26. May 2021 | 10:45 CET
Almonty Industries, ThyssenKrupp, Klöckner & Co.- Indispensable raw materials!
According to the EU, tungsten is one of the most critical raw materials globally in terms of economic importance and procurement risk. The chemical element has the highest melting and boiling point and is therefore used in many critical industrial sectors. The main application of tungsten is in the form of tungsten steel - a high-alloy steel. Given the resource scarcity, it is reason enough for us to take a closer look at the interface between the steel industry and tungsten production with three promising stocks. Where is the yield driver?
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ISIN: CA0203981034 , DE0007500001 , DE000KC01000
"[...] 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 - Step by step to success
The Canadian Company's operations include mining, processing and transporting tungsten concentrate from the Los Santos mine in western Spain and the Panasqueira mine in Portugal. In addition, Almonty is developing the Sangdong tungsten mine in South Korea and the Valtreixal tin-tungsten project in northwestern Spain. The focus of investor interest is the Sangdong mine in South Korea, which is to be developed into the largest tungsten mine outside China as a key asset. Historically, the mine is one of the largest tungsten mines in the world. In addition, the mine is one of the few mines with high-grade tungsten deposits outside the People's Republic that can be classified as long-lived. Thus, Almonty can consider itself very fortunate with the 2015 acquisition. The Company is stringently working on the development of the project. A few days ago, Almonty announced the start of the road and river diversion project. Monthly meetings are now held with residents to update them on the progress. Good cooperation and a good relationship with the local population should not be underestimated. Many a company has already paid a high price in this respect.
With the Sangdong mine, Almonty has a world-class asset in terms of desirability (resource scarcity) and size. The EU long ago formulated an extensive catalog of measures to reduce dependence on China for critical raw materials - and here, tungsten is at the top of the list. The chemical element is predominantly mined as the main product. Still, typical by-products such as tin and molybdenum and gold or silver are nevertheless not to be sneezed at.
The substitutability of tungsten by other raw materials is strongly limited; thus, the demand and the price curve of the chemical element should rise in the long term. Any imbalance of supply and demand, which can be triggered at any time by geopolitical tensions or China's supply shortage, plays into the cards of (future) producers like Almonty enormously. Currently, investors have to put CAD 1.15 on the table for one share, which values the Company at CAD 220 million. This valuation level leaves enough room for share price increases.
THYSSENKRUPP AG - Spin-off of steel division approved
The Essen-based Company is increasingly sharpening its Group profile. With the extensive realignment of the Company decided in May 2019, all areas were put to the test. It also (re)discovered its in-house capabilities in green hydrogen. So did the stock market, which sent the share up from EUR 4 to EUR 12 from fall 2020 to spring 2021. Now the price is around EUR 9.50 per share. The stock market scales show EUR 5.9 billion.
There are also successes to report elsewhere. On May 11, the Group reported Q2 figures and, after a better-than-expected quarter, once again raised its forecast for the current fiscal year. The Essen-based Company is benefiting from the recovery in the steel and automotive industries and from good business with industrial components. The restructuring of the steel division is also progressing positively. Investors took advantage of the constellation and followed the stock market rule "sell on good news." A few days ago, another piece of good news also fizzled out: CEO Martina Merz was able to announce the spin-off of the steel division from the overall Group with the backing of the Supervisory Board. "The Supervisory Board confirmed our chosen path on Wednesday. We can now concentrate fully on making the business independent," said the company boss. The aim is to make the crisis-ridden steel division competitive again under its own steam. That means either a spin-off or an independent subsidiary with its own financing. However, a merger with competitors is not an option. For us, prices below EUR 10 are a real bargain.
KLÖCKNER & CO SE - Ambitious goals
Klöckner & Co SE is one of the largest producer-independent steel and metal distributors in Europe and North America. The Company's primary business is the stockholding distribution of steel products and non-ferrous metals (NF metals) and the operation of steel service centers. Here, digitalization and automation are the keys to growth and success.
Recently, the new CEO, Kerkhoff, announced his intention to increase sales and earnings by 2025 significantly. In terms of adjusted operating earnings (EBITDA), the steel trader wants to more than double the pre-pandemic level by 2025. The product and service portfolio and the partner network are to be expanded, and the ambitious goal is to become the "leading digital platform" for steel and other materials in Europe and America. Recently, Warburg Research took up the valuation of Klöckner & Co with a price target of EUR 14 and a "Buy" investment recommendation. Analyst Cansu Tatar sees the Company as a digital pioneer and thus grants the shares an upside potential of 30%.