Background: High Entry bariers, Strong margins, Unique Business (for scarcity premium) and strong upside revenue potential are some of the traits that make an investment lucrative and rewarding. Today I am going to present something which has all these and specially now, after the recent developments. Deccan Gold Mines is the only listed Gold Mining Company in India. For almost a decade the promise in DGML was just a promise. The license was awaited for such a long time, without which they could not have started the process of production. Now, that on Friday they have officially received the license, the story has become very promising.
The Company: DGML is country’s only listed Gold Mining company. It has been in the business of exploration and mining since its inception. As with any exploration and mining company, the gestation periods are high and this was further aggravated by inordinate delay in granting the mining license. The company in the last few years had applied for various licenses (around 40) in the states of Kerala, Chhattisgarh, AP, and Karnataka which are at various stages. After years of delay, DGML has finally been granted a mining license by MoM for their Ganajur Gold Project. Ganajur has one of the country’s most prolific gold deposits. It is estimated, that that on a full year of operations, the site could generate around 350-375cr per yr of revenue with around 33% margins. The company has indicated that it would take 18 months from the grant of license to start generating revenues. The next steps for the company is to get the Letter of intent from the state government along with Environment and forest clearance. These should come in next few months and should not be a problem given the importance the government is assigning to fast track clearances (even the present clearance was given a priority by the government apparently). The company has indicated that it would need around 100m USD for its capex and it would be funded by 70% debt and 30% equity. Debt is expected to be raised by specialized (in gold financing) financial institutions and equity by a combination of rights issue (very attractive option for investors) and possible preferential allotment. The promoters holding is 41.5%. This is not just the story. Read the blow section carefully.
Triggers:
- The biggest trigger is already in place. Ganajur mining license is a game changer for the company’s fortune and start the revenue generation.
- The reserves estimated for Ganajur is on lower side and company strongly expects the reserves to be much higher. The current estimates were arrived with limited exploration.
- DGML is also in talks with Geomysore Service India Pvt Ltd to buy them out. GMSI has recently been granted a gold mining license for Jonnagiri. Interestingly, its GMSI who approached DGML for a possible takeover of GMSI. Currently, DGML has asked GMSI to do more drilling at jonnagiri to get a better idea of gold deposit and therefore, possible valuations of GMSI. Whenever this happens, it could be a massive trigger for the stock.
- In next couple of months we should get some update on their Hutti Belt project.
- There are so many PL (pending license) pending that any further grants could improve the prospects of the company even further.
Valuations: The Company presently does not have any revenues for obvious reasons and is valued at around 380cr market cap. These kind of companies normally trade at astronomical valuations. On a full year working and with impending equity dilution its quite possible to have a 5-6 rs EPS. As we have seen the markets normally give such companies high double digit PEs. Also, let’s not forget the earnings estimates are based on current estimates, which could be revised upwards once the actual mining starts. Also, the possible earnings growth if GMSI is taken over is not accounted here, along with substantial earnings upgrade that could come if the company was to get any further Mining license, which is obviously a very strong possibility given the 40 PLs that are applied (most of them are at advanced stages of consideration).
Technicals: Stock broke out of more than 8 yrs of consolidation and is looking very strong. From the current levels the stock has its downside protected but upside is just opening up and quite likely would challenge its all time highs of 142 and should break it and go higher given enough time and space.
This looks to be a great story in making that now it has a Mining license to one of the most prolific gold deposits of the country. The downside in the counter is limited and the upside has just began. Even though the start of the mining operations is around 18 months away, the stock price would start discounting it much ahead. Now every new update should excite the stock. Remember this is a seed that we are sowing so don’t expect fruits overnight. Looking at the business opportunities and visibility the stock should go up multi-fold in the years to come and thus patience here would be suitably rewarded. The company conducts its analyst call regularly which are hosted on their website. Also go through the company’s AR which are very well documented. Also, listed below is the link to various interviews that would help a potential investor take an informed decision.
http://hindi.moneycontrol.com/tv/view_video.php?autono=112665
http://www.deccangoldmines.com/
God Bless !!!
Disclaimer: No vested interest in the company.
aceinvestortrader 
Thanks bro for the new pic. I had bought this at 20 rs in 2009 But got frustrated for 3 years and booked out. Now after your update on this will once again look into it. Rally thanks bro
yes, now the real deal begins …..now that they have ML granted.
