Steinhoff, Defense Metals, Deutsche Bank - Good news

Ambitious goals

"The traffic light stands", Chancellor-designate Olaf Scholz proudly announced at the recent press conference to agree on a new coalition agreement. "We are united by our belief in progress and that politics can achieve good things," he said. Regarding climate protection, the alliance wants to go full throttle and significantly accelerate the expansion of renewable energies. As early as 2030, these are to supply 80% of the electricity required. Previously, the target was 65%. Currently, alternative energies are responsible for around 45%, depending on how strong the wind blows.

The timetable for electromobility is also more than ambitious. 15 million fully electric passenger cars are to be registered in Germany by 2030; previously, the target was 7 to a maximum of 10 million units. With this in mind, the current government is probably aware of the shortage of raw materials needed for the energy transition. For copper, an essential metal, there has already been a supply deficit since 2019. The prices of lithium, cobalt and nickel are shooting through the roof, and the excess demand is becoming more pronounced.

Scarcity is the defining issue

Demand far exceeds supply, even for rare earth metals. Added to this is that around 80% of the scarce commodity is produced in China, leading to a major drive by Western industrialized nations to install production facilities outside the Middle Kingdom. New projects are to be initiated with subsidy programs. However, it takes a good 10 years at best from plan to production. Rare earth metals are in great demand in industry today. The metals are becoming increasingly important in the aerospace and defense industries and through green energy technologies. They are just as essential in wind turbines and solar projects as they are for the permanent magnets in electric cars.

Promising project in Canada

By contrast, advanced projects ex-China are few and far between. Defense Metals, on the other hand, with a stock market value of EUR 17.75 million, can already point to significant successes. The Canadians hold an option to acquire 100% of the Wicheeda rare earth metals concession near Prince George in British Columbia. The project has Indicated Mineral Resources of 4,890,000t of light rare earth elements and Inferred Mineral Resources of 12,100,000t averaging 2.90% light rare earth elements. In 2021, in anticipation of positive results from the PEA, Defense Metals conducted a resource expansion and delineation diamond drilling program with 29 holes over 5,349m. The drill results are expected in the first quarter of 2022.

Defense Metals was recently able to announce its preliminary economic assessment results and updated mineral resource estimate for the Wicheeda deposit development. The evaluations resulted in a pre-tax net present value of the project of CAD 765 million. Average revenues are CAD 397 million per year from the sale of SEM concentrate (years 1-4) and mixed SEM/precipitates from the hydrometallurgical process (years 5-16) at an operating margin of 65.2%.

Craig Taylor, CEO of Defense Metals, commented as follows: "We are pleased with the positive results of the PEA for the Wicheeda Rare Earth Metals Project, which could become one of the most significant SEM projects in the world."

Good results from subsidiary

The further survival of trading group Steinhoff is still on shaky ground. The application for liquidation by the former Tekkie Town founders will not be dealt with by the Western Cape High Court in South Africa until the end of January. However, subsidiary Pepkor was able to shine with good figures.

The South Africans reported an increase in sales from ZAR 70.8 billion to ZAR 77.3 billion, equivalent to EUR 4.34 billion. Operating profit grew from ZAR 1.55 billion to ZAR 9.14 billion. Following a loss in the previous year, a profit of ZAR 4.88 billion was achieved this time.

The distribution to shareholders is to pay ZAR 44.2 per share. Despite the more than solid figures of the subsidiary Pepkor, we continue to advise against an investment in the parent company Steinhoff.

Deutsche Bank profits

Breathing a sigh of relief in Frankfurt. Contrary to assumptions, the coalition agreement does not include a ban on commissions in investment advice, which means that banks can continue to receive commissions from asset managers, among others, to sell the products.
From a technical perspective, the announcement comes at the right time. Despite the weak overall market, the share continues to push towards the resistance level at EUR 12. A sustained breach would generate a strong buy signal with an initial price target of EUR 16.

The coalition agreement is now available. Climate protection is being given top priority. The scarcity of raw materials could jeopardize the ambitious targets. Defense Metals operates a very promising project and enjoys long-term potential. Positive news should also boost the share price of Deutsche Bank.