Miners Priced to Move: Northgate Minerals

It's no secret that precious metal stocks have enjoyed noteworthy strength here as metal prices continue their multiyear advance. But even the hottest sector around can have its laggards.

When a rising tide like gold and silver seeks to carry all ships, turn on your Foolish sonar, and locate some submarines before they reach the surface.

Currently, some of my own sonar's loudest pings are bouncing off of Northgate Minerals (AMEX: NXG  ) . This stock came out smelling like roses when I lined-up five junior gold producers in a side-by-side comparison back in July, and 44% of respondents to our Motley Poll agreed Northgate was the cream of that crop.

Despite another solid year of gold price gains, however, Northgate's stock has gone absolutely nowhere in 2010. Initial production targets were stymied by disappointing shortfalls at the company's two Australian mines (Fosterville and Stawell). As my colleague Andrew Sullivan suggested within his own bullish assessment of Northgate, investors may also be discounting a rather light year of production for 2011. Northgate is laboring to build the Young-Davidson mine (targeting production in the first quarter of 2012), while the outgoing flagship Kemess South mine approaches the end of its operating life.

But just because the stock has been asleep, doesn't mean the company has! Northgate continues to deliver shareholder value by the most efficient means possible in this industry: by the tip of the exploration drill.

This week, the company unveiled phenomenal results from drilling aimed at establishing the potential for an underground operation at Kemess North (where an open pit mine permit has previously been denied). Intersecting wide zones of high-grade gold and copper ore -- including one 80-meter interval with 2.4 grams of gold per ton and a copper concentration of 0.78% -- this underground mine option is beginning to look very promising from a stanpoint of economic feasibility.

Meanwhile, those Australian mines continue to telegraph additional reserve expansions in the works as Northgate reveals high-grade intercepts at both properties. At Stawell, where production is now expected to return to normal going forward, new discoveries like the Waterloo zone are yielding gold grades as high as 24 grams per ton over a promising 10.6-meter interval. At Fosterville, the Phoenix deposit -- not to be confused with Rubicon Minerals' (AMEX: RBY  ) similarly named bonanza in Ontario -- is shaping up nicely as an organic growth engine of its own.

The way I see it, anyone can latch-on to gold and silver's obvious momentum leaders like New Gold (AMEX: NGD  ) or Silver Wheaton (NYSE: SLW  ) , and I personally see no obstacles in the way of further success for these proven highfliers. A clever Fool, meanwhile, may also wish to bet that the greatest upside potential in the sector lies in the previously punished shares of turnaround stories in the making. I like Gammon Gold (NYSE: GRS  ) and Coeur d'Alene Mines (NYSE: CDE  ) for those very reasons, but Northgate Minerals turns that dynamic duo into a terrific trio. To keep your sonar focused on this stealthy submarine, click here for ongoing Foolish coverage.

The Fool owns shares of Northgate Minerals. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Coeur d'Alene Mines, Gammon Gold, New Gold, Northgate Minerals, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On December 02, 2010, at 10:34 AM, jesusfreakinco wrote:

    Been waiting for CDE and NXG to wake up. Let's hope the investor sentiment for these stocks pick up. NXG also appears to be a nice buyout target.

    Thanks as always for your analysis.

    JFC

  • Report this Comment On December 21, 2010, at 11:29 PM, catoismymotor wrote:

    I love it! I just ran this afternoon a screen, saw this one, started looking deeper into it only to see that YOU, the guru of PM, likes it as well. I hope this means I am improving instead of you slipping.

    Just kidding about the slipping thing.

    Happy Festivus!

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