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May 11th, 2022 | 11:29 CEST

Defense Metals, ThyssenKrupp, Allkem - Raw materials for armaments

  • RareEarths
  • armaments
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Times of war have their own dynamics. Many sectors of the economy suffer from the uncertainties it brings. However, one sector can confidently be called a war winner because, without defense equipment, there is no war. The supplier industries are also among the profiteers, provided demand does not collapse elsewhere to a greater extent. In addition, the defense industry is increasingly being classified as sustainable, which opens up access to previously closed ESG portfolios.

time to read: 3 minutes | Author: Carsten Mainitz
ISIN: DEFENSE METALS CORP. | CA2446331035 , THYSSENKRUPP AG O.N. | DE0007500001 , Allkem Ltd. | AU0000193666

Table of contents:

    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.

    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.

    Risk notice

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    Der Autor

    Carsten Mainitz

    The native Rhineland-Palatinate has been a passionate market participant for more than 25 years. After studying business administration in Mannheim, he worked as a journalist, in equity sales and many years in equity research.

    About the author

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