Trading Signals 05/02 – 09/02
Can African Standoffs Drive Energy Price Surges?
A potential armed conflict between Niger and neighboring countries could lead to significant repercussions for both regional and global stock markets. It’s important to highlight that stock markets react to political and geopolitical uncertainty, as it can impact economic conditions and the investment climate.
What is valuable in Niger’s resources?
Uranium constitutes 5% of the world’s reserves of this rare element.
Gold possesses an estimated volume of reserves exceeding 200 million ounces, located within the country’s depths. According to “Trading Economics,” Niger is listed among the six African countries with significant gold deposits.
Oil – Niger has two major oil fields, Tintuma and Agadem. The approximate reserves of the latter are around 1 billion barrels. For oil transportation to global markets, neighboring countries’ ports like Nigeria (given recent events – Niger’s adversary) and Benin are utilized.
Coal – Vast coal reserves in Niger are crucial natural resources. They serve as a primary source of fuel for power stations sustaining the uranium mines. The country hosts several coal mines, including one of the largest – Anou Araren.
Who are the main interested investors in Niger?
Niger, being a former colony of the republic, has historically significant interests in the resources of Niger. Primarily, this concerns uranium, which is essential for French nuclear power plants. Around 25% of the European Union’s uranium import comes from Niger, produced by the facilities of the French company Orano. Approximately 75% of uranium for French nuclear power plants comes from this African country.
China invests in the geological exploration of oil and gas fields, as well as in gold and uranium enterprises in the country.
The estimated total amount of China’s foreign direct investment in Niger in 2021 exceeded $3 billion USD.
The Agadem oil field is a joint venture between Chinese PetroChina and the Nigerien government.
The oil pipeline between Agadem and the Benin port for oil product distribution (over 2,000 km long, the largest in Africa) – Chinese authorities invested over $4 billion USD in its construction.
The SORAZ oil refinery in Zinder, Niger (with a capacity of about 20,000 barrels per day) – over 60% is owned by PetroChina.
The China National Nuclear Corporation (CNNC) established a joint venture with the Nigerian government for the development of the Azelik uranium mine in the center of the country. CNNC owns 37.2% of the AZELIK project (uranium mine with reserves of 11,227 metric tons, annual production capacity of 700 tons), and an additional 24.8% is owned by the Chinese investment company ZXJOY Invest (listed on the Hong Kong Stock Exchange).
Potential Outcomes of an Armed Conflict
Energy Sector Impact: Should a conflict arise, it’s clear that uranium prices will soar dramatically. The French energy industry would grapple with a pressing shortage, inevitably affecting the cost of electricity for consumers. France’s annual uranium consumption for its nuclear energy sector stands at approximately 10,500 tons, with about 8,000 tons being imported from abroad.
From the perspective of an international investor, the array of enticing options among French company stocks appears limited at present, with EDF being a possible exception. Anticipations suggest that the sudden surge in their valuation owing to the imminent possibility of a notable conflict in Africa and the disturbance in uranium supply to the republic will inevitably result in a noteworthy decrease in EDF stocks. This reduction is likely to persist while the scarcity of uranium continues.
Prime beneficiaries in the EU stock market, due to the escalating electricity expenses, are likely to include German E.ON and Portuguese EDP. These companies may find themselves compelled to support France by redistributing resources to the republic. If there’s an opportunity to invest in them, it could potentially turn out to be a lucrative venture.
The primary beneficiaries within the European stock market from the escalation in electricity costs are likely to be German E.ON and Portuguese EDP. These companies are expected to be compelled to assist France by reallocating supplies to the republic. If the opportunity arises for you to acquire their shares, it could potentially prove to be a favorable investment.
An evident consequence of the possible conflict would be the rise in gold prices and, consequently, the shares of local gold mining companies outside Africa. On the Russian market, I would consider expanding one’s portfolio with shares of Seligdar and Lenzoloto.
Should a conflict arise with neighboring countries, Niger’s capacity to export oil through Nigerian ports would be compromised. Additionally, if the conflict extends over a prolonged period, Nigeria could face a challenging scenario. Extremist groups are operational in the northern regions of Nigeria, and during times of war, efforts to contain them might be significantly reduced. Their active opposition against Nigerian authorities could lead to escalated expenses and complications in transporting Nigerian oil to the international markets.
To summarize, a conflict involving Niger, Nigeria, and neighboring countries would trigger a rapid escalation in uranium, oil, and gold prices, alongside surges in shares of global oil producers and energy firms (potential contributors to France). The heightened cost of electricity in France would subsequently lead to diminished stock values for companies heavily reliant on affordable power during their production cycles. The EU might also lean toward revitalizing coal industries – it’s advisable to consider investments in coal mining company stocks.
Another probable consequence of a potential African war is a substantial food crisis, inevitably resulting in heightened grain prices and increased grain shipments to African nations.
To sum up, the prime candidates for bolstering investment portfolios encompass gold mining enterprises, oil producers and/or transportation firms, European energy corporations potentially supporting the French industry (given their role, vigilant observation is key), and European energy companies reliant on coal.