27. October 2021 | 11:43 CET
Defense Metals, Nordex, Xiaomi - Battle for raw materials intensifies
China is scaling back its magnesium production due to electricity problems. The Chinese government is aiming to reduce energy consumption and thus emissions. It will inevitably lead to supply bottlenecks worldwide, and in Germany, it will initially affect the metal industry. However, since China produces 90% of the world's magnesium, there are, in fact, no alternatives. Similar problems exist with tungsten and rare earths, needed for almost all new technologies, from renewable energies to consumer electronics and e-cars. If you want to reduce this dependence, you have to look for alternatives.
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ISIN: DEFENSE METALS CORP. | CA2446331035 , NORDEX SE O.N. | DE000A0D6554 , XIAOMI CORP. CL.B | KYG9830T1067
Defense Metals - Exploration going well
One of these alternatives is the Canadian explorer Defense Metals. The Company has its 1,708-hectare Wicheeda Rare Earth project in British Columbia, where a drilling program has been underway since September 8, with 32 drill holes planned for a total length of up to 5,000m. Some 4.9 million tonnes averaging 3.02% LREO (light rare earth oxide) have been detected on the site to date. From this, 12.1 million tonnes of mineral resources averaging 2.9% LREE (light rare earth oxide) have been inferred.
Two updates have already been issued since the start of the drilling program. On October 4, 8 drill holes with a total length of 1,500m had already been completed, and the first results from these holes show a higher grade of mineral occurrences than the last results. A second diamond drill rig has even been brought into service to drill several infill holes in the central area of the deposit to accelerate the completion of exploration in 2021. Experts from SRK will visit the sites as part of the economic analysis being conducted by SRK Consulting.
On October 25, Dr. Luisa Moreno became a new member of the board of directors. She has the ability to analyze specialty metal deposits and is very well connected in the capital market. In addition to the main project, the Geiger North and Klaproth projects, which the Company has owned since 2018, could become interesting. There is uranium mineralization there that will be re-evaluated in the current uranium hype, the Company announced on September 23. The stock is currently stuck in a sideways phase between CAD 0.21 and 0.30 and presently trading at CAD 0.265. The upcoming results could bring momentum to the share.
Nordex - Sales up substantially in the 3rd quarter
In the wind power industry, neodymium and dysprosium are the main rare earths required, as they can be used to produce the strongest magnets. These magnets are used in generator construction. But not all wind turbines contain rare earths. Other applications for rare earths include battery storage. Nordex specializes in the construction of wind turbines and offers its customers an all-round package. It not only maintains the wind turbines it builds but also continuously monitors them using sensors.
The Company is benefiting from the German parliamentary elections on the one hand, as the Greens are very likely to be part of the government. Furthermore, the previously announced figures for the third quarter are convincing. Incoming orders increased significantly. While 271 wind turbines were sold in 2020 in the third quarter, the figure for this year is 389. That is an increase of a whopping 40%. Also, in October, 4 orders from Ireland, Poland and Ukraine were reported.
On October 21, it was announced that Blackrock now holds more than 5% of the shares in Nordex. The share price has risen sharply since marking its low for the year of EUR 12.64 on October 6, which was undoubtedly due to the unexpected capital increase, among other things. The downward trend was broken, and the 50-day moving average was also broken from the bottom up. Interested investors should currently wait for a consolidation and keep November 15 in mind, as the third-quarter figures will be published then.
Xiaomi - Investor day organized
Xiaomi is currently the second-largest cell phone manufacturer when it comes to sales. As mentioned initially, the production of smartphones and other high-tech devices would not be possible without rare earths. Unlike many other companies that manufacture outside of China, Xiaomi sits at the source. 90% of all rare earths consumed worldwide come from China. Thus, production should not be at risk.
On October 19, the Company held an investor day to share its ambitious goals for the coming years. Two points stood out. The first is to become the market leader in the smartphone sector by 2024, and the second is to produce the first electric vehicles in the same year. Especially abroad, the market shares in the smartphone sector are growing significantly due to the premium smartphone strategy. Within China, the Company was overtaken by Honor, a former Huawei subsidiary. Whether Xiaomi will secure market shares in the e-mobility sector is currently still written in the stars.
The Company participated in a USD 563 million funding round at DreamMe, which also saw investment from Alibaba founder Jack Ma. Xiaomi is also looking to gain more market share in the vacuum cleaner sector. The stock, like almost all China stocks, has been able to gain ground in recent days. To finally break the downward trend of the share, a closing price above EUR 2.60 is necessary.
Inflation, broken supply chains, an energy crisis in China and absolute dependence on the Middle Kingdom will continue to cause conflicts in the near future. Defense Metals wants to produce rare earths, but the road to becoming a producer will take some time. Nordex has full order books, now only margins need to improve, and things will pick up. Xiaomi should not have any supply problems with raw materials. The question here is instead whether the production of e-vehicles is not too ambitious.