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Gold/Mining/Energy : NORTHGATE EXPL (NGX.TO) -- Ignore unavailable to you. Want to Upgrade?

To: John Dally who wrote (18)	6/6/2002 7:53:49 PM
From: loantech	Read Replies (1) \| Respond to of 158

John, Are you saying they still have the committment to deliver the 820,000 ounces of gold at $300.00 after today's news?? Tom

To: John Dally who wrote (18)	6/6/2002 8:32:14 PM
From: russet	Read Replies (3) \| Respond to of 158

Sorry, I do not agree with your logic, and neither do most hedged gold producers. Gold bugs are the speculators, hedged producers are merely attempting to lock in a set price for the gold they hedge. Written call options are short term contracts, and can be called at the end of their short term by the counterparty if the price of gold increases enough to warrant their exercise. If they are called, the company get the premium for the call, plus the strike price for delivering the gold, so they get a set price for their gold. Long term lease agreements cannot be called before their lease period is up, which can be as many as 10 years in the future, and so provide a secure way to guarantee a set price for a portion of annual production in future years. I believe tyke said they will deliver to the written call options that are exercised partially with mined physical gold, capturing the strike price which is still profitable for them and not that far below current prices, and partially by rolling over the called options by delivering with borrowed gold using long term lease agreements with bullion banks. The proceeds of the stock issue will be used to retire debt reducing or eliminating interest payments which are a substantial current cost, so they will increase profitability by doing this. The terms of the leasing agreements will be spread out over several years. Gold miners look at this as locking in a price for their gold,...it is not speculation as they have sufficient production and reserves to deliver mined gold to the leases as they come due. Given the resource looks to be exceeding 10 million oz Au in the near future, they will have plenty of gold to cover the leases when they come due in future years. It may be 3 years of current mine production in total, but they will spread it out over more years than three, so it will always be a small fraction of total annual production coming due in any year. When they bring the North zone into production, gold production will increase, and delivery to gold leases will be even a smaller percent of total production. They may even choose at that time to close the lease contracts earlier by delivering the gold before the lease term expires. Gold bugs may not like it, but if gold bugs were running mining companies, a lot would have gone bankrupt many years ago as declining gold prices would not have given sufficient cashflow to pay off the mining and processing costs, and the debt charges of many gold mining projects in existence today. Gold bugs have been predicting higher prices for over 20 years and the price has declined considerably over that period. In fact, it is the gold bugs that are speculating on the price of gold, whereas a company like NGX is hedging to make sure they get a set amount for their gold,...this is hardly speculation that the price will go down. Any gold that does not have to be delivered into a lease in the year, will get the spot price for gold, so still will get the benefit of higher prices if gold continues to rise. The current gold price, and assumptions that it will continue to climb, is fueling an exploration and development boom among gold explorers and producers right now. If this gold price continues to escalate, two things will happen,...a lot of new resource will be found and brought onstream,...and the price increase will cut into worldwide jewelry demand, evidence of which is showing up even in the last quarter. Eventually speculation demand will peak and recede as the world political and economic situations calm down, stripping the gold price of its support, but the increase in supply will still be there. The pendulum will swing back and the POG will sink. At that time, NGX's hedges will guarantee the company a set revenue for that portion sold forward.