Ferroglobe PLC (GSM) - the hidden gem of mining silicon

Ferroglobe PLC (GSM) Market Cap = 559.92 Million YTD price performance = 101.83% Website (on which there is an investor section with further information) = http://www.ferroglobe.com/ Social media sentiment = 33.33% Positive (21st February 2021) Summary: Ferroglobe PLC is engaged in silicon and specialty metals industry. The Company produces silicon metal and silicon-based and manganese-based alloy. The Company has quartz mining activities in the United States, Canada, South Africa and Mauritania, low-ash metallurgical quality coal mining activities in the United States, and interests in hydroelectric power in France. Its products include aluminum, silicone compounds used in the chemical industry, ductile iron, automotive parts, photovoltaic (solar) cells, electronic semiconductors and steel. The Company produces two types of manganese alloys: silicomanganese and ferromanganese. It also produces various silicon based alloys, including silico calcium and foundry products, which comprise inoculants and nodularizers. It also produces silica fume. It operates through the segments: Electrometallurgy-North America, Electrometallurgy-Europe, Electrometallurgy -South Africa and Other Segments. SWOT Analysis Strengths: Wide base of operation - The company is operates in multiple countries. It has operational units in Canada, France, South Africa, Spain, South Africa and the USA with a further presence in Argentina, China and Venezuela. This wide base of operations means that Ferroglobe has clients worldwide which may protect the company from localised changes in demand. Largest producer of silicon metal in the EU and North America - Silicon is becoming increasingly important in our economy as it is used in a wide variety of products such as electronic semi-conductors. Silicons demand is not supported wholly by the available supply. Some evidence of this is that recently a silicon chip shortage caused automakers such as Ford and General Motors have had to idle their some of their factories. (more information at https://arstechnica.com/cars/2021/02/a-silicon-chip-shortage-is-causing-automakers-to-idle-their-factories/) US focus - China is currently the world's largest supplier of silicon. Increasing tensions between the US and China could work to Ferroglobe's advantage. Recently a group of US chip companies sent a letter to President Biden urging him to provide 'substantial funding for incentives for semiconductor manufacturing'. Some signatories included Intel and AMD. (Source: https://www.reuters.com/article/us-usa-semiconductors-idUSKBN2AB11H) Ferroglobe may be a beneficiary of any actions resulting from this. Tariff action - Recently it was ruled that Silicon was being dumped in the US by Malaysia and Kazakhstan. This allows the US to place tariffs on imports from these countries as per the GATT Article 6 which allows countries to take action against dumping. This should remove competition for Ferroglobe. Weaknesses: Debt problems - Recently Ferroglobe was downgraded to C by Fitch. This downgrade was following a USD 350 million refinancing plan which was treated as a distressed debt exchange. The refinancing includes an extension of note maturity to 2025 from 2022. Fitch believes that this action was taken as the Ferroglobe's only option to avoid bankruptcy or insolvency. Ferroglobe has also decided to withdraw from the Fitch rating system. This means that the company will now no longer receive a rating or analytical coverage from Fitch. Negative trend in earnings - There has been a negative trend in earnings estimate revisions. The consensus estimate has trended lower, going from a loss of 52 per share to its current level of a loss of 59 cents per share. Opportunities: The importance of silicon in technology - Silicon has been showing potential to be in its involvement of Li-ion batteries, which are absolutely critical in attempting to solve climate change. This is particularly prevalent in the automotive sector where it is thought that battery electric vehicles are best placed to reduce the sectors emissions. It may be a case of selling spades to gold diggers, in that in the EV mania key suppliers of companies such as Tesla and others may be a great play. Threats: Competitors - There are many solid companies in the mining and materials industry. If silicon is proved to be as profitable and necessary as its potential then Ferroglobe, while having a first mover advantage, may be out performed by better structured, more established players such as Rio Tinto PLC (RIO) or BHP group (BHP) Debt issues - the company has a significant amount of debt. It has issued USD 350,000,000 worth of bonds and has taken USD 400,000,000 as loans. The company still has all of the USD 350,000,000 of bonds outstanding, as part of the refinancing deal. This could be seen as an opportunity as it allows the company to pay these off and begin to move forward, however this fiscal year the company has had revenue growth of -27.96% which is obviously concerning whether it was because of COVID-19 or not due to the amount of outstanding debts that the company owes. It should be noted that in the fiscal year Ferroglobe did have a revenue growth of 29.43% which maybe an indicator that the underlying business model is strong. Analysts thoughts Looking in Yahoo finance it shows that the Recommendation trends of the stock are generally positive. The stock has multiple buy and strong buy recommendations, although the Recommendation rating is currently hold. I will attach a screenshot for further viewing. TLDR The company operates in mining. Great potential in terms of commodities such as silicon which is used in Microchips and Li-ion batteries (used in EVs!!). There are some concerns with the company such as debt and being maybe less established in the industry when compared to some competitors.

