The Nickel market has become a target of short-term speculators and long-term investors. On the one hand, there are extreme short-term price moves, which provide opportunities for day-traders. On the other is the fact that explosive growth in nickel prices is being driven by the metal’s role in the booming EV market. In an effort to move away from carbon-based energy sources, the world is going electric, and the EV market alone is forecast to achieve a remarkable compound annual growth rate of 29% over the next 10 years.
Between March 2020 and February 2021, the price of nickel surged by more than 72%. Share prices in nickel stocks followed that lead and some of the best nickel mining stocks outperformed the metal in terms of price rises. There could be more to come and if the global economy is entering a commodity super-cycle, this could be the start of a multi-year trend. That would be an ideal opportunity for those trading momentum strategies, but short-term noise in prices would also open the door to short-term strategies as well.
One way to trade the nickel market is to buy the metal itself. Trading commodity futures and CFDs can involve additional financing fees and charges that rack up over time. These all eat into profits, especially if positions are held for some time. An alternative approach is to identify and buy nickel mining stocks, and other nickel stocks that give exposure to various parts of the sector. This means investors can still benefit from the booming nickel market but do so by holding a position in stocks that are an easier to manage and more cost-effective asset group.
Research into the best nickel mining stocks involves using technical and fundamental analysis. There are sector-specific and broader economic issues relating to the world economy to factor in. After that’s completed and a nickel stock that matches the investment criteria have been identified, it’s a case of following the below step-by-step guide, which explains how to invest in nickel stocks and how investors, including those in the US, can access such stocks using a trusted broker.
Brazil-based Vale has been operating since 1942 and has built up a portfolio of mining assets, which stretch from New Caledonia to Canada. It produces and extracts iron ore and pellets, manganese, ferroalloys, metallurgical and thermal coal, and metals such as copper, gold, silver, cobalt, precious metals, and platinum. It also mines and processes nickel and is one of the world’s largest producers of the metal.
According to Deloitte’s global electric vehicle (EV) forecast, total EV sales will have, in the five years between 2020 and 2025, grown from just 2.5 million to over 11.2 million. All of those vehicles will require nickel in their batteries, which means the scale of the Vale nickel operations has caught the eye of investors. Vale’s Canadian operation in Sudbury, Ontario, produces almost 65,000 metric tonnes of this metal, which represents a healthy supply of a key resource in a politically stable country. The operations in Brazil, New Caledonia, and Indonesia may be further away from Tesla’s EV giga factories but in 2019 produced a staggering 800,000 tonnes of the metal.
Between March and June 2021, the Vale share price increased by more than 195% but the stock is still a long way off its all-time high of 2010. That extra headroom can offer investors who buy in now considerable gains before the stock price meets significant resistance.
The pull back in price during the second half of 2021 is an opportunity for those monitoring Vale to buy a dip. The stock is currently trading below its 20, 50 and 100 Weekly SMAs and if price can break above those, that would represent a buy signal.
A degree of patience could pay off for bottom fishers with a recent uptick in short interest suggesting the Vale stock price could come under increased pressure in the near future. During November 2021, short interest increased and as of November 30th, totalled 79.4 million shares, which represents an increase in shorting of 19.5% from the November 15th total of 66.4 million shares. Based on an average daily volume of 38,210,000 shares, the days-to-cover ratio is presently 2.1 days, which is a sign that the firm is out of favour with a large number of big players in the market.
Vale’s Canada based nickel mines represent a secure and reliable supply of the metal in close proximity to the North American market. Whilst its international operations are spread around the globe and look primed to meet demand from battery makers across the world.
The quarterly earnings report released on 28th October disappointed investors. The Sudbury plant has been subject to a labour dispute, which the firm calculates has played a part in that division’s revenues being $379m lower in the third quarter of the year. Whereas the Thomson Reuters’ analyst consensus prediction was $1.12 per share, the actual figure was only $0.76 earnings per share for the quarter. The firm still has a net margin of 31.28% but the basic materials division was a drag on performance. As the company’s report explained:
“Ferrous Minerals lower realized sales prices (US$ 3.891 billion), mainly due to the declining trend of the iron ore fines price throughout the quarter and pricing mechanisms effect, which take into consideration the difference between provisional and final prices, lagged prices and forward curves.”