I have bought the stock after reading the blog at 70, it is trading now at 55. Please suggest if i need to exit around 55? If not do you see this comes back at 70 level in near term?
did you buy for two weeks. i think in the post its clearly mentioned that one needs huge amount of patience here and the fact that you need atleast 3 yrs view. In short term everything can be volatile… I hope you had researched the stock well before investing.
Thanks for your strong reply. I have followed your blog from Vidhi days, however never invested in any of them as i was novice. This time the blog details were more than helpful for me to decide on buying this stock. Sure i would rather leave it here and wait for another 2 years to see some positive result. Thanks once again..
ok
i See that the revised 52 week high price – 71 (earlier it was 91).. Any reasons? Will we get extra shares?
ex-rights price …if your subscription to rights is accepted then yes.
Ok, do you that in short it can b eso volatile that it will go down 50%. Shall i sen dmy stocks now and renter at around 20 level? Please reply asap..I am lill panicked.
i am not getting what you are trying to ask. can you be a little more concise?
from here on looks like the stock is gonna go down to 20 level (between 20-30). i have bought it at 70. not even sure if it goes below 20, but if that happens i am going to loose lot of money and dont know how long it will take to recover (may be more than 5 years)…
So am confused on what to do. Sell it at 35 and wait for it to come to 20-25 level and add at that time…Need your prudent thoughts on this…
if you are an oldie on the blog you would be knowing i dont do portfolio management. And since you can see the stock going to 20rs clearly you know a lot…my views on the stock remains unchanged.
Shirpur is also gold mining co which is listed on the exchange.
no, shirpur is not into mining actually. its into refining services and third party manufacturing.
Dear Ace, please share your views on BOPP/PET films industry.
sure, initiate a discussion….
Pl is not pending license it is prospecting license. Compqny is expecting pl for mangalgatti and hutti pl will be decided by nov management is extremely confident that they will get the pl. Plus hutti is a high grade mines with more than 1 million ounce in reserve.
vishal, please see my reply to chaturvedi.
Thank u sir……g nt
Co is yet to start its operation n will take approx 2 yrs. Is it a good time to buy now n hold bcoz fruits are going to start after such time, whereas in this market your lot of calls are becoming a gem in shorter time basis either under valued or financial performance. Just a basic thought.
18 months not two years….but the point is that would the markets wait for that time ? stock prices always discount the future….always…. anyways, its not a compulsion to buy the stock…one should take his/her own decision.
Dear Ace sir, that point was arises in my mind on 27th july 2015 when company made clearification to BSE about that. so that i have taken comment on that, but ur view was very generous, any way, thanks!!!!!
read the comment’s answer again….also the formal announcement came on friday… on 27th it was only seen on the webiste of MoM and not officially intimated to the exchanges.
Hi Ace Sir , With the gold prices falling , whats ur view . Are they ok to invest huge some on exploration services?
no as the falling gold price is mitigated by falling rupee also (that’s why though internationally the gold prices are down around 45% from its highs, in india its hardly down 22%). as you might have seen in one of the interview links, the management had this year itself rated around 33% margins. also, the project is viable with gold price anything 850/ounce. but this viability was found when the rupee was in late 40s…so the viability is further increased by falling rupee. also, if the gold prices fall further, then the word wide production would dwindle as their cost of production is already way higher than what deccan would do…
U may read the srk report put on their website which has some scenario analysis done please note the report was made with rupee at 45 and now it is 64. Also average gold production cost as of today is 1000$. So downside is limited in gold prices.
yes have gone through it. Its part of rights issue draft letter of offer
ok,sir i am not worry about that ,as i am a begineer and just wish to know that my thinking was in a right direction or not ? but it is true that i am geting lot of knowledge regarding company & stock pck in last 2 yrs from a nice person,{ Dear Ace sir }, thanks !!!!!
Thanks Ace.
Appreciate your effort for putting up the story on a weekend. Have a nice Sunday 🙂
So soon India would be exporting Gold…. 🙂
i dont know about export but we would atleast cut our import bills. india produces just around 0.9% of its consumption whereas it has around 10% of world’s gold deposit.
If we are optimistic, then why is company pessimistic about itself, they are selling their shares and reducing stake at 60 Rs levels
A bit of promoter selling is not a problem in any company as we have seen in the past. The company is not making any revenue for last so many years so we do not know the real reason why someone would be selling. Furhtermore, the selling is not that big. Anyways, as we have seen in the past in cases like pressman, rajoo, and i am sure you know about PAGE,. I am should look everything in context before arriving at a decision. Also, No links pls.
