September 7th, 2022 | 13:29 CEST
Commodity shares K+S, Barrick Gold, Manuka Resources: Gold price at 50,000?
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"[...] Our projects are at the initial, high reward exploration stage. [...]" Humphrey Hale, CEO, Managing Geologist, Carnavale Resources Ltd.
Gold price too low to clear the markets
In an interview with the Internet portal kitco.com kitco.com/news/2022-09-05/-50-000-gold-is-likely-once-the-monetary-system-returns-to-a-gold-standard-John-Butler.html, John Butler described the path to his USD 50,000 price for gold. Butler: "Today, the gold price is too low to clear the markets because assets are overvalued against gold. By my calculations, a price of about USD 50,000 per ounce would be appropriate if we were to return to a gold-backed international monetary system."
Butler says that changing the world's monetary system to a gold standard is inevitable when the US loses its economic dominance and the world becomes multipolar. That path, he says, is already underway. "At the end of World War II, the US economy accounted for about half of the world economy. Today it is only 20%. If you extrapolate that trend, it will ultimately determine the balance, whether or not the US retains its military superiority," Butler continued.
Central banks are far more powerless in fighting inflation than they thought
Gold prices should also benefit from a turnaround in interest rates. This is already taking place, according to Butler. He says the US Fed is just initiating the interest rate turnaround - despite inflation of over 8%. This is because the Fed has recognized that the US economy is not in a position to develop positively with these interest rate increases. When the interest rate turnaround is here, the markets will again realize that central banks are far more powerless in fighting inflation than they thought. Then gold would be poised to rise to a new high.
Butler also cites another threat to the USD: the BRICS countries (Brazil, Russia, India, China and South Africa) are rumored to be working on a new reserve currency based on a basket of currencies. While this rumor would have been around for some time, given the current geopolitical situation - particularly Russia's war against Ukraine and tensions between China and Taiwan - there would be progress on the project.
Manuka - Too cheap after the takeover?
The USD 50,000 target seems very ambitious, of course. But from a rising gold price - no matter how strong - the shares of precious metal producers would benefit disproportionately. There is Manuka Resources, for example. The gold and silver producer has just recently announced an exciting takeover, which the market has not adequately noticed. Australia's largest silver producer is currently valued at "only" around AUD 45 million. With Trans Tasman Resources Limited, the Australians have taken over a Tier-1 resource. They now own the South Taranaki Bight project. It is said to contain over 3.8 billion tons of iron sand, vanadium and titanium. Production is expected to start as early as 2025. Manuka then expects annual profits of around USD 375 million. In addition, the Australians already have two producing mines in the resource-rich Cobar Basin with exploration zones totaling 1,150 sq km. The Wonawinta project has a resource of 52 million ounces of silver and 236,000t of lead. The resource estimate is expected to be updated in a few weeks. The second asset is the high-grade Mt Bobby gold mine. Currently, Manuka is working to expand the mine to extend its life. To date, the open pit mine has produced 500,000 ounces of gold at a recovery of about 15g of gold per ton. Interested investors can get a more detailed picture of the Company and its management on September 27. Manuka will present on this day at the 4th International Investment Forum-IIF virtual investor conference. Click here to register free of charge.
Barrick earns USD 60 million
Of course, industry giants such as Newmont and Barrick Gold would also benefit from a rise in the gold price, although not to the same extent as the small producers and explorers. Most recently, Barrick had sold a royalty portfolio to Maverix Metals Inc. The transaction is worth USD 60 million and is expected to close by the end of September. The portfolio comprises 22 royalty contracts from mines in North America, South America, Australia and Africa. Barrick will receive USD 50 million in cash and the remaining USD 10 million performance-based.
K+S: Target price EUR 20 or EUR 37?
In addition to the gold shares, the securities of K+S have not been for the faint of heart this year. With rising agricultural commodity and fertilizer prices at the beginning of Russia's war of aggression on Ukraine, the share had doubled to over EUR 35 within a few months. From mid-April, however, the share price fell again to EUR 20 within just three months. The reason: In particular, the fear of a gas supply stop by Russia. After all, K+S needs large quantities of gas for its production. In the meantime, the share seems to have found a bottom between EUR 22 and 23. At least UBS does not see any upside potential. The analysts have confirmed their "Neutral" rating, and at EUR 20, their price target is slightly below the current level. DZ Bank was more optimistic recently. The analysts recommend the K+S share as a buy and trust it to reach a price of EUR 37.
Investments in commodity stocks are not for the faint of heart this year. Barrick and Manuka seem to be anything but expensive at the current level. This also applies to K+S, although it could be difficult for the Company in a winter without gas.
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