December 28th, 2022 | 08:14 CET
Auxico Resources, BYD, Nordex - Energy transition in danger: shortage of critical raw materials
The energy transition, i.e. the transition to a sustainable, low-carbon and renewable energy supply, is an important step in combating the climate crisis. However, some critical raw materials are needed for the expansion of renewable energies and whose scarcity can pose a threat to the energy transition. These include, for example, rare earths, cobalt and lithium, which are used in the manufacture of solar panels, wind turbines and electric cars. In this context, one should not underestimate the current dependence on China, which has a monopoly position, especially in rare earths. We therefore take a look at three companies around the energy transition.
time to read: 4 minutes
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Author:
Armin Schulz
ISIN:
AUXICO RESOURCES CANADA | CA05334L1094 , BYD CO. LTD H YC 1 | CNE100000296 , NORDEX SE O.N. | DE000A0D6554
Table of contents:
"[...] We know exactly what we are doing and are implementing what we consider to be a proven technology in an industrially applicable and scalable way. [...]" Uwe Ahrens, Director, Altech Advanced Materials AG
Author
Armin Schulz
Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.
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Auxico Resources - Trader for critical raw materials
Auxico Resources is a Canadian company focused on producing critical minerals and high-value metals. Their product portfolio includes niobium, tantalum, platinum group metals (platinum and iridium) and rare earths. As the exclusive trading agent for rare earth concentrates from the Democratic Republic of Congo, the Company holds mineral rights in Colombia, Bolivia and Brazil. With access to nearly 4 million tons, the Company is positioned to be a major supplier of critical minerals and rare earth elements to Western economies. Mainly because the Company takes care to meet ESG criteria, this quality feature will become even more important in the future.
Money is being made from the project in the Democratic Republic of Congo, where Auxico is the exclusive distributor and sales agent for monazite sand, a rare earth element. For each ton exported, the Company receives a 15% commission. The Company is targeting exports of 500 to 1,000 tons per month, which could generate CAD 500,000 to CAD 1 million in cash flow. In addition, Auxico has a project in Bolivia with potential but is currently focused on its projects in Brazil and Colombia that could go into production in the medium term. The Company has access to tailings from decades of tin mining, estimated at 30 million tons in Brazil. The Company plans to process 2,500 tons of this material daily and will prepare an initial NI 43-101 resource report in early 2023.
In Colombia, there is a trading joint venture where money will be flushed into the coffers through the sale of tin concentrate from the beginning of 2023. The European partner Cuex Metal AG comes into play as the buyer. In addition, the Company has another project in Colombia called Minastyc with rare earths, tantalum, niobium and tin, where several hundred samples are currently in the laboratory for analysis. With the results, a resource estimate is expected to be prepared in Q2 2023. Those interested in learning more about the Company should look at the interview with CEO Frederick Kozak. Since November 21, the stock has formed an uptrend and is currently trading at CAD 0.55. The stock is also expected to trade on the OTCQB in the US soon.
BYD - Premium model sells well
As a leading electric car manufacturer, BYD benefits from its battery know-how. The battery accounts for a good 40% of the price of an electric vehicle. By producing its own Blade batteries, the group can cut costs and is well-positioned to compete globally. Recent analysis by the China Passenger Car Association (CPCA) suggests that the shift from internal combustion engine vehicles to e-vehicles in China will be irreversible once the subsidy period for e-vehicles is over.
BYD has successfully sold high-end electric vehicles such as the Seal sedan in China and is expected to further increase its battery electric vehicles (BEVs) sales in the coming years. Due to tax benefits and product advantages, BYD has a significant market advantage over foreign competitors, such as Tesla, in the Chinese market for high-end electric vehicles. In November 2022, BYD sold more than 15,000 Seal sedans, proving that the Company is capable of competing in the premium electric vehicle market. By comparison, Tesla will sell about 122,000 vehicles in China in 2022.
The Company is currently facing Corona-related illnesses, leading to production losses. Vice Chairman Lian Yubo said the employee infections have resulted in 2,000 to 3,000 fewer vehicles being produced per day. This has impacted December sales by 20,000 to 30,000 units, meaning it may not reach the 1.9 million units projected to be sold this year. In addition to the Buffet sales, this news may have led to the recent share price decline to EUR 23.05.
Nordex - Margin problem in focus
Wind turbines are an essential source of renewable energy and an effective way to reduce greenhouse gas emissions. However, they also require certain materials to function effectively. One of those materials is rare earths. They are important for making permanent magnets, which are used in many wind turbines to convert the energy of the wind into electricity. Accordingly, German wind turbine manufacturer Nordex also relies on rare earths.
Despite record sales of EUR 1.7 billion in the third quarter - up 50% from a year earlier - the Hamburg-based company has had to raise fresh capital several times in 2022 due to rising costs, leading to three profit warnings in a row. High raw material and energy costs, staff shortages and disruptions in the supply chain are considered the leading causes. The Company aims to be profitable again by 2024 at the latest. This year, a loss of 4% in sales is expected. The total order backlog has risen to EUR 6.5 billion, with important new orders from Brazil and Turkey.
Goldman Sachs is skeptical and rates the stock Neutral with a price target of EUR 13.10, while Jefferies continues to recommend the share as a Buy with a price target of EUR 14. Nevertheless, investors should remain realistic and not expect too much euphoria. Nordex's success depends on its ability to achieve its self-imposed target of an EBITDA margin of 8% by 2024. If the Company can overcome its margin problems, the outlook is positive. Currently, one pays EUR 12.27 for a share.
The dependence on China using rare earths as an example is worrying, also in terms of ESG thinking. Auxico Resources can mitigate some of this risk. The Company is well positioned due to its unique project portfolio across multiple continents and its focus on ethical and sustainable practices. BYD's primary market is China, and it is therefore well positioned when it comes to the supply of critical raw materials. At Nordex, high raw material costs quickly erode the low margins. If the Hamburg-based company wants to be successful in the long term, it has to pull the lever here.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
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