'Buy American' Should Start with Minerals
Across six months and two presidential administrations, the beleaguered U.S. taxpayer has turned venture capitalist, acquiring major stakes in banks, brokerages, insurance and auto companies. As the psychological barrier to government intervention is broken, proposals for new bailouts bubble up each day.
My nominee? A sector that’s not been talked about: strategic minerals.
Case in point: Stillwater Mine, in Nye, Montana, producer of palladium and platinum, best known of the so-called Platinum Group Metals (PGM). While most PGM is used today in the automotive sector – as a key component of catalytic converters – other uses range from dental bridges to jewelry and electronics. While details are hard to come by, an unspecified percentage of palladium goes for use in military hardware.
Worldwide, 85% of palladium is produced by two countries: Russia and South Africa, with Russia alone providing half of all global production. How much palladium does Russia have left? There’s no way of knowing, as the Kremlin classifies such information as a state secret.
That’s where the geo-political story comes back to Stillwater – the only active PGM mine in the United States. But while Stillwater is American-based, it’s not American-owned: Seven years ago, Russian oligarchs Vladimir Potanin and Mikhail Prokhorov bought a majority share of Stillwater through mining giant Norilsk Nickel.
Russian ownership aside, in the current economic collapse, the bill is already coming due to the American taxpayer. Hundreds of Stillwater’s miners, punished through no fault of their own by plummeting commodity prices, have been pink-slipped since late 2008. Sentiment in Washington, D.C. seems to be running toward extending their unemployment benefits and providing federal funding for retraining and relocation.
Which raises the question: If U.S. taxpayers can pay for laid-off miners, why don’t we go ahead and buy the metal they were mining?
The opportunity is there, and it won’t take wresting company control out of shareholder hands, because Stillwater’s Russian owners indicated last fall they planned to put the company on the block. Norilsk – which bought Stillwater for $7 per share – is ready to dump it at less than $3 today.
Russian willingness to shed an American mining asset is a curious counterpoint to a recent policy of aggressive resource acquisition. While the Kremlin keeps a list of several dozen strategic Russian resources over which it sharply restricts foreign ownership, it plays by market rules outside its own borders, using nominally private companies with tacit Kremlin backing to buy up resources in Central Asia, Eastern Europe and – in the case of Stillwater – the United States.
While Russia and China – which is on its own resource shopping spree in sub-Saharan Africa – seem to have divvied up the world’s strategic resource smorgasbord, U.S. policy remains laissez-faire. What we see solely through an economic lens as the preserve of the private sector, Moscow and Beijing see as assets that translate into state power as well as prosperity.
But no strategy is exempt from the power of the global market. Now that Norilsk is caught in a commodity-crash cash-crunch, the U.S. has a chance to buy back its PGM production. After initial speculation that Swiss or South African mining companies might take the company off of Russian hands, with commodity prices in free-fall, interest in Stillwater seems to have waned.
So what about Uncle Sam stepping in to “buy American?”
The price is right. Stillwater – a hefty $21 per share a year ago – is now trading at a near 90% discount. Factors like the flat-lined world market for palladium and platinum shouldn’t loom large for the U.S. government, which tends rather to like its assets on the toxic side. (Then again, given that PGM is a key component of catalytic converters, this may make synergistic sense: given the taxpayer’s new stake in Chrysler and General Motors, adding Stillwater Mining to its portfolio will help the U.S. government consolidate its automotive supply chain.) After buying all those banks, bad mortgages and car companies, maybe precious metals would help diversify our “U.S. Bailout Fund” portfolio.
Months ago, my free-market compass would have steered me clear of such apostasy. Today, however, a new thought suggests itself: If the world is one big resource bazaar, maybe it’s time for the U.S. to check out the bargain table. We can buy now, while prices are low, and sort it out later. In the near term, a strategic asset would return to American hands, and American miners would get back to work. Down the road, when the economy recovers and the U.S. rediscovers the virtues of private ownership, we can sell the country’s only platinum/palladium mine – to U.S. investors. At a profit.
And on a more serious note, perhaps we will take a closer look at the ways Russia and China have been exploiting free-market rules to consolidate their control of some of the world’s most critical resources.