May 4th, 2022 | 12:04 CEST
K+S, Globex Mining, BHP Group - Commodity stocks for the next supercycle
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"[...] 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
K+S - Competitors have made headway
Prices for agricultural commodities have risen significantly over the past year, with the potash price reaching a new 13-year high. The reason for this is the continuing sanctions against Belaruskali, which initially served 20% of the world market. Currently, the Ukraine crisis is fuelling prices. With the loss of wheat production from Russia and Ukraine, there is a greater need than ever for a good harvest. This benefits the Kassel-based fertilizer producer K+S, which has achieved an impressive turnaround since 2021. In addition, the Company has no significant points of contact with Russia or Ukraine, so the business can continue to flourish.
The past fiscal year was outstanding and EBITDA climbed by 262% to EUR 969 million. The first quarterly figures on May 11 will show whether the new year will also be as good. There are first signs that things will continue similarly positive, as competitors Nutrien and Mosaic have already published their figures, and they were good. The outlook is also positive, as prices are expected to remain high due to the Ukraine conflict. In addition, it is noticeable that the ratio of inventories to consumption is at a multi-year low.
So the sentiment could not be better, and after the strong debt reduction and cost reduction in 2021, the Kassel-based company is very well positioned operationally. The share was the top performer in the MDAX in 2021 and has also gained more than 140% this year, so the question arises of whether one should still get in. At a current price of EUR 32.04, the market capitalization is around EUR 6.1 billion. In contrast, EBITDA is planned at EUR 2.3-2.6 billion, which would make the share fundamentally favorable. Courageous investors can use the current setback for a first entry.
Globex Mining - Business is good
Globex Mining (Globex) sees itself as a bank for mineral resources. The Canadian company has built up a portfolio of 207 projects over the past decades, which is unparalleled. From base metals such as copper, nickel, zinc, lead to precious metals such as gold, silver, platinum, palladium, as well as special metals and minerals such as manganese, antimony, titanium, iron, feldspar, talc, magnesium oxide, molybdenum, bismuth, silica, lithium, cobalt, uranium, diamonds and rare earths, everything is included. The projects are located in Canada, the USA and Germany and therefore have a low political risk. The Company's speciality is to acquire low-cost and promising projects and expand them with its explorations.
Subsequently, the projects are licensed or sold to interested companies, and Globex receives shares and/or royalties in addition to cash. This model works well, which can be seen in the Company announcements from April. On April 4, Troilus Gold reported new drill results with up to 7.12 g/t gold. Globex sold the property in 2020, and Troilus paid for it with 350,000 treasury shares and a 2% royalty. On April 6, Orford Mining reported results from a Globex project of up to 6.4 g/t gold. Orford secured an option in November to acquire 100% of the project, paying CAD 1.65 million in shares and cash and about CAD 2.8 million for exploration over 5 years. The royalty rate is 3.5%. If the requirements are not met, Globex will receive the project back.
On April 13, Labyrinth Resources issued an update on its drilling program on the Globex license property. Globex will receive a 5% gross metal royalty on the first 25,000 ounces of gold, with 3% thereafter. Even though the corporate updates were only about gold projects, it works the same way for the other commodities. The Company holds CAD 20 million cash and is debt-free, and all of the Company's infrastructure is paid for. With these financial resources, it is possible to make further acquisitions. The stock is trading at CAD 1.36 after a consolidation, bringing it to a market capitalization of CAD 75.4 million. It is important to emphasize here that there has never been any dilution of shareholders.
BHP Group - Weaker 3rd quarter
BHP Group, based in Australia, is the largest natural resources company globally. Its primary businesses are oil, copper, iron ore and coal. The Company is engaged in the exploration, development and production of oil and gas deposits and the mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore and metallurgical and energy coal. In addition, it has expertise in mining, smelting and refining nickel and developing potash. The Group's products are key to the energy transition and can help make the world more emission-free.
The Australian Company's fiscal year runs from July 1 to June 30, and the half-year figures were impressive. There was a profit of EUR 9.44 billion, corresponding to an increase of 144%. The main drivers were higher prices for iron ore and copper. By contrast, the figures for the 3rd quarter were more mixed. Oil production was up 2% YOY, but the copper division, in particular, lost 10% production. On May 3, the sale of BHP Mitsui Coal to Standmore for USD 1.1 billion was announced. USD 250 million was to flow later.
Interested investors can use the recent setback to buy. The stock has fallen from USD 79.66 to USD 63.86 from April 1, partly due to weaker production data, and is currently trading at USD 67.40. The dividend yield is about 10% due to an interim dividend of USD 1.50, but that has already been paid. It is also clear that energy costs have increased, but the Group should be able to absorb this thanks to high commodity prices.
If you want to protect your money from inflation, you can hardly avoid investing in shares. Commodity producers are benefiting from rising demand and can pass on the increased costs. K+S continues to benefit from the sanctions in Belarus and the uncertainties due to the Ukraine conflict. Globex Mining has a very diversified portfolio and has no political risks due to the location of its more than 200 projects. BHP Group is the largest commodity company globally, with a market capitalization of approximately USD 181 billion. Commodity stocks belong in every portfolio.
Conflict of interest
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