September 19th, 2022 | 12:13 CEST
Barrick Gold, Desert Gold, Newmont - Eyes are on the FED
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"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
Barrick Gold - Share does not make new lows
The current market environment is hitting major gold producers like Barrick Gold particularly hard. The strength of the US dollar makes gold more expensive for other countries and their investors. In addition, inflation is having a direct impact on the total cost per ounce for producers. As a result, profit margins are getting smaller, and profits are shrinking, as can be seen in the latest quarterly figures. Within a year, costs climbed from USD 1,087 to USD 1,212 in Q2. The question is how long the FED will continue to follow through with its tight monetary policy. The midterm elections will be held in November, by which time inflation will have to fall if the Democrats are to retain their majority.
After the elections, monetary policy could be eased because the economy will not be able to withstand continuously rising interest rates in the long run if everything becomes more expensive at the same time and the economy is on the brink of recession. Excluding the increased costs, the other quarterly figures were good and exceeded analysts' expectations. Copper production climbed by 25% compared to the first quarter, resulting in a 19% increase in profits. Production is expected to pick up in the second half of the year, bringing total costs down on average.
In September, the group cleaned up its royalty portfolio, selling a portfolio of 3 royalties to Gold Royalty for USD 27.5 million and 22 royalties to Maverix Metals for up to USD 60 million. After gold broke a critical support level on September 16, the down move was stopped at the next support level at USD 1671.60. The positive for the Barrick share is that, unlike the gold price, no new lows were reached, but a shoulder-head-shoulder formation was formed. Currently, the stock is trading at USD 15.30 and should now test the last high at USD 16.22.
Desert Gold - The next drill program is pending
Desert Gold is fully focused on the SMSZ project in Mali, Africa. Mali is one of the four largest gold-producing countries on the continent. The property there is one of the largest in West Africa at 440 sq km and is surrounded by six gold mines producing up to 600,000 ounces of gold per year. Among them are big names like Barrick Gold and B2 Gold. The measured and indicated mineral resource is 310,300 ounces, plus inferred 769,200 ounces of gold. The results come from 5 identified zones. The Company is working on 19 more zones to increase the mineral resource estimate.
To this end, the Company announced on August 29 that the first metallurgical results from RC/core drilling from 3 zones had been received. This involved subjecting fresh rock from each zone to a 72-hour bottle roll analysis. While the results from the largest gold zone showed excellent recoveries of 86-88%, the other two zones were significantly weaker. Further optimization testing will now follow. In addition, a 35,000 m drill program has been planned with the main focus on the two largest gold zones, Mogoyafara South and Gourbassi West North. For this, 25,000 m of drilling have been scheduled, and 10,000 m are planned for the development of new gold deposits. In July, the Company reported positive drill results in the Barani East Zone with gold grades of up to 12.41 g/t gold.
For those who would like to get a better insight into the Company and the SMSZ project, you should note September 27. On this day, CEO Jared Scharf will present the Company at the 4th International Investment Forum and answer questions live from shareholders. Registration is free. The share price currently does not adequately reflect the existing mineral resource. Currently, CAD 0.09 is payable per share certificate, leading to a market capitalization of CAD 13.8 million. Given the large producers around the Desert Gold property, it is possible at any time that a big player will buy a part of the project.
Newmont - Bullish study by Goldman Sachs
Another major gold producer is Newmont, whose stock has lost even more than its primary competitor Barrick. At its peak, the stock has lost more than 53% since mid-April. That is an extreme amount for the only gold stock in the S&P 500 Index. The manager of the First Eagle Gold Fund said most recently, "Gold has great fundamentals over the medium term. We have got record debt globally, as much geopolitical, economic and financial uncertainty, and now an energy crisis and a potential food crisis on the horizon." If that happens, gold could return to greater prominence.
The same is true for Newmont as it is for Barrick. Despite rising costs, the Company continues to make a lot of money. The Gabelli Gold Fund analyst sees the stock below its net asset value at current levels. Usually, there is a 30-50% premium. And there are other good reasons to take a closer look at the group. Most projects are located in politically stable environments, and the reserves of almost 100 million ounces of gold equivalent are also impressive.
Due to the current market phase, the Company recently announced that it would postpone its investment decision on the USD 2 billion Yanacocha sulfide project in Peru until late 2024. After its latest gold report, Goldman Sachs upgraded Newmont to a Buy rating and issued a price target of USD 53.00. That represents more than 20% upside potential, as the stock currently trades around USD 43.71. That brings the dividend yield to over 5% with decent upside potential.
Even though margins are getting smaller, gold producers continue to make money. So it is a good opportunity to build up a first position. Those who are braver can make investments in gold explorers like Desert Gold. If the gold price starts to rise and new gold deposits continue to be found, there is the possibility of a multiplier. However, unlike the big players, there are no dividends here.
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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