New DROOY Institutional Holdings

Jason Hommel

If you go to Nasdaq.com, and you enter in your favorite stock, like DROOY, there are a number of things you can check about the stock. An interesting link is the Holders/Insiders link. You can see that 4.2% of DROOY is held by 32 Institutions. Even further, you can see the names of these institutions. Even better, you can see the total holdings of these institutions, and even what stocks they are invested in. For example, Jennison Associates LLC has $7 million worth of DROOY, but the value of their portfolio is $45 Billion. DROOY’s next largest institutional holder is FMR Corp, which recently purchased $4 million worth of DROOY, and the value of their portfolio is a staggering $452 Billion. Here is a table of DROOY’s largest institutional investors, the value of their DROOY holdings, and the values of their overall portfolios.

The tiny portion these institutions have invested into DROOY when considering the overall net worth these institutions is huge. The potential buying power in these few institutions is mind boggling. DROOY’s entire market cap is less than half a Billion.

That DROOY has attracted the attention of FMR Corp and other large institutions is indeed welcomed news! FMR Corp has a potential buying power of $452 Billion, yet DROOY, and their tiny stake in the company relative to their entire holdings, seems somehow not beneath their interest! They hold over $452 Billion, and have invested $4 million into DROOY. Why? Why would anyone take the time to bother investing less than a thousandth of their portfolio into something? Something to think about.

The next significant thing I note is that there are 6 brand new institutional holders of DROOY as of 12-31-2001. These 6 also have a MUCH larger investment pool than the rest. Total investment size of old holders vs. new: 89.4 Billion vs. 983 Billion! This is extremely bullish news. DROOY is attracting the attention of BIG money investors; and several of them will have to compete with each other for stock if they want to invest in any size that would be significant relative to their overall portfolio!

Another interesting thing is that the address and phone numbers of these institutions are available at Nasdaq.com. To me, this means that I, or anyone, could contact them and advise them about certain facts relative to DROOY.

I wonder if these large funds are aware that several market analysts have recently determined that DROOY should be valued at anywhere from $5-$10 per share by the time the first quarter 2002 earnings report comes out? This is assuming of course that the gold price and rand remain steady, and DROOY’s stock price moves to a relative P/E ratio of 10 or so.

Here are my own calculations:

Considering CURRENT rand devaluation AND dollar/gold price gains to derive an estimated short-term price target for DROOY stock, assuming current values of rand/dollar/gold stay the same.

If we assume DROOY is a break even company at $280/oz gold & 9 rand/dollar, and if we assume DROOY’s costs stay the same in rand, and IF those assumptions are ACCURATE, then we can conclude that the difference between the break even prices and current prices will accrue straight to the bottom line as earnings, and those are numbers we can calculate as follows.

DROOY mines 1.1 million ounces of gold per year.

At average prices of $300/oz. of gold, and at 11.49 rand/dollar

Fixed costs = 1.1 million oz x $280 dollar/oz x 9 rand/dollar = 2772 mil rand.

Likely profit = 1.1 x 300 x 11.49 — fixed costs = 3791 rand — 2772 rand = 1019 rand x 1 dollar/11.46 rand = 88 million dollars — 30% for taxes = 62 million.

If we then assume DROOY’s stock price will move so that the P/E will go to 10:1 ratio, then DROOY’s market cap should be 880 million.

With 157.3 million shares outstanding, simply divide 880 mil by 157.3 mil = $5.59/share for DROOY, or perhaps $3.94/share after taxes.

Of course, I have read from other analysts that DROOY is expecting to mine 20% more gold, but I don’t know if that number is accurate, so I have not included it in my estimates. But, of course, that would significantly improve the bottom line.

I wonder how much DROOY stock a fund like FMR could buy before their purchase decision alone caused the price for DROOY to rise to $10 per share? The huge problem that large institutions face when buying into a small cap stock like DROOY is that they cannot buy in any size without significantly affecting the share price. Small investors may complain about 2-3% commissions, but the large institutions end up paying much higher commissions to get into a small cap company simply because their buying power can drive the stock price up 20% or more. Fortunately for our big friends, they can still buy DROOY cheap, and also benefit significantly if the gold price continues to rise.

Jason Hommel

February 21, 2002

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