July 27th, 2022 | 12:49 CEST
K+S, Globex Mining, Barrick Gold - Has the bottom been reached for commodity stocks?
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
K+S - Big discount
More and more people are inhabiting our world, and we need fertilizers if we want to supply them all. K+S is benefiting from the sanctions against Belarus and Russia, which together account for about 40% of the world market for fertilizers. These are ideal conditions for competitors such as K+S, but the share price has fallen by 48% since mid-April. The agreement on the export of millions of tons of grain from Ukraine was also not conducive. The Kassel-based Company's problem lies in energy costs in Germany. That also explains why shares in competitor Nutrien have only fallen 38%.
However, the super meltdown failed to materialize. Russia continues to send gas to Germany. Nevertheless, uncertainties remain as to how the gas price will continue. After all, experts agree that potash prices will remain at their high levels for some time. That is, at least, as long as the sanctions are not lifted, and it does not currently look like that will happen. Thus, the Company should have earned well in the second quarter despite inflation. More detailed information will be provided by the Kassel-based company in its half-year report, which is to be presented on August 11.
While analysts were still very cautious with price targets for K+S last year, the price targets have continued to rise in recent months. At the end of June, JPMorgan issued a buy recommendation with a price target of EUR 44.50. UBS recommends holding with a price target of EUR 20. The analysts at DZ Bank are more positive, pointing to a likely high dividend yield. Fundamentally, the share is cheap, as researchanalyst.com also states, based on the price/earnings ratio and the price/book ratio. The share price currently stands at EUR 20.38.
Globex Mining - Doing well operationally
WisdomTree Broad Commodities tracks the price of the entire commodities market. A look at the chart shows that the price has come back significantly from its multi-year high. This is also hurting Globex Mining. The Canadians have a broad portfolio of projects ranging from base metals to precious metals and speciality metals. Over the past decades, the Company has owned 210 projects. The new prospective properties are acquired exclusively in safe jurisdictions. Subsequently, the projects are upgraded through exploration. Joint ventures then follow, or other companies are granted an option on the projects. In return, Globex receives cash, company shares and royalties.
The risk is thus outsourced because the road to building a mine is long. The option partners are obligated to invest certain sums in the property. If the partners run out of money, the project reverts to Globex. Through the partnerships, Globex has an ongoing news flow. Cartier Resources, which is exploring Globex's Nordeau West property, is conducting a new NI 43-101 resource estimate. Globex will receive a 3% royalty if a mine is built. Partner Orford reported gold discoveries up to 14.7 g/t at the Joutel Eagle property. Excellon intends to acquire 100% of the German Bräunsdorf project, and the option has been extended to 2025. In the process, 200,000 Canadian dollars (CAD) and Excellon shares worth CAD 625,000, as well as royalties, are in the offing.
At CAD 3 million, Yamana Gold paid the second of 5 installments on July 7 for the Francoeur, Arntfield and Lac Fortune gold properties. A total of CAD 15 million is due and Globex has an additional 2% royalty interest. So things are going well operationally. There are no understandable reasons for the more than 40% consolidation. One currently pays CAD 0.92 for a share certificate, meaning a market capitalization of about CAD 50 million. The Company is debt-free; there is CAD 20 million cash in the bank, and the entire inventory of the Company has been paid for. It is only a question of time until the share prices pick up.
Barrick Gold - Lower gold prices create pressure
According to Reuters, the Ukrainian Central Bank has sold USD 12.4 billion worth of gold since the war began. That could explain the pressure on the gold price. However, even if the gold price was able to gain some ground in recent days, the Barrick Gold share was unable to stop its downward trend. The reason is also the strong USD and the interest rate increases, which have hurt the gold price. Now that the copper price is also falling, Barrick has a problem on two sides. However, as the second largest gold producer, the gold price is much more critical than copper.
Another blow was the ruling of the Chilean Supreme Court, which sealed the end of the Pascua Lama project. The project was valued at USD 8.5 billion. Even though the project has been dormant since 2018, it is still a setback for the Company. On the other hand, the second quarter production figures were positive. The production of gold increased by 5% compared to the first quarter, and for copper, it was as much as 19%. The Group is thus on track to meet its targets for the year. In Pakistan, the government reached an agreement regarding the Reko Diq project. Production is scheduled to start there by 2028 at the latest.
Even if commodity prices have recently weakened, Barrick will continue to earn money. Therefore, one should use the discount of 42% in one of the largest gold producers to build an initial position. Currently, the share is quoted at USD 14.91. In the short term, it can go a little lower. The next support is at USD 12.65. Investors are also rewarded with a dividend. If the dividend remains at USD 0.20 as in the first quarter, the dividend yield will be a good 5%.
Even though commodity prices are still under pressure, they will continue to rise in the long term, driven primarily by new technologies. K+S is suffering from the uncertainty of energy supply and the associated rising costs. Globex Mining is broadly positioned and will benefit as soon as commodity prices pick up. The large number of projects ensures a steady cash inflow. Barrick Gold is suffering from weak gold and copper prices. Nevertheless, the Group earns good money and is also worth an investment.
Conflict of interest
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