Deccan Gold Mines Limited (DGML) is the first private sector gold exploration company in India to be listed on the Bombay Stock Exchange and its also the only listed company in the gold exploration sector. India is a rich country in mineral resources, but it can't be said of gold as India produces just 3 tonne of gold per annum as compared to 300 tonne, produced by Australia.
A part of the reason for India having suffered in developing its gold mining potential is due to lack of adequate exploration expenditure, the nationalistic policies of the governments with regard to gold mines and a non investor friendly mineral policy. Things are changing for good now, with govt. laying emphasis on PPP model and allowing private sector to invest in exploration and production business, as evident in the case of oil blocks, under the NELP policy.
Gold Mining
Gold mining business is definitely an uncertain one. A great deal of investment is made in first analyzing the fields for gold reserves and then huge investments are made in the exploration part. The technology these days is sophisticated enough to determine the quantity of gold reserves, but then sometimes it does happen that the reserves don't turn out to be as estimated, and therefore the investment cost turns out to be higher than the revenues generated.
On the other hand there could be windfall gains, if the exploration process turns out to be successful and if the company is able to find huge reserves in any of the fields.
Prospects of DGML
In case of India it is believed, that it has huge gold reserves, even equal to that of Australia. Well this augurs well for any company in gold exploration and also the New Mineral Policy, 2008, seems to be in favor of expediting the whole process of granting license for exploration activities.
There is a three stage process for acquiring complete rights over a mine. The three stages are as follows :
A look at status applications dated May'08 for DGML and its subsidiary reveals that by May'08 it could not achieve much success in achieving grants for its applications for various RP's, PL's, and ML's. Its been more than a year since May'08, so actual status is not known, but certainly the company is still in the process of doing surveys and has still not started with the mining process.
In its most recent exploration report of Dec'08, it is quite evident that Ground Magnetic surveys are being carried out, and the process of trenching, drilling etc, is yet to start.
Financials
DGML can't be talked of in terms of its present stream of revenues, because there is hardly any. The management had guided a revenue figure of around 300-400crs for 10-11, but to me it rather appears to be a tough target to achieve, as I can envisage from the present status of their operations. Once the process of mining begins, the margins for this business are definitely going to remain high, but the core issue remains, that when will the process begin as there is still not a glimmer of hope.
Outlook
DGML is one of those companies where you invest with great deal of enthusiasm, expecting that one day the company will hit the jackpot and the stock price will rise multi-fold, but the wait for such an expectation to turn into a realty gets longer and longer. There's no denying of the fact that an announcement by the company regarding its finding of reserves of gold can turn it into a multibagger, but then again as I said that the wait for it can be very-very long.
A part of the reason for India having suffered in developing its gold mining potential is due to lack of adequate exploration expenditure, the nationalistic policies of the governments with regard to gold mines and a non investor friendly mineral policy. Things are changing for good now, with govt. laying emphasis on PPP model and allowing private sector to invest in exploration and production business, as evident in the case of oil blocks, under the NELP policy.
Gold Mining
Gold mining business is definitely an uncertain one. A great deal of investment is made in first analyzing the fields for gold reserves and then huge investments are made in the exploration part. The technology these days is sophisticated enough to determine the quantity of gold reserves, but then sometimes it does happen that the reserves don't turn out to be as estimated, and therefore the investment cost turns out to be higher than the revenues generated.
On the other hand there could be windfall gains, if the exploration process turns out to be successful and if the company is able to find huge reserves in any of the fields.
Prospects of DGML
In case of India it is believed, that it has huge gold reserves, even equal to that of Australia. Well this augurs well for any company in gold exploration and also the New Mineral Policy, 2008, seems to be in favor of expediting the whole process of granting license for exploration activities.
There is a three stage process for acquiring complete rights over a mine. The three stages are as follows :
- Applying for Reconnaissance Permits (RP)
- Applying for prospecting license (PL) and lastly
- Mining leases (ML)
A look at status applications dated May'08 for DGML and its subsidiary reveals that by May'08 it could not achieve much success in achieving grants for its applications for various RP's, PL's, and ML's. Its been more than a year since May'08, so actual status is not known, but certainly the company is still in the process of doing surveys and has still not started with the mining process.
In its most recent exploration report of Dec'08, it is quite evident that Ground Magnetic surveys are being carried out, and the process of trenching, drilling etc, is yet to start.
Financials
DGML can't be talked of in terms of its present stream of revenues, because there is hardly any. The management had guided a revenue figure of around 300-400crs for 10-11, but to me it rather appears to be a tough target to achieve, as I can envisage from the present status of their operations. Once the process of mining begins, the margins for this business are definitely going to remain high, but the core issue remains, that when will the process begin as there is still not a glimmer of hope.
Outlook
DGML is one of those companies where you invest with great deal of enthusiasm, expecting that one day the company will hit the jackpot and the stock price will rise multi-fold, but the wait for such an expectation to turn into a realty gets longer and longer. There's no denying of the fact that an announcement by the company regarding its finding of reserves of gold can turn it into a multibagger, but then again as I said that the wait for it can be very-very long.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the equity analyst on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
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