Hedge funds may have been shorting Vale stock following the earnings announcements, but analyst ratings still tip the firm as a ‘Buy’. Vale might not be a pure play on Nickel and other divisions may at times drag on performance, but longer-term investors currently look prepared to sit out the labour disputes.
Highlights from the financial results for the first nine months of 2021 include:
Vale is headquartered in Rio de Janeiro and listed on the B3 stock exchange in Sao Paulo but the American Depository Receipts (ADRs), which are listed on the New York Stock Exchange (NYSE) offer international and US investors the chance to buy into the stock.
Mining giant Glencore has one of the most diverse range of natural resources. The company produces and markets more than 60 different commodities from more than 150 mining and processing sites across the world but the company is also a leading producer of nickel.
Its mines in Australia, Canada and Europe are all regarded as being located in politically stable areas and the nickel it produces stands out for its quality. A decision to buy Glencore shares provides exposure to a range of other metals, with the kicker that Glencore’s nickel is some of the purest in the world. That niche is a strong selling point for the firm when dealing with manufacturers who want the metal. In 2020, the EBITDA of nickel assets was $591m.
Industry analysts are more bullish about Glencore’s prospects than those of Vale. Of the 19 broker ratings available at IG, eight are ‘Strong Buy’ and six are ‘Buy’, with the other five tipping the stock as a ‘Hold’.
Highlights from the H1 financial results for the first six months of 2021 include:
Glencore is headquartered in Baar, Switzerland on the London Stock Exchange. Those shares can be traded using an international broker and US investors can also trade Glencore on the OTC Market.
Sibanye Stillwater Limited is a precious metals mining company, which mines and processes palladium, platinum, rhodium, iridium, ruthenium, copper, chrome and nickel. Based in South Africa, it also has operations in the US, Zimbabwe, Canada, and Argentina.
Previously known as Sibanye Gold, the firm is listed on the NYSE and its North American interests include the East Boulder and Stillwater mines located in Montana and the Columbus metallurgical complex, which smelts the material mined to produce PGM-rich filter cake. It also has a foothold in the recycling area of the mining sector, which ticks a box in terms of the firm fitting in with ethical investing.
One standout feature of the SBSW financial reports is the 12.6% dividend yield. The firm’s efforts to return cash to investors are also supported by an aggressive share buy-back scheme, which will support the SBSW stock price. The investor update report, up to 30th September 2021 stated that not only had a 5% share buy-back successfully concluded but that debt had also been lifted from the balance sheet thanks to early redemption of 2022 notes.
Sibanye Stillwater is in a good position to move forward in the next few years. The firm takes the view that “Precious metal prices are stabilising – outlook positive” (source: Vault). It also states that operations are back at pre-COVID-19 levels and 78% of staff in South African mines are vaccinated.
The details of the company’s September earnings report include nickel-related highlights, which demonstrate the focus the firm is putting on expanding its operations in the metal. Two recent purchases will expand its operations in Europe and South America.
“On 30 July 2021 the proposed acquisition of 100% of Eramet’s Sandouville nickel processing facilities in Le Havre, France for an effective cash cost of Euro 65 million, was announced. This existing hydrometallurgical facility which is already zoned for heavy industrial purposes, is scalable for nickel, cobalt and lithium battery grade products with potential to introduce recycling operations.”
Source: Sibanye Stillwater
“On 26 October 2021, the proposed US$1 billion acquisition of the low cost Santa Rita nickel and Serrote copper mines in Brazil from Appian Capital, was announced. The transaction represents a unique opportunity for Sibanye-Stillwater to acquire significantly pre-developed and pre-capitalised, low-cost, producing nickel and copper assets with strong ESG credentials.”
