15 Years of Deutsche Rohstoff, Interview with CEO Dr. Thomas Gutschlag

15 Years - 15 Questions
Dr. Thomas Gutschlag, CEO of Deutsche Rohstoff, on the company's 15th anniversary

Deutsche Rohstoff was founded in 2006 by Dr. Thomas Gutschlag and Dr. Titus Gebel. The company is developing at a rapid pace. On 27 May 2010, the company already succeeded in going public. First activities began in 2010 with the company’s own gold mining operations at the Georgetown mine in Australia. From 2011, Deutsche Rohstoff focused on the exploration and production of oil and gas in the USA. The subsidiary Tekton Energy announced its first production in April 2012. Since then, Deutsche Rohstoff has continued to expand its business in the US without losing sight of other commodities. Thomas Gutschlag is responsible for managing the Group and controlling the subsidiaries and investments.

Dr. Thomas Gutschlag, CEO

15 Years - 15 Questions
Dr. Thomas Gutschlag, CEO of Deutsche Rohstoff, on the company's 15th anniversary

Deutsche Rohstoff was founded in 2006 by Dr. Thomas Gutschlag and Dr. Titus Gebel. The company is developing at a rapid pace. On 27 May 2010, the company already succeeded in going public. First activities began in 2010 with the company’s own gold mining operations at the Georgetown mine in Australia. From 2011, Deutsche Rohstoff focused on the exploration and production of oil and gas in the USA. The subsidiary Tekton Energy announced its first production in April 2012. Since then, Deutsche Rohstoff has continued to expand its business in the US without losing sight of other commodities. Thomas Gutschlag is responsible for managing the Group and controlling the subsidiaries and investments.

Thomas Portrait 543x430
Dr. Thomas Gutschlag, CEO

1. Dr. Gutschlag, first of all congratulations on the 15th anniversary of the company, the “glass wedding”, so to speak. Let’s take a brief look back to 2006: What was your motive back then for co-founding Deutsche Rohstoff AG?

We founded Deutsche Rohstoff AG at that time because we found the topic of commodities extremely exciting for a growing global economy. Around the year 2000, there was the low point of the last downward cycle in commodity prices, after which things started to look up, not least because of the sharp rise in demand from China. Looking back, I can say that it really is a fascinating industry. The business is global and has high demands

2. What is your personal evaluation after 15 years?

We have learned to deal with the fluctuations and cycles and even to take advantage of the enormous price volatilities. I would immediately establish Deutsche Rohstoff AG again. At the moment, the commodity markets are also on the rise again, which makes it twice as much fun!

3. The high prices of many commodities are currently keeping markets and investors busy, not only because of their impact on inflation. What do you think – are we at the beginning of a new commodity supercycle?

The supercycle thesis also existed in 2006 when we founded the company. It is based on the assumption that demand will rise sharply over a longer period of time while supply growth is very slow. The higher demand is currently coming from the Covid-related catch-up demand, the enormous amount of money that central banks and governments all over the world are allocating to stimulate the economy, and also because of the structural transformation of the global economy towards a CO2-neutral economy.

IPO of Deutsche Rohstoff in 201

4. Are commodities the best hedge against inflation?

The restructuring, towards a CO2-neutral economy, will require a lot of additional commodities. Yes, I think the supercycle thesis is more relevant than ever. It could be a golden decade for commodities.

5. Last year, you built an investment portfolio with great results in response to the Covid-related dislocations in oil prices. What were your investment principles and do you maintain portfolio management as an extension of your business model going forward?

The overriding principle was, that we only invest in stocks or bonds of companies that we thoroughly understand. We therefore limited ourselves to oil and gold companies. In the case of oil companies, the focus was again on shale oil companies in the U.S. that are active in the same fields as we are. In some cases, we have already worked with them. With gold companies, we brought in our own experience of operating a gold mine. In addition, we basically did a lot of research on the geology of the projects and built a financial model to understand what the potential of a stock was.
Overall, our approach has paid off. By the end of April, we had earned about EUR 17 million on the portfolio and realized most of it. We see further potential, especially in gold stocks, which we intend to realize.

6. Many companies have run into difficulties as a result of the pandemic, but Deutsche Rohstoff is in a good position – a healthy balance sheet, a stable equity ratio, and a comfortable level of cash and cash equivalents. What did you do differently – strategically and in terms of business policy?

