March 27th, 2023 | 09:28 CEST
Barrick Gold, Globex Mining, Deutsche Bank - Banking crises fuel investments in gold
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"[...] 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 - Profits from the rising gold price
Barrick Gold, the world's second-largest gold producer, reported its Q4 financial results in February. Despite the weak gold performance in 2022, analysts' expectations were exceeded. Adjusted net income was USD 0.13 per share, one cent above estimates. Of note was the increase in gold production in the last quarter, which should be a positive going forward at the current gold price of nearly USD 2,000. This year, Barrick plans to produce 4.2 and 4.6 million ounces of gold and has announced another share buyback program of up to CAD 1 billion.
There are several factors currently in Barrick Gold's favour. The recent bank failures and geopolitical tensions have led to increased investment in gold and silver. As long as this uncertainty remains, gold should benefit. In addition, the US Federal Reserve may feel compelled to rethink its interest rate policy. Lastly, the copper business offers significant growth potential, as the decarbonization of the global power grid should significantly increase demand for copper.
The group is expected to report its Q1 figures on May 17. Profits should be higher due to the increased gold price. This could also lead to another increase in the dividend, which stood at USD 0.10 after Q4, excluding the performance dividend component. Barrick has been in rally mode since March 9. The stock climbed from USD 15.48 at the peak to USD 18.67. The share price is currently at USD 18.52.
Globex Mining - Magusi project expected to go into production
Globex Mining should be pleased with the rise in gold prices, as the exploration and development company has a diverse portfolio of 221 projects, of which 114 alone host precious metals, 62 host base metals and polymetals, and 45 specialty metals and minerals. The business model is unique. Globex acquires mineral properties at low cost and upgrades them through exploration. Subsequently, the properties are optioned. Option partners assume the exploration risk and pay with cash, shares and royalties if production is started. Globex remains the owner of the properties in most cases.
Due to the large number of projects, news is constantly breaking. On February 23, it was announced that Emperor Metals plans to start a drill program on the Duquesne West/Ottoman Gold Property in Q2 2023 to expand the gold zones. Just 4 days later came news that the Magusi Project, operated by Electro Metals and Mining (EMM), is expected to go into production. In addition to CAD 6.5 million in cash, 7.5 million shares of EEM also accrue to the Company at a 3% metal royalty, 1.5% of which can be redeemed for CAD 2.25 million. In March 2023, Globex announced that the Company's two royalty agreements with Radisson Mining Resources Inc. are increasing in value due to significant increases in indicated and inferred resources at both projects.
At the Kewagama Gold Mine, Globex will receive 2% of gross profits, while at the New Alger Gold Mine, it will be 1%. If a partner fails to meet its obligations, the project is returned to Globex and is then further explored, which promotes the value of the property. In all these years, the number of shares has hardly changed. There are about 58.2 million fully diluted shares, which are currently traded at CAD 0.72. This gives the Company a market capitalization of CAD 41.9 million. As of the end of September 2022, there is CAD 10.8 million in cash and another CAD 10 million in shares and warrants. The latter value should increase significantly as the gold price rises. The stock appears significantly undervalued at over 200 projects.
Deutsche Bank - Strong rise in CDS causes downward slide
On Friday, all eyes were on Deutsche Bank. Already Thursday, the cost of insurance against the risk of default (CDS) had skyrocketed from 142 basis points to 173 basis points, the largest increase in Deutsche Bank's CDS in one day. This raised concerns among market participants about the overall stability of European banks and Deutsche Bank in particular. On Friday, credit-default swaps continued to rise to over 205.
The situation seemed so threatening that German Chancellor Olaf Scholz felt compelled to make a statement. Scholz said, "Deutsche Bank has fundamentally modernized and reorganized its business model. It is a very profitable bank. There is no need to worry about anything." He sees the European banking system as stable and robust. These statements helped Deutsche Bank shares pull away from their lows at EUR 7.95.
Since the beginning of the month, the stock has lost 33% from its peak. On Friday, it exited Xetra trading at EUR 8.54. There was panic on Friday. Now we have to wait and see if there are new reports on Monday or if the situation calms down. Moody's warned that in an uncertain economic environment and with investor confidence still fragile, there is a risk that policymakers will not be able to contain the current turmoil without prolonged and potentially severe repercussions within the banking sector and beyond.
The woes of the banking sector are the joy of the precious metals companies, as people want to hedge their money. Now that billions are again being made available to banks, investors fear for their deposits. Investments in precious metals, on the other hand, are relatively stable in value. With its gold and copper production, Barrick Gold is well positioned for the coming years and is benefiting enormously from the increased gold price. So should Globex Mining, which is debt-free and has over 200 projects in its portfolio. The next royalties are likely to come from the Magusi project. Deutsche Bank is in trouble due to the increased CDS. Here, calm must first return before one could consider an investment.
Conflict of interest
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