to sell our solar modules in the European Union, competitive
disadvantages and loss of net sales, all of which could have a material adverse
effect on our business, financial condition and results of operations.

In summary, the CdTe solar panel does not comply with RoHS, the homogenous material of the portion of CdTe layer contains 470000 ppm (47%) of cadmium, far exceeds the 100 ppm limit. By virtue of simply mentioning RoHS, FSLR implied that it is not in RoHS compliance. By mentioning a possible future need to apply for an exemption, FSLR confirms that the product does NOT comply with RoHS.

FSLR made an incorrect statement that the product is not subject to RoHS directives. Any product sold within the territory of European Union, of course, is subject to any regulation that EU imposes on its territory. What FSLR meant to say is that the product currently is NOT explicitly listed in the restricted product list. It is certainly NOT in the exemption list either. Anything not RoHS compliant must be exempted and added to the exempt list, or be added to the restricted list. If it's on neither list, then it's an overlook and a loop hole to be plugged.

FSLR does acknowledge that EU periodically review their RoHS restricted product list and so in the future, they may discover that the CdTe solar panel needs to be put into the restricted list. If that happens, then FSLR must apply for an exemption. If they apply for an exemption, and fail to get one, then, the consequence will be devastating. The business is basically DOOMed in that case, because they have no other viable product.

FSLR is in a very dangerous situation. They are basically playing with fire. They understand their product is non-RoHS compliant and acknowledged that fact by implying future need to apply for an exemption. None-compliant products should be explicitly put into the restricted product list, unless an exemption has been granted and it is listed in the exemption list.

I call on First Solar management to come out and clarify the RoHS compliance situation publically. I think this is clearly a loophole. The product is in neither the list of restricted products nor the list of exempt products. I urge them to contact the EU authority to get a clarification of the status of their product, is it RoHS compliant, or is it non-compliant? Should it be put into the restricted product list and was overlooked? Does it qualify for an exemption or not? Should they apply for an exemption now? Please surrender yourself to the EU authority, let them make a determination. If you don't go forward yourself and obtain a clarification letter, when the EU authority comes forward to you instead, it could be much more devastating to the company's business. So please don't take a chance and don't take advantage of a possible loop hole. You have a wonderful management and engineering team. But please execute your business in an open and honest way free of legal huzzles!

More over I call on the CEO to consider diversifying First Solar's business from the sole CdTe solar panels. This is a deadly combination, an extremely toxic cadmium metal nobody is willing to touch, and an extremely rare tellurium element on earth, supply of which is so limited that it could suffocate FSLR's future growth. I have been trying to buy a few hundred pounds tellurium as a speculative small time investor, I could not find any ready to deliver inventory any where in the world, and have to wait several months for delivery, despite of the small quantity I tried to order. You have been searching around the world to buy tellurium supply to babysit and spoon feed your own CdTe suppliers, so you must know how touch it is to get the supply, more so when your Malaysia factories open next year. This academic paper says that you really don't have terawatts level of tellurium availability despite what the CFO said.

For further readings on RoHS, read this.

Here is a technical article analyzing impact of RoHS on solar PV products.

Full disclosures: I am short in FSLR and plan to add to short positions when it starts to collapse. I am also trying to buy tellurium metal ingots as an investment.

Thursday, November 22, 2007

A Cinderella Metal That Breaks Physics Laws

Frank McAllister, CEO of Stillwater Mining (SWC), would call palladium a Cinderella Metal. I agree with him not only on reasons he cited, but more importantly, palladium (Pd) really is a very romantic fairy tale metal that breaks several known physics laws, literally! I am not a crackpot theorist trying to overthrow modern science. But let me explain why palladium defied several physics laws.

First, palladium defies the oldest known physics law, Isaac Newton's gravity law. The Russians have accumulated large strategic stockpile of palladium since the Soviet Era, they have been selling off the stockpile ever since late 90's. In 2000, a rumor that the Russians may stop the government sale caused a global market panic and drove the price up to $1100 a troy ounce. In the chaos Ford (F) and GM purchased large amount of palladium right at the top of the price. The Russians promptly resumed export of the stockpile palladium. The global market was flooded with huge surplus of palladium supply, and the price collapsed, forcing Ford to write down a $1B loss as a result. The price bottomed in 2003 at $142. It's the law of gravity in the economy of supply and demand: When something is over-supplied, the price has to fall.

The Russians continued to sell about 2 million ounces from the stockpile per year, on top of mine production. Global mine production was roughly 7 million ounces a year. So the total supply was about 9 million ounces while demand was only 7 million ounces. So in a huge surplus situation, the gravity law says the price must continue to fall. That was the conclusion of Allan Williamson in 2003. He was non-reservedly pessimistic in prediction that palladium price should continue to fall, due to continuing massive oversupply condition.

