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Deccan Gold Mines Ltd- co. report

Deccan Gold Mines Ltd - Deccan Gold Mines Ltd is the first privately owned gold exploration company in India to be listed on the BSE. Established as a gold exploration company in 2003, DGML now has a large portfolio of exploration prospects in Karnataka, Andhra Pradesh, Kerela and Rajasthan.

India is the largest consumer of gold in the world but produces only a mere 2-3 tonnes of the precious metal on its own. Hardly any investment has so far taken place in the sector and Deccan Gold is one of the first companies to come into the field.

Government has adopted a liberal policy towards the mining sector and FDI is allowed upto 100%. While this is good, release of Prospecting Licences has been slow and this has prevented large investment from coming into this nascent industry. Being aware of this bottleneck, the Prime Minister and the Minister of Mines have recently set in motion a fast track approach for giving such licenses. It is hoped that this will lead to more production of gold and other precious metals in the country.

Deccan Gold has been promoted by a subsidiary (Rama Mines) of Australian Indian Resources Pvt Ltd. which has considerable experience in Gold mining. In India it is carrying on its activities through Deccan Gold and DGML’s wholly owned subsidiary, Indophil Resources Exploration Services. In 2006 Khemkas of Sun group have also taken an equity stake in the company.

The company has done substancial exploration work in Hutti, Hirenagnur in Karnataka in the Kolar belt and in other potential minefields in Rajasthan , AP, Kerela. The areas in Karnataka, especially have traditionally been the only locations in India where gold has been mined for many years. The company has applied to the Govt. for Prospecting Licences( PLs) and Mining Leases and these are awaited.

Reasons to Buy

  • Only available opportunity in the stock market for entering the exciting gold mining industry.
  • Strong domestic demand currently met almost entirely by imports.
  • Foreign promoters have wide experience in the industry.
  • Last but not the least, DGML possesses mining rights on some of the most lucrative mines in India with proven reserves.

Concerns

  • New venture with no track record of turnover and profits
  • Delays in obtaining Govt approvals may lead to profitability projections not being realized.

Recommendation

I recommend a strong buy on this stock for investors with large risk appetite. The share has a potential to hit a target of Rs 200 in next two years.

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