A 20% Return Possible in the Short-Term / Long-Term No-Brainer
Northgate Minerals Corp. (NXG) Northgate Website
One of our favorite gold stocks is Northgate Minerals. We are especially keen on Canadian properties or those outside the potential for Nationalization. Northgate’s primary asset is the Kemess mine, north of Vancouver in British Columbia. In 2005, Northgate produced 280,000 ounces of gold from this mine at an average cost of just $205. The mine also produced 74 million pounds of Copper. 2006 production estimates push these numbers up to 320,000 ounces of gold, 85 million pounds of copper, plus 417,000 ounces of silver.
But this is just the tip of the iceberg. Proven and probable reserves amount to over 5.5 million ounces of gold and Northgate is expanding the Kemess mine north, to a new open-pit with ore reserves projected to 2020. In addition, the recent Young-Davidson acquisition in Northern Ontario, adds at least 1.5 million ounces of gold, with extremely positive drill results set to expand this potential of this property.
Lazy investors taking a quick look may have been turned off by hearing Northgate is hedged. However, Northgate has been aggressively winding down its hedge positions, which now represent only 2.5% of proven and probable reserves.
In addition to high-yield, low-cost properties, positive drills results and being 98% unhedged, we also believe Northgate is an attractive mid-tier acquisition target (market cap $817M), providing further reason to own this stock. Also of note, UBS upgraded NXG to “Buy” on July 27th.
Northgate went on a tear at the beginning of 2006, with the share price more than doubling from January to May. However, the price has since been consolidating in the $3 to $4 range and now looks poised for a huge upside breakout.
Action: We will look for the price to close above $3.90 for confirmation and believe it will encounter little resistance until the $4.60-$4.70 range (potential for a quick 20% gain!) Failure to close above $3.90 in this latest uptrend will negate our buy signal.
