December 30th, 2022 | 10:04 CET
Barrick Gold, Globex Mining, Rio Tinto - Commodity supercycle continues in 2023
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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 - Good prospects
Barrick Gold should have a successful 2023 due to several favorable factors on account of its attractive valuation and dividend yield. In addition, there are improved industry fundamentals, including moderate operating costs, a positive outlook for gold prices due to high central bank demand and a potential recession, and potential geopolitical risks such as China's interest in Taiwan. If rumors of Russia selling 2 barrels of oil for a gram of gold prove true, gold prices will move toward $3,600.
In Q3 2022, Barrick Gold reported solid results that exceeded expectations and reaffirmed its full-year production targets. The Company also sold its non-core royalty portfolio and repurchased shares for USD 141 million, adding value for shareholders. Overall, Barrick Gold is considered a long-term value play due to its solid balance sheet, diverse assets and growth potential through the exploration and development of new projects.
On a positive note for the future, the Reko Diq project in Pakistan has been given the go-ahead. Production is expected to start there in 2028 in one of the world's largest undeveloped copper-gold projects. Since the beginning of November, the gold price has climbed from around USD 1,620 to over USD 1,800. That should keep Barrick Gold's fourth-quarter earnings steady despite a weak October. The stock matched the gold price and has also gained since the beginning of November and is currently priced at USD 17.21.
Globex Mining - Still strongly undervalued
High commodity prices are good for Globex Mining's business. The Company is a "mineral property bank" that has been acquiring resource properties for over three decades. When commodities are running poorly or explorers are running out of money, it is a good time to acquire promising projects on the cheap. Following this principle, CEO Jack Stoch has brought 219 projects into Globex's portfolio. Projects are then upgraded through exploration and placed with partner companies, which receive an option on a project in exchange for cash, shares, a minimum work commitment and a royalty. The portfolio includes 113 precious metals projects, 62 nonferrous metals projects, and 44 projects with special metals and minerals that host, among other things, rare earths, cobalt or lithium, which are essential for the energy transition.
With so many projects optioned, it is no wonder that there is a steady newsflow. In December, for example, there was an option payment of CAD 100,000 and 1,428,571 shares from partner company Orford Mining for the Joutel project. At the Harricana gold project, 55 drill holes were drilled by Kiboko Gold. Maple Gold reported gold discoveries of up to 24.4 g/t from its exploration work at the Eagle Gold Mine property. At the Kukamas project, the partner company uncovered high-grade mineralization of up to 47.2 g/t gold, 62 g/t silver and 10.96% copper. Beginning in the first quarter of 2023, Sayona Mining will resume lithium production. Globex will receive a 0.5% gross metal royalty from that date. Emperor Metals, after financing, can begin its exploration work on the Duquesne West-Ottoman property, in which Globex holds a 50% interest.
All of this good news has not helped the stock in the tax-loss season. Currently, the stock is trading at CAD 0.66. At the same time, the Company is debt-free, has more than CAD 20 million in cash, and owns shares in Yamana Gold worth almost CAD 5.4 million. The market capitalization is about CAD 36.8 million. More than 200 promising projects and royalty income are thus valued at just CAD 11.4 million. Further information on the Company can be found in a detailed analysis on researchanalyst.com.
Rio Tinto - China is the key to success
Rio Tinto is one of the largest mining companies in the world, producing and selling mainly minerals such as iron ore, aluminum, copper, gold, uranium, silver, diamonds and titanium. It operates in twelve countries and is a signatory to the Paris Climate Agreement, in which it pledges to phase out fossil fuel extraction. The Company's most important segment is iron ore, and its success depends heavily on Chinese demand for this commodity. China is the largest importer of iron ore, taking about 70% of global production.
Rio Tinto's success is thus closely linked to the Chinese economy, and the Company's revenues are expected to decline in 2022 and 2023 due to lower iron ore prices. However, the revival of the Chinese market could lead to an increase in demand and higher prices for iron ore, which would positively impact Rio Tinto's share price. If China manages to overcome the numerous challenges, including a real estate crisis, an economic slowdown and tensions with the US, there is hope that the Chinese economy will recover in 2023.
Despite the large share of iron ore in sales, rising commodity prices would benefit the Group. Investors have enjoyed good returns via dividends in recent years. Currently, the dividend yield is around 9%. This year, the Group has already paid out EUR 6.77 in dividends. After a triple test of EUR 52.50, the share has recovered significantly from its lows for the year and currently costs EUR 66.93. However, many analysts have become cautious with buy recommendations. Most advise holding due to the uncertainties in China.
As long as there is no global recession, commodity prices should continue to rise. If one wants to become less dependent on Russia and China, alternative sources of raw materials are necessary. Barrick Gold is well positioned to benefit from a possible scenario where Russian oil may only be paid for with gold. That would also help Globex Mining because half of all projects have precious metal deposits. Above all, the stock is extremely cheaply valued. The downside should be limited. Rio Tinto produces different commodities. But iron ore remains the primary sales driver. If China's economy gains momentum, Rio Tinto will also benefit.
Conflict of interest
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