30. March 2021 | 08:30 CET
Barrick Gold, Desert Gold Ventures, Sibanye Stillwater - absolutely unrecognized: tremendous price opportunities!
Gold shares currently offer a very attractive risk-reward ratio. Even the star investor Warren Buffett made a quick grab at the world's second-largest gold producer, Barrick, during the pandemic. Mining companies were able to achieve record profits across the board in the past fiscal year. They are now increasingly using this to reduce their debt and expand in investments in existing and new projects. In some cases, in the form of takeovers or strategic acquisitions. Here, Sibanye-Stillwater could attract attention with a merger. The stock's P/E ratio is below 4. In addition, the Company is also pushing its entry into new areas such as battery metals. Desert Gold Ventures is also a stock in which a lot of potential lurks, especially if the gold price picks up again. Thus, investors should still stock up on the fair-weather stock market before the next clouds roll in.
time to read: 4 minutes by Carsten Mainitz
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
BARRICK GOLD - Plenty of dry powder for the next surprise
Barrick owns many of the world's most prolific gold properties. On March 19, the corporation released its report for the past fiscal year. In the wake of significantly higher commodity prices, the Canadians more than doubled profits despite only moderately higher production. During the publication, CEO Mark Briston impressively described the path the Company has taken in recent years. As recently as 2013, the Group was burdened with net debt of more than USD 13 billion. Today, there is no net debt anymore. Barrick has cash of USD 5.2 billion and a credit facility of USD 3 billion, giving the Group many options to grow in the future, including inorganically.
Also this month, the Company provided an assessment of the strategic importance of its Nevada projects. Barrick formed a joint venture with the world's largest gold producer Newmont, Nevada Gold Mines, in 2019, combining significant gold mines in northern Nevada. Barrick holds a 61.5% stake in NGM. The joint venture owns the largest gold mining complex globally and is expected to produce between 3.4 and 3.7 million ounces of gold this year, the bulk of Barrick's output. But the potential of this resource-rich region is far from exhausted and should keep shareholders happy for many years to come.
Barrick's prospects remain strong and have even improved significantly over the past two years. Investors in the shares of the stock market heavyweight, which is valued at CAD 44.4 billion, benefit from rising quotations in the precious metals price and the Group's strong position in the copper sector. The financial strength is also a plus point that justifies a valuation premium. The stock is currently trading at a 2021 P/E of 15, and analysts continue to believe that it has an upside potential of 50%.
DESERT GOLD VENTURES - Misjudged and undervalued
Even though many investors find the current gold price of just above USD 1,700 disappointing, the current level is not that bad in multi-year retrospect. Also, the logic of a rising precious metal price is widely understood given central bank policies. The effects that a rising gold price can have were shown by the profit reports of many, even very large producers in the past fiscal year. Profit doubling or profit multiplication was the rule rather than the exception. But the rise in raw material prices also has a strong impact on companies that are not yet producing. As a rule, the impact on share prices is even more significant for such companies.
One Company that belongs in this Group and investors should take a closer look at is Desert Gold Ventures. The Canadian gold exploration and development Company focuses on deposits in the African country of Mali. Mali is the fourth-largest gold producer on the dark continent, so it is no wonder that many majors operate in the country and near Desert Gold. The portfolio of the Canadians focuses on two gold exploration permits with large land areas. These are the SMSZ project and the Djimbala project in western Mali. The Djimbala Gold Project is 100 sq km in size and is located near several producing mines.
Recently, Desert Gold's joint venture partner announced that it had completed the drill program on the Djimbala property. All samples have been delivered to the laboratory for assaying and results are pending. In total, Desert Gold has fully funded and already started a 20,000m drill program for the current year. The goal is to release a resource estimate in the fourth quarter. If the results are promising, this would undoubtedly give the share price a significant boost. Currently, Desert Gold is valued at only CAD 23 million.
SIBANYE STILLWATER - Merger in the gold sector or rather diversification?
Sibanye-Stillwater is the largest gold producer in Africa and is among the TOP 3 platinum and palladium producers worldwide. CEO Neal Froneman is very busy and has the goal of closing another "gold deal" in the current year. Therefore, several scenarios are being played out in the market. Analysts at RMB Morgan Stanley are looking at several possible scenarios, including a three-way merger of Sibanye-Stillwater with Gold Fields and AngloGold Ashanti. There are several variations on how the transaction will proceed. Ultimately, it will be decided by the price Sibanye is willing to pay.
Gold Fields and AngloGold Ashanti are already trading at a premium to their peer group. For their shareholders, this would certainly have to increase significantly. As usual, synergies would be created through cost savings, and mine products would be combined, thus considerably increasing the life of the projects. The other side of the coin is a much more complex corporate structure. A three-way merger would result in a group with 30 operating sites in 12 countries.
Regardless of the "gold deal," Sibanye is positioning itself more broadly. In late February, the South Africans announced an entry into the battery metals sector through a partnership with and investment in, Keliber. The Finns are among Europe's leading lithium companies. In the first step, Sinbanye acquired 30% of the Europeans, which will receive around EUR 40 million. There is also a lot going on in the area of sustainability. Sibanye-Stillwater and Johnson Matthey, a global leader in sustainable technologies, announced a strategic partnership in mid-March to identify and develop solutions for decarbonization and more efficient use of critical metals.
Entering and perhaps rapidly expanding its footprint in battery metals or strategic metals is a new and exciting chapter. For now, however, the core of the equity story is dominated by its strong position in precious metals production. The Company posted a profit of about USD 1.8 billion last year and is currently valued at USD 13.3 billion. Analysts forecast a doubling of earnings in the current year. As a result, the 2021 P/E ratio drops to a paltry 3.5, and the dividend yield rises to a whopping 9%. On average, experts believe the stock has a further upside potential of 25%. For us, the share is a clear buy.