Nel ASA, Erin Ventures, NIO - Using setbacks as long-term opportunities

The next player in the raw materials hype

Scarce raw materials have so far dominated the current decade. The energy transition has fueled the demand for lithium, copper, and cobalt. After the invasion of Ukraine and the subsequent subsidies against Russia, the need for Western deposits is once again more significant than ever to minimize dependencies.

The Canadian company Erin Ventures, traded on the TSX and in Germany with a market capitalization of only EUR 6.89 million at a share price of EUR 0.04, has a treasure in its portfolio that could significantly increase its value in the near future. In this regard, Erin Ventures is betting on boron. The European Commission declared boron a critical commodity in 2018. Although it is hardly mentioned compared to other raw materials, boron is only surpassed by diamonds in hardness due to the highest tensile strength of all known elements. Modern life can hardly be managed without boron. Thus, the trivalent semimetal is used in more than 500 products that shape everyday life. Applications include the production of fibreglass insulation, textile fibreglass and borosilicate glass for LCD screens, solar panels and smartphones. Boron is also contained in cleaning agents, fertilizers and wood preservatives.

The boron market currently has a volume of USD 4 billion per year. However, it is dominated by just 2 major players, Rio Tinto's US Borax in California and Eti Mine in Turkey, with an oligopoly of more than 70%. Currently, growth exceeds demand. Rio Tinto estimates that the boron industry will need the production of nearly two boron mines the size of its California operation over the next decade to keep up with demand. With the 100% owned Piskanja project in Serbia, Erin Ventures thus becomes a serious player to fill this gap. The deposit has an indicated resource of 7.8Mt (31% boron trioxide B2O3) and an inferred resource of 3.4Mt at 28.6% B2O3. In the course of the new project feasibility study, the Company intends to update the resource estimate and incorporate new findings. A result is expected as early as in the next few weeks.

Erin Ventures plans an annual production of 200,000t with its strategic partner Temas Resources, which is to receive 50% through a EUR 10.5 million contribution. Erin's competitive advantages include the high-grade deposit with an area of 3 sq km and a long life of over 20 years and the first-class infrastructure with unlimited expansion in 2 directions. In the process, gross project revenues are expected to be CAD 2.04 billion with a net operating margin of close to 70%, according to the 2014 PEA. An investment in Erin Ventures can be crowned with disproportionate success due to the potential. However, due to the exploration stage, higher risk should also be taken into account.

On a knife's edge

The short countermovement, which led the share of the Norwegian hydrogen specialist since marking a new intermediate low at EUR 1.10 to EUR 1.39, is already about to be completed again. It is likely to come to an abrupt end and accelerate the downward movement at the latest once the critical support at EUR 1.28 is undershot. Supporting this, both the trend-following indicator MACD and the relative strength indicator point to Sell. Thus, a retest of the annual low at EUR 1.05 could be the likely scenario.

Various analyst houses also have different opinions concerning the Nel ASA share. The US bank JPMorgan lowered the price target for the Norwegians from NOK 11.40 to NOK 11.10, equivalent to EUR 1.08. The verdict was repeated after the weak quarterly figures with "underweight". In contrast, US analyst firm Bernstein Research sees Nel as an outperformer and assigns a price target of EUR 1.65. In a study, analyst Deepa Venkateswaran elaborated on the advantages of green hydrogen and sees it as a good time to enter shares such as Nel ASA and ITM Power. "The industry is benefiting from growing zero-emission ambitions and increasing advantages over gas-based electrolysis, and the cost of green hydrogen is currently falling fast," she said.

New low for the year in sight

The technical picture for Chinese electric carmaker NIO is also negative. After annual lows of USD 11.67, the share price had risen by almost 30% to USD 16.44 by mid-May. However, NIO lost strength in the downward trend that formed since December, resulting in strong sell-offs. Currently, NIO is trading at USD 14.40; at USD 13.82, another sell signal would be triggered. Since the indicators diverge negatively, similar to Nel ASA, a further slide towards the low for the year cannot be ruled out. Thus, the share is, at best, an observation position.

In order to improve battery technology, NIO plans to set up lithium-ion battery labs and a pilot battery production line in Shanghai. Thus, according to CneVPost, about USD 32.75 will be invested in the facility. The new plant would be located in the city of Anting in Shanghai's Jiading District and would include 31 laboratories for lithium-ion cell and battery research. It would also have a pilot line for lithium-ion cells and a production line for battery packs. The pilot line and battery pack production line would be used for trial production of lithium-ion cells and battery packs to test large-scale production in the future.

The stock market continues to show signs of weakness, and fluctuations remain high. In addition to Nel ASA, NIO was also unable to extend the countermovement in the overarching downward movement, and a further slide could be the result. After a correction of around 75%, the Erin Ventures share is certainly worth a closer look.