July 11th, 2023 | 07:55 CEST
K+S, Almonty Industries, Rock Tech Lithium - Europe arms itself against shortage situation
European industry is transforming, with the ban on combustion engines from 2035 being just one example. The energy transition is creating an increased need for critical materials and raw materials to make the changeover in industry possible. The European Commission has also recognized this and launched a Critical Raw Materials Act (CRMA). This is intended to optimize and diversify supplies. Recycling and research into resource efficiency are also on the agenda. We, therefore, look at three companies involved in critical raw materials.
time to read: 4 minutes
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Author:
Armin Schulz
ISIN:
K+S AG NA O.N. | DE000KSAG888 , ALMONTY INDUSTRIES INC. | CA0203981034 , ROCK TECH LITHIUM | CA77273P2017
Table of contents:
"[...] 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
Author
Armin Schulz
Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.
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K+S - Acquisition in Africa
The impact of the Ukraine conflict on the food market has been noticeable. Wheat, corn, sunflower seeds and other foods were coming out of the conflict area. With the outbreak of the war, prices skyrocketed. In order to optimize the available arable land, fertilizers are needed, without which the soil would not yield enough. K+S was able to profit from the sanctions imposed on Belarus and Russia. This meant that major potash producers were out of the running. In the meantime, however, fertilizer prices are falling significantly month by month. Accordingly, margins at K+S are also shrinking.
On June 14, the Group had to issue a profit warning. Due to the falling potash prices, meeting the annual forecasts is no longer possible. The management assumes an EBITDA of about EUR 800 million. Originally, between EUR 1.15 and 1.35 billion had been expected. Nevertheless, the Company has used the good times to pay off its debts. In addition, the South African distribution partner Industrial Commodities Holdings was acquired, with a 75% stake on July 4. This will allow the Company to build a new business segment and, at the same time, better penetrate the African market.
Since mid-June, there have been 3 buy recommendations for the share with price targets between EUR 17 and EUR 25. More cautious were the analysts from UBS and Deutsche Bank, who have put the stock on hold. They see price targets between EUR 16 and 17. The share has formed support around the EUR 15 mark and is currently trading at EUR 16.54. Additionally, an initial uptrend has also been established. Ideally, if the EUR 17.08 mark is broken on a closing price basis, the downtrend will also be stopped.
Almonty Industries - Good prospects
Tungsten is of great importance to several key industries due to its unique physical properties, such as hardness, high melting temperature and thermal conductivity. It is used in both military applications and civilian industries, including semiconductor production, mining, and, more recently, battery technology. Thus, the criteria regarding the CRMA are met, putting Almonty Industries, which owns 4 tungsten projects, in a good position. In Portugal, the Panasqueira mine already produces the critical raw material. The Los Santos mine in Spain is expected to restart operations soon with new flotation technology, which should significantly increase sales and earnings.
The largest project, the Sangdong Mine in South Korea, is also already under construction. It is considered the largest mine outside China and can supply about 30% of global tungsten demand. The life of the mine is stated to be 90 years. Financing has been secured from KfW. Costs are USD 110 per ton, and there is an offtake agreement with Plansee Group, which will take 50% of the production at a minimum of USD 235 per ton. If the market price is above this, Almonty will receive more money. Meanwhile, 100% of the equipment to complete the mine has also arrived in South Korea. Construction is scheduled to be completed in the 2nd quarter of 2024.
Plans are underway to expand the mine from 640,000 t to 1.2 million t. Phase 2 is scheduled to begin around 2026 to 2027. The Sangdong property has further potential, hosting a molybdenum deposit that could also be mined. In addition, construction of a nano-tungsten oxide plant would enable the Company to supply the battery industry with tungsten oxide for the production of anodes and cathodes. Discussions are underway here regarding possible debt financing. The outlook is good for the Company, with the tungsten price at over USD 320; however, the good prospects are not yet reflected in the share price. Currently, one share certificate pays CAD 0.58.
Rock Tech Lithium - Planning underway for 2nd converter
The automotive industry in Europe has set its sights on expanding electric mobility. This increases demand for lithium, more precisely refined lithium, such as lithium hydroxide or lithium carbonate, in battery quality. Here, Europe is currently not in a good position. Rock Tech Lithium wants to remedy the situation with its 1st lithium converter in Guben. According to a July 4 announcement, basic engineering has been completed. The stress tests of the soil on the site in Guben were successful, and the final construction permit is expected in the 4th quarter.
Currently, the focus is on the financing of the converter. There is the possibility of receiving significantly more subsidies for the project since Europa Energiewende subsidizes projects significantly higher than before. At the same time, talks are being held with banks about the provision of debt capital, and Deutsche Bank has been commissioned to raise equity capital. In return, investors will receive a share in the converter. According to a company statement, many large companies are interested in participating. The planning for a 2nd converter in North America has also begun.
The summer exploration and mapping program is underway at the Georgia Lake lithium property. The goal is to significantly expand the mineral resource by 2024. Currently, the stock is under pressure and can be had for CAD 1.96. Once the financing for the converter is in place, the share should jump significantly. This announcement would be transformative. One should keep a close eye on the news regarding the share in order to jump on the bandwagon before it has sailed in the event of a successful announcement.
Europe is dependent on the development of further resources in order to reduce its dependence on China and to make its supply chains crisis-proof. However, this is no easy task because the hunger for raw materials is growing worldwide. Fertilizers are essential for harvesting rich crops. K+S has earned well over the past 2 years but now faces some challenges. Almonty Industries produces tungsten, a critical metal. With the Sangdong mine, dependence on China can be significantly reduced. Rock Tech Lithium** not only wants to produce lithium in Canada but also to refine it in its own converter. As soon as the financing is in place, the share should take off.
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") currently hold or hold shares or other financial instruments of the aforementioned companies and speculate on their price developments. In this respect, they intend to sell or acquire shares or other financial instruments of the companies (hereinafter each referred to as a "Transaction"). Transactions may thereby influence the respective price of the shares or other financial instruments of the Company.
In this respect, there is a concrete conflict of interest in the reporting on the companies.
In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
For this reason, there is also a concrete conflict of interest.
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