Palladium prices are still not high enough

That is not a one-off situation. For most of the past decade the five miners who dominate the Southern African industry — Anglo American Platinum, Impala Platinum, Lonmin, Sibanye-Stillwater, and Northam Platinum — have failed to crack a double-digit return on equity, which ought to be the baseline for a worthwhile investment. Prices for by-product palladium will have to get a whole lot higher to tempt them to dig up yet more of their money-losing main product, platinum.

There is one way out of this toxic relationship, and it’s buried under the Siberian permafrost. In contrast to the tarnished Southern African platinum industry, MMC Norilsk Nickel is a truly precious metal. While palladium makes up about a third of the platinum-group output from SA mines, in Norilsk’s pits on the frigid Taymyr Peninsula the ratio is closer to 80%.

As a result, investors prepared to put up with the prodigious political and shareholder risks around Norilsk are sitting on a very attractive stock: With shares valued like those of BHP and Rio Tinto Group at around six times blended forward 12-month cash flows, its return on equity is north of 50%, and has not dropped below 10% in a decade.

The trouble with Norilsk is that it is not rushing to produce much more. Its forecast range for platinum-group output will edge up by a spare five tons between 2018 and 2020, according to its latest production guidance. Further out, there are plans to increase ore output from its Talnakh pit by about 20% by 2025, and after that the development of an enormous unexploited resource through a joint venture with Russian Platinum — but in the near term that is not going to help much.