-- Posted Monday, 28 February 2005 | Digg This Article
I have great difficulty in controlling my usual clinically analytical demeanour when attempting to analyse the events of the past few days with the DROOY share price.
Last Thursday the anticipated poor results from Durban Deep were announced and the share price on the JSE drifted slightly. Later that day a mining website clarioned a headline around the world that Durban Deep was “technically bankrupt”. This sensationalistic headline triggered an avalanche of panic selling in the US as investors ditched stock in the fear of losing everything if the mine, as was implied by the headline, was ready to go into immediate closure. Some 42 million shares changed hands. This represented 17% of the total issued share capital of the mine. Some panic!
I regard the article headline on the website to be one of the worst examples of irresponsible sensationalist journalism that I have ever come across. The author took two words out of the mouth of a respected Johannesburg analyst and blazoned it across the world as the final nail in the coffin of Durban Deep. Actions of this kind may create once off hits on a site but I doubt if this site will ever again be considered as a responsible and balanced reporter of mining affairs.
The term “technical bankruptcy” is not a standard condition of the South African mining industry but it is certainly a frequently over stated press headline when difficulties arise in a mine. If we go back to November 2000 when Durban Deep was trading at its major low of R4.30 the headlines again blazoned that it was “technically bankrupt”. It promptly rose 1200% as it rocketed up to R55. In the middle of last year another gold mining house stock, JCI, was headlined all over the Johannesburg press as being “technically bankrupt”. It is still operating and the price has appreciated.
Many South African mines hit the condition of “technical bankruptcy” at the end of major bear markets. Any investigative journalist delving through past mining headlines will find numerous examples of this statement for mines that are still in operation. Marginal mines have in the past often been classified as “technically bankrupt’. I wonder how many Canadian juniors would fit this classification. But because the internet slammed these sensationalistic headlines around the world in a split second the reaction was immediate and catastrophic panic. Yes, I believe that the share price collapse was unmitigated panic from uninformed US investors emotionally reacting to an irresponsible headline that implied Durban Deep was ready for immediate closure.
My contacts have detailed that if Durban Deep sold all its loss making South African mines for only R1, the share price based solely on the Australasian operations would be valued at least double the current price!!!!!!!!!!!!!!!!
One Gold Fund manager has stated that there will be no buyers for the DROOY operations in South Africa. It is common knowledge in the JSE that negotiations have been underway with a junior miner to take over the loss making mines. I believe that the negative cash flow elements of Durban Deep will be eventually taken over.
Do not forget that Durban Deep is the tenth largest producer of gold in the world. A loss of that amount of gold into the market by any closure of DROOY would send the gold price into orbit.
Technically DROOY is in a MASSIVE buying area. Any weakening of the Rand back above R6.10 to the dollar and strengthening of the Rand price of gold above R2580 Rands an ounce will lead to a serious and sudden reversal of trend for Drooy. This stock may be “technically bankrupt” but is unlikely to go out of business.
Knee jerk share price reactions to sensationalistic headlines are dangerous and rarely last.
Forget the panic and buy this ridiculously cheap stock. Last Friday 42 million DROOY shares may have been sold. But remember that for every share sold there was a buyer!
Dr. Clive Roffey
February 26th
Johannesburg
-- Posted Monday, 28 February 2005 | Digg This Article
