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Will the energy transition create opportunities for the Sprott Nickel Miners ETF?

As a key component in batteries, nickel is vital to the ongoing shift towards electric vehicles, with demand for the raw metal set to continue increasing. The Sprott Nickel Miners ETF aims to expose investors to producers, developers and miners within the nickel industry.

- The nickel industry is set to grow due to its importance for EV batteries.

- Top fund holdings invest to capture future industry expansion.

- Analysts are optimistic about the fund’s largest holding as it lines up a new nickel plant in Western Australia.

The Sprott Nickel Miners ETF [NIKL], launched on 22 March, focuses on mining companies that extract the nickel necessary for the clean-energy transition. The fund is designed to correspond to the performance of the Nasdaq Sprott Nickel Miners Index, which tracks companies producing, developing and exploring for nickel. The fund is up 4% since its inception.

Analysis published in Fortune Business Insights suggests that global nickel market size is set to grow to $59.1bn in 2028, up from $36.3bn in 2021. The main driver of this growth will be the metal’s importance as a component of electric vehicle (EV) batteries.

According to research compiled by the Nickel Institute in March, nickel increases batteries’ drivable range. EV players are continuously working to boost the distance that EVs can travel on a single charge, and the nickel industry stands to benefit from this effort.

As of 21 April, the fund has 24 holdings, 75.5% of which have a market cap of less than $2bn, and 24.5% of which have a market cap between $2bn and $10bn. This highlights the fund’s exposure to smaller miners specialising in nickel mining, rather than industry giants that mine several different raw metals, suggesting greater pure play exposure.

The fund is up 5.1% year-to-date and up 17% in the past month.

Top holdings continue to invest heavily

The fund’s largest holding, IGO limited [IGO.AX], makes up a considerable 13.94% of its total.

On 14 April, news that IGO and its partner Wyloo Metals had secured land in Western Australia for a new nickel plant sent shares up 5.3%. Since then, they have climbed another 4.2%. CEO Matt Dusci noted that the plant’s opening would be a “pivotal step” for the company, which is trying to expand its operations to other stages of the battery supply chain.

The fund’s second-largest holding, Nickel Industries [NIC.AX] makes up 13.79% of the fund’s total value. The company’s shares are flat year-to-date, but have jumped 8% in the past month.

Earlier in the year, the company set out to raise $471m to fund the acquisition of Indonesian nickel projects. Indonesia, with the world’s largest nickel reserves, is a target country for many companies. More recently, the country has tried to tempt Volkswagen [VOW.DE] to invest in nickel mining infrastructure.

Analysts split over top holdings

With global inflation appearing to have slowed in recent months, investors are likely to shift away from safer assets and turn back towards smaller companies seeking growth and looking to expand. This is good news for the Sprott Nickel Miners ETF with its high exposure to growth and small-cap companies.

Analysts are upbeat about the outlook for the fund’s largest holding, IGO Limited. Out of 17 analysts who were polled by Refinitiv, three rated the shares a ‘buy’, 10 ‘outperform’, two ‘hold’, and two ‘underperform’. The median 12-month price target among 16 analysts of A$14.75 represents an upside of 5.6% over its Monday close on the Australian Securities Exchange.

The outlook for Nickel Industries is less optimistic. Of seven analysts that provided ratings to Refinitiv, two rated gave its shares ‘outperform’, four ‘hold’ and one ‘sell’. The median 12-month price target of A$1.21 represents a 27.4% potential upside.

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