I think the decisive factor was, that we deliberately scaled back our growth and investments in 2019 in order to strengthen our balance sheet. We had invested about USD 140 million in new oil production in 2017 and 2018. The pause in investment in 2019 filled our cash well from the returns from new production. We were also able to issue a new bond at the end of 2019, so we entered the crisis with a comfortable liquidity position. Last but not least, we have been trying for a long time to reduce price risks by hedging, which we did well in 2020. We generated EUR 12 million in hedging proceeds and were thus able to afford to sharply curtail our production and keep our oil in the ground. Since the beginning of 2021, we have been producing at full capacity again, but at much higher prices.

Gold mining by Deutsche Rohstoff in Geogetown/Australia

7. If one were to take a rather superficial look at Deutsche Rohstoff AG, one might assume that your company is primarily involved in the development of fossil raw material sources; terms such as fracking then heat up people’s minds. What do you do to counter critical voices?

Our focus is indeed on oil and gas production. From my point of view, that will remain the case for a long time to come. The world will need more, not less, fossil sources of energy in the coming years. The shift to alternative energy sources will take decades. However, the ongoing discussion could lead to rising oil prices, as many suppliers are reluctant to invest or divert part of their budgets to renewables. BP and Shell are examples of this. We as a small player can definitely benefit from this.

8. Reducing CO2 emissions, expanding electromobility – these are topics of our time. How do you assess current developments?

Of course we are concerned with the question of whether there are potential niches in these new markets that we can occupy with our know-how and our financing options and that will create long-term value for our shareholders. We intend to answer this question in the coming months.

9. Which commodities are most in demand and how is Deutsche Rohstoff positioned here?

We definitely see a growing demand for metals that are important in the production of batteries or electric vehicles. Copper, lithium and nickel are in first place. In second place come metals such as tungsten, which most investors are not aware of or do not know about, but which are also indispensable for many applications.

Successful oil drilling by Tekton Energy in 2013

10. Deutsche Rohstoff has been listed on the stock exchange since 2010, which is certainly a milestone in the company’s history. You have also placed two capital increases as well as three bonds and one convertible bond with a total volume of more than EUR 200 million. The bond issued in 2016 will be repaid on time in July. So the capital market knows your company as a reliable issuer. In your view, what does the stock market not yet appreciate sufficiently?

From my experience, there are relatively few investors in Europe who are familiar with oil and gas or mining. This sometimes makes it difficult to get our “story” out. A new research paper from Kepler Cheuvreux has just been published, which reports on us in great detail and provides a good overview. Such analyses are important. If my assumption is correct that we will see a supercycle in commodities, our stock certainly still offers a lot of potential. We have earned a lot of confidence in bonds, which I am very pleased about, but our stock is still somewhat of a shadow.

11. Investors can benefit from developments on the commodity markets by buying Deutsche Rohstoff shares. This eliminates the need for our own extensive research into explorer companies in the USA and Canada, for example. How do your North American subsidiaries operate? What are the latest news?

In the US, we are engaged in operations, i.e. we drill wells and sell the oil and gas we produce from these wells. We are currently running one of the largest drilling programs we have ever carried out. We are drilling from the so-called Knight well pad 12 times with a horizontal length of 3.5 km. The investment volume amounts to USD 60 million. These wells are expected to produce a lot of oil and gas starting in the fourth quarter of 2021, and that will drive our growth, especially in the coming fiscal year 2022. Otherwise, production in the US is going smoothly, so we are very pleased with that.

12. Are there any current news from the US with regard to the oil and gas business?

Last year, we took on new acreage in Wyoming. At current oil prices, drilling there should definitely be worthwhile. We are planning to drill the first well this year, which should confirm our assumptions regarding the profitability of the field. We are very excited about that. We can develop a very large additional potential there.

13. Is there a company in Germany with a comparable business model?

There are, of course, companies active in oil and gas production, although not many. But I’m not aware of any German company that has successfully established itself in US shale oil production. We can certainly say that about ourselves. We have been active in the US market since the beginning of 2011. We have created a good network and built up a strong production. This is a very good foundation for further growth.

14. At the beginning we took a trip back in time, now let’s look ahead. Where do you see Deutsche Rohstoff in 15 years, in 2036? To what level will the current 24 million barrels of proven reserves in oil equivalent have developed by then?

That is of course very difficult to say, the world is changing rapidly. Our business today looks completely different from what we predicted in our initial business plans. But I think we have a good chance of further expanding our oil and gas business in the coming years.

15. What could be the main sources of future growth?

In addition, it should be possible sooner or later to gain a foothold in commodity markets that form the basis for alternative drive technologies and technological progress. We would therefore be providing mobility in both its conventional and new forms. In my opinion, this is a sensible and achievable vision of the future.

Mr. Gutschlag, thank you very much for the detailed interview.

Mannheim, Germany, June 2021

Thomas Gutschlag visiting Cub Creek Energy drilling operations on the Vail Pad in Colorado/USA