May 6th, 2022 | 10:43 CEST
Barrick Gold, Edgemont Gold, Rio Tinto - Are gold stocks taking off again?
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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 - Higher dividend
The increased gold price naturally benefits the world's largest gold producers. One of them is Barrick Gold. The Canadian company is involved in the exploration, mine development, production and sales of gold and copper properties. It has interests in producing gold mines in Argentina, Canada, Ivory Coast, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania and the United States. For diversification, the Company also has interests in various copper projects.
On May 4, the Group announced its first-quarter figures. Despite a drop in gold production, analysts' expectations of USD 0.24 per share were exceeded at USD 0.26. The reason lies in the increased raw material prices. Gold is up 5.6% and the realized copper price has increased by 14%. The cost per ounce of gold climbed from USD 1,075 to USD 1,190 per ounce due to increased energy and material costs. However, management confirmed its full-year guidance and pointed to stronger production in the second half of the year.
The increase in the dividend is pleasing for shareholders. For the first quarter, the Company is paying out USD 0.20, consisting of a basic dividend of USD 0.10 and a performance dividend of USD 0.10. With this, Barrick wants to attract more investors again and hopes to increase the share price in the long term. After the high for the year of USD 26.07 at the beginning of March, the share consolidated to USD 21.52. Currently, the stock is trading at USD 23.19. The upward trend remains intact as long as the price does not fall below USD 21.52 on a closing price basis.
Edgemont Gold - Phase 2 of the drilling program should bring the turnaround
Edgemont Gold is a young gold and copper explorer from Canada. The Company has an interest in the Dungate Creek copper-gold porphyry project, which comprises five mineral deposits totaling 1,582.2 hectares near Houston, British Columbia. The property is located in an established mining district and has access to a well-developed infrastructure. Historical drill logs dating back to 1975 indicate abundant copper mineralization and anomalous gold values.
Edgemont Gold's first drill program was initiated in the fourth quarter of 2021. A total of 7 holes were drilled for a total length of 3,427m. The results were released on March 28 and disappointed investors who had speculated on higher copper and gold grades. The share price plummeted by over 78% in a very short period of time. Up to 1.27 g/t gold and up to 0.13% copper were found. On April 28, Phase 2 of the drilling program was started, which is expected to cover up to 3,000 meters of drilling. The intention is to follow up on existing mineralization and to further investigate new drill targets identified by magnetic surveys.
Prospects for higher grade mineralization are high. For one, the property is located only 7km from a high-grade gold and silver discovery by Sun Summit Minerals. For another, the experienced management has a track record in exploration. With the stock currently trading at only CAD 0.06, giving it a market capitalization of CAD 1.6 million, the risk/reward ratio is considered good. In addition, the Company has an option to acquire 100% of the Mike property near Houston, British Columbia.
Rio Tinto - Corona in China weighs on shares
Rio Tinto Group is one of the largest metals and mining companies globally and is engaged in the exploration, mining and processing of mineral resources. The Company offers aluminium, copper, diamonds, borates, titanium dioxide, salt, iron ore, lithium and precious metals such as gold and silver. It also owns and operates open-pit and underground mines, mills, refineries, smelters, power plants, and research and service facilities. In 2021, the Company produced about 345,000 ounces of gold and 4.1 million ounces of silver.
The first quarter, for which the figures were published on April 20, was significantly weakened by the Corona restrictions in China. In addition, China announced cutting back on steel production, which put pressure on the price of iron ore. China is the Group's main customer, accounting for 57% of total sales. The production of iron ore decreased by 8% YOY and by as much as 15% compared to the fourth quarter. But production is expected to improve in the coming quarters. In addition, the Oyu Tolgoi project in Mongolia, the Rincon lithium project in Argentina, and the Simandou iron ore project in Guinea are making progress.
The dividend yield is over 10% after the last consolidation of the share price. After the quarterly figures mentioned above, the share price fell by a good 14%. The share is currently trading at EUR 66.97 and is in the no man's land of the sideways phase between EUR 60.70 and EUR 77.50. The mood among analysts is rather wait-and-see. Credit Suisse recently upgraded the share to Outperform with a target price of around EUR 82.30. If the Corona situation in China eases, the share price should also start to climb again.
Gold has been able to gain significantly after the latest news from the FED. That helps all gold producers to achieve higher margins. Barrick Gold expects a strong second half of the year and has raised its dividend. Gold and copper explorer Edgemont Gold has a chance of a turnaround if the upcoming drill results are favourable. Rio Tinto is dependent on a functioning China. There are currently uncertainties here due to Covid.
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