GOLD AND PRECIOUS METALS — Doubts cast about Russian PGM stockpiles — Russia not to start exporting platinum group metals until late summer

Russia will not start exporting platinum group metals (PGMs) “before the end of the summer,” a state-owned foreign trade company has told Interfax News Agency. The country is the world’s largest palladium producer and the second-biggest platinum producer.

The delay in shipments has triggered speculation that Russia has exhausted its strategic stockpiles of platinum and palladium and, possibly, has nearly exhausted the easily accessible in situ resources of the huge Noril’sk nickel mine complex, where 95% of Russia’s PGMs are produced.

Russian sources insist, however, that the delay is caused by government restructuring, specifically the merger between the ministries of economics and foreign trade.

The Interfax report also states that the Russians have disputed comments made by officials of Franco-Nevada Mining (FN-T) alleging that the main source of palladium at Noril’sk is nearing depletion. Noril’sk Nickel spokesman Anatoly Komrakov told the news agency that while the Norilsk-1 deposit, which has been worked since the 1930s, is close to depletion, other deposits have, in recent years, become the main source of high-grade ore.

Komrakov cited the Talnakh deposits as having sufficent palladium-rich ores to last for another 30 years.

But some experts remain doubtful about Noril’sk’s ability to produce sufficient PGMs — particularly palladium, which is now more valuable than gold — to meet demand in the years ahead.

Speaking at the recent CIM conference in Montreal, consultant Daniel Fine told delegates that the Noril’sk mine complex faces an uncertain future because Moscow is withdrawing northern subsidies that have long supported the huge mining complex. Most of those funds have helped Noril’sk bear the social costs associated with its approximately 155,000 employees and the town in which they are housed. Moscow also has subsidized some transportation costs, which constitute about 40% of Noril’sk Nickel’s overall costs of production.

And Noril’sk itself is hamstrung in its attempt to raise funds to develop new deposits and modernize its antiquated operations because of a lack of transparency about its finances, and a similar lack of transparency on the part of government agencies responsible for PGM stockpiles.

“Noril’sk cannot do an [initial public offering] because of this lack of transparency,” Fine said. “The Russians are resisting transparency and are insistent on maintaining the cold-war strategy of secrecy. PGMs have long been a state monopoly in Russia.”

Fine estimated that the Russians have sold over 4 million oz. of palladium annually for at least three years, far more than the 1.8 million oz.

produced annually at Noril’sk. He estimated that the worldwide demand for palladium is about 6.2 million oz. annually.

While Fine acknowledged speculation that the Russians may be holding onto PGMs in anticipation of higher prices and the desire to position themselves to make direct sales to consumers, he said this scenario is plausible, though unlikely. “I am going to say that the Russians have virtually no palladium stocks. I believe they have almost exhausted their cold-war stockpiles.”

Fine said the deficit in palladium production may cause auto companies to make new decisions on technology, including possible substitutes for palladium in catalytic converters. He noted that nickel is being examined as a possible substitute.