Gold boom as an enormous price lever for explorers like Desert Gold Ventures! In or out of Barrick and First Majestic Silver?

Desert Gold Ventures – Price multiplication potential according to analysts and PEA

The Canadians are focusing on the development of their flagship gold project SMSZ in Mali. The value of this 440 sq km property represents significant short-term leverage for the share price, in addition to potentially stronger investor demand for explorers. The Tiegba Gold project in southern Côte d'Ivoire, acquired last year, will also be included in the valuation going forward. The Company estimates a potential of several million ounces of gold, but no drilling has ever been carried out here.

A few weeks ago, Desert Gold published an updated preliminary economic assessment (PEA) for the Barani and Gourbassi zones of the SMSZ Gold Project. The PEA enables an estimate of the project value and provides insight into production volumes and mine life. These parameters can be used to estimate the internal rate of return (IRR) of the project. In terms of capital intensity, it makes a big difference whether open-pit mining is assumed for near-surface deposits or the realization of a significantly more expensive underground mine.

The published report forecasts 10 years of mining operation with a total of 113,100 ounces of gold to be extracted. Low costs and high precious metal prices act as a strong leverage for returns. Assuming a gold price of USD 2,850 per ounce and production costs of USD 1,137 per ounce (all-in sustaining cost AISC), the project value is calculated at USD 61 million at a discount rate of 10%. This corresponds to an internal rate of return (IRR) of a high 57%. The investment will pay for itself after just 2.5 years.

Assuming a scenario with a gold price of USD 4,070 per ounce, which is closer to the current price of over USD 4,400, the project value doubles to USD 124 million with a return of 101%. The payback period drops to around 2 years.

At a current price of CAD 0.08, the Canadian company is valued at CAD 22 million. The PEA-derived project value, covering only around 10% of the total SMSZ area, is almost six times higher. GBC analysts even estimate the price target at CAD 0.81.

Barrick – Spin-off as a lever for value enhancement

Shares of the world's second-largest gold producer, after Newmont, are trading close to their all-time high. At CAD 63, the Canadian company is currently valued at the equivalent of USD 81 billion. Given high gold prices and strong earnings momentum, Barrick's key metrics remain solid. The P/E ratio for the current year stands at 13.9. As the latest quarterly figures show, the Company was able to increase cash flows to a record level. This leaves room for dividend increases and further share buybacks, as recently implemented. It also enables further acquisitions.

The majority of analysts consider the stock to be fully valued. However, further increases in the price of gold and a possible value-enhancing move could soon prove these assessments to be wrong. Barrick recently announced that it is considering carving out its North American gold assets and listing them separately on the stock market. Market estimates put the value of these assets at USD 40 to 50 billion, or at least half of the current market capitalization.

Barrick's copper activities are also often underestimated. The Canadians are among the most important players worldwide and are currently expanding their large copper activities, such as Lumwana in Zambia and Reko Diq in Pakistan.

First Majestic Silver – High free cash flow

The Canadian company operates several silver mines in Mexico, and has forecast production of 30.6 to 32.6 million ounces of silver equivalent for 2025. The Company's shares have tripled in value over the past 12 months, bringing its market capitalization to CAD 12.7 billion.

Some of the valuation ratios are high. The majority of analysts consider the stock to be fully valued. However, persistently high precious metal prices could soon put this into perspective. On the other hand, the high free cash flow generation stands out as particularly positive.

First Majestic Silver recently announced the sale of its wholly owned Del Toro Silver Mine in Mexico to Sierra Madre Gold & Silver for consideration of up to USD 60 million in cash and shares. Completion of the transaction, which is intended to further streamline and consolidate the portfolio, remains subject to customary conditions precedent.

High precious metal prices are causing profits to explode for producers such as Barrick and First Majestic. Strong free cash flows enable share buybacks, higher dividends, and acquisitions. **However, as the bull market progresses, investor focus typically shifts toward explorers. Desert Gold is benefiting from this trend. The project's intrinsic value suggests upside of up to six times the current market capitalization, and some analysts even classify the stock as a potential tenbagger.