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teaheat

Feb 22, 2021

147.38%

Change % Since Posting

3.43

Price When Posted

5.05

Change Since Posting

GSM

Ferroglobe Plc

8.48

-0.51
-5.62%
Current Price

Ferroglobe PLC (GSM) - the hidden gem of mining silicon

bullish
 
Ferroglobe PLC (GSM)
  • Market Cap = 559.92 Million

  • YTD price performance = 101.83%

 

  • Website (on which there is an investor section with further information) = http://www.ferroglobe.com/

  • Social media sentiment = 33.33% Positive (21st February 2021)

Summary:

  • Ferroglobe PLC is engaged in silicon and specialty metals industry. The Company produces silicon metal and silicon-based and manganese-based alloy. The Company has quartz mining activities in the United States, Canada, South Africa and Mauritania, low-ash metallurgical quality coal mining activities in the United States, and interests in hydroelectric power in France. Its products include aluminum, silicone compounds used in the chemical industry, ductile iron, automotive parts, photovoltaic (solar) cells, electronic semiconductors and steel. The Company produces two types of manganese alloys: silicomanganese and ferromanganese. It also produces various silicon based alloys, including silico calcium and foundry products, which comprise inoculants and nodularizers. It also produces silica fume. It operates through the segments: Electrometallurgy-North America, Electrometallurgy-Europe, Electrometallurgy -South Africa and Other Segments.

SWOT Analysis

Strengths:

  • Wide base of operation - The company is operates in multiple countries. It has operational units in Canada, France, South Africa, Spain, South Africa and the USA with a further presence in Argentina, China and Venezuela. This wide base of operations means that Ferroglobe has clients worldwide which may protect the company from localised changes in demand.

  • Largest producer of silicon metal in the EU and North America - Silicon is becoming increasingly important in our economy as it is used in a wide variety of products such as electronic semi-conductors. Silicons demand is not supported wholly by the available supply. Some evidence of this is that recently a silicon chip shortage caused automakers such as Ford and General Motors have had to idle their some of their factories. (more information at https://arstechnica.com/cars/2021/02/a-silicon-chip-shortage-is-causing-automakers-to-idle-their-factories/)

  • US focus - China is currently the world's largest supplier of silicon. Increasing tensions between the US and China could work to Ferroglobe's advantage. Recently a group of US chip companies sent a letter to President Biden urging him to provide 'substantial funding for incentives for semiconductor manufacturing'. Some signatories included Intel and AMD. (Source: https://www.reuters.com/article/us-usa-semiconductors-idUSKBN2AB11H) Ferroglobe may be a beneficiary of any actions resulting from this.

  • Tariff action - Recently it was ruled that Silicon was being dumped in the US by Malaysia and Kazakhstan. This allows the US to place tariffs on imports from these countries as per the GATT Article 6 which allows countries to take action against dumping. This should remove competition for Ferroglobe.

Weaknesses:

  • Debt problems - Recently Ferroglobe was downgraded to C by Fitch. This downgrade was following a USD 350 million refinancing plan which was treated as a distressed debt exchange. The refinancing includes an extension of note maturity to 2025 from 2022. Fitch believes that this action was taken as the Ferroglobe's only option to avoid bankruptcy or insolvency. Ferroglobe has also decided to withdraw from the Fitch rating system. This means that the company will now no longer receive a rating or analytical coverage from Fitch.

  • Negative trend in earnings - There has been a negative trend in earnings estimate revisions. The consensus estimate has trended lower, going from a loss of 52 per share to its current level of a loss of 59 cents per share.

Opportunities:

  • The importance of silicon in technology - Silicon has been showing potential to be in its involvement of Li-ion batteries, which are absolutely critical in attempting to solve climate change. This is particularly prevalent in the automotive sector where it is thought that battery electric vehicles are best placed to reduce the sectors emissions. It may be a case of selling spades to gold diggers, in that in the EV mania key suppliers of companies such as Tesla and others may be a great play.

Threats:

  • Competitors - There are many solid companies in the mining and materials industry. If silicon is proved to be as profitable and necessary as its potential then Ferroglobe, while having a first mover advantage, may be out performed by better structured, more established players such as Rio Tinto PLC (RIO) or BHP group (BHP)

  • Debt issues - the company has a significant amount of debt. It has issued USD 350,000,000 worth of bonds and has taken USD 400,000,000 as loans. The company still has all of the USD 350,000,000 of bonds outstanding, as part of the refinancing deal. This could be seen as an opportunity as it allows the company to pay these off and begin to move forward, however this fiscal year the company has had revenue growth of -27.96% which is obviously concerning whether it was because of COVID-19 or not due to the amount of outstanding debts that the company owes. It should be noted that in the fiscal year Ferroglobe did have a revenue growth of 29.43% which maybe an indicator that the underlying business model is strong.

Analysts thoughts

Looking in Yahoo finance it shows that the Recommendation trends of the stock are generally positive. The stock has multiple buy and strong buy recommendations, although the Recommendation rating is currently hold. I will attach a screenshot for further viewing.

TLDR

The company operates in mining. Great potential in terms of commodities such as silicon which is used in Microchips and Li-ion batteries (used in EVs!!). There are some concerns with the company such as debt and being maybe less established in the industry when compared to some competitors.

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4 min

3.77

Target Price

6/ 10

Confidence

2-6 Months

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