Vale S.A. (VALE) shares rose more than 2% during pre-market hours after Reuters reported that the mining giant was in talks with Tesla, Inc. (TSLA) and other electric vehicle (EV) firms about securing nickel from its Canadian operations.

Key Takeaways

  • Vale shares moved sharply higher in pre-market trading after Reuters reported talks with Tesla and other EV firms about securing nickel.
  • Tesla CEO Elon Musk promised a "giant contract for a long period of time" to mining companies that can sustainably produce nickel.
  • Vale is expanding its Voisey's Bay site in Labrador, Canada, to an underground operation that would produce about 40,000 metric tons of nickel-in-concentrate per year.

The move comes after Tesla CEO Elon Musk promised a "giant contract for a long period of time" to any mining company capable of efficiently producing nickel in an environmentally sensitive way on a July conference call. While lithium-ion batteries imply that they are made mostly of lithium, the reality is that they contain only 2% lithium and are mostly nickel-graphite.

Vale is expanding its Voisey's Bay site in Labrador, Canada, to an underground operation that would produce about 40,000 metric tons of nickel-in-concentrate per year. As one of the larger nickel producers in the world, the company is well positioned to meet the growing demand from the EV industry over the coming decade as the automobile market transitions away from gasoline.

Chart showing the share price performance of Vale S.A. (VALE)
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From a technical standpoint, Vale stock briefly hit the 200-day moving average at $10.30 during Friday's session before showing signs of a rebound on Monday. The relative strength index (RSI) is near neutral levels at 40.51, but the moving average convergence divergence (MACD) remains in a bearish downtrend. These indicators suggest that the bump may be only temporary and that there could be more downside ahead.

In technical analysis, a reaction is a short-term trend reversal in the movement of a security's price. Reactions are most often associated with a downward movement in the price of a security after a period of upward movement, often in response to news or data released.

Traders should watch for consolidation between the 50-day moving average at $11.04 and the 200-day moving average at $10.30 over the coming sessions. If the stock breaks down from the 200-day moving average, traders could see a move toward reaction lows of $10.06. If the stock breaks out from the 50-day moving average, traders could see a move toward trendline resistance at around $12.00.

The Bottom Line

Vale shares moved higher during premarket trading on Monday after Reuters said that the mining company was in talks with Tesla and other EV firms about securing nickel for lithium-ion battery production. Vale is expanding its nickel operations in Canada to meet demand, as EV makers may sign lucrative supply agreements.

The author holds no position in the stock(s) mentioned except through passively managed index funds.