July 22nd, 2020 | 11:03 CEST
Barrick Gold, Desert Gold Ventures, Triumph Gold - the gold boom has begun
Table of contents:
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Born and raised in Hannover, Lower Saxony follows social and economic developments around the globe. As a passionate entrepreneur and columnist he explains and compares the most diverse business models as well as markets for interested stock traders.
Margins increase and reserves decrease
Barrick Gold is one of the largest gold producers in the world. The company has gold and copper projects in 13 different countries around the globe. The focus is on regional diversification as well as high margin and long mine life. As the price of gold rises, the margin will also continue to increase. The temptation suggests that production volumes will also be increased, so that revenues will continue to rise even at this high level.
The biggest challenge for Barrick and all other gold producers, however, is the fact that reserves are continually shrinking - and rapidly. Since 2012, the largest producers have recorded a 34% decline in reserves. Barrick also predicts that by 2020 the production peak of all companies will be reached with around 118 million ounces and that in the following years significantly less new gold will be on the market. By 2029, the annual production rate is even expected to fall below 65 million ounces. Producers can fix the decline in reserves most easily by taking over exploration companies. An M&A wave in the gold sector is likely to start soon. So anyone who wants to invest in gold should have a foot in the door of promising exploration companies.
Acquisition target in West Africa
Desert Gold is active in West Africa and has properties covering more than 400 km2. The company has proven gold occurrences in various locations in the past and is currently exploring for further structures containing the precious metal. The management has set a target of up to six million ounces to be proven on the properties. The current and future drilling programs are therefore designed to accumulate the amount of deposits towards this magnitude.
Desert Gold is not alone in the region and is surrounded by renowned producers such as B2Gold, Barrick Gold and Iamgold. These producers already operate mines in West Africa and are potential buyers of Desert Gold. The exploration company becomes attractive for a takeover already with a critical amount of gold reserves. In Africa, takeovers in 2018 have already paid more than USD 200.00 per ounce in the ground - and at that time the price of gold was significantly lower.
Fresh capital in the bank
Triumph Gold is successfully exploring for gold deposits on its properties in the Yukon, Canada. The company already has the producer Newmont on board as a major shareholder. As with most successful exploration companies, Triumph Gold focuses on the acquisition by a producer as an exit strategy for its shareholders.
An acquisition can be interesting for a producer for a number of reasons. If the acquirer is already active in the region, such a transaction has many organisational advantages in the neighbourhood. The infrastructure and personnel are already largely in place. But it also happens that a takeover means the entry of a producer into a new region. Triumph Gold announced the completion of a financing last Friday. According to this, the company has received more than CAD 3.3 million in fresh capital. With the money, the management can continue to beautify the bride.
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