Larry Myles: Why Rhodium? - Premium Exploration

LARRY MYLES : WHY RHODIUM?  WHY PREMIUM EXPLORATION?

Rhodium, the cool rare metal that is Investment Hot!
  
As consumers, many of us in North America are aware of the push by US automakers to add ‘green value’ into their cars and trucks. Likewise, any vehicle imported into the US or Canada must comply with stringent emission standards.

But as investors....are we paying attention?

For those that are already in the know, the current price of Rhodium (Rh) comes as no surprise. At a whopping $7000 per ounce, this hard silvery, rare-earth metal is crucial in the manufacturing of catalytic converters, thereby reducing the emissions of nitrogen oxide (tail-pipe pollution). Although Rhodium is rarer than hen’s teeth, the good news is that you don’t need a lot of it per vehicle. The bad news is that no one has discovered a substitute – and not for lack of research and resources.

Currently, 80% of the demand for Rhodium comes from the North American, European and Japanese auto makers. According to 2006 figures, the demand for diesel-powered, light vehicles (all equipped with catalytic converters) is soaring – 60% in Europe and 5% in the US.

Based on current and near-future demands by the automotive industry, I am sure everyone would agree the need to discover additional resources of Rhodium is obvious.

Obvious? It is glaringly obvious!

As I am sure the fans of Rhodium would be happy to point out  - there are other uses for Rhodium besides the automotive industry – optical instruments, jewelry, glass products and as a hardener for Palladium and Platinum. All true. But my focus remains on the auto industry – as their cozy global clubhouse is bracing itself for one heck of a serious party crasher. China.

The emergence of Chinese automakers -  no longer satisfied with supplying their growing domestic market - are now poised to make a global impression.

Surprised? I hope not....or did you think that China’s manufacturers were inhaling raw materials from around the planet – driving metal prices to all time highs – just so they could load metal ingots into manual rickshaw’s and transport them to a storage facility? Those days are ancient history. And if you want to see a rickshaw, I think there are still a couple of beautifully restored models on public display somewhere in Banqiao.

Early in 2007, the increasingly capitalistic Chinese government signaled it was prepared to let market forces have a larger hand in sorting out their exploding auto sector. At last count there were 100 Chinese automakers – and they are all doing business!

If you do the math, this makes China the second largest producer of cars and trucks, right behind the US.  This spirit of competition in China will translate into market-share challenges for not only US automakers, but Japanese and European manufactures as well – as Chinese automakers are clearly signaling their desire to compete with the global giants in the overseas markets.

And already stated, if the Chinese car makers want to export into the US, their vehicles will have to be green-compliant....thereby increasing the demand for Rhodium!

And lest I forget....India isn’t exactly snoozing either

India's automakers have not been known for being cutting edge. But they are recognized for their staying power and solid construction. All of that is changing as India’s automakers are about to muscle their way into global market – offering new innovative models that are (extremely) low-cost. TATA MOTORS, is getting ready to launch a new car in early 2008, that is rumored to sell for under $5,000.

Meanwhile, back at the assay lab....

It is clear there is a supply-side challenge for Rhodium. At present and for the foreseeable future, there is no substitute for this rare metal when it comes to the auto industry.

So what is the story behind the supply of Rhodium?

The principal sources of Rhodium are located in South Africa and in the Ural Mountains of Russia. Smaller amounts can be found in both North and South America, including northern Ontario (Sudbury). But of real importance, world-wide annual production is only about 25 tons.

Seems to me that if we divide the annual supply number into the (ever-increasing) annual demand number, the total will come out to: ‘s-h-o-r-t-a-g-e’. But hold on, there is more to the story....

Checking with a few of the assay labs, I discovered that testing for Rhodium is no stroll through the park. It is not only an expensive process – it takes time. We are talking about adding weeks (if not months) to the delivery of test results.

All of this brings me back to a company I covered two months ago – Premium Exploration Inc.

“Premium Exploration, Inc. (TSX-V:PEM), is a precious metals exploration company focused on prospect generation, evaluation and exploration in North America. Listed on the TSX Venture Exchange Premium has assembled an innovative and experienced management and advisory team who are committed to the long-term success of the Company”.

Two months ago, I focused on Premium’s ‘warm weather’ properties in Mexico – and since then, the Company has added yet another ‘premium’ Mexican gold property to its portfolio.

Almost as an after-thought I mentioned Premium had put out news early in October that it was waiting for drill results from their Montana property – and they were looking for PGM’s... and wouldn’t a wee bit of Rhodium be nice to add into the mix.

I think that as the weeks have turned into months, and the Company has indicated they are indeed testing for Rhodium, we will not have long to wait. I anticipate results early in