June 9th, 2021 | 08:28 CEST
NEL, Troilus Gold, K+S: After the hype is before the hype
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"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
NEL: Hydrogen veteran under competitive pressure
NEL's stock was one of the high flyers in 2020, climbing from around EUR 1 to EUR 3.35 at the beginning of January 2021. NEL handles the production, storage and transport of hydrogen. For a long time, the Company was considered a good choice because of its comprehensive business model. Recently, however, some orders have slipped through the Norwegians' fingers. Even an order from the Spanish utility Iberdrola for the supply of electrolyzers, which was almost guaranteed, was lost. There are many reasons for this. Although NEL is considered technologically advanced, there is more and more competition on the market for hydrogen products. This competition often has entire corporations up its sleeve, which have completely different options for large-scale projects and financing. When customers have a choice, the lucrative orders are spread out - and top dogs like NEL are more often left out in the cold.
In 2021, the stock has had a pitch-black year so far. In the last three months alone, the share price has fallen by 27.1%. If you look at the share over a year, you see a zero return - the entire hype of the past few months is already over on the stock market. So, where does NEL go from here? Experience with hype stocks shows that new rises are likely after such a sell-off. However, these rises usually do not take the stock back to the old highs. In the short and medium term, prices above EUR 2 would already be a surprise. Hydrogen is an exciting future technology, but the competition is already fierce and the NEL share is expensive. Stock market newcomers, in particular, should not hope for a brilliant comeback.
Troilus Gold: Step by step towards production
Unlike NEL in the hydrogen sector, Troilus Gold is not a hype stock. Instead, the Canadians are quietly accomplishing their work. Troilus continues to develop its namesake mine, which produced more than 2 million ounces of gold and 70,000t of copper between 1996 and 2010. Troilus believes that the mine was notoriously under-explored during its production - the operator at the time invested little in the project. Troilus is now taking advantage of this and is catching up on the work. Since January, Troilus has already drilled 21,000 meters and plans to drill another 10,000 meters each month over the summer. A steady newsflow and new prospects for the mine, which was already profitable at significantly lower gold prices, can thus be expected.
From August, the experienced Richard Harrison will also strengthen the Company as Chief Operating Officer. The mining expert has already co-developed mines in the past, has a sound technical background, is familiar with planning and construction, the necessary permitting procedures, and leading teams in the resource sector. In the past, Harrison has worked with Agnico Eagle, Premier Gold, Xstrata, Cambior and Aur Resources. The personnel move underscores Troilus' plans to move quickly into production. A preliminary feasibility study is planned for 2020. Analysts at Cormack Securities called Troilus a "top pick" in May and issued a price target of CAD 4.50. Currently, the stock is trading around CAD 1.15. Given the rebounding gold price and increasing inflation fears, Troilus' stock could still rise in the market's favor. The project and management team appear promising.
K+S: The principle of hope reigns here
Investors also have high hopes for K+S: The fertilizer specialist has gained 78% over the past year. In the last three months, the share price has still risen by 25%. However, the share has weakened recently. The reason: K+S is still struggling financially and does not have the best balance sheet. In recent months, the stock has benefited from the turnaround fantasy. K+S succeeded in divesting problematic business segments. Added to this were rising raw material prices - which have always been a price driver for K+S. With an increasing valuation, however, investors are once again focusing more on the facts. These speak a clear language: free cash flow has fallen more and more in recent years and even signals a threatening situation. The K+S share is, therefore, a hot potato.
Conclusion: Invest in the future without inherited burdens
Similar to NEL, the K+S share also has its best times behind it. Both companies are suffering from increasing competition and cost pressure. Only an unforeseen event could give both shares another boost. The situation is different for Troilus Gold. Due to its status as a mine developer, the stock is speculative, but the Company does not suffer from legacy issues, and gold is in demand. Since there is also copper in the ground at Troilus, which benefits from the boom in electric mobility, investors can take a closer look at the value.
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