IMO, a merger between DROOY and RANGY would be unfavorable for DROOY unless RANGY first sold of Morilla and distributed its cash to shareholders.
Here are 2 good DROOY posts from Gold-Eagle:
New DROOY report by Merril Lynch
(Flambeur)
Jun 20, 17:22
Actually, I find the ML report on DROOY kind of
interesting. It shows the price/bookvalue is 0.79. This
is also referred to as Tobin's Q. When this ratio of the
share price value of a company and the value of its
existing properties is less than 1, this indicates the
company is undervalued and is therefore ripe for a take
over. Moreover, the P/E ratio for 2001 and 2002 will be
in the 5 - 6 range. This is LOW. Moreover, the low share
price suggests the company is not correctly valued. This
could be for a number of reasons.
The report actually hints at these. It says the
financial track record over the past couple of years has
been poor. This is most likely due to bad hedging
decisions. Moreover, it notes that corporate governance
has been poor. However, the report is optimistic for
improvement on both accounts. First, it notes the
arrival of a new Chairman of the Board to work with
highly regarded CEO, Mr. Prinsloo. Moreover, with a
dynamic and diversified acquisitions strategy, and a
restructured hedge book, the earnings picture should
start to improve next year. The new price target is
therefore $1.55 (up from the current $1.18), which is to
be achieved within one year. I guess this price target
is based on an assumption of a stable gold price at
current levels. Of course, if the gold price takes off,
the leverage should be fantastic, given DROOYs extensive
marginal reserves.
After having been a long time sceptic, I may add some
DROOY in the morning.
=============================================
MER DROOY REPORT (Sorry about the format)
(ITS1929AGAIN)
Jun 20, 15:11
Durban Roodepoort Deep
Limited
A New Dawning BUY*
Long Term
ACCUMULATE Reason for Report: Company Review
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
RC#10117121
Price - Local / ADR: ZAR7.55 / $1 1/8
12 Month Price Objective: ZAR10.77 / $1 9/16
Estimates (Jun) 1999A 2000E 2001E 2002E
Net Income (mn) (46.0) (136.5) 131.0 186.6
EPS (0.79) (1.39) 1.11 1.57
P/E n/a n/a 6.8 4.8
EPS Growth % (236.2) 75.9 (179.9) 41.4
CFPS 0.26 0.06 2.55 3.05
Price/Cash Flow 29.0 125.8 3.0 2.5
EV/EBITDA 9.5 56.9 2.2 1.0
Gross Dividend 0.00 0.00 0.00 0.59
Gross Yield % 0.0 0.0 0.0 7.8
ADR EPS $-0.13 $-0.23 $0.18 $0.24
ADR Cashflow/shr $0.04 $0.01 $0.41 $0.47
ADR Gross Div $0.00 $0.00 $0.00 $0.09
Opinion & Financial Data
Investment Opinion ? Local: D-1-2-9
Investment Opinion ? ADR: D-1-2-9
Mkt. Value / Shares Outstanding (mn): 895 / 118.55
Book Value/Share (Jun-99): 9.55
Price/Book Ratio: 0.79
ROE 2000E Average: -14.6%
Net Debt/Net Equity: 22%
Est. 5 Year EPS Growth: 50.7%
2000E P/E Rel. to Home Mkt: -46%
Stock Data
52-Week Range ? Local: ZAR14.40-ZAR6.70
52-Week Range ? ADR: $2 3/8 - $0 15/16
Symbol / Exchange ? Local: DRONF / Johannesburg
Symbol / Exchange ? ADR: DROOY / New York
Bloomberg / Reuters: DUR SJ / DURJ.J
Shares/ADR: 1.00
Exchange Rate: ZAR7.01/USD
Free Float: 90%
*Intermediate term opinion last changed on 07-Oct-99.
For full investment opinion definitions, see footnotes.
All figures are in South African Rand except where
otherwise noted.
Note: Due to currency factors, the investment opinion of
the ADR may differ
from the underlying share.
Investment Highlights:
? We believe the perception of Durban Deeps is
about to change with a likely strong
performance in the next quarter.
? Based on a five-year valuation, the Durban
Deeps share offers extremely good value, but
long-term life depends on new acquisitions.
? The company is now poised for growth ? this
is achievable using cash flow to finance
acquisitions.
Fundamental Highlights:
? The rationalisation process and major capital
spending has been completed, and this should
start to show in operating results.
? The Blyvoor 2000 project will start to bear
fruit.
? The company?s hedge book looks healthier,
but it still incurs an opportunity cost ? this
could be managed.
? The biggest challenge for Durban Deeps is to
keep momentum and bring new resources to
account through acquisitions and exploration.
Bulletin
South Africa
Gold & Prec Metals / ADR
20 June 2000
Johan Odendaal
What Has Changed
We believe the perception about Durban Deeps could
change very soon. Investors still treat the company
under the old Durban Roodepoort banner, although
some major changes have occurred. The latest move to
consolidate gold mining operations, to obtain critical
mass in the global industry, led to the transformation
of Durban Deeps into a geographically and
operationally diverse company. Recently, the marginal
Durban Deeps underground operations were closed
down, which leaves the company with much upside in
the remaining operations. We expect new management
to tidy up the corporate structure and rid the company
of recent allegations of poor corporate governance.
Mark Wellesley-Wood took over as non-executive
chairman. We see this as a positive step. Mark, a
mining engineer with investment banking experience
adds more depth to the board and complements CEO
Mike Prinsloo?s mining experience.
Valuation
We believe Durban Deeps offers value up to ZAR10.70.
This price was calculated from using a DCF calculation
and comparing price multiples in its peers group. It was
evident that Durban Deeps currently offers better value
over a five year period, even at a considerably higher
discount rate than its peers.
Operations
Over the last two years, Durban Deeps has refocused on
the cost structures of the various mines. The strategic
objective is to achieve a minimum of a 10% cash
operating
margin on the gold price, while maintaining a production
profile of 1.2moz through growth in local operations and
acquisitions. Plans are to further enhance its
reputation as
an expert marginal operator and acquire and breathe new
life into ailing operations. The Blyvoor 2000 project
will
start to bear fruit. The company can produce a
sustainable
free cash flow which will enable it to also look into
brown
and greenfields exploration opportunities. The focus is
likely to remain on grade and quality controls, while
improving productivity and reducing costs.
Labour Relations
Durban Deep?s labour relations have been stable in spite
of
the pressure and restructuring processes the company has
undergone. The 1999 annual wage review with the
different unions and associations resulted in a two-year
settlement. Productivity profiles have improved in the
last
two years.
Hedging
In the past, the company was criticised for its hedge
book,
but we believe hedging is vital in keeping the company
alive during the difficult times of weak spot prices.
The
company has largely extricated itself from the low-value
hedges and its forward book is much healthier. The group
can spot defer the gold sold forward in times of higher
gold prices and so maintain upside gearing, while in
times
of low gold prices it has up to two years of production
protected at profitable levels against which it can
deliver
earlier, ensuring profitability. In the next 12 months,
the
company is 46% hedged, but thereafter it declines
rapidly
to zero in 2005.
Financials
Durban Deeps has a poor financial track record, which
was
further clouded by its hedge book. The erratic
performance
over the past two years is mainly attributed by the
company undergoing a major restructuring process. Hedge
restructuring, major capital expenditure and
retrenchment
costs were an additional burden, draining cash flow and
showing up in continuing poor earnings performance.
However, we believe the company is in a sounder
financial
situation. Earnings and cash flow should improve and
bolster the balance sheet position. |
