Junior miners and explorers all but fell by the wayside following the subprime mortgage crisis and the ensuing equity pullback. But now that investors have had their smelling salts, they're ready to wake up to reality: These companies belong to a legitimate investment class, and some of them have potentially lucrative prospects.
Northgate Minerals (AMEX:NXG) is one of a handful of companies that fit the profile of the quintessential small-cap gold mining company, and it deserves a careful look from would-be investors willing to take on some speculative risk in exchange for the possibility of superior returns.
While fiscal fourth-quarter and full-year 2009 financial results most likely won't be available for a few weeks, Northgate earlier this week announced robust production highlights in terms of gold extraction, which totaled 81,098 ounces, at an estimated average cost of $529 per ounce, which is relatively high compared with that achieved at operations like Aurizon Mines' (AMEX:AZK) Casa Berardi and the projected costs at Taseko's (AMEX:TGB) Prosperity.
Room for improvement
So right off the bat, there's at least one area for Northgate to work on, but in terms of readiness, few companies are more prepared than Northgate to take advantage of attractive investment opportunities.
It had nearly $236 million in cash on hand at the end of the last quarter, and that isn't $236 million on the books of a monster such as BHP Billiton (NYSE:BHP) or Rio Tinto (NYSE:RTP). Northgate's market cap is south of $1 billion, making $236 million a staggering amount of liquidity for a company of its size.
Cash to burn
Additionally, Northgate has very little debt, so it's feasible that virtually all of that money can go directly toward growth, either internally, or through expansion. On its website, it details exactly what its "want ad" for a potential investment looks like:
- Late stage exploration development property.
- Politically stable jurisdiction.
- Gold as primary metal.
- Acquisition at a reasonable price.
- Project diversification.
With those guidelines and its mountain of cash, investors' minds can simply reel at the number of possible consolidation, joint venture, and outright acquisition prospects.
Without being overly speculative, it's this Fool's honest opinion that at the very least -- whether organically or through business investments -- Northgate is bound to grow, and at the very least, it deserves a spot on investors' watch lists.
Take the Motley Poll then sound off in the comments section lower on the page about miners, or celebrities, or whatever's on your mind.
