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Wednesday, July 30, 2014
One of the world's top resource investors is betting on higher platinum prices.
Robert Friedland is arguably the most successful natural resource investor in the world.
He's the founder and executive chairman of Canadian exploration and development company Ivanhoe Mines.
Over the years, Friedland has found and developed the world's fourth-largest nickel deposit, one of the world's largest copper deposits, and the single largest gold deposit in Alaskan history – generating billions of dollars for himself and his investors.
Now, Friedland is turning his attention to finding platinum. And his reasons why could make precious-metals investors a lot of money over the next few years...
Last week, I heard Friedland speak at the Sprott Natural Resources Symposium in Vancouver, Canada.
During his presentation, Friedland explained one big reason why he expects platinum prices to head higher – urbanization.
Urbanization is the movement of people from rural to urban locations. And Friedland says it's "one of the greatest social and economic transformations in human history."
You see, 100 years ago, just 20% of the world's population lived in cities. In 1990, that number grew to 40%. Today, the World Health Organization (WHO) says the majority – roughly 54% – of the world's population lives in cities. And this number is growing. By 2050, UNICEF estimates 70% of people will be living in cities. China and India alone will have about a billion people living in cities.
But packing more people into smaller spaces has some negative effects. One of the biggest includes pollution, which is largely due to vehicle emissions.
Earlier this year, my colleague Matt Badiali wrote about the terrible pollution in China from vehicle emissions in DailyWealth.
China's air quality is already terrible from the coal-fired plants that produce the country's electricity. But adding millions upon millions of cars (there are more than 120 million passenger cars clogging the roads in China) has made it worse. Major cities, like Beijing, are often shrouded in smog.
But it's not just China that faces pollution problems. The WHO says air pollution is the world's largest environmental health risk. In 2012, it killed one out of every eight people.
The key to cutting vehicle pollution is catalytic converters.
Catalytic converters are devices that convert harmful car emissions to less-harmful car emissions. Most contain thin strands of platinum. The metal has unique chemical properties. It acts as a catalyst, speeding up reactions and making them more efficient.
Since most vehicle pollution comes from incomplete combustion (an oxidation reaction), platinum is excellent at reducing pollution. It acts as a filter that helps finish the process of combustion. That means the vehicle produces less carbon monoxide (which causes smog).
In order to combat pollution, countries like China are instituting vehicle-emission standards that require a catalytic converter in every new car and truck in the country.
And now, Friedland says automakers are also working on emission-free vehicles. These fuel cell vehicles, or FCVs, use platinum particles as a catalyst to split hydrogen fuel into ions and electrons. In short, this means water vapor is the ONLY emission from an FCV. There's no harmful carbon monoxide.
Automaker Hyundai is already selling these cars in Los Angeles. Toyota will begin selling its FCV in the U.S. next summer. Honda, Ford, and Mercedes are also active in the space.
Each FCV requires at least an ounce of platinum. So between catalytic converters and FCVs, there will soon be an enormous amount of demand for platinum.
And recently, there has been pressure on the supply for platinum. Most of the world's supply of platinum comes from South Africa. But getting platinum out of the ground there is growing more and more expensive. And miners in the country went on strike earlier this year for higher wages. As a result of the strike, global investment firm Deutsche Bank says total production of platinum in South Africa will be down 29% in 2014. It also said platinum-group metals will be in "sustained deficit" for years to come.
With higher demand and less supply, platinum prices should soar over the next few years.
Friedland is investing in this trend through his company Ivanhoe Mines. Ivanhoe is building a massive mine in South Africa at its Platreef project. Platreef has platinum-group elements, nickel, copper, and gold resources. The company will profit from increasing platinum demand and higher prices.
But the best "one click" way to take advantage of higher platinum prices is through the Physical Platinum Shares Fund (PPLT). This fund rises and falls with platinum prices. The fund is up in recent months from the South African miners' strike. So although the big picture for platinum is bullish, I recommend waiting for a pullback to buy shares.
"The platinum market is vulnerable to a major supply shock," Editor in Chief Brian Hunt writes. And master resource investor Rick Rule thinks the dwindling supply will make prices soar. Find out how high Rick thinks it will go here.
One of the safest, most profitable ways to own precious metals is royalty companies. Not only are they a great way to diversify, but they also pay higher dividends. Learn more about royalty investments in this interview with gold-stock expert John Doody: How to Make the Biggest, Safest Returns Possible in Royalty Companies.
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