September 27th, 2021 | 12:52 CEST
Central African Gold, TUI, Lufthansa - Attention, these were the lows!
Table of contents:
"[...] We have a clear strategy for neutralizing sovereign risk in Papua New Guinea. [...]" Matthew Salthouse, CEO, Kainantu Resources
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.
GOLD - A good value preservation for 25 years
The development of gold follows the inflation trend in our economies in the last 25 years. Before the turn of the millennium, the ounce was still below USD 200. Due to the real estate bubble after the dot-com boom and the devastating effects of the US subprime crisis, the precious metal reached its temporary peak in 2011 at USD 1,950. At that time, the ECB tried to prevent the collapse of Greece with emergency loans. With the deployment of EUR 336 billion, this European rescue experiment succeeded for the time being; the gold price then lost value again in the following years until 2015, reaching USD 1,120.
However, since this low and the subsequent super boom on the stock markets, things have been going up again, with global currency devaluation following the expansion of central bank balance sheets to this day. Gold reached a new all-time high of USD 2,062 in the summer of 2020. With the current consolidation down to USD 1,750, the precious metal has increased about sevenfold since the 1990s. Spread over 25 years, this results in an annual increase of 8.1%. This value is clearly above the official inflation rate and overall close to the real depreciation of money. Conclusion: Gold serves to maintain purchasing power - in the next 25 years, it could even outperform any other asset.
Central African Gold - Critical commodities from Africa
A future supplier of critical commodities, including gold, can be found in Central African Gold (CAGR) in the Democratic Republic of Congo. CAGR is a commodity explorer focused on prospective copper, nickel, tin, cobalt, and gold projects. In the course of the political closing of ranks for the decarbonization of the earth and the clear commitment to electromobility, these metals are gaining enormous importance. Currently, China is at the forefront of producers, but the resource-rich continent of Africa is increasingly moving into the spotlight.
The Democratic Republic of Congo has rich metal deposits, but the country still struggles with corruption and environmental issues today. Foreign companies could help to improve the sometimes poor framework conditions with their local investments. That requires experienced and courageous management to tackle things sustainably and adequately. The team around CEO Yves Kabongo started with this mission and currently owns mineral concessions on 176 sq km, which includes both forests and arable land. In addition to the King Luba properties, there is also an option to participate in the government-controlled Musefu Gold Project. Historical drilling returned gold grades of 2.5m at 28.4 g/t and 11m at 8.1 g/t, which can be built upon in the medium term.
The Central African state is currently working hard to improve environmental and working conditions, laying the groundwork for international interest. By including forest and arable land, CAGR could also make profits from the sale of carbon credits. The exploration area is extensive, and drilling operations on site do not hinder the cultivation of CO2-reducing crops. For this business purpose, the Company has already hired consulting companies for accreditation.
Currently, CAD 1.87 million has been raised in a private placement at CAD 0.15. With a market capitalization of just under CAD 10 million, the Company is a promising candidate for a metal-gold investment in Africa. One should pick up a few plays at current levels, as the monetization of CO2 emission allowances could soon provide cash flow.
TUI - The revival is underway
TUI also has the Dark continent on its agenda. The past vacation summer was an important turnaround for the travel provider, but the pandemic-related sales shortfalls nevertheless put a considerable strain on the tour operator's balance sheet. In the meantime, a partial shift of bookings to the online world has been achieved, which lowers travel agencies' historically higher closing costs. However, the travel customer now also has to cope with less service.
TUI is currently trying to leverage synergies on all fronts in order to reduce the high-cost burden. The tour operator is currently consolidating its airlines. The five European brands, with a total of 140 aircraft, will be run by a joint management team in the future. After public and private loan commitments totaling EUR 4.8 billion, the vacation giant must now get on its feet independently.
Currently, the Company has repurchased 317,171 shares on the market to allow employees to participate in the "oneShare" shareholding program. The gradual opening up of the UK and the USA to tourism brings back essential revenue drivers. In the last two weeks, the TUI chart was able to turn upwards again at the EUR 3.50 mark. Currently, the paper stands at EUR 3.85 - there is still more in it for speculative investors!
Lufthansa - Reduce the state share with a capital increase
This week, the highly indebted crane airline has taken a big step to repay the state aid granted during the pandemic. That is because the current capital increase has brought the Company a good deal closer to its goal of repaying a full EUR 2.5 billion by the end of 2021. The necessary share issue was well received by existing shareholders.
The 1:1 subscription price of EUR 3.58 means that the Company will receive EUR 2.5 billion in the next few days. In 2020, the German state joined Lufthansa as a shareholder with 20% via the Economic Stabilization Fund (WSF). The WSF also provided two silent participations as equity, of which Lufthansa has drawn down a total of EUR 2.5 billion so far. It intends to use the money from the capital increase to repay these deposits - first EUR 1.5 billion, then the rest by the end of the year. It has already repaid a EUR 1 billion loan from the German state bank KfW.
Of course, the share price was diluted by the issuance of the new shares, but perhaps the ex-day price of EUR 6.01 was indeed the low point of a long dry spell. After all, Lufthansa has been in a downward spiral since the beginning of 2018, losing around 80% of its value at times. But the restructuring is now bearing fruit, with first profits expected in 2023. If analysts' estimates are anything to go by, the P/E ratio for 2024 is a low 4.8. Then, with around EUR 33 billion in revenue, a free cash flow of EUR 1.1 billion should also end up on the books again. Those who believe in the return of air traffic will find optimal buying prices now.
The travel industry should become exciting in the next few years. Will normality return or not? How will air travel be taxed in the future under a new government? Will private travel still be unrestricted? Questions upon questions. For Central African Gold, the answer is simple: the stock is cheap, the management's ideas are good, and the property is prime.
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