17c for breakout, page-34

Yep, those numbers look pretty good. Given a head grade averaging around 1.8g/t, NGF needs consistently high gold prices in order to be profitable.

However, just to add a bit of sobriety back into the equation, a positive resolution to the Lehman hedge issue is important. I would like to think that they can reduce their per oz costs below $A874/oz reported last quarter. However, the majority of their hedge is at $A875/oz. Therefore, unless they can improve performance, in the event of a bad outcome on the hedge, all of the cashflow from a higher gold price goes straight to Lehman, to the extent that they deliver ounces into that hedge. I reckon that they would have to put about half of their production into it each year, at present rates. Therefore, they are mining half of the year for Lehman's benefit and only half for the shareholders.

With most lower cost producers, at least they receive some kind of margin, because their costs of production are lower than their hedged amount. For example, they might be producing at $600/oz on a $875/oz hedge, so even though the hedge accounting recognises an "opportunity lost cost" of present market value, minus $875/oz [eg. $1,300/oz - $875/oz = $425/oz accounting loss], they are still actually banking $875/oz - $600/oz = $275/oz net.

This is one of the reasons I put so much time into examining the hedge issue (and why I am very pleased that management is taking a conservative approach to setting aside the money which might be required to pay the hedge, rather than spending it now and worrying later).

To put their March 09 cost performance into perspective, Dec 08 quarter was $A795/oz, Sep 08: $907/oz, and Jun 08: $659/oz. So, it shifts around a fair bit. From Dec 09, underground ore from Homestead will be added and that is a better grade (7.4g/t est.), so per ounce costs should decline substantially in calendar 2010.