Phenom Resources – Hot stock with potential
With small gold explorers, the major partner often only comes on board when a discovery becomes tangible. At Phenom Resources, SSR Mining instead positioned itself earlier. The multibillion-dollar Canadian gold and silver producer, formerly known as Silver Standard Resources, invested CAD 5.41 million in the Canadian explorer through a subsidiary in June. At CAD 0.40 per share, it acquired around 9.9% of the capital then outstanding. The next step followed in September. For USD 4 million, SSR acquired through a subsidiary 15% of the company, which is advancing the Dobbin gold project in Nevada. Through Copper One USA, Phenom initially holds 85% and manages the joint venture.
For Phenom, the two transactions are more than a signal to the stock market. Above all, they also provide financial support. After all, operations cost money. The company is exploring for gold in Nevada and already has a vanadium resource at its wholly owned Carlin project. In addition, it has a processing method for vanadium and nickel and a stake in a battery developer. According to the company, the two equity deals together brought in around CAD 11 million in funding. The USD 4 million from the second step is earmarked specifically for the Dobbin gold project. According to CEO Paul Cowley, the funding is sufficient for the planned work through to the end of the 2026 drilling season and the restart in early summer 2027. Once the initial contribution has been spent, the partners are to bear further expenditure in proportion to their stakes.
Dobbin is located in Nevada’s Monitor Range and is likely to provide the next major catalyst for the shares. There, Cowley is relying on the experience of Dave Mathewson, who supports the company as a director and geological adviser. The target is a Carlin-type deposit. In such deposits, the gold is usually finely dispersed in the rock. Geologists therefore look for a combination of suitable host rock, tectonic faults and anomalous surface readings. At Dobbin, Phenom suspects that gold-bearing solutions rose along a steeply dipping fault and deposited the metal in reactive carbonate rock.
The starting point is a gold anomaly around 2.1 km long and approximately 200 m wide. Individual soil samples returned up to 2.73 g/t gold, while rock samples returned up to 10.35 g/t. For a series of rock samples from an exposed area, the deposit even averaged 4.55 g/t over 8 m. For the geologists, these are indications of where drilling is worthwhile. The subsequent assessment depends on the length and grade of the mineralised intervals in the drill core and whether these intervals can be connected across several drill holes.
At the end of July, Phenom began core drilling following approval by the US Forest Service. The permit covers up to 26 drill holes from 13 sites and up to 12 mechanically excavated trenches. This allows the team to map the gold signature at the surface more precisely and examine how the mineralisation continues at depth. No specific laboratory results from the programme are currently available. However, if the company achieves convincing intersections, these could justify a follow-up campaign and support the share price.
An important part of the portfolio is the wholly owned Carlin project, which already gives Phenom a vanadium resource. The 2019 estimate reports around 303 million pounds of vanadium pentoxide in the indicated category and a further 75 million pounds in the inferred category. The mineralisation lies close to surface, making open-pit mining conceivable in principle. Whether such an operation would be economically viable depends, among other things, on capital costs, recovery rates and achievable prices. Phenom also sees gold exploration targets beneath and alongside the vanadium deposit. Vanadium is used, among other things, to harden steel. Another application is stationary electricity storage.
Phenom is also working on its own process for separating and extracting vanadium and nickel and filed a provisional US patent application for it in July. According to the company, tests recovered around 80% of the vanadium and approximately 75% of the nickel from the feed material. The economically decisive step would be a partner to test the technology on a larger scale and co-finance a plant.
Through a 5% stake in MK Plus, Phenom also has an interest in a Japanese developer of vanadium solid-state batteries. According to Phenom, its Swedish subsidiary received a funding commitment of just under SEK 120 million to expand industrial production. In August, MK Plus had indicated that initial deliveries following the plant conversion would take place in the autumn. For Phenom, the stake offers an opportunity to share in the success of the storage technology. The next benchmark is systems actually delivered and follow-up orders.
A possible spin-off of the vanadium business is also among the options being considered by management. A separation could make valuation easier for investors. Gold exploration and the development of a plant for critical metals appeal to different capital providers. For now, Dobbin sets the pace for the shares. SSR’s investment gives Phenom time and money to test its geological model. The scale of the opportunity for shareholders can only be assessed more accurately once the drilling data is available. Bold investors follow SSR Mining’s example and invest early so that, if successful, they can capture the greatest possible share price upside from the hot stock.
