Liberal economics on collision course: Auto czars must choose between Montana miners or taxpayers’ GM investment

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As part of the GM (Government Motors) bankruptcy fallout, Democrats and Obama admin are now on a collision course between conflicting ideals. One would be their devotion to unions, combined with their love of regulation for US industries, driving many to the point of non-competitive status. The second is their now, first hand reality check that “outsourcing” and the ensuing US job loss may be an ugly necessity for business survival.

Unlike community organizing, there’s nothing like owning a car manufacturer that drives home basic business common sense, eh?

One of the darlings of the Dems, Montana Governor Brian Schweitzer, is calling upon Obama to force his new, majority government owned GM, to honor it’s contract with Stillwater Mining for PGMs- i.e. platinum, palladium and other metals – that are used in catalytic converters to control car pollution.

With platinum and palladium mined in just two other countries, Russia and South Africa, Schweitzer said GM’s cancellation would put the U.S. at a strategic risk and hurt the mining industry.

A White House spokesman declined comment.


All the palladium and 70 percent of the platinum produced by Stillwater’s mines had gone to GM and Ford Motor Co. Stillwater representatives won’t give specifics on how much GM’s contract was worth. It had been set to expire in 2012.

Stillwater Vice President John Stark said the contract cancellation will be challenged at a July 22 hearing in U.S. Bankruptcy Court in New York.

Detroit-based GM defended its decision to cancel the Stillwater contract, saying the deal had been “uncompetitive” and could have hobbled its efforts to repay the government loan.

“We will continue to make difficult decisions that best position the new GM for long-term viability,” said GM spokesman Dan Flores. “There is an obligation to the taxpayers to provide a return on their investment to our company.”

The contract set a floor price requiring GM at times to buy metals at prices above those on the open market. It also set production volumes, meaning GM had to keep buying a set amount from Stillwater even as its vehicle production fell from 9.2 million cars in 2006 to 8.4 million last year.

The Ford contract has similar terms.

At recent palladium market prices, the contracts had been shielding Stillwater from the equivalent of $57 million in lost annual sales, according to the company’s filings with the Securities and Exchange Commission.

No wonder the WH is dodging… and no doubt hoping that the media won’t pick up on the dichotomy of it all… You *do* see what we have here, right? The two other countries that supply the needed PGM market are those that operate sans American OSHA and EPA regulations – and are free of union demands and contracts. The agreement between Ford (who is still profitable) and GM was subsidizing our American PGM market in order to make them competitive.

In other words, these companies were demonstrating some “Buy American” loyalty… all without mandates.

Not any more. Now, in a complete 180 degree attitude, the new “Government Motors”… with Obama and his Treasury and car czar, Steve Rattner, at the helm… recognize the difficulty of competing successfully because of the cost of operations with the subsidy, and have demanded the new government GM entity purchase it’s PGMs elsewhere for a better price.

Is this gonna drive the “outsourcing” crowd nuts, or what?

This would be hilarious, were it not for the potential of debilitating effects. At risk are not only the very existence of the giant of the US precious metal market and their 1300 Stillwater Mining American workers, but potentially it’s domino effect upon the refining facilities in both NJ and CA.

By failing to shield the platinum and palladium mines, the Democrat said Friday that the administration had shown a bias against his state — at a time when other U.S. jobs were protected with a “buy American” clause in the $787 billion stimulus act. GM is shedding its contracts with Stillwater Mining Co.’s platinum and palladium mines as part of the automaker’s emergence from bankruptcy protection.

Details of the case paint a complex picture: GM was effectively subsidizing production by Stillwater, often paying above market price for the metals. And since 2003, the mines have been majority-owned by a Russian company, Norilsk Nickel.

GM’s reorganization is fueled by $50 billion in government loans. The loans are separate from the stimulus bill.

“When it comes to protecting the industries of the Midwest it’s buy American first,” Schweitzer said. “When it comes to Montana, they say buy anywhere but Montana.”

The state’s sole U.S. representative, Republican Denny Rehberg, said it was “beyond outrageous” that GM would use bailout funds to “move American jobs overseas.”

First, we will have to correct the Montana Governor, as Obama did think better of the “Buy American” clause in the stimulus, and officially nixed that idea as sounding too “protectionist”. There was, as Gov. Schweitzer noted, an attempt in the original language to protect the American iron and steel (and presumably metals) industry specifically. However it was revamped to a more ambiguous wording that “…requires only that the government spends funds in ways that do not violate U.S. trade agreements.”

And how very convenient that is now, don’t you think?

But there is no doubt the internal war is about to break loose between the Dems and the different factions, reconciling their ideology of “Buy American” while simultaneously taxing and regulating them out of the country in order to survive.

INRE that Russian ownership… It’s true that in 2003, the purchase of 55% of stock in the US’s largest producer of PGM resources was approved by three federal agencies to Russia’s Norilsk. Within a few years, that majority percentage had fallen to 53%. By 2008, Norilsk was looking to sell.

