September 26th, 2022 | 12:41 CEST
BASF, Manuka Resources, Varta - Buy when the cannons thunder!
Table of contents:
"[...] 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
BASF - Circular economy to conserve resources
The situation around the DAX company BASF is currently problematic. On the one hand, there is the fear of a recession; on the other, the Company is struggling with high energy costs. The news that the gas storage facilities are better filled than expected can be seen as a good sign for the Company. However, the share was unable to decouple itself from the overall market and fell back to EUR 39.79. However, if one considers that the share has traded between EUR 40 and EUR 95 for the past 12 years, the stock has reached the zone's lower end.
The Federal Minister for the Environment, Lemke, recently urged the German economy to become more resource-conserving. The magic word is a circular economy, which ultimately means decoupling growth from resource consumption. BASF is well positioned in this respect and has already started to develop closed-loop processes for its products together with customers in order to return as many of the resources used as possible to the cycle. This also explains the investments in startups in this area.
From an ESG point of view, this is positive for the Group. Even if some uncertainties prevail at the moment, the Group is innovative and can emerge from the current crisis stronger than before. As soon as the energy problem is solved, the stock should perform well, and then there will no longer be an 8.5% dividend yield as at the current price level. Goldman Sachs is cautious due to the uncertainties and has downgraded the stock to Hold, but the price target of EUR 52 still offers decent upside potential.
Manuka Resources - Opening a new chapter
Australian precious metals producer Manuka Resources owns a gold mine as well as a silver mine in the Cobar Basin in New South Wales. The Mt Boppy project was one of Australia's largest gold mines in the early 20th century. As the Company has identified further exploration potential, production is dormant. A new mine plan is expected to be in place by the end of the year. Production is then expected to resume in the first quarter of 2023. The Wonawinta Silver project is one of Australia's largest silver producers, with a mineral resource estimate of 51 million ounces. In addition to silver, there is also gold and lead there. The property is also home to the Company's own processing plant. There the current dumps will be processed and the metallurgical processes optimized until the silver price has recovered.
With the recent acquisition of the South Taranaki Bight (STB) project, located off the west coast of New Zealand, the Company has now opened a new chapter. There, 3.8 billion tons of iron sand, vanadium and titanium are waiting to be mined. A preliminary feasibility study is already available, and more than USD 50 million has now been invested in the project. The project is at the lower end of the competitive scale in terms of costs and emissions per ton of iron ore produced. Once the transaction is completed, the next step is to prepare the bankable feasibility study. Current project managers Alan Eggers and John Seton will join Manuka Resources' management team in the future. They already have a track record of success, including the sale of Summit Resources for AUD 1.2 billion.
More information can be found in the September 19 interview with Executive Chairman Dennis Karp. Those with further questions can also address Mr Karp directly at the 4th International Investment Forum on September 27, where the Company will be presented in more detail. Management is firmly convinced of the Company's success and currently holds 34% of the shares, which will increase to 40% upon completion of the STB transaction. Another anchor shareholder is the Company's financier, Trans Asia Private Capital. Despite the good news, the share stands at just AUD 0.15, the same level as before the STB acquisition. There is a need to catch up here.
Varta - Crash
On Friday, the Varta share posted a drop of over 34% in Xetra trading. The reason lies in the Company announcement, in which the board had to withdraw its forecasts for the current year but at the same time could not give a forecast. Two major orders from OEMs have been delayed and may not be delivered this year. The news unsettled investors to such an extent that it led to a rare sell-off in a DAX share.
The Company is currently struggling on several fronts. On the one hand, its customers are experiencing supply chain problems; on the other, energy prices are rising significantly for Varta. The weak euro is raising commodity prices and, finally, the threat of recession. The stock had long been traded with much advance praise. But the development of the e-mobility segment is not yet making much progress. As a result, one of the most important battery fields is not yet being played. If the breakthrough succeeds there, the share is a bargain.
Above all, the Group needs to optimize its communications. The weak figures in July were reported on a Saturday, and Friday's announcement also came at an inopportune time. But the first signs of improvement are emerging. Head of IR Bernhard Wolf will take questions from shareholders at 9:30 a.m. on September 27 after presenting the Company at the 4th International Investment Forum. The share exited trading at EUR 38.62, breaking an important support level. The next support levels are at EUR 30.68 and EUR 24.30.
The low for a share is probably never precisely hit. Investors convinced of a company's merits can buy in several tranches if in doubt. BASF is trading lower than it has been for a long time and offers an attractive dividend yield. Manuka Resources is on the verge of a transformation and stands to profit handsomely from the STB project. With Varta, investors should wait for a bottoming out before getting in, or wait for a company statement.
Conflict of interest
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