Defense Metals, Aixtron, TUI - Winners or losers?

Defense Metals - Results of Preliminary Economic Assessment published

Rare earths are critical to technological innovation and are used in a wide range of industries. However, the market dominance of China, which mines over 90% of all rare earths, poses a risk. There is a global agreement to support production development outside the People's Republic to provide greater certainty for supply chains and avoid a price explosion. However, this is a long-term process, and it takes years to develop projects to production readiness.

In the running is the Canadian exploration company Defense Metals, developing the Wicheeda Rare Earth Project covering some 1,700 hectares in British Columbia. Recently, the Canadians published the Preliminary Economic Assessment (PEA) results and an updated mineral resource estimate. Overall, the results were positive.

The updated mineral resource estimate for the Wicheeda project includes an indicated mineral resource of 5.0 million tonnes at an average grade of 2.95% TREO and a suspected mineral resource of 29.5 million tonnes at an average grade of 1.83% TREO. The new resource represents an increase of 36%. The value of the project (pre-tax net present value) is USD 765 million before tax and USD 512 million after-tax, resulting in satisfactory returns. The pre-tax internal rate of return (IRR) is 20%, and the after-tax IRR is 16%.

Commenting on the recent progress, Dr. Luisa Moreno, Director, said, "The Wicheeda project exhibits three key aspects of a successful rare earth project. Favorable mineralogy with predominantly coarse-grained minerals of the bastnasite family, a metallurgical process that achieves a high-grade flotation concentrate, and excellent infrastructure in a mining-friendly jurisdiction. With the positive PEA, the project is one step closer to production."

With the preliminary economic assessment, Canadians were able to mark a new milestone. Expanding the resource is only a matter of time. With new drilling and the most up-to-date drill data, which should be available in the first quarter of 2022, it should be possible to increase the project's profitability significantly. Currently, the Company is valued at CAD 29 million. Given the strategic importance of rare earths and growing demand, which should lead to rising prices in the medium term, investors should put the stock on their watchlist.

Aixtron - Full order books

The equipment manufacturer for the semiconductor industry is currently riding a wave of success. Aixtron is benefiting from the high demand for fast data transmission and LED applications and the increasing need for efficient charging technology. Laser chips for optical data transmission and 3D sensor technology, which smartphone manufacturers use for facial recognition and carmakers for scanning their surroundings, are in high demand.

In the third quarter, the Aachen-based Company reported a doubling of sales to EUR 130.8 million. The operating result (EBIT) multiplied to EUR 36 million, compared to EUR 5.6 million in the same period last year. A good quarterly performance and full order books allowed the Company to confirm its outlook for 2021. Sales of EUR 400 to 440 million with an EBIT margin of 20% to 22% are to be achieved. At prices around EUR 18, almost a third below the high for the year, the specialty machinery manufacturer is valued at around EUR 2 billion. Analysts believe the share has an average upside potential of 32%.

TUI - Downward pull

For a short time, the travel industry was able to benefit from a recovery. Now, with rising infection figures once again, lock-downs and travel restrictions, difficult winter months are again just around the corner. Recently, this can also be seen in the chart picture of the TUI share. Even if the president of the travel association DRV, Norbert Fiebig, remains a steadfast optimist, the downward trend of shares in the travel industry is likely to continue at first.

"However, the uncertainty as to how the situation will develop is once again leading to a discernible reluctance to make booking decisions," said Fieber, looking to the future. "For the coming summer, however, we are optimistic and hope that we will continue to approach the pre-Corona sales level. However, we do not expect a sustainable recovery for the travel industry until 2023." Analysts consider the stock to be exhausted, with an average price potential of just 8%. It remains exciting to see whether the Group, valued at EUR 2.6 billion, will be able to return to profit next year as previously forecast.

The stock market is not a one-way street. Investors are experiencing this once again with the TUI share. For the time being, the pandemic should continue the downward trend here. On the other hand, Aixtron is on the winning side. Business is excellent due to high demand. Defense Metals was able to mark an important milestone on the way to the production of rare earth metals with the results of the Preliminary Economic Assessment. The Canadians have good cards in the medium term to build up a sought-after, rare earth mine.