April 29th, 2021 | 08:30 CEST
Barrick Gold, Yamana Gold, Sierra Growth: Step by step to gold investment
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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: Where is the fantasy?
Barrick Gold is the very first choice for many investors when it comes to gold stocks. The gold giant lives almost exclusively from gold mining. Only some copper is still extracted from the ground by the Company as a byproduct. 2020 went very well for Barrick - profits were bubbling. But the free cash flows did not create a bit of fantasy but rather perplexity. Where to put the money, shareholders and management wondered. In the end, there was a special dividend, which briefly put the shareholders in a good mood but also revealed that the gold giant was not making progress operationally. Shareholders would have liked to see acquisitions. There was also talk of a reorientation towards a larger copper share.
But to date, nothing has happened in this direction. The share has lost almost 30% over the past year. Although one can assume that a comeback of the gold rally will also boost the share price again, Barrick will then sooner or later again face the problem of replacing reserves and at the same time creating a growth perspective. There are better alternatives in the gold sector.
Yamana Gold: Medium-sized producer with pitfalls
Yamana Gold's stock has held up much better over the past year, losing just over 10%. This relative strength could also be related to the fact that the Company, which focuses on copper and gold, recently acquired a stake in Ascot Resources. The Company is active in the Golden Triangle in the Canadian District of British Columbia and has developed projects. For Yamana, the investment offers the chance to renew reserves and to be able to accompany the development of an emerging mining district - it puts one foot in the door.
For investors, Yamana Gold is more promising, but the stock remains an alternative for savvy investors only. As a medium-sized producer with five active projects, Yamana is always subject to the risk of something going wrong: water ingress, landslides, or other problems can shut down a mine for a short time. The quarterly figures are then almost impossible to maintain. So how can private investors invest in gold companies in the first place?
Sierra Growth: Top or bottom with a favorable risk profile
Those familiar with geology and the economics of mining projects can detail companies like Yamana and form their own opinion. However, those who want to reduce complexity and prefer some warrant on a comeback in the gold price can take a closer look at smaller companies, such as Sierra Growth. Sierra Growth operates in Nevada and Peru and develops properties there. What makes them unique is that the projects are in the early stages and have only been explored superficially. Detailed work is expected to turn the properties into tangible exploration projects - the targets: Gold, silver, copper and molybdenum. Initial grab samples returned promising results at several locations, such as 26.6 g/t gold and 78.6 g/t silver, or 667 g/t silver and 0.41 g/t gold.
The next few months will show whether the early-stage projects deliver what they promise. What still sounds a bit vague from today's perspective takes on contours for speculative investors when looking at Sierra Growth's market capitalization: the Company is currently valued at just over EUR 8 million. Since Sierra Growth has several irons in the fire and an experienced team, speculative investors can take a closer look at the stock. Even if only one project offers potential for further exploration, the Company's low valuation can create excellent growth potential.
Opportunity and risk as two sides of the same coin
Investors have a free choice for investments in gold shares: Large producers profit from the gold price but offer little growth. Conversely, the pressure to replace reserves and create growth potential can even weigh on a stock's price, as in the case of Barrick Gold. Small companies like Sierra Growth act like a kind of warrant on commodity prices and exploration success. In the best case, rapid returns are possible. The earlier investors get on board, the lower the risk of a speculative investment story not delivering what it initially promised. What investors ultimately decide depends on their respective risk appetite.
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