Almonty Industries: War Chest Brimming With Cash, When Will The Next Coup Come?
Almonty’s stock has fallen significantly in recent trading days. A cause for concern? No. The major tungsten producer seized the opportunity to raise a total of USD 800 million gross via a convertible bond, including an over-allotment option.
This is a decisive signal—in two respects. First, demand from institutional investors is high. No wonder, since Almonty is the leading tungsten producer outside of China and, in the foreseeable future, will supply around 40% of the demand from Western industrialized nations as production ramps up.
According to the company, the convertible bond, which bears interest at 2.25%, was significantly oversubscribed. Holders of the security can convert the bond into shares at a price of USD 27.40 until 2031, which represents a premium of approximately 32.5% over the relevant share price of USD 20.68 prior to the offering.
Second, it will be interesting to see what the company does with its fully replenished war chest. The company plans to use a small portion of it—USD 50 million—to repay loans. Almonty plans to use the remainder for general corporate purposes, including the purchase of assets and the acquisition of companies.
With these new funds, Almonty possesses extremely strong financial firepower. Of course, it is conceivable that the company will acquire additional (production-related) tungsten assets. A strategic move to expand the value chain would certainly be far more attractive, including for the stock’s valuation. For instance, by acquiring processing capacities to convert tungsten into end products, Almonty could position itself in downstream, high-margin segments of the value chain.
Exciting news is also expected in the coming months regarding current production at the flagship Sangdong mine in South Korea, and the start of production in the US. Tungsten remains one of the world’s most strategically important raw materials and is essential for numerous high-tech and defence applications. The price surge in recent months reflects the tight supply situation in a market dominated by China.
Rheinmetall: 50% Upside
At the start of the year, shares in the German defence group were still trading at EUR 1,600; currently, they are trading at just EUR 1,200. A weaker-than-expected first quarter, growing skepticism about the product portfolio and the pace of growth, and speculation about an end to the war in Ukraine prompted investors to take profits.
Most recently, the group completed the long-announced sale of its remaining civilian business activities in the automotive supply and energy sectors. The deal is valued at EUR 350 million and is expected to be finalized in the fourth quarter. However, Rheinmetall must record an impairment charge of EUR 200 million for the sale of the discontinued business segment.
Since demand trends remain intact and the group’s projected growth exceeds that of its competitors, analysts see this as a buying opportunity. Analysts at Jefferies recently set a price target of EUR 1,890 and deemed concerns about the product portfolio to be exaggerated. It should not be forgotten that Rheinmetall has already significantly broadened its base through acquisitions and partnerships.
RENK: A Robust Specialist
Since the beginning of the year, RENK’s shares have outperformed Rheinmetall’s. This is due to its strong market position as a highly specialized industrial supplier. RENK is an expert in high-performance transmissions, drive systems, and chassis solutions for military tracked and special-purpose vehicles.
The company not only benefits from NATO’s expanding procurement programs but also generates revenue through its spare parts business, modernization projects, and long-term maintenance contracts. Most recently, RENK reported its strongest order intake ever for a first quarter. The order backlog also reached a record level of EUR 6.9 billion. In the current fiscal year, RENK plans to generate revenue of more than EUR 1.5 billion and adjusted EBIT of between EUR 255 million and EUR 285 million.
The “NextGen Mobility” strategy, which focuses on innovations for the next generation of military and industrial mobility systems, is also proving successful. This marks a shift toward integrated, digital, and (partially) electrified drive solutions.
The pause in defence stocks is making them attractive again, according to many analysts. Rheinmetall is likely to remain volatile in the near future, however. Given its strong market position, RENK’s shares have a more solid foundation. The pullback in Almonty presents an attractive investment opportunity. With the recent issuance of a convertible bond worth USD 800 million, the company possesses significant financial firepower to accelerate growth through strategic acquisitions. Investors should not forget that CEO Lewis Black, who is also one of the largest shareholders, has consistently demonstrated his ability to create value for shareholders.
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