20. July 2021 | 12:38 CET
BYD, Volkswagen, Kodiak Copper: The 1000 Dollar Correction!
The copper price had reached its interim high in May 2021 at around USD 10,500. Since then, we have seen a standard consolidation of 10-15%, which is not an unusual occurrence in an uptrend. The increase since the beginning of 2020 is over 100%. Copper mines have been able to post multiple performances in the same period, and the recent correction was accordingly somewhat higher. For many market participants, however, the medium-term scenario for the industrial metal is set. Since the political closing of ranks on e-mobility, demand for copper and battery metals has shot through the roof. Mine operators worldwide are alarmed; the currently recoverable capacities cover just 85% of the demand from 2022. Who can close the gap?
time to read:
ISIN: BYD CO. LTD H YC 1 | CNE100000296 , VOLKSWAGEN AG VZO O.N. | DE0007664039 , KODIAK COPPER CORP. | CA50012K1066
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
BYD - Major shareholders cash in
One of the big copper processors from China is the electric mobility and battery specialist BYD Company Ltd. also known as "Build Your Dreams". Since the participation of Buffett's investment company Berkshire Hathaway in 2008, the share has only known one direction: north.
Over the past 12 months, the BYD share has already gained 188%, despite a sharp correction since January's highs. The reason for the pressure on the value is disposals from old shareholders who have been on board for a long time. Li Lu of Himalaya Capital, who introduced BYD investor Warren Buffett to the Company, sold 10.7 million shares of the Chinese technology company with a volume of around USD 309 million. The sale was completed within 2 days and cost the share price a full 7%.
No one has died of profit-taking yet, but we hear good operational news again from BYD. The Scottish Government announced additional funding for zero-emission buses in July. In total, the budget for vehicles is to be increased by GBP 50 million. That is good news for Alexander Dennis Limited (ADL), a subsidiary of North American bus manufacturer NFI Group Inc, and Chinese partner BYD (Build Your Dreams). It is also the first phase of a new GBP 50 million Scottish Zero Emission Bus Challenge Fund (ScotZEB) allocation. The Scottish Government launched the fund.
Even though everything is going smoothly operationally, the chart of the BYD share is currently at risk. If the line of EUR 22.50 is undercut, a drop to EUR 18 must also be taken into account. Caution!
Volkswagen Vz. - The risk with the combustion engines
If an automobile manufacturer is still holding on to combustion engines in these times, then there are reasons for this. The prospects offered by a global market are conceivable, regardless of the monocausal propaganda in Germany and Europe. The internal combustion engine has its relevance on this planet, even if a horde of do-gooders prefer dubious battery production to the allegedly unclean use of fossil fuels. Technology giants such as VW are doing the math and see a good chance of still selling today's highly efficient internal combustion engines in a few years. If not in Germany, then certainly in over 100 other countries around the world.
A study commissioned by Greenpeace from the Center of Automotive Management (CAM) even concludes that investing billions in combustion engines could become a competitive disadvantage for VW and entail high economic risks. The study shows that VW is currently ill-equipped to meet a rapidly growing demand for e-cars. According to the study, the group would lack nearly three million e-cars in its most important sales markets of Europe, China and the USA by 2030. We do not share this opinion because VW has shown its strength and speed of catching up, especially in recent months.
Greenpeace must therefore also concede: Only if the sales countries weaken in the expansion of e-mobility, such as through insufficient development of charging infrastructure, could VW still expect profit growth with its current combustion strategy. However the future will go, the expected 70% e-quota in new registrations, which Greenpeace assumes from 2027, is not yet set in stone. VW currently earns more than EUR 10 billion per year and is one of the cheapest automotive stocks on the price list.
Kodiak Copper - The next copper mine from Canada
No matter how high the e-mobility rate climbs - it will take a lot of copper. A study commissioned by the International Copper Association (ICA) shows that by 2030, more than 250,000 tons of copper per year will be used as part of the windings in electric traction motors, regardless of the type of use.
The increase in copper demand follows the development of the global automotive market, where pure battery-electric cars are expected to achieve the biggest market share gain at the expense of combustion engines and hybrid vehicles. By 2030, electric and plug-in hybrid cars will account for around 20% of the total market. By 2040 the share is even expected to rise to over 70%. The shortage of copper, however, could put a natural limit on this.
But there are already interesting projects that are improving this outlook. The MPD project of the Canadian explorer Kodiak Copper is located near well-known mines such as Copper Mountain, Highland Valley and New Afton. Public access has been completed for years, an infrastructure that could not be better. In addition to local amenities, Kodiak also has a strong team of experts around gold explorer Chris Taylor, well-known since his milestone deal with Great Bear Resources.
The property is located in the high-yield Quesnel Trough in south-central British Columbia. Last year Kodiak Copper was able to report high-grade drill results at MPD in the Gate Zone, and the planned drill program for the current year is already fully funded. Findings to date have confirmed the positive outlook so far. Recent mineralization and alteration discoveries show high levels of comparability with the Red Chris deposit. Mining giant Newcrest Mining Ltd. had recently acquired a 70% interest in Red Chris.
According to experts, the new great copper cycle began last year and will continue well into this century because of the transformative conversion of our mobility and energy supply industries. Kodiak Copper will be a producer for the foreseeable future or will do well reselling its property. The stock is still currently trading at a market cap of CAD 70 million.
Automakers are in control of the trend. If one follows political pronouncements, 80% of investments should be in e-mobility. If one follows reason, everything will go a bit slower than thought because rapid development fails due to the accompanying power supply capacities. However, in any scenario, the focus falls on rare copper, which can be found in large quantities at Kodiak Copper.