Covestro, Desert Gold Ventures, Barrick Gold - Waiting for the next push

Covestro AG - Short-term 20% opportunity

The takeover of the plastics group Covestro by Abu Dhabi National Oil is not yet off the table, quite the opposite. As reported by the business news channel Bloomberg, citing insider information, the Arab energy giant Adnoc has submitted a verbal offer to increase the takeover price from EUR 57 to EUR 60, which would correspond to a total volume of EUR 11.6 billion.

Currently, Covestro is trading in the EUR 48.20 range, well below Adnoc's presumed offer and not quite reaching the high from July, when the price climbed to EUR 50.72 following a previous increase in the offer by Adnoc. Despite the positive signals from the market, it is still unclear how Adnoc will proceed. Insider reports suggest a written offer of EUR 60 per share could follow. However, both companies have decided not to comment publicly on this matter.

From a strategic standpoint, we consider a further increase in the offer not unlikely, as Adnoc is increasing its focus on the chemicals business. As a major player in the UAE oil supply, Adnoc is pursuing ambitious USD 150 billion investment plans to strengthen its global presence in the natural gas, chemicals and renewable energy sectors. Persian Gulf oil producers are generally looking to diversify their reliance on crude oil sales.

Barrick Gold - In the wake of the base price

Given the economic backdrop, the signs are actually green for rising precious metals prices. The bulk of the market expects the FED to at least pause the interest rate hikes in the next meeting. Beyond that, the interest rate hike may have already been reached. Nevertheless, gold and silver are showing weakness. With the slide below the psychologically important mark of USD 1,900 per troy ounce, another short-term downward movement could be initiated.

Parallel to the base price, the largest gold producers, Newmont and Barrick Gold, are also finding it difficult to decouple themselves from the overall market despite good figures. Barrick Gold posted adjusted net income of USD 0.19 per share in the second quarter. Free cash flow was USD 63 million. Output was just over 1 million ounces, with all-in sustaining costs per ounce falling to USD 1,355 per ounce from USD 1,379 in the first quarter. Copper recoveries reached 107 million pounds, compared with 88 million pounds in the first quarter. In particular, the Lumwana mine contributed to the increase in copper production. Furthermore, Barrick Gold announced its intention to pay a dividend of USD 0.10 per share for the quarter.

In terms of acquisitions, CEO Mark Bristow told Bloomberg that the Company is not under pressure despite an increase in M&A activity. Rather, Barrick wants to expand its existing partnerships, such as with the African state of Mali. Here, Bristow told the media that further investment will be made in Loulo-Gounkoto's future.

Desert Gold Ventures - On the trail of the Majors

Also positioned in Mali is exploration company Desert Gold Ventures, which despite a stock market value of only CAD 10 million, has a considerable presence. The 440 sq km SMSZ project, located in the eponymous Senegal-Mali shear zone, suggests excellent potential. Not far away are already producing mines of major players such as Barrick Gold, Endeavour Mining and B2Gold. In addition, Allied Gold's Sadioka mine is directly adjacent to the area explored by Desert Gold Ventures.

To date, over 23 gold zones have been located in the region to be evaluated for economic viability. As early as February 2023, the Canadian company completed an impressive 445 drill holes totaling 2,067 m. Now Desert Gold plans to conduct an extensive drilling program of approximately 30,000 m. Following this, an updated resource assessment is planned. Current data indicates Indicated Mineral Resources of 310,300 ounces and Inferred Mineral Resources of 769,200 ounces of gold.

Despite the positive company performance, Desert Gold shares have been trading sideways at CAD 0.05 for months. Since the highs reached in August 2020 at CAD 0.33, there is a loss of about 85%. Assuming positive drill results, a long-term buying opportunity with disproportionate profit potential could be hidden here.

According to industry insiders, Adnoc is likely to increase its takeover bid for Covestro once again. Barrick Gold cannot escape the general correction in the gold sector. Desert Gold Ventures offers great long-term potential, but the stock is more suitable for speculative investors due to its size.