December 30th, 2021 | 11:25 CET
S+T, Barsele Minerals, Barrick Gold - The disappointment of the year
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"[...] In our experience, the local communities are supportive and friendly. [...]" Steve Cope, President, CEO and Director, Silver Viper
Under-performer with good prospects
If you look at the long-term gold chart, the disappointment is limited. Many people forget that the precious metal was only worth around USD 1,000 per ounce 5 years ago. Then followed a gold bull market, which marked its temporary end at the beginning of August of the year 2020 with a temporary high of USD 2,074.50 per ounce. That was followed by profit-taking due to burgeoning hopes of an end to the pandemic and successes in vaccine development. Investors increasingly looked for higher-yielding investment objects such as shares or cryptocurrencies and gradually turned their backs on the safe haven.
This year's low was marked shortly after the FED announced tapering and possible rate hikes for next year. The correction resulted in a flash crash that saw gold fall through several supports overnight, ending at USD 1,663.27 per ounce. After a brief interim recovery, the price is struggling to find direction in a corridor between USD 1,750 and USD 1,820. As the chart technique indicates, it is not unlikely that the price will retest the low for the year and slide towards USD 1,600 per ounce, which should then, however, represent long-term entry opportunities.
Mining shares attractive
Shares of gold producers and exploration companies were strongly affected by the consolidation. The largest, Newmont, lost almost 30% of its value since the high of USD 75.31. The number 2, Barrick Gold, was hit much harder with a loss of nearly 50%. These losses are in complete contradiction to the fundamental situation. At around USD 1,800 per ounce, the gold price is still attractive for mining companies. In addition, the high price brought in record earnings in 2020. Balance sheets are strong, and cash positions are huge, which should lead to an expanding dividend policy.
Undervalued asset in Scandinavia
Exploration companies are also attractive due to the strong correction. Barsele Minerals, for example, currently has a market value of EUR 40.42 million at a share price of EUR 0.27, but the asset of the Canadians is worth many times that amount. The eponymous Barsele project in the northern area of the Scandinavian country covers a size of 47,000 hectares. According to the senior management of the Belcarra Group, which manages Barsele Minerals, it has a potential of more than 5 million ounces of gold. Back in 2016, the Royal Bank of Canada (RBC) conducted a valuation of the Barsele Gold Project for Agnico Eagle. At a gold price of below USD 1,350, the experts calculated a value of USD 375 million.
Of this deposit, Barsele Minerals owns 45%, with the lion's share belonging to gold producer Agnico Eagle, which also bears operation costs. Due to the major's desire to focus on its North American operations, a letter of intent was signed during the year for Barsele Minerals to acquire 100% of the shares. However, due to restrictions caused by the Corona pandemic, delays followed and finally, the LOI expired at the end of October.
Nevertheless, both parties are working on a joint deal that could go through in the current year. The proposed transaction was worth USD 45 million. Agnico would have held about 15% of the shares in Barsele Minerals upon completion of the corporate action. Barsele Minerals has multiplication potential at current levels should the transition take place.
The development of the share of the Linz-based technology group S&T has also been a disappointment in recent days. Accusations by the analyst firm "Viceroy Research" caused the share price to collapse. The Austrians have now announced that Deloitte has been commissioned to conduct an external forensic audit of the allegations. Further details on the allegations are disclosed on the S&T homepage.
Hannes Niederhauser, CEO of S&T, also commented: "Our statement shows that Viceroy Research made numerous far-reaching misjudgments in its report, which do not stand up to objective scrutiny. We want to point out that Viceroy Research did not contact S&T AG before publishing its report to even begin to validate the allegations made in it. Operationally, we continue to be within the expected range and maintain our current forecast for the current financial year."
Investors should follow what is happening on the sidelines despite all the denials. Somehow, in our opinion, this resembles Grenke's situation.
Gold disappoints in 2021, but the precious metal is still in an uptrend in the long term. Among the gold producers, Barrick and Newmont are slowly inviting countercyclical entries. Barsele Minerals is already undervalued ahead of a possible complete takeover. At S&T, the market should first calm down before any potential entry.
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