As the demand for electric vehicles (EVs) continues to rise, the need for nickel—a critical component in EV batteries—has become a strategic focus for industry giants like Tesla. We delve into the increasing importance of nickel mining in the EV market and explore Vale, a leading mining company poised to capitalize on this growing trend.
The Quest for Nickel – Tesla’s Pledge for Environmentally Friendly Mining
In 2020, Tesla CEO Elon Musk urged miners to invest in eco-friendly nickel mining. He also promised a massive long-term contract for companies that could meet these standards.
However, no clear takers emerged. Earlier this year, Reuters reported that Tesla might consider opening a factory in Indonesia—the world’s largest nickel producer—in exchange for mining rights.
This move would strategically position Tesla to reduce costs and secure its supply chain for the booming EV market.
Vale – A Mining Giant Seizing the EV Market Opportunity
Tesla isn’t the only company recognizing the potential of nickel mining in the EV sector. Other companies, such as Brazilian mining giant Vale, are positioning themselves to reap the rewards of this growing market.
With its consistent ranking among the top three global iron ore and nickel producers, Vale boasted over $43 billion in net operating revenues for 2022.
Vale’s Strategic Moves to Solidify Its Position in the EV Industry
Vale has made significant strides to establish itself as a critical supplier of nickel to the EV market, announcing three major business updates in 2022.
Firstly, Vale secured a multi-year agreement with Sweden’s Northvolt AB, a lithium battery cell manufacturer, to provide low-carbon nickel for their products.
In May, Vale confirmed a contract to supply Tesla with nickel.
Finally, in November, Vale entered into a long-term agreement with General Motors, becoming the primary supplier of battery-grade nickel sulfate and committing to provide 25 kilotons per year from 2026.
Financial Performance and Growth Prospects
In Q4 2022, Vale reported a 6% year-over-year increase in nickel production, hitting 179 kilotons for the quarter, and a 31% quarter-over-quarter increase in nickel sales.
Despite a 9% decline in quarterly revenue to $11.9 billion, Vale’s proforma adjusted EBITDA reached $5 billion, with Q4 EPS at 82 cents. These figures exceeded the Street’s expectations, with EPS outperforming by 19 cents (30%) and revenue by $560 million (5%).
Vale also offers a dividend that fluctuates significantly, yielding an impressive 8.87% based on the current $0.35 payout.
Analyst Perspectives
Jefferies analyst Christopher LaFemina considers Vale one of his top picks, citing consensus earnings upgrade potential, upside risk to spot iron ore prices as China recovers, and the company’s long-term growth in base metals.
LaFemina acknowledges Vale’s high operating risk and potential share volatility but believes the shares are undervalued at their current price. He gives VALE shares a Buy rating with a $21 price target, suggesting a one-year upside potential of approximately 32%.
In conclusion, the booming EV market has spotlighted nickel mining, with leading mining companies like Vale strategically positioning themselves to capitalize on this growing trend.
As the EV market continues to expand, companies investing in nickel production benefit immensely from the increasing demand for this essential battery component.
