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October 12th, 2022 | 10:25 CEST

Nordex, Defense Metals, Rheinmetall - Critical situation

  • Mining
  • RareEarths
  • armaments
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Due to geopolitical tensions and the ongoing trade war between the US and China, the supply of critical raw materials is on high alert. Especially for the energy transition and the achievement of climate targets, materials that mostly have to be exported from the largest Asian economy are needed. Now, with the Minerals Security Partnership, MSP, an alliance of Western countries has been founded to establish a complete value chain within the partner countries. As a result, mining, processing and recycling projects from Western countries will be the primary beneficiaries in the coming years.

time to read: 5 minutes | Author: Stefan Feulner
ISIN: NORDEX SE O.N. | DE000A0D6554 , DEFENSE METALS CORP. | CA2446331035 , RHEINMETALL AG | DE0007030009

Table of contents:

    Nordex - The battle with margins

    Rising raw material and energy prices are squeezing the margins of wind turbine manufacturers, and Hamburg-based Nordex SE is feeling the full force of this. Despite record order volumes of EUR 2.1 billion in the first half of the year, the EBITDA margin slipped sharply into negative territory at 6.8%. One of the cost factors was the sharp rise in the price of rare earth metals. Neodymium and dysprosium are the primary metals used for wind turbines. The magnets produced from them are the strongest magnets that can currently be manufactured.

    The consequence of the significantly reduced margin is reflected in the share price. Since the end of February alone, when the Ukraine conflict began, the share has lost more than 56% from its high for the year. It is trading at EUR 7.66, only marginally above its low for the year at EUR 6.97 in July. Only the annual low from 2020 at EUR 4.85 is likely to provide support if a new low is reached. A possible downturn is fueled by MACD and RSI, which just generated a new sell signal on a weekly basis.

    Also negative is that despite the publication of a new order from Poland, the price moved into negative territory during the day. The wind turbine manufacturer has received an order for the Silesia 2 wind farm for 37 turbines with a capacity of 3.6 MW each. The order also includes a service contract with a term of 15 years. According to Nordex, there is also an option to supply a further turbine and extend the service contract by 5 years.

    Defense Metals - Hopeful player from North America

    China dominates the rare earth metals market and continues to hold a monopoly on the value chain despite the construction of rare earth projects in Western countries to produce the critical metal. In terms of production, the Middle Kingdom still only has a global market share of around 60%. In downstream processing, from beneficiation, smelting and separation to the production of rare earth metals and alloys, the share is over 90%. At the same time, promising deposits in western climes can be counted on one hand. Besides the Australian mines of Lynas and Iluka Resources, there has been only one producing mine in North America in the recent past, MP Materials' Mountain Pass Mine.

    The Wicheeda project, which was 100% acquired by publicly traded Defense Metals earlier this year, has strong metallurgical similarities to the only profitable mine in the Western Hemisphere to date, the Mountain Pass mine. According to the Preliminary Economic Assessment (PEA), it has the potential to become one of the most significant global deposits of rare earth metals. The 4244 hectare property is located approximately 80 km northeast of the town of Prince George, a mining hub in British Columbia, Canada. It is strategically located on a major forest road that connects to a highway. In addition to its world-class infrastructure, Wicheeda has strong metallurgical similarities to the Mountain Pass mine.

    The geotechnical field drilling program, which started in May, is now 96% complete at 4,800m. Existing data on the first 15 of 18 holes provide overall REE grades of 1.78% over 192m, including 3.13% over 73m. These data are now being incorporated into the pre-feasibility study, which is expected to be completed by 2023. Samples with a high SEE content were recovered from two additional core holes with a total length of 717m. Supplementary hole WI22-68, the deepest hole to date in the Wicheeda project at 395m, was drilled with a southwesterly orientation in the northern area of the deposit. It returned a wide mineralized interval of high-grade dolomite carbonatite with an average rare earth oxide grade of 3.58% over 124m.

    Luisa Moreno, President and Director of Defense Metals, states, "These two core holes, particularly hole WI22-68, once again demonstrate the potential for high rare earth grades over considerable widths in the north of the Wicheeda deposit. Samples from hole WI22-68 were prioritized due to the coarse-grained SEE mineralization visible to the naked eye. We look forward to further analytical results from other supplemental infill holes in the northern and central areas of the deposit, where the estimated percentage of visible SEE mineralization appears to be similar."

    Defense Metals has a market capitalization of CAD 48.49 million. From a chart perspective, after breaking above CAD 0.27, the next target could be at the yearly high of CAD 0.36.

    Rheinmetall - The tanks are rolling

    Also likely to suffer from rising prices and the scarcity of rare earth metals is the Rheinmetall armaments group. Neodymium-iron-boron magnets are considered the strongest permanent magnets in the world. They are used in many military weapons systems, for example, in precision-guided weapons, satellite and stealth technologies, as well as in unmanned vehicles and modern communications systems.

    Due to the rearmament of Western countries, the Düsseldorf-based company's order books are also full to bursting. The latest delivery is 15 tanks to the Czech Republic to provide the NATO state with modern replacements for the Soviet-designed tanks, which in turn were handed over to Ukraine. A corresponding contract was signed by representatives of Germany and the Czech Republic in Prague on Tuesday, according to Rheinmetall. According to earlier state information, the agreement involves 14 Leopard 2A4 main battle tanks and a Büffel armored recovery vehicle with a total estimated value of EUR 157 million.

    Hamburg-based private bank Berenberg reiterated its "Buy" rating for Rheinmetall with a price target of EUR 220. In the short term, the financial and sentiment situation is heavily dependent on order intake, which is difficult to estimate, wrote analyst George McWhirter. The Q3 figures are expected on November 10.

    In the wake of technological developments in recent decades, rare earth metals can be found in almost every walk of life. However, demand is being pushed up significantly by renewable energy and the defense industry. The dependence on China is enormous, so the few promising projects in western countries like Defense Metals should benefit strongly. Nordex is suffering from high commodity prices, and in the case of Rheinmetall, investors should wait for the publication of the Q3 figures.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Stefan Feulner

    The native Franconian has more than 20 years of stock exchange experience and a broadly diversified network.
    He is passionate about analyzing a wide variety of business models and investigating new trends.

    About the author

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