Sir, DGML promotors (Rama Mines) is not a single entity. It is a collection of many individual investors. In that case there could be selling by individuals for different reasons which may not be related to the company/market/ML/….. that is the reason behind small selling happening.
Helo Ace sir.
DGML shares already double in last 1 months.Should we wait for correction.
Thanks
its up to you to decide whether to enter or not
Thank u Ace sir (ur a person with very high Values) as gud as Deccan Gold.coming from an apt person . Thanks Sir.Now look Guj Themis &katwa. Mind boggling , aint it. Kind regds raj
and you are too kind with your words. Thanks. God Bless !!!
Hi ACE…nothing offensive…just for understanding purpose…before someone points with wrong intention, request to comment for our benefit which you only can do. Again please note this is for just understanding. Below were the comments by you 8 months back…”near its 4 yrs low….all the more reason to avoid….deccan gold mines never delivered…why would they deliver even if they got approval and especially when gold is down and out”.
unfortunately it looks you have not bothered to look the latest or later views…please search the blog for what i had mentioned after this post..
Thanks for the meticulous response ACE…!
no problem sir
ace sir had replied to my query on deccan gold mines…look at that before saying anything..
Thanks for another story.
sir need ur review on one small company name as Medi-cap.
Medi Caps is the second largest gelatin capsule manufacturer. The interesting aspect about this company is a very small company with Rs 20 crore of marketcap but it has Rs 38 crore worth of debt mutual funds in the company’s investment accounts.
Company is debt free , sales of 28cr fy15 having net profit of 1.85cr.
please have a look and let me know if it is good stock to enter or not
no change from previous views
sir what was your previews views on Medi caps
kindly google the blog for that sir
Dear Ace,
I just came across your blog and have been on a reading free right from the archives. I like your approach in picking a stock and the detailed explanation that you have given has made even a novice like me understand the stock better.
I would like your opinion on the textile rush everyone seems to be getting on. Also do you think Unitech is a good idea now considering it is at its lows. Any turn around expected in the long run?
Thanks
Ajit
dont like unitech at all… may go up who knows but not interested.as i had written in ambika cotton stock story this could be a textile led bull market..so far indications are all that….
Nice writeup aceji!
im an investor in DGML for the last 8 years & the journey has been painfully slow.
kehte hai sabr ka phal meetha hota hai 🙂 aur sabr kar lenge.
one correction – PL means prospecting license – license to explore for deposits exclusively
right, i knowingly wrote it this way. i wrote it so that novice could understand it….prospecting license does not convey much to readers though PL’s full form is given in AR.
Sir can you request your comment on mafatlal Ind ltd. And kpr mills
mafatlal has a good brand with itself….its a decent company…kpr i am not too keen
Every time you pick gem…This time Gold Mine.. Amazing..!!!
Ace,
Whats your view on everest kanto and responsive industries?
Thanks
everest kanto i am not too keen as of now.. dont track responsive…
Sir your views on Syncom Formulation & Syncom healthcare.Happy friendship day
dont like either one…. happy friendship day to you too sir…
By the by why no vested interest in Deccan?
i normally buy a stock to be able to talk to the company and in this case i did not need to…the company has given enough data in the public domain and most importantly is an old company
Oh ok ACE…Thanks for prompt reply…you are great indeed 🙂
Hi ace.plz give ur views on sri ajit paper and pulp.thnx
no view as of now
While comparing the situation of DGML & RPower (though sectors are different), during the initial stages both have not made any revenues. In RPower case, its revenue initiated after couple of years but the stock price today is still not showing much upside.
Will not this DGML be also a speculative investment targeting 2017 revenue??
how can we even think of comparing rpower with dgml? there you are talking about a company who hardly knows anything about power generation, getting billion dollar valuation just on the basis of couple of contract wins..no idea of fuel linkage, no idea of clearances, no idea of power purchase agreements with discoms and just a mere promise. here the company has done exploration of numerous sites, have done the groundwork, is working on reasonable valuations, is unique with massive entry barriers, got the only thing which was holding them back (ML) and working on a thing where the market is massive, not just domestically but internationally…. world wide gold mining companies trade at 2x to 3x times their benchmark indicies…think what it could trade here
Well, the intention is not to compare the stocks.. but the SITUATION.
