18. January 2021 | 08:54 CET
Deutsche Rohstoff AG, Glencore PLC, FuelCell Energy: Commodity rally! Further up it goes!
The commodity rally is now really underway. While copper has already gained more than 70% from the March low due to the ongoing e-mobility fantasy, other battery metals are now coming on the scene. With lithium in the bag, Canada's Rock Tech Lithium has undoubtedly taken the cake with a tenfold increase in one month. The name Peter Thiel as an anchor investor boosted the stock. German stocks in the commodities sector are also setting the pace: BASF, K+S and Deutsche Rohstoff AG showed their muscles in recent weeks.
time to read: 4 minutes by André Will-Laudien
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.
Deutsche Rohstoff AG - Upward trend initiated
Mannheim-based Deutsche Rohstoff AG (DRAG) is an old acquaintance among the few pure-play commodity stocks on the German stock exchange. The Company focuses on oil and gas but also owns exciting assets in tungsten and molybdenum. The oil projects are located in Colorado, North Dakota and Utah. The 4 Denver-based subsidiaries own grounds over 35,000 acres. DRAG has built its projects over 10 years, as of 2016, they are an established oil and gas producer with a total production of 8.5 million BOE (production units converted to barrels).
However, the potential in DRAG is still huge. 29 million barrels of proven reserves lie dormant in the ground, which, calculated at today's oil prices, promise a cash flow potential of USD 340 million. With 60 wells and a total investment of USD 250 million, the Company has invested heavily in its subsidiaries. The well-timed sale of two investments for total proceeds of USD 290 million shows that wealth management has also been mastered.
The recent rise in the US oil price (WTI) to over USD 50 represents an essential building block for the expansion and resumption of production. It significantly increases the ability to plan the further development of the US subsidiaries. Overall, DRAG plans a net output of 5,700 to 6,300 barrels of oil equivalent per day (BOEPD) from the existing wells in 2021. Hedging contracts for around 45% of the expected oil production have already been concluded for 2021. The hedged price is around 45 USD/barrel, and further hedging contracts are being added on an ongoing basis.
In addition to the oil and gas commitments, DRAG also owns shares in Almonty, a mining Company specializing in tungsten, which recently signed a project financing with KfW IPEX-Bank for USD 74 million for the construction of the Sangdong Mine in South Korea. Almonty's current production from its mines in Portugal and Spain will multiply when Sangdong comes on stream from the end of 2022.
The current forecast for the 2020 consolidated results continues to assume EBITDA of EUR 23-26 million, sales of EUR 37-40 million, and a consolidated loss of EUR 15-18 million. The consolidated result is burdened by non-cash depreciation and amortization of EUR 17.2 million. The share currently has a market capitalization of EUR 48 million and two bonds outstanding in the total amount of approximately EUR 88 million. The total valuation is around EUR 136 million - there is still plenty of room for the future.
Glencore PLC - supply contract with First Cobalt
Glencore PLC is increasing its exposure to cobalt, securing a buyer for a handsome amount of cobalt hydroxide in First Cobalt Corp. Once operational, the First Cobalt Refinery will be North America's sole producer of cobalt sulfate for the EV market. Glencore is thus demonstrating its sustained interest in the defined mobility market of the future.
First Cobalt Corp recently announced that it has signed a supply agreement with Glencore PLC. In terms of content, Glencore will supply a substantial 4,500 metric tons of cobalt hydroxide annually from the Democratic Republic of Congo to First Cobalt for use in its Northern Ontario refinery, starting in 2022. Also on board is China Molybdenum Ltd (CMOC).
Following the new US government's legal incentives, it will just be possible to gain a foothold in the emerging EV market here. Joe Biden had earmarked USD 150 billion for this in his first speech after winning the election. Sales of electric vehicles in Europe are up more than 100% in 2020, and the US and China are likely to be the next big markets to get into the swing of things. Germany's Volkswagen AG has already overtaken Tesla in e-vehicle deliveries.
Contained cobalt, supplied by Glencore's KCC mine and CMOC's Tenke Fungurume mine in the Democratic Republic of Congo, is expected to provide 90% of the planned 5,000-ton-per-year capacity for the Canadian refinery while producing 22,250 tons of battery-grade cobalt sulfate per year. Under the terms of the binding cobalt hydroxide supply agreement, Glencore will supply First Cobalt Refinery from the KCC mining operation for five years, beginning in Q4 2022.
For Glencore PLC, an improved product mix with more future focus is evident since the management change. The stock broke out at EUR 2.50 and is currently trading at EUR 3.15. Fantasy is still a given.
FuelCell Energy - How is this going to continue?
The FuelCell stock has recently outperformed industry favorite Plug Power, but it has probably just risen too far in the slipstream. FuelCell stock has managed to take all of the hydrogen market's imagination in a meteoric move and turn it into price gains of more than 500% since October. Is the trend your friend?
The decisive news for the sector came not from FuelCell but Plug Power. They had managed to land a USD 1.5 billion investment from South Korea. The investment is a development partnership with SK Group, one of the largest conglomerates in South Korea. The SK Group thereby enters as a significant shareholder with 9.9% at Plug Power. The share rose on this day by 33% alone.
FuelCell shares have benefited even more from Plug Power shares' good performance and that without any announcement. It has risen 43% since the announcement on Jan. 6. Its market capitalization now stands at USD 4.2 billion and its share price at USD 15.8. Jefferies analyst Laurence Alexander recently initiated coverage of the fuel cell solutions provider with a "hold" rating and USD 11 price target.
In the current environment, of course, the stars are aligned well for all hydrogen technology companies. Given favorable political shifts in favor of renewable energy and hydrogen production, one can indeed justify the rally. Still, it is difficult for a rational investor to still want to buy price-to-sales ratios of over 100. But perhaps some stocks can defy the law of gravity - this is not impossible in 2021!