-- Posted Tuesday, 25 March 2003 | Digg This Article
In view of the whole mess surrounding Durban Deep I thought I would concentrate today’s analysis on this share.
Frankly I am not concerned with the claims of insider trading and the counter claims, or with the Kebble versus Durban Deep management row. Of far greater concern are the gold price and the proposed new Mineral and Petroleum Royalty Bill that seeks to impose a royalty from 2% to 8% on the revenues of mining groups. Gold has a proposed levy of 3% with coal at 2% and diamonds 8%. As this levy is a subtraction from earnings it will be tax deductible.
Shareholders should note that the current proposal is just a draft for comment and Government has given the mining industry a month in which to reply with counter proposals. The predictable furore that accompanied the release of the proposed Bill was a typical emotional investor response led by panic sales of the share out of the US.
One of the critical aspects of the royalty proposals that will directly affect the fortunes of Durban Deep is the statement that there will be exemptions for marginal companies that would otherwise have operating margins decimated by the imposition of the new levy. The Government’s statement “The purpose of this exemption is to ensure that the royalty does not force the closure of low-grade mines, thereby causing a loss of employment,” is self explanatory.
Durban Deep is a marginal mine. It needs a gold price of at least $350 to break even. Before you rush out to sell the stock at the current $330 gold price consider this. Durban Deep opened for mining in 1886. It has been an operational mine for 117 years, the last 50 of which it has been a marginal mine with exactly the same problems in terms of the gold price as it is facing today. It has survived innumerable attempts by hysterical analysts to write it off.
As a marginal mine Durban Deep will probably BENEFIT from the exemptions contained in this new Bill. Whereas the large non marginal mines will be subject to the finally agreed royalty, Durban Deep could end up being exempt or with a much lower royalty and far better off than its competitors in the South African gold mining industry.
A gold price under $350 tends to accelerate the downside in the share price of Durban Deep whilst bullion above $350 speeds the upside. My analysis of the gold price is a run to $435 followed by a kick to $570 and a final surge to $680 as the stages for the next major upside leg of this massive long term bull market. As far as I am concerned we have just completed the first upward thrust and first corrective phase that started in May last year. We should now enter the second upward stage of the bull run that should continue through to this time next year. Make no mistake this is a huge bull market in bullion.
In early 2001 I gave Durban Deep at R5 as my pick for the year on Alec Hogg’s business radio show. I was ridiculed. It went up ten fold to R50 within 18 months. I am again stating that I look to Durban Deep as the best buy in this gold market with an upside potential of at least 500% over the next 12 months.
Once the gold bullion price commences the blast off from its current $325 platform, and looks like shooting through $350, all the negativity surrounding Durban Deep and the royalty bill will suddenly dissipate.
I am looking for a vicious up move in the gold price in the near future to attack the $400 level before mid year!! We are not dealing with a passive animal but a latent serpent that will strike very quickly. Manipulators of the gold price beware!!
If you want to make real money in the next 12 months climb into Durban Deep.
Dr. Clive Roffey
March 24th 2003
chartist@mweb.co.za
www.utm.co.za
-- Posted Tuesday, 25 March 2003 | Digg This Article