I invested during its IPO time, when I was a novice and trusted the brand AMBANI. I know I am not the alone who did this.
Since the day IPO of RPower came out, I didn’t have perfect answer to its declining stock movement……I have been listening to various stock experts on media channels, reports and every body has been explaining the technical jargons or long terms holding or price targets or balance sheet status etc etc. I believe you have given an insight on its declining stock story today.
This time for DGML I have invested after thorough research on the story mentioned. Its the story itself which is unique, no need to go through the Annual Report as its already with no revenue.
Thanks and God bless to you!
ok,
will start researching…
ACE
Bought DGML @69.00.
Thanks a lot for this new idea.
kindly do not write your trades here. will not be publishing such info on blog hence forth. Pls understand. God Bless !!!
Sorry ACE,
Was bit excited.
ok np 🙂
I wanted to pick this up today but it shot up by 10%. It is surely is on my radar and will buy once I am convinced at the entry price.
I did buy 2 of your picks today. Rajoo Engineers and Gujarat Themis. Thanks again for your stock ideas.
pls do not put your trades here.
Sorry. My bad. Thanks again.
dear sir,
is DGML also technically a cup and handle breakout in the short term? it could thus give a nice spurt (although today it seems to have done that!).
sparsh.
ok
nice article , thanks . one query your estimates 5-6 rs EPS only ?? this should be about 20 eps as 33 5 profit margin ?? and in global market goldmine company trade @ what pe ratio ? or ev ?
thanks again. i hold from 2012…..
so its Operating margins..then they will have to give interest (given around 70% is via debt),tax in later years etc… so it helps to be conservative. I do not want to “sell” this company to readers (pun intended) so its better to be conservative like i am always.
Good
What do you think will be a “true value” for this stock? I bought deccan gold when it was Rs 17-18 and holding it. Its been a frustrating wait and i am glad as i have made very good gains. The thing is this company does not have anything other than ML and they need to raise money quickly.
Estimating the gold reserves already declared. What do you think about the “true value” for this stock.
you were holding it at the wrong time because the trigger based stocks should be bought after one get’s confirmation on the trigger or else the opportunity cost is high. What is the point of getting frustrated when finally you are seeing the trigger being played out. This is the time to be in and not to think of “true value” which is nothing but trying to find out a price at which one should get out. Anyways, as mentioned numerous times on the blog, neither do i give targets (that’s a fool’s game) and nor i do portoflio management. All i would say is that your buying price in the current context is good, combined with right’s issue, it could be an interesting play from hereon.
Gujarat themis hit new high ace 🙂
🙂
Kudos…Ace Sir…fantastic recommendation….perfect timing…I do agree stock prices discount the future well in advance.
Best wishes
Can you please also clarify the GMSI position:
GMSI website says – It is jointly owned by Australian Indian Resources (AIR), Perth (80%) and Sun Mining and Exploration Limited (20%).
AIR website says – AIR acquired 100% stake in Geomysore Services (India) Private Limited (GMSI)
So in case of takeover, DGML would buy stake from AIR or is there any other angle in it?
how does it matter to us …..right?what’s important is to see how this takeover pans out and the valuations….
at what valuation world gold mines company trades ??? if you can guide us then we can idea of this company’s future …. thanks
there’s enough idea given in the stock story about valuations… kindly atleast read the stock story in detail
Hi Ace,
Recently there is news of Right Issue by this company with almost 75% discount on current price. Right issue price is Rs 17/- per share. I bought around 50 shares of this company @ Rs 73/- on very next day after your post. I believe, opting for Right Issue could be a good decision, however, I would like to know your opinion.
Please advise.
Thanks,
Gopal
yes, definitely subscribe to the rights issue.
Unfortunately, I was unable to subscribe the right issue due to some other priorities.
However, this stock is currently trading at around 28 Rs. I bought few quantities after your posting at Rs 75. I think, I should do average by getting it at current price.
What is your opinion?
your money, your portfolio and therefore, your decision.
Can we sell allocated Rights online before closing rights issue?
i did not understand your question
Hi Ace,
I tried searching a lot but I am unable to find the following piece of information. Could you please let me know the last date for buying shares of Deccan Gold, in order to be eligible for the rights issue? As in, lets say if I buy 100 shares today (27 Aug), then am I eligible for 50 shares @ INR 17 per share from rights issue?
