Kuniko (ASX: KNI) shares are up 36% today. The KNI share price rise comes from Stellantis (NYSE: STLA) buying into the company as an investor and offtake agreement partner. Yes, we're aware of how everyone thinks that battery metals are going to be in really short supply and we're not convinced of this ourselves. However, this does solve a certain problem for Kuniko and therefore the KNI share price rise.
The background here is that everyone's been swallowing the snake oil. That there's going to be some massive shortage of battery metals as the world electrifies. We're unconvinced about the electrification process itself - we think efuels are going to have a part to play here. We're also deeply unconvinced by the large company reaction here, which is to try to set up vertical supply chains with ownership from the mine head to the vehicle rolling off the dealer forecourt. There's a good reason that Ford stopped mining its own iron ore, growing its own rubber, half a century and more back. That sort of vertical integration just isn't necessary and can be grossly inefficient. A wide market in suppliers works out better - security of supply is gained in a free market, not by vertical integration to our mind.
But how we think industrial strategy should work is another thing. The big corporates are vertically integrating and that's the investment market we see in front of us today.
Kuniko share price from ASX
The announcement is that: “Equity Investment: Stellantis will make a €5,000,000 investment, equivalent to approximately A$7,843,137, acquiring a 19.99% shareholding in Kuniko at an issue price of A$0.467 per share (being the 30-day VWAP for shares up to 31 May 2023).
▪ Offtake Term Sheet: Kuniko and Stellantis have agreed on an offtake term sheet,
securing a 35% future production offtake of nickel sulphate and cobalt sulphate
from Kuniko's Norwegian exploration projects (Norwegian Projects) for a term of
9 years, with a formal offtake agreement to be entered into by 31 December 2027
conditional on certain project development milestones being achieved”
This obviously funds Kuniko to the next stage on that Norwegian nickel project. We have to admit we're deeply unsure of the value of an offtake partner at this point. With lithium yes, it's important, with nickel, well, not so much we think.
The real value here, to our mind, is as a validation. The mining world is always full pf people who claim to have minerals of this type or another. But if someone as large as Stellantis has bought in then we can be assured that lack of funds isn't going to be one of the things that derails this project. Sure, it still might not work out for Kuniko, that's always a possibility. But funding, being taken seriously, isn't going to be the cause of that.