Print Printer Friendly Version      Email Email this Article




I'VE GOT DURBAN ON MY MIND
My Editorial "DROOY, HGMCY & GOLD ESTIMATED EPS", complemented by my analysis below may be used to project future share values of Durban Roodeport Deep..

Durban Roodeport Deep (DROOY) will experience significant changes in EPS in the coming quarters due to their soon to be eliminated hedge book.

There are questions that are often asked about DROOY's future share price potential with changes anticipated in the Dollar's strength and rising Dollar price of gold (POG).

I will attempt to answer the following questions, using the methodology from my earlier Editorial.

  • What would DROOY's EPS be if they didn't have a hedge book?
  • How would a depreciating Dollar effect DROOY's earnings?
  • What would DROOY's share value be with a higher POG?

DROOY EPS WITHOUT HEDGE BOOK

ASSUMPTIONS:

1. We will assume a static gold price and currency exchange, based on Thursday 03/28/02 close, as the forward looking basis. $303.20/oz POG x 11.35 R/$ = 3441 R/oz

2. DROOY will realize 100% of the revenue on the Rand Gold price.

3. No change in:
   A) cash costs
   B) Misc. expenses
   C) Production
   D) Shares

ESTIMATED EPS WITHOUT HEDGE BOOK:
Revenue                                 3441 R/oz
Cash operating Costs         -1900 R/oz
Operating Profit                     1541 R/oz
Misc. Expenses                      -322 R/oz
Pre Tax profit                         1219 R/oz

After Tax Profit (25% tax)       914 R/oz

DROOY EPS
914 R/oz x 0.27 million ounces / 165 million shares = 1.496 Rands EPS
1.496 Rands / 11.35 R/$ = $0.132 EPS

DROOY estimated share value at 15 PE
$0.132 EPS x 15 PE x 4 Qtrs. = $7.92

DROOY EPS WITH DEPRECIATING DOLLAR

ASSUMPTIONS:

1. The Dollar loses 20% of its value against the Rand. (The Dollar is widely believed to
     be 20% over-valued)
     11.35 R/$ x 80% = 9.08 R/$ (3441 R/oz / 9.08 R/$ = $379 POG)
2. Rand EPS is still 1.496 Rands

DROOY EPS IN DOLLARS
1.496 Rand EPS / 9.08 R/$ = $0.165 EPS

DROOY estimated share value at 15 PE
$0.165 EPS x 15 PE x 4 Qtrs. = $9.90

DROOY EPS WITH HIGHER DOLLAR POG

ASSUMPTIONS:

1. Rand/Dollar stays at 9.08 R/$

@ $400 POG:

$400/oz x 9.08 R/$ = 3632 R/oz Revenue
After Tax profit = 1058 R/oz
Rand EPS = 1.73 Rands
Dollar EPS = $0.19
Share value at 15 PE = $11.40

@ $600 POG:
( This is the widely believed the POG should be based on current supply/demand deficit)

$600/oz x 9.08 R/$ = 5448 R/oz Revenue
After Tax Profit = 2420 R/oz
Rand EPS = 3.96 Rands
Dollar EPS = $0.44
Share value at 15 PE = $26.40

@ $870 POG:
( 1980's high )

$870/oz x 9.08 R/$ = 7900 R/oz Revenue
After Tax Profit = 4259 R/oz
Rand EPS = 6.97
Dollar EPS = $0.77
Share value at 15 PE = $46.20

Notes:

  • With the Dollar POG rising in the above ranges, the Gold Bull Market would be at hand, and the likelihood of higher PE's would probably be certain. ( Barrick's current 101 PE, per Editor's note in my prior Editorial.


  • The above assumes no increase in production. DROOY is currently ramping up production in their higher cost mines due to the current profit margins, so production will be rising.


  • I used conservative numbers, but you can use my procedure to insert your own projections.


DISCLAIMER:
These are "what if projections" and should not to be considered investment advice.


"durbandude"

April 1, 2002

Email this Article to a Friend Email
471765616