Northgate: Mid-Tier Gold Producer with Strong Cashflow

Northgate Minerals (NXG) is a mid-tier gold producer with mining operations and resources in Canada and Australia, both geopolitically stable and safe countries. The Company is projected to produce 385K ounces of gold this year and to maintain gold production of 350K-400K ounces in future years. Just like every other junior miner (even though NXG is not a junior), Northgate's stock price has been on a downward trend since late last year, which was traded at one point over $4.50 back in May 2006. This pressure, however, has not been caused by equity financing or risk of refinancing, as in the case of some juniors. In fact, Northgate has not done any equity financing since 2002.

Mr. Ken Stowe, the CEO of Northgate minerals, was in New York City to talk about the Company last Thursday (8/14). Financially, he says, Northgate is very strong right now. With its production estimate of 385K ounces of gold, and average cash cost of $350 per ounce, with today's gold price of $800, It is expected to generate strong net cashflow about $170MM from operations this year, with the latest Q2 report showing $41MM for the quarter. This free cashflow in 2008 is more than a third of its current market cap at $440MM. One reason that Northgate's stock price has been under a lot of pressure for the last two years, besides the slump of the mining sector in general even with higher gold price, is that its major mine of Kemess South will reach the end of its mine life in mid-2011, which accounts for over half of the company's gold production in 2008.
However, Northgate has been very active in acquiring and developing future resources in the last several years. They now have 3 other mining operations ongoing, Stawell and Fosterville in Australia and Young-Davidson in Canada, besides Kemess South mentioned above. The production in Kemess South is expected to be around 200K ounces this year and next, but to decline to 100K in 2010, and reach its end life in mid-2011. However, production on Stawell and especially Fosterville is likely to offset the shortfall in Kemess South, if not more.