Market Strategy - Closing Bullish North American Palladium Producers View - JULY 2014

We are closing our bullish view on North American palladium producers, expressed through Stillwater Mining in our Sector Strategy, with a gain of 18.1% since initiation on March 19. We anticipate short-term consolidation in Stillwater's share price after the price of palladium fell 3.9% on June 12, breaking below key trendline support. News that the South African mining workers union has reached a wage agreement with platinum-group metal (PGM) producers Lonmin, Amplats and Implats, presents downside risk to palladium prices and mitigates a key factor that underpinned our bullish stance on palladium producers. Over recent weeks, palladium prices have been bolstered by anticipation of a tighter market as essential supply had come offline as a result of the strike across South Africa's platinum belt, an area that provides nearly 40% of global palladium supplies. With a resumption of palladium mining likely to occur in South Africa over the coming weeks, the risk premium will be priced out of global palladium prices, presenting downside risk for Stillwater. Nevertheless, we remain constructive towards Stillwater's fundamentals on a multi-quarter basis due both to our expectations for strong palladium demand in 2014 from the global automotive sector and our expectation that strike action will continue to plague South Africa's PGM sector over the years to come.

Locking In Gains
US - Stillwater Share Price, USD (Weekly Chart)

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