Northgate Minerals

Silver Stock Report

by Jason Hommel, April 7, 2006

Northgate Minerals (NXG)

Forgive me for promoting a gold stock, instead of a silver stock, but this one is so good, I could not pass it up.

My last email was on March 23rd.  You can access my email archive (including the last full silver stock report) here:

Northgate Minerals (NXG)
Share Price: $2.57
Market Cap: $551 million.
Earnings 4th Q, 2005: $.18/share, $.72 annualized.

Northgate is currently profitable, with a very low Price (Market Cap) to Earnings ratio, which shows that the stock price must move up strongly, and soon.  Northgate is actively mining copper and gold, and based on 4th quarter earnings from 2005, has a P/E ratio of about 3.5, which is very low.   Northgate had earnings of $.18/share in 4th quarter.  $.18 x 4 = $.72.  $2.57/$.72 = P/E ratio of 3.57.  

A typical P/E ratio is about 6-7 if very cheap (the bottom of bear markets), about 10 if "realistic", and about 20-40 if in a bull market. 

Thus, Northgate stock is extremely cheap, and the stock price could rise perhaps tenfold to about $25/share.

The net realized metal prices received on sales in the 4th quarter of 2005 were approximately $453 per ounce of gold and $1.98 per pound of copper.  Gold is now above $600/oz., and copper is above $2.60/lb., thus, 1st Q, 2006 is going to be much better for Northgate.

Northgate Reports Record Quarterly Earnings and Cash Flow and Announces That its Project Debt Facility Has Been Retired
(Thu, Feb 23)

Northgate Reports Fourth Quarter Gold Production of 94,405 Ounces, at a Record Low Cash Cost of $59/Ounce, Production of 320,000 Ounces Forecast for 2006
(Tue, Jan 17)

Northgate is the lowest cost gold producer ($59/oz.) for any company its size or bigger.  It's even lower cost than Goldcorp (about $150/oz.), which has an extremely high P/E ratio of 37, compared to Northgate's P/E of 3.5 (or lower going forward with higher gold and copper prices).  Anyone of my readers who owns any of the major gold producers should sell those stocks to buy Northgate, in my opinion.

I don't like buying a "non-silver" stock, because I'm so very bullish on silver outperforming gold.  However, in the 8 years that I have followed this bull market, I've never seen a gold stock with such a low P/E ratio, and I didn't want to miss this one.

Additional information: 

1.  NXG just paid off debt.  NXG has about $41 million in cash.  NXG expects to eliminate the last of copper and gold hedges by the middle of 2006 at the latest.  (If I see that NXG adds any hedges, which is pre-selling any copper or gold at set prices, then I will sell.)

2.  NXG has about a 4 year mine life, but with additional resources that appear to be economic and should bring total mine life to 10 years.

3.  I first promoted NXG to my list of paying subscribers, who pay to get a monthly "look at my portfolio" on Feb 1, 2006, in my email here:
Since that time, NXG has risen from about $2.10/share to $2.57/share, a gain of about 22% in just over 2 months.
In that time, silver has risen from about $9.50 to $12.05, a gain of about 27%.  Is that a loss?  Yes, since I measure performance by silver.  But I feel that there is a great chance that more people will more easily be able to see NXG has the potential to rise faster, sooner, than silver, from here. 

By the way, the best time to subscribe to look at my portfolio for a month, if you want to test it out, is right after the start of the month, such as now.  This way, for one month's fee, you can look at two fresh "looks" at my portfolio, this month, and next month when it comes out. 

To subscribe:

Disclaimer:  I own shares of NXG, and NXG has not paid me to send out this email.