July 12th, 2022 | 14:12 CEST
Erin Ventures with multiplication potential, BYD on top, Nordex looking for the bottom
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"[...] Nickel, therefore, benefits twice: firstly from its growing importance within batteries and secondly from the generally growing demand for such storage. [...]" Terry Lynch, CEO, Power Nickel
Erin Ventures - The stuff for freedom energies
Lithium, cobalt, nickel; these are the metals that are on everyone's minds in relation to climate change. Meanwhile, everyone interested in the stock market is aware that the demand for these raw materials has already exceeded the available supply in some cases in recent years. But hardly anyone is familiar with the elementary element boron, which probably has a broader range of applications than any other element due to its physical properties such as hardness, lightness and heat resistance. Around 50 kg of boron alone is used in an electric car, and over 6,000 kg is used in the blades of an offshore wind turbine. In addition to increasing demand from the alternative energy sectors, the greatest demand to date, at around 25%, comes from the glass industry. Other important uses include insulating glass, enamel and fertilizers - bleaching and cleaning agents. As a result of the rising global population, demand in the agricultural industry is expected to explode in the coming decades. Around 3kg of boron is needed per hectare of agricultural land as artificial fertilizer to cultivate the fields more efficiently. In a study, Credit Suisse assumes that demand for the elementary substance with the atomic number 5 could increase tenfold by the middle of the century.
New player with significantly better grades
Demand for boron is growing enormously, but supply is limited. Together with a few smaller players, more than 80% of it is dominated by two producers. At 73%, almost three-quarters of the drilling reserves are located in Turkey, where they are worked by the Turkish state-owned Company Eti Maden. Mining giant Rio Tinto refines another 30% in the Mojave Desert in California. Boron was listed as a critical material by the European Commission in 2017, so local deposits in Europe are being sought to limit dependencies.
Erin Ventures, a Canadian exploration company, has been drilling for the critical raw material since 2010 at the 306-hectare Piskanja project in Serbia, about 20km from the Kosovo border. Erin Ventures, which will soon change its name, is thus the only pure-play listed boron company with a market capitalization of around EUR 9.26 million. The project is located in the middle of first-class infrastructure with year-round roads, electricity and mobile network, as well as access to a railroad line.
Tenfold growth possible
With the published results of the updated economic assessment (PEA), the potential has now been further highlighted. The mineral resources at Piskanja amount to 7.2 million tonnes grading 34.6% B2O3 (boron trioxide). In a peer group comparison, the two producers, Rio Tinto with 24% and Eti Maden with 26%, offer much weaker grades. The PEA resulted in an after-tax NPV at a 10% discount rate of USD 524.9 million. The after-tax internal rate of return IRR is 78.7%, based on a solid calculation base. The initial capital costs for the 16-year mine life are estimated at only USD 79.9 million, including a 30% contingency.
Analysts see extreme upside
In light of the PEA results, analyst firm MMG Capital valued both the project and Erin Ventures. It subtracted 50% from the NPV, as joint venture partner Temas Resources is taking over half of the Company with the project financing of EUR 10.5 million. The value is then CAD 338 million. Then taking into account the country and project risk, a further 50% was discounted, leaving a value for Erin Ventures of CAD 122.3 million or CAD 0.79 per share, which would be more than ten times the current share price of CAD 0.075. In terms of demand for boron, the Company is thus an exciting long-term investment at a more than attractive level.
BYD - New highs no longer confirmed
High, higher, BYD. The electric car industry is undergoing a sharp correction, with the former top dog Tesla losing 50% of its stock market value. In contrast, the Chinese "Build Your Dream" company is rushing from high to high. With the breakout at USD 41.24, it went up to USD 43.61 by marking a new buy signal, but then profit-taking set in. A short correction could be possible if the value falls below the previous high. The broad support resulting from the annual high of last year at USD 36.00 would offer itself here. Fundamentally, however, BYD is still in the fast lane.
The upcoming IPO of the semiconductor division, BYD Semiconductor, offers additional fantasy. So far, the IPO has been postponed several times; currently, the e-car producer has announced that it is in constructive talks with the supervisory authority of the Chinese stock exchange. BYD Co. Ltd. is the controlling shareholder of semiconductor company BYD Semiconductor and indirectly holds about 65.76% of the Company's issued share capital. However, an exact date has not yet been set.
Nordex taps into the capital market
Investors in the wind turbine manufacturer are looking enviously at BYD's chart, as Nordex's share price performance has been a tragedy since April last year. At that time, the share price was still at EUR 27.37; today, a share certificate of the Hamburg-based Company is trading around 70% cheaper at around EUR 9.00.
And the price-depressing news is not going away. Nordex needs fresh capital again. This time, EUR 212 million gross is to flow into the coffers through a capital increase with subscription rights, as the Company announced in Hamburg on Sunday evening. Nordex last announced a private placement with its major Spanish shareholder Acciona two weeks ago, which was expected to raise a good EUR 139 million gross. Although the stock initially headed south, it recovered in the course of trading. On a positive note, major shareholder Acciona exercised the subscription rights for its current 39.66% share in the capital stock. According to Sunday's announcement, the subscription price for the new shares were set at EUR 5.90. US investment bank Goldman Sachs left its rating for Nordex at "neutral" on the occasion of the capital increase with a price target of EUR 13.70.
In view of climate change and investments in renewable energies, there are attractive long-term entry opportunities at corrected levels. According to the current PEA, boron producer Erin Ventures has tenfold potential, BYD could take a breather, and Nordex could find a bottom after the capital measure.
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