But palladium defied the gravity and rallied off the $142 bottom of 2003, and pushed toward $400, and proved Allan Williamson as well as all other metal analysts wrong. Why was it so? It really shocked me and forced me to research the reason why it defied gravity. And I found many good reasons of why. One of the reasons is as shown on this futures chart, palladium open interest dramatically increased starting in the middle of 2003. Some strong hands started to hoard all the excessive palladium because they see some huge potential in the future. These are not speculators. They have a firm belief in palladium's future, and have been driving price up in the past few years. One of the potential is increased demand of palladium used in jewelries, like in China. But it's way much more than that. I also came to realize that the Russian stockpile is not an infinite supply. It will come to an end. We will then see structural deficit in palladium.

Palladium's many emerging usages relate to the fact that it defies another physics law. It is a solid metal. But it absorbs hydrogen gas, lots of it! Palladium can absorb up to 900 times its own volume of hydrogen. It also absorbs deuterium, a heavier form of hydrogen with an extra neutron in its nucleus. Palladium's absorption of deuterium is extremely important that I will talk about later.

Since palladium absorbs hydrogen, that makes it very useful. Like platinum it can be used as catalyst in many important industry chemical reactions, like oil refinery and fertilizer production, synthetic fiber etc. It is most widely used in autocatalysts to reduce air pollution.

Palladium is also used in hydrogen purification. Both platinum and palladium can be used as catalyst in fuel cell batteries, a red hot industry sector being developed. There are already hydrogen fuel cell vehicles being driven on American roads, and hydrogen refueling stations in New York and Shanghai. Commercial hydrogen fuel cell vehicles will come to the mass market next year. There are also miniature fuel cell batteries, called Direct Methanol Fuel Cell (DMFC), being developed for mobile electronics, like cell phones, laptop computers and digital cameras, providing extremely long lasting battery power, such consumer fuel cell devices will also go to the mass market beginning next year! This will be a great hit because who wouldn't want a cell phone that does not need recharging overnight? See the Fuel Cell Today web site for lots and lots of exciting news stories about fuel cell, and Platinum Today for any news related to PGM metals.

The point is all fuel cells must consume PGM metals as catalyst. So that will be a booming demand to drive PGM metal prices to crazily high levels, which will definitely help the stock prices of SWC and PAL in the long term.

Coincidentally the middle of 2003 was a very important pivotal point for SWC and palladium. Palladium price bottomed in mid 2003 and rallied strongly up, defying gravity. Strong hand investors suddenly become interested in palladium in 2003, and open interest in the futures market boomed. Russian Norilsk acquired 54% stake in SWC, with the blessing of the Bush administration, thus dominate more than 50% of the global palladium market, and Mr. Craig Fuller, former White House Chief of Staff to the senior President Bush, was elected to the Board of Directors of SWC. And in that year President Bush started to pitch hydrogen economy to the nation, and tried to get America weaned of dependency on Middle-East oil. All in the same year.

There was also another coincidence in the year 2003 that few people except maybe the palladium strong hand noticed. That was that there were experimental breakthroughs reported in the field of Cold Fusion, a 1989 science discovery that was too quick to be denounced as science hoax and be dismissed. The repeatable new experiments re-ignited the science community's renewed interests in Cold Fusion. The reseach activities boomed.

That brings us to the last, and most shocking deed of our fairy tale metal, palladium, in totally defying the ultimate physics law, the modern quantum mechanics and nuclear physics. The textbook of physics says that nuclear fusion, where two deuterons fuse into one helium nucleus, releasing tremendous energy doing so, could not happen at room temperature, because the positively charged deuterons will expel each other. You must pack the deuterons to high density and raise to extremely high temperature, let the nucleuses smash into each other at high speed in order to fuse them together against the Coulumb Barrier. How could it be possible at room temperature?

But palladium defied the known physics and proved scientists wrong. Palladium absorbes 900 times its own volume worth of deuterium. When driven by an electric current, the heavily packed deuterium atoms within palladium, with the catalyst of the palladium crystal lattice, was able to fuse and release huge amount of energy. The experiments were done, repeatedly, by the US NAVY researchers and hundreds of other research groups worldwide. Excessive heat and energy was measured, helium was detected, neutron release detected, some experimental instruments blowed up, a successful failure that proved there's huge energy released. There are also amazing YouTube videos showing the effect of cold fusion. You MUST watch the video series The War Against Cold Fusion, part 1, part 2, part 3, part 4 and part 5. Read all about cold fusion on LENR-CANR web, and on New Energy Times.

The business of science is that when experiments are done, repeatedly, defying the theory, it must be accepted as real science and the theorists must scratch their heads to come up with some new physics to explain the experiments. Beginning in 2007, the American Physical Society conducted dedicated Cold Fusion sessions in their March Meetings. They will continue to have Cold Fusion sessions again in March, 2008. Cold Fusion is gaining footstand and is being accepted by the main stream scientific community as a legitimate science.

