April 26th, 2023 | 08:55 CEST
Caution at Nel ASA and drumbeat at Volkswagen: Can Canadian North Resources profit?
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"[...] The collaboration with CVMR offers two primary advantages for Power Nickel: We can cover a larger portion of the value chain in the future, and despite the extensive cooperation with all its positive outcomes, we have remained significantly independent. [...]" Terry Lynch, CEO, Power Nickel
Volkswagen: The largest battery factory to be built in Canada
When it comes to battery production, Volkswagen seems to be the German carmaker that is stepping on the gas the most. The Wolfsburg-based company wants to significantly reduce its dependence on Asian battery manufacturers in the medium term and produce 50% of the batteries required for its e-car fleet itself. To this end, six battery factories are to be built in Europe in the coming years. The first of the Company's factories is to be opened in Sweden before the end of the year. The first battery production plant in Germany is scheduled to open in Salzgitter in Lower Saxony in 2025.
But there are also big plans for Canada. The planned plant in St. Thomas, Canada, has a production volume of up to 90-gigawatt hours per year - it is to become the group's largest battery site to date. According to VW, 90 GWh can equip around one million e-cars. Volkswagen is investing up to EUR 4.8 billion in the project. The Canadian government is subsidizing the project with several billion CAD. The government is hoping for an economic upswing in the region in southern Canada. That is because, in addition to the employees at the VW site, it will, of course, also need numerous suppliers. Cell production is scheduled to start in 2027.
Canadian North Resources: Exciting raw material mix and VW fantasy
This means that the time is running out for VW to build up supply chains in order to have the necessary raw materials available in time for the start of production. It is, therefore, a good thing that North America is pushing for independence from China in terms of raw materials for electromobility. A possible partner for VW could be Canadian North Resources. The explorer is focused on metals for clean energy, electric vehicles, batteries and high-tech applications. For this purpose, Canadian North is developing a 253.8 sq km area in the Kivalliq region of northern Canada. Exciting for investors: Several critical raw materials have already been proven on the Ferguson Lake project in the past year, including nickel, copper, cobalt, palladium and platinum. Last year's programme comprised 18,144 m and 68 drill holes. The result: Indicated Mineral Resources of 24.3 million tonnes grading 0.85% copper, 0.60% nickel, 0.07% cobalt, 1.38 g/t palladium and 0.23 g/t platinum, and Inferred Mineral Resources of 47.2 million tonnes.
Such a broad mix of raw materials in just one project is rare and spreads risks. And it is not to stop there. Recently, Canadian North Resources started another 20,000 m drilling programme. In doing so, the Company is focusing on the 15 km long main mineralized horizon. The aim is to expand and upgrade the mineral resources. In addition, management is confident of adding lithium to the project's resource mix. The stock has been running sideways since mid-February and is currently trading at CAD 2.55. The market capitalization is around CAD 260 million. If the current drilling programme brings similarly positive newsflow, the share seems anything but expensive. The news about VW should also bring the local commodity companies further into the focus of investors.
Nel ASA: Will the order book reassure investors again?
So while investment in electromobility continues worldwide, the fantasy is out for hydrogen at the moment. Too often, Plug Power, ITM Power and Ballard Power have disappointed. This also applies to the European hydrogen specialist Nel ASA. The share is approaching the October low of just under EUR 1. And tomorrow, the Norwegians will report on the operating performance in the first quarter of 2023. Recently, quarterly figures have tended to go down, but expectations have recently fallen significantly, as seen in the share price. At least Nel could always point to a large order backlog in the past. But in the past few weeks, there have been no success stories. Most recently, Nel has once again come up empty on a project from Plug Power. The US company has ordered another hydrogen filling station from Hydrogen Refuelling Solutions (HRS). It is now the fifth order in the current year. Plug Power and the French HRS are thus further expanding their partnership in the field of hydrogen filling stations.
Analysts are divided ahead of the figures. JP Morgan does not expect any new momentum from tomorrow's numbers announcement. The analysts recently renewed their "Underweight" rating. The price target was minimally reduced from NOK 11.60 to NOK 11.50. The analysts thus expect the Nel share to slip below EUR 1 again. JP Morgan considers ITM Power to be more promising. However, the analysts are currently sceptical about the entire European hydrogen sector. The entry only becomes urgent when stronger sales growth and improved margins become apparent. Investors should not forget that Nel's market capitalization is still close to EUR 2 billion.
RBC is more optimistic. The analysts of the Canadian bank continue to rate the Nel share as "Outperform". The price target is NOK 22. The analysts believe that Nel will beat consensus estimates on sales tomorrow. Strategically, Nel would stand out from the industry with its large electrolysis capacity.
Not much is expected from the Nel numbers. Nevertheless, a significant positive share price reaction is unlikely. A purchase as a long-term investment does not suggest itself at the moment. Volkswagen is stepping on the gas in battery production, but it will take years to build up its own capacities. At the same time, the corresponding raw materials have to be secured. This puts companies like Canadian North Resources in the spotlight.
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