13. September 2021 | 12:55 CET
Almonty Industries, Infineon, VW - This is just the teaser - What is next?
From A for antimony to V for vanadium, the European Union's list of critical raw materials now includes 30 materials, including lithium, cobalt, rare earths and tungsten. These raw materials are characterized by low availability and high economic importance. Many key European industries rely on these raw materials, such as the automotive, steel, aerospace, IT, healthcare, or renewable energy sectors. Demand is increasingly being driven by new products and technologies such as electromobility, digitalization and the energy transition. The supply cannot keep up with this. Bottlenecks are emerging, which, among other things, are leading to higher prices for the critical raw materials and posing major challenges for demand-side industries. How can investors position themselves successfully?
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ISIN: ALMONTY INDUSTRIES INC. | CA0203981034 , INFINEON TECH.AG NA O.N. | DE0006231004 , VOLKSWAGEN AG VZO O.N. | DE0007664039
"[...] 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
ALMONTY INDUSTRIES INC - Profiteer of rising prices
The EU ranks tungsten at the top of the list of critical raw materials. Tungsten is a lustrous white heavy metal and the chemical element with the highest melting and boiling points. In its pure form, tungsten is used as wire, primarily as the filament in incandescent lamps. Its applications as an alloy or coating are much broader for, among others, special mechanical engineering, turbines, and medical technology.
As with almost all critical raw materials, China dominates the global tungsten market. Canada's Almonty Industries, which has also been listed on the Australian stock exchange ASX for a few weeks, will be able to shift the weight in the near future. Almonty is dedicated to building the largest tungsten production facility outside China in Sangdong, South Korea, which will start in Q4 2022. The Company then expects to be able to produce 7% to 10% of global demand. Production volumes are expected to be equivalent to 30% of output outside the People's Republic.
Significant cash inflows have already taken place this year and in late 2020. This summer, the Company raised AUD 15.25 million through a capital increase. In December 2020, Almonty announced a loan agreement with KfW-IPEX Bank for USD 75.1 million for project financing of the Sangdong tungsten mine on favorable terms.
Currently, Almonty shares are trading at CAD 0.93, valuing the Company at CAD 180 million. The recently published half-year data are characteristic of a developer. EPS for the first six months was slightly negative at CAD -0.03. The analysts of First Berlin certify the share certificates an upward potential of more than 50%. The currently rising tungsten prices and the approaching start of production should boost the share price in the future.
INFINEON TECHNOLOGIES AG - Pent-up demand
Infineon is one of the world's leading suppliers of semiconductor solutions. Despite a worldwide chip shortage, the Bavarians were only able to benefit insufficiently from higher demand in the past third quarter (April to June). Pandemic-related restrictions on production in Melaka (Malaysia) and the after-effects of a winter storm in Austin, Texas, had a negative impact. As a result, sales increased only minimally by EUR 22 million to EUR 2.722 billion compared to the same period of the previous year. Profit grew at a much faster rate of 17% to EUR 245 million, corresponding to diluted earnings per share of EUR 0.18.
"Demand for semiconductors continues unabated," said CEO Reinhard Ploss, underlining the Group's good growth basis. "Inventories are at a historic low, and our chips are moving from production directly into end applications," Ploss said. Infineon is forecasting a strong final quarter. The market is already pricing this in recently with rising share prices. The analyst consensus for 2021 is earnings per share of EUR 0.77. In 2022, the experts expect an average of EUR 1.08. Analysts currently believe the stock has an upside potential of just under 20%. In any case, the share has some catching up to do compared with the better-performing shares of competitors. The recently presented chipset in the highly innovative computer eyewear business is also exciting.
VOLKSWAGEN AG VZ - Supply bottlenecks and dreams of the future
For several months, car manufacturers have been affected by the chip shortage. At times, the assembly lines have been at a complete standstill. Volkswagen subsidiary Skoda reported that it would not build 100,000 cars this year due to a lack of semiconductors. "The chip crisis will continue into next year, but hopefully not as severely as in 2021," Skoda CEO Schäfer said. Last year, the division produced about 940,000 vehicles.
The Wolfsburg-based Company's comments on the billion-euro car software business are also extremely interesting. VW Group CEO Diess told Der Spiegel: "We are open to discussions and willing to share our platform." VW thus shows itself open to cooperation and does not exclude competitors Daimler and BMW. "If Europe loses data sovereignty in the car," Diess said, "then we will make ourselves completely dependent on high-tech groups from the US or China." Currently, the activities are bundled in the subsidiary CARIAD, which is to become Europe's largest software group behind SAP. By 2025, 10,000 skilled workers should already be working at CARIAD. VW is planning annual investments of EUR 2.5 billion for this purpose.
The Corona pandemic has shown us how fragile supply chains are and how vulnerable value chains can be to disruption. Increasing demand for critical raw materials is not only foreseeable but is now clearly felt. Industry demanders face significant challenges. Producers or prospective producers of critical raw materials, such as Almonty, are the long-term winners of significantly increasing demand with only moderately expanded supply.