26. November 2021 | 12:37 CET
Barrick Gold, Sierra Grande Minerals, Yamana Gold - False breakout in gold?
On November 5, it seemed gold had finally broken out of its established triangle in the chart. However, since November 19, the bears have retaken the helm for the time being. Investors, who have otherwise relied on gold for inflation and other hedges, are still reacting hesitantly. One reason is the expansion of the money supply, which is displacing people's fear. Nearly all central banks see inflation as temporary. Another reason is the cryptocurrencies, which are also used as capital protection and thus represent competition. If interest rates rise, that would be a bad sign for gold. If inflation remains, global gold demand could increase, with demand from India and China already picking up. The newly formed uptrend in gold is only broken below USD 1,721.1 on a daily basis, so we currently expect gold prices to rise. We, therefore, analyze three gold companies.
time to read:
ISIN: BARRICK GOLD CORP. | CA0679011084 , Sierra Grande Minerals | CA82631L1085 , YAMANA GOLD INC. | CA98462Y1007
"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Barrick Gold - Waiting for an acquisition
Anyone who does not want to buy physical gold looks around at the shares of the major gold producers. One of them is Barrick Gold, but this year's share price performance will have disappointed many investors. Things are, however, going well for the Company operationally, as the latest quarterly results on November 4 showed. Earnings per share were USD 0.20, and the war chest is well stocked for acquisitions. The CEO has announced plans to buy more mines in North America, but there have been no completions so far.
Maybe that is also one of the reasons why the share has performed less well than the benchmark index. There are rumors of an acquisition of Great Bear, but they are not confirmed. A major acquisition could be a jumpstart for the stock. A rising gold price also helps the share immediately, as the Company boasts production of 1.09 million ounces of gold and 100 million pounds of copper in the quarter. On the other hand, as the price of gold fell, the stock also sold off immediately.
Currently, the share is trading at USD 19.39 and established an upward trend in mid-October. It remains intact as long as there is no closing price below USD 18.19. The Company pays about a 4% dividend this year, and this rate is not expected to fall for the time being. As an investor, if you are positive about the future price of gold, you can not go far wrong in the long term at current prices.
Sierra Grande Minerals - Copper trend found
Sierra Grande Minerals, headquartered in Surrey, Canada, operated under the name Sierra Growth until July. The Company is a junior explorer that has its focus on gold, silver, copper and molybdenum. Currently, it owns three prospective projects in Pershing and Nye, Nevada, totaling more than 2,023 hectares. The projects are surrounded by Tier-1 mines and exploration properties, i.e. large, long-lived deposits that can be mined at relatively low cost.
Soil geochemical sampling has been conducted at all projects this year. The Company announced the first results on the B&C Springs-Mildred project on October 6, and the other two results are still pending. On the property, 544 samples were collected, showing an extensive copper trend, grading up to 1,190 ppm copper, over a width of nearly 1 km and a length of 4 km. Previous grab samples have already found up to 667 g/t gold, 78.6 g/t silver, as well as copper, zinc and lead on the project area.
As a next step, the Company plans to conduct an airborne magnetometer survey. The results will be used to plan the upcoming drill program. The two other projects, Glitra/Sat and Betty East, also boast gold and silver deposits. Since July, the share price has moved between CAD 0.06 and 0.14. Currently, the stock is trading at the lower end at CAD 0.085. With new positive news, momentum could come back into the share.
Yamana Gold - Operationally, things are going well
Toronto-based Yamana Gold produces gold, silver and copper in Canada and South America. After the gold peak in 2020, the sky was hanging full of violins, but as the gold price fell, so did the share price. Since the recent breakout in the gold price, the stock has been able to break out of its downtrend and is currently consolidating with the falling gold price. A look at the operating business suggests potential.
The figures for the third quarter are impressive. Sales were USD 452.2 million, and operating profit increased by 8% to USD 154 million YOY. It was also encouraging that production costs fell from USD 1,096 to USD 1,041. The forecast of 1 million ounces of gold equivalent was confirmed, so there should be no more nasty surprises at the end of the year.
In the long term, the Company intends to increase production further. Fundamentally, the stock appears too cheap, as the market capitalization is about USD 100 million below equity at the current price of USD 5.19. The dividend yield is currently about 2.9%, sweetening the wait for investors until prices rise. As long as the share does not fall below USD 4.83 on a closing price basis, the stock has further upside potential.
A rising gold price helps all three companies. Barrick Gold is popular with investors and has a bulging war chest, with the help of which takeovers can be easily managed. Sierra Grande Minerals can show initial results but is still in the early stages of exploration. Positive news can boost the share at any time. Yamana Gold has a price-to-book ratio of below 1 and is thus fundamentally too cheap.