April 11th, 2022 | 19:03 CEST
K+S, Edgemont Gold, NIO - Shares as protection against demonetization
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"[...] One focus will be on deposits near the surface. These would be good arguments for a quick production decision using the low-cost heap leaching method. [...]" Brodie Sutherland, CEO, Tocvan Ventures
Edgemont Gold - Attractive after the setback
Investors who have held the Edgemont Gold share in their portfolio for some time may have thought to themselves: "Back on track". Since December 2020, the Company, which currently has a market capitalization of just EUR 1.61 million, has more than tripled in value from EUR 0.06 to EUR 0.21. However, recently released assay results from its latest Phase 1 drill program at the Dungate copper-gold porphyry project spooked investors so much that the stock plunged more than 70%. Strange, because CEO Stuart Rogers expressed enthusiasm for "the assay results at hand" and firmly expects to "finalize the drill plan and begin the Phase II drill program next month."
As mentioned earlier, Edgemont Gold's focus is on the Dungate copper-gold volcanic project. It is located 6km southeast of central Houston in the Canadian Pacific Province of British Columbia. The mining area is also home to Imperial Metals' historic Equity Silver Mine and the Huckleberry Mine. Having acquired an interest in its first claims at Dungate in 2018, the Company now owns five properties covering 1,582 hectares that are drivable and explorable year-round. Given the sharp drop in the share price and the optimistic statements of the Company's leader, the correction may have been an exaggeration. With good results in the Phase II drilling program, this could be put into perspective again.
Next breakout for K+S
Things are going like clockwork for potash producers. After a brief correction below the EUR 25 mark, last week saw a bullish reversal and a breakout above the high for the year to date of EUR 30.07. The Kassel shares went into the weekend with a plus of 9.52% and a closing level of EUR 32.45. The reason for the increase was, on the one hand, positive analyst opinions; on the other hand, further short covering may have pulverized the gains once again.
Analyst Chetan Udeshi from JPMorgan was positive about the European potash producer. The massive supply problems with fertilizers following sanctions against Russia would lead to a veritable explosion in earnings for K+S. The Kassel-based group would also benefit from high energy prices in the overall good agar environment. The investment recommendation was upgraded from "underweight" to "overweight". The price target was raised from previously EUR 12.50 to EUR 44.50, which still means a potential of almost 40% calculated on the current price.
Indeed, the MDAX-listed Company is planning to achieve record results in the current year. Operating earnings EBITDA should be between EUR 1.6 billion and EUR 1.9 billion, which would mean the best result since K+S AG was founded. Against this backdrop, adjusted free cash flow should also rise sharply to between EUR 600 million and EUR 800 million. Despite the analysts' optimistic statements, the chart is already forming a flagpole, and the indicators are also massively overbought. Jumping on the current bandwagon could be very painful. The next resistance is already at EUR 33.46. In contrast, the price opened a gap on Friday, which is likely to close at EUR 29.83.
NIO with production stop
The chart picture for Chinese electric car manufacturer NIO looks much more negative. After highs of USD 66.99 in January 2021, a steep correction set in, which led to a low of USD 13.01 in mid-March. Since then, the value recovered to resistance at around USD 24 but then turned downwards again. Currently, NIO is struggling with the critical mark at USD 20. A break of the prominent resistance area would result in a retest of the low for the year.
The fundamental situation is reflected in the chart. The Chinese company announced that it has suspended production due to supply chain failures in the wake of the Corona Crisis. "Since March, the Company's suppliers in several locations, including Jilin, Shanghai and Jiangsu, have suspended production one after another for reasons related to the epidemic and have yet to recover," the Company announced on its mobile app. The Company will postpone the delivery of e-vehicles to users and work with suppliers to resume production while complying with the government's COVID restrictions, the message said. Given the risky situation, it is currently advisable not to invest.
Inflation remains longer than expected, on the contrary. Due to the conflict in Ukraine and the proclaimed sanctions against Russia, the supply of fertilizers is further tightened. K+S is benefiting but is already in overbought territory at the moment. NIO has to bow to the Corona pandemic and is currently stopping production. Edgemont Gold could be an alternative after the setback as a speculative addition to the gold portfolio.
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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