RANGY

[Michael]

I have mentioned RANGY a couple of times as a gold/exchange rate play.

Gold is trading close to it support level and seems poised for an increase. At the same time Rand seems to be weakening. Companies that have their cost base in Rand and their revenue in Dollar will therefore benefit from both the gold increase and the Rand weakening.

But that is not the whole story and the rest is if possible even more bullish and certainly more entertaining!

Let me introduce the Kebble family. The Kebble's is one of the old Gold dynasties in South Africa. They have been running RANGY as if it was still the Family's private business alienating most of Wall Street in the process.

And finally let me introduce the $200 million (RANGY's market cap is $121) of shares in Randgold Resources that "disappeared"  and I hope I have your interest!

Rangy had a controlling post in Randgold Resources (Ticker: GOLD) until recently. The post has however been brought down during the last couple of years as Rangy has changed it strategy to become a Gold exploration and production company in its own right. Rangy has invested in a number of operation in South Africa and Angola using the proceeds from Randgold shares.

By end of 2004 RANGY had 18.4 million shares in GOLD worth at today's prices $249 million (remember that Rangy's market cap is $121 million). When GOLD filed their 20F this year it did however state that Rangy only owned 4 million shares.

So where is 14.4 Million shares with a value of almost $200. Well according to the market they have disappeared. Somehow RANGY has lost them and not received any compensation in the process. The market therefore value the company not only without the 200 Million in GOLD shares but actually even significant below the NAV of the rest of RANGY's assets. (Now this is important because even though this seems to be a very colorful investment the risk is actually relative low as RANGY's other assets is not fully valued in today's stock price!)

To fully understand the issue of the missing shares I will have to introduce the final character of this little story: Mr. Mark Bristow. Mark Bristow is a hired gun responsible for the turn around of GOLD and to take it public. He has done an absolute outstanding job making GOLD one of the most successful gold stocks around. Unfortunately in the process a very personal hate developed between the Kebble's and Mark Bristow. The Kebbles simply couldn't accept that the former puppet of  the Kebble Dynasty suddenly behaved like a independent company and Mark Bristow couldn't accept that the Kebble's tried to exercise power over the company. With this in mind it is hardly surprising that Mark Bristow would like to hurt the Kebble's, especially if he in the process could reduce their voting power in the company. Bristow therefore asked an independent consultant to establish who the main shareholders in GOLD was and the Consultant came back and told that RANGY were only controlling 4 million shares. Bristow therefore asked RANGY to produce proof of their 18.4 million shares which RANGY failed to do. (this is the short version of a very long and well documented story!)

So what happened to the shares? Did somebody forget them in the bus or misplaced them in a filling cabinet? Time for breakfast - the story about the missing shares will be in the next post!

[Michael]

So what happened to the GOLD shares?

Brett Kebble made an interview yesterday explaining exactly where the shares are:

• 6.5 million is held directly and indirectly by RANGY
• 9.9 million is lent to a black empowerment organization for the purchase of AngloAmerican shareholding in the Western Area to be returned in June 2006 (I will come back to this)
• 2 million is held in Escrow under RANGY's direction as by a vendor of an Angolan Diamond license in exchange of right of first refusal (RANGY refused and these shares should be released soon)

After the end of appartheid in South Africa mining companies are required to work with Black Empowerment organisations. That is why RANGY helped The Black Empowerment organization to finance their interest in The Western Areas. RANGY is also holding 5.3 million shares directly in Western Area's.

Western Areas own 50% of South Deep – it's one of the biggest gold deposits in the world.

The conclusion is that those shares that are not registered in RANGY's name in GOLD's book are all accounted for and will either be returned or exchanged for shares in Western Areas which has at least the same value.

You can read a good summary of the story here: http://www.resourceinvestor.com/pebble.asp?relid=11119

This article ends with a surprising conclusion:

Investor pricing suggests the Randgold stock has escaped RG&E's ownership. After all, it would be foolish and pointless for RG&E to allow an imputed $158 million in see through value to be invisible to its shareholders.

That is surprising as they have used most of the article to document the status of the shares. I was wondering why until I dug a bit deeper and found out that Mark Bristow's Randgold Resources is one of the main sponsors of the internet site. As said this story is full of hate, money and power!

So what is the value of RANGY now when we know where the GOLD shares are and what are going to happen with them? Let me take another break – the story continues!

[Michael]

What is fair value of RANGY? According to the latest report from Rangy it is 28.4 Rand per share or $4.14 with a float of 74.4 million shares.

We already know the 18.4 million GOLD shares are worth $249 million or $3.34 per share.

Rangy held a significant holding in Aflease (AFLUY.PK) which they later sold of at a profit: http://www.busrep.co.za/index.php?fArticleId=2379146

RANGY effectively owns a 45.5% interest in the Cassanguidi alluvial diamond mining venture, in the Lunda Norte area of Angola, a concession with a history of successful mining. Operations began in December 2004 following significant investment in infrastructure, plant and equipment by Randgold, and already profitable. In addition, work has started on further concessions at Luxinge and Dando Cuanza, which has several known kimberlite pipes. "Exploration and geological work is underway to develop these high quality deposits, and both concessions are expected to start producing in excess of 10 000 carats per month by the end of 2005," said Kebble. "The diamond potential of Angola is well documented and Randgold, together with its strategic partners in Angola, is ideally positioned to benefit directly in the expansion of formal mining operations in the country." 