It's relevant because cold fusion must use palladium. A success soon in commercial cold fusion products, as claimed by private companies like D2Fusion, or by a Russian scientist, will provide humanity with virtually inexhaustible new energy from the ocean water, and overcome the Peak Oil Crisis althgether. But it will also drive the palladium price to unimaginably high level. A residential cold fusion device of the size of a washer machine, containing just 1/10 of an ounce of palladium, will provide your energy need of your whole family for the life of the house and you never have to pay for electricity, natural gas or winter heating ever again. How much you are going to pay for it? I am willing to pay $100K for that device containing 1/10 ounces of palladium. That figures to a palladium price ONE THOUSAND TIMES current gold price.

You would be very glad that you have hoarded some palladium. You would be even happier that you invested in PGM producers SWC and PAL if cold fusion happens. You would regret that you invested in high flying solar companies like First Solar (FSLR) which uses an extremely rare metal tellurium to make solar panels, the business probably will break down due to a tellurium shortage crisis. You would also regret that you followed the mob and invested into expensive and red hot solar players like AKNS AMAT ASTI BTUI CSIQ CSUN DSTI ESLR FSLR HOKU JASO LDK SOLF SPWR STP TSL WFR YGE, a whole bunch names which was once hot, but going no where selling expensive solar panels when governments cut down spending and eliminate solar subsidies. You were chasing those fly fliers but you missed the real alternative energy gem, SWC and PAL. Frankly the whole solar energy sector will not provide us much energy, and will become obsolete when we have virtually inexhaustible cold fusion energy.

So if you are really inteterested in alternative energy play, the absolutely unbeatable future winners will be the little heard about SWC and PAL, due to fuel cell technology and cold fusion development. You need to buy these two stocks while they are dirt cheap right now. I often like to compare SWC in 2007 to PCU in 2003. PCU was bearly profitable in 2003 and stock was flat for 8 years, but it was the best time to get into PCU as it was poised to go on an incredible rally on copper bull.

You also need to contact your Congressional Representatives and Senators, and the President. Urge them to fund and support the cold fusion research and speed up the adaptation of a hydrogen economy, wean us of the dependency on fossil fuel. Cold Fusion is the best and last hope we have to acquire abundant alternative energy source to replace the quickly depleting fossil fuels, saving us from the Peak Oil Collapse. For the sake of the humanity's future, and of course for the sake of our own prosperity for those of us invested in SWC/PAL, we'd better hope that Cold Fusion will be a beautiful dream come true!

Palladium is really a magical and romantic fairy tale Cinderella Metal which the humanity can not live without! It works silently in the catalyst converters of our cars to reduce air pollution; It works in water treatment factories to clean our ground water to save our environment; It provides fuel cells so we can drive pollution free, high energy efficient hydrogen fuel cell cars; It may also provide cold fusion energy to replace our fossil fuel energy sources. It's the nature's best gift to the human race. We should cherish it.

Please buy your loved one a palladium ring for the ThanksGiving, and tell him/her the romantic story of palladium, the Cinderella Metal.

On this ThanksGiving Day, I have a lot to be thankful, among which I am thankful for the existance of this magic metal, and for that I finally learned the facts about the metal, 18 years after I first heard about Cold Fusion in 1989. I am thankful that America is still the world's best country and I wish our prosperity will continue into the future.

Full disclosure: I am heavily invested in SWC and PAL, and I have short positions in FSLR and may also short other over-priced solar players. I hoard palladium metal and tellurium metal.

P.S. This article is now published on Seeking Alpha.

Saturday, November 17, 2007

First Solar Has a Dark Future

First Solar Inc. (FSLR) is a solar panel manufacturer. Its sole business is production of CdTe based solar panels. Its stock price rallied about 10 folds since the IPO about a year ago. I believe the FSLR stock is overpriced. More over, this company has a very dark future prospect if you understand the fundamental of its business. That's because it rely on cadmium telluride as its raw material. Cadmium is extremely toxic, but the mildly toxic tellurium is lethal to FSLR. FSLR is extremely vulnerable due to a possible shortage and price run on tellurium. It could be forced to go out of business in a few years due to competing demands on tellurium.

Tellurium, the No. 52nd element, is extremely rare on earth, rarer even than platinum the No. 78, according to Web Elements. Tellurium's crust abundance is 1 pbb versus 37 ppb for platinum (pbb is "parts per billion"). Tellurium is mainly produced as a byproduct from the anode slime accumulated during copper refining. But not all copper mines contain significant amount of tellurium. Chile produces 1/3 of the world's copper but virtually nothing in tellurium. According to USGS and Arizona State Geologist Lee Allison, the world produces any where from 160 to 215 metric tons of tellurium a year.

Tellurium was traditionally used in metal alloys and other uses. Demand from emerging new applications, like DVD discs, digital camera, computer flash memory and CPU thermoelectric cooling, among other things, has caused a severe shortage in recent years, and drove the price from below $4 a pound to over $100 in 2006, according to Lee Allison. Jack Lifton on Resource Investor suggested that investors could sense the shortage and start to hoard physical tellurium, adding fuel to the fire and causing a huge tellurium price run.

