April 15th, 2021 | 07:00 CEST
Barrick Gold, Desert Gold, Steinhoff: Where inflation is an opportunity
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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: Where is the fantasy?
An interesting niche could be value stocks that score with low valuations on the one hand and steady cash flows on the other. One example of this is the gold producer Barrick Gold. Last year, Barrick's profits were so abundant that it even paid a special dividend. But the market still did not get excited. The reason: Between August and today, the price of gold went into reverse gear and corrected the rapid rise after the trillion-dollar support measures following the outbreak of the pandemic.
However, the fact that gold can undoubtedly benefit from rising inflation is shown by the development of the gold price immediately after the publication of the US inflation data on Tuesday: After gold initially weakened, the precious metal turned significantly into positive territory. The chances are good that a continuing inflation trend will also further boost the shares of gold companies. With mines on all continents, Barrick is well-positioned to profit from the precious metal's development. However, the share is not likely to be a high-flyer in the near future - even when gold was above USD 2,000, investors complained that Barrick's share price lacked imagination. Even the special dividend has not been able to change this.
Desert Gold: Top value at an attractive price level
A share that offers more fire due to its low market capitalization is Desert Gold. The Company is valued at just EUR 14 million but is regarded as a serious growth company in commodity circles. Desert Gold operates in Mali on the border with Senegal in the middle of a sought-after gold mining area. Desert Gold holds 410 square kilometers of exploration rights there and has already made several gold discoveries. Highlights include Barani East at 6.28 g/t over 13 meters and Goubassi West at 3.52 g/t over 33 meters.
The Company plans to drill an additional 20,000 meters in 2021 and plans to expand existing deposits and make new discoveries. If needed, Desert can also envision drilling additional meters. Mali is Africa's fourth-largest gold producer and is characterized by its stable location and commitment to mining. Industry giants operating in Desert Gold's neighborhood include Barrick, B2Gold, Endeavour, Allied Gold and more. If Desert Gold can prove its project's viability, it shouldn't be long before the big players take notice as well. As recently as last August, the stock was trading 100% higher. Since then, the price of gold has corrected, Desert Gold has raised capital, and the issue of inflation has become real. Investors who do not shy away from speculative stocks may see Desert Gold as a promising value even in the medium term.
Steinhoff: What investors are betting on
Similar to Desert Gold, the Steinhoff share is a penny stock. However, Steinhoff is by no means at the possible beginning of a major development but is hoping for the legal liberation blow. For years, Steinhoff has been under a cloud of an accounting scandal that has crippled the furniture company's stock. Creditors are demanding billions from Steinhoff, which is why bankruptcy is on the cards. Those who buy the share now hope for a legal settlement. There have been repeated signals in this direction in recent months. But even a possible settlement would be expensive for the Company and would mean a mountain of debt. The share is therefore no more than a gamble. After the crash of the past few days, there are likely to be repeated jerks upward, but inexperienced investors, in particular, will quickly see no more land.
The situation at Desert Gold, on the other hand, is different. The Company has suitable property in a promising gold district. Professional investors have also invested in the stock and expressed confidence in the team around CEO Jared Scharf: Shareholders such as Merck (9.8%), Leede Jones (7.7%), Grand Peak Capital (6.3%) or Ross Beatty (3.6%) are among them. Since the share price has remained at this level for months, the value may have found a supporting floor. Those who want to add gold to their portfolio and appreciate the merits of speculative small-caps can take a closer look at Desert Gold.
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