Strategic Resources: Pellet Plant in Focus
As coal is increasingly replaced by electricity and hydrogen, the demand for intermediate products is also changing. With a pellet plant at Port Saguenay in Québec, Canada, Strategic Resources aims to capitalize on this trend and secure a place in the value chain. At the heart of these activities is the BlackRock Project, which is divided into several phases and focuses on the raw materials iron, vanadium, and titanium.
With this project, Strategic Resources aims to become a supplier to a lower-emission steel industry. The location at the Canadian port of Saguenay offers several advantages. The year-round deep-water port with Atlantic Ocean access provides the logistical foundation. The existing BlackRock Project has a permit covering a pellet plant with an annual capacity of 1.5 million metric tonnes. An amendment is required for the now-planned four million metric tonnes. The permitting process is underway.
Strategically savvy, the Canadians are planning a phased expansion. The first phase does not require bringing their own mine into production at the same time. The plan is to initially process purchased iron ore concentrate into direct reduction-grade pellets. A preliminary economic study conducted in 2024 quantifies the potential. Assuming investments of approximately USD 470 million and a DR pellet premium of USD 70 per metric tonne, the study concludes that an annual operating profit (EBITDA) of USD 173 million is achievable, resulting in a post-tax return of 25%.
The Mustavaara vanadium property in Finland, which has a history of production, offers additional prospects. Its concentrate was recently selected for a hydrogen-based test program as part of the EUR 17 million FutSteel research project. The shares are currently trading at around CAD 0.20, valuing the company at a modest CAD 11.8 million.
Salzgitter: At the End of the Day, Transformation Must Be Economically Viable
Building new facilities requires investments in the billions, while green hydrogen and renewable electricity are still expensive and not widely available. Added to this is cost pressure from low-cost imported steel. With SALCOS, the Group is gradually converting its steel production from coal-based blast furnaces to direct reduction using hydrogen and renewable electricity. SALCOS stands for “Salzgitter Low CO₂ Steelmaking.” Initially, natural gas will be the primary fuel, with hydrogen playing an increasingly larger role later on. Connection to the core hydrogen network is scheduled for late 2029.
In the first six months of the current fiscal year, Salzgitter generated revenue of EUR 4.6 billion and operating profit (EBITDA) of EUR 277.7 million. EBITDA adjusted for valuation effects related to the Aurubis exchangeable bond was significantly higher at EUR 459 million. The Aurubis investment contributed EUR 193 million to earnings. This component is likely to continue to significantly impact earnings quality in the future. Net financial debt amounted to EUR 792 million at the end of June. For the full year, the Group expects revenue of around EUR 10 billion and EBITDA in the range of EUR 725 million to EUR 825 million. The shares are currently trading at around EUR 49, giving the Group a market capitalization of EUR 2.9 billion. Analysts believe the stock has upside potential of 40%.
Nordex: Things Are Going Well
Nordex generates revenue from the production of wind turbines. In addition to the more volatile project business, long-term service contracts provide stability. In the first half of the year, revenue climbed 13.8% to EUR 3.77 billion. Operating profit (EBITDA) rose to EUR 354.5 million, and the corresponding margin expanded significantly from 5.7% to 9.4%. Overall, the Group posted a profit of EUR 165.1 million. Free cash flow of EUR 66.5 million, net liquidity of approximately EUR 1.67 billion, and an order backlog for the project and service businesses of approximately EUR 18.4 billion underscore the favorable position.
At the same time, Nordex is expanding its product portfolio. Nordex recently unveiled the N193/7.X. According to the company, the larger 193 m rotor is designed to generate significantly more energy from lower-wind sites while maintaining comparable output. This is a key factor in the economic viability of wind farms. The stock is currently trading at around EUR 36, giving the group a market capitalization of EUR 8.8 billion. Analysts have set an average price target of EUR 49, suggesting attractive upside. The next quarterly results will be released on November 5.
Strategic Resources offers the greatest leverage. Even progress on individual projects could significantly alter this micro-cap’s enterprise value. Salzgitter combines its ongoing industrial business with a costly restructuring, whose returns depend heavily on energy prices and customer demand. Nordex has already made visible progress on margins and has an extensive order backlog, but it must translate this strength into sustainable free cash flow.
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