Gold mining companies are taking different paths after a bloodless political coup in Mali where the West African nation’s leader resigned on Aug. 19 to avoid a violent overthrow of his government after he was surrounded and detained by soldiers involved in the mutiny.
Toronto-based Barrick Gold Corporation (NYSE:GOLD) and AngloGold Ashanti Limited (NYSE:AU), of Johannesburg, South Africa, are gold mining companies partnering in Mali that announced an agreement on Aug. 31 to sell their 80% ownership in the country’s Morila mine for $22-27 million in cash to publicly traded Mali Lithium Limited (ASX:MLL). In contrast, Vancouver, Canada-based B2Gold Corp (NYSE:BTG) reported on the day of the resignation that it will continue to operate its Fekola mine in Mali unimpeded as it monitors the nation’s “evolving political situation.”
The deal to sell the Morila mine, announced 10 days after the coup began on Aug. 18, provides the partnership with an exit strategy that will remove the political risk inherent in operating a business in a country that is undergoing upheaval. The final sale price will depend on adjustments at the time the deal is closed, possibly as soon as October, and meeting certain conditions, including approval of the transaction by the government in Mail, which owns the other 20% of the Morila gold mine.
President Keita, Who Came in Power in a 2012 Coup, Leaves in a 2020 Coup
President Ibrahim Boubacar Keita, who took power in 2012 during a previous political coup in Mali, won a national election in 2018 to continue his regime. However, he could not solve problems that included a poor economy worsened by the COVID-19 pandemic, highway banditry, a jihadist insurgency, alleged corruption and growing public unrest.
His resignation, aired on state television in Mali, included dissolution of the nation’s legislature and his own government, in the presence of armed members of the military who detained him in their surprise move to seize power. The mutinying soldiers, reportedly led by Col. Malick Diaw, deputy head of the country’s Kati military camp, and another commander Gen. Sadio Camara, also detained the nation’s Prime Minister Boubou Cissé. A spokesman for the soldiers who seized the country’s leaders, amid international condemnation for the coup, called for “a civil political transition leading to credible general elections.”
Gold Mining Companies Take Different Paths in Mali Amid Civil Unrest
With the unexpected chaos, the gold mining companies are taking divergent paths to extract value from their current mining assets in Mali. The financial stakes are high as silver and gold respectfully have soared 51.04% and 27.33% this year through Sept. 4.
The precious metals have outperformed the NASDAQ Composite, jumping 26.09%; the S&P 500, rising 6.07%; and the Dow Jones Industrial Average, dipping 1.42%, also through Sept. 4. The strong rise of silver and gold followed $6 trillion-plus in COVID-19 aid from federal stimulus and Federal Reserve actions.
Gold Mining Companies Take Different Paths in Mali Amid Civil Unrest
Barrick Gold, the world’s second-largest gold mining company, and AngloGold Ashanti, the third biggest, announced on Aug. 31 that the new ownership would bring access to additional resources and a different approach about how the infrastructure could be used to extend the life of the Morila mine operations. The sale would free Barrick to focus on its strategy of discovering, developing, owning and operating Tier One assets.
The Morila mine first produced gold in October 2000 and laid the foundation for Randgold Resources, the mine’s original owner, to develop into one of the world’s biggest precious metals mining companies. The large mine, once known as “Morila the Gorilla,” produced 6.9 million ounces of gold and paid more than $2.5 billion to its stakeholders through taxes and dividends.
(Chart courtesy of www.StockCharts.com)
Risk Spurs Gold Mining Companies to Take Different Paths in Mali
“This is a classic transaction that tells us a lot about where we are in the commodity cycle, said Hilary Kramer, host of a national radio program called “Millionaire Maker” and head of the Value Authority and GameChangers advisory services.
Senior mining companies such as Barrick Gold dig for profits, Kramer said. The company is seasoned at pursuing big projects efficiently and, when needed, will put transformational projects together by collecting the right property package and allocating production to squeeze the best overall return out of every pound of ore, she added.
Sometimes that means selling the ore to someone eager to roll the dice, which is the role junior mining companies take, Kramer said.
Two Investment Gurus Recommend Barrick Gold
Barrick Gold Corp. (GOLD) recently produced a 38% share price gain and a 213% profit in call options in less than two months as a recommendation in the Fast Money Alert investment advisory service. Barrick Gold turned into a top performer in the trading service co-led by Mark Skousen, PhD., and stock picker Jim Woods, who also heads the Bullseye Stock Trader advisory service and the Successful Investing and Intelligence Report investment newsletters.
(Paul Dykewicz interviews Jim Woods before COVID-19 to discuss gold.)
Skousen, a Presidential fellow at Chapman University who also leads the Forecasts & Strategies investment newsletter, has been advocating the purchase of gold mining stocks since 2019. He cited the large deficit spending of countries around the world, easy-money policies to keep interest rates low and government stimulus programs as catalysts for gold and silver prices.
