To The Moon

Summary

• Dakota Gold Corp. receives a "Hold" rating for its shares.
• The company is focused on reviving the Homestake Mine in South Dakota, which has a history of significant gold production.
• DC has promising exploration projects and the potential for revitalizing significant gold production, positively impacting the share price.
• The outlook for gold prices is great.

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A Hold Rating for shares of Dakota Gold Corp

This analysis confirms the rating from the previous article and therefore reassigns the “Hold” rating to the shares of Dakota Gold Corp. (NYSE:DC).

Dakota Gold Corp., hereafter “DC”, is a South Dakota-based gold exploration company attempting to revive the Homestake Mine, the largest and deepest underground mine in North America, which has been closed since 2002. The land on which the Homestake mine is located - the mining district of South Dakota - is known to have produced a gigantic amount of gold production for more than 125 years, yielding more than 40 million ounces of the precious metal, which contributed significantly to the United States Treasury. Thanks to permits to drill over ~48,000 mineral acres in a Tier 1 jurisdiction, since 2022, when the exploration team is operational, the DC stock has the opportunity to benefit from mineralization results with significant upside potential, as these are from a famous gold area in North America.

Source: Dakota Gold Corporate Presentation May 2024

The company has cash of $25.5 million and is looking to fund exploration activities in 2024, for which there are planned expenditures of approximately $30 million. It is thus not excluded to raise capital through the issue of new shares on the stock market until the loan capital becomes cheaper.

As will be detailed later, the gold price appears to have everything it needs to remain supportive, and coupled with DC's drilling results, there will be no shortage of upside opportunities for the share price. But before the stock price rises further, according to this analysis, there is space for a healthy pullback as the Fed delays its rate cuts in the face of stronger-than-expected inflation and a high-yielding environment doesn't bode favorably for gold and gold-backed securities including DC.

After the Last Analysis: What Happened

The previous article suggested that Dakota Gold stock would benefit from a sharp rise in the price of gold in 2024 as investors would consider the idea of ​​investing in physical gold to protect themselves against a deterioration in the economy. The previous analysis also assumed a neutral stance in trading the DC stock before the rise in gold prices. Given the uncertainty surrounding the Fed's March rate move, this phase has indeed occurred, albeit with some declines along the way. While not attractive, like the 52-week low of $1.95/share intraday on February 22, the declines the stock had on March 5 and 18 were perhaps interesting enough for some to see them as an opportunity ahead of the share price rally. Indeed, following the neutral stance with some perhaps interesting declines in it, this is what happened: Supported by a strong ≈15% rise in the gold spot price (XAUUSD:CUR) to $2,343.58/oz as of this writing from $2,045.46/oz at the time of the previous "Hold" rating, the market price of DC shares rose by ≈45% and topped the S&P 500 change of +3.56%.

What drove gold prices up so fast: After another fresh weekly record that around the end of March 2024 brought gold prices close to their best monthly gain since October 2023, the mystery surrounding the factors that enabled the sharp rise was later revealed. After profit-taking by traders speculating on expectations of a rate cut by the US Federal Reserve, the curtain finally lifted, revealing the solid footing for an expected further rise in the price of gold, as demand for gold remained resilient despite the loss of importance of the Fed's next move on interest rates. Heading into 2025, “a potential recession scenario” with the start of a Fed rate-cutting cycle was seen, giving a boost to US investors already trying to catch up with demand from physical consumers in China and central banks. These overseas investors bought gold as a safe-haven asset against risks threatening their economies, including geopolitical tensions. Subsequently, with some technical breaks in between, the price of gold continued to rise, reaching an all-time high of ≈$2,450/oz around mid-May 2024, as the Fed pivot on interest rates and geopolitical tensions were pointed to as reasons for increased demand for gold as a safe-haven asset against what these events would represent for the economy, namely headwinds.

The Outlook for the Gold Price: The Opportunity for Upside From Macroeconomic and Geopolitical Factors

Further upward pressure on the price per troy ounce (or oz) is likely to lie ahead, as many analysts, led by Chris Gaffney, President of World Markets at EverBank, expect that following last year's 20% increase in the price per ounce, geopolitical factors with the risk of an escalation of the Gaza crisis and macroeconomic conditions including sharp interest rate cuts and a global economic slowdown will continue to drive demand for the yellow metal as a portfolio hedge or as an alternative to fixed income securities such as U.S. Treasuries.

Short-term declines in gold prices are always possible, as new readings in the Federal Reserve's (or Fed's) preferred PCE inflation measure - an indicator of the Fed's next interest rate move - occasionally catch traders' attention. The possibility of ending the Fed's policy of keeping interest rates elevated for an extended period depends on the development of the disinflation process. A rate cut when the PCE finally convinces the Fed of disinflation will have a positive impact on the price of gold, as the option of holding non-income-bearing gold instead of interest-bearing U.S. Treasuries becomes more affordable. As illustrated earlier in this analysis, as a benchmark for the onset of economic recession, the Fed's pivot on interest rates stimulates demand for gold as a portfolio hedge as momentum builds heading into 2025. However, traders' primary focus remains on ongoing tensions in the Middle East, as these geopolitical factors are also driving demand for gold as a portfolio hedge, leading to an uptrend in the metal's price.

