Last week, the stock markets in Europe and North America continued their recovery from the lows of March 2020. However, as the week drew to a close, declines were recorded again, due to the tone of the West's tightening stance towards the Chinese leadership in connection with the health and economic consequences of the Corona Crisis.
According to media reports, the five secret services of Australia, Canada, New Zealand, the USA and the UK found out that the political leadership in Beijing covered up the deadly danger of the Corona Virus at the beginning of its spread. This accusation holds a lot of potential for further market uncertainties and gold is likely to gain further importance as a safe haven. The Bank of America recently called a potential of up to USD 3,000.00 per troy ounce in 2021. Since we have learned that the price of WTI futures can be negative, price targets of this range for gold are no longer utopian - perhaps the potential is even greater.
Advantages of gold companies
There are different ways in which investors can position themselves in the gold asset class. Besides coins and bars with storage costs, certificates with issuer default risk are available. Alternatively, shares of listed companies that are active in the gold industry can be used.
The creation of value from gold can be extremely lucrative, because the value of exploration companies usually increases when new deposits are discovered. The value driver for producers is a rising price per troy ounce as long as costs are not correlated. Low energy costs also increase margins for the industry.
Drilling program delivers potential
The Canadian company Desert Gold Ventures (TSXV: DAU) focuses on the exploration of areas in Mali on the border with Senegal in West Africa. The management has more than 300 square kilometers of exploration licenses available for development.
The company has already been successful on several occasions and the next steps in the drilling programs will be to obtain further information on the gold content and potential quantity in the ground. In the most recent announcement, management has announced that the upcoming drilling program covers 10,000 metres.
All holes are targeted at extensions of the known mineralization and, for example, at the Gourbassi West area, a 33-metre-wide intersection grading 3.52 g/t gold at surface is being further examined and at Barani East a 13-metre-wide section grading 6.28 g/t gold is being explored at depth.
As gold resources increase, the likelihood that well-known producers with a focus on the region will take a closer look at Desert Gold Ventures increases. A takeover is the usual exit scenario of exploration companies. The market value of Desert Gold Ventures was less than CAD 10 million at the closing price of CAD 0.10 on Friday.
Alternative to the majors
The gold producer Kinross (TSX: K) closed at USD 6.84 on Friday and its market capitalization was USD 8.6 billion. In the past three months, the shares changed hands between USD 2.72 and 7.25. The shares of the commodity company Glencore (LSE: GLEN) have traded between EUR 1.24 and 2.84 in the past three months. On Friday the shares closed at EUR 1.70, which corresponds to a market value of EUR 23.2 billion.
While the two majors are swinging with the market, the great upside potential of Desert Gold Ventures lies in the success of its drilling programs