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Northgate Minerals Up 2% as Credit Suisse Lowers Estimates

Credit Suisse lowered its estimates but kept an Outperform rating and US$4 target price on Northgate Minerals (NGX.TO).

Valuation: "Our DCF has increased to $3.68/sh (from $3.34/sh), primarily the result of lowering our development risk discount at Young Davidson to 0% (from 10%) and ascribing a $169M ($100/oz resource ounce) value for Kemess UG, which was partially offset by weak performance at the Australian operations. We apply a 0.9x P/NAV Target multiple to our cash adj. NAV and add net cash of $0.70/sh (from $0.78/sh) to arrive at our Target price of $4.00. Our Outperform rating remains unchanged."

"NGX announces retirement of CEO, Ken Stowe, expected by year end, once a successor has been appointed."

Investment Thesis: "NGX is trading at a discount to its peers as the current but temporary overall high costs and negative production growth in 2011 are impacting the share price. To illustrate the point, the DCF of Young Davidson (YD) alone represents ~95% of current market capitalization of the company, with the Australian operations and Kemess North as free options. YD is scheduled for commercial production in 2012, and thus we believe the stock will rerate within the next twelve months. We believe that a re-rating would be even more pronounced if the new CEO were to rationalize the cashflow-negative Australian operations."

EPS revisions: "We have lowered our 2011/2012/2013FY EPS forecast to $0.06/$0.10/$0.22 (from $0.11/$0.11/$0.29) due to higher costs at the Australian operations, higher share count and adjusting YD commercial start up expectations to Q2/12 from Q1/12."

2011 production guidance maintained, CS est. revised down: "NGX reiterated 2011 production guidance of 195-205kozs at cash costs of $805-$845/oz. We have revised our 2011FY gold production estimate to 191kozs (from 200kozs) slightly below the low end of guidance at increased cash costs of $831/oz (from $814/oz).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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