Source: Sibanye Stillwater
Highlights from the H1 financial results for 2021 include:
BHP Group also known as BHP Billiton is a global resources and mining company with interests in a wide range of commodities such as metallurgical coal, copper, uranium, iron ore and nickel. It is the world’s largest mining company and one of the world’s largest nickel producers. It is headquartered in Melbourne, Australia but has operations around the world and its stock is listed on the Melbourne, Johannesburg, London and New York stock exchanges.
The BHP Full Year 2021 earnings report, which was released on Tuesday 17th August was welcomed by investors and an impressive 7% price rally soon followed the announcement. Data in the report showed that profits from operations were up 80% from 2020, net cash flow was up 73% and net debt had been reduced by more than half in the space of one year.
The strong balance sheet means the firm is in a good position to expand into the nickel market or return cash to investors – a potential win-win for shareholders. The dividend per share was priced at $2, which meant the firm had returned a total of $15bn to investors in the financial year.
Commodities like copper, nickel and iron ore will be essential for building the infrastructure and technology that will aid the world’s decarbonisation ambitions. The firm’s year-end financial report released in August states that thanks to investments in copper, potash and nickel mines that by 2030 it is anticipated these metals will generate around half of BHP’s revenues.
The price spike following the release of the annual report in August was then followed by a period of price weakness. This reflects a lot of the good news being already priced in and BHP stock was in August 2021 up more than 200% from the lows of March 2020.
Investors who are looking for a long-term buy-and-hold position could use this period of price consolidation as a trade entry point. Following that dip the stock is now showing strength and is trading back above the 20, 50 and 100 Daily SMA’s. There is still room for further stock price growth before resistance comes into play in the form of the year-to-date high of $67.01 in July or the all-time-high of $86.96 recorded in 2011.
BHP is the world’s largest mining company and has a market capitalisation in the region of $147bn. Its size means it offers a degree of security and being a mining stock means it offers a bit more potential than stocks from more sedate sectors. The 12.9% dividend yield generated by the ADR will be attractive to ‘big money’ institutional investors who can be expected to step in, for the dividend alone if there is any further price weakness.
The consensus of the 26 analysts who follow the stock is that BHP is rated a ‘Buy’, with six of that group tipping it as a ‘Strong Buy’.
Highlights from the Yearly financial results for 2021 include:
Nickel may be playing a part in making the world a greener place, but the extraction process associated with mining has historically placed mining stocks on a black-list, or at least grey-list for ethical investors. Sentiment has shifted and the mining of the metals needed to help the world move away from carbon is increasingly seen as a necessary evil, but BHP has gone an extra mile to placate investors with concerns about ecological and ethical concerns.
Traceability and sustainability are hot topics. Customers and investors want to ensure that nickel is sourced as sensitively as possible, and BHP is on the front foot in this area and in 2021 introduced a blockchain traceability programme with Tesla to track carbon emissions of its Western Australian nickel mines. It has also carried out its first carbon-neutral copper cargo from Chile to the United States.
The big multinational miners offer enough exposure to the nickel market for most investors and the income streams from other metals can act as insurance against negative events in the sector. There are firms that offer much higher risk-return and are focussed specifically on metal. Pacific Nickel Mines Ltd is one such firm but investors considering it need to be aware they could be in for a white knuckle ride.
Classed as a penny stock, with all the risk warnings that come with that asset group, Pacific Nickel Mines (PNM) is an Australian-listed company with a small but wildly fluctuating market capitalisation currently in the region of A$19m. It is listed on the ASX, meaning non-Australian investors would need to consider currency exposure, but given the stock has at times shot up in value by staggering amounts, a 5% currency move would have relatively immaterial impact on gains.
Between 3rd and 18th October 2021, the PNM share price more than doubled in value and between July 2020 and 18th October 2021, it was up more than 492%. Price moves in the other direction are equally as dramatic and between October and December 2021, the PNM share price almost halved in value.
The extreme share price volatility stems from PNM’s position as a nickel explorer and developer, which has two near term development assets – the Jejevo and Kolosori Nickel Projects located on Isabel Island in the Solomon Islands. The firm is a pure play on nickel and the hit-and-miss nature of mining exploration.
