NILSY: A Long-Term Play For The Critical Mineral Shortage
Seeking Alpha Analyst Since 2013
Mr. Torbert has spent the last 20 years in the private equity, operational management, business development and corporate finance world. He is a decisive, results-oriented leader with particular functional expertise in finance, team building and business strategy & development. Mr. Torbert has deep industry experience in the technology, media, telecommunications, alternative energy and transportation sectors. Moreover, strong industry and government contacts for business development, operational / revenue expansion and financing. Since 2006, Mr. Torbert has focused on investing in and enhancing middle market companies, notably roll up and platform company opportunities. As a founding investor and board member, Mr. Torbert played an integral role in the launch, development and $100MM Initial Public Offering of Mood Media (TSX: “MM”), formerly Fluid Music, Inc., an internet-based music services company. In conjunction with management, Mr. Torbert executed Fluid Music's acquisition of Trusonic, Inc., which enabled company to access public equity market and expand. In addition, he has played a vital role in the formation and growth of several other middle market-sized companies, including Midas Medici (OTB: "MMED"). Mr. Torbert has sourced and evaluated transactions in numerous sectors including financial services, transportation, media, technology and business services. In a very difficult distressed business environment, Mr. Torbert also orchestrated acquisition of two distressed assets in the aviation sector, Direct Air and Swift Air, with plan to restructure both companies. From 2004 to 2006, Mr. Torbert served as Chief Operating Officer of Broadcast Capital, a firm focused on investing in media and broadcasting sectors. He focused on managing the company's portfolio assets and expanding the investment mandate to include new media. Mr. Torbert oversaw firms operations and investment portfolio. From 1999 to 2004, Mr. Torbert was an investment banker at JPMorgan Chase. He served as a Vice President of the Financial Sponsor Group, Middle Market Banking, at JPMorgan Chase Bank (a subsidiary of JPMorgan Chase), where he was a member of a four-person team that covered the firm’s top tier middle market private equity clients. He was responsible for sourcing and financing private equity investment opportunities for financial sponsors investing in the middle market, with a special industry focus on media, transportation, healthcare, and consumer products transactions. Additionally, he completed over $100 billion in transactions in the media and telecommunications industry as a senior associate in the Equity Capital Markets Group, at JPMorgan Securities. Mr. Torbert also has held positions at AIG Capital Partners, where he focused on analyzing global private equity investments and on raising capital for the firm’s $1 billion Global Emerging Markets Fund.
Summary
- Within the growing global market for materials to power the green transition, there are lesser-known investment opportunities in critical minerals.
- I believe Norilsk Nickel (NILSY) is a “sleeping giant” in this sector and an excellent prospect for long-term value creation.
- Greater investment in this industry is not only good for investor portfolios, but also helps shore up supply chains and lessen reliance on China.
Having recently returned from the United Nations’ COP26 conference in Glasgow, I have been reflecting on what the future of energy and environmentally conscious investing will look like. As one can imagine, there was a lot of discussion in Scotland about electric vehicles (EVs). What is particularly of interest to me here are the critical minerals – lithium, cobalt, and nickel, among others – that make these cars and trucks run.
Investors who follow this issue are aware that the global supply chain for critical minerals is severely disrupted right now. The Australian government defines critical minerals as “metals and non-metals that are considered vital for the economic well-being of the world's major and emerging economies, yet whose supply may be at risk due to geological scarcity, geopolitical issues, trade policy or other factors.” All of these factors are at the forefront today. I subsequently set out and conducted some research on what new investment opportunities might be available to play off, and do a small part to alleviate, these current conditions. I struck gold – well, nickel and palladium in fact – with a $58 billion company headquartered in Moscow.
Upon further analysis, I concluded that the company I unearthed, Norilsk Nickel (OTC:NILSY), is a “sleeping giant” with an abundance of untapped potential. For retail and institutional investors alike, NILSY is uniquely both a high-yield and growth opportunity that should not be missed. Metals and mining investors are already familiar with the likes of BHP (BHP), Rio Tinto (RIO), and Vale (VALE). But I believe NILSY, also known as Nornickel, is a special story. I am, therefore, bullish on the company for several reasons.
