DROOY Durban Deep- Best S. African Mine Message Board

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Gold/Mining/Energy : DROOY Durban Deep- Best S. African Mine

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To: POLARBEAR who wrote (519)	5/6/2000 4:18:00 PM
From: baystock	Read Replies (2) of 851

Thanks for that post. I thought the following exerpt from the article was especially significant: <<MARK WELLESLEY-WOOD: In layman's terms, DRD is becoming a less risky investment. We have now got a lower cost base, we have ended our major capital programmes, costs will be coming down to $230 an ounce in the foreseeable future, so our margins will be better, our finances will be stronger, and going forward we have a number of opportunities now which we can turn to account.>> If they are successful in lowering their cost base to $230, it would mean that they wouldn't need to rely on hedging anymore, since they would be generating adequate cash flow even at current POG. Looking at their most recent march quarter results, it looks like their Hartebeestfontein operation with annual production of over 500K oz has already reached this target with a cash operating cost of $215 per oz. Their Dome purchase will soon account for another 100K oz at around $170/oz. And their Blyvoor 2000 project is targeted to double underground production within the next year at a target cost below $212/oz (45,000 Rand/Kg). Undergound production from the Blyvooruitzicht & Doornfontein section is current 160K oz/yr. So I think this means they will be producing 300K oz/yr when the Blyvoor 2000 expansion is completed. So between these 3 operations we are already talking about 900K oz/yr with weighted average operating costs of $210/oz. So assuming they break even on their remaining operations, we are looking at $60 million per year in pretax cash flow or $40 million in after tax cash flow per year one year out from now and at POG of around $280 per oz. So at their current price per share of $1 1/8 they are selling for around 3 times expected cash flow one year out, when they are fully done with their restructuring. This tells me that there is no more downside in this stock and the upside at $400 POG is that DROOY will be generating $1 per share in cash flow just from these 3 low cost operations alone. Their remaining high cost operations with another 500K/yr of production will also become profitable at $400 POG and add another 60 cents or so per share. So at $400+ POG we are looking at a share price north of $10 if one assumes they are 1/3rd hedged and north of $15 if they are zero hedged. Unfortunately the hedging clouds the picture because they are effectively zero hedged the first year out starting this July and 1/3 rd hedged the year after that. Any criticism of this analysis is welcomed. Ram

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