April 13th, 2022 | 18:02 CEST
A crisis here, an opportunity there: BASF, Almonty, Plug Power
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
BASF: The chart speaks volumes
Due to the war in Ukraine and the sanctions against Russia, BASF had to write down billions on its subsidiary Wintershall Dea in the first quarter. This was one of the reasons why net income fell significantly by 29% to EUR 1.22 billion. Nevertheless, those familiar with the Ludwigshafen-based chemical company were pleasantly surprised: Operationally, things went better than expected for the Group. EBIT before special items rose by 21% to EUR 2.8 billion. Nevertheless, analysts are somewhat cautious. Warburg Research remains a "buy" but lowered the price target to EUR 67.50. The reason was a risk adjustment due to increased operating risks in connection with raw material prices.
In particular, the cost of energy is hitting BASF particularly hard - time and again, the energy consumption of Ludwigshafen, where BASF's main plant and headquarters are located, is compared with the needs of smaller countries. A blackout in energy supply would be a disaster for BASF. Investors must consider this risk at a time when events can turn on a dime any day. BASF's stock has rallied several times in recent months but has fallen back into a downtrend since the war broke out. Investors need to exercise caution here.
Almonty Industries: Nearly 30% of tungsten production outside China
The share of Almonty Industries has even reacted slightly positively to the war. The Company mines tungsten, an extremely heat-resistant metal that can also play a role in batteries for electric cars. A few months ago, Lewis Black revealed in an interview: "Where there was cobalt before, there will be tungsten in the future. Tungsten is extremely heat resistant and offers advantages both in terms of battery charging performance and safety. Also, tungsten allows more nickel to be incorporated into batteries for e-cars, which in turn extends the range". Currently, Almonty Industries is building Sangdong, the largest tungsten mine outside China. The Company expects to receive final permits in late 2022.
Since the war in Ukraine has been raging, more and more investors are turning their focus to commodities. It is quite possible that the regionalization already underway during the pandemic will intensify as the fragmentation of the world increases in the wake of geopolitical tensions. For Almonty, which in addition to its giant project in South Korea, also offers a mine in Portugal and an exploration project in Spain, the current market conditions are not bad news. As the Company expects, once Sangdong is fully operational, Almonty Industries alone could be responsible for about 30% of all tungsten outside China. Moreover, since tungsten is considered a challenging metal and mining knowledge is scarce, competition is unlikely to grow quickly. Almonty Industries has recently been trading a bit under the radar. However, the key data are convincing.
Plug Power: Risk is not in demand
The market is still skeptical about the hydrogen company Plug Power. Since February, the share price has risen but has been in a correction since April. This is not unusual for the already volatile sector. However, it is essential that the share finds its footing as quickly as possible and that the market focuses on the prospects for hydrogen. In view of climate change and the energy crisis, the prospects are greater than ever. However, it will probably take a little time before large-scale projects are initiated and more fuel cells are used in the transportation sector. The Plug Power share represents a solid company in a growth industry. Especially during uncertain times, investors often withdraw capital from such stocks.
The markets are clearly under the influence of the war in Ukraine and its consequences. While new sanctions against Russia could shake even an industry giant like BASF, the sword of Damocles of unforeseen events hangs over all companies. With a financed project around the rare raw material tungsten, which is also hardly mined outside China, Almonty Industries still seems to have the most solid business model of the three selected stocks.
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