Mercedes-Benz, Canadian North Resources, Varta - Shortage of battery resources

Mercedes-Benz - The figures are impressive

When Chancellor Olaf Scholz met with Canadian Prime Minister Justin Trudeau in Canada in 2022, a delegation from Mercedes-Benz was also on board. The result was an agreement with the Canadian government that grants access to battery raw materials such as lithium, nickel and cobalt. Markus Schäfer said at the time: "Mercedes-Benz is in the process of drastically increasing the production of electric vehicles. That is why we are also in the process of opening up new ways to obtain the raw materials needed for this responsibly." Only a few months later, the Stuttgart company secured 10,000 tonnes of lithium hydroxide annually from Guben, which will be produced by Rock Tech Lithium in the future.

After an excellent 2022, with the bottom line rising by over 30% to EUR 14.8 billion, the group remains on track for success, looking at the 1st quarter figures. The strategy of focusing on premium vehicles is paying off. Turnover was EUR 37.5 billion, an increase of 8%, while profits rose by as much as 12% to EUR 4 billion. Sales were just 3% higher than in the previous year. The higher inflation-related costs were more than passed on through price increases.

The Annual General Meeting was held on May 3, at which CEO Ola Källenius stressed the importance of cost discipline. He said: "For the time being, the variable costs of electric cars are substantially higher than those of combustion engines". This shows that it is right to take care of the supply of raw materials at an early stage. Bottlenecks like with microchips should be avoided in the future. The share is currently trading at EUR 65.11 due to the dividend discount of EUR 5.20. The dividend yield was, therefore, 7.4%.

Canadian North Resources - Drilling programme underway

Canadian North Resources, a Canadian exploration company, focuses on mining metals for clean energy, electric vehicles, batteries and high-tech applications. The Company is currently developing an area of 253.8 sq km in the Kivarrick region of northern Canada. It has proven several important minerals in the past year, including nickel, copper, cobalt, palladium and platinum. The 2022 drill programme drilled 68 holes totalling 18,144m. The total mineral resource is currently 1,402 million pounds of copper, 872 million pounds of nickel, 99 million pounds of cobalt, 3.2 million ounces of palladium and about 0.56 million ounces of platinum. In total, more than CAD 150 million has been invested in exploration.

In early March, extensive granitic pegmatites were identified on the property that show the potential for lithium minerals. This would mean that almost all the important raw materials for the energy transition could be found in one spot. Since April 3, the exploration programme has been running with diamond drilling. A total of more than 20,000 m are to be drilled to test the 15 km long primary mineralization formation. The lithium potential will also be explored. Dr Kaihui Yang, President and CEO said, "We will continue to focus on drill testing high-grade base metal and PGM targets along the 15 km main mineralized horizon to expand and upgrade the mineral resources. In addition, we will be testing the lithium potential of the extensively exposed pegmatites identified on the Ferguson Lake property."

So news can be expected in the near future. The metallurgical tests are also promising. Copper can be extracted from the material at 99%, nickel at 87%, cobalt at 90%, palladium at 90-95%, and platinum at 90-95%. The annual financial statements for 2022, which were presented on May 1, show a cash balance of around CAD 11 million at the end of the year. That should be enough for now. The share has been trading in a range of CAD 2.30 to CAD 2.80 since March. Currently, the share is trading at CAD 2.50. If the drilling results are positive, the high for the year at CAD 2.95 could be attacked.

Varta - 2023 remains difficult

The year 2022 was a difficult one for VARTA Group as the Company struggled with high production costs, closure effects and weaker consumer demand. These factors impacted the Company's financial performance: Group revenue amounted to EUR 806.9 million, a decrease of 10.6% compared to the previous year. Adjusted EBITDA also fell to EUR 69.5 million, a decrease of 75.3% compared to last year. The adjusted EBITDA margin for the year was 8.7%, compared to 31.1% in the previous year.

However, VARTA Group has taken decisive steps to turn the business around and has already made initial progress. In March 2023, the Company announced an agreement with its banks on a financing concept and a successful capital increase of around EUR 51 million, which should enable a return to growth. In April 2023, the Company also announced that it will lay off 800 employees as part of its action plan to reduce the cost base.

Expectations for 2023 are for an improvement in sales performance and earnings on par with 2022. In Q1, the Company expects revenue between EUR 160 million and EUR 170 million and adjusted EBITDA between EUR 0 million and EUR 5 million. The figures are to be presented on May 15. Shareholders were not very enthusiastic about the figures and the outlook and sent the share price down. Currently, one share costs EUR 21.17.

The energy transition has intensified the battle for raw materials. BYD has shown that it can be successful with its one-stop strategy and has taken the lead among electric vehicle producers. Mercedes-Benz is trying to keep pace and has done everything right so far by focusing on the premium segment. Canadian North Resources is a company that has almost all the critical metals and minerals for the energy transition on its property. The next drill results could be exciting. Varta has not yet made the leap into electromobility. V4Drive has not yet ignited, so 2023 will be more of a transition year.