where did you get that impression? DROOY has a hedge book that was forced on it by its banksters in the course of various acquisitions it made. however, the hedge book is relatively neutral, as they have bought lots of calls too. note also, that it's actually minuscule compared to DROOY's production potential, which i have explained on another occasion already.
essentially the company is using only 70% of its mill capacity right now, and only 15% of the mill capacity is used for underground ore. assuming gold rallies strongly, this underground ore milling could be doubled, raising DROOY's overall production by 85%.
note, this quarter's report contains a few tidbits the fellow neglected to mention: most importantly over 50 million Rand in debt were repaid, improving shareholder's equity to over 500 million Rand. net current liabilities decreased by 97 million Rand. furthermore, the last quarter is traditionally the weakest quarter due to the many public holidays. grades were lower in this quarter too, but have improved dramatically in the current quarter. e.g. at the Blyvoor nr. 5 shaft, grades improved from 3,5 g. /ton last quarter to 8,5 g. /ton THIS quarter. Buffelsfontein grades were 5,8 g/ton last quarter, and are so far above 7 g./ton in the current one.
the main reason why the hedge book restructuring now results in write-offs affecting the bottom line are changes in accounting treatment if i understand DROOY correctly. it is important to keep in mind that contrary to what the fellow intimates in his post (gold hasn't even rallied, and already the hedge book's a head-ache, etc.) it is not SHORT, but LONG positions that are written off. these write-offs would disappear in a gold rally. note also, the hedge book has a 'bulge' in 2001, where over 30% of production is hedged (net of calls). further out, only 8% of CURRENT production is hedged net, and as mentioned above, in a sizeable rally production could be increased enormously, which would effectively reduce the hedge to something like 4,5% of production.
and lastly, DROOY is a small producer compared to its SA peers, but were it located in North America, its reserves and resources would make it number 2 or 3 (not its current production, only its resource base). the market accords its reserves only a value of about $2 or so per oz. (i'd have to calculate the exact number anew, but this is what i remember off the cuff it was last qu.). this is in sharp contrast to reserve valuation of NorthAm gold miners, which is in some cases at absurd levels. e.g. Barrick's reserves get a market value of $180 / oz. if i remember correctly.
you can't buy reserves cheaper anywhere in the world... |
