With the attack by the US and Israel on Iran, the gold price has definitively ended its breather. On Monday, the precious metal easily surpassed the USD 5,300 per troy ounce mark, bringing it within reach of its record high of USD 5,595. This has added further momentum to the rally in Desert Gold’s shares. Even without a rising gold price, however, there are strong arguments for further upside in the stock. After several years of negative headlines, gold companies operating in Mali appear to have finally broken the deadlock. Desert Gold’s shares show significant catch-up potential, and the recent 70% rally over the past weeks may only mark the beginning of a broader revaluation. A takeover by B2Gold, for example, also seems conceivable again.
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Gold producers and explorers active in Mali are celebrating a comeback on the stock market. After two years of negative headlines, the government there appears to be coming to its senses. It has recognized how important the raw materials sector is for the country’s finances and how important foreign expertise is. Barrick Mining has not only regained control of the Loulo mine, but the license has also been extended by 10 years. B2Gold intends to continue investing in Mali in order to expand its resource base and increase production. This is also easing investor uncertainty and encouraging renewed capital flows into the sector.
One of the clear beneficiaries of this development is Desert Gold (TSXV:DAU). In recent years, its Mali assets were largely discounted in the share price. Now the race to catch up is beginning. The company’s market capitalization remains below CAD 50 million. To reach the price target of CAD 0.43 set by analysts at GBC Research, the stock would need to more than triple from current levels. Several factors could support such a revaluation.
Over 1 million ounces of resources – and counting
Against this backdrop, it was no surprise that Jared Scharf was optimistic about the future at the recent IIF virtual investor conference. The CEO of Desert Gold emphasized two things in particular: size and location. The company has been active in West Africa since 2012 and is currently developing two large projects there, covering a total of around 740 sq km.
The centerpiece is the SMSZ project. It is located in the “Kaba” area in western Mali, one of the most important gold regions in West Africa. The gold resource already exceeds 1 million ounces, and Scharf made it clear that this was only an interim result. The zones are open along strike and at depth, and there are many more targets.
The discussion became particularly concrete when addressing economic viability and project timelines. An initial economic feasibility study is available for some of the near-surface oxide ores, and according to Scharf, the results were highly encouraging. Strong profitability was already indicated at a gold price of USD 3,000 per ounce. At current gold prices, the projected payback period would be even shorter.
Desert Gold is deliberately proceeding in smaller steps with the development. The goal is to process ore for the first time in June of this year. At the same time, a drilling program is to expand resources and extend the life of a possible operation. Following the successful financing of CAD 7.2 million, the volume was increased due to high demand, and construction of a processing plant has begun.
Diversification and takeover speculation
Scharf presented the Tiegba Gold project in Ivory Coast as a second opportunity. The concession area here covers 297 km². At the heart of the project is a gold-in-soil anomaly measuring 4.2 km long and 2.1 km wide. Although it has been identified, it has never been drilled. For the Desert CEO, this is a clear starting point for a new discovery.
Even more important for investors, Scharf positioned Desert Gold within an active M&A environment in which major producers increasingly prefer acquisitions over spending years on their own exploration. Several sizeable transactions have already taken place in Mali, including recent activity in the immediate region.
Zijin Gold, for example, has announced its intention to acquire Allied Gold for CAD 5.5 billion in cash. Desert Gold, therefore, plans to consistently “drill the best targets.” The company is financed and maintains multiple exploration opportunities rather than relying on a single discovery scenario.
Conclusion: This stock has massive catch-up potential
Desert Gold has only just begun its catch-up run. The stock still appears to be undervalued. The value of the Mali project, with resources of over 1 million ounces, and rising, is only partially reflected in the market capitalization of around CAD 50 million. The price target of CAD 0.43 set by GBC analysts appears realistic. This is particularly true once production starts. Then, takeover speculation should also kick in and drive the share price higher.
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