December 15th, 2022 | 10:48 CET
Gold Rally! Why precious metals offer themselves now: Barrick Gold, Tocvan Ventures, Steinhoff
Table of contents:
"[...] I wouldn't be surprised if the project ends up showing more than 5 million ounces. [...]" Gary Cope, President and CEO, Barsele Minerals
Barrick Gold: Hesitant reaction to gold's rise
US asset manager Crescat Capital recently shared an infographic comparing gold's price performance to the Philadelphia Gold and Silver Index. The message: while the precious metal has already returned to the highs of more than a decade ago, there is still a potential of 85% for mining company stocks to reach the same level. Even if such charts are always a bit simplistic and the situation today can hardly be compared to the one back then, a certain undervaluation of gold cannot be dismissed. Perhaps part of the explanation is that the stock market in 2011 was several years into its big crash, while cautious investors are still waiting for the "final sell-off" at the end of 2022, which is supposed to be the turning point in the stock market. So is the relative undervaluation of gold mines just due to poor sentiment?
After all, Barrick Gold's share price rose by around 5.7% over the past month. On a six-month horizon, however, the stock was down 12.1%. The weak summer months for gold are still weighing on the prices of mine operators. In addition, the fact that companies such as Barrick Gold are selling forward their production and are thus already locking in prices for future revenues could have a price-inhibiting effect. Since the margins at Barrick Gold are attractive and the Company generates substantial cash, responsible managers are likely to have played it safe during the past months. The fact that the Company is currently hardly benefiting from the gold hype could be due to existing hedging transactions. The share is nevertheless interesting in the medium term - one reason is the Reko Diq giga project in Pakistan, which was recently given the green light by the Supreme Court in Pakistan. Barrick Gold plans to invest up to USD 10 billion here.
(image: reko-diq.jpeg caption: Barrick Gold sees huge deposit in Reko Diq and invests up to USD 10 billion (Photo: Barrick Gold)
Tocvan Ventures: Still 50% behind
Barrick Gold's giant project shows how big the multinationals think the opportunities around the precious metal gold are. In the case of Reko Diq, there is the additional fact that the project also stands for copper - Barrick has long been striving to position itself more broadly. The Canadian company Tocvan Ventures, active in Mexico, is broadly positioned. The Company has two hot irons in the fire with its El Picacho and Pilar projects. Although the former project is at an early stage and, according to Tocvan CEO Brodie Sutherland, is some three to four years behind Pilar, its proximity to the San Francisco mine and the associated geological parallels are creating fantasy in the Canadian investment scene. A drill program is currently underway at El Picacho to further define high-grade areas where gold and silver are suspected. Results could be forthcoming in the new year.
The share price is currently quoted at CAD 0.53, which is about 50% below the price of a year ago. After the gold price had already jumped and Tocvan was also able to win the British investor Sorbie Bornholm as a shareholder in the summer, investors should note the value. Already months ago, CEO Sutherland explained the advantages of the cooperation with Sorbie Bornholm: "Tocvan Ventures is fully financed for at least the next two years. In addition, it is not unusual for our financing partners to support positive developments with further capital injections. This allows us to focus fully on both projects and their progress. It also means that further dilution of shareholdings is ruled out for the time being." Given the operational progress and increasingly friendly sentiment around gold, Tocvan Ventures could soon realize its potential. Typically, project developers around gold follow the share prices of large mining operators. After Barrick has jumped recently, the next impulse could concern small caps from the gold sector.
Steinhoff: Over and out
The situation with Steinhoff shows that it is by no means irrelevant in which small caps one invests. After an accounting scandal, the furniture manufacturer is in a tangle of legal disputes. In recent years, the share has repeatedly risen sharply, only to collapse again. Currently, the share stands at EUR 0.09 and does not give hope to the remaining shareholders.
Instead of speculating on special situations, investors can focus on growth companies with substance. Tocvan Ventures offers access to two promising gold and silver projects and also stands for low costs in the mining country Mexico. Conservative investors should consider stocks such as Barrick Gold, but the shares of Tocvan Ventures may be a good choice for those who prefer a more opportunity-oriented approach.
Conflict of interest
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