June 4th, 2021 | 08:11 CEST
Lufthansa, Almonty Industries, Volkswagen VZ: Fresh starts and takeover fantasies
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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
Lufthansa: What is next?
Deutsche Lufthansa wants to expand its long-haul services at Munich Airport again. Shareholders and staff alike should be pleased - after all, this is a sign of normality returning. The crane airline's finances could also soon return to pre-crisis levels. During the pandemic, the German government made a silent partnership contribution of EUR 5.5 billion, presumably saving the Company from bankruptcy. In the meantime, Lufthansa is planning a capital increase to at least partially redeem this silent participation. It is not yet clear whether the state's share will actually fall after the capital measure. Most recently, Finance Minister Scholz signaled the federal government's willingness to underwrite Lufthansa's capital increase. So at least in the event of insufficient market demand, the federal government is likely to stand by.
The Lufthansa share was one of the biggest winners of the past few days - in just five trading days, the share climbed by 8.8%. But in the long term, things continue to look rather bleak: Within three years, the value has lost around half. Whereas Ryanair's competitors have been clamming up during the crisis and paid an extremely favorable price to purchase new aircraft of the type formerly known as the 737b MAX, Lufthansa has kept a low profile. It is not yet clear to what extent this attitude is costing Lufthansa market share. But the fact is that the pandemic has changed customer behavior. Many flights that were once taken for granted are now up for grabs. Whether airlines that the state has rescued in almost every country can score points in this environment remains to be seen. After all, the bailouts are likely to have encouraged overcapacity. Above EUR 11.50, the Lufthansa share may have short-term potential. However, the share is not a sure-fire winner.
Almonty Industries: Gigantic tungsten mine celebrates topping out ceremony
One Company that benefits indirectly if more aircraft are built is Almonty Industries. The Company mines tungsten, a unique metal in its properties and is used wherever high heat is generated. In addition to aviation, these include classic light bulbs and medical technology or drill heads in mining. The entire tungsten market is strongly dominated by China. After the country cut its production volume in the second half of 2020, prices climbed. Almonty Industries is one of the few tungsten alternatives outside China. In addition to a producing mine in Portugal, Almonty Industries is developing the Sangdong mine. This mine is the largest tungsten project outside China, located in South Korea. The mine has the potential to provide 50% of the world's tungsten supply outside of China.
The Company's recent activities also show that this could soon be the case. At the end of May, the topping out ceremony was held in Korea. Production is now to increase step by step. Almonty Industries is financed by the Kreditanstalt für Wiederaufbau (KfW) and has an important anchor shareholder in Deutsche Rohstoff AG. The Company is working on a listing on the stock exchange in Australia, which could give the share new impetus, coupled with the start of production. Although the share is currently trading near its all-time high, Almonty is still only valued at around EUR 155 million. Given the size of the Sangdong mine and the Company's other projects, significantly higher valuations could be justified.
Volkswagen VZ: What does the entry into the commodities business bring?
The market has also been attributing higher valuations to Volkswagen for months. The automaker announced an e-car offensive months ago. Most recently, the next hammer: Volkswagen wants to float its battery division on the stock market independently. At the same time, the Company is toying with the idea of securing its access to critical raw materials for battery production. The thrust is clear: The Company wants more of the pie and to be less dependent on countries like China, which are ahead in many strategic metals. Volkswagen is in good company with its strategy. Tesla is already securing raw materials and is involved in a nickel mine in the Pacific paradise of New Caledonia.
The commitment of companies like Volkswagen and Tesla is understandable: Large commodity companies are still reluctant to invest in certain raw materials, such as lithium. If batteries cease to be the key technology for the automotive industry, skeptics say overcapacities could arise. But the entry of large corporations into a completely new field is also challenging and associated with risks. More likely, therefore, are equity investments and joint ventures with commodity companies. Volkswagen shares currently have a tailwind and are heading for the highs of April. The outlook remains promising. However, commodity companies could also benefit indirectly from rising valuations at VW and Co. - namely, if large industrial companies go on a buying spree with their own highly valued shares.
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