17. May 2021 | 10:20 CET
Plug Power, Defense Metals, Xiaomi - Easing or escalation?
A trade war between the US and China has been raging since 2018. Now, at the end of last week, news broke that the US Department of Defense has removed Xiaomi, a Chinese technology Company, from its blacklist and all sanctions will be lifted. A ray of hope in relations between the two superpowers? Probably not; after all, the dispute over human rights in China intensifies the conflict between the two countries. Should there be further escalation, the West faces a resource bottleneck that will not only jeopardize the energy transition.
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ISIN: US72919P2020 , CA2446331035 , KYG9830T1067
Pressure on raw materials
In the case of raw materials for the green energy transition, the Middle Kingdom currently has the Western industrialized countries literally in the palm of its hand. Whether solar plants, wind turbines or electric cars. The switch from fossil fuels to a sustainable energy supply based on renewable energy requires many metals. In addition to lithium, cobalt and nickel, the low-carbon industry especially needs rare earth metals, also known as "industrial gold." These are becoming increasingly scarce due to rising global demand. At the moment, 80% of the production of rare metals takes place in China, which has a virtual monopoly. For some time now, the Middle Kingdom has been restricting the supply for export abroad. Now the Chinese want to go one step further concerning sanctions against the US. Thus, the plan is to establish export controls on 17 rare earth metals to curb the production of US fighter jets. Likewise, a blacklist is to be created, containing mainly defense companies such as Lockheed Martin, Boeing or Raytheon, which supply weapons to Taiwan.
Already once, in 2010, China limited the export of rare earth metals to Western industrialized countries. The result was an extreme increase in the respective prices. To not get into a scarcity situation again, the German government decided to tackle a raw materials strategy. This plan must still be lying in a drawer somewhere because even in 2021, it has not yet been implemented. So the economy faces an even bigger dilemma, as demand for the materials has increased exponentially due to renewable energies. The electric car industry alone posted sales figures of almost 100% last year. This industry requires rare earth metals for permanent magnets that drive electric motors.
Ensuring supply chains
Internationally, the US, Japan, Australia and India are now trying to continue to guarantee the supply chain through cooperation and the construction of rare earth metal projects ex-China, but this cannot be done under a 10-year timeframe. Currently, there are very few projects that could be immediately available as an alternative. The Canadian mineral exploration Company Defense Metals, which focuses on its 1,708-hectare Wicheeda rare earths project near Prince George in British Columbia, is a prime example.
According to Company data, mineral resources there are 4.9 million tons at an average grade of 3.02% LREO (light rare earth elements) and inferred mineral resources of 12.1 million tons at an average grade of 2.90% LREO. Resources have doubled over a four-year period. With world-class infrastructure, Defense Metals can boast drilling costs well below the industry average.
Strong development and a second chance
Last week, Defense Metals once again shined with positive news flow regarding its ongoing hydrometallurgical pre-pilot test campaign. In addition, the Company announced the successful closing of a CAD 5.0 million private placement. Under the terms of the private placement, the Company is issuing 15,625,000 common shares and warrants to purchase up to 15,625,000 common shares at a purchase price of CAD 0.32 per common share and related warrant.
The Company expects to use the net proceeds from the private placement to complete a preliminary economic assessment, undertake an exploration program, conduct further environmental impact studies on the Wicheeda property and formalize a contract to construct a hydrometallurgical pilot plant. In the wake of the announcement of the capital increase, Defense Metals' share price lost more than 30% in the past two trading sessions. An excellent long-term entry opportunity to benefit from the scarcity of rare metals.
Liberation blow for plug power?
Are the horror weeks now over for Plug Power shareholders? After peaking at USD 75.49, the stock went completely under the wheels due to irregularities in the balance sheet. After posting prices below USD 20 at the low, the Company announced late last week that it had restated its previously released financial statements and filed its 10K Form for the fiscal year ending December 31, 2020, with the US Securities and Exchange Commission (SEC).
Only slight changes resulted from the restatement of the financial statements. "As we expected, the required adjustments were non-cash and had no impact on our operations or the economics of our commercial arrangements," the press release quotes Plug Power CEO Andy Marsh as saying.
In addition, the management provided an outlook for the figures for the first quarter and expects gross sales of USD 70 million, an increase of more than 60% over the same period last year. The share started a recovery rally and was up almost 12% at USD 24.55. From a chart perspective, there is now room to move up to the USD 30 mark.