April 24, 2008Dwyka Offers Excellent Instruction In Value...

April 24, 2008

Dwyka Offers Excellent Instruction In Value Destruction

By Alastair Ford

Time to sell Dwyka Resources? Certainly there have been more people active in the market with that thought over the past few months than there have been people thinking about buying. What with rebels on the rampage in Burundi, a communications strategy that insults the word “strategy”, and a propensity for the shares to drift when there's no official news out and drop when there is, there haven’t been a whole lot of reasons to buy into Dwyka.

Those trading in the market agree - Dwyka’s share price has plunged a whopping 60 per cent since last summer. They’re at a lower level now than they were at for most of 2006, and all of 2005, although they’re still up around 150 per cent on where they were at five years ago. But that’s just a quirk of the chart, because this time five years ago the shares were bumping along the bottom after losing almost all of their value in the year after the company listed. Over Dwyka's short, blighted life, the company has also massively underperformed against the FTSE All-Share index. Yes, folks, more than half a decade on, we’re still waiting for the after-market support.

It seems like a distant dream now, but the first trades in Dwyka Diamonds, as it was then, went through at just under 50p. Give or take a few percentage points, the shares are worth roughly half that now. And that’s not to speak of the dilution that’s occurred over the years. Some record in the midst of the biggest mining boom in decades and for a company whose management, on paper, is extremely savvy.

So any investor who called the bottom in 2003, and bought, or who called the top in 2007 and sold, has done well. But this is not a share for Warren Buffet. Anyone who bought at virtually any other period in the company’s long and undistinguished history is underwater. Indeed if Dwyka was in Russia, there might be mutterings in the press, and in the bars of Cannon Street and St James’s, attributing the blame for this relentless destruction of value to mysterious and relentless short-selling from opaque off-shore accounts. It isn’t and there aren’t.

Sometimes, though, news does seem to hit the press early. This is strange, because the company’s nominal chief is notoriously shy of journalists by her own admission. Even the hack supporters of Dwyka battle for access, and, for once, it’s not just the fault of brokers blocking up the schedules. So in a way it’s no wonder Dwyka’s shares have dropped so much – no one outside the immediate acquaintance of the company knows anything about it. There may indeed be a counter-argument: the price of nickel has dropped since the acquisition of the Muremera nickel project in Burundi last year, and most small caps are off a bit in 2008. But surprise, surprise, no one at the company is available to present any such argument.

The main method of communication seems to be re-hashed regulatory news releases, distributed by email and issued under market regulations because the contents are deemed price sensitive. They are, but not in a positive way. There have been two such updates recently. One was two drill results from the gold exploration property in Swaziland, which in isolation are largely meaningless, although may indeed demonstrate progress. The other was an update on Muremera which repeated a claim that’s already in the market – that Muremera resembles the huge Baranga deposit across the border in rebel-free Tanzania, currently under development by “Xtrata” [sic] and Barrick.

Nice to confirm last year’s sales pitch nearly one year on, but yet again there were more sellers than buyers, and on the day the shares duly dropped by nearly two per cent. Why? Who knows? If the company does, they’re not telling us. The suspicion has to be that the news was already priced in. But perhaps it was just a general weariness about the company, and the news simply reminded some investors who’d forgott