How much tellurium does FSLR use? They use about 7 grams of cadmium and about 8 grams of tellurium in each of the 2 feet x 4 feet CdTe solar panel. That's roughly 135 metric tons per each 1 gig watts (GW) of products. They have signed a bunch of sales contracts with per watt price fixed and mandated to go down 6.5% yearly, and they are aggressively building new factories and expanding production capacity. After finishing a new factory in German they are building 4 brand new factories in Malaysia.

Alright, they have plenty of customers, plenty of sales contracts to keep them busy for 5 or 6 years, and Malaysia has plenty of land for them to build new factories. The growth potential looks like unlimited. That's why investors bid up FSLR stock price like crazy.

But, where are they going to obtain all the new tellurium supplies needed for future expansion, at a price cheap enough to ensure profitability, and a quantity large enough to keep the new factories running? On Nov. 8, 2007, the CFO publicly commented that "We (FSLR) have identified "terawatts levels of tellurium availability". He had no idea what he was talking about. It's rather unfortunate that a CFO would mislead the investor community by such an audacious and outrageous false claim. One terrawatt is 1000 GW. No where on earth this amount of tellurium even exists underground, let alone available in a secret vault some where.

FSLR has a very dark future ahead for itself if a tellurium rush occurs as expected. If you own FSLR stock, sell immediately to avoid a total loss.

Full disclosure: I am short in FSLR and I plan to invest in physical tellurium metal ingots.

P.S. This article is now published on Seeking Alpha, on News Bad, and on The Big Hype. If you know any places else that this occurs, let me know.

On Nov. 24, Arizona Republic published a news article citing my Seeking Alpha article.

Friday, November 16, 2007

I am a Big Fan of Jack Lifton

Jack Lifton is an analyst at Resource Investor. While studying tellurium, I recently noticed a number of articles that Jack wrote. I really like his very insightful thoughts.

I am listing links to his articles here:
Nov. 15, 2007: Minor Metals
Oct. 18, 2007: Critical Metals for the U.S. ...Industries: An Opportunity or Problem?
Oct. 11, 2007: Demand Drivers for Critical Metals: A Report to Congress
Oct. 9, 2007: Tectonic Shift Looming for Rare Earth Market Dynamics
Oct. 4, 2007: Byproducts IV: Rhenium, a Byproduct of a Byproduct
Sep. 28, 2007: Molybdenum Myopia Redux
Sep. 13, 2007: Identifying Peak, Critical and Strategic Metals, Part I: Gallium and Rhodium
July 26, 2007: Why Not to Buy Indium for Speculation
July 19, 2007: Umicore: The Best Way to Invest in Exotic Metals
July 18, 2007: Tantalum: A Tantalizing Commodity Investment Opportunity
July 5, 2007: Consuming Passions and the Composition of the Earth’s Crust
June 14, 2007: Byproducts IV: Gallium
June 7, 2007: Geodex Scooping Up Indium-Uranium N.B. Properties
May 25, 2007: Byproducts III: Rhodium
May 17, 2007: Pick a Technology, any Technology, Please!
May 14, 2007: China Establishes Indium Exchange to Combat Markdowns
Apr. 26, 2007: Byproducts II: Another Germanium Rush?
Apr. 19, 2007: Byproducts Part I: Is There a Tellurium Rush in the Making?
Apr. 12, 2007: How the Global Warming Agenda Affects Critical Nonferrous Metal Demand
Apr. 5, 2007: Experts...Identify Critical Strategic Minerals for Taxpayer Funded Study
Mar. 15, 2007: Critical Mineral Impacts on the U.S. Economy
Feb. 22, 2007: Thorium: An Alternative to Uranium, 2007 Update
Jan. 19, 2007: Tap Into Tantalum
Jan. 11, 2007: Tiomin Reviewing "Strategic Options" for Flagship Project
Dec. 13, 2006: Investing in U.S. Natural Resources, Part 1: A Lithium Supply Crisis

Saturday, November 10, 2007

First Solar and Rare Metal Investments

I am a PGM metal bull. But I am also watching other stocks. I am also bullish on natural gas players. Recently I had been watching the solar sector and paying attention to First Solar, FSLR. While studying FSLR I became interested in a critical metal that FSLR uses, tellurium. Seeing that FSLR is ridiculously overpriced and that its future is confined by the extremely limited tellurium supply, I shorted FSLR, and doubled my shorts before the earnings release, believing that it's performance in past three quarters were lukeworm and there is no way they could have beaten the street. To my surprice, they did put out a smash out quarter, earning 58 cents per share. My shorts were quite under water. But I hold on and shorted more.

Why I hold on with the FSLR short? For one thing anything that raises in a hyperbolic fashion falls back down fast. But more importantly, the smashout quarter seems to be a one time aberration, the next few quarters will be much less impressive due to lower sales price and raising cost. Especially there seems to be some book cooking going on for Q3. I will dig out exactly how the book cooking was done. Here is the earnins conference call transcripts. FSLR is now under a NASD investigation for suspected insider trades.

