January 4th, 2022 | 11:29 CET
Barrick Gold, Barsele Minerals, Yamana Gold - Before the rebound!
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"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
Barrick Gold - Operationally top, yet the share is not running
Last year, the shares of the world's second-largest gold producer lost around 20%, while the precious metal price fell by only 5%. The Canadians own shares in 14 gold mines, including six tier-one gold assets, i.e. mines that produce at least 500,000 ounces of gold p.a. over a period of ten years or more. Geographically, the most important location is the USA. Overall, the assets are of high quality and have a long operating life. Barrick also earns about 10% from the production of the industrial metal copper.
The industry has been characterized by several key trends for many years. Globally, project gold grades are declining. There is a shortage of high-quality development projects, and, in general, reserves, i.e. gold deposits that have not yet been mined, are declining. That has also been reflected at Barrick; production was much higher 5 or 10 years ago. Nevertheless, the high gold and copper prices in the last two years led to a significant increase in profits, high dividend payouts, good free cash flow generation and massive debt reduction.
With further development of its projects, exploration activities, acquisitions, high commodity prices and production at a high level, analysts forecast a rosy future for the Company. The experts attest the share of the commodity company, valued at around CAD 43 billion, an upside potential of a good 40% on average.
Barsele Minerals - Will the breakthrough come in 2022?
If you look at the share price of the Canadians from today and from a year ago, practically nothing has changed at prices above just under CAD 0.50. Nevertheless, last year's fluctuation range from CAD 0.35 to CAD 0.82 was considerable. A low in the share price was marked at the end of 2021, since when the share price has risen significantly. The stock market value of the promising gold explorer is currently CAD 69 million.
The Barsele gold project is located in northern Sweden and covers a size of 34,500 ha. A 2019 resource estimate indicated a deposit of 2.41 million ounces of gold. The short-term goal is to expand the resource to 3.5 million ounces. The experienced management considers even more than 5 million ounces feasible in the medium term. Many experts share the opinion that this is a valuable project. As early as 2016, the Royal Bank of Canada (RBC) carried out a valuation of the Barsele Gold Project. At a gold price of below USD 1,350 at the time, the RBC analysts calculated a project value of USD 375 million.
Diamond drilling in June and July 2021 covered a length of almost 3,100 m and 18 completed or expanded core holes. Since the end of 2015, 422 drill holes have been completed, and a substantial 158,439 m has been intersected. The project is operated by the Agnico Eagle joint venture. The major owns 55%, with Barsele holding 45%. Barsele itself is not required to expend any cash until a pre-feasibility study is completed. After completing the pre-feasibility study, the major can acquire another 15% in the project, bringing it up to 70%.
However, in recent months the joint venture partners had entered into an exclusive letter of intent whereby Barsele Minerals could also acquire the project outright. While this expired at the end of October, we cannot imagine that this was it. Should the deal, with a transaction volume of USD 45 million, come to fruition this year, the share price should react with a price jump.
Yamana - Almost 50% price potential according to analysts
The Canadian precious metals producer has presented good operating figures in recent quarters. The share price speaks a different language, with a decline of about a third. Currently, the Company is valued at CAD 5.1 billion and has a price-to-book ratio of 0.7, which indicates an undervaluation.
Given high precious metal prices and high production performance, profits and cash flow increased significantly at Yamana, as could be observed throughout the industry, which led to a significant reduction in debt. Shareholders are also benefiting from rising dividend payments and a strengthened balance sheet, which is also expected to lead to higher M&A activity in the future. Analysts are bullish on Yamana shares and believe the stock has an upside potential of almost 50%.
Even with gold prices at current levels, producers can earn high profits, even if costs are expected to rise this year. There is a lot to be said for a rising gold price. Thus, producers like Barrick and Yamana should be among the winners. If the deal between Barsele Minerals and Agnico goes through this year, the share should gain significant momentum.
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