TPS Trade Alert – January 27, 2015
Recommendation:
Buy Platinum Group Metals (AMEX: PLG) up to $0.60 per share.
Trade Rationale:
So far, the biggest theme of 2015 has been the plunging price of commodities. It’s not just crude oil (down 13% so far this year). Copper, lean hogs, wheat, and heating oil are all down at least 10%.
Live cattle, rice, cocoa, lumber, soybeans, corn, and cotton are all down this year as well. That’s almost every major commodity… except precious metals.
In fact, gold, silver, and platinum are all up on the year. In particular, silver has had a nice run – up 16% in January. Gold and silver are reacting to some extent to the ECB stimulus plan in Europe.
Meanwhile, platinum is being carried by the other precious metals and is up 4.5% so far in 2015. But, platinum could have much further to go.
You see, platinum is an interesting hybrid metal. It serves as both a precious metal and an important industrial metal. An equal amount of platinum is used for jewelry and automobiles (and the rest is used for other industrial purposes).
There are a couple reasons why platinum could be in for a nice run higher this year.
First off, crude oil’s plunging price means gasoline has dipped nearly 50% over the last year. That means gas is a lot more affordable for drivers. It’s having a positive demand impact on the automobile industry.
What’s more, gold is currently trading at a premium to platinum. That’s historically something which doesn’t last for long. But, rather than a drop in gold prices, it’s more likely that platinum is going to go up faster than gold.
So how can we take part in platinum’s coming surge?
One inexpensive way we can buy into the platinum (and palladium) market is by investing in Platinum Group Metals (AMEX: PLG).
PLG is a development-stage exploration and development company which focuses on mining platinum. The company’s key project is located in the Bushveld Complex in South Africa.
South Africa is projected to provide over 60% of the world’s platinum supply in the coming year, so it’s the best place to be for up and coming platinum companies. Palladium – an important component for automobile parts – is also mined wherever platinum is found.
Between the two metals, PLG has 4.7 million ounces of proven and probable reserves at its main project (Western Bushvled). At an upcoming project (Waterberg), the company has another 29.1 million ounces of inferred resources.
Here’s the thing…
Besides having a hoard of potential reserves, PLG also has plenty of cash and investor support to make its projects a success.
The biggest obstacle for a development company becoming a production company is cash. Mining is an expensive business, and it’s relatively easy to run out of cash while building out a mine.
That won’t be problem for PLG, which has over $52 million in cash and zero debt at this time. The company is also well supported, with institutions holding 17% of outstanding shares (and 30% held by insiders).
Bottom line, the company just needs to keep doing what it’s currently doing. Once production begins in earnest, the stock will pop to reflect the new cash flow. Plus, the coming surge in platinum prices will give the stock price a boost in the short-term.
Speaking of stock price, the shares are trading at just 0.76x book value. Why would a stock with plenty of cash and proven assets be trading under book value? Basically, there’s no logical reason.
That’s why now’s the time to grab shares in PLG while they’re trading at rock bottom prices.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Platinum Group Metals |
| Ticker: | PLG |
| Recent Price: | $0.50 |
| Buy Up To Price: | $0.60 |
| Market Cap: | $375 million |
| Avg. Daily Volume: | 310,561 shares |
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Category: TPS Trade Alert
