November 28th, 2022 | 11:44 CET
Almonty Industries, ThyssenKrupp, Varta - Earning from growing tungsten demand
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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
Almonty Industries - Mine development on schedule
Regardless of the new cathode material, around 1.4 kg of tungsten is already used in an electric vehicle today - and the trend is rising. Other applications include steel production, aerospace and the electronics industry. The leading producer is primarily China, followed at a great distance by Russia. If the dependency on these countries for the critical raw material tungsten is to be reduced, an alternative is needed. The alternative is called Almonty Industries. The Company is building the Sangdong Mine in South Korea, the largest tungsten mine outside China. As early as 2024, the mine will produce 30% of the tungsten outside China and thus provide 7% of the global supply. In addition to the large tungsten deposit, there is a molybdenum deposit on the property that can be mined in parallel.
Development of the underground mine is 6 months ahead of schedule. The third tranche of the KfW loan was drawn in mid-November. After the tungsten price rose by a good 50% last year to approx. 350 USD/MTU, high revenues can be expected from the start of production in the second half of 2023, especially as the offtake agreement with Plansee GTP guarantees a minimum price of USD 235/MTU without a cap. In addition to the mine construction, progress is being made on the construction of a vertically integrated plant for the further processing of nano tungsten oxide. On September 21, the Company announced that it had found a suitable site for the processing plant and is working with IAF Holding GmbH to build it. According to a letter of intent, KfW IPEX-Bank will again provide the financing.
In addition to the Sangdong mine, Almonty owns a producing Panasqueira tin/tungsten mine, which is expected to generate revenues of more than CAD 6 million in the current quarter after generating CAD 4.8 million in Q3. Interested investors should mark their calendars for 4 pm on December 7, when CEO Lewis Black will present the Company at the 5th International Investment Forum. There will be an opportunity to ask questions following the presentation. Registration is free of charge. On November 24, Almonty's stock was analyzed by First Berlin Equity Research. The analysts rated the stock as a buy and assigned a price target of CAD 1.70. The stock is currently trading at CAD 0.70 and therefore has a potential of more than 140%.
ThyssenKrupp - Decent annual figures
Tungsten refines steel and is therefore indispensable to the steel industry. With the highest melting point of all metals, tungsten helps make steel stronger and more durable. The heavy metal is, therefore, also indispensable for ThyssenKrupp as one of the world's biggest steel producers. The Group is divided into 6 business areas: Materials Services, Industrial Components, Automotive Technology, Steel Europe, Marine Systems and Multi Tracks. Steel Europe and Materials Services stand out. Restructuring is still underway at the Essen-based company.
On November 17, the Company presented its figures for fiscal 2021/2022, which ended on September 30. Despite challenges such as the Ukraine conflict and inflation, the Group held up well in this environment. Order intake increased by 12% YOY and sales by as much as 21% to EUR 41.1 billion. Adjusted EBIT almost tripled to EUR 2.1 billion. Following losses of EUR 0.18 per share last fiscal year, earnings this year are up EUR 1.82, mainly due to Steel Europe and Materials Services.
Despite the decent figures, analysts are divided on how the Group will fare in the future. After the publication of the figures, only Baader Bank issued a buy recommendation with a target price of EUR 16. Deutsche Bank and DZ Bank recommended a Hold with a price target of EUR 7.50. JPMorgan and Barclays Capital put the stock at Sell with a price target of EUR 5.10. The share exited Xetra trading last Friday at EUR 5.248. As long as the share price does not fall below EUR 4.43 on a closing price basis, the upward trend remains intact.
Varta - New forecasts published
New cathode material with tungsten and molybdenum should provide optimism among battery manufacturers, but Varta is currently in the valley of tears. After Varta had been praised with great anticipation, it has to be said that the big hit has failed to materialize. The V4Drive cell was intended to shake up the automotive market. Although the Company was supposedly in talks with all the major German carmakers, only Porsche remained as a partner in the end. Porsche uses the V4Drive cell not as a battery but as a booster for the drive.
The management had to withdraw its forecasts twice and was then unable to reach any goal at all. Since November 15, the new forecast for this year has been fixed. Sales are expected to be between EUR 805 million and EUR 820 million after around EUR 903 million in 2021. The situation is worse for adjusted EBITDA. There, EUR 55-60 million are planned for this year. Last year, it was still almost EUR 283 million. The reasons are increased costs, supply chain problems and falling demand. Against this background, the forecasts for 2023 should be treated with caution.
Next year, management plans for sales between EUR 850-880 million and an adjusted EBITDA of EUR 90-110 million. Varta will also be presenting at the 5th International Investment Forum. Here it will also be possible for interested investors to ask questions. Recently there were renewed insider sales from the corner of the former Varta rescuer Dr Tojner. However, there were only 2,000 shares between November 17 and 24. The share is currently quoted at EUR 29.47. The analysts' price targets are between EUR 17.50 and EUR 35.00, but currently, there is no buy recommendation.
Tungsten will become increasingly important in the coming years as supply will not be able to keep up with demand. In order to reduce the dependence on China, one needs large producers like Almonty Industries. With the opening of the Sangdong mine, the share needs to be revalued. ThyssenKrupp needs tungsten to give its steel better properties. Varta could also require more tungsten in the future because there are new findings on how to charge batteries faster.
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