Long on war with Rheinmetall, Defense Metals, BYD

Rheinmetall: Where the peace dividend goes

When the invasion of Ukraine became public, everyone in Germany stopped. Some people with roots in Russia and Ukraine could not keep their phones ringing off the hook. For the first few days, people were in a state of shock. Resourceful investors, however, were quick to lay in wait for shares like Rheinmetall - and rightly so. At the latest, since Chancellor Scholz's "turn of the times" speech, armaments have also been booming again in Germany. In times of wars of aggression on the European continent, the motto "peace without weapons" is considered naïve and outdated. Instead, deterrence is celebrating a chilling comeback.

Like a party at which Duran Duran or the Pet Shop Boys are unexpectedly playing, investors can come to terms with the current situation - provided there is no further escalation. According to current theories of conflict research, the balance of power certainly has the potential to create stability. And this is what people around the world want. While the peace dividend, i.e. free budgets in national budgets due to the absence of a military threat, is not forthcoming, investors can take a kind of call on conflicts into their portfolios with shares such as Rheinmetall. The share price fluctuates between EUR 175 and EUR 220, and a decision on the share price direction has yet to be made. The fundamental outlook is good, but the timing for an entry is becoming increasingly difficult.

Defense Metals: Lead, location and momentum as good arguments

Naming Defense Metals was also increasingly difficult - at least until February 24. Defense Metals has the Wicheeda rare earths project in Canada. Because these elements are also needed in the defense industry, among others, and are therefore considered strategically important within North America, the makers of Defense Metals chose this logical name. In Europe, investors sometimes had a hard time with the name - after all, until months ago, armaments and defense were almost universally associated with negative connotations. In the meantime, however, these irritations have faded away. European investors now also realize that Defense Metals may have hit the mark with the location and potential of the Wicheeda project.

About a month ago, Defense Metals reported 3.81% TREO (Total Rare Earth Oxides) over 116.8 meters, including two separate higher-grade intercepts averaging 4.33% TREO over 38.8 meters and 4.87% TREO over 37.5 meters. Luisa Moreno, President and Director of Defense, commented, "A key objective of the 2021 drill program was to upgrade the existing suspected mineral resources to the indicated category. We are pleased that resource delineation drilling in the south of the Wicheeda deposit has confirmed and locally expanded the size of the high-grade dolomite carbonatite mineralization." Recently, it became known that other exploration companies have discovered the area around the Wicheeda property and cite the April results as one of the reasons for their investments. Defense Metals, however, should continue to have advantages as a first-mover as rare earths play an important role not only in defense, but also around renewable energies, e-cars and electronics. Elements of the rare earths group stand for the future. The current spirit of the times can only be positive for Defense Metals. However, investors should keep in mind that this is a growth company.

BYD: The devil is in the details

If investors now think of rare earths as stealth bombers and the latest military technology, that is true. But it is equally true that the elements surrounding the auto industry play an important role. Companies like BYD have benefited from China's raw materials policy for years. About 20 years ago, strategic decisions were already being made in Beijing, and preparations were being made for the impending hunger for raw materials in the wake of China's growth phase. But in the meantime, the situation has changed. Today, it is no longer just the raw materials that matter but also how they come out of the ground. In addition to environmental influences, social criteria and the quality of corporate governance also count. China is not exactly a pioneer when it comes to ESG. At the same time, the EU is planning to make supply chains transparent and sustainable. In other words, an electric car containing rare earths that have not been sustainably mined will be considered less green in the future. Although BYD is well positioned with its chip division and battery know-how, ESG risks lie dormant in the value.

Ultimately, the beneficiaries could be producers of raw materials that mine sustainably - like Defense Metals. The Company has long been committed to ESG. In addition, the location in Canada promises high standards. Rare earths from Canada could thus enjoy a further advantage on the world market. Since even the former "bad boys" Rheinmetall are being measured against ESG criteria, the chances for the small growth company from Canada are good. Armaments and sustainability are trends that are here to stay.