April 3rd, 2023 | 16:03 CEST
BASF, Almonty Industries, Plug Power - The world is in upheaval
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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
Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.
BASF - Wants to cut costs
The world's largest chemical company BASF is planning massive job cuts in Germany due to increased costs, decreased demand and bureaucratic hurdles. At the same time, the Company is investing in China as the market there is growing, and demand is increasing due to China's move away from harsh Corona measures. BASF has already invested EUR 10 billion in China. BASF's CEO admits that investing in China carries risks, but at the same time, he is convinced that the opportunities outweigh the risks. Especially since the uncertainties of cheap energy supply, especially in Germany, should not be underestimated.
After the total loss of his investments in Russia, this move is surprising. However, looking at the figures for 2022, you can see the reasons. Sales rose 11.1% to EUR 87.3 billion, while EBIT before special items fell 11.5% to EUR 6.9 billion. For the 2023 financial year, BASF forecasts sales between EUR 84 billion and EUR 87 billion and EBIT before special items between EUR 4.8 billion and EUR 5.4 billion. Free cash flow was EUR 3.3 billion. With a proposed dividend of EUR 3.40, almost the entire cash flow will go to the shareholders.
In the future, costs will be cut primarily in Germany and Europe. Martin Brudermüller said at the presentation of the annual figures: "The competitiveness of the European region is increasingly suffering from overregulation. It is also suffering increasingly from slow and bureaucratic approval procedures and, above all, from high costs for most production factors". At a current share price of EUR 48.36, the dividend yield is around 7%. If the Company fails to cut costs and increase profits, a reduction could be imminent next year.
Almonty Industries - Tungsten in focus for electric vehicles
Tungsten is a critical metal used in many industries. It is essential for the production of armaments, electrical and electronic equipment, light bulbs and many other products due to its unique physical and chemical properties. More recently, the metal could become important as part of the batteries for electric mobility. China produces 80% of tungsten and is by far the largest producer of tungsten and its deposits. That makes dependence on China for tungsten supply particularly critical. This is where Almonty Industries comes in. The tungsten specialist is already producing at its Panasqueira mine in Portugal and is using its experience to develop the Sangdong mine in South Korea, which has the largest tungsten deposit outside China.
The mine accounts for 30% of the world's tungsten (WO3) supply outside China and 7-10% of global supply. With a resource of 52 million tonnes at a WO3 grade of about 0.44-0.49%, the mine has a 90-year mine life. A 15-year offtake agreement is already in place with the Plansee Group, guaranteeing a cash flow of about USD 580 million. The project is financed by a low-interest KfW IPEX loan. Construction work is already underway, and in December, 25% had already been completed. Mining activities are to start as early as the 3rd quarter. Production is scheduled to begin in Q1 2024, with a 12-month ramp-up phase. Additional potential is provided by the molybdenum deposit, which is also located on the property.
Korea sources almost all of its tungsten imports from China and is the world's largest per capita consumer. The USA and Europe have classified tungsten as a critical raw material due to its high economic importance and dependence on China. The price of tungsten has already climbed in recent years. If tungsten finally finds its way into e-car batteries, demand will increase exponentially, and the price will explode due to the scarce supply. The share, which rose to CAD 0.88 at the beginning of the year, is currently available for CAD 0.63. The share will likely face a revaluation with the start of production at the Sangdong mine.
Plug Power - 100-megawatt order from Uniper
Despite tensions and risks in China, hydrogen technology is about making the green energy generated storable and usable. Due to the Ukraine conflict, the development of this technology is at the forefront of Western countries' minds and a veritable race has begun. Billions are being promised in subsidies. Europe wants to expand electrolysis capacities to 138 gigawatts by 2030. As of today, the figure is only 143 megawatts (MW). The USA has also launched a USD 750 billion climate package. One of the beneficiaries was supposed to be top dog Plug Power.
But recently, the results have not been right. Plug Power reported weak results for the fourth quarter and the full year 2022. The Company was unable to achieve the targets it had set itself, despite previously lowered expectations, and gross margins deteriorated. Nevertheless, management stuck to its high targets for 2023. In the future, the Company also wants to address smaller logistics companies and thus expand its customer base. Corresponding product solutions should be available from the 4th quarter. In March, an order was won from Uniper. In the port of Rotterdam, 100 MW of electrolysis capacity is to be built by 2026. By 2030 it is to be 500 MW.
Clearly, this is too little when compared with the ambitious targets. The share price lost more than 31% at its peak in March alone. Currently, one share costs USD 11.72. In order to break the downward trend, the USD 12.35 mark would have to be broken on a closing price basis. Nevertheless, most analysts believe in the share. On average, the price target is around USD 25. This is mainly due to the growth prospects of the industry and the worldwide projects that Plug Power now has in its portfolio.
Geopolitical tensions cannot be ignored. China is expected to become the world's largest economy in the coming years. BASF wants to benefit from the low energy prices and the growing clientele in China and is investing locally. Almonty Industries can provide more independence from the Middle Kingdom, with the largest tungsten mine outside China. In addition, electromobility could significantly fuel the demand for tungsten. Plug Power wants to make hydrogen competitive. The prices for green hydrogen are still too high, but this could change due to investments in renewable energies.
Conflict of interest
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