Also, it would be great if you could highlight the rights issue subscription date, as I am unable to find it on moneycontrol and other sources.
i dont think the record date is announced..
Thanks for the response Ace. But can you please help with the earlier part of my query as well?
Could you please let me know the last date for buying shares of Deccan Gold, in order to be eligible for the rights issue? As in, lets say if I buy 100 shares today (27 Aug), then am I eligible for 50 shares @ INR 17 per share from rights issue?
till the record date, anyone to buys shares would be eligible for the rights issue.
Hi Ace,
Once a shareholder applies for rights issue, is it mandatory for the company to allot him one rights share for every two shares? Or is it based on any other system such as lottery?
Please clarify.
Thanks.
rights issue subscription is just like any other issue… if its get’s oversubscribed then the subscriber may or many not get the allotment just like IPO or FPO
Hello Ace, What is the reason for sudden price change for DGML (22.5% dn from yesterday), I read on news but could not fully understand on Can you give some insight.
its ex-rights price…
I am sorry but did not understand from this clue, can you please share more info on it?
not sure what clue you are talking about….what is it that puzzles you in the answer?
The reduction is price is due to ex-rights-price, So am I on the receiving side of the rights issue? I didn’t receive anything so far? If the price is reduced and rights issues are given I shall be receiving a part of benefit in proportion of my investment?
if you apply for the rights and you are allocated then yes. Please google to know more.
Hello Ace.
How can one subscribe to RIghts issue is he is an NRI??
if you can buy stocks, IPOs then i dont see any reason why you cannot subscribe to rights… please check with your broker
Just an update on RI announcement:
– Issue Opens on : October 14, 2015
– Last date for requests for Split Application Forms : October 21, 2015
– Issue Closes on : October 28, 2015
Thanks for the update
Hello ACE
Listen the last IR audio. After this RI, mgmt is going to raise another fund through debt which has been mentioned earlier by you. The amount of debt will be much higher than this RI, somewhere $100 mn. Do you see any risk for DGML with this debt? Can you please share your thought about probable d/e ratio after this?
Thanks
Himadri
how can debt be compared with RI…. ? both are different instruments. Please go through the stock story.
Hello Ace
This question is not just specific to DGML but we can take this as an example since the scenario is relevant. If one is a new investor interested in entering a company which is currently going through a rights issue, is it advisable to wait till the rights issue is over? Or that should not make a difference?
So should a new investor enter DGML now or wait till Oct 28? Would there be any triggers to look for?
Thanks
i dont believe in waiting like this. This is a flawed logic. One should go for it irrespective or rights and also subscribe to rights.
Is it possible for one to buy it at CMP on monday and then also subscribe to rights? Sorry this is my first experience in this scenario.
you will get answer to this question by a simple google.
Dear Ace,
I am newbie in the investing world and bought some shares of DGML@69 , but don’t know about this Rights issue. Can you explain what is right issue and is there any disadvantage if i don’t apply for it? And how to apply for it
google the blog. everything is explained here. its better to do this before posting comments. everything is answered on DGML and dont think its productive to keep on repeating the same thing again.
Hi Ace ,
with regard to deccan gold . Any particular reason that promoters have not subscribed to the rights issue themselves .there holding has declined to less than 30%. whats your current view at this price.
Thanks and Regards
pls search the blog as you are asking repeated question
Hi Ace,
Any idea when is the revenue likely to start for DGML?
you can always participate in the conference calls and ask yourself. nothing wrong in building conviction
Thanks ACE, will try that.
Some movement in DGML after con-call which seemed optimistic to start mining operation by oct(or to get required approvals), as always with DGML difficult to predict time lines. It has been patience building and conviction building exercise for me. Hope story unfolds as expected.
Hi Sir,
I have read this story and pretty much impressed with the stock, My average price is around 41rs/- and would like to hold it for 5 to 10 years time. Could you please provide your views in terms of down side of this stock.
Br
Vinay
Noone can say that but technically its 41rs…pun intended.
This pick of yours might be forgotten one but the stock is coming to limelight again owing to action in the Karnataka sachivalay. Recently file was approved by the law department and the management has given a statement saying the observations were in favour of granting dgml LOI for ganajur. It’s hutti hearing is also complete. Loi is just of time and it can come any moment now.
forgotten…might be your opinion.