September 14th, 2022 | 13:55 CEST
Rheinmetall, Defense Metals, MP Materials - The trend persists
Table of contents:
"[...] While tungsten has always played an important role in the chip industry, it is now being added to batteries for e-cars. [...]" Lewis Black, CEO, Almonty Industries
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Rheinmetall - Lack of follow-on buying
From a chart perspective, the picture for Rheinmetall, the supplier to the German armed forces, continues to cloud over. The interim low of EUR 146.20, marked 2 weeks ago, is approaching again. After a brief rally to the EUR 160 mark, there was no follow-on buying. The Rheinmetall share bounced off the 200-day line and has since been moving south. With the break of the critical support area at EUR 146.20, no further major supports can be identified after the sharp upswing at the end of February due to the outbreak of the Ukraine conflict. In fact, this threatens the value to close the price gap at EUR 107.20.
From a fundamental perspective, the news for positive price movements is also limited. According to its own information, Rheinmetall has largely restored 16 Marder infantry fighting vehicles from old, decommissioned Bundeswehr stocks. They are ready for delivery, but so far, there is no export license from the German government, the Company said in response to an inquiry from NDR and ARD-Hauptstadtstudio. Rheinmetall has already begun reconditioning 14 more Marder vehicles. If necessary, another 70 vehicles from old stocks could be made usable again.
MP Materials - Western profiteer from high demand
As interest rates continue to rise, fears of a global recession loom, thus reducing demand for many goods. However, this affects less the critical raw materials, which are indispensable to achieving the climate goals. In addition to raw materials such as lithium, cobalt and nickel, rare earths are essential, without which neither an electric car nor a wind turbine would function. Up to 4kg of the metal alone can be found in a conventional electric car, while a more efficient wind turbine generator requires around 217.52 kg per MW of dysprosium, neodymium and terbium. In addition to the renewable energy sector, demand from the defense industry is also steadily increasing. Neodymium-iron-boron magnets are considered the strongest permanent magnets in the world. They are contained in many military weapons systems, such as precision-guided weapons, satellite and stealth technologies, unmanned vehicles, and advanced communications systems.
In the case of rare earth metals, there is a further problem that could literally fall on the feet of the Western world in the future. A possible escalation of the Taiwan conflict could lead to sanctions against the largest Asian economy, similar to those seen in Russia, which would have fatal consequences for Western supply chains because China has a virtual monopoly on the value chain for rare earth metals. Although the share of annual production fell from 92% in 2010 to currently still 60%, the further processing with the mining and processing of a rare earth concentrate, the smelting and separation of rare earth oxides, as well as the refining for the production of rare earth metals and alloys are almost entirely covered by China. For years, the West, especially the US, has tried to minimize the risk with billions in subsidies, but currently, the dependence is still enormous. With the Mountain Pass mine there is only one western alternative, which produces about 15% of the global market volume per year.
Defense Metals - The big growth opportunity
The Mountain Pass mine, operated by Las Vegas-based MP Materials in the US, is already in production as reported and weighs in at USD 5.86 billion on the stock market. In contrast, Canada's Defense Metals, which owns 100% of the Wicheeda project in Canada, is a lightweight with a stock market value of CAD 38.38 million. Still, the similarities to its big brother are more than similar. The 4244 ha property is located about 80 km northeast of the town of Prince George, a mining hub in British Columbia, Canada. It is strategically located on a major logging road that connects to a highway.
In addition to world-class infrastructure, Wicheeda has strong metallurgical similarities to the previously profitable Mountain Pass mine. According to the Preliminary Economic Assessment (PEA), it has the potential to become one of the most significant global deposits of rare earth metals. Economic metallurgy requires that the minerals and the rare earths they contain are chemically and physically such that they can be easily removed by favorable processing techniques. Bastnäsite and monazite are considered the most favourable to process. In addition, these rare earth minerals must be present in the rock as coarse, well-crystallized grains. When the Mountain Pass mine was discovered in 1950, coarse crystalline bastnäsite and parisite were easily exposed, thus becoming the preferred rare earth metal. The Wicheeda deposit also has the same coarse crystalline metals that can be processed inexpensively by conventional methods.
A mineral exploration agreement was recently signed with the McLeod Lake Indian Band. The agreement encompasses the immediate interests of the parties with respect to mineral exploration work in the project area and provides a communication and cooperation framework for the upcoming activities. The agreement provides the McLeod Lake Indian Band with important information on how this work will occur and the economic opportunities for the community. It also provides a strategic plan for potential future commercial participation as exploration work progresses. The Defense Metals share corrected about 40% since early March due to the broader market correction and offers excellent growth opportunities due to the expected future excess demand for rare earth metals.
Inflation data point to further interest rate hikes, and the stock markets are again heading lower. Further interest rate hikes, on the other hand, bring a global recession ever closer. Unlike other commodities, demand for rare earth metals is expected to continue to grow due to climate change and the armament of the Western world. MP Materials operates the only producing mine in North America to date. Defense Metals is another promising player operating its Wicheeda project, which is very similar to the Mountain Pass mine and thus has considerable potential.
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