In addition Rangy holds significants interests in the following companies:

• Anglo American Platinum Corporation Limited
• Harmony Gold Mining Company Limited
• JCI Limited
• Kelgran Limited
• Pan Palladium Limited
• Simmer and Jack Mines Limited

And then there is off course the stake in Western Areas which hold 50% of South Deep - one of the world largest gold deposit!

I have tried to estimate the value of each of these holdings (this is difficult as not all the companies are public traded!). My evaluation is significant higher than the NAV per share ($4.14)

The value is there but how should you trade RANGY?

[Michael]

RANGY's PPS today is $1.62 the NAV per share is $4.14. Having in mind that most of this value is in Public traded companies the answer to how to trade the share is easy: Buy it!

That is however too easy in this forum. No buy recommendation without a chart. As you can see below there is a strong support at 1.60. The full clarification on the issue concerning the GOLD shares should happen before July 29 as this is the absolute deadline for submitting their annual report to JSE Securities Exchange. The board has said the they are mindful of the current discount to net asset value and is examining methods of unlocking shareholder value. We might also hear more about this in the annual report!


I would say buy at around $1.6 sell at around $3.6. As mentioned there shouldn't be much downside at this level as we are trading below the NAV net of the disputed GOLD shares.

I am posting this on a Saturday so you have time to do your own Due Diligence. This is an explosive story in more than one way so don't bet the farm on Rangy but for me it seems like a no-brainer.

[cumulina]

Thank you for a very well written story - and a big applause for all the work you put into your research!

To me it looks very interesting.

I have no doubt that precious metals will go the same way as energy: Up!

Thanks again!

Cheers.

[eliteG]

I enjoyed reading that too Michael!(applaud)    You make fundamentals fun and very interesting.  I am learning a lot from you, thx.   

[Ramsburg]

Michael !
Great post ! (applaud)

I'm also learning a lot from the way you master the Fundamentals !

thanks a lot, you are really a great value of this comunity !

best regards

[stocky]

Mike I just have few words, the story you told has a potential of a hollywood thriller, atleast it will be better then the disappointing War of the Worlds. I have stopped taking any red beverege after watching aliens .....

And applaud for sharing this with us. Will keep this one on watch list.

[tommyt]

I cannot say anything that hasn't been said - extremely educational. Applauds, Applauds!

[stocky]

Mike, just wanted to know, Is RANGY traded on any SA exchanges? And if yes, then is it thinly traded there too?

[Michael]

Hi Stocky,

The main listing is on JSE where you also has more volume. You can get a quote here: http://www.sharenet.co.za/v3/quickshare.php?scode=RNG

The share price is normally a bit higher in Johannesburg (I am wondering if it is because the investor better understand the issues or if it is just because of the higher volume) but the two share prices are running in parallel in general.

[Michael]

Cumulina, eliteG, Ramsburg, tommyt and stocky thanks for the encouragement it is much appreciated.

The story behind this stock is spreading. I had the rare honor of being quoted by Cal, the founder of chartsetup today: http://chartsetups.com/forum/showthread.php?p=234#post234

Chartsetup has done some interesting charting. It is nice to see the divergence between the chart and the MACD. I have looked a lot on this chart without noticing that. (but then I am better at fundamentals than this TA stuff!)

[JVC689]

I have both RANGY and GOLD and GOLD is in the green with RANGY in the red. I am grateful to learn the story since I thought I had selected 2 value plays in gold.

I am seriously considering selling some of my GOLD to buy more RANGY.

Thanks,

John

[Michael]

Hi John,

It seems we at least can agree on the gold stocks 

I hope you hold up your purchase of RANGY. Yesterday was not a good day for the stock.

I have the feeling that the fall have more to do with the change of ticker to RANGE than any fundamental changes.

The news after close on Tuesday at least seems to be positive:

RG&E EXPECTS TO FILE NASDAQ DOCUMENTS SHORTLY
                                   
Brett Kebble, chief executive of Randgold & Exploration, said today that it is 
working towards filing outstanding documentation as required by NASDAQ         
requirements.
                                                                   
Kebble said that because of late reporting by some of the entities in which the
company had invested outside South Africa, RG&E had been delayed in preparing   
statuary information required by NASDAQ.

                                       
"We are aware that we are late in filing a Form 20-F but the problem is now     
almost resolved," said Kebble. "RG&E has been unable to complete its financial 
statements for the year ending 31 December 2004 because it has been unable to   
gather all the information it needed from some of its investments in Africa. Our
accounting team has worked hard to gather the outstanding information and hope 
to finalise as soon as possible.  We intend to seek a hearing with NASDAQ, in   
terms of the exchange"s procedures." 

I will try to buy more today.

[stocky]

RANGY changed to RANGE?  What I know is that 'E' is slapped for late filling of reports. May be Mike have some info