July 14th, 2022 | 12:27 CEST
New opportunities for copper - Rheinmetall, Alpha Copper, Nordex
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
No alternative for copper
The world is in the transition phase into renewable energies, which requires not only a lot of time and investment but also significant amounts of raw materials, especially metals. Due to its nature, copper plays a fundamental role, and demand is expected to explode in the coming years despite recession concerns. An electric car, for example, contains an average of around 83 kg of copper, four times as much as a car with an internal combustion engine. Inventories of the red metal are currently at a multi-year low, and at the same time, some copper mines have been shut down in the last decade. Already in 2019, the market was short 383,000t. In 2020, the supply deficit increased to 559,000t, the highest value in over a decade.
There is simply a lack of new high-grade projects to balance supply and demand. Goldman Sachs analysts thus stated, "The copper market is unprepared for this critical role!" The winners of this phenomenon are not only the large producers but also smaller mining companies such as Alpha Copper, which has already secured promising mining claims.
Attractive options at Alpha Copper
In the course of the severe correction on the copper market - the base price has lost around 36% since its peak in March of the current stock market year - the young exploration company Alpha Copper also lost about 70%. However, these movements are considered normal for extremely volatile underlying stocks. Smaller, promising mining companies react to such fluctuations with significant leverage. Thus, if the copper price rises, an outperformance of Alpha Copper should not be unrealistic. The Company is traded in Toronto and Germany and currently has a market capitalization of EUR 11.33 million.
Currently, the Vancouver-based company is holding 2 hot irons. The flagship Indata project, with an area of 3,189 hectares, contains 16 claims and is located only a few kilometers away from Northwest Copper's Kwanika project, one of Canada's most attractive copper discoveries. The Central Zone of the Kwanika project already has 57.7Mt at 0.48% copper and 0.55 g/t gold in the indicated category. Alpha Copper is primarily targeting the known copper porphyry in the so-called Lake Zone, which lies approximately 500m west of an area of polymetallic veins. A total of four copper mineralization zones have been discovered at Indata to date, with historical drill results including 148m at 0.2% copper including 24.1m at 0.37% copper. A total of approximately 5000 metres of drilling is planned on the property this year. Alpha Copper holds an earn-in option to earn a 60% interest in return for shares or cash totaling CAD 400,000 to the optionor, Eastfield Resources, and CAD 2 million in capital expenditures by June 20, 2023.
The second 4,613-hectare copper and molybdenum project, Okeover, is located on the south coast of British Columbia, just 25km from the deep water port facilities of Powell River, and is equipped with world-class infrastructure and contains 11 mineral claims. Alpha Copper can acquire up to 100% here by handing over shares worth CAD 250,000 after signing, further shares for CAD 500,000 within twelve months, and CAD 750,000 within two years.
It has now been announced that in addition to the 5000m drill program on Indata, drilling will also commence on Okeover ahead of schedule. Alpha Copper's experienced management has engaged the experts at Superior Diamond Drilling to conduct a program totaling 2,000m of drilling on the project. The objective is to expand the North Lake zone, where the historic resource is located. In the past, less drilling has been done at depth. Alpha Copper now wants to change this and try to present a report that complies with the Canadian NI 43-101 standard as early as 2023. Incidentally, a historic 2007 drill hole near the western boundary of the North Lake zone assayed a cumulative 76 meters of 0.34% copper and 0.02% molybdenum sulfide, including an intercept of 19 meters of 0.42% copper and 0.02% molybdenum sulfide.
Even though Alpha Copper is still in the early stages of its development, it is worth taking a closer look at the stock and at least putting it on the watch list.
Back and forth for Nordex
An eventful week is drawing to a close for wind turbine manufacturer Nordex. The fact that the Hamburg-based company would have to turn to the capital market at some point due to weak margins and high production costs was probably not too big a surprise. A capital increase of EUR 212.00 million with subscription rights is to be placed. Nordex had 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. Acciona itself continues to stand behind the turbine manufacturer like a wall and announced its intention to exercise 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. Bank of America is becoming more skeptical. After the latest measure, the analysts have reduced the target from EUR 15.00 to EUR 14.00, but the verdict was repeated with "buy".
On the other hand, the latest news regarding the expansion of the cooperation with UKA, one of Germany's top 3 wind operators, and the Nordex Group was more positive. The cooperation currently comprises a volume of 80 wind turbines, which equates to an output of around 500 megawatts. The first orders for turbines with a total capacity of 100 megawatts have been placed and are scheduled to be connected to the grid in 2023. The shares traded at a discount to the subscription price and were quoted at EUR 8.90, down more than 10%. It remains difficult to maintain margins in such a challenging environment, let alone increase them. Thus, it would not be surprising if capital should be sought again in the coming months. Although short-term speculation could be profitable, a long-term investment in Nordex will likely entail enormous risks.
Rheinmetall correction continues
As mentioned weeks ago, the relative strength of defense stocks, particularly Düsseldorf-based Rheinmetall, are clearly weakening. The relative strength index already produced a sell signal last week, and the trend-following indicator MACD followed suit this week. The first price target should still be the resistance at EUR 162.95. In the longer term, the price gap that Chancellor Scholz tore with the announcement of a special fund for the German Armed Forces of EUR 100 billion should also be closed at EUR 107.35 again.
On the orders side, Rheinmetall continues to deliver like a model student. New orders come across the ticker almost daily. This time, another significant order in the mid double-digit million euro range was received for the supply of fuel cell components. As the MDAX group announced, a European fuel cell manufacturer placed an order with the MDAX member to supply cathode valves. The order is for flap systems with integrated bearing electronics, which are used as bypass and shut-off valves for fuel cells.
Copper is a fundamental raw material for climate change, and demand is expected to grow significantly in the coming years due to the development of renewable energies. Alpha Copper has options on two promising copper deposits and could perform in the long term. At Nordex and Rheinmetall, the risk currently outweighs the reward.
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