Phoenix Copper, Glencore, Rheinmetall - High demand is intact

Phoenix Copper - CEO and analysts are optimistic

In a recent interview, Ryan McDermott, CEO of the budding copper producer Phoenix Copper, recently described his Company's prospects. The Company is focused on the Empire Open Pit project (copper oxide) in the Alder Creek mining district in the US state of Idaho. Major milestones ahead: Phoenix Copper expects to receive the results of a feasibility study in the next few months with a view to starting production no later than the first half of 2023. A number of permits are still pending - their issuance is linked to more extensive environmental testing due to an unusual mining process (heap leaching).

Heap leaching involves injecting highly dilute sulfuric acid into the mine, which flushes the copper out of the rock. The solution must then, in turn, be pumped to the surface to extract the copper from it. The comprehensive environmental assessment must clarify whether the sulfuric acid can be captured entirely to prevent contamination of groundwater and surface water. Company leader McDermott, however, expressed confidence. He said that soil tests had shown that its composition would allow the sulfuric acid to be captured well. As a result, production is even more environmentally friendly than conventional processes, so he does not expect any delays in the approval process.

In addition to the Empire project, the Company has the historic Horseshoe, White Knob and Blue Bird mines, all of which have historically produced copper, gold, silver, zinc, lead and tungsten from underground mines. A recent discovery at Red Star, 330m northwest of the Empire Mine, showed high-grade silver and lead sulfide ore. Phoenix Copper announced a 3,000m drill program to evaluate these deposits better later this year.

The Company is currently valued at EUR 73 million on the London Stock Exchange. The shares are traded in the USA (OTCQX) and Frankfurt. However, the valuation does not reflect the upcoming revenue streams. According to analysts' estimates, the Company will generate revenues of around USD 45 million in 2023. Analysts at SISM Research consider the shares to be significantly undervalued.

Glencore - More coal

The world's largest commodities trader, Glencore, is currently facing criticism. Contrary to the communicated corporate strategy of gradually reducing coal production, this very area experienced an output increase of 16% in the last quarter. Shareholders voiced their displeasure at the Annual General Meeting and gave the climate report only 76% approval, compared with more than 94% in the previous year.

The Company also substantially expanded production in the nickel sector (+22%). By contrast, the production of lead, another sought-after metal, fell by 15%. Cobalt production made a significant leap forward with +43%. That is in line with the recently announced multi-year supply agreement with GM, following the signing of a supply contract with battery manufacturer Britishvolt last year. In contrast, however, the cobalt for GM is not coming from the Congo but mines in Australia.

Concerning the outlook for the year as a whole, the Group was confident. Although tense market conditions characterized the first quarter, the upper end of the long-term adjusted EBIT forecast of USD 3.2 billion should be significantly exceeded for the full year, according to the Group's management statement. Analysts, on average, see a share price potential of around 20%.

Rheinmetall - Order boom and excess profit tax?

In view of the current conflicts in the world, especially in Ukraine, the Düsseldorf-based defence company has been experiencing a boom in orders for months. The EUR 100 billion special fund for the modernization of the German armed forces envisaged by the German government should also ensure full order books in the coming years.

The rally in the share price since the beginning of the year is therefore not surprising. However, some analysts believe that the end of the road has slowly been reached. In its latest update, ODDO BHF doubled its price target to EUR 237 but withdrew its buy recommendation given the current price level.

The quietly emerging debate about an excess profits tax for companies that profit disproportionately from the war in Ukraine, such as arms and oil companies, is causing additional uncertainty among shareholders. In an initial statement, the German government rejected such a tax, but who knows?

Armaments are the topic of the hour. However, Rheinmetall may have already exhausted its share price potential. The situation looks better for commodity companies. The recent price setbacks at Glencore offer opportunities. However, Phoenix Copper is the most interesting for us. The Company will start copper production next year. Visibility and company valuation should increase with progress in the permitting process.