March 23rd, 2022 | 11:54 CET
Next oil crisis? Shell, Globex Mining, Glencore, Gazprom - Which stocks can deliver?
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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
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Glencore & Co. - Giants of the global raw materials supply in the hog cycle
In the global commodity crisis, what is the actual situation with the major producers such as Glencore, BHP or Rio Tinto? On the one hand, the charts of these companies are naturally at the top. On the other hand, they can hardly save themselves from demand in operational terms. Whenever the world is in short supply, the mining giants have accelerated their investments. Because, of course, they align their exploration budgets with demand. The fatal thing is the time factor. Because the development of new deposits and the expansion of processing capacities takes several years, the market has been in a price-driving excess demand situation for a very long time. When the mining companies are finally able to deliver, the supply quantity goes up, and the traded prices fall for the time being. In economic theory, such supply and demand waves are called "hog cycles."
Crises such as COVID or wars always cause severe disruptions in the supply situation because mining companies, in particular, have to make large investments. The logistical effort of moving quantities is challenging even in normal conditions. Today's just-in-time economy based on the division of labor can no longer afford longer downtimes of essential goods, and large inventories drive up working capital on the balance sheet. One is dependent on the functioning of global supply chains; unfortunately, this is where the crux of the matter lies. It falters! From today's perspective, many industrial companies would rather have more than less raw material in stock, but even this view can change again quickly, as major uncertainties remain.
Globex Mining - A valuable portfolio of projects
A wide-ranging portfolio of mining rights has accumulated at Canadian explorer Globex Mining. Here we do not find the classic junior explorer, but rather a company that has been listed for decades and is being developed forward by industry veteran CEO Jack Stoch. The Company's primary goal is not to build an investment-heavy mining operation but rather to optimize and maintain its holdings of more than 200 properties.
Jack Stoch operates an asset management business in the resource sector, continuously acquiring interesting projects and developing them further for planned resale. Thus, in addition to its many holdings in gold, silver, copper, platinum and palladium, and base and specialty metals, the Company also has sufficient cash to play the infinite possibilities of the international commodity markets. In the best case, Globex owns a property near a major, which only has to spend a comparatively low investment for the mine expansion. The next deal is already in the bag.
For Globex, this buy and build strategy has proven very successful. In addition to numerous investments and option rights, the Company also has a good CAD 20 million cash. The Canadians are debt-free and have just announced the signing of a letter of intent with Cartier Resources Inc. to acquire the East Cadillac property from Globex's holding O3 Mining. The property in question has numerous areas of gold mineralization intersected in recent drilling. Globex is pleased with the move for Cartier to advance exploration on this license area. Further, Globex has initiated a transaction involving First Energy Metals Ltd. and a group of prospectors to earn a 0.5% gross metal royalty (GMR) on 417 claims in the Preissac, La Motte and Fiedmont communities of Quebec. If approved by the TSX exchange, this will also increase regular revenues from the Globex portfolio.
Globex Mining's first listing on the Toronto Stock Exchange dates back to 1996; the stock is also actively traded in Frankfurt and the US. The market capitalization is currently around EUR 56 million, which is mathematically quite a considerable discount to the intrinsic value of the projects. The risk-conscious commodity investor can invest here favorably in a portfolio of opportunities.
Shell and Gazprom - What will the world look like after the military conflict?
Gazprom has been a popular partner for cooperation in the European energy sector. In 2021, for example, Shell and Gazprom had agreed on extensive, strategic cooperation to put energy supply in Europe on a new footing. At the time, the solemn notarization was followed with particular attention as a significant step. The cooperation was about the holistic view of energy markets, implementing projects along the entire value chain, and working together to digitize technologies and reduce greenhouse gas emissions - all well-sounding approaches for a promising energy industry in Europe.
Alexey Miller and Ben van Beurden also discussed the successes achieved in the cooperation between Gazprom and Shell. One of the topics was the Sakhalin-2 project. According to the previous year's results, record volumes of over 11.6 million tons of liquefied natural gas produced were delivered to Central Europe as part of this project. Special attention was also paid to the coal phase-out in the European energy industry. It was found that natural gas, thanks to its environmentally friendly properties, can play a significant role in achieving European climate targets.
Now, at the beginning of March, comes the end: Shell will terminate its cooperation with the Russian gas monopolist Gazprom and related companies. Among other things, this affects the Company's stake in the Sakhalin-2 liquefied natural gas plant. It has also ended its cooperation on the Nord Stream 2 pipeline project. Unfortunately, this senseless war now jeopardizes the energy supply for Europe and destroys any good relations with a reliable partner in the East.
For the parties involved, this outcome means significant losses in meaningful investments and the end of a fruit-bearing cooperation. The Shell share climbed to new highs after the termination of the Russian activities. Gazprom can now only be traded OTC with a 90% loss in price and will probably disappear from the share price for good. It is primarily the investors and the European energy consumers who have lost out. The new cold war is also taking hold in the energy sector; political walls that have long been considered dissolved are currently being rebuilt. What a historical regression of a successful 70-year rapprochement.
The commodity markets will have to redefine and find their new center to the exclusion of Russian shares. Sanctions will now cause major dislocations and price escalations for the time being. Oil has already doubled in price. Investors should pay close attention to which commodity investments make sense today. Standard stocks such as Shell or Glencore are earning from this global imbalance, and the small Globex Mining is also well positioned and not too expensive.
Conflict of interest
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