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B2Gold, Barrick Gold, Desert Gold: Did Warren Buffett bet on the right horse?

Mario Hose Mario Hose, news.financial
0 Comments| September 15, 2020

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The price of gold has stabilized above the USD 1,900.00 per troy ounce mark in recent weeks. Against the background that the Corona Pandemic is not slowing down and that a second wave is becoming measurable in many places, the actions taken by governments and central banks are continuing cheerfully, thus ensuring further demand for the world's oldest currency. Those who want to protect their assets are probably best-off buying shares in a gold company like Warren Buffett, and for those who can't decide, there is also a solution.


Gold becomes attractive for value investors

The US-investor Warren Buffett has set an example with his investment in Barrick Gold. In the past, the experienced and successful CEO of Berkshire Hathaway(NYSE: BRK.B) has always avoided gold companies, as the shares of other industries offered him ever more sensible investment opportunities in connection with their operational possibilities. However, due to the rising gold price, producers like B2Gold (TSX: BTO) and Barrick Gold (TSX: ABX) are making real money and can also pay dividends, a new fact that Buffett does not like to ignore.


Precious metal becomes rarer

According to its own information, Barrick Gold expects that in 2020 the highest amount of gold within one year will be brought to the market by the largest producers, at around 118 million ounces. From then on, an annual decline is to be expected. In 2029, only a quantity of about 65 million ounces of gold is expected, which corresponds to a decline of 45%. There are several reasons for this development. Firstly, the attractive areas are already in production and in addition it is becoming more and more costly to develop new areas. Regulations and restrictions often make it difficult for the industry to expand.


Takeover candidate in West Africa

Given that the reserves of the largest producers have decreased by around 34% since 2012, these mining companies must continuously look for attractive supplies. Each ounce of gold can only be mined and sold once. For this reason, the producers also like to look at attractive takeover targets in their neighborhood. In West Africa, B2Gold and Barrick Gold each operate gold mines. Not far away, the exploration company Desert Gold Ventures (TSXV: DAU) is also active in the areas covering more than 400km2.


Further drill results expected

The company has reached several milestones in recent weeks. Firstly, Desert Gold has raised more than CAD 6.8 million in fresh capital from investors at a price of CAD 0.28, and in addition, management has confirmed the assumptions made in the latest drill program with regard to expected deposits and further discoveries have been announced. Final drill results from the latest program are expected to be released shortly. Work on the projects will resume in approximately six weeks. With the fresh capital, the Company is well positioned for the coming drilling season.


The profit lies in purchasing

On the stock market, however, Desert Gold's share price is in a downward spiral and has lost significant value in recent weeks due to profit-taking. Approximately six weeks ago, the shares changed hands at over CAD 0.30. Despite the successful financing round at CAD 0.28, the share price has since fallen to CAD 0.17. Volatility is a side effect on the stock market and with good timing an attractive yield can be achieved. Desert Gold's management has not only reported good drill results, but the company now has probably the highest cash position since its incorporation. Against this background, it is probably only a matter of time until the share price returns above CAD 0.30. Those who cannot decide on a particular company should diversify.


CONFLICT OF INTEREST & RISK NOTE
We would like to point out that Apaton Finance GmbH, the owner of news.financial, as well as partners, authors or employees of Apaton Finance GmbH may hold long or short positions in the aforementioned companies and that there may therefore be a conflict of interest. Further details can be found in our ´Conflict of Interest & Risk Disclosure´.


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