3SOF

Profile: DRDGOLD Limited (DRDGOLD) operates gold mines in South Africa and Papua New Guinea. In South Africa, DRDGOLD has an 85% interest in DRDGOLD South African Operations (Pty) Limited (DRDGOLD SA). DRDGOLD SA wholly owns and operates the Blyvooruitzicht Gold Mining Company Limited (Blyvoor) East Rand Proprietary Mines Limited (ERPM) gold mining operations and the Crown Gold Recoveries (Pty) Limited (Crown) surface re-treatment operation. In Australasia, DRDGOLD has an interest in Emperor Mines Limited (Emperor Mines), which owns and operates the Tolukuma gold mine in Papua New Guinea (PNG) and the Vatukoula gold mine in Fiji. Emperor Mines also has a 20% stake in the Porgera Joint Venture in PNG
Website: http://www.drdgold.com
Market Cap: $287M

Comment:
DROOY has a difficult long term chart, with a clear downtrend, but a lot of volatility and interesting moves in the middle… With the recent Gold rally into new highs, DROOY is already up almost $4 since August lows, breaking out a strong descending resistance, then consolidating a few days below the EMA-200 and now up again into new relative highs with increasing volume, the overall pattern looked like a Bump and Run Reversal Bottom, which is a very strong technical pattern...

The stock has a resistance slightly ahead at $9.40, but after that there is only one price reference at $13.30… This is a dangerous speculative stock, with poor fundamentals but this chart is quite interesting at least for the short term…

Regards

It took me a couple of hours to fully understand what's going on with DROOY and now I don't have much time to pass the information on to you, so I'll try to summarize why I'll add DROOY to the Main around today's open:

1 - DROOY sold off its Australasian operations, which were losing money ever since they started. This strengthened the balance sheet and put management's focus in the company's South African core mines.

2 - DROOY is an unhedged South African gold producer. The company wasn't particularly efficient and has been losing money over the years, because it's total cost to produce an ounce of gold has been around $600 oz. It was $584 per oz in Q3 2007. So, with $GOLD around $600, DROOY was at about breakeven, so the business wasn't worth much.

But with gold at $900 oz the company will be very profitable, earning $300 plus per oz of gold produced in gross profits.

I need to send today's newsletter quickly, so let me just tell you this: I made some calculus and considered all the company's various costs and with gold at $900 I see 2008 EPS of $1.71. This estimate puts DROOY trading at 6 times forward EPS while the Gold group trades at 46 times EPS.

- Production at the company's South African mines has been increasing lately, as you can see in the latest earnings release.

DROOY has been rising rapidly and today it is already up about 5% in the pre-market and that looks like a breakaway gap to me.

The Trading Plan is: BUY DROOY, 6.66% of capital.

This one i like. Thanks for the insight.

David,

 How does DROOY's cost of mining gold per ounce compare with its peers? The reason I am asking is that if it's higher production cost can limit its competitiveness, what will happen if the gold prices decline from present values?

Thanks,
Berloga.

Although i still have a lot to learn,I have to ask. With all the futures way down premarket,what was the big hurry to buy this one?

Quote from: soxguy on January 15, 2008, 11:47:24 AM
Although i still have a lot to learn,I have to ask. With all the futures way down premarket,what was the big hurry to buy this one?

Gold stocks are on fire these days and heading north .. Gold reached $900 or the first time

I realize gold is the place to be right now. My point is this morning,if you want to cross the street and big truck is hurtling towards you,maybe it's better to let it pass before you cross,that's all.

Theme for 2008 is pretty clear:

1. Long GOLD (miners)
2. Short OIL (DUG)
3. Short CHINA (FXP)

And maybe short Solar / alt energy

Rest in cash.
Good luck all..its been brutal out there.
Nick

Quote from: nicknite20 on January 15, 2008, 10:19:44 AM
This one i like. Thanks for the insight.

You're welcome

QuoteDavid,

  How does DROOY's cost of mining gold per ounce compare with its peers? The reason I am asking is that if it's higher production cost can limit its competitiveness, what will happen if the gold prices decline from present values?

I don't have time for the exact numbers now Berloga, but it compares poorly. This is why DROOY has a price to sales ratio of 1.46 while a low cost producer like GG has a price to sales ratio of 15.

If the gold price declines from the current $900 oz to, say, $300 oz in a couple of years time DROOY will lose money and the share price will go down.

Quote from: soxguy on January 15, 2008, 11:47:24 AM
Although i still have a lot to learn,I have to ask. With all the futures way down premarket,what was the big hurry to buy this one?

You're right, I shouldn't be in a hurry, but not because of futures, since DROOY was up 50% in a couple of weeks while the general market went down sharply, so the two actives are not positively correlated. The stock could very well go up 10% yesterday while the SPY fell 2.5%.

Quote from: soxguy on January 15, 2008, 05:31:03 PM
I realize gold is the place to be right now. My point is this morning,if you want to cross the street and big truck is hurtling towards you,maybe it's better to let it pass before you cross,that's all.

Indeed, instead of a breakway gap DROOY reacted badly to the $10.3 resistance level. But I thought it would happen differently and the S&P futures aren't a factor, since the two things aren't correlated. I was wrong.