The CFO of FSLR made a flat out LIE about "terrawatts levels of tellurium availability", on the Nov. 8th Pacific Growth Equities Clean Technology & Industrial Growth Conference. Here is the audio recording. The comment occured at 22'58". The exact words are "We have identified terrawatts levels of tellurium availability".

About tellurium, there are a few interesting articles. Invested in tellurium yet. And this one: Arizona Tellurium Rush. I think I might consider buying some physical tellurium. But this thing is toxic so caution is warranted.

Here are some good readings related to tellurium:
Global tellurium statistics by USGS.
Is There a Tellurium Rush in the Making?
Arizona Tellurium Rush.
An article on Mining Journal Review.
Phase change memory from Intel later this year
Panasonic says that its 100GB Blu-ray discs will last a century
Thermo material may replace heat sinks, fans in electronic gear
Imation HD DVD and Blu ray media
The New Indelible Memories

Do you know DVDs have something to do with tellurium? Read this.

Some one meantioned a tellurium metal vendor. I hope their door not be knocked down by the mobs of want-to-be tellurium investors tomorrow. (Update: They are sold out)
Some one on Seeking Alpha meantioned a list of tellurium vendors. Check it out.

A May 1st, 2007 article on Seeking Alpha: Forget Gold - What About Cobalt? Indium? It recommended a monthly Mining Journal Review, and even a Minor Metal Trade Association in Estonia. Estonia? Interesting! I found out by search "tellurium" on Seeking Alpha.

(to be finished)

Saturday, September 15, 2007

Palladium Fundamentals - History and Future

We know SWC is the only PGM (Platinum Group Metal) producer in the USA. The future prosperity of this company solely depends on the future prices of palladium and platinum. For the trailing previous 4 quarters, SWC had a sales revenue of $664M but an insignificant net profit of $6.1M, the profit is less than 1% of the sales revenue. That's $7.22 sales revenue and $0.066 profit per share. If the PGM metal prices double or triple, the sales revenue will double and triple, with a great portion goes into net profit. The current P/E ratio of 142 could easily drop to 0.43 if the sales revenue quadruple as the metal price quadruple, bring in $28.88 sales revenue and $21.73 net profit per share.

Let's look at palladium's supply/demand fundamentals. Let's look at history and then give a prospect of the future. On this, Orsa Maggiore did a fantastic job digging out and analysing the data. I encourage you to read his blog articles first, before even continuing read my discussion here. He also has another blog Value Area, which I highly recommend, too.

The most amazing thing of the palladium history in the past few years was the spectacular failure of virtually ALL famed metal market analysts to predict the bullish movement of palladium off its bottom of $142 in mid 2003. Look at this 5 year palladium price chart. And then read how analysts predicted a collapse in palladium price since 2003:

Alan Williamson, 2003: Russian PGM Stocks "palladium market, where the fundamentals of themarket look almost unreservedly grim, ...We expect the market to move into structural oversupply,with ongoing downward pressure on prices as aresult." Really?

Alan Williamson, Mar. 24, 2004: Palladium prices shoot past analysts' forecasts "Alan Williamson, an analyst for HSBC, said palladium's time in the precious metals spotlight might end in the second half of the year." Really?

Other metal analysts have not done much better than Alan Williamson either. I am not trying to pick on these highly positioned analysts. They have their decades of experience and have way much better access to market data, their bearish predictions are based on solid data that seem to be correct, and demand respect. However of all these people's predictions were proven wrong, they must have missed something very important! So what they are missing?

All those analysts blame the failure of palladium to follow their bearish prediction on speculative buying from speculative commodity investors, bidding up metal price. But speculators do not just buy, they also sell. And speculators also do read analyst reports. A reasonable speculator in 2003 would probably read the well published Alan Williamson report, and decide to stay away from palladium due to the consensus bearish outlook. True there has been very strong investment buying of palladium, but those buying must NOT be average speculators, but some one who has done in depth market research, some one who look right through the perceived "suply surplus", and see beyond the inherit structural deficit of palladium in reality, and emerging huge new demands on palladium. The investment buyers of palladium are some one who are really looking at long term gains, and will not sell easily because some temporarily market ups or downs. They see a way much big picture than most analysts can see.

It's true that the Russian government has been dumping large amount of palladium stockpile onto the global market, stockpile that was built up during the Soviet Era when they produced more palladium than they needed. This Russian dumping masks the real market fundamental, which is a structural deficit, not a surplus. Without Russian stockpile sale, existing mine production and recycling simply can not meet existing industry demand of palladium. Emerging new demands in areas like palladium jewelry, fuel cell for mobile electronic, and even cold fusion, will create an even more acute shortage situation, possibly drive the future palladium price to a much higher level. The good news is the Russian stockpile is of limited size. When it's depleted, then there will be no more for sale. The complete depletion of Russian stockpile probably already occured, or will happen very soon. Or the Russians may decide to keep the last bit for themselves.

