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

To: John Dally who wrote (33)	6/7/2002 9:42:00 AM
From: peter snowdon	Read Replies (1) \| Respond to of 158

i'm not sure that valuing the company based on reserves/resources gives a positive result, tho. per oz of either category, NGX is more expensive than HGMCY, for example, and Harmony is making money hand over fist, because its total costs are lower. so the case for buying NGX, for me, would have to be based on something else: leverage to copper; better exploration/reserve replacement potential; relative lack of political risk; relatively unknown to dumb money = greater potential for speculative overvaluation.

To: John Dally who wrote (33)	6/7/2002 11:43:35 AM
From: russet	Read Replies (1) \| Respond to of 158

Also, your math is wrong: NGX can buy all the gold it wants today at $326, but is obliged to deliver 400,000 oz at $301. The cost to NGX is $25 / oz x 400,000 oz = $10m. Which 400,000 oz are you referring to, the longer term leased contracts, or the 400,000 oz gold options they wrote? They have stated that the options contracts will expire or be delivered to by the end of the present quarter. Some will expire worthless. The $301 is an average price,...some exercise prices will be higher, some lower. They must deliver gold to the ones they are exercised on, so they have 3 ways to get that gold. (1) They can deliver gold from their production inventory, (2)They can buy gold at spot for $325 (not the $25 you say they can buy it for), (3)Or they can borrow the gold from a bullion bank using a forward lease contract that they will deliver production gold to in the future. My reasoning makes me believe they will use the stock issue to pay down bank debt, and use very little to buy gold to deliver to the hedge (I still would like to know how you think they will buy gold for $25 per oz). Perhaps one third of the options will expire worthless because the strike price was too high to be exercised at the end of the contract. Of the other 2/3, or 265,000 oz, 145,000 may be delivered from production (annual production 295,000 oz so production for last 6 months is about 145,000) leaving 120,000 oz. It is my assumption that they will borrow the majority of the 120,000 oz Au from the bullion banks using longer term lease agreements matched to future production to satisfy that, because to buy gold at spot would cost them 120,000 oz * US$325 * 1.5 = CDN$58.5 million. If they bought much gold with the PP proceeds, they would not have enough cash from the private placement to allow them to reduce the bank debt by the amount they say they will reduce it by. They may use some combination of the two, and we will find out when the financial statements come out in a few months. If I'm right, the forward sold lease contracts could increase by about 25% to 500,000 oz, and the written call options will no longer exist.