October 18th, 2009:
DRDGOLD Ltd. (DROOY)
Current Price: $7.20
www.drdgold.com
DRDGOLD Ltd. trades on the Nasdaq under ticker symbol DROOY and operates gold mines in South Africa held through a 74% interest in DRDGOLD South African Operations Limited (DRDGOLD SA).
DROOY is our favorite South African gold mining company. South Africa is the #1 producing gold country of all time and DROOY was established in 1895 to exploit the Witwatersrand Basin, the world’s richest known gold deposit. That's right, DROOY has been around for over 100 years and about 40% of the gold ever produced in the world has come from the Witwatersrand Basin!
DROOY's Blyvoor mine is situated on the north-western edge of the Witwatersrand Basin, to the south of the town of Carletonville and 70 kilometres south-west of Johannesburg, in North West Province. The first ore was raised from the mine in 1942 and the life of the mine is projected to last until 2030, although the resource at Blyvoor is so widespread that production could extend for many years beyond that.
Total gold production from Blyvoor decreased in fiscal year 2009 by 8% to 129,473 ounces because seismic events caused rockfalls and two fatalities, which forced the mine to close for 17 production days.
DROOY had more problems at Blyvoor last month when 3,900 employees went on strike from September 15th until October 11th. The strike has since been resolved with DROOY agreeing to a 8% across-the-board basic wage increase.
DROOY's Crown Gold Recoveries is the world’s largest gold surface retreatment facility, reprocessing the large and numerous sand and slimes dumps along the reefs that stretch from east to west just to the south of Johannesburg’s central business district. In fiscal year 2009, Crown produced 80,377 ounces of gold.
DROOY's ERPM was an underground mining operation situated on the Witwatersrand Basin near the town of Boksburg, 25 kilometres to the east of Johannesburg. In fiscal year 2009, ERPM produced 34,174 ounces of gold. However, because of the cessation of ERPM's water pump, DROOY has decided to discontinue operations at ERPM.
ERPM ran an operating loss of about $7.5 million in fiscal year 2009 so the closure of ERPM could mean tremendous cost savings for DROOY in fiscal year 2010.
DROOY recently began production at a new project called ErgoGold, which will exploit up to 1.7 billion tonnes of surface tailings found near Benoni, Springs and Brakpan to the east of Johannesburg. Production from ErgoGold Phase 1 is expected to rise to 1.2 million tonnes of ore per month at an average head grade of 0.32 grams of gold per tonne. ErgoGold is expected to more than fill the production gap left by the closure of ERPM, but at a significantly lower cost.
DROOY also owns 13% of GoldMoney.com, where you can buy or sell gold and silver digitally online.
DROOY will be releasing its financial results for the first quarter of fiscal year 2010 on Thursday, October 22, 2009.
In fiscal year 2009, DROOY produced a total of 247,690 ounces of gold. DROOY's revenues for the year were $211.2 million with net income of $12.2 million.
DROOY has 37.8 million shares outstanding giving it a market cap at $7.20 of $272.16 million. DROOY has a trailing P/E ratio of just 22 and a price/sales ratio of only 1.29.
DROOY has a strong balance sheet with $48.77 million in cash and only $9.39 million in debt. DROOY has a book value of about $5.40 per share.
DROOY is trading with a lower price/sales ratio and for closer to book value than any other gold mining company we have ever suggested!
NIA believes DROOY has tremendous upside potential at its current price of $7.20. In the late 1970s/early 1980s, the last time we had an inflationary crisis like the one we are rapidly approaching, DROOY made a run from below $20 per share to a high of over $520 per share!
Now that gold is reaching new all time highs there is no doubt in our minds that DROOY could be a huge opportunity to diversify into gold and protect yourself from hyperinflation!
DROOY was as high as $10.59 earlier this year and we believe the only reason it has been beaten down to $7.20 is because of the wage-related strike, which is now over!
Generally speaking, the best time to buy a stock is when it is most hated. Right now, everybody hates DROOY for the reasons we just discussed, but this could be a once in a lifetime opportunity that we may never see again!
A co-founder of NIA has purchased 7,400 shares of DROOY at an average price of $6.76 and could sell them at any time.
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