November 9th, 2022 | 12:25 CET
Barrick Gold, Desert Gold, K+S - Undervalued shares
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"[...] We can make a big increase in value with little capital. [...]" David Mason, Managing Director, CEO, NewPeak Metals Ltd.
Barrick Gold - Weak quarterly figures but high dividend
The gold market had to digest some negative news recently. Rising interest rates are hurting the gold price, the strong US dollar also slowed demand and, for a long time, it was said that bitcoin would replace gold as a crisis-proof investment. In the meantime, bitcoin has lost almost 70% in value since the end of last year. Gold, on the other hand, only around 10%. The gold price has recently shown strength at the support level of USD 1,620, where it has now formed a triple bottom. From there, the gold price has soared by more than USD 50. Gold producers such as Barrick Gold have been hit harder by rising energy costs.
On November 3, the Company presented its quarterly figures for the third quarter. In addition to weaker gold production of 988,000 ounces, total costs, in particular, have climbed by over 22%. Last year, costs were USD 1,034, and this year they are USD 1,269. Copper production was stronger, but here, too, costs rose by a good 20%. Net profit was only USD 241 million. 2021 reported a profit of USD 347 million for the same period. Management's plan to increase production in H2 and thus lower overall costs on average has thus failed for the time being.
Shareholders sold off the stock down to USD 13.01. Since then, however, the share has recovered to USD 14.57. The reasons for this are certainly the dividend, which is USD 0.15 this quarter. That brings the current share price to around 4.8% this year. At the same time, a share buyback program of 1 billion shares is underway. So far, only 322 million shares have been repurchased. This also increases the value of a share certificate for shareholders. Various factors would positively impact the share, such as a decline in energy prices or simply a rise in the price of gold.
Desert Gold - Drilling program starts in December
When one of the largest gold producers is hit hard, the explorers are usually hit even harder. Barrick Gold has lost about 30% since the beginning of the year, while Desert Gold has lost 58%. With the SMSZ project in Mali, the Company owns one of the largest properties in West Africa, with 440 sq km and a mineral resource of 1,079,000 ounces of gold. To date, 23 gold zones have been discovered, with gold occurrences up to 20.87 g/t. There are six gold mines in the area, including Barrick Gold, producing up to 600,000 ounces of gold per year.
The next drill program is planned and expected to cover 30,000 meters of drilling. The new exploration work will start in December in the Gourbassi West North gold zone and then be extended to Mogoyafara South. It is intended to expand the two largest gold zones to date. With the drilling results, an updated resource estimate is expected to be presented in the fourth quarter of 2023. In parallel, work is already underway to optimize gold recovery rates. In some cases, the rates were already 86-88%, but other zones were weaker. Operationally, therefore, work is being done in all areas, and things are progressing step by step.
Those interested in a company presentation can find a recording from the 4th International Investment Forum on YouTube. Even new gold discoveries have yet to help the share price. Currently, the share is quoted at CAD 0.07 and thus comes to a market capitalization of CAD 11.3 million. Assuming a value of only USD 50 per ounce of gold that the Company possesses, one arrives at a realistic valuation of a good CAD 72 million. The larger the gold deposits become, the more attractive takeovers become for the major players in the region.
K+S - Quarterly figures on November 10 point the way
At the beginning of 2021, K+S was at rock bottom. A mountain of debt threatened to crush the Company. But then, fertilizer prices shot through the roof and, at the latest, with the sale of the US salt business, the picture turned around. The share was the winner of the MDAX and climbed to EUR 36.45 in April of this year. It then fell by more than 50%. The reason is the combination of higher raw material and energy costs and falling potash prices. But despite all the bad news, 2022 will also be a good year for K+S if you look at the figures.
In half-year figures, the Company almost doubled its revenues to EUR 2.7 billion. EBITDA was quintupled to EUR 1.2 billion. Despite higher gas prices, the Company expects EBITDA at the end of the year to be between EUR 2.3 and 2.6 billion. Among other things, K+S is investing money in modernizing its plant in Werra. During ongoing production, the renewal is expected to lead to higher and more stable production, an increase in energy efficiency and a significant reduction in CO2 emissions.
Most recently, the share was weighed down by weaker figures from competitor Nutrien. The world's largest fertilizer producer cut its profit forecast. The Kassel-based company will announce whether K+S has also experienced a weaker quarter on November 10, when the figures for the 3rd quarter will be presented. However, regardless of the upcoming figures, this year has already been a success for the Company. The share stands at EUR 21.77 and should already have priced in much negativity.
The rough times on the stock market also offer potential. Sometimes one has to look a little closer to find the exaggerations. Opportunities then present themselves. At Barrick Gold, the quarterly figures were weaker, but the group is still excellently positioned. Desert Gold's valuation is well below the discoveries that have already been made, meaning that gold can be acquired at a bargain price. K+S has achieved the turnaround and is earning decent money. The discount is too high.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
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