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Thursday, October 28, 2010

Deccan Gold Mines Ltd:-A proxy play to gold

Scripscan:Deccan Gold Mines Ltd
Cmp:23
Code:512068
Target:27.60
Return:20%
Duration:3-4 months.

Story:Why I like it at present juncture:-

1)Deccan gold mine is the only listed company engaged in the gold exploration sector.Deccan gold has got close to about 10,000 square kilometer of prospective blocks in different states.

2)India produces just 3 tonne of gold per annum as compared to 300 tonne, produced by Australia.Gold mining business is just like the oil exploration business, where there is a high degree of uncertainty involved. Nobody knows whether the amount that is being spent for the exploration process will really yield any results or will have to be written off.But these company is something which can yield windfalls of gains in the long run.

3)Even if deccan gold gets no mines people would always look at it to be the proxy play.The management has guided a revenue figure of around 300-400crs for 12-13.

4)As the industry has got a very high operating margin even if deccan gold delivers half of that revenue it would attract tremendous buying attention from all sorts of investors fraternity.

5)They have recently hinted of finding some gold which is yet to be reflected in the stock price.Its a good tradeable counter too which often falls to 22-23 to inch up to levels of 25-28.Downside to me looks very limited and I put a short term buy on it with a target price of 27.60 to be achieved within the next 3-4 months.

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