Defense Metals, ThyssenKrupp, Allkem - Raw materials for armaments

Defense Metals - Rare earth metals for North America

Contrary to what their name suggests, rare earth metals are not particularly rare at all. Due to their properties (similar to each other, therefore difficult to separate) and the nature of their occurrence (bound at low levels in other minerals, consequently costly to process), most countries have ceased production of these materials. However, they have been essential to any electronic component over the past 30 years.

The major exception is China, which today has a quasi-monopoly in the production of rare earth metals. Moreover, almost all refining (>92%) occurs in the People's Republic. The fact that this dependence could also be unfavorable for the defense sector has now dawned on some Western countries because missile guidance systems, radar systems and satellite technology are not possible without rare earth metals. For this reason, some countries have started to re-establish their own rare earth metal production in their countries, especially the United States.

Another pioneer specifically geared to the defense industry is the Canadian company Defense Metals, based in Vancouver. According to a Preliminary Economic Assessment (PEA), their Wicheeda project, located in a well-known mining region in British Columbia, has the potential to become a globally significant deposit of rare earth metals. The PEA, released in November 2021, assumes an after-tax net present value of the project at CAD 516.5 million, with a mine life of 19 years. The latest drilling data also confirms the high quality of the project. By the way, Defense Metals can be seen live at IIF on May 19.

ThyssenKrupp - Economic concerns depress share price

With 4 of the world's 40 biggest steel producers coming from Russia and therefore currently subject to rigid sanctions, steel prices have risen significantly in recent weeks. In particular, the defense industry, a major industrial sector, has registered increased demand.

Steel producers such as the German ThyssenKrupp Group (currently ranked 35th globally) have benefited significantly from these developments in recent months. Despite this, shares in the Essen-based company have recently come under pressure. However, the Company is not alone in this.

Other German and international raw materials producers such as Salzgitter AG and Teck Resources are also suffering from investors' concerns about a global slowdown in growth. For example, the war in Ukraine and the renewed aggravation of the corona situation in China are depressing sentiments on the stock exchanges and have led to a massive sell-off.

However, where investors see black, analysts are discovering new opportunities - Deutsche Bank, Crédit Suisse and Baader Bank all rate ThyssenKrupp shares as a clear buy, with price targets of between EUR 16 and EUR 17. The Group will soon publish its preliminary figures for the 1st half of the year and will certainly also provide an outlook concerning the further course of business.

Allkem - Battery-grade lithium remains in demand

Another commodity company whose share price does not currently reflect its true operating performance and potential is Australia's Allkem Group, one of the world's top 3 lithium producers. Although the Company was able to present fantastic quarterly figures in mid-April and report record production figures for its largest properties, Mt. Cattlin and Olaroz, the share price has currently slumped to well below AUD 11 (52-week high: AUD 14.27).

Last but not least, management's announcement that a record price for battery-grade lithium of USD 35,000/tonne is expected in the second half of the year (average price in the past six months: USD 27,236/tonne) continues to enrapture analysts. The experts at Citi, for example, see the share as fairly valued at a price of AUD 16.

Those who do not want to invest directly in defense stocks, but are still looking for a sector that is likely to benefit in the long term from current developments in world affairs, should take a look at commodity stocks. Prominent players such as ThyssenKrupp or Allkem are highly praised by analysts and are said to have high upside potential. In the small and micro-cap sector, the papers of Defense Metals are extremely exciting. Already the PEA of November 2021 certified the project value of the Wicheeda project after-tax at CAD 516.5 million. Yet, the Company is currently valued at only CAD 37 million on the stock exchange.