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November 17th, 2022 | 12:10 CET

Rheinmetall, Defense Metals, Nordex - Top opportunities in critical commodities

  • Mining
  • RareEarths
  • Defense
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A quick end to the Ukraine conflict is becoming increasingly remote due to recent events. NATO's military buildup is giving the global defense industry a boom that will likely lift company sales to a new level in the coming years. An important building block for implementing weapons systems is the use of rare earth metals. However, China has a monopoly on the critical raw material value chain, a country that is itself in the midst of an escalating conflict with Taiwan.

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

Table of contents:

    Vitamins of the energy transition and the defense industry

    The list of products in which rare earth metals are incorporated is almost endless. Critical metals can be found in smartphones, computer hard drives, MRI devices, catalytic converters, alloys, permanent magnets and batteries. The so-called technological spice metal has received an additional boost in demand as a result of the climate targets that have been proclaimed. In this context, neodymium for strong permanent magnets in electric motors and wind turbines is important for climate change. Alone up to 4kg of the metal can be found in a conventional electric car; for a more efficient wind turbine generator, there are about 217.52 kg per MW of dysprosium, neodymium and terbium.

    The number of passenger electric vehicles has increased from 450,000 units in 2015 to nearly 3.2 million in 2020. Global electric vehicle penetration is expected to increase to 34 million units by 2030. Accordingly, the use of neodymium-iron-boron magnets in electric vehicles and wind turbines will be the largest growth application for NdPr demand, which is expected to result in a supply gap of 22kt by 2025 and 51kt by 2030.

    Global upgrades are also driving a surge in demand for neodymium-iron-boron magnets, the world's strongest permanent magnet. These are used in precision-guided weapons, satellite and stealth technologies, unmanned vehicles and advanced communications systems. However, the Western world is in a dilemma because China controls the entire value chain up to the production of components such as permanent magnets or, increasingly, end products such as batteries or computers. Alternatives in Western climes have been heavily subsidized in recent years, and Defense Metals' Wicheeda project could be one that goes into production in the next few years, which should significantly reduce the pain of policymakers due to their heavy dependence on Asia's largest economy.

    Defense Metals with significant growth potential

    The Mountain Pass mine in California, responsible for 15% of the world's rare earth metals production, is already a first step toward independence from China. The Wicheeda project, which was acquired 100% by Defense Metals earlier this year, has strong similarities in terms of metallurgy. The Wicheeda concession area is 4,244 ha in size. It is located about 80 km northeast of Prince George, a mining centre in Canada, in British Columbia, strategically located on a major forest road connecting to Highway 97. In addition to a major hydroelectric power line and gas pipeline, the project is located near a line of the Canadian Railroad. Rail and road access is also available to the Port of Prince Rupert, approximately 500 km to the west.

    Recent flotation results from the ongoing test program at SGS Lakefield confirm the basis of the preliminary economic assessment and demonstrate that the Wicheeda deposit can produce a high-grade rare earth mineral concentrate from a variety of lithologies and grades using conventional flotation. The flotation results are among the best in rare earth projects.

    After completing 18 drill holes totaling over 5,500 meters of drilling as part of the 2022 resource delineation and pit geotechnical survey program, the Company has released results from a total of 7 holes totaling 2,493 meters. The release of partial rare earth metal assay results from an additional core hole with 353 m total length further demonstrated the high grade. The infill hole was drilled to the southwest within the northern area of the deposit. It intersected a broad zone of mineralized dolomite-carbonatite averaging 2.14% rare earth oxide over 221 m, including a higher grade interval averaging 3.52% rare earth oxide over 111 m. Assay results from the remaining 11 drill holes totaling 3,017 m are expected in the coming weeks and months.

    Luisa Moreno, President and Director of Defense Metals, states, "These additional analytical results demonstrate that our 2022 drilling continues to intersect significant intervals of high-grade REE dolomite-carbonatite lithology. Recent flotation variability testing has demonstrated that this style of mineralization consistently yields high-grade mineral concentrates with TREO grades in excess of 40% and recovery rates in excess of 80%." The market capitalization of the promising company is EUR 30.69 million. In comparison, the stock market value of MP Materials, the operator of the Mountain Pass mine, is EUR 6.04 billion.

    Rheinmetall - New momentum

    One of the main beneficiaries of Russia's war of aggression on Ukraine is undoubtedly the German arms company Rheinmetall. Since NATO's strategy is to achieve peace through rearmament, the Düsseldorf-based company's order books are steadily filling up. As a result, financial targets have now been defined for the medium term. By 2025, sales should have almost doubled compared to 2021, as the MDax group announced on Wednesday at an investor event in Vienna. There should also be an upturn in profitability so that net profit and dividends should also roughly double.

    Accordingly, Rheinmetall aims to achieve revenues of between EUR 10 billion and EUR 11 billion in 2025. The operating margin should also increase by the middle of the decade. From the current level of 11%, it should then be around 13%. Sales are expected to grow by 15% in the current fiscal year. In 2021, sales were EUR 5.7 billion. The US investment bank Goldman Sachs reacted to the new targets and reiterated its buy rating with a target price of EUR 264.

    Nordex - Will the breakout succeed?

    Wind turbine manufacturer Nordex was hit hard by supply chain problems and rising raw material prices in the third quarter. Thus, the Hamburg-based company generated sales of EUR 3.9 billion in the third quarter. This was below the revenues of the third quarter of 2021 when EUR 4 billion was still achieved. The EBITDA loss was EUR 200 million, compared with a profit of EUR 101 million a year earlier. As a result, the EBITDA margin was minus 5.2%. For the full year, the Company expects an operating margin of around minus 4%. The reasons are inflation, supply bottlenecks and project delays.

    Following the publication of the figures, analyst firm Jefferies upgraded Nordex to "buy" and raised its price target from EUR 13 to EUR 14. The wind turbine manufacturer's third quarter showed the first signs of business improvement, wrote analyst Constantin Hesse. From a chart perspective, a new buy signal is likely to be generated with the breaking of the prominent resistance area at EUR 11.85. The next short-term price target would then be around EUR 13.50.

    Rare earth metals are existential for renewable energies. By achieving the climate targets, the demand for critical raw materials will likely increase drastically. In addition, there is growing demand from the defense industry. Rheinmetall could adjust its financial targets upwards, and Nordex is about to generate a buy signal. With the Wicheeda project, Defense Metals has the potential to become one of the most important rare earth metal producers in the Western world.

    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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