The firm is currently loss-making and has a negative profit margin of -97,106% and is burning through A$2m in cash each year. For it to achieve its potential the pipeline of early day credit needs to be maintained and the results of testing in the Solomon Islands need to match market expectations.
PNM’s annual report to investors issued on 25th October 2021 has a different feel to the ones issued by the established multinationals. It’s full of reports of the geological surveys and test results that could ultimately prove if PNM is a good investment. The price slide that followed the release of the statement points to investors’ expectations not being met, for now at least. Those already in positions could be nursing sizable losses, but investors who are new to the stock could be buying a dip. There are reasons to look favourably on the Solomon Island projects.
The Kolosori and Jejevo Nickel mines are both advanced stage direct shipping ore nickel laterite projects with excellent potential for development. They are both in close proximity to the coast, have no processing requirements, a low capital route to direct shipping ore production, and local landowners and authorities are sponsors of the project.
Key stats from the Yearly financial results for 2021 include:
The price of nickel and nickel mining stocks can swing around quite dramatically. A lot of the interest in the sector comes from predictions of future demand, so there is a real risk that price can move against investors. While price risk can’t be avoided, the good news is that there are ways to ensure the broker you use to manage your account is trusted.
Recent interest in the nickel market has seen more and more brokers offer stocks relating to the industry. Increased trade volumes also result in lower commissions, tighter trading spreads and increased coverage by analysts. Improved T&Cs are good news for investors who are looking to buy nickel miners and means there is a wider range of brokers to choose from. That being said, rule number one in investing is to make sure that your broker can be trusted.
Trading and investing have been revolutionised by brokers setting up state of the art online trading platforms that can be accessed from desktop and mobile devices. They have also made the signing up process easier and setting up a new account can also be done entirely online. In addition, the efficiencies brought on by new technologies have to a large extent been passed on to traders, which has made trading more cost-effective.
Some brokers specialise in providing news features and research resources, while others might lean towards offering 24/7 customer support. These are more than just nice-to-have features and can make a difference to the trading bottom line. One crucial check to make is that the brokers on your broker shortlist are safe and trustworthy.
If you erroneously sign up with a scam broker, then you’re on track to one of the most painful trading experiences out there, to lose not only your potential profits but also your initial deposit as well. In an effort to protect retail investors financial authorities have set up teams to oversee the financial markets. They also issue licenses to firms that meet certain criteria and those brokers with appropriate rubber-stamps, from tier-1 regulators, are the ones to consider using.
The US financial regulators are a prime example of authorities that are setting the gold-standard in terms of regulatory compliance. By choosing a broker that is licensed by one of the below highly regarded agencies, you are taking the first step towards trading safely.
Tier-1 US Regulators
The exact details of what regulatory protection applies is dependent on where account holders are domiciled, so it’s important to check the small print. That being said, a broker with a number of regulatory approvals from different Tier-1 regulators is demonstrating it is doing what it can to be considered trustworthy.
Being regulated is a big commitment for brokers and to comply with the license terms of regulators, brokers are required to pass a series of tests. These range from demonstrating they hold enough cash to be viable business operations, to ensuring they keep client funds in segregated accounts. Then there is also a need for independent audits and client protection protocols. More information on the regulatory pros and cons of different brokers can be found here.
With lots of new brokers to choose from, differentiating between brokers can at first glance appear a bewildering proposition. The best way to find out if a broker is a good fit for your style of trading is to set up a free demo account. These take moments to set up and offer a test drive of trading and investing, but as they use virtual funds, they are completely risk-free.
Whether you are upgrading from a demo account to a live one, or simply signing up for a live account from scratch, the process is relatively straightforward and should only take minutes to complete.
The first step involves sharing personal information so that the broker is able to identify you. This helps you keep control of your funds and helps the broker build a profile so they can apply client care protocols.
