11. September 2020 | 10:50 CET
Newcrest Mining, Barrick Gold, Blackrock Gold: Eat and be eaten
Major gold producers are shining with fundamental data. This increases the scope for important acquisitions. At the same time, young companies are attracting attention. Is a wave of takeovers following?
Gold has become a serious alternative for many investors. Even investment professionals, who until now have tended to focus on bonds, are now adding precious metals to their portfolios. Due to high liquidity and certain investment guidelines among professional investors, equities are also increasingly becoming the focus of attention. But not all shares are the same - investors should not blindly buy everything that has "gold" or "mining" in its name.
time to read: 3 minutes by Nico Popp
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Newcrest Mining on expansion course
The best example is the share of Newcrest Mining. The Australian company's share price has suffered losses over the course of a year, falling by 9.5% compared to last September. Newcrest benefits disproportionately from rising gold prices and scores with its fundamental data due to low costs. The pandemic has led to a number of projects not being able to continue as originally planned.
Nevertheless, Newcrest Mining's strategy seems promising: The company wants to continue to expand and selectively acquire promising projects. Although the gold producer's portfolio already contains more than 80% gold projects, potential acquisition targets are likely to return to this focus. Since Newcrest Mining has suffered primarily from the pandemic in recent months, the hesitant development of the share price could even be an opportunity in the long term. But be careful: With a price/earnings ratio of over 23, the share is anything but cheap despite last year's "cargo jam".
Barrick Gold before freedom from debt
The Barrick Gold share, on the other hand, got off to a much better start: on a one-year horizon, the share posted a substantial gain of around 64%. The company even relies on gold to about 95% and is spontaneously the first address for many investors when it comes to the shares of a gold mining company. Barrick Gold came through the Corona crisis better than Newcrest Mining and also convinces with low costs. Nevertheless, the gold producer never tires of turning its portfolio upside down.
Unprofitable projects are being sold and new ones bought. In the past, Barrick set the course for today's success early on. This is also reflected in the fundamental data: Barrick Gold has the potential to be debt-free by the end of the year - this creates new potential for the company to make acquisitions and other investments. The stock is therefore quite interesting, but here as well the valuation is already ambitious.
Blackrock Gold wants to stay on the road to success
In exploration companies such as Blackrock Gold, the price-earnings ratio is usually impossible to determine at all due to the lack of profits. However, such stocks can be an exciting addition to a portfolio - if you can evaluate the fundamentals and integrate such stocks sensibly into your own investment strategy. Blackrock Gold is valued at around 70 million euros and is searching for gold and silver in the US state Nevada. Most recently, the ongoing exploration program on the Tonopah West property returned 3,603.4 grams silver equivalent over a 1.5 metre interval. Previous results at Blackrock Gold were encouraging and gave a significant boost to the stock: On a one-year horizon, the stock has more than tripled in value.
Looking forward, the Company intends to continue on this course and emphasizes that further results from the current drill program are pending in the coming months. Blackrock Gold has numerous claims in Nevada and sees the potential to consolidate and combine these claims over the long term. Of course, there is still a long way to go, but the drilling results to date and the associated market reaction already indicate that the stock is increasingly in the focus of investors.
Young companies with disproportionate opportunities
In order to bet on shares from the gold industry, investors must first and foremost know the general conditions. For producers, in addition to low costs, a well-diversified portfolio is also important in order to be able to compensate for possible production fluctuations. It is also important for producers that extracted reserves are replaced by new deposits in the ground. This is where young exploration companies come into the picture as potential takeover candidates. As companies like Newcrest Mining or Barrick Gold have done their homework and created financial flexibility, the chance of takeovers for smaller companies is growing. In these cases, investors are often offered above-average returns in a short period of time.