DRD Gold (DRD)
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Previous Stock Tip These companies are all previous recommendations from the Red Hot Portfolio that we subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations we’re making now, just start your 1 month risk risk free trial! |
| Initial recommendation: RHPS Issue 72 / May 2007 |
| This miner fell flat on its face, but all is about to change – With expected gains of over 120% |
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Gravity is law… not so? Well, I’ve got news for you Isaac Newton… DRD Gold Limited is in the process of proving you wrong! Gravity really has been the winner since January 2006 when the share began its wealth destroying plunge, as all sorts of things went wrong in quick succession. But what dear Isaac didn’t observe was that falling apples bounce!
What we have here is a classic recovery story in many more ways than one. This “bounce” that’s now on the go will develop into a fully-fledged, gravity-defying bull-run and new upward trend. I’ve heard so much negative news about DRD recently, enough that anyone in his or her right mind would run away – fast. Well, my mother always used to question my state of mind, so here comes DRD. |
| This is definitely a tragic story with a very happy ending |
| The story’s been tragic to say the least, but I really love these turnaround situations. The company’s just announced that its Australian Emperor Mines (part of DRD) has sold its interests in Porgera Mines to Barrick Gold for US$250 million in cash. This will allow Emperor to clear all its debt, which will also have positive effects for DRD. Emperor will be left with key profitable assets in gold and copper in various countries. Announcements relating to expansion, refurbishment and further exploration activities will be forthcoming, as well as news of continuing restructuring. Exploration activities are continuing in Papua New Guinea and new joint venture opportunities are being explored with major copper producers. |
| Trimming down means improved cashflows |
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The sale of the Vatukoula Mine in Fiji has also just been completed, halting the cash flow bleed from this operation. These actions will lead Emperor to a cash flush position of A$130 million (after debt repayments) and DRD South Africa will be cash flush too. In fact, DRD Gold SA has now reported two consecutive quarters of profits. New prospecting rights have just been granted for ERPM Ext 2 and illegal strike action at the Blyvoor mine is now a thing of the past. Things are finally really looking up for this war-torn share! This new ERPM project will lead to a new deep level mine with a 15 year life span.
We’ve also seen new appointments to the board recently with Niel Pretorius coming in as CEO and a new CFO. I remember sitting with various girlfriends at different times many years ago watching drive-in movies at the Top Star. You know that one on top of the mine dump next to the M1. Well, that’s soon to go and it’ll go DRD’s way as they expect to be granted rights to re-treat that dump through their Crown Mines operations. -331c, -221c, -35c. Interesting numbers aren’t they? They also paint an impressive picture. These are the earnings per share figures for 2004, 2005, and 2006 respectively and they show a steady improvement. |
| With the yellow metal flying high – The future looks even more profitable |
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Looking ahead, there are so many factors in favour of the continued recovery of this share price, it would be a shame to miss out. One of the factors not to be underestimated is the rising gold price itself. In rand terms, gold is just about on record highs, while the upward trend in the dollar price is firm and will continue.
So, what we have is new management with a new vision, cleared debts, better prospects and a better gold price. On top of these fundamentals, technically the share price graph is generating its own buy signals. Often confidence is the last thing to be restored to a share that’s been through the wars, but don’t wait too long!
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RHPS verdict We’ve had this share in the portfolio before and sold at a small profit before the real troubles began. Now we have a great opportunity to get in again for what’s likely to be a somewhat volatile, but very profitable, ride higher. The wrongs have been made right, the gold price is cooking and the share is in the early stages of recovery… an ideal place to get in. I vote this share a somewhat risky buy from current levels of around 526c to a target of 1,200c in a year. There’s more risk here than normal thanks to the recovery nature, but don’t forget the risk reward ratio! |
| UPDATE 1: RHPS Issue 79 / November 2007 |
| RHPS Recommendation: BUY |
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DRD Gold: Under cautionary The company’s under cautionary as it disposes of its stake in Emperor Mines as it prepares for a new life focused exclusively back home in SA. |
| UPDATE 2: RHPS Issue 80 / January 2008 |
| RHPS Recommendation: HOLD |
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DRD Gold: Burn out The company’s announced a winder motor burnt out affecting production at one of the shafts at ERPM in Boksburg. The repair should only take ten days, so this isn’t a major event at all. |
| UPDATE 3: RHPS Issue 85 / June 2008 |
| RHPS Recommendation: BUY |
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DRD Gold: Disruptions are nothing to worry about The share recently fell hard, but is now turning up again. The company’s results were excellent indeed! Cash operating profit was up 199% and cash operating costs down 3%. This strong balance sheet supports future growth. Although xenophobic riots have caused a few disruptions, I expect the effects to be short lived. |
| UPDATE 4: RHPS Issue 91 / December 2008 |
| RHPS Recommendation: HOLD |
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DRD Gold: Set to follow the gold price higher The company’s just placed its ERPM mine on “care and maintenance”. This simply means it’s closed it down for a while. The share’s fallen back to recent lows but, with the new surge in the gold price, I expect it to recover sharply. |
| UPDATE 5: RHPS Issue 95 / April 2009 |
| RHPS Recommendation: SELL |
| DRD Gold: Fabulous gain – Thank you! |
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| DRD’s been a star performer and I loathe to part with it. But, it’s time to take some profit. The share’s tested the top three times now and has failed to move any higher. In addition, the overall market’s moving up on better sentiment. This suggests the easy money’s been made and we’re moving into riskier territory. |
The past is not a guide to future performance. Trades in stocks recommended by Red Hot Penny Shares are small company shares. By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances.
