September 22nd, 2021 | 11:19 CEST
GSP Resource, Varta, Rio Tinto - The post-fossil age has begun
Table of contents:
"[...] We have a clear strategy for neutralizing sovereign risk in Papua New Guinea. [...]" Matthew Salthouse, CEO, Kainantu Resources
GSP Resource - Awaiting upcoming drill results
GSP Resource started this year's drilling program on its main "Alwin Mine" project on May 19 and announced its first results on September 13. A total of 5 diamond drill holes were drilled, and initial results are available from two of them. The first hole confirmed the previous occurrences and assayed up to 6.15% copper equivalent consisting of 4.42% copper, 3.5 g/t gold and 92.8 g/t silver. In addition, the results show that this is a deposit that can be mined by an open pit, thus reducing the costs.
In this regard, the CEO emphasized that the results are comparable to those of Teck Corporation's Highland Valley Mine. The results of the second drill hole did not reveal any significant new deposits. The maximum grade of copper was 0.53%. The Company is now eagerly awaiting the results of the last three drill holes, which should be available by mid-October at the latest. Further potential is offered by not fully explored porphyry copper-molybdenum targets in the area.
The completed private placement on August 24 raised a total of CAD 455,000 through the issuance of 1.3 million shares at CAD 0.35. The money will be used for the further development of the main project. Currently, the share price stands at only CAD 0.23, representing a discount of over 30%. Should the upcoming drill results roughly reach the values of the first drill hole, there will be significant upside potential. The share belongs on the watch list.
Varta - E-car battery production in its DNA
On August 13, Varta presented its quarterly figures and failed to realize the expected gains. The share has decreased by EUR 55 from the last high to EUR 110.30. Most recently, Apple caused the share price to slide because no new Air Pods were presented at the product presentation, for which Varta supplies the batteries. A double bottom could now be formed at EUR 110. A boost could come from the statement of Professor Duddenhöffer, who explained at Battery Day in Braunschweig that 80 million batteries will be needed for electric cars by 2030 and that 76 gigafactories would be necessary for this.
Tesla currently owns three of these factories and is looking around for a suitable location for another factory. Rainer Hald, technical director at Varta, said he was confident that Varta would quickly provide large quantities of e-car batteries. The Company has a hot iron in the fire with the V4Drive cell for e-cars. Pilot production is expected to begin this year. This news alone has a great chance to move the stock price, in our opinion.
Goldman Sachs seems convinced by Varta and has increased its stake to 5.37%, as the Company reported on September 20. Otherwise, analysts are divided at the moment. Warburg Research and Kepler Cheuvreux put the shares on SELL after the quarterly figures, which were weaker than expected. This argument was the reason for the downgrade at Warburg Research. On the other hand, DZ Bank recommends buying because it expects a significant upturn in business in the second quarter.
Rio Tinto - Iron ore price weighs down
Finding large and profitable copper mines is very difficult. Rio Tinto has found such a mine in Mongolia called "Oyu Toloi". There has been a long controversy over the development of the mine as it is a joint venture with the government of Mongolia as a partner. The project in the Gobi Desert offers enormous potential but also requires significant investments. It was only when the prime minister intervened that the problems were sorted out at the end of August. Starting in 2025, the project is expected to yield 550,000 tons of copper and 450,000 ounces of gold annually. The life of the mine is estimated at 100 years.
Another problem is currently weighing much more heavily on the Company, namely the falling iron ore price. While the price was still at USD 222 in mid-July, it slumped to around USD 104. A turnaround does not seem to be in sight at the moment. One reason for this could be the restrained demand from China. The reason for this restrained demand is the largest real estate developer Evergrade in China, which is burdened with USD 300 billion in debt. A large part of the profit in the last quarters came from selling iron ore at record prices. Now the price is still below August 2020 levels.
That also explains the rapid fall in Rio Tinto's share price. While the price per share was almost USD 90 at the beginning of August, it plummeted to USD 64.24 on September 20. The dividend was USD 3.76, which is a good 5.7% at the current price of USD 65.45. Whether the dividend will remain the same in the coming year remains to be seen. One should not reach for the falling knife, yet Rio Tinto is more broadly positioned than just looking at the price of iron ore. A closing price above USD 66.50 would send the first positive signals.
Copper will be essential for all three companies in the long run. GSP Resource wants to become a copper producer if it is not acquired by a major competitor first. Varta needs a lot of copper to build its batteries for e-cars, and Rio Tinto is building one of the world's largest copper mines and will thus benefit from rising copper prices in the future.
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