No other country besides Russian has any stockpile of palladium at all. That may change. Palladium is just such an important strategic metal that nations in the world simply can not be without it! Think about China, India, Japan, or even the USA. Once the Russian extra supply ended, won't these countries suddenly realize that they NEED to have a strategic stockpile of these two important metals, platinum and palladium, and rush in to buy in a hurry to try to hoard up some? That will start a bidding war and drive the PGM price to crazy levels.

The United States of America once had a fairly sized strategic stockpile of platinum and palladium, but for some reason sold out some years ago. Please write to your Congress representatives and urge them to consider re-establish the strategic stockpile of PGM metals. It is so important that interruption of PGM supply could have catastropic consequences and pose direct threat to the very survival of the nation. If you are from China, Japan, India, or other large countries, you also need to urge your governments to consider establish strategic stockpiles to prevent unexpected interruption of supply of this limited resource.

Some readings:

A slightly old article: A pair of palladium plays.

The palladium Good Old Days of 2000.

Palladium in 2002, from a Russian point of view.

May 17, 2002: Important question: Fuel Cells: Where Will the Platinums Come From?(new link)

June 16, 2003: Bush and Putin talked about Norilsk take over of Stillwater Mining.

April 20, 2005. John Tyler: Palladium Checkmate...or Russian Roulette.

Spring, 2006. Rebecca Osakwe: PEM Fuel Cells and Russia's Supply of Platinum. Trading One Bottleneck For Another?

June 30, 2006, Scott Wright of ZEAL: Palladium Fundamentals, a must read!

Oct. 16, 2006: The University of Iowa Henry Fund Research Report on SWC.

Jan. 17, 2007: Forecast of 2007. Analysts Take of Precious Metals in 2007.

Sep. 10, 2007: Metals - Russian mining pushes globally.

Latest on Bloomberg: Norilsk Sees Ample Palladium Supply, Lack of Investor Demand. Really? It's so funn I can't help laughing while reading it.

Update: Fun to watch. Jim Roger mad at the Fed.

Cold Fusion article from India: Is there a third route to produce nuclear energy?

A London Bank invests in palladium.

Sunday, August 26, 2007

So Many New Demands and So Few Palladium Supplies

It looks like SWC has found a strong bottom at low $8 and is trying very hard to rally upward. I expect SWC to go back to double digit very soon. But really we need to concentrate on the big picture of near future palladium supply and demand.

I discussed before that for the past 4 years, virtually ALL analysts in the palladium market gave bearish outlook for palladium. And all of them have been proven wrong as the palladium price continues to rally up with other precious metals. The analysts were bearish based on the data they have, that Russians dump up to 2 million extra palladium per year from the government stockpile, creating a huge over-supply. But starting in 2003, and for the past 4 years, there have been some strong hand investors, they clearly see something really BIG in the near future of palladium, and loaded up every extra ounces of palladium that the Russians sold, and drive the price up. Did the strong hands see that Russians will soon exhaust the stockpile, and without the stockpile sale, the palladium market is actually in a physical SHORTAGE, not surplus? That of course is one consideration. But the bullish picture is way beyond that, and the strong hands must realize that, too.

The world produces only 7 million ounces of palladium per year. Without Russian government stockpile sale of 2M ounces per year, the existing industry demand already exceeded that supply, even when all recycling is counted for. But the emerging new application demands are way much bigger than existing demands:

1.Palladium jewelry demand. As of early this year, some data show jewelry demand already counted for about 25% of all palladium demand, a few years ago it was virtually zero. And the palladium jewelry market is just started. We will see palladium price be driven to near platinum price, before the palladium jewelry revolution will slow down a bit.

2.Various fuel cell applications use PGM metals. Do you LOVE to see a cell phone that goes 6 months without recharging overnight? Such a thing is powered by fuel cell and it is quickly coming to reality. Both platinum and palladium can be used for catalyst in fuel cells, and nothing else can. Since palladium is cheaper now, they are switching to palladium catalyst. And when it comes to using hydrogen fuel cell, then palladium is a must to filter the hydrogen. We see booming Direct Methanol Fuel Cell (DMFC) to power mobile electronic devices like cell phones and laptops, which will come to mass market as early as later this year. And we see hydrogen fuel cell driven vehicles. Honda already have 15 prototypes driving on the US streets, provide daily transportation for 15 regular US families. Read more on Fuel Cell Today. Update: It's now on CNN: US DOT Moves to Approve Fuel Cells for Airline Uses.

3.Palladium food insert. This is a huge market, even bigger than DMFC market. Each package of preserved food consume just a little bit palladium. But multiply that by hundreds of billions of packages of food, that is a huge demand. And there is little hope for recycling.

4.Hydrogen economy that Bush pitches. Anything that has something to do with hydrogen, must have something to do with palladium, due to the unique hydrogen afinity that only palladium metal exibits. Read the article The Russians Are Coming to see who is selling out our national treasure to the Russians. You really need to know why one of Bush's most close people is on the board of director of SWC.

