October 27th, 2021 | 12:34 CEST
B2Gold, Tembo Gold, Newmont: Gold from small amounts? Here is how!
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"[...] We can make a big increase in value with little capital. [...]" David Mason, Managing Director, CEO, NewPeak Metals Ltd.
At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.
B2Gold: To and fro empties the pocket?
In order to profit from rising gold prices, gold shares have always offered interesting options. Since the prices of gold companies usually react with a delay to rising prices for the precious metal and numerous other factors, such as the degree of hedging by producers or other operational factors, play a role, investors must examine an investment on a case-by-case basis. If a gold company is already in production, problems at the mine or other factors can negate any tailwind from the gold market. In addition, larger commodity companies sometimes restructure their projects frequently. That is what happened recently with B2Gold. The Company announced its intention to sell its operations in Burkina Faso to West African Resources.
The market positively assessed the transaction, and the shares of B2Gold, which holds further projects in Mali, Namibia and the Philippines, climbed significantly after the news. Still, many commodity producers now resemble confusing conglomerates that hold various interests in addition to a large number of joint ventures and are thus somewhat opaque. The more complex joint ventures and possible concession payments are formulated, the greater the probability that the share price of the respective gold company will also lag behind the gold price. Although B2Gold's stock has been stable recently, the value still lost more than 30% on a one-year horizon. Even the most recent reallocation of the portfolio has not brought about a turnaround. Investors should base their investment decision on the long-term strategy and the extent to which the management can be trusted to achieve the stated goals.
Tembo Gold: Good starting position for investments
The situation is somewhat different for companies like Tembo Gold. Tembo is active in Africa and develops gold projects in Tanzania. Unlike B2Gold, however, Tembo Gold is not a producer. For this reason, the resources in the ground are traded at a significant discount to any eventual market value. Although exploration shares are rightly considered speculative, as the search for raw materials initially costs more money than it brings in, this constellation also offers excellent opportunities. When, as is currently the case, the gold market is still relatively quiet, even promising exploration stocks offer opportunities for favorable entry. True to the motto "The profit lies in the purchase", investors can carefully build up positions in such market phases. Such speculative stocks must not play too large a role in the portfolio. Instead, investors should view such stocks as a kind of insurance policy against crises.
Since it is to be expected that in the event of a crisis and a run on the precious metal triggered by it, the small values increase disproportionately significantly, even smaller position sizes can serve the desired purpose. In the case of Tembo Gold, the current situation is compounded by the fact that the Company only started a new drilling program in October and plans to drill a further 7,000 meters. In addition, the Company recently hired an experienced project manager. Tembo Gold has already completed the capital increase associated with the drilling program, which makes further dilution unlikely in the near future. Since the Company operates in the vicinity of Barrick's Bulyanhulu mine in Tanzania, Tembo always resonates with a bit of takeover fantasy. At around EUR 16 million, the Company has an extremely low valuation, making it more suitable as crisis insurance than any gold heavyweight.
Newmont: Solid, but no more
The world's largest gold producer, Newmont, shows that big stocks are often not a good choice. Shareholders have not been able to make a good cut with the paper in recent months. A few weeks ago, the Company even conceded its forecast. But what happened next? The share price did not react to the bad news. The analysts from Jefferies in Canada immediately declared the value to be a conservative entry opportunity and proclaimed a price target for gold at USD 5,500 in the course of the growing distortions on the markets. Should gold rise to this level, any stock even remotely related to the precious metal is likely to rise as well. Under any more conservative scenario, however, Newmont is unlikely to be among the favored stocks. While the Company offers large reserves and a dividend yield of around 4%, Newmont does not exude great imagination.
At best, Newmont's stock is suitable for cautious investors who want to park larger amounts for the long term anyway. Here, the solid project pipeline and the active dividend policy could be good arguments. However, those who want to invest dynamically or are looking for crisis insurance should take a closer look at smaller stocks, such as Tembo Gold. In the event of a gold boom, there is more potential here in the short term. In return, however, the stocks are considered more speculative.
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