ThyssenKrupp, Power Nickel, Varta - Is nickel becoming scarce?

ThyssenKrupp - The new CEO is at the helm

As early as 2021, Dr Michael Szurlies of the Federal Institute for Geosciences and Natural Resources warned, "We assume that global nickel demand - depending on the scenario - will increase from around 2.4 million tonnes today to up to around 3.4 million tonnes in 2025." In 2022, global consumption was already over 3 million tonnes. By comparison, in 2020, demand was still below 2.4 million tonnes. By 2019, the steel industry accounted for around 70% of global demand, as nickel in steel increases strength and corrosion resistance. Accordingly, nickel is also an important factor in steel production for ThyssenKrupp.

Miguel Ángel López Borrego replaced Martina Merz at the head of the group on June 1. He wants to subject the Company to a green transformation by making steel production climate-neutral and pushing the production of green hydrogen through the subsidiary Nucera. This subsidiary could go public in the near future. An IPO has been planned for some time but repeatedly postponed due to the poor stock market environment. If the IPO succeeds, fresh capital could be raised, which is urgently needed for the transformation.

The Company is still waiting for the federal government to approve the restructuring of steel production. It should be granted by mid-June, otherwise, an extraordinary meeting of the supervisory board is scheduled, according to Manager Magazin. These could be exciting weeks for the Essen-based company. Since the end of April, the share has been trading between EUR 6.00 and EUR 7.76. Currently, one share costs EUR 6.81. After the Company returned to profitability last year, the share seems cheap, especially considering the price-to-book ratio of about 0.3.

Power Nickel - A new discovery

Power Nickel aims to operate the world's first CO2-neutral nickel mine in Quebec. The Company sees great potential in electrification and battery metal demand. The flagship NISK project hosts mainly nickel, but also other valuable metals for electromobility, such as copper, cobalt, palladium and platinum. The Quebec location offers significant advantages through government support and tax credits of up to 55% for the construction and equipment of a mine. The current NI 43-101 mineral resource estimate is 2.6 million tonnes grading 1.20% nickel equivalent (NiEq). The next resource estimate, scheduled for Q3, is expected to be between 8 and 10 million tonnes, which should ensure the project's economic viability.

Announcements in May show that the Company is on a good track. On May 10, the discovery of a new deposit called Wildcat was announced, located 5 km from the main deposit. At peak, the values were 3.90% copper, 25 g/t silver, 0.52 g/t gold, 19.97 g/t palladium and 90.60 g/t platinum. Thus, the property has great potential for further precious metal deposits. At the end of May, there were further results indicating that the high-grade mineralized central zone at NISK is being expanded. Here the peak values were 1.69% nickel, 0.37% copper, 0.12% cobalt, 1.59 g/t palladium, 0.22 g/t platinum and 0.04 g/t gold. This summer, a further exploration program with ground-based geophysical measurements will be carried out. In total, more than 15,000 m are to be drilled in the 2nd half of the year.

The money for this is available after the financing was completed at the beginning of May. In total, the Company was able to collect about CAD 4.8 million. A preliminary economic feasibility study is expected to be completed in 2024. In addition to the main project, the Company owns other properties and has sold the Copaquire project to Teck Resources. Once production starts there, Power Nickel will have a 3% share of the gross profit (NSR). The possibility of spinning off the Golden Ivan project is currently being explored. In parallel, talks are underway to sell a 30% interest in a royalty that is expected to fetch between CAD 5 and 7 million. The share is currently trading at CAD 0.24 after starting the year at CAD 0.195.

Varta - In need of restructuring

With the rise of electromobility, demand for nickel and other battery raw materials has picked up significantly. The price of nickel was over USD 48,000 in March 2022. This has also hit German battery maker VARTA, which issued several profit warnings due to higher costs and project delays with key customers, including Apple. The Company's debt grew from EUR 228 million in 2021 to EUR 494 million at the end of 2022. The dividend paid for 2021 of EUR 2.48 per share is now costing shareholders dearly, as the debt has to be refinanced.

A new CFO is to ensure cost savings and make the Company fit for the future again. Difficult in a competitive market. The customer base has to be enlarged in order not to be dependent on a few major customers. The turnaround in the first quarter failed to materialize. Group turnover fell to EUR 164.2 million. In the previous year, it was still EUR 185.3 million. The CoinPower business, in particular, suffered from a decline in demand. The adjusted EBITDA was minus EUR 2 million.

The Company raised almost EUR 51 million through a capital increase and extended its debt financing until 2026, giving it some breathing space for now. Those who want more information should take a look at the analysis on researchanalyst.com. The majority of analysts currently recommend selling. There is no buy recommendation. This is also the view of investors, who pushed the share down to a new low for the year of EUR 13.825 on June 1. On Friday, the share left Xetra trading at EUR 14.775.

With the rethinking in the automobile industry to do without combustion engines in the future, nickel has moved back into focus. In the past, the steel industry was by far the largest consumer, but this is changing with the increased demand from vehicle manufacturers. ThyssenKrupp needs nickel as an alloy for its steel, which is to be produced with green hydrogen in the future. Power Nickel has other battery metals on its property besides nickel at its NISK project. Further holdings bring additional potential. Varta is struggling with increased costs, including nickel. As an investor, one should keep an eye on the debt.