08. September 2021 | 11:33 CET
BYD, Teck Resources, GSP Resource, Varta - Commodity rally three point zero!
There is a growing concern in the German economy that rapidly rising raw material prices will jeopardize the upswing in the future. Thus, the head of the Munich-based economic research institute Ifo, Clemens Fuest, warns: "If commodity prices continue to rise significantly across the board in the coming years, this could become a problem." He is referring to the upswing because supply chains are already severely disrupted by the pandemic. The temporary failure of the Suez Canal has even led to a delay of several months in the delivery of high-tech products.
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ISIN: BYD CO. LTD H YC 1 | CNE100000296 , TECK RESOURCES LTD. A | CA8787423034 , GSP RESOURCE CORP. | CA36249G1090 , VARTA AG O.N. | DE000A0TGJ55
"[...] 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.
BYD - The demand for copper is huge
Things get problematic when tight supply and protectionist measures trigger further price increases. The economic power blocs USA, China and Europe, are politically challenged to create reliable framework conditions for the industry.
In China, in particular, the price increase of copper is being watched with a wary eye; after all, the country is the largest importer of industrial metal. In 2020, a record import was reported, as the signs pointed to economic recovery faster than in other parts of the world. Due to the import pull from the Middle Kingdom, prices remain permanently high.
A major customer for copper and high-tech metals is the technology conglomerate BYD, which builds electric vehicles and produces its own batteries. Since the pandemic outbreak, BYD has been a perennial favorite on the stock market, gaining a full 500%. Currently, the price is trying again to reach its all-time high at EUR 30.65. In case of a decline, watch out for the chart support line at around EUR 27.
Teck Resources - A reliable supplier of the red metal
A well-known producer of high-tech metals is also the North American Teck Resources. The Company mines copper, zinc, coal as well as energy raw materials. The latter has fallen out of focus somewhat in the global climate debate, but they are still needed for industrial purposes. More than 50% of the worldwide energy mix still consists of fossil fuels. Copper and zinc are in exceptionally high demand for industrial purposes. Technology for the generation of renewable energies, electrical components and electricity storage systems rely on the availability of industrial metals. Teck shares have consolidated by around 25% in the last 4 months but are heading upwards again. With a P/E ratio of 9.5 and a price-to-sales ratio of 1.5, the stock is analytically cheap.
GSP Resource - A promising neighbor of Teck Resources
GSP Resource Corp. is a direct neighbor of Teck Resources with its Alwin Mine Project. The explorer specializes in properties in southwestern British Columbia. The Company holds an option to acquire the entire Alwin rights, a claim for mining copper, gold and silver, located in the Kamloops Mining Division, 18 km west of Logan Lake. GSP also owns 100% of the Olivine Mountain Project, located approximately 600 kilometers away in the Tulameen Complex.
Adjacent to GSP in Highland Valley is Teck Resources' active mine. Historical exploration indicates that the deposits at Teck's mine also extend into the GSP Resource area. GSP drilled high grades of 0.31% copper equivalent over a distance of 61.7m in 2020, and at the Highland Valley mine next door, the ore grade in 2019 was around 0.28%. These values are at industrially interesting levels.
With a current placement at CAD 0.35, the Company raised about CAD 450,000, which will fund the subsequent drilling. The still low capitalization of only CAD 6 million should soon attract larger interested parties who are still looking to expand their copper resource.
Varta - Doubts about the right product mix
Due to the strong increase in Varta's share price, investors wonder when the recently started car battery production will deliver the first results. Does Varta's current product mix still fit the Company's high valuation?
A new study by the private bank Metzler could raise doubts about continuing the strong growth. In its initial rating, the analysis sets a price target of only EUR 106 for the papers of the battery manufacturer and thus considers a slide of more than 20% possible. Metzler already sees a fading growth story, as a negative price trend and an unfavorable product mix stand in the way of further growth. With increasing competition, the analysts expect average prices to fall. Heavy dependence on significant customers such as Apple and Samsung could also weigh, as 85% of 2020 sales were generated with small lithium-ion batteries. The Metzler vote is "sell."
For Varta to leap into the modern era, automotive battery sales will have to skyrocket quickly to 30-40% of group output - but that is unlikely to be the case until 2024. In our opinion, the share is, therefore, still very susceptible to major sell-offs.
The demand for high-tech metals drives prices on the spot markets and ensures maximum production in the mines. Some manufacturers have to pay high premiums to remain able to supply the market. That will create pressure on margins because the consumer does not go along with every price adjustment. Mine operators and explorers like Teck or GSP Resource have good cards in this environment.