Northgate Minerals Corp (NXG)

[canadaboybill]

Well as long as we are being negative, I am disappointed in the CFO.

The accounting screwup in the previous quarter was clearly all his. How can you miss by 9 million on total revenues arount 110 million. Surely even a rough smell test would ahve shown the mistake.

Also, in CC there was a question concerning q3 vs q2. He didn't have that information. What finance guy wouldn't have the sequential information that looked bad - just the year over year info that looked good. He only needed one page - surely they look at sequential info? IMO, just a weak effort.

And finally, I must admit to being completely lost on this tax loss accounting. I don't know what the f is going on there and what effect they will have. Mr. Douglas's explanations provide zero help. In fact after q2, I was expecting lots more positive impacts based on his statements.

I think you have backwards impressions on copper importance to NXG. I think the company is moving away from copper, because they know it pulls down valuation. Plus KN is mostly copper, so they don't need any more. I think that's why Sustut was killed.

On q4 and q3, I think production schedules are set at the beginning of the year and are likely hard to adjust. Q3 expectations did come down as the year progressed tho.

TD values YD at $62 million on NAV, KN at $0. I believe they use $40 per resource ounce. Increase resources and it will increase accordingly. Turn resources into reserves and you get another pop. Now they will use projected profit (about $300 an ounce) discounted at 5%.

To give you an idea, say they announce 3 million in YD resources, worth about $120 million - that's an additional $60 million which gets their very lowest multiple of 1.25 to equal $75 million or another 30 cents on target price (using 260 million shares after warrants). Turn them into reserves and you get a big pop well north of $2.00 a share. That would move their target from $4 US to $6 US. We have a while to wait for reserves for YD - I think 2008.

KN with 6.7 million RESERVES (and growing) valued at $0, is a huge potential, if mgmt can find a way to extract them on a profitable basis. I've always felt that KN was an easy double for SP, but it is clear now that they need some mechanism to lock in the copper price.

If I was a manufacturer requiring copper in my business, I would be interested in locking away some of my long term needs (10 years) at say $2.50 a pound. In the short run, I would save $1 a pound over the spot price, and I could be assured that my pricing would be no higher than $2.50 should China and India demand drive prices even higher. That's who NXG should be looking to partner with. That extra 90 cents for NXG spells big profits for KN. I wouldn't hedge just 47% either - I would hedge however much is required to virtually guarantee a 20% return on investment for KN, using $1 a pound for non-hedged copper.