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North American Palladium Ltd (USA) (PAL), Molycorp Inc (MCP) – Precious Metals: A New Gold Rush?

Gold and silver have had a rough year. After falling about 30% in value, some investors are looking for alternatives to these traditionally stable investments.

Molycorp Inc (NYSE:MCP)

My experience as a chemist has brought up some Foolish alternatives.


Although gold and silver are all well and good, they have very little use other than as jewelry. There are some chemical compounds and complexes based on gold and silver which have catalytic uses, but are only in the academic stage of development and so lend little to the utility of gold and silver.

Instead, a much more attractive alternative is palladium, whose price has remained much more stable over the year and has quite a few uses. Palladium is a mainstay in catalytic converters, cheaper than the well-known platinum but just as effective. Also, palladium is used as a hydrogenation catalyst to transform trans-fats into saturated fats in the food industry. In synthetic chemistry, palladium is widely used to form many different bonds that appear in naturally-occurring compounds that can be used as medicines. Such palladium-catalyzed reactions can make industrial production much easier, and allow such natural medicines to be more widely available.

One palladium supplier, North American Palladium Ltd (USA) (NYSEMKT:PAL), owns one of the palladium mines in the world, the Lac de Iles Mine. To add to $23 million in cash reserves, North American Palladium Ltd (USA) (NYSEMKT:PAL) has recently received a $130 million loan from Brookfield Capital Partners Ltd. to develop its mines and subsequently increase profit margins. As North American Palladium Ltd (USA) (NYSEMKT:PAL) develops production and palladium becomes more important, the investors might benefit from a long position.

Rare Earth

In recent years some other elements have become more valuable to every-day life. The rare earths or rare metals as they are affectionately known, such as iridium, neodymium, dysprosium, and others have been used more and more widely.

Neodymium is a powerful, naturally-occurring magnet used in various electronic devices. Dysprosium is used in small capacitors for electronics as well. Both of these metals allow components for devices to be much smaller than they would be without the miniaturization allowed by the rare metals. As the trend of technological miniaturization continues, these elements will increase in utility and become even more valuable. Without them, cell phones and tablets would be quite different.

One company that mines high purity dysprosium and neodymium is Molycorp Inc (NYSE:MCP). Since China has been limiting supplies of the precious metals it mines, Molycorp Inc (NYSE:MCP) provides an alternative precious metal source that will only become more important as the electronic age advances.

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