10. May 2021 | 11:47 CET
Glencore, NSJ Gold Corp., Millennial Lithium - Inflation fear?
In March, prices in the US increased by 0.6% compared to the previous month. The rate of inflation was 2.6%. The reason is bottlenecks in production as well as in transportation, but also rising raw material prices. Economists at Commerzbank have come to this conclusion. Contrary to the Fed's historical policy of halting rising inflation by raising interest rates, Federal Reserve Chairman Powell has reiterated that there are no intentions to curtail loose monetary policy in light of the current difficulties in the Corona pandemic. In general, companies in the commodities and precious metals sectors benefit from an (expected) increase in inflation. Industrial metals and critical commodities with a specific demand and supply situation are worth a closer look. Likewise with precious metals stocks, which often serve as leverage for the "shiny crisis currencies." Here are three investment ideas. Who is making the running?
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ISIN: JE00B4T3BW64 , CA62973P1071 , CA60040W1059
Glencore Plc - Profiteer from copper price boom
Glencore, based in Baar, Switzerland, in the canton of Zug, is undoubtedly one of the inflation winners. The quarterly figures published a week ago were broadly in line with the expectations of the Group's management. The declines in individual areas had been expected in the wake of the Corona pandemic, and planned maintenance work also made a "contribution."
The Company was able to surprise with a 3% increase in copper production to 301,200 tons. The industrial metal, which has almost doubled its price in the past twelve months, is currently trading at its all-time high around USD 10,350 per ton. Analysts at Bank of America even see a short-term potential of up to USD 13,000 per ton. One of the triggers for the copper price boom is the energy transition and the strong increase in the production of electric vehicles. These contain around three times as much copper as conventional cars.
Another raw material connected with the energy transition and the topic of e-mobility is cobalt. This raw material is used in e-vehicles in the area of electricity storage. Here, too, Glencore increased its production by 11% compared to the previous year's quarter. Overall, the Group is well-positioned as it combines - uniquely at this size - trading (marketing) and production. Share prices still have room to run.
NSJ Gold Corp. - Promising
In times of economic instability, rampant inflation and rising sovereign debt, the crisis currency has always been gold. 2021 is certainly no exception. But instead of investing directly in the precious metal, there is another option for high-risk, high-return investors: shares in gold explorers. These companies, which are quite small initially, take care of the identification, financing and exploration of promising mine sites and offer a huge upside potential if they are successful. Sometimes a producer is also on the doorstep and steps in with further financing rounds or takes over the Company completely. To maximize the chances of success, certain prerequisites are necessary: an experienced management and exploration team, a good location, a stable jurisdiction, good infrastructure links and, last but not least, secured financing.
By these standards, the small Canadian gold exploration Company NSJ Gold Corp. is an extremely promising investment. The Canadians have secured an option of a 100% stake in the Golden Hills project in Arizona, USA. Gold was already being mined here in the 1940s. Located near the Kay Mine (distance: 100 miles, owner: Arizona Metals Corp., market capitalization: approx. CAD 218 million) and the Moss Mine (distance: 80 miles, owner: Northern Vertex Mining Corp., market capitalization: approx. CAD 149 million), the site sits on the Walker Lane Gold Trend, a formation that has prospective gold and copper deposits. One of the people responsible for developing the Moss Mine, Richard Kern, has joined NSJ Gold as Vice-President of Exploration and is overseeing the exploration drilling currently underway for the project, which covers an area of 8.5 sq. km.
Initial sightings of the samples in mid-April have produced very satisfactory results. Once drilling is completed, the samples will be taken to a laboratory to determine the exact gold grade. There is a distinct possibility that the grade will approach that of the historic drill holes (between 7.8g/t and 18.4g/t). If this proves to be the case, the Company's share price, which is currently valued at only CAD 4.9 million, is set to rise. The stock, which has also been listed on the Frankfurt Stock Exchange since the beginning of April, is a good bet on the future. We think NSJ Gold is an excellent addition to a portfolio.
Millennial Lithium - Renewed price fireworks?
One of the essential raw materials for the planned energy transition and the conversion to e-mobility is lithium, without which no efficient energy storage systems can be built. Studies assume that in Europe alone, demand for lithium, which can either be mined classically from rock or extracted by evaporation from saltwater (brine), will increase sixty-fold in the next few years.
An expert in the latter process is Millennial Lithium. Currently valued at around CAD 287 million, the Canadian Company is developing a lithium project in Argentina to produce battery-grade lithium carbonate. Initial production tests have shown a purity level of 99.96% before the CO2 purification stage. With final CO2 purification, it should be possible to achieve an even higher degree of purity, which should increase the sales price once again compared to the feasibility study on which the previous calculations were based. In any case, the results of the test runs are fuelling takeover fantasies.
The share price trend over the last twelve months signals a good entry opportunity. Although the share is currently around 200% more expensive than a year ago, it is currently trading at a discount of about 50% compared with its all-time high of January 21, 2021. The analysts of the investment bank Cantor Fitzgerald see a potential of CAD 6.50. Compared to today, this would be more than a doubling. We think the story fits nicely into the time. The demand for lithium will, in any case, increase in the coming years and more and more companies will be prompted to secure exclusive deposits. Whoever can guarantee the supply of high-purity lithium here will most likely be among the winners.