Regarding the possible macroeconomic scenarios, more specifically, as long as the Fed keeps interest rates on federal funds at a high level, the negative effect on consumption and investment increases the risk of an economic downturn. Given the devaluation problems that could arise in the event of an economic slowdown, demand for gold as a safe-haven investment remains promising in the future. A slowdown isn't the only possible scenario to mention either, as there are analysts like those at Citigroup Inc. (C), which still sees signs of a scenario where the Fed proceeds with interest rate cuts and economic growth remains strong, which would essentially lead to a soft landing. While anything is possible, including the soft-landing scenario, it doesn’t seem actually that the economy is on track to remain resilient despite the burden of high interest rates and increased inflation. In our opinion, the situation currently looks very different from a soft landing, as the following economic indicator also suggests: Trading Economics reported on May 28, 2024, that: The University of Michigan's US consumer sentiment index is at a six-month low, reflecting inflation expectations for the coming year, which remain at a six-month high, and a particularly sharp decline in the economic outlook for the coming year. Consumer sentiment has also deteriorated due to an outlook of persistently high interest rates and gloomy labor market conditions amid expectations of rising unemployment, a slowdown in income growth, and persistently high interest rates.

Now one thing is sure: Both scenarios include rate cuts, as PCE is unlikely to convince the FED that it is returning to the 2% target if the economy is not slowing down. Remember, the goal of aggressive monetary policy is to slow consumption and investment to reduce inflation.

This analysis believes there should be a chance for a positive effect on the share price from a higher gold price combined with DC's exploration results.

Dakota Gold wants to revitalize the Homestake Mining District

Dakota Gold Corp. intends to revitalize the Homestake District of South Dakota and operates four permitted drill rigs on over 13,000 acres of private land, but there is the potential to conduct exploration activities on 46,000 acres with key project areas defined by specific agreements with Barrick Gold Corporation (GOLD) (ABX: CA).

Source: Dakota Gold Corporate Presentation May 2024

The mineral exploration projects are being conducted on the Maitland Gold mineral property, where Dakota Gold is targeting the JB Gold Zone and Unionville Zone discoveries on 2,112 acres acquired from Barrick Gold in 2020. Dakota Gold is also exploring the Richmond Hill Gold Project on 2,749 hectares of private land adjacent to the Maitland Gold mineral property.

The Maitland Property: a Growing Opportunity to Exploit two Mineralization Styles

On the Maitland property, after an initial phase of drilling, the exploration team is now carrying out a second phase of directional drilling to halve the distance between the holes, which began in the third quarter of 2023; more than 130,000 feet have been drilled to date.

The company's latest May 2024 investor presentation indicates that drilling activities are uncovering a style of mineralization increasingly similar to the prolific Homestake Mine gold mine on the Maitland property, with the potential to build a significant gold production at Maitland in the future.

Source: Dakota Gold Corporate Presentation May 2024

Following encouraging drill hole results in the JB Gold zone, the exploration team can now expect a gold deposit extending beyond the rosy indications from hole MA23C-026 highlighted in the previous article.

Not only is there potential for gold deposits similar to the Homestake Mine – West Ledge producing 6 million ounces or more of gold, but also mineralization at an even higher grade than the ~0.09 oz/t Au cut-off (or 2.74 grams gold per tonne of ore) from West Ledge, and the deposit is at a shallower depth than the upper part of the West Ledge system from explorations at Homestake, according to the expertise of James Berry, Vice President of Exploration for Dakota Gold. Given the huge potential that could be unlocked by further exploration activities through ledges, the results could have a very positive impact on the share price.

In addition to the Homestake Mine-style formation that the JB Gold Zone discovery increasingly appears to have, the Maitland Project also includes the discovery of the Unionville Zone, which is Tertiary epithermal gold mineralization containing a mix of oxide and sulfide mineralization. The Unionville Zone gold deposit has a strike length of approximately 4,000 feet (or approximately 1,280 meters) but is open to the north and south and could be extended to over 10,000 feet (or approximately 3,200 meters) with further exploration. Following encouraging assay results from drill holes MA23C-011, MA23C-012, MA23C-013, and MA23C-014, as highlighted by the previous article, additional drill hole assays continue to deliver well in terms of continuity of the Tertiary epithermal gold mineralization in the Unionville area. This zone of shallower mineralization continues its exploration path towards a deposit with robust economics and as drill results come in, not only does the tertiary mineralization gain momentum, but so does the project to one day exploit Precambrian Homestake Mine style mineralization through deeper development.

As exploration progresses, access to two different types of mineralization at Maitland will become increasingly possible, leading to strong share price support going forward.