Quote from: nicknite20 on January 15, 2008, 05:40:10 PM
Theme for 2008 is pretty clear:

1. Long GOLD (miners)
2. Short OIL (DUG)
3. Short CHINA (FXP)

And maybe short Solar / alt energy

Rest in cash.
Good luck all..its been brutal out there.
Nick

I disagree with these themes or shorting any stock in general. If you want to win when stocks in general go down go trade futures ... stocks have too much company specific risk to be shorted and shorting stocks is a losing money proposition over the long term, in my view.

But I respect your view and welcome that you share it with us, thanks

With all this I have 6 minutes to send today's newsletter and don't have time to explain how come I see $1.71 EPS in 2008 for DROOY if gold averages $900 oz.

I'll just send the newsletter now, have a coffee and then I'll come back to write the explanation with more time while the market is open.

I'll keep holding DROOY for the long term.

David,
I was suggesting shorting via Proshares..DUG is the ultrashort OIL & FXP is the ultrashort China..probably stating the obvious.
Picked up some DROOY sub 9 today
Nick

QuotePicked up some DROOY sub 9 today

Nice entry Nick

Ok, let me explain how I got to the $1.71 EPS for DROOY in 2008.

DROOY has three mines in South Africa (the continuing operations) which are Blyvoor, Crown and ERPM. In Q3 2007 the three mines produced 89,157 oz of gold which was sold at an average price of $693 an ounce. The cash operating cost of producing an ounce of gold, on average, was $584.

I consider that:
- Production will stay the same, at 89,157 oz per quarter;
- Cash operating cost stays at $584 oz;
- Other costs will remain at around $9 M a quarter;
- Price of Gold will average $900 oz in 2008.

((((89,157*$900) - (89,157*$584) - $9,000,000))/37,520,000)*4 =  $2.04 EPS in 2008.

Ok, I forgot taxes, this is why I get an higher than the $1.71 EPS I talked about earlier. This is because I don't know about South African law and to what extent DROOY won't have tax benefits in 2008 for all the losses it had over the years.

So I figure that with $GOLD averaging $900 oz, DROOY will earn about $0.5 per quarter, if everything stays basically the same.

But there are some clues that the future can be better than the recent past:

«Looking Ahead

Continuing improvement in the performance of our existing South African operations (covered in greater detail later in this report) points to the success of our ongoing programme to stabilise these operations. Further, it reinforces our decision to exit from our Australasian interests and to 'come home', so to speak, and focus all of our resources here.
Work on our Ergo Mining Joint Venture with Mintails SA ("the Ergo JV") continues apace, with recovery of slimes from the Elsburg Tailings Complex and retreatment through the refurbished Brakpan plant at an initial rate of 1.25 million tons a month expected to yield some 200kg of gold a month when the project gets underway. The boards of the partners in the Ergo JV have approved a capital investment of R400 million, with excellent prospects for further growth from gold, uranium and sulphuric acid production.

On the matter of uranium, we report elsewhere in this document on our declaration of a 17.5 million lbs uranium resource for our Blyvoor tailings dams, coupled with a 0.8 million tons sulphur resource and a 236% increase in the mine's surface gold resource to 1.69 million oz, and on additional exploration programmes under way at our other operations to further define and quantify our uranium potential. Encouraging updates are also provided on our underground exploration activities and project developments. With the Australasian exit now complete, I am confident we have all of the resources – a good mix of assets above and below ground, enthusiastic executive and management teams and a robust balance sheet – to position us well to establish a solid home base.

JOHN SAYERS
Chief Executive Officer

1 November 2007»

I'm still not aware of what's the story with DROOY and Uranium, besides knowing that uranium has been hot in the market.

But even without all this "new activity", just the increase in the $gold price from around $600 to  around $900 completely changes the profit outlook for DROOY, and hence, its share price.

With $2 EPS, if DROOY were to trade at 20 times earnings (which would still be less than half of its peers), it would then be a $40 stock.

I'll hold DROOY.

  applauds David

update from other stock board:

This looks like is is now forming the right side of the CUP WITH HANDLE FORMATION.  Big change in character last Sept when the price made a big move.  Based for 5 months and allowed the Moving averages and tech charts to get in alignment, and now another big move.  20day over the 50day over the 200day MA!

Stock down big in pre-market. Any1 know whats the reason??

Quote from: nicknite20 on January 25, 2008, 08:55:33 AM
Stock down big in pre-market. Any1 know whats the reason??

I can't find any news nicknite20 ... and $GOLD is up again today, to $917.5. Could it be that, as the stock rose 17.5% yesterday, people are taking profits today and hence selling it down 11% in the pre-market?

I'll keep looking for any news, maybe something out in South Africa, or related to the Rand?

I don't know, but with $gold at $900 plus I see DROOY's 2008 EPS at $2 plus, so if I'm right the stock is incredibly cheap and can only go up.

South Africa turns off power to miners, sending gold rallying
9:14a ET January 25, 2008 (MarketWatch)
LONDON (MarketWatch) -- South Africa's leading miners halted operations on Friday, sending gold futures into uncharted territory, after the companies agreed to curtail use of electricity as the state-run utility struggles to generate enough power to meet the country's needs.


Is this a buying opportunity maybe? As the disruption would probably be temporary??
Talk abt sovereign risk affecting investments !!!
Nick