March 4th, 2022 | 12:33 CET
K+S, Phoenix Copper, Barrick Gold - Commodities as portfolio boosters
Table of contents:
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
K+S - Strong year ahead
Now that Russia is no longer a major exporter of wheat, an alternative is needed. If you want to harvest more wheat, you can resort to fertilizers. K+S, which put in an impressive performance in 2021, is particularly worthy of consideration. The shares gained more than 120%, and a break in the trend is unlikely because the other wheat producers have to close the gap as best they can. Already last year there were crop failures due to severe weather, causing the potash price to skyrocket.
This high price puts the Group in a position to forecast a significant increase in earnings even though energy and logistics costs have risen significantly. Management expects EBITDA of between EUR 1.6 and 1.9 billion. That would then almost double the already very good operating result from 2021. Incidentally, the Company reduced its debt significantly and is well equipped for the future.
The sanctions against Belarus, which are likely to remain in place, will also have a positive effect. In addition to the Russians, athletes from Belarus are now no longer allowed to compete in the Paralympics. Belarus is home to one of the world's largest potash producers. The Canadian competitor Nutrien, which expects record sales this year, has also benefited from this. The share of the Kassel-based fertilizer manufacturer is currently quoted at EUR 22.94 and has not been affected by the poor mixed situation in the DAX environment but has merely been slowed down.
Phoenix Copper - Ahead of production start
Worldwide electrification continues to advance, and more people have access to electricity. Copper's properties make it ideal for transporting electricity. The revolution in the automotive industry away from combustion engines to electric vehicles has once again significantly increased demand. 3-4 times as much copper is needed in an e-car as in internal combustion vehicles. Phoenix Copper Limited can help meet the demand in the future. The Company owns three exploration projects in Idaho called Red Star, Borah Resources and Navarre Creek, where gold, silver, lead, zinc, copper and cobalt are present. However, the flagship project is the Empire Project, which is on track for production.
Since 2017, the Company has owned an 80% interest in the project, which has historically mined copper, zinc, gold and silver. A total of 445 drill holes have been drilled, and resources of 129,641 tons of copper, 58,440 tons of zinc, 10,133,772 ounces of silver and 355,523 ounces of gold have been inferred. In addition, there is tungsten and molybdenum on the nearly 29 sq km property. According to the consulting geologist, just 1% of the ore system has been explored. The operating plan for the mine was submitted in June last year, and operations are expected to begin in 2023. The cost is USD 52.6 million and should pay for itself in 2 years. At the International Investment Forum, CFO Richard Wilkins presented the Company and projected first-year net sales of USD 90 million, USD 56 million EBITDA, and USD 43 million after-tax cash flow. Here is the transcript.
On Feb. 16, SISM Research published its analysis on the Company. It issued a price target of EUR 1.72 for the next 12 months and a speculative buy recommendation. The Company currently has about USD 15 million in cash and is thus financially well-positioned. The stock traded in Stuttgart, Frankfurt, London and the US is currently trading at EUR 0.60. The high from 2021 was EUR 0.92. The share still offers some upside potential and is diversified.
Barrick Gold - Gold price boosted
For a long time, the share of Barrick Gold hung in there. It was said that there was too little imagination in the value. Even as inflation continued to rise in recent months, the value could not free itself from lethargy. Since the Ukraine crisis, falling indices and weakening cryptocurrencies, the gold price has released itself from its sideways phase. The profiteer of this is naturally Barrick Gold, one of the world's largest gold producers. Despite some Corona difficulties and natural disasters, the presented annual figures were on target.
In addition to gold, the Company is particularly well-positioned in copper production, even though production slumped 9% YOY. A total of 415 million pounds of copper were produced. However, copper production in the fourth quarter was 11-13% higher than in the third quarter. One should wait for the first quarterly figures in 2022 to see if the trend continues. For gold, 2022 production volumes are expected to be between 4.2 and 4.6 million ounces, and for copper, between 420 and 470 million pounds are expected. The Group expects production costs to increase due to higher energy and logistics costs.
As a result, analysts expect the Company's profit to decline. One forecasts a decline of about 10%. However, it should be noted that Barrick's estimates are based on a gold price of USD 1,700 and USD 4 per pound of copper. Currently, both values are well above these fundamentals, so the analysts could be wrong here. There could be a similar effect as with K+S, where costs are more than absorbed by significantly higher raw material prices. The share is quoted at USD 23.15 and has thus broken out to the upside.
No one knows how long the Ukraine crisis will last, but raw materials will remain scarce. More and more people in the world need access to electricity, and copper is indispensable for this. If the sanctions against Belarus were to fall, K+S would suffer. But this is not expected to happen for the time being. With Phoenix Copper, another copper producer is in the starting blocks. As soon as the mine goes into operation, it will no longer be possible to buy the share at today's favorable price. Barrick Gold has gold as an inflation hedge and copper as a metal for the future in the automotive industry. In addition to the price fantasy, there is a dividend.
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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