Lufthansa – Cargo and maintenance cushion the jet fuel shock
Investors buying Lufthansa acquire a stake not only in the passenger business but also in a major air freight provider and a globally active aircraft maintenance business. This structure paid off in the third quarter. Despite EUR 543 million in additional fuel costs, the group increased revenue by 9% to a record EUR 12.2 billion. Adjusted EBIT rose 6% to around EUR 1.4 billion. However, the operating margin fell slightly to 11.5%.
The surprise lies in the composition of the profit. Lufthansa Cargo tripled adjusted EBIT to EUR 162 million, while Lufthansa Technik increased it by 54% to EUR 200 million. The network airlines moved in the opposite direction. Their operating profit fell by EUR 108 million to EUR 853 million. Higher average yields and a disciplined cost policy cushioned the surge in jet fuel prices. The core Lufthansa brand also faced burdens from the strikes in the first half of the year.
At a current price of around EUR 8.50, the DAX stock trades at roughly seven times expected earnings for the coming year. However, analysts are currently divided over how much upside remains. DZ Bank, for example, has a Hold rating and sees fair value at EUR 8.30. Bernstein has raised its target to EUR 9.50 but maintains its Market-Perform rating. UBS, meanwhile, is more optimistic with a Buy rating and a EUR 10 target, whereas Goldman Sachs recommends Sell with a target of EUR 7.50. Overall, there are 7 Buy recommendations versus 5 Sell recommendations, while 11 banks and research providers recommend Hold. The average price target is EUR 9.39, which still offers around 10% upside.
The low P/E ratio of around 7 makes Lufthansa shares attractive over the long term. For a higher valuation, however, the core brand must show that higher ticket yields and more efficient processes can deliver rising profits even with expensive jet fuel. Freight and maintenance give the group room for manoeuvre in this respect. However, if fuel costs remain high and ticket prices come under pressure, profit could quickly fall again.
Qualcomm – Amazon as a growth accelerator
The US technology group Qualcomm makes its money primarily from chips for mobile devices and licences for mobile communications patents. However, the stock market story is changing. Car manufacturers use Qualcomm chips in digital cockpits and driver assistance systems. Now the AI data centre business is to be added. To this end, Qualcomm has announced a collaboration with Amazon spanning several product generations. Management is maintaining its target of USD 5 billion in data centre revenue for the 2027 financial year. Revenue outside the smartphone business is expected to grow by more than 60%.
The figures from November 4 show how urgently Qualcomm needs this new revenue. In the final quarter of the financial year, adjusted revenue fell 7% to USD 10.44 billion while adjusted earnings per share fell 28% to USD 2.17. The automotive division, by contrast, generated around USD 2 billion in quarterly revenue for the first time, up 89% from the previous year. Support comes from the licensing business, where Qualcomm has renewed long-term agreements with Apple, Huawei and Transsion.
With an expected 2027 P/E ratio of around 17 the stock is not overpriced and is only slightly above the median for its competitors. The average analyst consensus puts Qualcomm’s fair value at just over USD 190, around 15% above the current share price. This leaves room for a rise if Qualcomm backs up its data centre plans with actual deliveries. However, part of the potential earnings leverage depends on whether the new business is profitable enough to offset the weakness in smartphones.
The Amazon partnership makes Qualcomm attractive to investors betting on another supplier of AI chips. In the short term, smartphone demand and margins still have a significant influence on earnings. The valuation supports an investment, particularly if Qualcomm remains on track to expand its data centre business and earnings in its core business stabilise.
Conclusion
Phenom Resources offers the greatest share price upside of the trio in the event of positive news on drilling activities. SSR Mining has committed early and co-financed the next stage of gold exploration. The vanadium activities offer additional opportunities over a longer time horizon. Nevertheless, investors need to be prepared to take risks before investing. Those who want a better understanding of the geology can wait for the first drilling results. More adventurous investors can follow SSR Mining’s example and get involved at an early stage. Lufthansa has two profitable pillars, cargo and technical services, and demonstrated this past summer that cargo and maintenance alone can cushion the impact of even a sharp spike in jet fuel prices. For a sustained re-rating, earnings in the passenger business in particular need to recover. Qualcomm offers the most compelling growth opportunity of the two established groups. Amazon gives its AI strategy a concrete customer dimension. Whether the stock deserves a higher valuation over the long term will depend on how much profit Qualcomm can generate from this new business.
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