Interview with Deutsche Rohstoff AG
Interview Deutsche Rohstoff AG: "We can imagine additional investments in the field of electromobility."
time to read: 8 minutes | The interview was conducted by Nico Popp on April 12th, 2021 in Mannheim (D).
Dr. Thomas Gutschlag
CEO | Deutsche Rohstoff AG
Q7, 24, 68161 Mannheim (D)
+49 621 490 817 0
Table of contents:
China and the raw materials market
news|financial: "You have been keeping an eye on the raw materials markets for many years. China plays a central role in raw materials. How do you assess the current situation?"
"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
China has dominated the markets for metals for many years. So it is a situation we are familiar with. However, what is new is the growing demand for battery metals due to the trend toward electromobility. As a result, this is bringing China's dominant market position back into focus. For us, however, this situation has been clear for a long time. China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands.
Initiatives to supply raw materials
news|financial: "There are already supply bottlenecks in the auto and construction sectors. In 2008, the then German President Horst Köhler referred to the danger of raw material shortages and dependencies. Why has this appeal fallen flat, and what needs to change? Can private initiatives step into the gap?"
China has an advantage over Europe and North America in that it is centrally controlled and takes a very strategic, long-term approach. For example, China sometimes concludes contracts with entire countries in Africa to secure the supply of raw materials. But this should not be an excuse for Western industrialized countries, nor is it a reason to resign. The private sector is also capable of securing critical metals. The best example here is also our indirect stake in the Sangdong mine in South Korea. Although China dominates the tungsten market, our partner Almonty Industries has secured this massive project with high tungsten grades and reserves for many years. The German auto industry has also understood how important access to raw materials is in the long term and is already much more active than it was a year ago.
The importance of strong partners for the industry
news|financial: "Can the industry develop raw material deposits on its own, or does it need experienced partners who know their way around the industry?"
"[...] At present, it also looks as if industrial companies are increasingly putting out feelers for suitable partners. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
The automotive industry, in particular, is likely to be dependent on partners. Mining is a complex business that one cannot learn overnight. The industry, in particular, knows that it makes sense to take a division of labor approach. At present, it also looks as if industrial companies are increasingly putting out feelers for suitable partners. Incidentally, such partnerships are not a one-way street. Although industrial companies are dependent on raw materials, it can be very important for the development of projects to already have potential customers on board. In addition to financing, this also facilitates the entire planning and development process. We, ourselves, already cooperate around tungsten with the Plansee Group from Austria, which buys the raw material from Almonty Industries. Plansee was very committed to securing tungsten and is actively helping with the projects themselves. This cooperation is the best example of how constructive collaboration between mining and industry can be.
The strategic approach of Deutsche Rohstoff AG
news|financial: "You produce oil and gas and metals such as gold, copper, and tungsten through investments. How is your portfolio designed? What is the strategy behind it?"
"[...] As the market is currently very promising, we can also imagine additional strategic investments, for example, in critical metals around electromobility, such as copper or lithium. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Oil and gas is our bread-and-butter business. Currently, 100% of our sales come from this area. However, we also have great expertise in mining and incorporate this into our investments. In this way, we can leverage additional value for our shareholders. As the market for shareholdings was not so promising before the pandemic, we intensified our involvement about a year ago and achieved good results with short-term investments. As the market is currently very promising, we can also imagine additional strategic investments, for example, in critical metals around electromobility, such as copper or lithium. Gold has also always remained an important topic for us.
Lithium from Germany?
news|financial: "You just mentioned it. Lithium for 400 million electric cars is said to be stored in the Upper Rhine Graben. You come from this region and also have an oil project there. Are you getting into the lithium business?"
Large quantities of lithium and also gold are stored in the Rhine Valley. We have looked at the region's prospects and consider it challenging to mine profitably there. The current discussion revolves around the extraction of lithium from geothermal projects. That is a niche in which we are not active.
Interesting deposits for lithium
news|financial: "So what would be potential lithium deposits that are interesting for you?"
There is a lot of lithium in South America, and Australia and Canada are also attractive because of the stable framework conditions. Africa could be a promising opportunity because the market has not yet discovered this region for lithium. We see few options in Europe because there are no large deposits there.
Importance of the oil business
news|financial: "The oil business is your most important mainstay. How did you get through the crisis?"
"[...] At the time of greatest market uncertainty, we also succeeded in acquiring new acreage for oil production in the US state of Wyoming. The conditions were extremely favorable [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
When the oil price falls from USD 60 to USD 10, that is of course a blow - for us too. But I think we made the best of the situation. We had hedged part of our production against falling prices and, in return, achieved prices at pre-crisis levels, even during the crisis. We also cut our production as significantly as possible to keep our oil in the ground. At the time of greatest market uncertainty, we also succeeded in acquiring new acreage for oil production in the US state of Wyoming. The conditions were extremely favorable and the project will contribute to our organic growth in the future. At present, the crisis is over and we can look to the future with hope. Deutsche Rohstoff AG has always pursued a very prudent course - our solid liquidity situation at the beginning of the pandemic has made it even easier to master the crisis and even profit from the situation.
What role the tungsten investment plays
news|financial: "You have a stake in Almonty Industries, an existing tungsten producer that plans to bring one of the largest tungsten projects outside China into production in South Korea. Why do you have such high hopes for this investment?"
"[...] With few new projects coming into production worldwide, the Sangdong mine in South Korea is a sensible investment. The project offers low costs and substantial reserves. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
We have had a relationship with this key industrial metal since 2011 when we ourselves operated a mine in Australia. We sold this mine to Almonty in 2014 and received shares in return. Since Almonty has even greater expertise around tungsten than we do, we have retained and even expanded our stake. The Sangdong mine is one of the world's largest tungsten mines and offers reserves for many decades. With China dominating 85% of the tungsten market, we see great potential in our investment. Tungsten is an industrial metal with unique properties. Whenever high heat resistance is required or when steel needs to be hardened, tungsten is used. Examples include mining, aircraft construction and also armaments. With few new projects coming into production worldwide, the Sangdong mine in South Korea is a sensible investment. The project offers low costs and substantial reserves. In addition, it is well located in a stable high-tech country like South Korea.
How small companies benefit from strong partners
news|financial: "You have already emphasized that you can imagine further investments. How can young commodity companies benefit from a cooperation with Deutsche Rohstoff AG?"
There are often young companies that secure promising projects and then need the help of experienced partners. We have a competent team and also an extensive network. The exchange with us can be very fruitful for many young companies. We can also help with financing or future plans. Commodity companies, in particular, appreciate working with partners to whom they do not have to explain every detail anew.
Deutsche Rohstoff AG - Solid investment for private investors?
news|financial: "You offer a diversified portfolio, are a dividend stock and come from Germany. Are you the best choice for cautious private investors when it comes to commodity investments? Also, because of your dividend?"
"[...] However, what is certain is that we offer access to several critical raw materials and are a German company that has been established for many years. Our shareholders can also visit our projects or call us with questions. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Investors have to judge whether we are the best choice. However, what is certain is that we offer access to several critical raw materials and are a German company that has been established for many years. Our shareholders can also visit our projects or call us with questions. These opportunities do not exist at other companies, or the hurdles to contact a foreign company is higher. In addition, we act very cautiously on the traditionally volatile raw materials market and do not take any unnecessary risks. Thanks to this strategy, we get through crises well and can even seize opportunities during them, as demonstrated, for example, by our acquisition of oil deposits in Wyoming in 2020. Even though the dividend was lower last year, we are pursuing a clear strategy around the payout and want shareholders to participate in our success in this way as well.
news|financial: "Thank you very much for talking to us."