17. June 2021 | 11:21 CET
Volkswagen, Defense Metals, Salzgitter AG - Disastrous consequences!
The NATO summit in Brussels last weekend once again showed the increasingly hardening relations between the USA on the one hand and China and Russia on the other. At the same time, the NATO powers seem to underestimate how dependent they are on the Middle Kingdom in terms of the energy transition. By capping access to rare minerals essential for electric vehicles, wind turbines and drones, the Western states are threatened with a bottleneck that will have a major impact on the development of new technologies.
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ISIN: DE0007664039 , CA2446331035 , DE0006202005
Biden feels the pressure
Rare earths with names like neodymium, praseodymium and dysprosium are critical for making magnets used in future industries like wind turbines and electric cars. The metals are also found in consumer products such as smartphones, computer monitors and telescopic lenses. An electric vehicle requires six times as many minerals as a combustion engine, while an offshore wind turbine requires 13 times more than a gas-fired power plant with the same output.
Experts say that to meet current climate targets, we will need at least four times as many rare earth metals for renewable energy sources in 2040 as we do today. The expected exponential growth in demand for minerals associated with clean energy increases pressure on the US and Europe to reduce dependence on China. In 2019, the United States imported 80% of its rare earth minerals from China, while the European Union sources as much as 98% of its needs from the Asian economic powerhouse.
As a result of the resource problem, the US Senate last week passed a bill to improve American competitiveness that includes provisions to strengthen supply chains for critical minerals. Washington wants to boost the production and processing of rare earths and lithium, another key mineral component, while working with allies and partners to increase sustainable global supplies and reduce dependence on geopolitical competitors.
Existing projects scarce
Existing projects, such as the Mountain Pass mine, which has been back in operation since 2017, are expected to reduce the supply deficit. One of the few prospective projects outside China is maintained by Defense Metals. The Canadian exploration Company is focused on advancing the Wicheeda Rare Earth Project, which covers approximately 1,708 hectares in the state of British Columbia.
Due to the first-class infrastructure, Defense Metals can calculate drilling costs far below the industry average. According to management, mineral resources are at 4.9 million tons at an average grade of 3.02% LREO (light rare earth metals) and inferred mineral resources of 12.1 million tons at an average grade of 2.90% LREO. Another 12 million tons are suspected in the area.
CAD 5.0 million has been raised from the capital markets to expand the deposit. Defense Metals sees the potential here to discover additional near-surface resources. The Company plans to drill a minimum of 2,000m and up to 5,000m of diamond drilling to expand the deposit and further delineate the existing resources. The subsequent step is also to prepare a feasibility study. As a result of the corporate action, Defense Metals' shares lost about 50% in value and are currently trading at CAD 0.18 with a market value of only CAD 21 million. If one looks at the tight supply in the Western industrialized countries, the share is more than interesting at the current level.
Car manufacturers feel the shortage
We are currently experiencing a foretaste of the scarcity of goods in many raw materials. Whether wood, plastic or copper pipes, the shelves are empty and prices are rising exorbitantly. The shortage of chips is currently being felt above all by the automotive industry. The Chinese electric car manufacturer NIO already cut its production significantly in March. VW reported at the end of last year that it would have to cut production by up to 100,000 vehicles in the first quarter because it did not have sufficient quantities of semiconductor products, which play an increasingly important role in cars. Since then, the situation has become even more acute.
Both Daimler and Volkswagen are now resorting to short-time work at some of their plants. According to a company spokesman, short-time work is being introduced in Tiguan, Touran and Tarraco production, and Golf production on late and night shifts. At Daimler, the factories in Bremen and Rastatt have been affected this week, he said.
Profiteers of the price increase
One man's joy is another man's sorrow. Steel manufacturer Salzgitter AG is forecasting a higher operating profit for the year as a whole due to rising steel prices. Thanks to the strong performance of the trading business, pre-tax profits of EUR 400 to 600 million are now being announced. Initially, the outlook was between EUR 300 and 400 million. The analysts of JP left the share at "overweight" with a price target of EUR 28.50. The investment bank Jefferies also maintained its "buy" rating and sees the stock unchanged at EUR 38.