by George J. Paulos
“Little Silver”
Gold and silver, the traditional metals of choice for investment and speculation, dominate the precious metals markets. The silvery-white metal platinum is also a member of the precious metals family. It is less familiar to the investment world and is a more complex market to understand which leads investors to shy away from it. Many investment opportunities exist in the platinum market and it gives the precious metals investor a powerful tool for diversifying a metals portfolio. This overview of platinum will give an investment perspective of the metal with its risks and reward potential to give the investor a background to begin research. As with any investment, there is potential for loss of value. Readers are urged to do independent research to determine if platinum investments fit individual requirements.
Platinum was well-known to many ancient cultures, but most textbooks date the discovery of the metal to the eighteenth century when it was finally isolated in pure form. Archaeologists have discovered platinum artifacts originating from Egypt and Pre-Columbian America. The word platinum was derived from the Spanish platina or “little silver”. Europeans became aware of platinum after Spanish Conquistadors brought it back with plundered gold and silver from the New World. Platinum became a very fashionable jewelry material during the nineteenth century. Many famous royal jewels including the Hope Diamond and the Star of Africa are mounted in platinum settings. During World War II, platinum use was banned in the US for any nonmilitary purpose. This event suppressed consumer demand for platinum for decades, but it has made a strong resurgence in recent years as a premium jewelry material.
Platinum Properties
Platinum is a fundamental chemical element that is designated by the symbol Pt. It is constructed from 78 protons and 117 neutrons in its common stable isotope. Platinum is a heavy metal. It exhibits very a very high density of 21.45 g/cm3, greater than gold at 19.32 g/cm3. Platinum has a melting point of 3221 degrees Fahrenheit. It is located adjacent to the other precious metals (shown in bold letters) in the chemist’s Periodic Table:
Ruthenium Ru Atomic # 44
Rhodium Rh Atomic # 45
Palladium Pd Atomic # 46
Silver Ag Atomic # 47
Osmium Os Atomic # 76
Iridium Ir Atomic # 77
Platinum Pt Atomic # 78
Gold Au Atomic # 79
Platinum Group Metals share similar chemical properties such as high melting point, chemical inertness, low coefficient of thermal expansion, and ability to catalyze chemical reactions. The PGM metals are often found together in natural deposits and are also found in conjunction with gold and silver ores.
Platium is Very Hard
Platinum itself is an extremely hard substance that is highly resistant to corrosion. It has high electrical conductivity and exhibits very ductile and malleable properties for drawing thin wires and foils. Platinum is one of the most effective catalysts known for inducing a variety of chemical reactions. A catalyst is a substance that enables chemical reactions but does not react itself with the chemicals. Platinum along with the other PGM metals are extensively used for chemical processing. Platinum polishes to a brilliant shine that creates spectacular lighting effects when combined with gemstones or other metals. Its extreme hardness and high melting point makes platinum metalworking difficult and expensive.
Platinum Uses
Platinum is primarily an industrial metal. It is a critical material for many industries and is considered a “strategic metal” by the US Government as a military resource. It is estimated that about 20% of the products purchased by modern consumers either contain platinum or use it in production. Total demand for platinum falls into eight broad categories:
• Automotive – used in catalytic converters, spark plugs, and sensors.
• Jewelry – as a substitute for gold.
• Chemical processing – also as a general catalyst
• Electrical/electronics – for high-temperature and non-corrosive wires and contacts.
• Glass – dies and process technology.
• Petroleum refining – as a catalyst for crude oil cracking
• Dental/Medical – equipment and reconstructive
• Investment – bullion and coins
Automotive: Automotive demand for platinum consumes a large share of platinum production. Platinum is the active element in catalytic converters that convert unburned hydrocarbons into carbon dioxide and water vapor. Other automotive uses include oxygen and ozone sensors for antipollution subsystems. Recently, platinum is being used as an electrode material in long-life spark plugs. Being one of the largest consumers of the metal, platinum demand is highly correlated to automotive industry cycle, and therefore price.
Automakers are aggressively experimenting with ways to eliminate expensive platinum-based emission-control components. New “lean-burn” technologies are being developed by auto manufacturers to reduce or eliminate the need for catalytic converters. These techniques use sophisticated computer control of engine parameters to reduce emissions. Such breakthroughs would substantially reduce platinum demand and put downward pressure on the price of the metal. Other challenges to platinum in autocatalyst use come from its sister element palladium. Palladium can be used as a substitute along with other PGM group metals as a catalyst agent. Although palladium is not quite as effective as platinum, it will be substituted if the price of platinum rises too high.
On the bullish side, new automotive uses for platinum are on the horizon that could substantially increase demand for the metal. Manufacturers are experimenting with fuel-cell power plants for electric cars. These fuel cells utilize platinum to catalyze a chemical reaction using hydrogen that creates electrical energy but generates no harmful emissions. Government emissions and fuel-efficiency mandates are accelerating research in this area. It will probably be at least a decade before fuel cell automobiles enter widespread use.
Jewelry: Platinum has become a very popular choice for modern jewelry, displacing significant gold demand. Its hardness and durability allows it to be used in purer form for secure stone settings. It is much superior to silver because of its resistance to oxidation and discoloration. Its rich hue and reflectivity enhances the brilliance of precious stones. Platinum is hypoallergenic which makes it the best jewelry choice for people who suffer reactions from other metals or 14k (alloyed) gold.
