30. September 2020 | 11:45 CET
BAT, Barrick Gold, Osino Resources: Supposed political risks, a burden, and an opportunity
Businesses, like citizens, operate within the regulatory framework. In this way, the state guarantees peaceful coexistence. But what if the legal framework changes? It is easy for individuals to adapt to new circumstances. It can be more challenging for companies - for example, if a business model is shaken by regulatory requirements. The best example is the tobacco company BAT. Recently, the German Bundesrat cleared the way for a law that further restricts advertising for tobacco products. Even e-cigarettes, celebrated by the industry as a source of hope, will be subject to the likely ban. Cinema advertising, marketing activities, etc will also be restricted in the future.
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ISIN: CA68828L1004 , CA0679011084 , GB0002875804
BAT: Good figures fizzle out on the market
For companies like BAT, the new laws in Germany are just another chapter in the never-ending story. But although smokers and tobacco companies have been facing headwinds for years, BAT is holding up comparatively well. In the first half of the year, the group even managed to increase its profits by more than 20%.
The driving force continues to be e-cigarettes, which - despite political headwinds - are popular with customers. BAT is also favorably valued: the price-earnings ratio is below 10, and the dividend yield is also impressive at around 8%. Nevertheless, the share is not a high-flyer on the stock market: on a one-year horizon, despite the solid-key data, a loss of around 3% is recorded. Investors seem to find the anti-smoking policy so deterrent that they are avoiding the share despite the positive figures.
Barrick Gold has costs under control
The Barrick Gold share shows that political headwinds do not always have to result in falling prices. The company is still in dispute with Papua New Guinea over the resumption of production at the Porger Mine. The background is environmental damage, which the country would like to see Barrick repair. For its part, the company announces that it intends to resolve the dispute and take all necessary steps. Nevertheless, the dispute continues to smolder. In recent years, Barrick has also been involved in conflicts with authorities in other regions of the world, such as Chile, but that has not hurt the share. On a one-year horizon, Barrick climbed by almost 50%.
Investors appreciate the share's robust sales growth and low costs. In times when gold prices are rising, this provides a comfortable cushion. In recent months there have been sales of mines that the Group considers unprofitable. Barrick primarily mines gold but also has copper on offer. Both commodities have been performing well since the pandemic, so it can be assumed that the disease will not play any role in Barrick's figures.
Osino Resources seeks gold in Namibia
The Osino Resources share has also benefited from the development of the past six months - since the end of March, the share price has only known one direction, and that is up. It has increased by 61% on a one-year horizon. Osino Resources is a Canadian commodities company specializing in gold exploration in Namibia. Namibia is considered one of the most stable countries in Africa with highly developed mining standards and an industry minded government. Osino Resources operates in the promising gold belt northeast of the capital Windhoek. Within twenty kilometres around the company's properties are roads, access to energy, and other essential infrastructure. By the end of 2020, the company plans to confirm and expand on promising results already achieved by drilling new wells.
Insiders and professional investors rely on Osino Resources
The experienced management team believes in itself and the project, this is shown by the high proportion of Osino shares in its portfolio: around 38% are in the hands of insiders or other persons associated with the company. Professional investors hold another 34%. Private investors, therefore, account for only ~28% of the company's shareholders. Many private investors still shy away from investing in Africa and see political risks.
Osino Resources does not see such fears and emphasises the advantages of Namibia as a mining location. The country has a mining history of more than 110 years. Raw materials contribute to a large extent to the country's gross domestic product. As Namibia has been a democracy since 1990, workers and residents of mining projects have rights and can enforce them. The risk of unrest, strikes, and other complications is lower in Namibia than in many other traditional mining regions.