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Tembo Gold and Barrick in High Stakes Search

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Barrick Gold Corp (TSE:ABX, NYSE:GOLD) and Tembo Gold Corp (CVE:TEM, OTCMKTS:TBGPF) have much in common yet are wildly distinct.

Tembo Gold, with a market cap of $20 million, is classified as a junior gold exploration company, while Barrick is the largest gold producing company on earth by ounces produced, with a market cap of $35 billion (Newmont Mining outsizes it in terms of revenue from gold production.)

So how is it that this David and Goliath are paired as allies?

Barrick Gold presentation slide outlining the partnership with Tembo Gold

They are exploring the same property as partners in one of the world’s most prolific gold-bearing regions of Africa – The Lake Victoria Goldfield.

Barrick’s success here is already a matter of historical fact. It produced 171,000 ounces of gold at its 100%-owned Bulyanhulu Gold Mine in 2021 at a cash cost of US$709 per ounce. In 2022, the company expects to produce] 180,000 to 220,000 ounces of gold.

But there is a challenge here for Barrick.

At this rate, the mill will consume the remaining 2.5 million proven and probable ounces relatively quickly. Which means it needs to find more ounces.

Tembo Gold, led by former Barrick alumni David Scott, just happens to have the land contiguous with the Bulyanhulu project directly to the east, and the geology is analogous to the Bulyunhulu geology.

So, unsurprisingly, Barrick purchased a 100% ownership interest in six of Tembo’s non-core prospecting licences and is now drilling those while Tembo is actively drilling on its core holdings.

Thus we have two very different scale companies pursuing the same objective simultaneously in the same place.

That convergence of circumstances couldn’t be more bullish for risk-tolerant investors in Tembo.

You see, the value creation stage of all junior gold companies occurs during the discovery phase of the company’s evolution. We already know from Tembo’s 2012 drill program that the gold mineralization that underlies Bulyunhulu extends onto Tembo’s ground.

So it’s really just a matter of how much, as opposed to if, there is gold on the Tembo ground.

And here’s the kicker for investors in Tembo that sets it apart from other gold juniors in the quality gold junior universe: if Tembo makes a discovery, Barrick is a likely buyer.

If Barrick makes a discovery on its now 100%-owned Tembo Gold prospects, Barrick is likely a buyer. Because the prospects that Tembo sold to Barrick were not the ones where gold had already been confirmed.

So the reality that assures investors in Tembo a good night’s sleep while this story at the tip of a drill(s) unfolds is that discovered ounces will have a lower threshold of economic viability to prove since the mill at Bulyunhulu provides 100% of the infrastructure required to produce those ounces.

Ergo, any major drilling success on Barrick or Tembo’s behalf is likely to have a decidedly uplifting effect on the share price of Tembo. Though, of course, this is dependent on a continuing robust gold price.

Price of Gold vs Value of Gold

Here’s an interesting thing about the price of gold that is utterly lost on analysts, bankers and investors across the board.

The price of gold today does not reflect the value of gold today.

That statement can be regarded as nothing more or less than opinion since the future price of gold isn’t here yet.

But here’s one thing you test for yourself to prove that this statement is true: go down to your local gold and silver bullion shop and try to buy one ounce of gold at whatever the daily quoted price is.

It won’t happen. It can’t happen.

Because the value of gold at the dealer is always higher than the quoted spot price. And as for the futures price of gold? Don’t even get me started on the historical disconnect between the futures price from the spot price.

Chart showing gold bullion trading as high as 25% higher than the quoted daily spot price of gold.

Current Economic Environment Portends Higher Gold Prices

During the financial collapse at the end of 2008, gold plunged to below $700 as the panic took all asset prices lower. But then, as the scope and scale of the damage to the economy became apparent, gold raced to $1900 an ounce by 2012, out performing every other asset class in that timeframe.

With recession only kept out of mainstream media’s woefully inadequate financial vocabulary by the Powers That Be’s decision to redefine the term recession, the current recession now entering its fourth consecutive quarter is likely to catalyze a greater appreciation for the discrepancy between the quoted price of gold and the actual cost to acquire an ounce of physical gold.

And unlike Bitcoin and the whole sordid crypto Ponzi scheme now demonstrating rather spectacularly the unsuitability of its monetary application, and with inflation conveying to anyone who can fog a mirror that the purchasing power of the sovereign dollar in their bank account is plunging rapidly, we are entering a perfect storm of gold price catalysts to the upside.

So while gold is starting to once again outshine any other asset class as a store of value as it has done for 5,000 years, Tembo Gold and Barrick Gold will go about the business of finding more gold to the benefit of their prescient shareholders.

I, of course, am compensated to produce content favourable to Tembo Gold, but it is a true blessing of the universe to be able to write about what one believes in so honestly. Makes the job kind of easy.

Original article: Tembo Gold and Barrick in High Stakes Search

©2022 Midas Letter. All Rights Reserved.


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