February 16th, 2022 | 12:29 CET
Glencore, Nevada Copper, Newmont - Commodities as an investment
Table of contents:
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Glencore - Historic result
Inflation is rising and rising, driven by high energy and commodity prices. One of the primary beneficiaries is undoubtedly Glencore, the world's largest group of companies active in commodity trading, based in Baar, Switzerland. According to preliminary calculations, earnings before interest, taxes, depreciation and amortization adjusted for special items rose by 84% to EUR 18.8 billion, the highest figure in the Company's history. After Glencore suffered heavily from the pandemic for more than 2 years and incurred high losses, the surplus in the past period amounted to just under EUR 4.41 billion. A large part of EUR 3.52 billion will be distributed to shareholders, which corresponds to a dividend of USD 0.26 per share.
In addition, a strategic decision that had been planned for some time was implemented. As reported by Reuters news agency, Glencore is exiting Russian oil company Russneft after about two decades. According to management, the sale was executed in December and is expected to be completed in the first half of the year, subject to regulatory approvals. The reasons for the exit were not disclosed, but the timing is well chosen. On the one hand, commodity prices are high, and on the other hand, an investment in Russneft involves certain geopolitical risks.
Nevada Copper - Restructuring taking effect
In addition to traders such as Glencore, commodity producers and exploration companies are, of course, also benefiting from the sometimes skyrocketing prices. In the case of the red metal copper, the underlying value has more than doubled since the beginning of the Corona pandemic. The largest players such as Freeport McMoran and Rio Tinto have also been able to multiply their prices. Nevada Copper, a second-tier producer, has a unique situation and an opportunity to enter at a moderate level, despite the explosion in the price of copper.
Historically, Nevada Copper has operated the 60 sq km Pumpkin Hollow project since 2007, and there have been frequent delays and changes in the Company's leadership. However, since September of last year, a new era has been ushered in with the new CEO, Randy Buffington. The fact that large institutional addresses continue to believe in the high-grade project is demonstrated by the debt restructuring and a subsequent capital increase. Both Solway and Mercuria each secured 10.4% of the Company with a contribution of USD 30.0 million.
With KfW, the credit line was stretched and expanded. Pala Investment secured additional financing and remains on board as the largest shareholder with 38%. Operationally, Nevada Copper reported an optimization of its operations. January development rates were 50% higher than November 2021 and as much as 100% higher than August last year. With a market cap of EUR 223.54 million, Nevada Copper is the second-tier turnaround story.
Newmont Corp. - Caught in consolidation
A possible threat to Ukraine from Russia is lifting gold to its highest level since the middle of last year at USD 1,879.00. Gold is back as a crisis currency. At least the underlying did not buckle in recent days, unlike the stock market. However, a dynamic movement due to the acute threat of war - in our opinion, the gold price would have to literally explode - is not present, at least not yet. It would take the interim high of USD 1,916.35 from May 2021 to be overcome in order to be able to write "bullish" on the chart. Currently, rising prices are only countermovements in the downward trend that has prevailed since August 2020. A slide below the mark of USD 1,850 per ounce, on the other hand, threatens further price losses.
The picture is similar for Newmont Mining, the world's largest gold producer. The S&P 500 company currently has a market capitalization of USD 51.31 billion. Since reaching a high of USD 75.31 in May of last year, the share price has corrected to a temporary low of USD 52.60. In the course of the upward movement of recent weeks, an interim recovery to the resistance area at USD 64.82 began. A sustained breach of the zone around USD 66 would be imperative here. If the price does not exceed this prominent mark, a dynamic drop back to the support at USD 59 would be possible.
The stock markets are wavering, and the Ukraine crisis threatens to escalate. Gold was able to distance itself somewhat from the USD 1,800 mark. However, an easing is likely to cause the precious metal to fall back into a downward trend. In contrast, the copper run continues due to strong demand. Glencore as a trader and the producer Nevada Copper are interesting here.
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.
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