March 21st, 2023 | 09:40 CET
Bank quake? Time to think outside the box! Commerzbank, Manuka Resources, Deutsche Bank
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"[...] We quickly learned that the tailings are high-grade, often as high as 20 grams of gold per tonne; because they are produced by artisanal miners, local miners who use outdated technology for gold production. [...]" Ryan Jackson, CEO, Newlox Gold Ventures Corp.
Credit Suisse rescue: The "how" decides
The cat is out of the bag: Credit Suisse is slipping into UBS, and Switzerland, along with its institutions, is pouring in a lot of guarantees and short-term funds. If the situation at Credit Suisse had not been so serious, no one would have negotiated a comparable deal within such a short time. Since we warned about Credit Suisse shares a week ago, the price has fallen by more than 70%. Now the market is looking at other banks, such as Commerzbank and Deutsche Bank.
The Dow Jones news agency reports consequences for the market for CoCo bonds in light of the events surrounding Credit Suisse. These bonds are designed to transfer bank risk from taxpayers to bondholders and are the answer to government aid during the financial crisis. For years, a repeat of such a crisis was considered highly unlikely. Banks are much more solidly positioned today. Even when considering book losses, which do not have to be recognized in the balance sheet because the bonds in question are held to maturity, the major institutions still have reserves. But shareholders and owners of special bank bonds still have a queasy feeling.
Deutsche Bank and Commerzbank under pressure
It is not so much that Credit Suisse was rescued in a cloak-and-dagger operation, but the "how". The negotiating parties ultimately pushed the deal through without regard for creditors or shareholders. At times, circles even "leaked" a nationalization of the bank to the media. At that time, UBS's offer was still at CHF 1 billion. But then everything happened very quickly, and an agreement was reached on three times that amount. Ultimately, nationalization would have been even more difficult for the management and owners of Credit Suisse.
For remaining institutions, such as Commerzbank and Deutsche Bank, what remains is a sour taste and the certainty that one of the most effective financing instruments in recent years, the CoCo bonds, has now been burned on the market. These bonds offered higher interest rates than traditional bonds and could be exchanged for shares. For about a week, however, the securities have been coming under pressure. Last week, Deutsche Bank CoCo bonds with a coupon of 6% and an issue volume of USD 1.25 billion lost 10% of their value at times and were trading at only 79% of their nominal value. Industry experts estimate the total volume of CoCo bonds at USD 254 billion. As these securities have traded very liquid in the past, the increased volatility in CoCo bonds could trigger renewed problems in the interbank business.
Even if a conflagration remains unlikely - UBS would probably never have been persuaded to make an emergency purchase of Credit Suisse in this case - the conditions for banks in the future are likely to be anything but rosy. It is doubtful that shares such as Commerzbank or Deutsche Bank will find their way back to the delicate upward trend of recent months.
Manuka Resources - A crisis beneficiary
On the other hand, companies like Manuka Resources will likely benefit from the situation surrounding banks. The gold price climbed above the USD 2,000 mark the day after the Credit Suisse bailout. When this hurdle was taken by storm in 2020 in the wake of the pandemic and the lockdowns, a rapid rally gripped all gold stocks. Particularly second and third-tier stocks posted returns of several hundred percent within a few weeks. What is special about Manuka Resources is that, in addition to two production-ready precious metal mines (gold and silver) in Australia, the Company also has access to a vanadium deposit in New Zealand, which could become one of the largest projects outside China and Russia. Just a few weeks ago, the Company announced a resource of 1.6 million tons of vanadium pentoxide.
"With concerns over the security of supply of vanadium from the major producing countries of China, Russia, Brazil and South Africa underpinning rising prices, we anticipate that the vanadium potential of Taranaki VTM, together with its profile for low carbon, environmentally friendly steel, will be of significant interest to end users - hence the critical status of vanadium in Australia, the US and the EU," a Manuka Resources company representative told Australian media. Manuka Resources' stock has come under pressure in recent weeks. Given its advanced precious metals projects, including an existing processing plant, and the prospect of a giant vanadium project with positive ESG fundamentals, investors should keep the stock on their radar. It could benefit from the run on precious metals sooner than pure exploration companies.
One man's joy is another man's sorrow - that is how it usually looks on the capital market. While shares of banks such as Commerzbank or Deutsche Bank are likely to meet with increasing rejection on the market, precious metal producers already gained significantly last week. If the trend continues, prospective producers or stocks in limbo, such as Manuka Resources, which can ramp up its precious metal production at any time, should also benefit. The market is turbulent, but the first profiteers are emerging.
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