Almonty, Rheinmetall, Super Micro Computer - Commodity rally for defense and cloud

Almonty Industries on course for expansion: Sangdong mine in South Korea takes shape - strengthening position in global tungsten market

With a gross domestic product of USD 17.6 billion, China is the second largest economy in the world. The country is rich in natural resources and a leader in copper mining, software development, and steel production. Microsoft is now asking some 600-800 of its China-based employees to consider relocating outside the country. The Company made the announcement on Thursday as Sino-US relations are deteriorating due to the race for cutting-edge technologies. Washington is trying to limit Beijing's access to advanced chips for AI applications, and the US administration under Biden also wants to multiply tariffs on Chinese electric vehicle imports.

Tensions between the US, as the leading economy, and China are intensifying. This makes it all the more valuable for investors to find companies that also contribute to securing coveted exports and expanding critical infrastructure outside the largest economies for raw materials.

The Canadian mining company Almonty Industries is a leading tungsten producer. Tungsten is used in the form of tungsten carbide for very hard and robust tools, measuring instruments, and drills used in the mining and construction industries. A large proportion of tungsten is used to produce tungsten steels, which are used particularly in shipbuilding and defense. Tungsten is also used in AI applications. In addition, the aerospace industry requires tungsten for rocket engines or surface finishing of missiles on re-entry into the Earth's atmosphere.

Tungsten concentrate is actively mined and processed from mines in Spain and Portugal. New mines are also being developed in parallel in South Korea and Spain. The Spanish Los Santos mine, acquired in September 2011, is located around 50 km from Salamanca. The Portuguese Panasqueira mine, which has been in operation since 1896, is located around 260 km northeast of Lisbon and was acquired in January 2016. The South Korean Sangdong mine was acquired in September 2015. Almonty also owns the Valtreixal tin/tungsten project in northwest Spain.

Almonty Industries has now filed its unaudited financial statements and management discussion for the first quarter of 2024. The Panasqueira mine in Portugal is generating positive EBITDA from mining operations. Almonty incurred a loss in the first quarter of 2024 due to non-cash charges of approximately USD 450,000 for interest settled by share issuance, share-based compensation costs of USD 312,000, and USD 903,000 of unrealized foreign exchange losses. In addition, Almonty continues to clean up its balance sheet by converting over CAD 9 million of long-term debt into company shares and deferring the maturity date of an additional CAD 21.2 million of long-term debt to March 2027.

The Company is expanding: The expansion of the Sangdong mine is in full swing. The KfW IPEX-Bank loan in the amount of USD 75.1 million is running according to plan and is being used to expand the mine; new financial injections from the loan, and with the request for the 7th and 8th disbursements, will soon follow. As the saying goes: "Good things take time". The future commissioning of the South Korean Sangdong mine makes Almonty Industries an exciting player for tungsten in exclusively democratically governed countries and strategically well-distributed in Europe and Asia.

Rheinmetall on course for success: Record growth and full order books

Armaments manufacturer Rheinmetall has every reason to be happy: its order books are full, especially since Russia's major attack on Ukraine in early 2022. The Düsseldorf-based company's stock market value has increased fivefold since then and has risen by 74% since the start of the year.

Group revenue increased by 16% to EUR 1.58 billion in the first quarter of 2024, with over 2/3 of sales generated in Europe and Germany. The positive development is also driven by support for Ukraine. CEO Armin Papperger confirms the annual forecast to achieve revenue of EUR 10 billion by the end of 2024.

Rheinmetall operates a tank manufacturing plant in Kassel, Germany, which will continue to expand. Armaments require more rare earth metals, such as tungsten, and more employees. Rheinmetall recorded a 27% increase in incoming orders to EUR 3.93 billion, including new framework agreements. The acquisition of the Spanish ammunition manufacturer Expal also contributed to this.

To finance its growth, the Company took out loans amounting to around EUR 1 billion. The money was used, among other things, to finance the acquisition of Expal and investments in the production of artillery ammunition in Germany and Ukraine. Armin Papperger, CEO of Rheinmetall AG, emphasizes: "We are well on track to achieve our ambitious annual targets for sustainable, profitable growth. Large-volume framework agreements provide us with a good order backlog and ensure long-term capacity utilization."

Super Micro Computer - Rapid growth or overhyped?

The world is becoming increasingly digital and networked. Whether monitoring mining activities in the Sangdong mine in South Korea to protect employees underground or using intelligent defense drones with satellite monitoring, data requires storage space for further processing.

Since its IPO in 2007 at USD 8 per share, a lot has happened at the Silicon Valley company Super Micro Computer. In contrast to the logo, which seems to have stood still in time, the share price has certainly multiplied. SMCI currently stands at USD 952 per share.

Supermicro provides high-performance server and storage solutions for a wide range of compute-intensive applications. With over 20 years of hardware design experience, the Company rapidly designs, builds and tests custom server and storage systems for various markets such as edge/5G, data centers and artificial intelligence.

The Company recently presented its Rack Scale Liquid-Cooled Solutions at the International Supercomputing Conference (ISC). These solutions aim to meet the growing demand for AI and high-performance computing capacity while reducing the energy requirements of data centers. By using liquid-cooled servers and infrastructure, power consumption in data centers can be reduced by up to 40%. A good move in the face of rising energy prices.

Super Micro has had a series of record quarters recently. In the most recent quarter, fiscal Q3 revenue grew 200% year-over-year to USD 3.85 billion, with a gross margin of 15.5%. Net profit for the quarter increased more than fourfold to USD 402 million.

Investors love AI, which is reflected in Super Micro's share price. "Higher, faster, further" seems to be the motto. Of the almost one dozen analysts who cover the share, seven rate it as a "Buy", while others consider it a "Hold". With an average price target of USD 1,118, Wall Street believes the stock has an upside potential of 42%.

Almonty Industries is pursuing ambitious expansion plans as a tungsten producer with the restart of the Sangdong mine in South Korea. Global tensions and the increasing demand for tungsten due to the technological race in AI and defense offer investors promising growth opportunities. Despite challenges in the first quarter of 2024, the Company is demonstrating its determination through debt restructuring and strategic balance sheet adjustments. Rheinmetall reports record growth with full order books and an expanded product portfolio through the acquisition of ammunition manufacturer Expal. Despite high investments and borrowings, Rheinmetall remains on track to achieve its ambitious annual targets. Super Micro Computer owes its impressive growth to the increasing demand for server and storage solutions for compute-intensive applications such as AI and high-performance computing. Analysts expect the share price to break the USD 1000 mark soon. The introduction of innovative solutions such as liquid-cooled servers contributes to energy efficiency; up to 40% of electricity consumption can be saved with the new solution. Rheinmetall is leading the race here, closely followed by Almonty. Rheinmetall positions itself as a strong partner of NATO in Europe and, therefore, has a locational advantage. Almonty is unique in its positioning with tungsten mines in Europe and Asia. Super Micro Computer has some competition from NVIDIA on the stock market. Those who examine the supply chain know where they are investing.