Richmond Hill Gold Project: Resource Update Mission

Drilling at the Richmond Hill Gold Project on 2,749 acres of private mining is targeting two separate zones known as the Richmond Hill Breccia Pipe and the MW3 Zone, but higher metal concentrations have also been encountered outside known historical boundaries.

Source: Dakota Gold Corporate Presentation May 2024

Drilling in the Richmond Hill Breccia Pipe is designed to test for mineralization in under-explored areas. As these zones have continuous mineralization and at times significant high-grade mineralization, exploration activities in these areas offer significant upside opportunities for the share price going forward.

Drill holes in the MW3 zone indicate the presence of high-grade mineralized structures. Exploration here is aimed at expanding historical resources in an area that remains open along strike and at depth.

Historical databases of gold assay results, including those from the company's pre-October 5-2023 drilling in the Richmond Hill Breccia Pipe and MW3 Zone of the Richmond Hill Gold Project, were used to update Richmond Hill's maiden resource estimate S-K 1300, released on 30 April 2024:

Source: Dakota Gold Corporate Presentation May 2024

Richmond Hill's maiden resource initial assessment estimates 1.33 million ounces of indicated resources grading 0.80 grams of gold per tonne of mineral (or "g/t Au") and 1.13 million ounces of inferred resources grading 0.61 g/t Au. As the resource appears to be high grade in terms of mineralization and open in all directions, there is great potential for improvement as further drilling is carried out as well as other mineral activities, including metallurgical test work to improve metal recovery rates.

Backed by higher gold prices, the initial assessment of Richmond Hill's maiden resource has boosted DC's share price by over 10%. DC is aiming for Richmond Hill's maiden resource estimate refresh in mid-2025.

Share price: Possibility of a Lower Level

At the time of writing, the stock price was $3.08 per share, giving it a market cap of $265.76 million. The stock is trading at high levels relative to recent trends: the stock price is much closer to the upper limit than the lower limit of the 52-week range of $1.95-$3.45/share. Shares are also well above the MA Ribbon.

Source: Seeking Alpha

In addition, the 14-day Relative Strength Indicator (or “RSI”) shows a value of 61.34, which indicates that the scope for further upside is less than the scope for a decline. With all the upside catalysts described above, shares are poised for higher levels than current ones, but with the downward pressure from the cooling gold price, shares are expected to pause and offer more attractive levels first. So, the “Hold” rating here is assigned in the sense of waiting for these lower levels, but it might take quite a while before they show up as the stock price is still trading in the upper part of the cycle. For the time being, the investor should maintain their position, also because the outlook is promising, given that there is no reason why DC's exploration projects should not continue to work towards the goal of installing gold production one day, and revitalizing the glorious Homestake Mine district. Moreover, due to the high demand for gold as a portfolio hedging strategy, there is a greater chance that the gold price will continue to uptrend.

The following will provide the necessary headwind for short-term downward pressure on the gold price and given the positive correlation between the two securities, on the DC share price as well. The Fed will not cut rates in June or even in late summer/early fall, but probably much later, in 2024. It is known that people tend to spend more money when they are on vacation, and this will affect inflation - the Fed's preferred gauge for the interest rate decision - as the holiday summer season begins. In addition, people also have to bear various costs when they come back from vacation, such as bills and school expenses for their children. As Fed Chairman Jerome Powell said, the central bank is in no rush to cut interest rates. New York Federal Reserve President John Williams was also of the same opinion recently. The ongoing moderate slowdown in inflation may be tested by the next summer holiday spending, and perhaps for this reason the Fed may be willing to wait to assess whether further "higher-for-longer" interest rate policy is necessary. Therefore, investors may want to continue to hold their DC shares because, as this analysis shows, the growth prospects for their investment remain solid and the stock could reach higher levels. Until then, however, the shares will face pressure to move lower through the cycle.

Additionally, the average volume of DC stock is 198,195 shares traded in the past 3 months. Scroll down this Seeking Alpha page to the “Trading Data” section to view it. Therefore, the DC stock is a low-liquidity stock, and investors should not have too large a position, otherwise, it will be difficult for them to reduce it accordingly if the circumstances of rapid bearish momentum require it.

Conclusion

Dakota Gold shares could benefit from the gold price, which has a positive outlook heading into 2025, as investors are expected to flock to gold as a safe-haven asset to raise barriers against the risk of economic downturns and geopolitical tensions.

Dakota Gold's share prices tend to track the spot price of gold closely, amplifying the gains of the metal as year-to-date trends have shown.

But in the near term, under the pressure of the Fed delaying rate cuts amid stickier-than-expected inflation, DC shares could form a lower and more attractive price as the gold price does not like the high-interest rate environment.

Although Dakota Gold Corp is not yet a producer, the market can still strongly identify this stock with the yellow metal, as the company is an explorer in the Homestake Mining District, thus contributing to positive sentiment for its shares during bullish gold. The Homestake Mining District has historically been a major supplier of the yellow metal to the US Treasury and could return significant ounces if revived.