January 5th, 2022 | 09:02 CET
Gazprom, Almonty Industries, Standard Lithium - Investing in commodities with high demand
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Gazprom - High prices help the Company
Now that the EU Commission has decided to recognize gas-fired power plants as sustainable, it is foreseeable that there will be EU subsidies. Germany also relies on gas-fired power plants to close the supply gap caused by renewables. As early as mid-December, RWE warned of interruptions in the operation of gas-fired power plants due to a simple lack of gas. Gazprom could help out, but an arduous struggle is on the horizon due to the Nord Stream 2 problem.
The Company delivered 3.2% more natural gas to foreign customers in 2021, but less than in 2018 and 2019. In December, US gas companies sent 30 tankers to Europe as they could get 7 times the price there. It would be between USD 1.90 and USD 3.80 per 26.4 cubic meters of natural gas in the US, while in Germany, the same amount would fetch USD 27.20. Gazprom would like to put its Nord Stream 2 pipeline into operation to save transit costs via Ukraine. Maubach, the head of energy company Uniper, said, "Nord Stream 2 is important. Every additional import possibility helps to ease the situation on the gas market."
Maubach hopes the pipeline will be launched in mid-2022. That depends on the network agency, which must grant approval. We have a mild winter this year. If we have a hard winter, prices would probably climb even further. The high prices and rising demand play into Gazprom's hands in the approval process. The stock has already soared in 2021 and offers further potential if the pipeline is approved. The share is currently trading at EUR 8.31.
Almonty Industries - Sandong mine on schedule
In 2018, the trade war between the US and China began. With the outbreak of the Corona pandemic, the world now understands how dependent one is on China in many areas. As mentioned in the introduction, this is true for magnesium as well as rare earths, tungsten, and other commodities. For tungsten dependence, a solution is emerging from Almonty Industries. The Company is in the process of becoming the largest producer outside of China. As a result, the Company has the potential to supply the largest portion for the world's demand, outside of China. This is what researchanalyst.com states in its analysis.
The Sandong mine in South Korea, scheduled to go into production as early as 2022, will make this possible. The Company pays attention to compliance with ESG standards during development and works closely with the authorities and local residents. At the end of November, it was announced that the new road and river relocation project had been successfully completed. That means preparations for the construction of the flotation plant have been completed, and work is well on schedule. In December, Almonty signed a memorandum of understanding with Yeongwol Korea Fire Meister High School to provide training opportunities for promising talents. In addition, USD 25,000 was donated to rebuild a Catholic church after a fire.
There is also a significant molybdenum deposit on the project site that will be explored further this year. In addition to the mine in Korea, the Company already owns producing tungsten mines in Spain and Portugal. The stock, which peaked at CAD 1.30 in 2021, ended the year at CAD 0.89 and formed a double bottom at CAD 0.80 in mid-December. The potential for tungsten is great in the coming years, especially since the metal has been classified as a critical commodity.
Standard Lithium - On the way to becoming a producer
The demand for lithium increases, so the price is also climbing to ever new highs. A spiral has been set in motion. With the surge in lithium demand due to the realignment of the automotive industry, many more market players are now fighting for supply security. In addition, car manufacturers are suffering from the chip shortage, and this is something to be avoided in the future with lithium, if possible. One profiteer of this shortage is Standard Lithium, which wants to become a major producer.
It will be made possible by a major cash infusion from Koch Investments Group, which acquired USD 100 million worth of shares. On Dec. 15, the Company announced that it had secured the support of Koch Engineered Solutions for the preliminary engineering design of the first commercial production facility within Lanxess' Arkansas plant. The Company has partnered with Lanxess for some time. The plant will produce 30,000 metric tons of battery-grade lithium per year.
When you consider that sales of lithium are expected to increase from 305,000 tons in 2020 to 1.5 - 3 million tons by 2030, you can see the potential. However, one should also keep in mind that the lithium price may come back in the short term as more supply becomes available. The stock is still stuck in its triangle formation and is currently trading at CAD 12.27. The market capitalization is currently close to CAD 2 billion, which is relatively high as there is no large-scale production. Investors should wait and see at the moment.
Demand for all three commodities is currently higher than supply. Gazprom could supply more natural gas but wants to push through the commissioning of Nord Stream 2. Almonty will become the largest tungsten producer outside China in the foreseeable future. Once the Sandong mine opens, the stock should pick up. Standard Lithium is in a hype market. If the leap into production succeeds, the valuation is justified.
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