Raw materials as the key to greater value creation: SQM, Lynas Rare Earths, Almonty Industries

Robust through the lithium crisis thanks to low costs: SQM

Industrial products must be innovative, inexpensive, and durable to succeed in the market. However, every industrial product starts with raw materials. If these are not reliably available or are of poor quality, even the best industrial companies cannot get their products off the ground. In times of geopolitical tensions, a desire for greater diversification of raw material sources, and low economic growth, industrial companies with reliable access to high-quality raw materials have a clear advantage. The Company Sociedad Química y Minera de Chile (SQM) is considered one of the world's largest lithium producers and impresses with extremely low production costs.

While lithium is mined in Australia at between USD 8,000 and USD 12,000 per tonne, SQM scores with costs of USD 4,500 per tonne, enabling the Company to achieve an EBITDA margin of 35% even in the current weak market environment. Observers also view SQM's processing expertise and its second mainstay, iodine, as positive factors. After trading at EUR 100 in mid-2022, the share price now appears to have bottomed out at just under USD 40. The valuation is also attractive with a low double-digit P/E ratio. SQM is a well-managed company with several competitive advantages – the challenge, however, is that lithium is not globally scarce, and South America is geographically distant from key battery production hubs. That puts the cost advantages into perspective.

Lynas Rare Earths: Vertically integrated for even higher margins

The rare earths company Lynas Rare Earths has been the focus of investor interest for months. While lithium is currently anything but in demand, Chinese export bans on rare earths are fueling share price speculation. Lynas combines rare earths from Mt. Weld, the largest deposit outside China, with its own processing plant in Malaysia. This market position ensures that Lynas Rare Earths can command price premiums. The Company is also continuing to develop and is entering the magnet production market together with its partner JS Link. This move is also possible thanks to the Company's strong market position. In contrast, industrial companies used to be able to purchase rare earths cheaply, they now have to secure access first. The best way to do this is to let reliable suppliers share in the profits. The share price has risen by around 100% over the past six months. Given the circumstances, this is not surprising. The problem for rare earth companies is potential competition – the elements in demand are not that rare. New projects are in the starting blocks worldwide. The price of lithium over the past few years has shown what a rapidly growing supply can mean.

Almonty: Unique market position in tungsten opens up potential

One company that, like Lynas Rare Earth, is at the center of global attention but is unique in its details, is Almonty Industries. The Company, led by CEO Lewis Black, has been active in the tungsten market since 2011. Tungsten is found in defense equipment, batteries, medical technology, and many other products. In many cases, it is irreplaceable - its absence can halt entire production lines. In addition, promising deposits are rare worldwide and tungsten is considered a challenging element to mine and process. Almonty has spent years competing against heavily subsidized Chinese suppliers and has established a strong position as a result. In addition to the Panasqueira project in Portugal, which has been producing tungsten for more than 100 years, Sangdong is particularly crucial for the Company's future. Sangdong is set to begin production this year and is expected to account for 40% of the world's tungsten outside China by 2027, at costs around half those of the aggressively subsidized Chinese competition. The difference between tungsten and lithium or rare earths: There are far fewer deposits and therefore greater barriers to entry for potential producers.

Sangdong nearing production: Minimal costs and opportunities along the value chain

In July, Almonty ventured onto the US Nasdaq stock exchange and secured USD 90 million for a tungsten processing plant. Almonty intends to use this to drive forward its vertical integration and increase margins. Although Almonty's share price has risen by 106% over the past six months, the market still appears to be pricing in certain risks – for example, observers point out that the commissioning of a mine can always be associated with uncertainties. In past interviews, CEO Lewis Black appeared relaxed when confronted with such questions and pointed to the solid, long-term planning of the project, which Almonty Industries is advancing together with partners such as the Plansee Group and the German development bank KfW.

If the mine goes into production this year, many investors are likely to reevaluate Almonty's stock and turn their attention to its long-term potential: With unparalleled tungsten expertise and decades of market insight from CEO Lewis Black, who has consistently stood up to China's market dominance, the conditions for continued growth are good. In addition to acquiring additional deposits, Almonty could also follow in the footsteps of Lynas Rare Earths and push ahead with vertical integration. Backing from professional investors on Wall Street underscores that market expectations for the tungsten specialist are high. The chances of rising margins are high for Almonty due to the high barriers to market entry for competitors and the unique expertise of Lewis Black's team.