The Greatest Gold Stock in the World

I just put together my Top 10 Gold Stocks for New Money Now series, and already two of my very favorite picks in the sector are joining forces to build the newest dominant prospect among the mid-tier miners of gold.

On Wednesday, Northgate Minerals (AMEX: NXG  ) dove into its proverbial pot of gold with an all-stock offer to acquire Primero Mining (OTC: MNOCF). Primero shareholders will receive 1.5 Northgate shares for each Primero share and hold 31% of the pro forma Northgate. Goldcorp (NYSE: GG  ) , with a 35.5% stake in Primero, will hold 11% of pro forma Northgate after voting its shares in favor of the deal. This is the most exciting gold deal I've seen since Primero's founding transaction about a year ago, so let me try to explain what I like so much.

Northgate Minerals had been temporarily stymied by a brief gap in its development pipeline, and it was staring down some slim production volumes at substantially elevated costs from its two Australian mines over the next several months. In the meantime, forward-looking Fools capitalized on the opportunity to position themselves for years of profitable mining from the Young-Davidson mine beginning early next year. As soon as the ink dries on this deal, Northgate will have filled its near-term production gap in one fell swoop -- and filled it in style with comfortably profitable gold and silver production from one of Mexico's truly legendary mines. With Primero's annual threshold of 3.5 million ounces of silver already delivered to stream-holder Silver Wheaton (NYSE: SLW  ) for 2011, Northgate will now enjoy lucrative spot-price exposure for 50% of silver produced through the remainder of the year.

Primero Mining had remained underappreciated, deeply undervalued, and even unknown to many U.S. investors since the company leapt onto the scene last year by acquiring Goldcorp's San Dimas mine. Since U.S. investors typically had to venture onto the Pink Sheets to access Primero's shares, I eagerly awaited a U.S. listing to enhance the stock's visibility. This deal accomplishes that feat in dramatic fashion! At the same time, Primero's president and CEO, Joe Conway -- revered within the industry for his leadership in building IAMGOLD (NYSE: IAG  ) into a mid-tier powerhouse -- will now lead Northgate Minerals as its new CEO through a targeted 72% pro forma production expansion within just two years! With increased capacity at San Dimas and Young-Davidson ramping up toward full production during 2012, Northgate expects to catapult from 320,000 pro forma ounces of gold in 2011 to 550,000 ounces in 2013.

Just this week I wrote the 7 Secrets to Profitable Gold Investing, where (here in Part 3 of the series) I discussed Primero's unrivaled outlook for exploration upside as a key factor behind the stock's No. 2 ranking within my most recent gold recommendations. Strangely enough, Northgate had previously earned the No. 2 spot within my Top 10 Gold Stocks for 2011 last December.

So what do you get when you combine my former No. 2 gold stock recommendation with my current No. 2 pick? Simply stated, and hands down, you get the premier investment vehicle for growth-hungry gold investors. That's right, this perfect pairing forces me to adjust my rankings once more, and place Northgate Minerals -- ahead of even the venerable Brigus Gold (AMEX: BRD  ) -- as my new No. 1 pick in the sector. Moreover, for a beautifully balanced arrangement of exposure to gold assets primarily located in the mining-friendly jurisdictions of Canada and Mexico, a Foolish trio of top-three gold stocks -- Northgate Minerals, Brigus Gold, and AuRico Gold (NYSE: AUQ  ) -- could collectively offer a perfect pairing.

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 all the companies mentioned: AuRico Gold, Brigus Gold, Goldcorp, IAMGOLD, Primero Mining, 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's disclosure policy lives in a pot of gold at the end of a rainbow. 


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2011, at 6:35 PM, speedybure wrote:

    Great Article Chris, I think your spot on! I also like how the will be buying future call options to negate that which is payable to Silver Wheaton.

  • Report this Comment On July 15, 2011, at 8:40 AM, Jbay76 wrote:

    Sinch, this is spectacular news! What do you think the possibilities are that NXG will pay off SLW to claim 100% of the mines production?