Once your account is set up, the next step towards buying nickel mining stocks is transferring funds to your new brokerage account. Wiring funds can be done in a variety of ways with the simplest and fastest approach involving debit and credit cards. These are typically associated with immediate transfer of funds, whereas bank transfers can take days to process. E-payment agencies are another option but it’s worth checking the T&Cs at different brokers to avoid paying unnecessary commissions or suffering time delays. Most brokers don’t charge any fees on cash deposits, but some do on withdrawals.
Once your account is set up and funds have been transferred, it’s a case of locating the nickel mining stocks that your research has identified so that you can buy into them. You can do this by using the ‘search’ function or filtering by sector.
Each nickel stock will come with a dashboard, which includes price charts, latest news, and company information. The process is as simple as entering the number of shares you want to buy into the appropriate data field and clicking or tapping ‘buy’ will convert some of your cash pile into a nickel stock position.
As stock exchanges have set trading hours, you will either need to trade while the exchange is open, or alternatively, you can input a limit order into the system, which is a binding contract to buy a stock at a certain price, triggered when the market next opens. Getting ‘filled’ on a limit order isn’t guaranteed but using limit orders can help instil some discipline into a trading strategy and optimising trade entry points is a key part of maximising returns.
Stop Loss instructions and Take Profit orders are risk-management tools built into the trading system. Investors can set levels at which they want to instruct their broker to automatically close out some, or all, of a position if price reaches a certain level.
Stop-losses kick in if price moves against you and limit downside risk. Take profits work in the other direction and lock in gains should the price of your nickel stock suddenly sky-rocket.
Investing in nickel stocks can be a long-term proposition and for that reason some buy-and-hold investors don’t use stop loss and take profit orders. The argument goes that a short-term price crash move might trigger a stop loss when it would have been better to ride out the price dip.
Take profit orders can also be viewed as putting an unnecessary cap on potential gains. The decision whether to use these instruction types comes down to strategy selection and calculations relating to risk-reward. Alternative approaches to risk management include trading in small size, diversifying your cash across a range of names and only investing amounts of money, which can be afforded to be lost.
The value of your new nickel stock position will be determined by live market prices. Progress can be monitored by accessing the Portfolio section of the platform where you can monitor the P&L (profit and loss) on trades.
The Portfolio section of your broker platform is also where you can adjust active stop loss or take profit orders at any time during the life-cycle of a trade. It is also the place to head when you want to sell up some or all of your position. The process for selling is a reversal of the buying process and will convert your stock back to cash with the amount determined by the closing price.
One final tip from experienced traders is to check any trades immediately after they have been executed. Human error can result in ‘buys’ being booked as ‘sells’ or incorrect amounts being entered. Remedying any such errors as soon as possible avoids the potential for massive losses being accrued.
Until the EV revolution, nickel was traditionally used in the manufacture of stainless steel, refrigerators, cookware, homeware and medical equipment, but the prospects for the metal have been completely changed by what BHP describes as ‘Electrification Mega Trends’. Wind turbines, electric vehicles, solar panels, battery charging, electric vehicle batteries, grid storage solutions will all require nickel and trends in the economy are usually reflected in trends in share prices.
As recently as November 2021, Vandita Pant, BHP's Chief Commercial Officer announced that The global markets will need four times the nickel and double the copper in the next 30 years to facilitate a decarbonised world. Mining bosses are expected to be bullish about their prospects, but that view is backed up by statements from the other side.
Around the time that Pant was speaking, the CEO of Trafigura, one of the world’s largest metals traders, warned of possible significant deficits for nickel as global demand rises. The main driver of increased demand is the use of nickel in EV batteries and the boom in that market and transition away from fossil fuels appear to be trends that are locked in.
The technical and fundamental analysis tools used to spot good nickel stocks are free to use at good brokers and most of the work associated with building a portfolio of nickel mining stocks is in the research stage.
Onboarding to a good broker is as important as making the right stock pick but the step-by-step guide has been created by experienced traders and offers a range of guidelines designed to help the trading bottom line. For those running a buy-and-hold strategy, the post-trade experience is low-maintenance and largely involves watching, monitoring, managing positions and potentially a degree of patience.
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