December 22nd, 2021 | 14:10 CET
Kodiak Copper, Nordex, BYD - Are raw materials becoming scarce?
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"[...] If we pursue our goals conscientiously, the market will adjust its valuation accordingly, I am sure. Often, all it takes is a trigger. [...]" Ryan McDermott, CEO, Phoenix Copper
Kodiak Copper - Drilling program 2021 completed
Finding good and large copper mines has proven very difficult in recent years. If the growing demand is to be met in the future, production would have to be expanded significantly. But without new deposits, it will be impossible to meet the entire demand in the long run. Kodiak Copper owns three projects, of which only the Kahuna project does not contain copper but diamonds. The Mohave project is located in Arizona, covers 10.3 sq km and contains copper, molybdenum, silver and porphyry. The main project is called MPD, is located in British Columbia, Canada, and covers 147 sq km.
Since March this year, a drilling program has been underway, with the latest update announced on December 14. A total of 36 drill holes were drilled in 2021, with a total length of 21,675m. The latest results from three holes returned up to 0.37% copper and 0.11 g/t gold over a length of up to 537m. In addition to copper, gold and silver were found. Already with these first results, 12 are still pending, the gate zone could be extended. The total strike length is now 950m at a depth of 850m and a thickness of 350m. Despite challenging conditions, the drilling program was crowned with success.
A further 25,000m of drilling is planned for 2022, further investigating the Dillard, Man and Axe zones. These targets have similar geophysical and geochemical anomalies to the Gate Zone. Results from the other 12 drill holes, 1,755 soil samples and 176 rock samples will be released in the first quarter. A steady newsflow is thus ensured. The stock had its high for the year on May 19 at CAD 2.34, when the copper price also made its high. After that, the copper and share prices started to consolidate, which pushed the share price down to CAD 1.10. Thus, the share has consolidated much more strongly than the copper price and should have some upside potential.
Nordex - Climate package in the USA failed
The new traffic light government should bring tailwind for Nordex with its climate targets. The fact that copper is needed for this is self-explanatory if one considers that a wind turbine with the complete infrastructure requires 30 tons of copper. Given the planned shutdown of nuclear and coal-fired power plants, more wind farms are to be built in Germany. Demand will therefore increase, at least in DE. In the USA, the situation is different where Joe Biden's 2 trillion social and climate package failed.
In the future, not as much money will be invested in renewable energies there as many had expected. Shortly before this, Nordex secured a major order from Texas for 41 turbines with a total volume of 196 megawatts. Even if orders from the USA are expected to decline, the order books are still full. A lot is being sold to South America in particular. The shortcoming is the thin margin, which suffers from increased raw material prices. Here the Company should position itself better for the future and achieve higher margins.
The general conditions are positive for the Renewable Energies division worldwide. If margins increase, the share will likely break out of the sideways phase it has been in since the beginning of September. The share price fluctuates between EUR 12.64 and EUR 16.90 and is currently quoted at EUR 14.27. The test of the low from October could now be avoided for the second time, and a test of EUR 16 is thus likely.
BYD - Expands production
BYD originally produced batteries, but now the electric vehicle business is becoming increasingly important. The Company still has internal combustion vehicles in its range, but the trend is more than 90% towards e-cars. The problem here is the increased demand for copper. A combustion engine needs about 23kg of copper, whereas the e-car needs 40kg. This 17kg converted to the vehicles produced in 2019 would correspond to an additional demand for copper amounting to 948,600 tons, about 5% of the worldwide annual production.
More is being used in electric buses, but the Company is also becoming more involved in the electric truck market. On December 21, the Company announced its entry into the Hungarian market. On December 16, it won an order for 20 e-trucks from Mexico. The target for 2022 is at least one million electric vehicles sold. That would be a milestone previously cracked only by Tesla. In order to meet the demand for batteries, the Company announced the construction of a 15-gigawatt factory in China for USD 1.25 billion on December 20.
The capital for this was raised in November through two capital increases. One of the Company's best-known shareholders is Warren Buffet, who has been on board for a long time. The capital increases have put the share under pressure. On November 23, the stock was still trading at USD 41.24. Currently, it is worth only USD 31.44. The upward trend remains intact as long as the closing price does not fall below the USD 30 mark.
Copper is expected to become scarce in the next 10 years. One consequence will be price increases. Kodiak Copper could benefit from this, provided the move to becoming a producer is completed. Nordex needs to learn from past mistakes to eliminate its Achilles heel - margins. BYD is diversified, but here, too, the demand for copper will increase, and management should plan ahead.
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