ThyssenKrupp, Defense Metals, Mercedes-Benz Group - Is war coming now?

ThyssenKrupp - Decent quarterly figures

ThyssenKrupp is active worldwide in the areas of automotive technology, industrial components, marine technology, steel and materials services. Rare earths are needed to refine steel to endow the finished product with specific properties. Today, the production of super steel is a science in itself, and there are now thousands of steel grades. Industry association BDI warned in late January that supply shortages of rare earths could occur as China's Ministry of Industry and Information Technology plans to re-regulate the rare earth industry. China produces by far the most rare earths in the world.

Meanwhile, submarine propulsion systems with permanent magnets made of rare earths are also being developed in China to make the propulsion system silent. ThyssenKrupp is also active in this area. Supply bottlenecks would therefore affect the Essen-based group here as well. On February 10, the Company presented its first quarterly results, and it can be seen that the turnaround is slowly bearing fruit. Order intake increased by 33% YOY to EUR 10.4 billion. Sales also increased by 23% to EUR 9 billion. Adjusted EBIT was a whopping EUR 300 million higher than a year earlier at EUR 378 million.

CFO Dr. Klaus Keysberg said: "The turnaround of ThyssenKrupp is in full swing. We have made important progress in improving our performance and focusing our portfolio." The Essen-based Company's stock has traded mainly between EUR 8.00 and EUR 10.00 since the middle of last year. Currently, the stock is trading at EUR 9.00 and has suffered a decline despite the decent figures. Currently, the share is trying to form a bottom at EUR 8.70. If this succeeds, a test of EUR 10.94 is possible.

Defense Metals - Drilling results on the horizon

China is in the lead in mining rare earths with 140,000t annually. Worldwide, 240,000t are mined. However, it is important to note that 85% of the processing takes place in China. The USA mines 38,000t annually, but this too is processed in China. The efforts of the West to become more independent from the Middle Kingdom are growing, at least since the Corona pandemic. One Company that could help is Defense Metals, advancing their Rare Earth project in Wicheeda, Canada. According to the Company, the site is 2,008 hectares in size and has a projected annual production of 25,000 tons of rare earth oxide.

In November, the Company provided the preliminary economic assessment prepared by SRK Consulting. Annual sales of CAD 397 million at the cost of CAD 137 million and a total lifespan of 19 years were assumed. The net present value of the project is CAD 517 million after-tax. After the Company acquired 100% of all rights to the project, the management team was strengthened with Dr. Luisa Moreno as president and John Goode, an expert in rare earth processing. Next up are the first results from the 2021 diamond drilling. These are expected in mid-February. Further results are expected to be announced at the end of February. Management hopes the results will increase mineral resources.

As a result, a target for 2022 would already have been worked off. Furthermore, the preliminary feasibility study is to be started, and the flow sheet for the production of high-grade concentrate is to be further optimized. The construction of a hydromet pilot plant is to begin as early as the first half of the year. The pilot plant products are to be used to facilitate the acquisition of customers and to conclude offtake agreements. The share is currently trading at CAD 0.275, well below the 2021 high of CAD 0.75. It may be that Dr. Moreno will be able to present the drilling results as early as at the International Investment Forum on February 17.

Mercedes-Benz - Good financial results in 2021

The tendency to fully rely on electric vehicles (EV) in the future also brings new challenges. The new vehicles require between 1-3kg of rare earths, mainly to produce neodymium-iron-boron magnets, which are used in over 90% of all EVs. 10 million EVs would represent 20% of the current annual neodymium supply worldwide. However, over 50 million vehicles are produced per year. So it is clear that there will be shortages of rare earths if they are not more heavily mined. The Mercedes-Benz Group, formerly Daimler, would also be affected by this.

On February 11, the Stuttgart-based group announced preliminary annual results for 2021. In the process, the Cars & Vans division exceeded its adjusted return on sales forecast at 12.7 and achieved an adjusted EBIT of EUR 14 billion. The Mobility segment achieved an adjusted EBIT of EUR 3.4 billion with a return on equity of 22%. There was no information on the number of vehicles sold. But already in Q3, 30% fewer vehicles were sold than in the previous year due to supply bottlenecks in the chip shortage.

CEO Ola Källenius commented on the figures as follows: "Our strong performance is the result of products in high demand and a focus on profitable growth and cost discipline. As the world's most valuable luxury car brand, we are accelerating into an all-electric, software-driven future." So the group remains fully focused on electrification. The stock shot up after the numbers, exiting trading at EUR 74.44.

The demand for rare earths is growing due to new technologies. If we want to reduce our dependence on China, we need to invest in the future. ThyssenKrupp will need rare earths above all for its submarines and steel division. Defense Metals is on its way to becoming a rare earth producer. The Mercedes-Benz Group has to be careful that there will not be a supply shortage of rare earths. The fact is rare earths prices have already increased significantly in 2021.