April 11th, 2024 | 07:00 CEST
Out of defense, into gold!? Renk, Barrick Gold, Desert Gold
On Tuesday, German defense stocks were shaken briefly and sharply. In a flash crash, Renk, Rheinmetall and Hensoldt fell by more than 10%. This indicates that defense stocks have run hot. The future prospects for the companies are undeniably positive, but a consolidation is in order. Gold is an entirely different story. The price of the precious metal is at record levels, but the shares of gold producers are still a long way from their 2020 highs. This applies to the heavyweights like Barrick Gold and Endeavour Mining, but even more so to the explorers. One of the promising explorers is Desert Gold. The Company operates in an attractive region, is on the verge of becoming a Tier 1 mine producer, and is a takeover candidate. Barrick Gold is one of many companies that could make a move on Desert Gold.
time to read: 3 minutes | Author: Fabian Lorenz
ISIN: RENK AG O.N. | DE000RENK730 , BARRICK GOLD CORP. | CA0679011084 , DESERT GOLD VENTURES | CA25039N4084
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Author
Fabian Lorenz
For more than twenty years, the Cologne native has been intensively involved with the stock market, both professionally and privately. He is particularly passionate about national and international small and micro caps.
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Desert Gold: Is Barrick Gold getting involved?
Barrick Gold is looking to expand its presence in western Mali, according to Mark Bristow, CEO of the world's second-largest gold producer. This should now put Desert Gold in the spotlight for investors. The Canadian explorer is currently developing a 440 sq km area north of Barrick's Loulo-Gounkoto mine. **Incidentally, other heavyweights such as Endeavour Mining and B2Gold are also active in the region. However, it is not just takeover speculation that supports buying Desert's stock. In a recent Interview with kapitalerhöhungen.de, Desert CEO Jared Scharf outlined the path to becoming a Tier 1 producer. Desert has now identified more than 25 gold zones on its property. Five of these alone contain around 1.1 million ounces of gold resources. All gold zones are geologically sound, suggesting that the resource could increase with further drilling. Desert is working on this because, as Scharf stated, the Company has the clear goal of developing a Tier 1 mine capable of producing at least 200,000 ounces of gold per year for at least 10 years. The preparation of a preliminary economic assessment (PEA) is already underway.
Following the PEA, Desert would commence construction of a heap leach mine to start commercial production. The cash flow then available would give Desert a high degree of operational flexibility and reduce its dependence on the capital market. This should positively impact the share price, as should the rising gold price. In turn, this should boost sentiment in the sector and ensure that more generalist investors invest in gold shares again. The Desert Gold share is currently trading at around EUR 0.05. In 2020, the share was already at EUR 0.20, when the gold price was significantly lower, and the Company was not on the verge of production. In any case, Desert's CEO sees exciting times ahead. You can find the full interview here.
Barrick Gold: Still a long way from the old high
And what about Barrick Gold? After expanding its copper division in recent years, the heavyweight is also returning to expansion mode in gold. At the end of 2023, the Company had a gold reserve of 77 million ounces. In order to increase this, the focus is on Tier 1 projects. As mentioned earlier, expansion plans are underway in Mali. The Company has already made some progress in Peru. In the Puno district of the Latin American country, Barrick has applied for a 400-hectare concession and holds shares in the Libélula project and the Tres Marias property.
Driven by the gold price, the Barrick share has risen by around 14% to EUR 16.55 in the past four weeks. However, like Desert Gold, the share was already significantly higher in 2020. The EUR 25 mark was broken in mid-May 2020. The market capitalization is currently around EUR 29 billion.
Renk: Valuation exhausted?
Shares from the defense sector are among the clear winners of 2024. Rheinmetall has gained 70% this year. Hensoldt is up 50% and Renk is up 70% since its IPO at the beginning of February alone. Such price movements are typically associated with technology stocks. Investors need to bear in mind that production capacities in this industry cannot be expanded so easily. **The construction of new factories costs time and money, which is why Goldman Sachs has also put the brakes on Renk for the time being. While Renk's future prospects remain promising, analysts see no room for further valuation growth. The analysts, therefore, rate the Renk shares as "Neutral". The price target has been reduced slightly from EUR 25.90 to EUR 25.70.
Defense stocks like Rheinmetall and Renk are among the clear winners of 2024. But at the current price level, profit-taking does not seem wrong. Gold is a completely different story. Gold shares have barely kept pace with the rise in the precious metals market so far, but prices are currently soaring. With Barrick Gold as a basic investment and Desert Gold as a speculative addition, investors could benefit from the pent-up demand.
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