5.Cold Fusion. Interest in cold fuions are picking up fast in recent years, after new experiments convinced even some of the most diehard skepticists. Even Nobel Prize winners now endorse cold fusion research. Cold fusion MUST be done using palladium, again, due to the unique hydrogen/deuterium affinity property of palladium. If cold fusion is scientically proven and become commercial products, we have solved our energy crisis and replaced it with a palladium crisis. There is simply not enough palladium in the whole world. The price of palladium will be driven to a thousand times more expensive than gold, and people will still think it is cheap to be used in cold fusion applications. The Atomic Motor Blog has some nice discussions on the topic. Read more here for the science of Cold Fusion.

Invest your money in SWC! Hold SWC for long term! You will make money beyond your wildest dreams possible!

A YouTube video discussing the background of Cold Fusion research:

Wednesday, August 15, 2007

Bright Future For PGM Metals

The future of SWC all depends on the future of PGM metals, palladium and platinum. If the price of PGM metal continue to grow up, SWC will be making tons of money in the near future. I spend extensive time studying PGM and everything I know convinced me that the future of palladium and platinum is absolutely bright!

Every precious metal analysts have made bearish predictions of palladium price, not just recently, but for each of the past 4 years. They based their accessments on known supply/demand numbers, which says the Russians are massively dumping their government stockpile of palladium into the market and there is an over-supply, therefore the price must drop. But the fact speaks otherwise. Palladium price in the past 4 years nearly tripled as the Russians dump up to 2M ounces of palladium a year into the market, on top of 7M world mine production. So what does that tell you?

There is a strong hand in Switzerland, loading up every excessive ounces of palladium that the Russians dump. The strong hand kept loading for several years, driving up palladium price. Strong hand sees something that most people do not see. He sees the emerging applications which will make palladium HUGE in the near future. This is a determined strong hand, determined to make BIG MONEY in this.

What emerging applications? You might think about palladium jewelry. But that is only a small potato in comparison to what is really BIG. The real biggie is Fuel Cell applications. Any fuel cell, regardless of their design, MUST use palladium and platinum. There is no replacement.

We talk about hydrogen fuel cell vehicles, which is big but will be some time away. But the mobile fuel cell application is something way much more closer than you think. We are not talking about a few years down the road. We are talking about seeing real commercial product on the store shelfs, as early as later this year! We are talking about fuel cell battery for laptop computers, for your cell phones, for your digital camera and other mobile electronic devices.

The high energy density of fuel cells allow such mobile electronic devices to work several months at a time without having to recharge. And recharge is as simple as just replace a methane catridge in a few seconds!!! Imagine that! Who wouldn't want one? And it is coming to mass market as early as later this year!!! Do a web search of DMFC, Direct Methanol Fuel Cell. The Chinese are pursuing DMFC developments, among other international players, judged from this academic paper. The US DoT just ruled that laptops and cell phones powered by direct methanol fuel cell CAN BE carried onto an airplane, removing one of the obstacles for broad acceptance.

Of course mobile fuel cell will have very broad application in military equipments. It's life or death in battle fields, you can not afford to have your electronic devices run out of battery power at critical times. So fuel cell will see the fastes adaptation in military equipments!

According to some research, we expect the mobile fuel cell market to grow to 80 million unit per year by 2012. That will surely consume a lot of palladium and platinum! One of the best sites to check out news, articles and analysis of latest fuel cell development is Fuel Cell Today. The other is Fuel Cells Works.

The future of SWC is extremely bright. SWC clearly has bottomed in price. This is a rare opportunity for people to load up SWC at dirt cheap price. Don't let the opportunity slip away!

Update: Yahoo user Orsa Maggiore recently started a blog discussing PGM metals and SWC. He does a much more detailed analysis of stuffs. Please have a look at his blog site.

Saturday, August 11, 2007

What a Volatile Week for SWC!

Wow! The just concluded week was an unprecedented volatile roller-coaster week for SWC on extremely high trade volumes. Let's go over the week and recent history of SWC and see what's going on.

We know SWC started to fall from the $16.47 high in early May, when SWC reported a once cents per share quarterly loss for the first quarter 2007. And then, just as people think SWC has bottomed and started buying, starting on July 20th, some hedge funds launches a fierce wave of hammering of SWC, pushing it down 10% a day, knocking the price down from $12 to the low $8-ish before the start of the week. As I discussed, the big short player was able to lure in new retail shorts by such heavy hammering of SWC, so they can unwind their unusually large short position in SWC. The big short probably finished unwinding their short position on July 30. On July 31, the volume suddenly quiet down, with no more indication of price hammering.

Monday Aug. 6th, people are buying and push SWC close to $9, in expectation of a good Q2 earnings report. Monday night earnings were released, it was a disapointing 3 cents loss. People are all pretty persimistic and expect some further fall on Tuesday. Volume was heavy at 1.5M.

On Tuesday Aug. 7th, before the earnings conference call SWC dipped to the low of $8.03, and then slowly went up as it leads to the earnings confeence call. The stock raised above $9 and closed at $8.67. Very encouraging. Volume was big that day at 2.3M.

Then on Wednesday Augu. 8th, SWC saw an explosive rally. Shot up to $11.04 on unprecedent heavy volume of 3.83M shares traded. It settle at $10.40.

