22. February 2021 | 07:40 CET
Deutsche Rohstoff, Glencore, Standard Lithium - Millennial Lithium: Find the best commodity stocks!
Metal prices are going through the roof! Since it is clear that e-mobility and decentralized electricity storage have become the top investment topics of the coming years, metal prices are flying. Nickel and copper reached new 5-year highs of USD 18,900 and USD 8,440, respectively. Driven by unexpected industrial demand, mines are also running at top speed. The reason is undoubtedly the underestimation of the fundamental economic trend by market participants, and there is no sign of cooling in the technology-driven manufacturing companies despite the pandemic. Here we take a look at some of the winners of this trend.
time to read: 5 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 - a potpourri of opportunities
Dr. Thomas Gutschlag knows what he is talking about. For years, it has been clear to him that the world will run into a shortage problem for certain raw materials. That's why Deutsche Rohstoff, based in Mannheim, Germany, started looking for opportunities in the commodities market early on. The first mega-success came when it acquired its first properties in the US shale oil bear market's downturn in 2008-2009. At that time, the oil price plummeted to below USD 35. Today, the Group owns projects in Colorado, North Dakota and Utah. Since that time, Deutsche Rohstoff has consistently developed the acquired projects, and since 2016 it has been an established oil and gas producer with 8.5 million BOE (production units converted to barrels) produced. Deutsche Rohstoff is also well diversified with its Almonty tungsten properties in South Korea, where it owns a 12% stake.
Deutsche Rohstoff's ability to weather a period of lower commodity prices was again clearly demonstrated in 2020. In April 2020, WTI oil had briefly fallen below the zero line on the options markets; high storage costs had driven the supply contract into negative territory, and no one wanted to take delivery of the oil. The price recovered in the year and rose again above the important USD 50 mark in WTI. However, the old highs from before the Corona crisis were not reached again. Coupled with the increased volatility of the oil price, this means that Deutsche Rohstoff's undrilled Knight and Wyoming assets have significant option value. In early February 2021, the Company's Cub Creek Energy interest has now begun drilling at the Knight well site. Up to 12 horizontal wells with 2.25 miles of horizontal length are planned, and these locations are expected to start production in the fourth quarter of 2021.
Currently, oil and gas production at the properties has been ramped up significantly again because, at current oil prices beyond the USD 55 mark, the Company can operate profitably and generate positive cash flows, as Dr. Gutschlag points out. Deutsche Rohstoff will add further production this year and, in all likelihood, produce 6,000 barrels of oil equivalent per day, significantly more than last year. Through hedging, Deutsche Rohstoff was able to bridge the year 2020 well, providing additional security in 2021.
Deutsche Rohstoff continues to diversify its commodity portfolio. It took advantage of the sell-off in April 2020 to build up oil stocks and bonds and some gold stocks to the tune of USD 25 million, partly closing out the gains at year-end 2020. Almonty has a customer for the tungsten concentrates, which are to be produced at the mine from 2022, namely, the Austrian Plansee Group. Cash and cash equivalents amounted to EUR 39.4 million at the end of September 2020. The Deutsche Rohstoff share price jumped last week over the EUR 12 mark, and in our opinion, there is much more in it!
Glencore - The long-time boss is leaving, the business is booming
Glencore has seen a lot of growth over the past week. Driven by higher commodity prices, the share exploded by a full 13%, from EUR 3.05 to EUR 3.45. The reason was also the good figures for 2020. Net profit before special items amounted to USD 2.5 billion, which is still an increase of 2% compared to 2019. Free cash flow was substantial at USD 4.3 billion, up 65% year-on-year, given the expansionary environment, allowing for a good payout of USD 0.12. The business model, strategy and asset mix in Glencore's operations provide sustainable growing returns.
Ivan Glasenberg, the long-time chief executive of the commodities group Glencore, presented the Company's 2020 results for the last time, leaving his successor Gary Nagle to return to a higher profit payout. Glasenberg, who has headed the Company since 2002, held his final financial press conference for Glencore on Tuesday. Glasenberg is the largest single shareholder, with around 9%, and will remain loyal to the Company. He will also hold on to his block of shares in the medium term but will no longer seek a board seat. The changing of the guard is expected to take place in the first half of the year. These are good times for Glencore. Keep buying!
Standard Lithium - Large capital increase successful
Standard Lithium Ltd. is an innovative technology and lithium Company. The Company's flagship project is located in southern Arkansas, where it is engaged in testing and demonstrating the commercial viability of lithium extraction from over 600,000 acres of permitted brine operations. The Company has started up its first industrial-scale direct lithium extraction demonstration plant at LANXESS' South Plant in southern Arkansas. The demonstration plant uses the Company's proprietary LiSTR technology to selectively extract lithium from LANXESS brine. The demonstration plant will be used for proof-of-concept and commercial feasibility studies.
Standard Lithium Ltd. has now completed a significant capital increase. A total of 15,697,500 common shares of the Company were issued at USD 2.20 per share, raising gross proceeds of USD 34.6 million. Proceeds from the offering will be used to fund ongoing work programs to advance the LANXESS project, including continuous testing and optimization work at the SiFT lithium carbonate crystallization pilot plant and the LiSTR direct lithium extraction demonstration plant. Standard Lithium shares reached their high of EUR 3.05 in 2021. With the capital increase resolution, it declined to EUR 2.46. For the time being, this is not a big deal.
Millennial Lithium - also collected here
Millennial Lithium is also raising fresh money. The announced bought deal financing of 8,625,000 units at a price of USD 4.0 per unit was successfully completed, raising total gross proceeds of USD 34.5 million.
Farhad Abasov, President and CEO of Millennial, commented, "We are pleased with the increased institutional support following this round of financing. The closing of the offering has strengthened our balance sheet. With a solid cash position of approximately USD 50 million, Millennial can accelerate some of its technical programs, including ongoing pilot operations. The Company remains in a strong position to pursue strategic partnerships and offtake negotiations with various parties."
The Pastos Grandes Project processing plant is expected to start up in 2022. In fact, with current lithium price trends, there is likely now a race to secure the best offtake contracts. Millennial is one of the fastest to the start. The story remains exciting; after all, the stock has already consolidated over 30% from its high of EUR 3.84.