June 20th, 2022 | 12:58 CEST
Nel ASA, Nordex, Nevada Copper, Siemens Energy: Energy Crisis 3.0 - Copper is the solution!
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"[...] We have a clear strategy for neutralizing sovereign risk in Papua New Guinea. [...]" Matthew Salthouse, CEO, Kainantu Resources
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Copper - A critical building block for saving the climate
Global copper inventories and production rates are currently below the levels of recent years. That is due to the limited availability of new projects, which can only slowly come into production and will still consume some investment. In copper recycling, the industry is making progress, but the necessary increase rates to supply new markets remain too low. Then there are the troubled supply chains, which currently make it difficult to move larger volumes of raw material. In the first five months of 2022, copper inventories on commodity futures exchanges were below 2021 levels. After the FED's first sharp rate adjustment, metal prices are now also reacting at high levels. Copper had to accept a discount of USD 1,200 in the last six weeks, despite unchanged high demand. The stock market is clearly starting to price in a prolonged recession.
Nevada Copper - New funding commitments for increased production
Despite recessionary trends, high fossil fuel prices increase investment pressure in alternative power generation sectors. Copper is always on board as a premium power-conducting metal. The higher the level of mechanization, such as in e-mobility, the more copper is needed. In e-vehicles of the latest design, the amount of copper used increases from about 20 to 60 kilograms per vehicle.
Nevada Copper is currently experiencing a slight delay in the further expansion of the underground mine, as drilling in the East South area did not deliver the expected surface grades. Now, work in the prospective East North area is being expanded in order to make the best possible use of the existing mineralization. The project in the US state of Nevada also hosts an open pit mine for which a pre-feasibility study is underway. The project is already fully permitted and includes solar energy production in addition to copper production. It is a promising combined approach, as Nevada has a high yield of sunlight hours.
Because of the somewhat longer lead time before the mine reaches a viable total output, additional financing steps are still needed. The current major shareholder Pala Investment is probably willing to provide new debt capital of up to USD 20 million. From today's perspective, an increase in equity cannot be ruled out; although it would further dilute shareholders, it would significantly increase the Company's medium-term stability. The operational focus is now on maintaining and increasing the production rate, with a capacity of 4,500 to 5,000 tpd planned as early as the third quarter of 2022.
NCU shares have now also reacted downward in the weak overall market, trading between CAD 0.30 and 0.35. That puts the equity of the promising property at a fairly low CAD 138 million. The analysts at RBC see a 12-month price target of CAD 0.50, which is still a 66% premium to the traded price; the market consensus of all analyst targets is even CAD 0.69. The recent correction could prove to be a buying opportunity in the medium term.
Siemens Energy and Nordex - Fully booked and partially sanctioned
Greentech stocks are going up and down in the current sell-off. The industry's biggest problem is its dependence on high-tech metals, which are nearly sold out. Added to that are stalled shipments and high energy prices.
A piquant detail in the delivery of an important turbine for the Nord Stream 1 natural gas pipeline is weighing on the Siemens Energy share price. Russia's Gazprom Group is now blaming the German power plant expert for reduced deliveries of natural gas because Siemens Energy fell behind schedule with the maintenance of a booster turbine. Siemens supplied the pipeline with important components in 2009, which are regularly serviced in Montreal, Canada. Unfortunately, many companies with business in Russia are under severe political restrictions due to sanctions. This shows, especially in the Russian conflict, that anyone who imposes sanctions or participates in them must expect to be cut off from the energy supply in the event of an emergency.
Wind turbine manufacturer Nordex is a major processor of copper and other metals. On the procurement side, prices have risen so sharply that the promised installations hardly bring any profit into the books after completion. In some cases, there are also considerable delays due to disrupted supply chains, which also puts downward pressure on the EBIT margin. Operationally, it looks as if the present scenario could continue for a few more months. The management is also behind schedule in the due quarterly report. The share threatens to be kicked out of the SDAX and TecDAX. Regarding the recent profit warnings, still no good news.
Siemens Energy and Nordex have long since lost their charm on the stock market due to permanent negative operational reports and confirmed profit warnings. Both values are subject to a halving in a 12-month period. Whether this is already the hoped-for bottom in the current environment remains questionable. The market technology, in any case, stands further on red.
Nel ASA - Hydrogen technology still too far away
Given the enormous problems with political dependencies on fossil energy, hydrogen technology could flourish to market maturity despite the difficult economic conditions. But to generate further growth in the current storm, hydrogen specialist Nel ASA would need a veritable flood of orders from the public sector. The pronouncements of Western governments on climate change could not be better, but the available budgets for these advocated goals are lacking across the board. Capital market interest rates are rising steadily, making a debt-financed energy turnaround increasingly difficult. After all, the endless money printing by governments is now no longer possible at zero interest rates.
The Nel share has recently seen an increase in short-sellers. The current short ratio is already over 10% of the outstanding capital, which is both good and bad news for interested investors. The bad news is the permanent pressure on the share price due to further short positions in a falling trend. However, if the short-sellers want to close their position, it could go steeply upwards in a few weeks. Therefore, watch the price daily and emerging upward momentum because when the reversal occurs, it is lightning fast. Fundamentally, however, the stock is still overpriced even after the major correction.
In the current environment, stock selection is difficult. That is because operational problems with supply chains and energy prices that are far too high are compounded by skyrocketing capital market interest rates for long-term growth financing. Leveraged business models, in particular, are suffering badly from this shortage of money. Nevada Copper has good financiers on board for its projects so far and can continue work as planned.
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