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There are many reasons to consider commodities stocks at present. For one, they can generally act as a hedge against inflation when fiat currency acts in unexpected ways. Two, investors remain very aware that commodities are integral parts of supply chains across every industry. In times like these when supply chain issues are highly prevalent, commodities can rise quickly.
And, as in the case of Talon Metals (OTCMKTS:TLOFF), some commodities are important to rapidly-growing industries. It's no secret that electric vehicle (EV) battery production requires heavy metals. Lithium has been often cited as one to watch by investors seeking vital components to invest in within the EV sector.
But Talon Metals supplies nickel, another vitally important element in EV battery production. It was on Jan. 10 that the company announced it had signed a deal to supply nickel concentrate to Tesla (NASDAQ:TSLA). The six-year agreement has investors scrambling to understand the nickel market as it relates to EV battery production.
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That means one thing: Investors want to know which nickel stocks could be next. Let's take a look at the strongest operators who might announce similar deals moving forward:
- Norilsk Nickel (OTCMKTS:NILSY)
- IGO Ltd. (OTCMKTS:IIDDY)
- Canada Nickel (OTCMKTS:CNIKF)
- Vale (NYSE:VALE)
- Glencore (OTCMKTS:GLNCY)
- North American Nickel (OTCMKTS:WSCRF)
- PolyMet Mining (NYSEAMERICAN:PLM)
Nickel Stocks: Norilsk Nickel (NILSY)
Norilsk Nickel, or Nornickel, was the world's largest nickel producer in 2020. The company produced 178,200 metric tons of the metal in the year. It has also long been the world's leading producer of the metal.
So, if nickel prices and production continue to rise, Nornickel is worth considering due to its strong position alone. The firm has seen nickel revenues increase in the last few years as the metal rises to a more prominent role. In the first half of 2020, Nornickel recorded $1.26 billion in nickel revenue. That increased by 34% in the first half of 2021, reaching nearly $1.7 billion.
On the one hand, Nornickel is clearly worth consideration due to its scale. However, there are some negatives to be aware of. One is simply tax changes. As of Aug. 1, 2021, a 15% nickel export duty has been imposed on the firm. That implies Nornickel could be less attractive than nickel producers more proximal to EV production — particularly those in the U.S.
That said, NILSY stock maintains an overweight rating with a few dollars of price appreciation baked into target prices.
IGO Ltd. (IIDDY)
IGO Ltd. is an Australian miner which last counted 208,000 tons of nickel resources under its control. In addition, it also has 163,000 tons of nickel ore reserves. The company isn't a pure play nickel miner: It also has significant operations in copper, cobalt and gold as well.
But let's put that into perspective by comparing IGO's nickel resources with those at Talon Metals. Tesla has committed to purchase 75,000 tons of nickel from Talon Metals over six years. Thus, it's clear that IGO Ltd. could easily supply another EV battery manufacturer given its proven nickel reserves.
The company maintains 100% ownership over its Nova Operation in Western Australia. The Nova Operation is expected to produce between 27,000 to 29,000 tons of nickel in fiscal year 2021.
Another interesting aspect of IGO Ltd. is that its stock has only been trading publicly since March of 2021. It began trading at $9.58 and has risen steadily since. It now trades above $16 and has strong analyst backing.
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However, it is also above their target prices currently. That suggests it is either performing extremely strongly and was undervalued, or that it could fall soon.
Nickel Stocks: Canada Nickel (CNIKF)
Canada Nickel believes the nickel demand is underestimated by 15%. It forecasts that demand growth is set to double by 2030.
Canada Nickel attributes this growth to EV battery production. The company basically sees the demand for nickel use in EV batteries increasing by 20% annually between now and 2030.
Canada Nickel's latest investor presentation makes note of Tesla's role in that demand. It contains a quote from Elon Musk which reads: "… please mine more nickel … Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way."
