Palladium Production Cost
How much does palladium cost? Why are you asking about it? Just look at kitco.com and do not bother us! Yeah, sure, we know what the price of palladium per ounce is. But how much does it cost to produce it?
Well, it depends on the region, mine and company (e.g., whether it is a junior or a senior company). However, investors should remember that palladium comes mainly from Russia and South Africa (together, these countries account for about 80 percent of the mining supply), so the global production costs are significantly shaped by the developments in these countries.
What does make up the cost of palladium production? First of all, the mining company has to discover mineable palladium deposits, conduct exploratory drilling and extensive geochemical analysis. Later, the company has to buy an exploration license and meet environmental and other regulations. Then, it can establish the site, buy all the equipment and physically extract the palladium ore. And after the mine is tapped out, the mining company may be required to rehabilitate the site to pre-mining conditions. As one can see, the palladium production costs go well beyond the mere act of pulling the metal from the ground.
This is why we have different notions of palladium production costs. Traditionally, the industry used cash cost, which focused only on the mining and processing costs incurred. But in 2013, the WGC published a guidance note on all-in sustaining costs and all-in costs metrics. The former concept is an extension of the existing “cash cost” metrics and incorporates costs related to sustaining production, while the latter notion includes all additional costs that reflect the varying costs of producing palladium over the lifecycle of a mine.
Palladium Production Costs and Palladium Prices
And what is the link between the palladium production costs and the price of palladium? Well, the data is scarce, but all-in sustaining costs for North American Palladium, one of the leading palladium producer, were about $720 in 2017. The current palladium price is about $990 per ounce (as of September 2018), as one can see in the chart below.
Chart 1: Palladium prices (London A.M. Fix in $) from 2013 to September 2018.
It means that the price of palladium is importantly above the production costs. The implication is that, contrary to platinum, the palladium mining is profitable right now. And the profit margins may rise further, with efficiency increases in Russian mining industry and supply lagging demand (which create upward pressure on prices). Another obvious advice is to invest in palladium mining companies that do well in keeping all-in sustaining costs low.