Rheinmetall, Triumph Gold, K+S - Hype or sustainable?

How high does Rheinmetall fly?

The performance of the venerable Düsseldorf-based company, which is regarded as the purveyor to the German armed forces, is impressive. Since the end of February, when the current German Chancellor Olaf Scholz plans to release EUR 100 billion for the German armed forces via a special fund for investments and armaments projects in 2022, the stock shot up 80% in the following week. Forgotten were the European Commission's discussions on whether the defense industry should be classified as "socially harmful" under the social taxonomy, which would have significantly worsened access to financing from banks and access to the capital market.

Since the announcement of the increase in the defense budget, the stock has not seen a major correction. The current share price is EUR 222.40, more than 100% higher than around 8 weeks ago. As explained in a report, the question remains how, despite problems in the supply chain, raw materials and semiconductor components are to be obtained in order to be able to process the EUR 42 billion in order volume called for by Rheinmetall. There is no mention of the increased prices of the individual raw materials and thus the reduced margin.

There are personnel changes at Rheinmetall AG at the end of the current fiscal year. Dagmar Steinert has been appointed to the Executive Board of Rheinmetall AG with effect from January 1, 2023. Steinert, who is currently on the Executive Board of Fuchs Petrolub and responsible for the commercial areas as well as legal, compliance and digitalization, succeeds Chief Financial Officer (CFO) Helmut P. Merch at Rheinmetall. Merch, in turn, is taking a well-deserved retirement.

Gold remains a sustainable investment

The general conditions for the precious metal gold continue to be bullish. Extremely high, not just temporary, inflation rates, historically high government debt and interest rates that remain at a low level offer the best conditions for long-term gold investment. This is garnished with the still uncertain course in the Ukraine conflict. However, the precious yellow metal could not exceed the old highs of the current world reserve currency, the USD. Instead, the base price fell again significantly below the USD 1,900 mark and is currently quoted at USD 1,864.00. Reasons for the current downturn are the possible reduction of the balance sheet total of the US Federal Reserve and possibly larger interest rate steps.

However, in the long term, every investor is recommended to hedge part of their portfolio with gold, therefore creating diversification. Besides bars and coins in physical form, shares of gold producers and exploration companies offer a good risk-reward ratio at current levels.

In the case of Triumph Gold, the correction since the interim high in the summer of 2020 at CAD 0.45 is already well advanced. Currently, the title is quoted at CAD 0.95 on the home exchange in Toronto. In Frankfurt, this means a price of EUR 0.07. The Canadian company maintains its main Freegold Mountain project in Yukon, a mining region with first-class infrastructure, using multi-disciplinary exploration and evaluation technologies. In doing so, Freegold Mountain is 100% owned by Triumph Gold. It hosts three National Instrument 43-101 compliant mineral deposits, Nucleus, Revenue and Tinta Hill, and full ownership of the Big Creek and Tad/Toro properties, which in addition to gold, also contain the fundamental metal for the energy transition, copper.

The latest results from last year's exploration program were a positive surprise. In the process, 6,615m of diamond drilling was completed at the Freegold Mountain project. Anomalous gold, silver and copper values were intersected in every drill hole reported from the 2021 exploration program (5 at Nucleus and 7 at Revenue). Results show a broad mineralized system with zones hosting large ore tonnages and containing oxide, transition and sulphide ores alike. In the process, Triumph Gold discovered gold mineralization in the Big Creek South Fault zone during drilling 300m away from the Nucleus deposit in the Yukon. The market capitalization of the exploration company is EUR 9.76 million. Continued good results could lead to significant share price movements.

K+S - Like clockwork

K+S could benefit from the sanctions against fertilizer producers from Russia and Belarus. Since the outbreak of the war, the share price has doubled. After peaking at EUR 36.45, profit-taking occurred. The share price closed the price gap at EUR 29.89 in a school-like manner, only to turn upwards again.

After K+S had already significantly increased its profit forecast, its Canadian counterpart was also able to shine with excellent figures. Nutrien could post a jump in profits in the first quarter thanks to higher prices. Net income climbed to USD 1.39 billion from USD 1.33 billion, Nutrien reported. Sales increased 64% to USD 7.65 billion. Management remains positive for the full year. As such, supply is expected to remain significantly constrained.

Due to the outbreak of the Ukraine conflict, producers of fertilizers are benefiting, in addition to defense stocks. Due to the uncertainties, the general conditions for gold are also bright in the long term. Triumph Gold could surprise positively after the correction if results remain good.