March 11th, 2022 | 12:23 CET
K+S, Edison Lithium, BASF - Explosives for the stock markets
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"[...] In 2020, the die is finally cast in the automotive industry towards electromobility. [...]" Dirk Harbecke, Executive Chairman, Rock Tech Lithium Inc.
Edison Lithium - Following the trend
The changeover from the combustion engine to the battery-powered electric car is still at the beginning of the cycle. However, it is already apparent that lithium deposits will be far from sufficient to cope with demand. Already, analysts are warning that rising commodity prices could slow the energy transition by slowing the rate of decline in battery costs. "Companies across the lithium-ion supply chain are in the best position," Pedro Palandrani of Global X Lithium & Battery Technology ETF told Reuters' English-language service.
In addition to the largest lithium producers such as Albemarle and Standard Lithium, exploration companies that will only start production in the next few years but are already securing promising deposits with expected high lithium content to counteract the impending supply shortage will also benefit from the supercycle in the long term. In total, more than three-quarters of global lithium production is mined in Chile, Argentina and Australia. For years, Argentina has been particularly prominent in this field, with the aim of overthrowing Chile as the top dog by the end of the decade.
Edison Lithium, known as Battery Metals until the end of 2021, focuses on exploring and developing cobalt, lithium, and other energy metal deposits. In 2021, Edison acquired Argentina-based Resource Ventures SA for USD 1.85 million. This enabled the Canadians to secure prospective lithium brine claims in Catamarca Province, Argentina. The area covers 148,000 hectares and is primarily located in the two geological basins Antofalla Salar and Pipanaco Salar in the so-called "Lithium Triangle".
In addition, the Company, which is also traded in Frankfurt with a market capitalization of only EUR 11.64 million, owns a prospective cobalt project near Ontario in Canada. The historic deposit includes the Thomas Edison, Shakt-Davis and Cobalt-Kittson mines and several unexplored pits. Previous resource estimates at Shakt-Davis indicated grades of 1.5% cobalt over 1.37m and selected grab samples of up to 4% cobalt and 93.3 g/t gold. In addition, occurrences of nickel and copper were awarded. Edison Lithium is in the early stages of exploration, with deposits mainly in South America promising greater potential.
K+S - Profiteer of scarcity
Commodity companies, especially those from Germany, were considered somewhat dull and sluggish investments in the recent past. However, this has changed since the outbreak of the Corona pandemic, but at the latest since the invasion of Russia, the scarcity of certain raw materials such as fertilizers and salts has become a hot investment topic. K+S has been able to profit since the low in March 2020, and the share price has risen by 360% since then.
Last year's financial figures have now been presented, which exploded from EUR 220 million to EUR 969 million due to the increased fertilizer price. Despite the current Ukraine crisis and uncertainty for global agricultural markets, the Company is also sticking to its annual targets for 2022. The Company expects operating profit EBITDA to rise to between EUR 1.6 billion and EUR 1.9 billion. "With the range mentioned, we would generate the best result in our company's history to date," said CEO Burkhard Lohr. On the other hand, US bank JPMorgan sees the development in the share as too advanced and reiterated its "underweight" rating with a price target of EUR 12.50 after the figures. That represents a discount of around 50% to the current level.
BASF - Under pressure
The BASF share has been severely under pressure in recent weeks. After several attempts to break out above the EUR 68.50 range, the share fell to below EUR 48 due to the weak overall market. A small countermovement followed, but an easing of the negative chart picture at a price of EUR 53.05 is not yet given.
The analysts were not very optimistic about the chemical group from Ludwigshafen. Deutsche Bank's analysts see a lack of momentum and a catalyst for the share price in the coming months. The buy rating with a price target of EUR 90.00 has now been lowered to a "hold" with a price target of only EUR 64. In contrast, analyst firm Jefferies reiterated its buy recommendation with a price target of EUR 80.
Due to the escalating situation in Ukraine, the risk of rising inflation figures is high. Concerning the energy transition, the important metal lithium is in a further rising trend, which could benefit exploration companies such as Edison Lithium. K+S is benefiting from rising fertilizer prices. According to analysts, BASF is lacking impetus at the moment.
Conflict of interest
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