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October 19th, 2022 | 12:51 CEST

K+S, Barsele Minerals, Barrick Gold - Are the good times coming after the bad?

  • Mining
  • Gold
  • fertilizer
  • Commodities
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While the gold price is under pressure from the strong US dollar and rising interest rates, European fertilizer producers are struggling with high gas prices, representing almost 90% of variable costs in production. However, the first positive trends can be observed in both markets. In gold, the critical support level of USD 1620 has held, and there, the market bounced dynamically upwards. Fertilizer prices rose in September in almost all segments. Reason enough to take a closer look at two gold companies and the German fertilizer producer K+S.

time to read: 4 minutes | Author: Armin Schulz

Table of contents:

    K+S - Werra plant to be converted

    Fortunately, K+S is geographically diversified and does not only produce in Germany. Otherwise, the energy crisis would have hit the Group much harder. The high production costs are not immediately passed on 1:1 to the customer, as fertilizer prices already shot up exorbitantly last year. On the other hand, the Company benefits from the sanctions against Russia and Belarus, which have supplied the market with fertilizer for a long time. However, due to the rising prices, not all farmers can afford the fertilizer anymore. That threatens food security around the world.

    So in the future, countries could support their farmers in buying fertilizer to ensure food for their people. Irrespective of the current problems, the K+S Group is preparing for the future. On October 17, the Company announced that it intends to strengthen the Werra plant for the future. This is intended to safeguard the plant until 2060. While production is ongoing, it is to be converted by 2027 at the latest. The Company expects higher and more stable production, increased energy efficiency, and a significant reduction in CO2 emissions.

    On November 10, the Kassel-based company plans to present its Q3 figures. Good figures are expected due to higher potash prices. 2023 should also be a good year for the fertilizer producer, according to the analysts at JPMorgan. Fundamentally, the situation should change little. The price target is EUR 38. If things go well, the Group could pay off all its debts in the coming year and then write large profits. The share recently formed a head and shoulders formation and could therefore test the last highs at EUR 24.89 next. Currently, one pays EUR 21.20 for a share certificate.

    Barsele Minerals - Waiting for the takeover

    Barsele Minerals, in a joint venture with Agnico Eagle, operates the Barsele project, which is located on a gold and massive sulfide belt that intersects the "gold line" in northern Sweden. The property in Sweden is more than 34,500 hectares in size and has world-class infrastructure as it is a mining district. Although Agnico Eagle is the exploration operator with a 55% interest and has spent over USD 40 million since 2015, drilling over 158,000m, only 3km of the 8km long gold-bearing shear zone has been explored to date. The mineral resource estimate to NI 43-101 standards comes in at around 2.4 million ounces of gold indicated and inferred. The project is fully funded down to a pre-feasibility study with partner Agnico Eagle.

    The project has been quiet for some time. In the background, Barsele Minerals is working to finalize negotiations with Agnico Eagle to become 100% owner of the Barsele project. Agnico Eagle wants to focus its business on North America. If the deal is successful, it would be the starting signal for a drilling program of 30,000m within the next 1 to 1.5 years, with the expectation of increasing the mineral resource by a further 2 - 2.5 million ounces. That would be based on a detailed plan with drill targets from one of the project managers at Agnico Eagle.

    The experienced management team has shown in the past that it can monetize large discoveries. Barsele Minerals' share of the total deposit is currently 1.08 million ounces. When calculating at USD 100 per ounce of gold, the Company's valuation should be USD 108 million, or CAD 148 million. Currently, with a share price of CAD 0.375, one arrives at a market capitalization of about CAD 51.5 million. Therefore, there is currently gold to buy here at a significant discount.

    Barrick Gold - Quarterly figures ahead

    Barrick Gold, a major gold producer, has also been hit by the gold downturn and is trading over 40% below mid-April levels. The margin has become smaller not only because the gold price has fallen but also because costs have increased. Nevertheless, the balance sheets are clean, the Company makes profits, sits on large cash reserves and pays a dividend. In addition, Barrick produces copper, the price of which will increase again in the long term solely due to the energy transition.

    After total costs rose to USD 1,212 per gold ounce in the last quarterly figures, the next quarterly figures on November 3 will show whether the Group was able to contain costs. Increased production is expected to lower overall costs on average. Copper production climbed a whopping 25% in Q2. The production figures for Q3 did not show a significant increase. However, the price of copper has also fallen over the course of the year. Copper is considered an economic indicator. Much could depend on the upcoming reporting season in the US.

    If positive impulses come from there, the copper price could also pick up. The 11 analysts are predominantly positive. Even the lowest price target of USD 15.23 is higher than the current price of USD 14.61. On average, a price target of USD 23.40 is given. The highest price target is USD 29. The stock has formed a double bottom at around USD 14 and now has the potential to reach USD 16.49, where the next resistance awaits.

    In the current market phase, fear is still palpable. Accordingly, many shares are trading at exaggerated discounts. K+S is set to make significant gains this year and next and is fundamentally cheap. Barsele Minerals is clearly undervalued at its current price. The stock should jump quickly if it succeeds in acquiring the Agnico Eagle shares. Barrick Gold earns good money and pays a dividend. An economic upswing should be noticeable here.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Armin Schulz

    Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.

    About the author

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