May 19th, 2022 | 12:10 CEST
Barrick Gold, Barsele Minerals, Newmont - Gold stocks are under pressure
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Barrick Gold - Prepared for a possible crisis
Barrick Gold is the most popular gold share in Germany. The share benefited from the gold price rally but also lost significantly in the correction. On May 4, the Group presented its figures for the first quarter. Analysts' expectations were exceeded, despite a year-on-year decline in production. The situation was better for copper, which was able to increase production year-on-year. Due to the Ukraine crisis, the Company has doubled its inventories for mine operations in order to be able to absorb possible disruptions.
Therefore, management has made the early provisions for at least 5 months to make the statement that the 2nd half will be significantly better. So while gold production has been difficult in the first quarter, there is progress in the permitting process at Pueblo Viejo. In addition, a framework agreement for Reko Diq has been signed with Pakistan, paving the way for the development of a new potential Tier 1 mine. Exploration also produced good results in Nevada, Argentina and the Loulo district.
In response, first analysts have raised their expectations for the 2nd quarter. KeyCorp expects earnings of USD 0.30 per share for the upcoming quarter. The share formed a double top at around USD 26. From there, it fell back to just under USD 20 and is currently trading at USD 20.47. The high dividend and share buyback program presumably prevented more significant losses. From a chart perspective, both the 50 and 200 moving averages were breached to the downside. Courageous investors can build up a first position here.
Barsele Minerals - Waiting for the breakthrough
2021 was not the easiest year for Barsele Minerals. The Company jointly owns the Barsele project in Sweden with Agnico Eagle, which is over 34,500 hectares in size. Parts of the project area were declared a Site of National Interest in 2021, and there has been a NI 43-101 mineral resource estimate of 2.4 million ounces of gold since 2019. Barsele Minerals has been trying to buy out Agnico Eagle's 55%. The purchase price was set at USD 45 million, but the investors did not want to cooperate, and the deal fell through. However, CEO Gary Cope recently made it clear in an interview that negotiations are still ongoing in the background.
In the past year, 7,000m have been drilled on the project. However, this was not to extend the high-grade discoveries of the previous drilling program but to obtain the concessions. Agnico Eagle's focus is entirely on North America. In this regard, Sweden is considered one of the best jurisdictions globally with the cheapest energy. Barsele Minerals would like to conduct a 35,000m drill program to expand the resources to 4-5 million ounces of gold. A detailed plan with drill targets has already been prepared by a project manager at Agnico Eagle for this purpose.
Comparing Rupert Resources in Finland, which reported 3.9 million ounces at a lower gold grade, to Barsele Minerals, there is extreme undervaluation at Barsele. Rupert comes in with a market capitalization of 952 million Canadian dollars (CAD), while Barsele is currently only CAD 40.1 million. At the same time, the concession costs in Finland are three times higher than in Sweden, and taxes are also higher. Barsele's shares are currently trading at an annual low of CAD 0.31. If the management succeeds in finding a solution with Agnico Eagle, the share will pick up quickly.
Newmont - High investment in Peru
Newmont is the largest gold producer but also explores for copper, silver, zinc and lead. The latest quarterly figures are very similar to those of competitor Barrick Gold. Gold production also declined, falling to 1.34 million ounces, down 8% year-on-year. However, sales climbed 5.2% to around USD 3 billion due to the higher gold price. Due to special charges, analysts' expectations were missed and the Group earned only USD 0.54 per share, down from USD 0.67 a year earlier. Nevertheless, management expects to achieve its targets for 2022 as planned.
On the sidelines of a mining conference in Lima, Peru, CEO Tom Palmer let slip that the Group intends to invest USD 2 billion in the Yanacocha project in Peru. In the first step, USD 500 million was pledged. If the 2 billion is invested in full, the life of the gold mine will be extended beyond 2040. There are also copper deposits on the property, so an expansion is also planned here. These statements are surprising, as there were repeated protests after the election of the new president Pedro Castillo. President Castillo had promised before the election to redistribute the wealth from the mines.
Newmont's stock was dragged down by the falling gold price. In addition, the expectations of analysts were missed, and so the paper lost a good 25% from the high of USD 86.37. The share is currently trading at USD 65.50. Although the dividend is constant at USD 0.55 and the yield is a good 3.3% at the current level, an investment currently appears difficult. There is not only the Ukraine crisis but also uncertainties in Peru.
Even if the gold price is currently consolidating, the general conditions with high inflation are actually ideal for gold. Potential shackles due to the Ukraine crisis could fall away as the war ends. Barrick Gold has positioned itself well for the future. At Barsele Minerals, the knot needs to be cut. The stock is currently significantly undervalued in terms of mineral resources. Newmont is paying out more in dividends than it has earned, which is not good. Add to that the uncertainties in Peru. One should wait and see here.
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