May 4th, 2022 | 10:22 CEST
BYD, Nevada Copper, XPeng - New opportunities for copper shares
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
XPeng - Rising sales figures fuel demand
That demand for the red metal could flatten out soon seems out of the question. On the road to decarbonization and the achievement of climate targets, copper has a crucial role to play as a cost-effective conductive material. According to experts, renewable energies currently account for around 5% of global copper demand. By 2025, the share is expected to rise to about 10%. By the end of the current decade, it is likely to exceed 16%. However, the copper market seems far from prepared for such excess demand. A copper price that has been low for a long time and reluctance to approve new projects have severely restricted investments in future supply growth in recent years. As a result, the handful of producers are likely to benefit significantly from the strong growth in demand.
One of the main drivers is the shift in traffic from internal combustion to battery-powered vehicles. For example, an electric car requires four times more copper than a car with an internal combustion engine. The increasing demand for electric cars and thus copper can be seen in the sales figures at the Chinese electric car producer XPeng. By April 30, 2022, a cumulative total of 43,563 vehicles had been delivered, an increase of 136% YOY. It is true that XPeng delivered 9,000 units, about 40% fewer than in March. However, this is mainly due to the increased infection numbers and the lockdowns imposed.
Nevada Copper - Restructuring taking effect
Despite a bull market that has seen copper more than double since the March 2020 lows, there are still laggards and opportunities to participate in the booming commodity trend due to special situations. One speculative opportunity for a sharp turnaround comes from copper producer Nevada Copper, which steers the 100%-owned Pumpkin Hollow project in the US state of Nevada. While Nevada Copper's path in the past was marked by delays and constant changes in strategy, which caused millions of USD to come to nothing, the signs are pointing to a rebound since the last change in management.
After the current Chief Executive Officer Randy Buffington took the helm, the first step was to get the finances in order. With KfW, the credit line was stretched and expanded. Pala Investment secured additional financing and remains the anchor shareholder with 38%. In addition, with Solway and Mercuria, two institutional addresses were won with a contribution of USD 30 million each, which support the high-grade project with 10.4% each, which also has considerable resources of gold and silver in addition to copper.
Operationally, Nevada Copper reported steady optimization of operations and a new high in March. The Company said record copper production was achieved in March, with 1,300dmt of copper concentrates produced in the last 30 days from multiple mining sites, including the high-grade Sugar Cube zone, while the Company continued to improve abandonment rates.
"We are pleased with the progress being made at Pumpkin Hollow in the underground mine, open pit project and exploration initiatives," said Nevada Copper CEO Randy Buffington. "The team has done a remarkable job of safely advancing the ramp-up in key areas of development, mining and processing. We look forward to continuing this progress toward stable production as planned later this year."
Currently, Nevada Copper is trading at CAD 0.56 and EUR 0.41 in Frankfurt. The turnaround candidate's highest price was CAD 64.20, around EUR 47.50, in April 2011. The chances of a positive turnaround are given by initiating the measures mentioned above.
BYD - Strong in sector comparison
While a large part of the peer group has lost ground in recent months, the "Build Your Dream" company shines with relative strength. After a stronger sell-off wave in March to an intermediate low at USD 21.42, this was used as an opportunity to build up new positions, which successfully pushed the price back towards the USD 30 mark. At USD 31.55, there is a prominent resistance. If this resistance is overcome, the price target of USD 35.91 will be within reach.
The Chinese flagship company can also shine fundamentally. BYD grew dynamically in the first three months of the current fiscal year. Sales increased by more than 60%, and profits multiplied by more than 240%.
The correction in copper price could provide a good long-term opportunity to invest in lagging copper producers like Nevada Copper, as rising demand from electric carmakers like BYD is expected to continue. While BYD shows relative strength, caution is still warranted in XPeng.
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