07. September 2021 | 12:04 CET
SMA Solar, Royal Helium, RWE - Supply is becoming increasingly scarce
Whether for cars or consumer electronics, hardly any machine can do without microchips anymore. Since the beginning of the year, the shortage of semiconductors has been throwing the automotive industry out of step and causing production downtime and short-time work. Meanwhile, there is no end in sight to the supply crisis. Shortages stretch as far as the eye can see, while demand increases due to technological advances. Demand is also rising enormously for raw materials needed to decarbonize the economy.
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ISIN: SMA SOLAR TECHNOL.AG | DE000A0DJ6J9 , ROYAL HELIUM LTD. | CA78029U2056 , RWE AG INH O.N. | DE0007037129
"[...] We expect the first three wells to be drilled, cased, completed and tested by the second week of March [...]" Andrew Davidson, CEO, Royal Helium Limited
The decade of raw materials
Looking back at the past year, 2020, the failure of global supply chains stands out, in addition to the outbreak of the Corona pandemic. Everything became more expensive. Wood, plastic, even the price of bicycles shot up - if you could still get hold of one. The former has now returned to normal, but experts believe that the chip shortage will be with us until at least 2023. The situation is different for the raw materials needed for climate change. In addition to copper, demand for lithium, cobalt, nickel and rare earth metals will skyrocket exorbitantly, and there is already a supply deficit. Helium, the most abundant element in the universe besides hydrogen, will also be in short supply.
Experts at the German Federal Institute for Geosciences and Natural Resources (BGR) have been warning of an impending helium crisis for some time. The supply has recently fallen sharply worldwide - and is lower than it has been for almost 20 years. Therefore, the European Union classifies helium as a strategic raw material, and the US government even speaks of a critical element. But here, too, demand is growing, primarily due to the increasing need in the healthcare sector, especially in diagnostics. It is impossible to operate a magnetic resonance imaging (MRI) scanner without helium. There has also been a sharp rise in demand from the chip manufacturing industry and quantum computers production in the recent past. The booming space business around the new astronauts Bezos, Musk and Branson are also dependent on large quantities of helium.
The growing volume of demand, however, is matched by a sparse supply. Canada's Royal Helium is focused on exploring and developing a major helium production project in southern Saskatchewan. With over 400,000 hectares of prospective acreage held under permits and leases, Royal is one of the largest helium producers in North America.
The Company's development, which has a market capitalization of only EUR 12.17 million, has been extremely positive in recent months. In addition to a successfully placed CAD 17.2 million capital increase, test drilling at the Climax I to III projects showed commercially viable helium concentrations, allowing Royal Helium to move directly into production and generate cash flow. Compared to gold production, helium allows a drilled hole to be put into production immediately.
In addition, Royal Helium received drilling approval for its fourth helium well on the Climax block in southwestern Saskatchewan. Climax-4 will specifically target the new regolith helium discovery zone to produce the helium found in this formation at the Climax-3 location and is permitted for production. It is expected that the well will be drilled to a total depth of approximately 2,700m. While Climax-4 is being tested, the rig will be moved to southeast Saskatchewan to drill the first well on the Bengough land block.
For Andrew Davidson, CEO of Royal Helium, this marks another milestone in the Company's history: "We are pleased to have multiple, high-impact activities underway over the next several weeks and months - getting the Climax Regolith reservoir defined and on production and drilling 6 new wells over 3 separate land blocks in southeastern Saskatchewan where the highest historic helium concentrations have been recorded."
Royal Helium's shares corrected to a current EUR 0.32 in the wake of the corporate action, down from a high of EUR 0.63 in May. An attractive opportunity to participate in the long-term helium trend.
Slump after reduction
The supply chain bottlenecks are not stopping at solar technology group SMA Solar. Sales and earnings forecasts were lowered, and the share price fell by more than 10% as a result. The SMA board now expects full-year sales of between EUR 980 million and EUR 1,030 million (previously: EUR 1,075 million to EUR 1,175 million) and EBITDA of between EUR 50 million and EUR 65 million, down from a previously estimated range of between EUR 75 million and EUR 95 million. At a current price of EUR 37.16, several supports have been breached. The next one is at EUR 35. Currently, there is no urgent need for investment in SMA Solar.
The green group
The transformation of RWE into one of the largest green power companies continues unhindered. Growth takes precedence over dividends at RWE. The turn to green energy is also viewed positively by analysts. Credit Suisse left the rating at "Outperform" with a price target of EUR 35.70. Goldman Sachs also continues to place the DAX stock on its "Conviction Buy List" and believes the Essen-based Company has a target price of EUR 47.
The shortage of raw materials is one of the dominant themes of the next few years. When it comes to the critical element helium, the Canadian Company Royal Helium stands out. RWE is viewed positively by analysts due to its transformation into a green power provider. In contrast, the experts are likely to be less euphoric about SMA Solar.