Europeans want a small cap buying opportunity – but only if it’s gold or battery metals
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European investors are looking for opportunities in ASX-listed battery metal stocks. Small cap expert Stefan Müller, CEO of Frankfurt-based consultancy DGWA, explains why in this Stockhead Q&A:
The battery metals are of interest to a lot of investors right now, but in terms of the traditional commodities, what do you think is hot right now or has the potential longer term to be a good investment?
In the actual environment where a lot of people are concerned about the next couple of months and years regarding the growth of the economy plus rising interest rates, higher inflation, stuff like that, it’s not a set-up for a bull market in commodities.
If that scenario becomes real, especially the US, but also if other economies show weakness, then gold should go up substantially. It’s a set-up for a bull market in gold that’s for sure.
What do you see happening with commodities like uranium and nickel?
To be honest Germany decided to go out of atomic power plants. Nobody likes uranium in Germany and we simply stopped looking into that.
Every couple of years somebody calls the uranium a bull market, but nothing has happened the last couple of years even though in China every couple of weeks an atomic power plant is going live there. In Europe you will hardly find someone who is interested in this.
Nickel should follow the other battery metals, but on the other hand there is so much product in the world.
Recently Artemis Resources (ASX:ARV) announced it was enlisting the help of your company to tap into the European market. What makes companies like Artemis attractive to European investors?
The company has a couple of sweet spots — number one if you go outside Europe then Canada and Australia are of course the two mining areas and number two they’re politically stable.
They are very mining friendly jurisdictions. There is no down side for a company that is in Australia.
Artemis is in the battery metals and they are in gold, and Germans love gold. On top of that they have a very good financing situation. I would say for a company of their size they are swimming in cash, so they’re not desperate.
Artemis has a lot of sweet spots and I don’t see any real downside.
They are in the right commodities, they have a very good cash situation, they are in the right country, they have an experienced management and attracting a market of 250 million people — which is the German speaking European equity markets — does make sense.
Plus the listing in Germany at the Frankfurt Stock Exchange is very easy. There is no additional requirements. We translate everything, but there’s no requirements like German balance sheets or German annual reports or stuff like that.
It’s a very easy and logical step for a company that is in battery metals to attract European investors. It’s a win-win situation.
What sort of investment opportunities do European investors look for?
In general, I would concentrate on gold and battery metals. That’s what investors in Europe look for.
They like everything around the automotive industry, batteries and tech. 16 million jobs are directly and indirectly related to the automotive industry in Germany.
Companies like European Lithium (ASX:EUR), Jadar Lithium (ASX:JDR) and Euro Manganese (ASX:EMN) [are attractive to European investors].
For European Lithium we raised more than $15 million in the last 12 months.
The Europe and German governments are really concerned about the fact that we are totally dependent on lithium from China.
They are doing everything to implement better production in Europe, including the mines.
Billions and billions of euros will be spent over the next couple of years for better production in Europe.
Europe wants to become independent from China and get the product from somewhere else — from Europe or Australia.
We have a very close connection to the German government, to the Brussels working groups.
We are in touch with almost every industrial firm, not only the original equipment manufacturers, but also huge chemical companies and others that are planning to enter into the battery business.
What is the demand picture for battery metals like in Europe?
We negotiate off-take [sales] agreements, not only for European Lithium where we are very shortly to announce something, but also for other companies.
In the past Volkswagen tried to negotiate an off-take agreement with Glencore and they failed.
The industry realises that size doesn’t matter here, and it doesn’t make sense to go in too heavy or too hard into price negotiations, but it’s really needed to secure the supply.
Demand is rising, and you get the stuff only through off-take agreements. We speak to 10 to 12 global corporates in Europe and all of them are looking for off-take agreements in various metals and none of them has one yet, which means they all come to the market and that gives us a clear idea of the situation.
They simply can’t wait much longer, they can’t wait for seriously low prices in lithium and cobalt. It’s just a situation that was totally under-expected by the industry.
There is huge money that will be delivered to implement the battery industry in Europe, which goes from mining through the whole value chain up to battery production.
Has the US-China trade war dented European investor confidence in resources or do they see it has more of a buying opportunity?
In general, they see it as a good chance for Europe. We believe that China at the end of the day will be the winner in that war.
When it comes to resources China is the global power in the world and they’re continuously growing. They are growing a little slower than they did in the past, however look at the levels — better to grow 5 per cent on a high level than 10 per cent on a low level.
Total numbers are impressive and their demand on resources will not stop. Their whole investment in infrastructure and the automotive industry will build up.
We believe that the overall sentiment is not bad. I don’t think we are heading for a crash, we just need some positive signs. At the moment everything is waylaid in Europe by the Brexit scenario of course, which I don’t think will happen.
People are waiting for the moment to buy definitely. They are not nervous, it’s just that they will have some more opportunities coming to buy.
I think we will have a very volatile market in all kinds of asset classes, but people are on standby and are ready to buy that’s for sure.
Stefan Müller is the CEO of DGWA, the German Institute for Asset and Equity Allocation and Valuation – based in Frankfurt. The company is one of the leading German Corporate Boutiques for global small and mid-cap consulting and investments.
DGWA’s management team has a 25-year track record in trading, investing and analysing SME’s around the world. It has been so far involved in more than 250 IPOs, financings, bond issues, dual listings and corporate finance transactions as well as corresponding road shows and awareness campaigns.
Mr Müller studied at Europe’s leading business school, INSEAD, in Paris.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.