August 19th, 2021 | 10:24 CEST
Barrick Gold, Triumph Gold, K+S: Here comes inflation insurance
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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: Things are slow here
When it comes to inflation, many people think directly of gold. The precious metal is one of the world's oldest currencies and still has the ability to preserve value across currency systems and political regimes. Barrick Gold's stock represents the world's second-largest gold producer. The stock has been performing weakly of late, with little to convince in 2021. Most recently, the Company published mixed figures for the first half of the year. Sales fell short of the previous year, but profits were slightly higher. Overall, Barrick produced around 300,000 ounces less than in 2020.
However, it is encouraging that the Company intends to pay a higher dividend, along with a special dividend. Last year, the market perceived the latter measure contritely and interpreted it as lacking real investment opportunities. Also, in 2021, Barrick Gold exudes anything but fantasy. Although the gold price has risen significantly and is now trading in solid waters, the Barrick Gold share remains gray. The stock is currently uninteresting.
Triumph Gold: A share for insurance
The small Company Triumph Gold has an entirely different profile than Barrick Gold. The Company is active in the Yukon and is developing a gold property there. The Freegold Mountain project is located in the middle of a prospective gold-copper belt where, among others, the mining giant and largest gold company Newmont is also active. The stock is down significantly from its highs. Currently, Triumph Gold is valued at less than EUR 17 million. Fundamentally, however, the Company has made significant progress. The current drill program has been financed, and the Company has also been able to expand its property significantly and successfully make additional acquisitions.
In market phases, when gold is not at the top of investors' lists, smaller gold companies in particular trade at a discount. Those who believe in gold for the long term or want to add gold as a form of insurance can take advantage of this and build positions countercyclically. Since project developers around gold and copper are traded at a discount during the exploration phase, leverage on commodity prices is created in case of positive news and rising prices of the underlying assets gold and copper. That allows, for example, investments with low capital investment. Triumph Gold is a growth-oriented but solid company that was founded back in 2006. The share is anti-cyclical and interesting in the long term.
K+S: Why investors should be more cautious
A stock that is also considered interesting given rising prices is K+S. The fertilizer specialist was already a hot candidate on the stock market about 15 years ago, when prices rose noticeably for the first time and even conquered the DAX. Today, K+S is coming out of a restructuring phase and suffers from a high debt ratio. A few months ago, the Company was considered a hot turnaround candidate. Today, however, the valuation is different, and K+S is more expensive. Most recently, the share bounced twice in the EUR 12.90 area. This double top should scare off investors in the short term. Although the Company had presented good figures and a promising forecast, the price set back. Since the Company is still suffering from its balance sheet, investors should become increasingly cautious about K+S as valuations rise. However, in principle, the business model is well aligned to rising prices and can benefit from inflation.
To position themselves in the face of impending inflation, investors have many options. Those who see high inflation as a likely scenario can weigh commodity stocks or even consumer staples and utilities more heavily. However, if you are only looking for insurance against the unlikely, you can already put your foot in the door with small amounts at smaller companies that are traded at a discount. For example, unlike Barrick Gold, Triumph Gold offers plenty to benefit disproportionately from a turnaround in the gold market.
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