Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

Zeev, DROOY do you have a buy target for the next run up?
thanks,
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dws,
I'm curious.....with all the wonderful mining stock investment opportunities out 'there', why would you be interested in Drooy?
Is it the old 'well, things can't get much worse for them" syndrome?

Here is some potentially dilutive news to show that things could, indeed, get worse before they get better.


DRD (DROOY) mulls new debt

By: Stewart Bailey
2003/11/24 Mon 06:47

SAN FRANCISCO – Durban Roodepoort Deep, the most marginal of South Africa’s major gold miners, is mulling a new debt-raising, backed by the cash flows from its Australasian gold operations.

Only a day after the company used most of its available cash to pay for its 20 percent stake in the Placer Dome-operated Porgera mine in Papua New Guinea, group financial director Ian Murray said DRD would use debt and cash to finance future acquisitions. According to Murray, the 150,000 attributable ounces of production from Porgera – at a cash cost of $220/oz – could underpin debt raising of as much as $40 million.

The company currently pays around $3.96 million a year to service a $66 million convertible debenture issued last year and has little term debt – only R57 million. Murray says the company’s balance sheet can shoulder more, provided the right acquisition opportunity presents itself.

At the core of the strategy is an effort by the South African-based producer to bankroll future acquisitions without issuing new shares. Until now, DRD has been a prodigious share issuer, taking advantage of a buoyant gold market to raise equity twice in eighteen months.

Murray says the combined cash flows from Porgera and the wholly owned Tolakuma Gold Mine should drum up between $6 million to $8 million in cash each quarter at current gold prices. “That should build up a considerable war chest fairly quickly,” says Murray.

Although Murray says there is no rush to do a new deal, he says the group’s new business division is scanning the mining landscape in Australasia and South Africa for new opportunities. The Pacific Rim is likely to draw the focus for DRD now, given that the strong rand has wiped out margins at its cornerstone South African operations; a strong Australian dollar should make investment in mainland Australia similarly unattractive.

But there is a deal on the cards. The group’s aim to build production outside South Africa to 400,000 ounces a year, remains intact. It’s preference for the epithermal gold deposits typical of Pacific islands are also well known. nowAfter the closure of the Porgera purchase, production from Australasia has climbed to 260,000 ounces.

For any new acquisition to pass muster, Murray says the target asset must be accretive on five fronts: earnings per share, cash flow per share, net present value per share and on a market capitalisation per reserve and resource ounce basis. Murray says opportunities that fit the bill exist in listed Australian companies as well as in the portfolios of majors looking to divest of smaller, non-core assets.

Australian-listed Emperor Mines, in which DRD has a 20 percent stake, will have to wait a while longer before it features on DRD’s corporate radar, though. Murray says the company has disappointed operationally over the past while and is still too pricey to stoke DRD’s interest.

Porgera to go

Meanwhile, the company’s cash pile of around $85 million at the end of the September quarter is all but wiped out after the Porgera deal. Murray says DRD paid $53 million in cash and issued 6.6 million new shares to fund the purchase from Australian-listed oil and gas producer, Oil Search.

Murray says DRD will now offer a 5 percent stake of the mine to a community trust in Papua New Guinea, which belongs to inhabitants of the mining lease area. If the community group decides to buy the stake, Murray says the asking price will be based on the purchase price DRD paid, which could allow DRD to recoup as much as a quarter of its asking price.

http://www.mips1.net/mgf03.nsf/Current/80256DE10032DB9842256DE8001A4145?OpenDocument