Tungsten, Weapons and Growth: Almonty, Rheinmetall and Deutz Under Review. Is This an Opportunity in a Megatrend?

Almonty Industries: Cash Flow and Earnings Outlook Becomes Clearer

The first bags of tungsten concentrate from Sangdong have been produced and are scheduled for shipment at the end of the month. Just a few weeks later, the material can be booked as revenue. For Western industrial customers, this creates an additional, long-awaited source of supply outside China.

Almonty has been producing tungsten concentrate at its Panasqueira mine in Portugal for some time, and its US property is expected to follow soon. However, the Sangdong mine in South Korea is clearly at the centre of the company’s expansion plans. The company’s position is set to strengthen further in the years ahead. Phase 2 of the expansion is intended to increase processing capacity to up to 1.2 million tonnes of ore annually from 2027.

Tungsten is used in tools, industrial components and military applications because of its hardness and temperature resistance and is virtually irreplaceable. On the sales side, a solid foundation is already in place. In July, Almonty extended its supply contract with Global Tungsten & Powders, a company in the Plansee Group, to 21 years from the first delivery. The agreement covers around 90% of Phase 1 production output.

Almonty also has an extremely strong financial position. At the end of June, cash and cash equivalents stood at around CAD 1.23 billion. The USD 800 million convertible senior notes offering placed in June, with a 2.25% coupon and a 2031 maturity, contributed a substantial share of this. The company has already used part of the funds to repay expensive loans and buy back shares. Acquisitions could also take place in the future. Analysts at DA Davidson set a price target of USD 33 for the stock, which is currently trading at around USD 11.

Rheinmetall: It Must Deliver

The group supplies armed forces with vehicles, ammunition, air defence and digital systems. Since acquiring Naval Vessels Lürssen, it has also included naval shipbuilding. However, this segment has so far fallen considerably short of expectations. In early October, the defence giant announced the start of satellite production in Neuss. In this area, as in others, Rheinmetall does not operate alone but through partnerships, meaning the company does not receive the full returns. Analysts are increasingly criticising this.

In the first half of the year, revenue grew by around 39% to EUR 5.227 billion. Operating profit rose 74% to EUR 786 million. Higher production volumes and a more favourable product mix improved profitability. However, procurement decisions remain a risk. Capacity expansion requires substantial funds. Cash flow from continuing operations was minus EUR 1.616 billion, with inventories and advance expenditure in particular tying up capital.

Net debt stood at around EUR 2.72 billion at the end of June. Following the cancellation of the F126 frigate programme, Rheinmetall had already had to reduce its revenue forecast for the current year by around EUR 300 million to EUR 13.7 to 14.2 billion, but firmly maintained its operating margin target of around 19%. Analysts nevertheless see attractive upside potential for the stock.

Deutz: Decisive Acquisition

Deutz sells engines, power supply solutions and services to machinery manufacturers and operators. The agreed acquisition of Flensburger Fahrzeugbau Gesellschaft (FFGT) is intended to significantly increase the group's defence business and overall profitability. FFG develops, modernises and maintains military vehicles. According to the company, completion of the transaction, worth around EUR 1.6 billion, is scheduled for the end of 2026, or Q1 2027 at the latest. Deutz expects FFG to generate more than EUR 1 billion in revenue next year, with an operating margin of over 20%.

In September, the company raised about EUR 179 million gross through a capital increase, increasing the number of shares by 10%. The fresh equity also improves the balance sheet ratios. The existing business grew in the first half of the year. Revenue grew 10.7% to EUR 1.115 billion, while adjusted operating profit rose to EUR 79.7 million. Free cash flow before acquisitions remained negative at minus EUR 29.7 million.

Analysts are bullish on the stock. The opportunity lies in a more profitable business mix and additional service revenue. This is counterbalanced by integration risks, higher financing costs and the engine business's dependence on the economic cycle.

Conclusion

With the imminent shipment of the first tungsten concentrate from Sangdong, a clearer picture of cash flows and earnings for the coming year can soon emerge. Production is expected to increase significantly over the medium term through a second expansion phase and the start of production in the US. Analysts see substantial upside potential for Almonty's stock. Rheinmetall has a broad industrial base, but faces high growth expectations, significant capital requirements and the need to deliver on its commitments. Deutz is pursuing an interesting growth opportunity through its acquisition of FFG.