Barrick Gold has more than doubled in price in the past year, beating the SPDR Gold Shares fund (NYSE:GLD), the NASDAQ Composite, the S&P 500 and the Dow Jones Industrial Average, Skousen said. The company has $3.3 billion in cash as a financial cushion to back its $5.5 billion in long-term debt, added Skousen, whose accomplishments include receiving the inaugural Triple Crown in Economics in 2018 and ranking as one of the 20 most influential living economists.
The company further offers a dividend yield of 1.10%. Barrick Gold’s consensus forward price-to-earnings ratio is 24.33.
(Mark Skousen, a descendant of Ben Franklin, meets with Paul Dykewicz.)
In addition, Barrick Gold last year produced 5.5 million ounces of gold, achieved profit margins above 40% and earned $4 billion on revenues of $9.7 billion. Wall Street has taken notice, with TD Securities raising its rating of Barrick Gold to a “buy” on April 1, when the brokerage set a price target of $28. Another upgrade occurred on March 26 when Deutsche Bank initiated a “buy” on Barrick Gold and gave the stock a price target of $25. GOLD already has surpassed both price targets in just months.
Gold Mining Company AngloGold Ashanti Takes Different Path in Mali
AngloGold Ashanti, a recommendation in Skousen’s Five Star Trader advisory service, has more than one dozen properties in Africa, North and South America and Australia. The company sold its last gold mine in South Africa to Harmony Gold (NYSE:HMY) earlier this year and now has no operations in South Africa.
Like Mali, South Africa has been politically unstable. In 1970, South Africa was the top gold producer in the world by a wide margin. South Africa now is just the world’s eighth-largest producer of gold. Since AngloGold combined with Goldfields in 2004, it has expanded its gold-producing properties well beyond South Africa.
With rising gold and silver prices, as well as improved ways to reduce costs, AngloGold’s profit margins now exceed 10%. Its revenues rose 26% in the past year to reach $3.9 billion, while its earnings skyrocketed 287% to $619 million. The company has $1.3 billion in cash, with only $2.9 billion in long-term debt.
(Chart courtesy of www.StockCharts.com)
AngloGold sells “more cheaply” than its rivals Barrick Gold and Newmont Gold (NYSE:NEM) since it is headquartered in South Africa, Skousen said. It is now selling for an estimated 12 times earnings for 2020 and has a price/earnings-to-growth (PEG) ratio of 0.54. Anything less than 1 is considered excellent, added Skousen, who also heads the TNT Trader and Home Run Trader advisory services.
The company offers a modest dividend yield of 0.31%. AngloGold’s consensus forward price-to-earnings ratio is 10.27, less than half Barrick Gold’s ratio, offering investors a better value.
AngloGold mines have weathered the COVID-19 crisis and are increasing profits and cash flow. On Sept. 1, Christine Ramon, who had been the company’s chief financial officer, succeeded Kelvin Dushnisky as the chief executive officer.
B2 Gold Is another Mining Company Taking a Different Path in Mali
Interest in gold is fueled by the most aggressive monetary and fiscal policies since 2008, Skousen said. In his Forecasts & Strategies investment newsletter, he is recommending B2Gold Corp. (BTG), a mid-tier Canadian gold mining company.
The stock briefly topped $7 a share before it pulled back after the political coup in Mali, where BTG’s Fekola mine is based.
Despite its share price slipping recently after the coup, B2Gold officials said the company’s operations at its Fekola mine are continuing normally. Plus, the Malian government owns a 20% stake, so it has a financial interest in preserving operations at the mine and the safety of employees.
B2Gold offers a dividend yield of 2.48%. Its consensus forward price-to-earnings ratio is 13.26, nearly half of Barrick Gold’s ratio and just above the one of AngloGold Ashanti.
What Affects Gold Mining Companies Taking Different Paths in Mali
Investors can profit from rising precious metals prices through buying shares in mining companies, said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. But beware that the share prices of mining companies are “far more volatile” than gold and silver prices themselves, he added.
Carlson, who also leads the Retirement Watch advisory service, said investors should remember that mining company shares are affected by reasons other than the price of precious metals. Such factors include a company’s debt level, management skill, labor issues and COVID-19 risks.
(Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz during an interview before social distancing became the norm after the outbreak of COVID-19.)
Even though gold prices and mining stocks dipped recently, the situation should reverse soon, said Rich Checkan, president and chief operating officer of Asset Strategies International, a full-service tangible asset dealer in Rockville, Maryland.
(Rich Checkan, president, Asset Strategies International)
The global COVID-19 pandemic’s huge human toll includes 26,961,795 cases and 880,955 deaths globally, along with 6,268,757 cases and 188,791 deaths in the United States, as of Sept. 6. America has amassed the most cases and deaths by far of any country in the world, including China, where COVID-19 originated.
Gold mining companies are taking different paths in Mali to maximize shareholder value after the country’s president resigned following his detention by members of the country’s military. The political instability adds to the risk of operating in struggling Mali.
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GOLD shares . Year-to-date, GOLD has gained 58.12%, versus a 7.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Paul Dykewicz
Paul Dykewicz, https://www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus, Stock News and others. Paul, who invites you to follow him on Twitter @PaulDykewicz, is the editor and a columnist for StockInvestor.com and DividendInvestor.com. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, real-time trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Paseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. More...
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