NSM - Jay Taylor
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From Jay Taylor newsletter, March 25, 2006
...that friend of mine who was one of the first in the Canadian resource sector to raise capital for gold-mining firms clued me into this story back in 2003. We recommended it on July 26 at $0.25, in large part because of his recommendation. I have been up to visit the company's Midway Mine twice since then, so I have seen the progress NSM has made from just after President Michel David successfully tested his geological theory until a few months back when I saw the newly constructed head fame up and a real
mining operation about to begin.
Baby Agnico Eagle
My financier friend deserves much credit for the evolution of this mine, because he raised the capital to allow President David to test his geological theory. While Michel had a logical reason underpinning his theory, still it was a theory and as such represented very high risk capital. That initial capital was raised at $0.15.
After Michel David first successfully tested his theory, my friend brought this story to me. At that time, he referred to Northern Star as "Baby Agnico Eagle." Certainly, NSM has a way to go before it can be compared to Agnico Eagle, but from what I see, it has made very rapid progress toward
that end and it has done so at a remarkably low cost.
NSM's Midway Mine at Val d'Or, Quebec, is 100% owned and this property includes part of the old Malartic Goldfields Mine where some two million ounces of gold were produced in the past. A major plus for the company is the presence of a shaft and underground workings that provide an enormous
cost advantage to NSM. The shaft itself that extends down to some 2,000 ft. would cost $20 million alone if it had to be constructed today.
When I last visited the mine, the old workings were being dewatered. That process has been continuing. Very soon, bulk sampling and production will commence and, based on what I have read and heard,
I anticipate gold production this year to range between 12,000 and 20,000 ounces.
In 2007, gold production should range from 37,000 ounces to 60,000 ounces.
Then in 2008, it is conceivable that upward to 125,000 ounces could be produced.
By year 2007, operating costs should be around $250 per ounce, which, given the current gold price of $550, suggests a solid profit margin.
>From underground, more exploration can take place at lower costs. Depending on future exploration successes as well as the potential for the underlying porphyry structure to contain ore grade gold mineralization, we could see a
more aggressive mining plan that could enable this project to expand production beyond 250,000 ounces per year by way of a second shaft. That is in large part speculation on my part. But given the high exploration success rate so far, and the belief supported by some drilling into the porphyry structure appears to feed the higher grade lenses that occur at
predictable intervals from one another, it is a speculation I believe is based on strong reasoning. Time will tell. As they say in mining, "the drill is the truth machine." But so far, this management team has not disappointed in terms of its exploration success.
But even if NSM is not able to expand beyond something on the order of 125,000 ounces per year, what I think we have here is the potential for a long mine life, given the depth of these structures. Mining had taken place down to about 2,500 ft. in the past and did not go deeper than that because
of limited technology. But now mining can extend down two or three times that depth, as it does at Agnico's LaRonde Mine down the road from the Midway.
I'm well aware that open-pit projects are more attractive to many investors interested in investing in exploration plays, because those surface targets allow for a much quicker and much larger resource target against which the market can assign a higher value. Mining from depth entails considerable
capital costs related to mine construction that you don't have with large-scale, open-pit mines. But given the geology of the Midway and some deep holes put down to date, there is virtually no question in my mind but that there is a multimillion-ounce gold resource here and that the Midway
may well be a mine with a long life. Also regarding these higher-grade underground mines, investors should additionally consider the fact that higher energy costs are often now making these kinds of projects relatively more economically viable than low-grade, bulk-mineable gold projects that
require high energy cost inputs.
I told Kim Parlee in my "Stars & Dogs" interview that I would not consider NSM to be fully priced until it was at $2.50 to $3.00. That's how I see it now. However, with higher gold prices and/or more exploration success, those numbers could change. But for now, I am very happy to continue owning
this stock as a long-term investor.
stockhouse.ca;
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From: marci58
3/20/2006 9:20:48 PM
Read Replies (1) of 46806
jay taylors picks on stars and dogs aired on robtv after the close:
nothern star mining NSM.v
pelagio mines plg.to
cadente resources dnt
marci!
Message 22278629
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