Musk made that call to action back in the summer of 2020. Here we are in early 2022, and Talon Metals looks to be the first beneficiary to heed his call. But again, Canada Nickel, like other nickel producing companies, has a great opportunity at its feet.
It's clear Tesla isn't the only EV battery producer which will demand nickel moving forward. Canada Nickel's Crawford Nickel-Cobalt Project is its ticket. It is projected to produce 42,000 tons of nickel annually when it reaches peak production.
Vale is a giant mining conglomerate with a more diversified base than other companies on this list. As per the company website, Vale claims to be "the world's largest producer of iron ore, pellets, and nickel."
In 2020, however, Vale was bested by Norilsk Nickel in terms of nickel production. It looks like Nornickel produced 178,200 tons of nickel while Vale produced 167,600 tons. In its most recent quarter, Vale produced 30,200 tons of nickel. That was a 27.2% decrease sequentially from the second quarter.
The good news is that the decrease was primarily due to a labor dispute at the firm's Sudbury operations. That dispute has been resolved, meaning nickel production figures should rise again.
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And even with the disruption, Vale has given guidance that it should reach between 165-170 kilotons of nickel production in 2021. Yes, it is a diversified nickel producer, meaning it can't capitalize as quickly on nickel prices and demand as pure play firms. But at the same time, it has scale advantages which can't be replicated.
Nickel Stocks: Glencore (GLNCY)
Glencore is another massive, diversified company which also produces nickel. In fact, it was the third-largest nickel producer globally in 2020 at 101,600 tons of nickel. The firm's operations span metals and minerals, energy, marketing and recycling.
Within its metals and minerals division, the company focuses on roughly a half a dozen metals. In short, it is a highly diversified firm. A pure-play nickel company, it is not. The firm has nickel assets in Asia, Australia, Canada and Europe and derived $591 million in EBITDA from those operations in 2020.
I mentioned that the firm produced 101,600 tons of nickel in 2020. At the same time, it sold 149,000 tons of nickel in the same period. The company will likely be looking to up its reserves and production as a result.
Glencore should be attractive for environmental, social and governance (ESG) investors as well. The firm has a stated goal of reaching net-zero emissions by 2050.
North American Nickel (WSCRF)
North American Nickel is a small-cap stock focused on the nickel market. In fact, its market capitalization is just above $60 million. By comparison, Vale carries a market capitalization of $73 billion.
WSCRF stock is also very inexpensive, with shares that trade below 50 cents each. It is fair to characterize it as a speculative play on a nickel — and the most speculative stock on this list.
The company has mineral exploration properties in Greenland and Ontario. It is also a founding shareholder in premium Nickel Resources, which has direct exposure to nickel in Southern Africa.
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In my mind, the best-case scenario for North American Nickel is that its proven nickel reserves on one of its properties become attractive to an acquirer. Its Greenland assets have nickel reserves on their grounds. The firm's Ontario assets are near proven assets as well. But until it begins to produce revenues from them, it remains a speculative buy at best.
Nickel Stocks: PolyMet Mining (PLM)
The Talon Metals project in collaboration with Tesla has operations in Minnesota. PolyMet Mining is another project out of the same state, and its NorthMet mine contains 170 million pounds of nickel. That suggests PLM stock could become more attractive moving forward.
One reason to strongly consider PolyMet Mining is that it has the backing of another giant conglomerate on this list. Glencore is a majority owner of PolyMet Mining. That should give the latter easier access to resources than many other projects.
If PolyMet Mining suddenly becomes more appealing for any number of reasons, Glencore has an embedded interest in speeding its development along. That implies it could potentially rise quicker than less well-heeled operations on this list.
Back in late December, PolyMet Mining received good news in its ongoing permitting battle. The Minnesota Pollution Control Agency gave it support in its pursuit of a key permit to begin operations. PolyMet Mining now has four lawsuits remaining to overcome in 2022. It has overcome 18 already and maintains that it will be vindicated, as its operations are backed by science.
If the company is correct in its assertion, its stock price should rise significantly in 2022.
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On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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