Dakota Gold (NYSEAMERICAN:DC) is a newly trading company that has generated some excitement. Volume for DC stock has been elevated in recent days. The company formed as a merger of JR Resources and Dakota Territory Resource. The newly formed company uplisted to the NYSE American stock exchange from the OTCQB, which is an improvement in terms of credibility for a firm. That said, there’s still not a lot to go on in terms of evaluating Dakota Gold’s prospects.
The biggest sticking point with DC stock is simply that it has no revenues yet. The company doesn’t have any gold-producing operations, as it is still in the exploration stage of its gold business. The company is focused on the Homestake mining district in South Dakota. This has historically been an area that has produced a significant amount of gold. It seems plausible that Dakota Gold may be able to find more gold prospects in this area and eventually turn it into a working operation.
For now, however, there’s simply not enough information to know whether this business plan will amount to much or not. Meanwhile, the valuation is already assuming some great things ahead of Dakota Gold. As of March 31, 2022, there were 70.8 million shares of Dakota Gold stock outstanding.
This means that, at a $4 stock price, people are assigning a roughly $280 million valuation to a firm with $47 million of cash as of its last quarterly report. Given the lack of any current gold production and the highly uncertain timeline to any future gold sales, this sort of exploration firm typically doesn’t sell at that much of a premium to its cash balance. That could suggest significant downside for DC stock in the weeks and months ahead.
There’s an understandable case for owning gold and precious metals now. Geopolitical uncertainty is elevated. Inflation is out of control. Interest rates are soaring. It’s a wild macroeconomic environment. That all might make gold an interesting investment opportunity. But most traders would probably be better suited owning a gold firm that is already producing metal and generating profits rather than a highly speculative exploration company.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.