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February 16th, 2023 | 22:10 CET

Rare earths are increasingly important: Rheinmetall, Defense Metals, Volkswagen

  • Mining
  • Tungsten
  • RareEarths
  • Electromobility
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Der Spiegel, Die Welt, Münchner Merkur - in the past week alone, many media reported on the role of rare earths in the energy transition. The conclusion everywhere: rare earths are not rare but urgently needed. Mining sites, therefore, urgently need to be developed - ideally in a sustainable and environmentally friendly way. We focus on three companies in urgent need of rare earths or considered up-and-coming producers.

time to read: 3 minutes | Author: Nico Popp
ISIN: RHEINMETALL AG | DE0007030009 , DEFENSE METALS CORP. | CA2446331035 , VOLKSWAGEN AG ST O.N. | DE0007664005

Table of contents:

    Rheinmetall: Business is booming

    Rheinmetall's stock has recently experienced great popularity. The war in Ukraine is creating a boom for defense companies. In the first nine months of the fiscal year, Rheinmetall's sales climbed by 6.5%. Profits doubled. Margins improved above all at Vehicle Systems, Weapon & Ammunition and Materials & Trade. As recently as Wednesday, Germany's new Defense Minister, Boris Pistorius, stressed that the NATO target for military spending of 2% of gross domestic product should be the lower limit for defense spending in the future. Companies like Rheinmetall are, therefore, likely to continue to benefit.

    However, raw materials are needed to manufacture the products in demand. A US Virginia-class submarine contains around 4 tons of rare earths. An Arleigh Burke-class destroyer still contains 2t, and an F-35 fighter jet more than 400kg. The more modern the military equipment, the more rare earths are used. Companies such as Rheinmetall should be fine in the future in obtaining supplies of rare earths - countries in rearmament mode are likely to continue to pay any price to be able to guarantee their security.

    Defense Metals: Progress at rare earth project in Canada

    The Canadian company Defense Metals should gladly accept potential high bids. The Company is advancing one of North America's most promising rare earth projects in Canada. The Wicheeda project covers 4,262 hectares of land and is located about 80 km from the city of Prince George in the Canadian district of British Columbia. Just recently, the Company announced the results of so-called variability flotation tests. "Flotation testing of variability samples from the dominant lithological unit of the Wicheeda rare earth metal deposit returned an average recovery rate of 81% for a concentrate grading 45% rare earth oxide. Wicheeda is one of the few rare earth metal deposits currently being developed from which a high-grade mineral flotation concentrate can be produced with recovery rates similar to those of current rare earth metal producers. High-grade concentrates with high recovery rates are a fundamental requirement for positive production economics," commented John Goode, metallurgical consultant for Defense Metals.

    The Company had already started work a few weeks earlier, the results of which may be included in a preliminary feasibility study. The stock rose sharply in the wake of the Company's news, most recently marking a new 52-week high. If the share stabilizes at current levels and the corporate news remains positive, it could run towards the 2021 highs. While Defense Metals is a small cap and thus remains speculative, experienced investors can add the stock to their portfolio as a portfolio addition. Demand for rare earths is likely to remain unbroken for several reasons over the next few years. The location of the Wicheeda project in Canada and the high environmental standards that apply there could also play a decisive role.

    Volkswagen: Soft factors become hard facts

    The fact that these formerly soft factors also play a role in the choice of raw materials is demonstrated, for example, by the commitment of carmakers such as Volkswagen, striving to make supply chains transparent. The Wolfsburg-based company is working with RCS Global, an agency specializing in supply chain analysis, to make supply chains transparent. The background to this is not only the growing importance of ESG ratings, for example, in corporate financing, but also the desire of customers to purchase sustainable products. Car manufacturers like Volkswagen depend on their products containing sustainably mined raw materials. Volkswagen is currently integrating the existing electric models into the classic model series. For example, the ID.2 is to become the new Golf.

    Head-up displays are inconceivable without rare earths. Source: Volkswagen AG

    The VW share has not yet been helped by the developments surrounding greater sustainability. Over 52 weeks, the share price has lost around 30%. Nevertheless, the Company seems well-positioned to play a significant role even after the mobility revolution. However, access to critical raw materials from sustainable sources is essential. Projects such as Wicheeda from Defense Metals could play an important role for Volkswagen in the future.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Nico Popp

    At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.

    About the author

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