May 9th, 2023 | 09:40 CEST
Security of supply? More and more commodity deals are wobbling: Lynas Rare Earths, Power Nickel, Volkswagen
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Lynas Rare Earths: Malaysia grants respite and shows strength
The Lynas Rare Earths share jumped for joy at the start of the week. What happened? Lynas mines rare earths in Australia and processes them further in Malaysia. The Asian country had recently increased pressure on Lynas and questioned the Company's licence because of safety and environmental concerns. Malaysia wants to ban the import and processing of lanthanide because its fission and leaching produces radioactive waste. Now the agreement: At least until next January, Lynas Rare Earths will be allowed to continue its current practice. What happens after that, however, remains open. The share price has halved in the past year despite the tailwind from the major mobility and energy transition trends. With the decision now taken, Lynas should be able to position itself more broadly for the future. However, processing rare earths in Australia is likely to be more expensive than in Malaysia. The coming months will have to show how the Company solves its problems.
Volkswagen and Co.: Chile increases pressure - how does China fare?
Besides Malaysia, Chile also recently caused a stir. The country wants to put lithium production under state control. Just two years ago, Volkswagen, Mercedes-Benz, BASF and other companies announced an initiative for sustainable lithium mining in the South American country. A so-called multi-stakeholder platform was to bring all parties involved, including indigenous residents of the Atacama Basin, to the table and develop sustainable solutions. At the beginning of 2022, BMW also joined the initiative. The current plan of Chile's President Gabriel Boric stipulates that companies such as Albemarle and SQM must grant stakes to a Chilean state-owned company yet to be founded. The country also wants to earn money from processing the raw material in the future and become more environmentally friendly. For the plans to be implemented, they still need the approval of the Chilean Congress, in which President Boric does not have a majority.
At the beginning of the year, Chile agreed to mine lithium with a consortium led by the Chinese battery giant CATL. To what extent this deal will be affected by the new rules or whether the Chinese business partners knew about the president's plans in advance is not known. Although the German government is planning a EUR 2 billion commodity fund to facilitate access to critical raw materials for German companies like Volkswagen, economies that threaten foreign investors with repression are unlikely to be the preferred choice. The initiative of the Canadian company Power Nickel shows that there are alternatives.
Power Nickel: First carbon-neutral nickel project in the world
The Canadians are preparing to build the world's first carbon-neutral nickel mine. Power Nickel is pushing ahead with its NISK project in Québec, Canada. During the mining process, the Company wants to minimise the environmental impact and has also planned the environmentally friendly processing of nickel. As early as 2021, the German Mineral Resources Agency (DERA) considered nickel a critical raw material and expected increased demand, primarily due to electromobility. At the same time, the experts warned of a market concentration among companies from Indonesia. The NISK project in Québec could diversify the global nickel supply, become the first address for North American battery manufacturers, and score with an impeccable CO2 balance.
The Company expects regular drill results in the coming months and a new resource estimate early in the third quarter of 2023. With recent drill results impressing with partial grades of 0.88% nickel and 0.56% copper, the resource estimate could highlight Power Nickel's positive outlook to a wider range of market participants. As further company announcements are in the pipeline until then - for example, on a possible spin-off of the gold and copper activities - investors should make a note of the value. CEO Terry Lynch will also be presenting at the International Investment Forum on May 10 at 4:30pm CEST. Interested parties can get an update in twenty minutes and ask questions afterwards
The case of Lynas Rare Earths shows that it is always risky when companies position themselves in a concentrated way - emerging economies, in particular, like to renegotiate deals from the past that are not very lucrative today. In Chile's case, the environmental impacts of lithium mining add to the fact that there are good reasons for Chile's president to protect the interests of his citizens. Not even well-intentioned initiatives by large industrial companies, such as Volkswagen, Mercedes-Benz, BMW or BASF, can stop this development. Those who need critical raw materials in the future would do well to focus on sustainable projects in secure legal areas. Ultimately, this is the only way to ensure a deal will last. Power Nickel from Canada has good chances to score with its NISK project and to profit from the construction of new battery factories in North America. The share price has risen recently, but given the speculative nature of the share, investors should think in tranches and limit their orders.
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