04. October 2021 | 12:36 CET
BP, Almonty Industries, Standard Lithium - Which commodities offer the most potential?
Last Tuesday, the barrel of oil reached the USD 80 mark again for the first time since 2018, even though OPEC had recently increased production volumes. The discrepancy between supply and demand obviously could not be closed by the production increase. Comparing tungsten with gold, an investment in tungsten could beat gold by 70% since 2010. In the case of lithium, the price is also rising significantly. The automotive industry has decided to push ahead with its conversion to e-mobility in the interests of sustainability. So, the ambitious goal of charging only USD 100 per KWh of capacity in an e-car battery will not happen, making the price of e-cars much cheaper. Today, we take a look at three companies that produce these raw materials and analyze the potential.
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ISIN: BP PLC DL-_25 | GB0007980591 , ALMONTY INDUSTRIES INC. | CA0203981034 , STANDARD LITHIUM LTD | CA8536061010
"[...] 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
BP - Oil and gas prices are on the rise
Oil stocks have not been the darling of investors for some time, despite the good dividends paid out relatively reliably. BP is no exception. The price of oil has started to climb again, and in the process, the price of gas as well. The market environment for the Company has since brightened considerably. The losses due to Corona and a negative oil price seem to be finally over.
Experts expect the Company to increase sales by USD 36 billion to USD 216 billion. EBITDA is expected to be around USD 34.2 billion, down from USD 12 billion in 2020, bringing the price-to-earnings ratio down to 8 and the price-to-book ratio to a favorable 1.1. The dividend yield is still around 5%. Currently, hardly anyone assumes that the oil price could drop significantly in the coming months. So the Company can plan for growth in 2022 as well.
On October 1, the Company announced that the group has now bought back a total of 1,092,503,139 shares. This usually only happens when the stock is trading below its actual value. The share was able to mark a new high for the year on September 28 and has gained over 80% since its low in late October 2020. Bernstein Research analysts see the fair value at EUR 5.57 and thus over 40% potential in the stock.
Almonty Industries - Becoming one of the largest tungsten producers
With tungsten, two properties stand out above all, the high melting point and its corrosion resistance. Tungsten is used in light bulbs as well as in aerospace. The metal is also in great demand in the military and ferrous metallurgy. It is very versatile. Almonty Industries already mines tungsten in Spain and Portugal, but these deposits are tiny compared to the Sangdong Mine in Korea. This deposit is one of the largest in the world outside of China. If one wants to become less dependent on Chinese exports, larger deposits like the Sangdong Mine are needed.
A look at the largest tungsten producers sorted by country shows how important this is. China occupies first place with 62,000 tons, ahead of Russia with 4,500 tons and Canada with 2,500 tons. These figures are from 2006, but they have not changed significantly over the years. China continues to produce 80% of the total market. Development of the Sangdong mine has already begun. About 17 million tons are waiting to be mined there. There is already a 15-year offtake agreement with Plansee, which provides planning security.
The shares of the Canadian-based Company were able to mark a multi-year high of CAD 1.30 on March 10. Since then, the price has consolidated to CAD 0.82. One of the largest shareholders is Deutsche Rohstoff AG, which has often shown a good hand with its investments. As an investor, you still have to be patient until the mine is completed, but then you will have a stake in one of the largest tungsten producers outside of China.
Standard Lithium - Lithium is scarce
The lithium price has exploded after Volkswagen announced that it wants to focus on the production of e-cars entirely. While the price at the beginning of 2021 was still at USD 40,000, one currently has to pay USD 165,000 per ton of lithium carbonate. The Canadian lithium producer Standard Lithium benefits in its main project from the preliminary work of its partner Lanxess. The infrastructure is in place, and they are practically using the wastewater from Lanxess produced during the bromine mining process. This process is faster than the conventional evaporation process and relies on the brine flow from the brines.
Just how hot the topic is, became apparent in the share price after CEO Mintak was a guest on the CNBC show "Mad Money" on September 22. On the following day, the share price was up 15% at times. The CEO had not said much at all. He emphasized the current deficit in lithium production and offered his production to the US battery industry. Should there be some left over, it could be exported to Europe via the Gulf Coast. In addition to the Arkansas area mentioned, the Company owns the Bristol Lake project in the Mojave Desert.
The Company has also won its first customer, Lanxess. Nevertheless, the question remains whether the Company's approach can be copied everywhere in Arkansas. In addition, a capital increase could be imminent if one looks at the Company's cash position. The stock was able to mark a new all-time high at USD 9.36 but was subsequently sold off to USD 7.90. The next target would be to close the price gap at USD 7.04. At the moment, the upward trend is intact, but the share has already run far.
All three companies produce commodities that currently bring big profits. BP was punished for a long time, but good values always prevail in the end. Almonty Industries is becoming one of the largest tungsten producers in the world. Many shareholders seem to have no patience. Standard Lithium is the hottest topic on the stock market right now. But the proof of concept is still missing. Given the recent multi-year highs in BP and Standard Lithium, we currently see the greatest opportunity in Almonty Industries, followed by BP and Standard Lithium.