The SF t1ps gold fund letter discusses the situation at Norseman and makes a recommendation to buy up to 15p (23.5c).
They note that there has been much discussion concerning ‘Note 30’ in the annual report. T1ps now consider that the market has over reacted to a statement that the Red Kite facility had been drawn down, as this note was nothing more than an accounting standard requirement. Their understanding now is that all of the Red Kite money has not been spent and that NGX are not under financial stress. They also report that NGX’s auditors has stated that Norseman was 100% a going concern and it that note 30 was a means of ‘covering all bases’.
Also, the crucial hard rock from North Royal needed to blend with the softer oxide material will be fully online by 4Q11. Even if there is a further delay here cash from the three other mines should be sufficient to see the company through.
The overall investment case for NGX is that on an annualised basis the company should produce 100,000 ounces of Gold once North Royal comes online fully. The accounts noted for the company to continue operating it would need to produce 85,000 of Gold at A$1,450. Given that the POG is above $1,650 there is a material amount of production leeway.
Notwithstanding the seriously poor track record to date, t1ps view is that the margin of safety here is now so great that the evident short term risks are more than discounted and t1ps regard NGX to be a speculative buy.
K
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