First, Norilsk Nickel is the world's largest producer of refined nickel and palladium. Roughly 65% of the nickel consumed in the U.S. and Europe is used to make stainless steel. As Western countries build vast, new energy infrastructure, this steel demand will only continue to increase. Perhaps more importantly, the aerospace industry and rechargeable batteries – noted catalysts for future economic growth – are two prominent end markets for refined nickel. Regarding palladium, this precious metal almost doubled in value from 2019 to 2020. Also, as the BBC points out, its deployment will only continue to grow in importance. “The vast majority of palladium, more than 80%, is used in…devices that turn toxic gases, such as carbon monoxide, and nitrogen dioxide, into less harmful nitrogen, carbon dioxide, and water vapor.” What is more, according to BloombergNEF, “The final act for palladium will likely begin toward the end of this decade as the transport fleet starts to significantly move away from fossil fuels. Electric vehicles will account for a third of global auto sales in 2030, up from 4.3% in 2020.” NILSY is perfectly positioned to capture this momentous market shift.
To supplement my earlier point on EVs, I attest to what Oakoff Investments wrote earlier this year here at SA concerning the company. They stated, “Norilsk Nickel is an alternative to investing in the EV market, being in direct proportion to the demand for palladium, platinum, copper, and other precious metals.” Thus, given the uses of NILSY’s two main commodities and rapidly changing demand toward greener solutions, it is clear why the company’s stock will be poised for solid, long-term growth.
Second, the company’s financials are attractive. I always liked to allocate some exposure to international, high-yield equities when I was an investment banker at J.P. Morgan. And I still do today. NILSY fits this bill perfectly. The company’s dividend yield currently sits at a very healthy 4.91%. Moreover, as the chart below shows, NILSY is up close to 73% over the past five years.
Source: Seeking Alpha
Third, recent forecasts from the company should whet investors’ appetites even more. Mining.com picked up a Reuters interview with NILSY Senior Vice President Sergey Dubovitsky this past week. The company said it has raised its 2021 – 2030 investment to $35 billion to reflect, among other priorities, increased investment in energy infrastructure upgrades. According to Dubovitsky, “Within 10 years, we see an increase of up to $6 billion in addition to the figures we have given. But the bulk of the increase is on the horizon beyond 2025. We are essentially talking about extending our investment cycle.” This is inviting news for those inclined to make a new, long-term investment.
Finally, for investors who are students of global affairs like me, I would be remiss not to touch on one of several macro issues driving my buy recommendation. Ambassador J. Peter Pham, a distinguished fellow at the Atlantic Council, has written a noteworthy report that is relevant to NILSY. As investors, we can play a role in helping international operators like Norilsk Nickel expand by allocating our capital to the company. This goes beyond our own returns and speaks to what I call the “vision driven” investor that lies in many of us. I was stuck by this passage in Pham’s report:
“The creation of a strategic reserve is needed to ensure the availability of critical minerals and materials. A reserve not only helps protect against hold ups, whether intentional or unintentional, in the supply chain, but by signaling U.S. demand for the select critical materials, it can also serve to catalyze investment by appropriate countries and companies that will provide further protection for U.S. supply chains.” This idea of a strategic reserve would strengthen investor returns, while at the same time empowering responsible industry participants like NILSY and decreasing reliance on nations such as China.
Per a report from NS Energy, Norilsk Nickel’s “main base of operations is in the Norilsk region above the Arctic Circle in Russia, where some of the world’s largest nickel-copper-palladium deposits are located.” These are exactly the materials that will drive tomorrow’s economic growth. With this in mind, coupled with the points I have highlighted above, it is hoped that investors will seriously consider going long NILSY. Doing so is a triple win for the green transition, more secure international relations, and most importantly, our investment returns.
Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.
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