K+S AG, Viva Gold, Rheinmetall, Hensoldt - Recession fears across the board

Gold and silver on the downswing

The firm reserve currency, the US dollar, which reached its highest level in almost 20 years against the euro, contributed significantly to a further sell-off on the precious metals market. It first pushed the gold price below the psychologically important USD 1,800 mark and then below the support zone at USD 1,780 per troy ounce of gold. Although both the geopolitical environment and macroeconomic data support a rising gold price long-term, the precious metals sector is still ticked off in the short term. According to Elliott Wave experts, the market is currently in the final correction wave, resulting in the target area between USD 1,600 and USD 1,680. Then the chartists see a bottoming out and long-term rising prices, resulting in new highs.

Gold producers such as Barrick and Newmont are also still in correction mode. In contrast, smaller gold exploration companies have already advanced significantly again and should offer attractive long-term anticyclical entry opportunities at current levels. Viva Gold, a Vancouver-based exploration company, traded in Frankfurt in addition to Toronto and the OTCQB, corrected 83% since the August 2020 gold high. But the performance of the 100% owned Tonopah Gold Project is heading in a positive direction. The 4,250-hectare property is located on the Walker Lane trend in Nevada, known for high mineralization. Nevada was named the world's #3 best gold deposit in 2021 by the Fraser Institute. Just 30km from Tonopah is Kinross' Round Mountain mine, which produced 258k ounces of gold in 2021.

An attractive explorer at a cheap level

In the process, Viva Gold's flagship project has a pit-limited measured and indicated gold mineral resource of 394,000 ounces grading 0.78 g/t gold and 206,000 ounces of inferred resources at 0.87 g/t. Viva is now driving the project towards the feasibility study and approval process. A new drill program of up to 2,000m and 10 holes has now commenced, with drilling focused on the western and eastern portions of the main deposit.

The stock market value of Viva Gold has shrunk to around EUR 5.20 million. If the results are positive, the feasibility study is started, and the gold price picks up in the long term, the Company could outperform. On a positive note, 56% of the shares are in fixed hands.

Back on track at K+S

When the Russian army invaded Ukraine at the end of February, stock markets collapsed across the board, with the DAX losing around 20%. However, as previously observed during the Corona pandemic, when vaccine producers and e-commerce-related stocks were among the winners, even in the worst state of war, there were companies that managed to double in value within a few days. These included armaments companies such as Rheinmetall and Hensoldt, which had been described as "socially harmful" just a short time before, as well as companies that profited from the sanctions imposed on Russian and Belarusian companies. The Kassel-based fertilizer producer K+S, the world's number five potash producer, was one of these profiteers.

As a result of the sanctions against Uralkali and Belaruskali, we reported in detail at the report on researchanalyst.com, which were responsible for about one-third of potash production in recent years, Western suppliers now had to make up for the mighty supply gap. With a view to a dazzling full year, forecasts for the year had already been raised in March. The MDAX member now expects a strong increase in operating profit between EUR 1.6 billion and EUR 1.9 billion. In the 2021 annual report, CEO Lohr also addressed longer-term goals. Thus, from 2023 onwards, the K+S Group and each individual plant should generate positive free cash flow even if potash prices are temporarily low. Over a 5-year cycle, the cost of capital is to be earned with an EBITDA margin of more than 20%.

The price of potash, which exploded due to the invasion and the declared sanctions, has been consolidating for weeks, and the gas required has also lost around 40% since the highs this year. The K+S share lost even more ground. Since the Russian invasion, the share had almost doubled from around EUR 19 to EUR 36.50. However, due to the current market correction, the share price lost its entire upward movement again. The next support area is the upward trend formed in October 2020 at EUR 17.70. The major Swiss bank UBS sees the share of the potash producer in higher territory and reiterated the price target of EUR 30 and the investment rating at "neutral".

Fears of a pending global recession are causing almost all asset classes to tumble. The shares of the recently hyped potash producer K+S should become interesting again at the current level. Anticyclically, exploration companies such as Viva Gold are also an attractive long-term opportunity. In contrast, the correction in defense companies is likely to continue.