February 24th, 2021 | 08:45 CET
K+S, Desert Gold Ventures, Encavis - Buy before others do!
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"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
K+S - BaFin is grumbling
The price of K+S has been moving in the right direction again in recent months, after a prolonged dry spell. Last week, the upward trend came to an abrupt end in the area of EUR 10, when the Company announced that the Federal Financial Supervisory Authority (BaFin) had ordered an audit of the balance sheet by the German Financial Reporting Enforcement Panel (DPR).
Whether the balance sheet values were overstated and whether the Group should have made higher write-downs in the past is in question. BaFin is taking Company statements in connection with last November's Q3 report as an opportunity to scrutinize the 2020 half-year report and the 2019 annual financial statements. The sticking point: at that time, K+S had lowered its assumptions on the long-term development of potash prices and increased its cost of capital. BaFin suspects that the depreciation taken by the Europe+ operating unit of around EUR 2 billion may have been too low. "BaFin has concrete indications that this impairment requirement may not have been determined correctly and should have been recognized in full or in part at an earlier point in time. Likewise, other asset items may be affected by a need for impairment," the regulator said.
To put this in perspective, in October 2019, fertilizer and salt producer K+S had announced its intention to sell its salt business in North and South America. The price achieved of USD 3.2 billion positively surprised many market participants. On the one hand, this transaction led to a better balance sheet structure in deleveraging; on the other hand, K+S is now less diversified and more dependent on the fertilizer business and potash price. Although the fertilizer business is more volatile, it also harbors more significant opportunities. It cannot be entirely ruled out that K+S will have to write down a higher amount, especially if calculation and valuation methods have changed. With total assets of EUR 10.6 billion and equity of EUR 4.6 billion, a write-down would be bearable. We will see how the case turns out.
DESERT GOLD VENTURES INC - G is for Gold
The gold price is currently consolidating around the USD 1,800 mark. A shift is taking place in the broad stock market - away from hotly traded tech stocks and towards "value stocks." Thus, the stock of Desert Gold is attractive for investors in two respects. Firstly, it offers exposure to the crisis currency, gold. The price of gold is bound to rise over the medium term in light of central bank policy and the global economy. Secondly, the share is very moderately valued. The Company weighs in at just CAD 25 million.
The gold exploration and development Company is fully committed to the African nation of Mali and is in good company with world-renowned players. Mali is the fourth-largest gold producer on the Dark Continent. The portfolio focuses on two gold exploration permits with large land areas, for the SMSZ Project and Djimbala, in western Mali. The Djimbala Gold Project is 100sqkm in size and is located near producing mines.
A few weeks ago, Christopher Marsh, appointed as Independent Director, strengthened the already experienced management team. Marsh brings many years of experience in investment banking and corporate development. Positive news from the exploration program or a rising gold price will positively affect the share price.
ENCAVIS AG - Electricity production at a new record; nevertheless, the share plummets
Yesterday, Encavis reported on electricity production for the last year. Despite new production records and a positive outlook, the share price fell yesterday by 10% in some cases to around EUR 17. At the beginning of the year, the shares were still trading at EUR 25.
In 2020, the Hamburg-based Group, which generates electricity exclusively from renewable sources, increased electricity production by 29% from around 2.66 TWh to 3.43 TWh. This growth was primarily based on acquisitions of wind and solar farms.
Encavis generally invests conservatively. Investments are only made in solar and wind parks that are in the construction phase, turnkey or already in operation. Thus, the share price development in recent months and yesterday can be understood as a "sell on good news". The current price level offers itself for additional purchases.
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