13. October 2021 | 13:23 CET
BASF, Almonty Industries, Millennial Lithium, BYD - All sold out?
Anyone who can offer scarce raw materials today is in a fortunate position as far as business prospects are concerned. In particular, metals and battery raw materials are in high demand and have become a bone of contention in globalization. That is because many critical metals are majority-owned by China, meaning that the regime decides on potential allocations to foreign countries. Admittedly, the Middle Kingdom wants to stay in business with the West, so long-term contracts exist. Nevertheless, the domestic industry is naturally given preferential treatment; we can only hope for political stability and incremental improvements in the West. Who are the interesting players in the tight commodity market?
time to read:
ISIN: BASF SE NA O.N. | DE000BASF111 , ALMONTY INDUSTRIES INC. | CA0203981034 , MILLENN.LITHIUM CORP. | CA60040W1059 , BYD CO. LTD H YC 1 | CNE100000296
"[...] 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
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
BASF - The standard stock in industrial raw materials
BASF SE is one of the most important processors of raw materials in Germany. The Company has its origins in the Badische Anilin- & Soda-Fabrik, founded in Mannheim in 1865; today, its headquarters are in Ludwigshafen. BASF employs more than 110,000 people worldwide and operates at 390 production sites. With sales of around EUR 59 billion, BASF is the world's largest chemical company in terms of sales.
BASF is in close contact with all automotive manufacturers and benefits from the demand-pull for battery materials. Especially in the context of sustainably produced industrial goods, BASF's pre-products are of great importance. Within battery technology, the production plants for cathode materials in Harjavalta (Finland) and Schwarzheide (Brandenburg) aim to offer all precursors a positive sustainability balance from 2022. That is to be made possible by responsible and reliable raw material procurement. At the same time, the chemical group is aiming for the lowest carbon footprint along the supply chain. We like to hear that - because the chemical industry, in particular, has many historical environmental sins to compensate for. Increasing so-called "green investment budgets" is publicly called for as a responsible contribution to a more sustainable economy.
BASF shares have recently consolidated somewhat and lost a good 10% from their high for the year of just under EUR 73. As a cyclical stock, it is suitable for balanced portfolios but with a 5.4% payout also for dividend hunters. The major Swiss bank UBS rates the stock a "buy" with a target price of EUR 70.
Almonty Industries - Best prospects with tungsten
The dilemma with scarce raw materials plays right into the cards of Almonty Industries because Almonty has properties in Europe and Asia. The Canadian explorer and producer, based in Toronto, mines in Spain and Portugal and owns further mining rights to tungsten and molybdenum in South Korea. That means that all sales channels to the most important industrial regions are open to the Company.
The pent-up supply deficit in metals could not be greater at present. Due to mine closures, an excess of demand for most critical raw materials had already been evident since 2019. At the same time, the course was only recently set in the energy turnaround. Unfortunately, in Germany, one is confronted with a time lag of about 2-3 years. Only now do politicians and industry realize how dangerous the long decision bank can really be. The global dependence on Beijing is thus coming back on the scene and exacerbating the current shortage situation.
Almonty's current primary business is mining, processing and shipping tungsten concentrate from the Los Santos mines in western Spain and Panasqueira in Portugal. The EU has ranked tungsten among the top raw materials on its list of critical raw materials. The lustrous white heavy metal is the chemical element with the highest melting and boiling points. Known for its use as a glowing wire in conventional light bulbs, its applications are expanding to alloys and coatings for special machine construction, turbines and medical technology.
It is scheduled to start production in South Korea in the last quarter of 2022. The Sangdong mine is historically one of the largest and highest-grade tungsten mines in the world outside China. Almonty's global market share would then increase to high single digits with the start of the mine. Almonty shares currently cost around CAD 0.88, bringing its market capitalization to just under CAD 136 million. Deutsche Rohstoff AG also has a strategic investment of 12%. Given the tense international situation around critical raw materials and expected news on the progress in South Korea, one should stay tuned closely to Almonty Industries.
Get first-hand information on the Company through CEO Lewis Black's remarks on October 14 at the investor conference "IIF - International Investment Forum".
Millennial Lithium - Not Ganfeng, not BYD but CATL
A mega-deal in the lithium sector is making news. The Chinese lithium-ion battery producer Contemporary Amperex Technology (CATL), and rival of BYD in the battery sector, snatches up the Canadian Millennial Lithium for CAD 377 million. 2 months ago, the world's largest lithium producer, Ganfeng Group, had already bid on the Canadians. But now, the deal is sealed in favor of CATL.
CATL is not a typical acquirer, but given the global lithium shortage, the Chinese conglomerate has now secured a supply source in Argentina. The Company builds power units for automobiles and all manner of alternative powertrains. CATL is a clear competitor in the battery business to BYD, which was no longer involved in this latest bidding war. As a result, CATL is acquiring all of the outstanding shares of Millennial Lithium at a price of CAD 3.85 per common share in cash, a premium of approximately 29% over the average 20-day closing price of CAD 2.98. The CATL arrangement represents a premium of about 6.9% to Ganfeng's tender offer, which surprisingly was not increased.
Millennial Lithium is now signed and sealed, and the speculation about the next million dollar deal can continue. Already in the middle of the year, Orocobre had merged Galaxy Group in a 4 billion deal. The Millennial share is thus exhausted and can be sold.
Many key European industries, such as the automotive, steel, aerospace, IT, healthcare and renewable energy sectors, depend on these raw materials. New products and technologies in the field of energy transition are increasing the pressure of demand. The stocks mentioned here are a good portfolio addition, with the mine launch of Almonty next year providing additional fantasy.