Platinum jewelry has been particularly popular with Asian consumers. Many Asians feel that platinum has a more pleasing contrast with the Asian skin color than other metals. Other ethnic groups have started to purchase platinum for similar reasons. Platinum also seems to have a marketing advantage to gold or silver. Products and awards with the “Platinum” designation are typically considered superior those labeled “Gold” or “Silver”. This gives platinum jewelry items additional prestige.
Chemical Processing: Platinum is used as a catalytic agent in processing of nitric acid, fertilizers, synthetic fibers, and a variety of other materials. In catalytic processes, the catalyst material is not consumed and can be recycled for future use. This makes chemical demand for platinum quite volatile. Platinum is essential in many of these processes and there are few satisfactory substitutes.
Electronics: New uses for platinum in electronics are coming at a fast pace. Traditionally, platinum has been used in thermocouple devices that measure temperature with high accuracy. Newer thin film optical and temperature-sensing systems use platinum silicide compounds in a variety of products. Platinum is also employed in wires and electrical contacts for use in corrosive or high-voltage environments. Platinum is a component in magnetic coatings for high-density hard disk drives and some of the newer optical storage systems.
A few years back, platinum surged into the spotlight when two researchers, Pons and Fleischmann, claimed to have generated a “cold fusion” reaction using platinum. This cold fusion technology was thought at the time to be a major breakthrough in atomic power generation. After publishing their controversial work, Pons and Fleischmann were unable to reproduce the reaction to the satisfaction of the scientific community. Should cold fusion become a reality, it would create significant demand for the metal. Although cold fusion may never be practical, platinum investors should keep an eye on this area.
Glass: Platinum dies are extensively used in glass production. Its hardness and high melting point make it ideal for this difficult high-temperature process. Much platinum is used in fiberglass production. The recent introduction of glass fiber communications technology is a new driver for platinum demand. Although the fiber-optic market is now in a cyclical recession, it is expected to recover along with the associated platinum demand. Glass production is a relatively small component of total demand, but represents a high growth area.
Petroleum: This is another use for the catalytic properties of platinum. The petroleum industry uses the metal in a mesh or gauze form in crude oil refining. Platinum use in petroleum refining follows global demand for refined crude oil products. Other technologies exist to perform crude oil separation but catalytic processes using platinum and palladium are much more environmentally friendly. As more refineries are built and updated, expect platinum use in petroleum refining to rise. Also, less developed countries are being pressured to improve environmental standards. Refineries in those areas will ultimately be converted to catalytic processing, further boosting demand for PGM metals. As in other catalytic processes, platinum is not consumed and is aggressively recycled and reused. This makes petroleum industry demand highly volatile.
Investment: Investment demand for platinum is a wildcard. Demand for investment-grade metal has been extremely volatile over the last ten years. In the year 2000, investment demand actually went negative as hoarded supplies were dumped onto the market. Platinum is available in coin and bar form for investors and speculators. The US Mint offers a set of “Platinum Eagle” coins that contain 1.0 oz, .5 oz, .25 oz, and .1 oz .9995 pure platinum. These coins are relatively scarce and have only been produced since 1997. Australia and Canada also produce platinum coins for investment consumption. Larger investors and end-users usually purchase bars or ingots. These are much more efficient and have lower price premiums to bullion, but may require assay when reselling.
Platinum Exploration and Extraction
Platinum is an extremely rare substance, far less abundant than gold. It is found only in a few commercially viable deposits on the earth. Most platinum is mined in three major producing regions in South Africa, Russia, and North America. South Africa is by far the largest producer supplying about 2/3 of the total world production. Russia is the next-largest producer, supplying about ¼ of world production. The rest of the platinum supply comes from North America and a few other small producers.
South Africa has been blessed with some of the richest mineral deposits in the world. They produce large quantities of precious metals, gems, and industrial minerals. South Africa’s platinum deposits are concentrated in an area known as the Bushveld Igneous Complex, one of the largest metal-bearing intrusions in the world. PGM metals are recovered from the Merensky reef that extends along the entire eastern length of the Bushveld. Several mining firms extract ores from this region, the largest being Anglo Platinum, Impala Platinum, and Lonmin Platinum.
Platinum From Russia
Platinum production in Russia dates back to the 19th century when alluvial deposits in the Ural Mountains were heavily mined. These historical deposits are now mostly depleted but new richer sources have been discovered in northern Siberia. Siberian PGM production is concentrated in the Noril'sk-Tainakh complex, a set of underground veins that are part of massive copper-nickel deposits in the complex. Russian production suffered during the transition period before and after the collapse of the Soviet Union. New investment in modern plant and equipment could dramatically boost output, possibly exceeding South Africa. Russia is a wildcard on the supply side of platinum production.
Platinum in This Hemisphere
North America boasts three large PGM ore deposits. The Stillwater Complex in southern Montana is contains the only commercially exploitable PGM deposit within the United States. The JM-Reef formation within the Stillwater complex produces a high-grade ore. Exploitation of the Stillwater deposit began in 1987. Stillwater Mining Company holds claim to most of the richest properties. The other two North American deposits lie within Ontario, Canada. The Sudbury Mine in southern Ontario produces PGMs as a byproduct of nickel mining. The Lac des Iles region north of Thunder Bay produces mostly PGM with some base metals. All of the North American deposits are primarily palladium sources with platinum being a relatively small percentage of the metal production.
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