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February 10th, 2023 | 12:40 CET

Defense Metals, Rheinmetall, Encavis - New technologies cannot do without this critical raw material

  • Mining
  • RareEarths
  • Technology
  • renewableenergies
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What do metal alloys, magnets, phosphors, ceramics, glass, catalysts and chemical processes need to function well? Rare earths - a critical raw material that is primarily processed in China. Without this raw material, there are no smartphones, computers, wind turbines or electric vehicles. There have been tensions between China and the United States for some time. If these tensions escalate and China stops its rare earth supplies, the Western world will have a problem. As demand for rare earths continues to rise, it is important to ensure sufficient supplies to meet the growing demands of the technology industry.

time to read: 4 minutes | Author: Armin Schulz
ISIN: DEFENSE METALS CORP. | CA2446331035 , RHEINMETALL AG | DE0007030009 , ENCAVIS AG INH. O.N. | DE0006095003

Table of contents:

    Defense Metals - Strong results from latest drilling program

    In the future, about 10% of the world's rare earth production could come from Canada, more specifically from Defense Metals. Their Wicheeda project is 4,262 hectares in size and can produce 25,400 tons of rare earth oxide per year, according to a preliminary economic assessment (PEA). Since the PEA, further exploration has been conducted, and this has uncovered additional rare earth deposits. In January, the Company announced the final drill results from the 2022 drill program. A total of 10 core holes were evaluated with TREO grades up to 3.77% over 30m. The best hole returned 3.66% over 138 m.

    Dr Luisa Moreno commented on January 24: "Since the release of our positive PEA based on drilling completed at the end of 2019, the last two years of exploration at Wicheeda have focused on resource expansion, delineation and detailed geotechnical drilling on the pit slope to put us on a solid path to initiating a preliminary feasibility study (PFS)." On February 7, SRK Consulting, which had already written the PEA, was hired to conduct geotechnical investigations to gather the appropriate data for the PFS. Kevin Weston, who has more than 40 years of mining experience, was appointed project development coordinator.

    Thus, the necessary steps to create a PFS have been taken, and there is a good chance that the PFS will be ready in Q1 2024. Due to the increasing demand for electric cars, the automotive industry will need around 22% of neodymium-praseodymium (NdPr) oxide by the end of 2025, according to a Morgan Stanley study, and this figure is expected to rise to 51% by 2030. So demand for rare earths will increase, and so will the price. These are good prospects for Defense Metals, whose shares have gained more than 100% at their peak since January 6 and are currently trading at CAD 0.37. Not only has the stock established a new upward trend, but it has also directly surpassed the 2022 high, which should be seen as a buy signal.

    Rheinmetall - Inquiries from Ukraine

    Since the outbreak of the Ukraine conflict, the shares of arms manufacturers such as Rheinmetall have been in demand. Rare earths play an important role in the defence industry. They are essential for the functioning of many state-of-the-art military systems, such as rocket engines, radar systems, laser systems and protective shields. In addition, rare earths provide resistant steel alloys, which are important for ammunition and armoured vehicles. The German armed forces, in particular, need a great deal of new material and have been allocated a special fund of EUR 100 billion by the German government for this purpose. Rheinmetall has been supplying the Bundeswehr for years, so it would be no surprise if the Düsseldorf-based company were to secure a big piece of the pie.

    Now that the new defense minister has promised Ukraine 178 Leopard 1 main battle tanks, the Bundeswehr needs new tanks. But the Company is also in talks with Kiev. According to Handelsblatt, Ukraine is interested in the Lynx and Panther tanks. However, the German government must approve the export. But inquiries are not only coming in from Germany and Ukraine. The South African subsidiary landed a EUR 40 million order for ammunition products, and a NATO member ordered EUR 17 million worth of ammunition.

    Preliminary full-year figures for 2022 show a 13% increase in sales, which climbed to EUR 6.4 billion. The margin is higher than expected and is expected to be at least 11.5%. The exact figures will be presented on March 16. But since Christmas alone, the Group has reported an order intake of more than EUR 1 billion. By 2025, sales are expected to stand at at least EUR 10 billion. Further information can be found in the study. Since mid-September, the share has been on an upward trend, which provisionally peaked at EUR 232. Currently, one share costs EUR 228.20.

    Encavis - Project takeover from Energiekontor

    An energy turnaround is also only possible with rare earths. While the wind turbines themselves usually do not require rare earths, the wind turbine generators are quite different. The permanent magnets used in the generators can be made of alloys containing rare earths. These alloys have high magnetic performance, making them particularly suitable for wind turbine generators. This is not a major issue for Encavis, which uses wind turbines in its wind and solar farms but does not manufacture them itself.

    Now that renewable energies are to secure the power supply in Germany, the expansion must be driven forward quickly. On February 8, Encavis announced the acquisition of a wind farm in NRW from project developer Energiekontor. Before the project can go into operation, the old turbines will be replaced by new ones. The start is planned for the 4th quarter of 2023. The wind farm can cover the demand of about 10,000 households. Based on the history, it is known approximately how high the yields will be.

    Thanks to the state-guaranteed feed-in tariff under the Renewable Energies Act, the Company can plan for a term of 20 years. The "Bergheim" project is the 8th time Encavis has taken over a project from Energiekontor AG. After a critical assessment by Stifel, the share lost significant value in mid-January. The downward movement was not stopped until EUR 15.94. Subsequently, it went up to EUR 19.07. Currently, one share costs EUR 18.25. Now, EUR 0.07 is paid out to shareholders as a quarterly dividend, representing a dividend yield of around 1.5%.

    Rare earths are indispensable in many high-tech areas. If one wants to remain independent from China, alternatives are needed. One alternative can be Defense Metals, which has shown with the last drilling program that its rare earth project has great potential. Due to the Ukraine conflict, Rheinmetall will benefit from the ailing Bundeswehr and the rearmament in the coming years. Encavis is very well positioned for the future with renewable energies.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Armin Schulz

    Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.

    About the author

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