weekend research

I have been doing some research into NGF and I must admit I like what I see if you take into account the current tiny mkt cap of this company.

Basic details are:

Share price at close on Friday – 12.5c

Shares on issue - 69.8mn
Options 20c strike price maturity 08.10.10 - 27.94mn

Now the good bit

Shares Quoted - 32.35mn
Options quoted - 8.29mn

And the even better bit

In the last top 20 I could find we get the following:

Shares 72.2% or 50.4mn
Options 76.44% or 21.35mn

So that means outside the top 20 there is an absolute maximum of

19.36mn shares available (about $2.4mn worth at Friday’s close)

and

6.58 mn options available

A recent announcement contained the good news that NGF is taking on the Mount Morgan Gold Project with its potential 500,000 ounces of gold. Of this 221,000ounces is a proven reserve. The other 300,000 ounces are of lower grade although 20,000 tones of copper is also known to be contained in these lower grade areas (see December 2006 quarterly for the full story).

NGF proposes to produce the first 180,000 ounces of gold at an average cost of US$346 per ounce over the first 4 years of the project.

Taking a gold price of US$600 this would give positive cash flow over the first 4 years of US$ 45,720,000 (or about $55mn)

Then there is also the 300,000 ounces of gold contained within the large slag heaps at Morgan which should also be available for recovery along with the 20,000 tonnes of copper mentioned earlier.

Approvals with the State of Queensland are well advanced by now.

Payment for the project will comprise
AU$175k + 10.49mn shares in NGF – so not very much dilution there then.

The processing plant to isolate the gold will cost about $25mn. But the cost of financing this is already included in the US$346 average cost of recovering the gold. So short term financing will be needed or maybe even a placement of some kind. All of which is good news bearing in mind the obvious profitability of the venture.

Don’t forget that NGF will also be able to run its produce from the Norton mine through the new processing plant as well giving in effect 2 revenue streams. The processing agreement at Gympie being suspended for the moment (old news from 31st October).

The whole thing hinges on the price of gold – obviously if you think that gold is heading down below US$346 per ounce then this one is not for you . Or if like me you think gold can only go up from here then the profits for NGF can only increase.


Coal.

This side of things id quite interesting.

NGF,s coal reserves are at Middlemount in the Bowen field - which is basically full of coal.

Recently Bowen Resources went public and their tenements seem to be literally next door to NGF’s.

One of the NGF directors – Jack Tan, is also a director of RCI another public coal company. I am wondering if substantial cash could be raised from the Middlemount coal project by selling it….just an idea…. But it would help with the Morgan processing plant.

The coal reserve at Middlemount does look very good though and Mr Tan seems to have all the right contacts to maximize short term rewards on this front.


Copper

In addition the Copper at Morgan NGF also has the Many Peaks Copper Project – initial results from this project have graded in the 1.69% - 3.88% CU …although it is early days yet.


So if we include the 10.49mn new shares issued to pay for Morgan we get.

Shares in issue 69.8mn +10.49mn = 80.29mn shares

Mkt Cap therefore AU$10mn (including the 10.49mn shares not yet issued)

But only 32mn shares are actually quoted.

It is irrelevant to include the options and a diluted calculation in this post as the options mature in 3 ½ years and so have no relevance to today’s figures.

Numbers 19 and 20 of the last top 20 both hold 375,000 shares ( amazing that you can be in the top 20 with a $40k investment) so maybe that 375k sitting at 13c is from one of these two holders. $40k is hardly a cap after all…..if it stays it is good news as it allows some of those who want to buy a larger holding to get on board without chasing the price up – if it goes then there is hardly any sell depth left.

Fridays trading was interesting

Opened at 8.1 and steadily went up to 10c and then the following happened – shares traded at each level above 10c:

10c : 60,000
10.5c :33,901
11c : 138,000
11.5c : 231,038
12c : 65,000
12.5c : 285,900
13c : 329,000
13.5c : 232,996
14c : 23,004

Total volume for the day about 2.8mn

Conclusion

The Morgan project, the coal and NGF’s plan for the future means that this company is going places…. Not just drilling holes in the ground and burning shareholder’s money but actually getting to a stage where it will produce many 100s of thousand of ounces of gold.

The company is totally undervalued at 12.5c

There are only about 20 mn shares quoted and outside the top 20 worth about AU$2.5mn at Friday’s close. I don’t think they will be at these levels for very long.

And finally…. Given the increase in trading volumes and the price rise on Friday NGF will be on a lot more watchlists once the market opens on Monday. Very few shares and a lot more people know about it now.

I would rate it a screaming buy

I do hold – Dyor…I would be interested in some feedback.

EB