More on DROOY
Dr. Clive Roffey
Since the ridiculous sell off in the share price of Durban Deep in the US last week the gold price has topped $400 and the Rand weakened to R6,55 against the dollar. I have always detailed in my analyses of DROOY, and all South African gold stocks, that the rand price of gold is the most important factor.
The sell off occurred because of the bad June quarterly results from the main South African operations. But once again this data was not put into a true perspective as it was automatically assumed and widely published that the September quarterly results would be even worse with the more irrational commentators forecasting closure of the mines.
Let's first look at the critical chart, the rand price of gold.
In my last article on DROOY I gave a full analysis of this chart, its buy divergence, potential upside break of the down trend. Since then the price has rocketed from R2 400 an ounce to R2 650 an ounce. This translates into a move from R77 000 a kilo to R83 500 a kilo. This is extremely important.
Durban Deep's gold production consists of three segments. Last quarter the ERPM / Crown Mines contributed of 784 kilos at a cost of around R71 000 a kilo. The main South African mines produced 4114 kilos at a cost of R93 000 a kilo and the Australasian operations mined 2208 kilos at a cost of R76 000 a kilo. All analysis focused on high production cost of the South African operations and it was automatically assumed that this was a disaster area that was beyond redemption. This emotional over reaction does not address the potential rise in the rand price of gold.
When we average out the total production costs for the whole group it comes to around R85 000 a kilo. At the recent price level of R77 000 a kilo this was certainly a major loss making situation. But the actions of the past week of a weakening rand coupled with a gold price above $400 has pushed the rand cost of gold up to R83 500 a kilo. This is very close to the overall break even costs of the DROOY group.
But the crux of this analysis is that I expect to see the gold price at around $430 in the near future with a continued weakening of the Rand to at least R6.85 and probably R7.35 to the dollar. This would push the rand price of gold well above R90 000 a kilo and into serious profitable areas for DROOY.
I continue to believe that last week's price collapse was an emotional over reaction that failed to look at the potential of the rand price of gold that I have continuously detailed in all my articles.
I rate DROOY as a totally under priced stock based upon my expectations for the potential rise in the rand price of gold. Once the gold price moves above R88 000 a kilo every man and his dog will be a buyer and the panic sellers will rue their actions.
Dr. Clive Roffey
Gold Action
[email protected]
17 August 2004
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dub. (disclosure JFI - I sold 1/2 of my DRD holding last month taking a slight loss. If I bought back in now I'd be in front - but alas I can't. I put the money into HLX. But I'm okay with that.)
DRD
drdgold limited
