Strikes have shut down parts of the industry and I think the settlement of the strike at Lonmin
) was just a temporary pause in the strife. Since that settlement, strikes have spread to the gold mining sector, to coal, and to transportation. So, yes, I think there's a good chance of further supply disruptions at South African platinum producers.
Under the circumstances, the pullback at Stillwater Mining as the strike moved toward settlement -- shares were down 13.3% from Sept. 14 to Sept.21 -- created a good opportunity to buy into an ongoing supply disruption. As of the Sept. 21 close at $12.06, the stock had already retraced 41.6% of its gain from the price on Aug. 10 of $9.49. A 38.2% retracement, technical analysis says, is often a good level for a buy after a gain and sell-off. Since then, the price has retreated more to close Wednesday at $11.59.
Why pick Stillwater? The stock has a very high correlation (R-square of 85) to the price of the platinum group of metals. (Stillwater’s production is 23% platinum and 77% palladium.) The company’s production is all in the United States (so no exposure to South Africa). And the company’s earnings are extremely sensitive to the price of the platinum group of metals, with every $100 increase in price per ounce turning into a 40 cents a share increase in annual earnings per share.
In addition to any boost in the price of platinum and palladium from the strikes in South Africa, Stillwater Creek is on scheduled to begin tunnel boring at new mines Blitz and Graham Creek in 2012. That would let the company add new reserves to its balance sheet. As of September 25 I’m setting a target price of $15 a share by June 2013.
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of Stillwater Mining as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.