July 20th, 2022 | 13:15 CEST
Rheinmetall, Alpha Copper, K+S AG - Leaders in the industries of the future
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
K+S - New opportunity after price halving
K+S AG, the fifth largest potash producer worldwide and the winner of the first weeks after the invasion of Russia, has come back down to earth after soaring close to EUR 40. The paper from Kassel is currently trading at EUR 20, which is the level before the sanctions against Russia were announced. If the support at EUR 18.85 is broken, a further setback to the area around EUR 16.50 would be possible, and the annual performance would then move into the red zone.
Ahead of the figures for the second quarter, analysts at DZ Bank have left their rating at "buy" with a price target of EUR 37.00. In doing so, analyst Axel Herlinghaus expects the fertilizer and salt group to present solid results on August 11, 2022. The recent price correction does not adequately reflect the high degree of tension in the supply-demand relationship on the potash market, which extends well into 2023. The risk-reward ratio of the share is thus attractive, also because of a presumably very high 2022 dividend.
Fundamentally, K+S AG announced in a press release that it would start covering its tailings piles at the Werra potash plant in Hattorf and Wintershall. Initially, with the start of construction on the tailings pile top in Hattorf, the focus will be on the plateau covers, with the flank covers to follow later. In the long term, the white mountains of the Werra Valley will become green, and the environment will be sustainably relieved. In spring, K+S had already announced that the potash tailings pile at the Neuhof-Ellers plant would be covered and greened. "By covering all the tailings piles, we will make a major contribution to a lasting reduction in the environmental impact associated with potash production in the Werra-Fulda area," said CEO Dr Burkhard Lohr.
Alpha Copper - Long-term bottoming possible
Due to its conductivity, copper is one of the most important raw materials for climate change. Experts predict that more copper will be mined in the next 25 years than in human history to date. Goldman Sachs analysts see the red metal as "the new oil" and predicted a long-term supercycle as early as 2020. In addition, the experts of the US investment bank see prices of around USD 15,000/t by 2025. At the current level, the ton of the scarce commodity corrected due to recession fears from over USD 10,000 to currently USD 7,500; this would amount to a doubling.
The correction of producers and exploration companies looks even more serious. For example, the share price of Alpha Copper, a young and promising Canadian copper company, fell by over 70% to CAD 0.36, with a market value of just under CAD 18 million at the moment.
In contrast to the share price, the fundamental development of the two projects, located in British Columbia in Canada, is going in the right direction. At the most important project, Indata, Alpha Copper holds an earn-in option on a 60% interest. The 3,189-hectare property, with world-class infrastructure, has 16 claims and is located adjacent to Northwest Copper's prospective Kwanika project, a project with high-grade discoveries to date (57.7 million tonnes at 0.48% copper and 0.55 g/t gold). Four copper mineralization zones have been discovered at Indata to date, with historical drill results including 148m at 0.2% copper and 24.1m at 0.37% copper. Approximately 5000m of drilling is planned on the property this year.
In addition, at the 4,613-hectare Okeover copper and molybdenum project, on which Alpha Copper has an option to acquire 100%, a 2,000m program was started earlier than expected with the aim of extending the Lake Zone. A 2007 drill hole near the western boundary of this zone intersected a cumulative 76m of 0.34% copper and 0.02% molybdenum sulfide, including a 19m interval of 0.42% copper and 0.02% molybdenum sulfide. As early as 2023, management plans to release a resource estimate in accordance with Canadian Standard NI 43-101. The development of the two properties is still in the early stages, but the potential is clear.
Rheinmetall AG - Further flood of orders
Since Russia's invasion of Ukraine and the announcement by many Western NATO countries and partners that they will be significantly increasing their defence budgets, Rheinmetall AG has been hard pressed to keep up with orders. Currently, the German Armed Forces supplier expects to sell more than 100 units of the Puma infantry fighting vehicle to the Bundeswehr. "Yesterday, the decision was made in the ministry that 111 Puma will undoubtedly be ordered," said CEO Armin Papperger on Thursday at the group's Unterluess site in Lower Saxony.
Meanwhile, the major Swiss bank UBS has lowered its price target for Rheinmetall shares from EUR 251 to EUR 226 and confirmed its "Buy" rating. In an industry study, the analysts led by Sven Weier revised their model in view of the recent economic uncertainties, which significantly weighed on sentiment for the European capital goods sector.
Following the sell-off in copper, there are attractive long-term entry opportunities at discounted levels. Alpha Copper is in a relatively early corporate stage, but the properties offer potential due to their proximity to already producing mines. Analysts are optimistic about the K+S share, while the price target for Rheinmetall has been lowered.
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