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Platinum, Palladium Stock Pick

NEW YORK ( TheStreet) -- Current demand for platinum and palladium from the auto industry, jewelry segment, and as an investment choice is strong, while labor and safety issues are constraining supply. In this scenario of growing deficit, North American Palladium (PAL) is likely to surpass its production guidance to best Stillwater Mining (SWC - Get Report), which anticipated production declines for 2010.

North American Palladium plans to significantly increase its production. Preliminary assessment at the Offset Zone in the Lac des lles mine near Ontario, Canada is positive and this could boost production. "The Scoping Study shows that the Offset Zone project is financially robust and will enable continuation and expansion of LDI's production, while benefitting from lower production costs," said Chief Executive William J. Biggar in a press release on Monday. The company expects the cash costs of only $132 per ounce at this mine, thereby creating a significant value to the company.

Meanwhile, Stillwater Mining adjusted its full year guidance downward on July 28 during second-quarter earnings release. The company has revised guidance for 2010 to 490,000 ounces at a combined total cash cost of $385 per ounce from 515,000 ounces at a combined total cash cost of $360 per ounce.

Production cost pressures, regulatory issues and labor concerns at the other mining companies could push up platinum and palladium prices, going forward. The South African production is plagued by inadequate investment in infrastructure development, labor strife, safety issues and the likelihood of stringent mining regulations, all of which could hamper supply.

Aquarius Platinum, a leading platinum and palladium producer, may shut its Blue Ridge mine in South Africa for up to seven months to revamp the mine following the death of two miners last month. Even though, the company swung to a net profit for the quarter ended June 30 on higher metal prices, earnings per share for the full year could be below analysts' estimates due to lower output and increase in unit costs by 5% on the interim safety measures.

Meanwhile, Impala Platinum expects a 25% drop in full year earnings per share due to an increase in share-based expenses.

A turnaround in the auto industry in July surged platinum and palladium demand. Automobile sales in the U.S. were up 6.7% to 1.04 million in July from 983,000 in June. Similarly, car sales in Japan and India zoomed 15.6% and 12.4% for July in comparison with sales reported in June. Although China's automobile production declined 5.2% in July, the overall improvement in global car sales helped palladium and platinum to reach their recent peaks on Aug. 02.
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