The Moscow Times identified [Switzerland’s] Xstrata and [South Africa’s] Impala Platinum as potential buyers of the stake.

Lobanov said, “In a crisis situation, cash is king. And we have to prioritize our projects. He added that Russian projects would take precedence to foreign projects due to differences in production costs.”

“We had been hoping for a synergy with our palladium assets in the Russia and the United States, but it hasn’t worked out, ” Lobanov was quoted as saying by the Moscow Times. “The crisis has aggravated the situation with Stillwater Mining.”

Norilsk bought majority control of Stillwater in 2003 after Stillwater Mining officials said they had to sell stock or go bankrupt. The sale required the approval of three federal agencies because of regulations regarding the sale of companies with national security implications.

However, the Moscow Times calculated Norilsk’s Stillwater stake has fallen from the $270 million it paid four years ago ($4.83/sh) to its current value of $230 million.

During 2008, palladium has fallen from a high of $582/oz to $168/oz, according to Kitco London Fix charts. Over the past 52 weeks, Stillwater Mining stock hit a high of $22.72 as metals prices soared. By Friday, Stillwater stock closed at $3.05/sh.

Original forecasts projected a hoped range between $515K – $525K per PGM ounces. Actually 2008 sales documented $431/oz in the first half of 2008, compared to $382/oz for the same period in 2007.

Speculative investment in 2003 for an anticipated increased demand for PGMs in not only the auto industry, but electronics and dental alloys, fueled Norlisk’s decision to supplement Russia’s already high production sales in the world. (along with sundry criticisms they were attempt to control PGM world pricing, of course.) Add to that, the push for more hydrogen fuel cell technology, also requiring PGMs, and one would have thought purchasing Stillwater was a safe investment.

It is also true that the J-M Reef area is the only known US resource for PGMs, … while the only other resources for the PGMs are largely produced out of Russia and South Africa. Needless to say, Stillwater Mining, and other smaller entities represent the sole US resource of rare metals in the world.

Welcome to Economics 101, Congress and Obama. Both are long overdue in getting some basic common sense business experience and executive management. And perhaps this may make these big spending elitists think twice about the additional regulations on US business they are proposing… now that they are CEOs of government owned enterprises. ah, ahem… can you say “cap and tax”? (Okay… I doubt it….)

Now Stillwater is demanding WH intervention, or they will find themselves filing with many others for relief and appeal against the lawsuits being held by the “old” GM. They’ve already been put on the S&P credit watch list because of this contract cancellation.

If the Obama administration does not intervene and Stillwater fails to get relief through bankruptcy court, the company would have to file a claim for its losses and line up alongside the automaker’s many other creditors.

The stark reality of economics will be a bitter pill for the lofty-ideology types to swallow now. On one hand, we have cascading job loss, unions and incestuous relationships with Obama’s auto czars, and the financial jeopardy of the largest entity responsible for extracting a rare US resource that is in high demand. On the other hand is the US taxpayer, on the hook for Government Motors and the demand for profitability.

Now what remains to be seen is just how will Obama, and his union entrenched auto czars, react to this push-pull between making GM profitable; or continuing to subsidize the heavily regulated and non-conpetitive US mining industry and placate the united steelworkers union…. an entity that Rattner’s auto czar sidekick, Ron Bloom understands well as he was – until February – assistant to the United Steelworkers union president.

Can you say “ rock palladium and a hard spot”?

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Hang tough, Governor!

The democrats never, ever look at the down side of any of their iniatives. They simply believe there is no downside. It would be amusing if it weren’t so pathetic that they mess up time and time again. Has any program they initated ever been a success?

The Law of Unintended Consequences a.k.a. –> Didn’t Think It Through., Yet Again.

Sigh… what is it going to take to wake this country up?

Mer:what is it going to take to wake this country up?

Sadly the old saying about boiling a frog holds true for the majority in this country.
Just keep ratcheting it up and as long as everyone thinks they are OK, nothing will change.

Some are waking up and sounding the alarm. Unfortunately, some have woken up, said “you woke me for this?” to only roll over and go BACK TO SLEEP.

The problem is that government has gotten too big and people as a whole do not know what to do about it.

Sent from Ft Benning GA, Read The Tenth Amendment to the US Constitution and get back on those thoughts. Montana folks are unique. Soft spoken but literate and not fooled by snake oil peddlers from DC or CA or punks from Chicago.

Our Governor is accountable. He has had his feet under my table and has my support. I do not eat or drink with folks that I do not respect. Sarah Palin would be welcome here with her Family.

Just Me here but not on Dave Lettermans Christmas card list and could care less.

Behind The Meltdown: Many Americans are unaware of the causes of the greatest economic calamity of our lifetime. A new congressional report details how government politicized housing, wrecking the economy.

GM will use the metals from South Africa. South Africa is much closer to Kenya than Montana is. Mark my words.

It was prolly Joe Biden.