24. September 2021 | 12:09 CET
Troilus Gold, Rio Tinto, BHP - Exploit uncertainty!
The falling demand for iron ore by the world's largest consumer, China, has put enormous pressure on the prices for iron ore and led to the downward slide in the share prices of major players such as Rio Tinto and BHP. In the medium term, prices will have to rise again due to high demand. Likewise, precious metals should rise in times of high inflation, including copper, which is in demand due to the growth of electromobility, among other things.
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ISIN: TROILUS GOLD CORP. NEW | CA8968871068 , RIO TINTO LTD | AU000000RIO1 , BHP GROUP PLC DL -_50 | GB00BH0P3Z91
"[...] 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
TROILUS GOLD CORP - Good drilling data underpins potential
The Toronto-based junior mining company wants to bring the formerly producing Troilus gold and copper mine in Quebec back into production. Recently released drill data underscores the potential of the 1,420 sq km project, which is 100% owned. The property is one of the largest undeveloped gold and copper deposits in the Canadian province.
"We are pleased with the continued great results from the western extension of Zone J, which continues to confirm and expand the new parallel zone of mineralization we have outlined over the past twelve months. This growing parallel zone is expected to have a positive impact on the overburden ratio and overall project economics in the upcoming Pre-Feasibility Study, particularly as the majority of the 850m zone defined to date is in areas of the PEA pit model that have been deemed to be stockpile material to date," said Justin Reid, President and CEO of Troilus Gold.
The Troilus Mine produced more than 2 million ounces of gold and nearly 70,000 tonnes of copper from 1996 to 2010. A project economic assessment (PEA) last year certified very high economic viability. According to the appraisal, the project value is USD 1.156 billion at a gold price of USD 1,950, allowing a rapid payback of the required investment sum of USD 333 million. Plans call for the mine to operate for 22 years and produce an average of 246,000 ounces of gold annually for the first 14 years.
Good drilling data is a success. As a result, the preliminary feasibility study should also indicate that the project will be even more profitable. The Company is thus one step closer to its gold production target. Given the size, quality and indicated profitability of the project, the Company is currently valued at CAD 153 million and is by no means too expensive.
BHP GROUP PLC - Weak iron ore prices weigh on the share price
Since mid-August, the share has fallen by around 30%. The good operating figures were ignored. There are two reasons for the decline in the share price: a change in strategy and the slide in iron ore prices. But first things first. A few weeks ago, BHP surprised the market by announcing its intention to merge its oil and gas business with the Australian Company Woodside. The rationale behind this move is the increasingly stringent requirements of investors concerning environmental, social and governance (ESG) aspects. In 2020, the oil and gas sector accounted for just under 10% of Group sales. If the deal succeeds, BHP shareholders will own 48% of the Company, ranking among the top 12 global oil and gas producers.
The Group intends to concentrate on raw materials such as copper, nickel, potash, and iron ore in the future. The Group generates around half of its sales from iron ore and about a quarter from copper. That is why the recent fall in the iron ore price weighed so heavily on the share price. The price of iron ore has more than halved since May. Most recently, the downward trend accelerated once again as China, the world's largest consumer, reduced its demand. In addition, Beijing introduced import restrictions on high-quality iron ore and sold inventories. A majority of analysts rate the stock a buy and see an upside potential of 20%.
RIO TINTO PLC - Aluminum prices soar
The commodities giant has even more exposure to iron ore than BHP. Rio Tinto generates around 60% of group sales from iron ore. With a 20% share of sales, aluminum is the second-largest, ahead of copper and diamonds. Like BHP, Rio Tinto's shares also fell due to the negative price trend for iron ore. Should iron ore prices stabilize somewhat soon, we expect a significant counter-reaction in the share price.
Then investor focus could shift back to the successes because there are a few. Aluminum prices have risen over 60% in the last 12 months, and the rise could accelerate further as supply-side disruptions occur. After Australia, the West African nation of Guinea is the world's second-largest producer of bauxite, which is needed to make aluminum. A coup in Guinea recently caused uncertainty. Guinea supplies around a quarter of global bauxite demand. On average, analysts believe the stock has an upside potential of 25%.
The short-term shift in supply and demand for iron ore makes for favorable entry levels with a long-term investment horizon for the shares of the major commodity groups Rio Tinto and BHP. With the Troilus Gold share, investors are betting on a rising gold price (crisis currency, inflation protection) and on the megatrends of electromobility and the energy transition, which suggest an increasing copper price.