  • Report this Comment On July 15, 2011, at 9:05 AM, XMFSinchiruna wrote:

    JBay76,

    Not likely, in my opinion. I would have to go back to the contracts and check, but I'm not even sure each stream contract carries a buyback provision. If anyone has a chance to review the contract, feel free to report back.

  • Report this Comment On July 15, 2011, at 9:56 AM, Jbay76 wrote:

    Sinch,

    Your right. According to SLW website, the agreement between SLW and Primero was for the life of the mine:

    "On August 6, 2010, Silver Wheaton amended the silver purchase agreement relating to the San Dimas mine pursuant to Goldcorp’s sale of the mine to Primero Mining Corp. The term of the silver purchase agreement, as it relates to San Dimas, was extended to the life of mine."

    What does this statement mean, what are its implications? Is this to allow SLW to refuse a steam that doesn't meet a certain grade?

    "Primero has provided Silver Wheaton with a right of first refusal on any metal stream or similar transaction it enters into."

    Thanks

    J

  • Report this Comment On July 15, 2011, at 9:57 AM, Jbay76 wrote:

    "What does this statement mean, what are its implications? Is this to allow SLW to refuse a steam that doesn't meet a certain grade?"

    For clarification, this question focused on SLW right to refuse a metal stream.

    Sorry

    J

  • Report this Comment On July 15, 2011, at 11:05 AM, XMFSinchiruna wrote:

    JBay,

    The life-of-mine portion does not necessaily mean there is not a buyback provision somewhere in the text of the contract. The right of first refusal just means SLW gets first dibs on any future royalty stream agreements that the company may enter into (i.e. for another property). I am concerned you may be confusing readers a bit here, so let's you and I finish this dialogue another time on my blog. :)

  • Report this Comment On July 15, 2011, at 12:13 PM, Jbay76 wrote:

    Sinch,

    Sounds good, sorry for the detraction!

  • Report this Comment On July 17, 2011, at 6:36 PM, skypilot2005 wrote:

    Alexandria FYI:

    http://www.azx.ca/news/news2011.html

    http://www.azx.ca/news/2011/news20110615.html

    June 15 2011:

    Alexandria Drills 6.73 g/t Gold Over 10.50 m at Akasaba, Deepens Eastern High Grade Zone by 150 m to 470 m Depth

    Drill hole IAX-11-148 intersected 6.73 g/t Au over 10.50 m (True Width, 5.25 m), including 26.65 g/t Au over 1.50 m and 21.51 g/t Au over 1.00 m. The intersection occurs in the Eastern High Grade Zone at a vertical depth of 470 m, which is 150 m below the next nearest holes, IAX-11-106 and IAX-09-54, which intersected, respectively, 3.45 g/t Au over 16.10 m, including 19.74 g/t over 2.40, and 2.77 g/t Au over 18.90 m, including, 57.20 g/t Au over 0.50 m (Press Releases, January 20, 2011 and May 26, 2009).

    Eric Owens, President and CEO of Alexandria Minerals, said, "These robust numbers are impressive for the broader widths demonstrated at deeper levels, and show the excellent potential for expansion of the deposit. We are now following up on these results with further offset holes ."

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On July 18, 2011, at 7:08 AM, skypilot2005 wrote:

    Gold Rallies to Record in Best Run Since 1980

    Glenys Sim and Nicholas Larkin, On Monday July 18, 2011, 3:34 am EDT

    http://finance.yahoo.com/news/Gold-Rallies-to-Record-in-bloo...

    Sky Pilot

    Official Web Link assistant to Sinch

  • Report this Comment On July 19, 2011, at 2:34 AM, silvermind wrote:

    skypilot,

    Yeah - I posted that 6/15 AZX news on this blog a month ago - great news! Funny how AZX is down 30% since I bought in at an average of .225. Oh well, I expect it to pop this year maybe in the fall and keep going like crazy! $2/share in two to three years is very doable for AZX.

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