Next day, DOW JONES plummeted big time. It was the second largest daily drop this year. SWC holds up well, only drop to $10.11 on heavy volume of 2.4M.

The most dramatic movement happens on Friday, Aug. 10th. SWC first rallied to the high of $10.84, as the DOW looked in pretty bad shape. Then as the DOW recoverd, SWC turned around and plummeted down to the low of $8.38, before recovering some what and close at $8.66. The volume was almost as high as the wednesday rally. 3.445M shares traded. The after hour was just as dramatic. You saw shares traded at $10.11, and shares traded at $8.64.

What gives? Why the huge rally on wednesday and then the huge plummet on friday, on extremely heavy volumes? It's any one's guess. But looks to me that some funds may be forced to liquidate position because of prior day's DOW plummet, while other funds hurried up to laod up all the cheap shares. There is a huge amount of shares exchanged hands. Institition holdership increased dramatically. Two days ago there were 139 institutions holding 37,143,220 shares. One day ago it increased to 143 institutions holding 37,340,389 shares. By friday close, there were 145 institutions holding a total of 37,453,025 shares.

In 4 days trade, a total of 12M shares were exchanged. Such heavy volume is unprecedent in SWC's history.

Such powerful rally immediately after the stock touched a bottom, and then a heavy plummet to bring to stock back to near the bottom, on extremely heavy volumes, probably suggest a very powerful double bottom formation. This is a good sign for an explosive rally starting on monday. The reason is such volatility really shakes off the weak hands of longs, leaving only whose who can hold the shares to ride the rocket up.

Also a very unusual development on Friday, is Steven S. Lucas, one of the board members, bought 800 shares from open market. As some discussed, Steven Lucas is one with some unusual background with connection to high level GOP and the Bush Administration. This is more of a symbolic market purchase to send a strong signal to the market, rather than just a buy for monetary profit. This is a very good sign.

To understand why Bush's people are on the SWC board, you MUST read this interesting article: Russians Are Coming. You also need to read the August 09, 2004, the Oct. 5, 2004, and the November 16, 2004 article on the matter.

Tuesday, August 7, 2007

SWC Q2 Earnings In Retrospect

SWC just released Q2 earings. On paper it was a loss of $2.5M, or 3 cents per share, contrary to my very optimistic prediction. Where did I get it wrong, and where did I get it right?

My biggest mistake is assuming they will sell all the recycled metal they have. There are 34K leftover recycled metals from previous two quarters, plus Q2 processed 93.1K, totalling 127.1K. I expected them to sell at least 110K. But they actually sold only 69K. When you don't sell the metal, you don't realize sales revenue and profit on the paper. But the value is still there in the metal, although it is not on the paper. It's an accounting gimmick to pay less tax and preserve more shareholder value. Compare the balance sheets, SWC gained $6M in book value from Q1 to Q2. That is the real story of actual gain, 6.5 cents per share.

In Q1, The net loss of $1.1 million for the first quarter of 2007 included, by business segment, $3.8 million of income from mining operations and $5.3 million of income from recycling activities, less corporate costs including $8.8 million of G&A expense and $1.4 million of unallocated net interest expense.

In Q2, The reported net loss of $2.5 million for the second quarter of 2007 included, by business segment, a loss of $1.4 million from mining operations and $7.8 million of income from recycling activities, less corporate costs including $7.4 million of G&A expense and $1.5 million of unallocated net interest expense.

So, with 69K recycled PGM metal sold, SWC realized a gross margin of $7.8M. Had they sell 100K recycled metal as I expected, linear extrapolation says the recycling gross margin would be $12.435M margin. I projected a way more optimistic $30.42M margin, using the metal prices $368, $1288, $6090 for the three metals. But the actual realized metal price for recycled metals are less, at $355, $1225, $5923. Because I over estimated the metal prices, I over-estimated the gross margin by $11.52M. If I used the correct metal price, the gross margin would be $18.9M, I also under-estimate the cost for the recycled metal, which accounts for another $6.5M difference.

On the mine production side, my projection says Q2 will be about the same as Q1. But the actual result i mining in Q1 provided $3.8M profit margin, and contributed $1.4M loss in Q2. So that's a difference of $5.2M on the worse side. What gives?

I assumed SWC will being mining the same grade of ores. So a reduction of production means less ores are milled, leading to the savings of $3.142M cost. But insread, the ores mined are lower in grade. So SWC actually milled 309K ton versus 305K ton. Milled 4 tons more ores while producing less metal. so the cost of extra tons is $0.55M. So that's a discrepancy of $3.7M. The remaining discrepancy is explained by slightly increased cost per ton of ores milled.

My projection of price of mine prodution metal is quite on spot. Palladium sold at $386, versus my number $384. Platinum sold at $949, slightly less than my projection of $963.

The produced mine grade is 0.46 ounced per ton, versus 0.49 in Q1. That's the main contributing factor in increased cost. It should be a one time thing, not a long term trend.