25. March 2020 | 08:04 CET
Barrick Gold, Desert Gold Ventures, Yamana Gold - all eyes on gold
The decade without recessions in Canada, Germany and the USA was hardly over when a mixture of different problems and shocks hit the people, politics and economy. The price of WTI oil collapsed to a historic low of around USD 20.00 per barrel, the US dollar gained dramatically in strength and the corona virus caused curfews, disruptions in supply chains and a slump in demand. The central banks in North America and Europe are taking measures to increase liquidity and the Trump Administration is determined to help citizens with 'helicopter money'.
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ISIN: CA0679011084 , CA25039N4084 , CA98462Y1007
"[...] 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
Panic causes a sellout
The volatility on the stock markets has been as high in recent weeks as it was during the financial crisis. The power with which the spread of COVID-19 caused panic on the capital markets was unprecedented. Within a few weeks, the S&P 500 Index fell by 30%. During the financial crisis from 2008 onwards, the index of the largest 500 US companies needed around 250 days for a comparable correction.
In the weeks following the Lehman bankruptcy, most asset classes sold out. The gold price also came under pressure, as did the share prices of producers and explorers. Only after a few weeks was the selling pressure over and the gold price rose from around USD 700.00 per troy ounce in October 2008 to over USD 1,900.00 in August 2011.
Money supply is increasing
Whether the financial institutions will continue to falter with their customers during the Corona Crisis will become clear in the coming days and weeks. The faster the pandemic can be stopped, the less damage will be caused.
However, the measures taken by governments and central banks will lead to an increase in the money supply and inflation is likely to rise accordingly. For this reason, the price of gold is expected to rise in the coming weeks, as the precious metal is considered a safe haven by investors. As a result, the companies in the gold industry should also become the focus of investors' attention.
Value creation of gold
Well-known companies such as Barrick Gold and Yamana Gold are broadly based and often the first choice of investors. Barrick's market capitalization is approximately CAD 44.9 billion and Yamana is currently valued at CAD 4.0 billion. Investors who wish to invest in a gold company at the exploration stage to benefit from new discoveries should take a closer look at Desert Gold Ventures. The Company is active in Mali and holds exploration rights for approximately 400 square kilometres near the border with Senegal.
The market value of Desert Gold is approximately CAD 7.5 million. Given that the Company has already discovered zones of 6.3 g/t Au over 13 metres, 3.03 g/t Au over 10 metres and 2.04 g/t Au over 30 metres, there is a possibility that the discovery of additional resources will increase the value of the Company. Once a critical mass of data on the gold occurrences in the areas is reached, a take-over by a major gold producer is likely.
A region with great potential
The West of Africa has extensive gold deposits. In 2018, Mali was the fourth largest gold supplier in all of Africa with a production volume of 2.14 million ounces. In total over 35 million ounces of gold reserves have already been measured or proven in Mali. Besides Desert Gold, the producers B2Gold, Barrick and Endeavour Mining are also active in Mali.
At the beginning of the week Endeavour announced the acquisition of Semafo. The merger will now create a gold producer that will be among the top 15 worldwide, with a total of six mines in Burkina Faso and the Ivory Coast. This transaction puts the region once again in the spotlight. In 2020, the new Endeavour plans to produce 1 million ounces of gold. Desert Gold is obviously located in an interesting region.