23. July 2021 | 10:40 CET
Daimler, Theta Gold Mines, Barrick Gold: Long-term opportunities lurk here
Raw materials and certain primary products are in short supply. The automotive industry is a good example of this. Here, the post-Corona boom is not picking up speed because necessary semiconductors are not available. In some cases, companies from the automotive sector have already concluded their own contracts with chip manufacturers to lift the emergency. We show whether there are nevertheless winners in the auto industry and explain the developments for which the scarcity of chips and other preliminary products could have a signal effect.
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ISIN: DAIMLER AG NA O.N. | DE0007100000 , THETA GOLD MINES | AU0000035701 , BARRICK GOLD CORP. | CA0679011084
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Daimler in the fast lane
Just a year ago, Daimler was a company in the red. The pandemic was raging, and potential customers were holding back - the old car will still do for the home office, customers thought. In the meantime, however, things have changed. In the first six months of the year, Daimler posted a whopping EUR 8.1 billion profit. Revenue and free cash flow also increased significantly. As a result, Daimler is considered a winner on all levels: Despite gaining market share, it has free funds to make additional profitable investments.
In addition, there is no division at Daimler that could be described as a problem child. Margins are good everywhere, as is customer demand. Although the shortage of chips also burdens the Company from Sindelfingen - Daimler lowered its sales forecast for this reason, among others - this is not only disadvantageous for the Swabians. Since Daimler is installing the remaining semiconductors in those areas that bring the highest returns, more high-margin models are coming off the production line. As a result, the return on sales is now well into double digits. So the shortage of chips does have one good thing after all. On a three-month horizon, the stock has weakened a bit, but recently it has risen significantly. The share is worth considering in the event of weakness. Daimler is making the best of the situation.
The general conditions of scarce primary products and basic materials are a signal that prices could rise significantly. Daimler's and other companies' approach to distributing chips, which are now increasingly being built into their more expensive models, shows that scarcity tends to make costly products even more expensive. In such an environment, investors are looking for value-creating alternatives to beat inflation. Commodities are seen as an asset class that generally benefits whenever prices rise. Gold, as a substitute currency with a tradition dating back thousands of years, also benefits. Since the global money and credit market is many times larger than the gold market, only a small portion of investors shifting is enough to drive gold up.
Theta Gold Mines: Secretly and quietly to success
The shares of Theta Gold Mines, for example, could benefit from such a development. The Australian Company is bringing a historic gold mine in South Africa back into production. Most recently, they published a preliminary feasibility study and also updated the resources available on the project. The team around Theta Gold Mines calculates very conservatively and expects a gold price of USD 1,570. Also, 3.5 million inferred resources are not included in the calculation at all. Nevertheless, the feasibility study envisages an operating life of 7.67 years and an operating cash flow of around AUD 150 million. CEO Bill Guy put the internal rate of return at 82% in a recent interview.
While the move toward production is challenging for many competitors focused solely on resource exploration, Theta Gold Mines has set a goal from the outset to bring the project into production itself and has engaged appropriate personnel. The team represents 20 mining projects that have ultimately produced raw materials, many of them in South Africa. The region surrounding Theta Gold Mines is known as the Golden Triangle of South Africa. This region represents about 40% of the gold ever mined, according to Theta CEO Bill Guy. Shares of Theta Gold Mines climbed nearly 18% last month but weakened recently. While the team around Theta Gold Mines is doing its job step by step, there are always opportunities in the market to get in. The project appears promising. If the timing is right, an investment can become a success in the long term.
Barrick Gold: Where are the catalysts?
Investors also need good timing with the Barrick Gold share. However, the potential here is significantly lower than for smaller companies, such as Theta Gold Mines. Why? Barrick operates worldwide and has numerous mines in production. On the one hand, this gives the Company security, but the stock also lacks the potential to surprise the market. Even if a mine becomes particularly profitable or the Company makes a new discovery on a project, it doesn't really matter. That is why one has the impression that Barrick lags behind the gold price in bull market phases and is even more severely punished in correction phases. The bottom line, however, is that the stock is solid. However, various catalysts are needed for the share price to get going. These are currently not in sight.
While Daimler is making the most of the crisis but is also pouring grist on the mill of rising prices with its behavior, stocks like Barrick Gold cannot really benefit from it at the moment. Theta Gold Mines has been advancing recently, but not many investors have the project in South Africa's promising gold belt on their radar. In the long term, opportunities could arise from this.