June 7th, 2023 | 09:15 CEST
Barrick Gold, Defiance Silver, and First Majestic Silver - Precious metals in focus after the fall of the debt ceiling
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"[...] Internally we expect the resource to significantly grow the deeper we mine. [...]" Dennis Karp, Executive Chairman, Manuka Resources
Barrick Gold - Buyers are back
After the gold futures price met resistance at above USD 2,080 and fell back came the quarterly figures from Barrick Gold, which were weaker than expected. The 1st quarter was characterized by lower production and higher costs. Accordingly, there was a year-on-year decline in net profit, revenue and operating cash flow. Nevertheless, the Company remains optimistic for the year's second half and expects improved operating efficiency and higher production figures. Analysts also assume this in their consensus estimates.
The rapid decline in the share price could attract gold bulls, especially since the Company could also become attractive for investors in the energy transition in the long term due to its copper production. A lot of copper is needed for electrification. The recovery of the Chinese market could also boost the copper price in the short term. The interest in acquisitions could additionally provide a share price boost if the Company announces a suitable takeover target. CEO Mark Bristow said in an interview that they are on the lookout.
Looking at the share price, the stock is trading at USD 17.19. After 3 weeks, the selling pressure seems to have eased, and buyers have returned. Although Barrick Gold faced challenges in Q1, the Company remains optimistic and expects a better performance in the second half of the year. The planned production increase and optimistic market outlook could provide potential opportunities for investors, especially given the 20% drop in the share price.
Defiance Silver - Owns large precious metal deposits
The explorer Defiance Silver owns projects in Mexico. Firstly, there is the gold-copper project called Tepal. The current NI 43-101 resource estimate is for 1.8 million ounces of gold and 813 million pounds of copper. A pre-feasibility study from 2013 is also already available. Legal proceedings are underway as some mineral concessions were transferred to a third party without the Company's knowledge and consent. The flagship San Acacio project is part of the Zacatecas projects, which consist of a total of 4 properties. The state of Zacatecas is the largest silver producer as well as the second largest copper producer in Mexico and has an excellent infrastructure. Active companies in the area include Pan American Silver, Fresnillo, Newmont, Teck, Agnico Eagle and others.
While the three properties, Lucita, Panuco and Lagartos, are still in an early exploration stage, the main project, San Acacio, can already show an inferred resource of 16.9 million ounces of silver, which is concentrated in only a small part of the project. A total of 44 drill holes with a total length of 10,200 m were drilled, yielding peak values of up to 2,172 g/t silver. A further 20,000 m has been drilled since the last resource update. The property is located on the Veta Grande and Mala Noche vein systems and has the potential for expansion, as shown by the latest drill results from March. Significant amounts of silver were found in all 7 drill holes, with values reaching over 377 g/t of silver at its highest.
On May 3, Oleg Shcherbyna was appointed CFO of the Company. This added further expertise to the seasoned management team, with decades of exploration experience and a track record of success. On April 1, the Company had CAD 6.5 million in cash and is thus fully funded for the current year. It also allows the final cash payments to be made for the 100% ownership of Lucita and San Acacio. The share is currently quoted at CAD 0.16, bringing the market capitalization to around CAD 36.4 million, which is considered favourable given the existing resources and expansion potential.
First Majestic Silver - Jerritt Canyon Mine turns into a stumbling block
First Majestic Silver, a silver producer, posted disappointing Q1 results. According to the Company's recently released quarterly report, silver production fell 2% while gold production rose 3%. Particularly burdening was the temporary suspension of operations at the Jerritt Canyon Mine in Nevada, which resulted in a loss of about USD 93.6 million. Production at the Mexican operations, Santa Elena and San Dimas, developed positively. At San Dimas, 1.6 million ounces of silver and 20,100 ounces of gold were produced, while Santa Elena recorded 104,100 ounces of silver and 24,000 ounces of gold.
Turnover was USD 157 million. All-in sustaining costs (AISC) increased slightly to USD 20.90 per ounce compared to USD 20.80 per ounce in the same period last year. The Company recorded an operating cash flow of -USD 4.7 million and invested a total of USD 47 million in its operations. At the end of the quarter, the Company had a cash balance of about USD 105 million. Despite the weak quarter, the Company is paying a dividend of USD 0.0057 per share. So far, purchasing the Jerritt Canyon gold mine has proven to be a bad investment.
Since the production costs in Nevada are too high, only a rising gold price can help. The Company wants to explore the property further to expand the resources and thus spruce up the mine for a sale. First Majestic's current market value is around USD 1.6 billion, with a share price of USD 5.89. The Company's net asset value is estimated at CAD 860 million. Accordingly, there is no urgent need for an investment here yet.
After the fall of the debt ceiling, precious metals are in the focus of investors. The more money is printed, the less it is worth. Inflation will lead investors to invest more in precious metals again. Barrick Gold is diversified with its gold and copper production and has a strong second half ahead of it. Defiance Silver has two projects with high gold and silver resources and is currently attractively valued. The situation is different for First Majestic Silver, which is suffering from the takeover of the Jerritt Canyon Mine. Here, the valuation could still be too high.
Conflict of interest
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