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Re: NXG - *SOLD*

By: Decomposed in ROUND | Recommend this post (0)
Fri, 15 Jul 11 6:30 PM | 106 view(s)
Boardmark this board | De's Test Board 		Msg. 33936 of 45510
(This msg. is a reply to 33934 by Decomposed)
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By the way, I believe Motley Fool's article on the Northgate/Primera merger was SO hellbent on optimism that it verged on deceit.

If you read it, http://www.fool.com/investing/general/2011/07/14/the-greatest-gold-stock-in-the-world.aspx ,you may recall that it said "With Primero's annual threshold of 3.5 million ounces of silver already delivered to stream-holder Silver Wheaton (NYSE: SLW ) for 2011, Northgate will now enjoy lucrative spot-price exposure for 50% of silver produced through the remainder of the year."

The truth is, Primera must sell Silver Wheaton 3.5 million ounces of silver each year *AND* half of its excess beyond that, for $4/oz. After four years (actually three, because the agreement has already been in place for a full year), the benefits to Silver Wheaton actually increase - with Primera having to deliver 6 million ounces of silver each year at $4/oz, and 50 percent of any excess beyond that.

There's even a penalty clause if the silver production isn't high enough! And still more - all to the benefit of Silver Wheaton. If you're interested, you should read it for yourself.

I think this is a brutal arrangement, and Northgate should have stayed away from it. Motley Fool is doing its best to apply polish to a turd - from the perspective of NXG shareholders, anyway. For Primera shareholders, this thing is great.

Here's a better explanation of the agreement: 


Silver Purchase Agreement

On October 15, 2004, Silver Wheaton entered into a silver purchase agreement with Goldcorp to purchase 100% of the payable silver for a period of 25 years, produced by Goldcorp’s Luismin mining operations in Mexico (owned by Goldcorp at the date of the transaction), which included the San Dimas mine, the Los Filos mine and the San Martin mine, for an upfront payment of C$46 million in cash and 108 million Silver Wheaton Common Shares, plus a payment equal to the lesser of US$3.90 per ounce of delivered silver (subject to an inflationary price adjustment) and the then prevailing market price per ounce of silver.

On March 30, 2006, Silver Wheaton and Goldcorp amended the Luismin silver purchase agreement, eliminating any capital expenditure contributions previously required to be paid by Silver Wheaton. In consideration for these amendments, Silver Wheaton issued to Goldcorp 18 million Common Shares, representing approximately 9.8% of the then outstanding Common Shares, and a US$20 million one year non-interest bearing promissory note, which was paid in full on March 29, 2007.

On August 6, 2010, Silver Wheaton amended the silver purchase agreement relating to the San Dimas mine pursuant to Goldcorp’s sale of the mine to Primero Mining Corp. The term of the silver purchase agreement, as it relates to San Dimas, was extended to the life of mine. During the first four years following closing of the transaction, Primero will deliver to Silver Wheaton a per annum amount equal to the first 3.5 million ounces of payable silver produced at San Dimas and 50% of any excess, plus Silver Wheaton will receive an additional 1.5 million ounces of silver per annum to be delivered by Goldcorp. Beginning in the fifth year after closing, Primero will deliver to the Company a per annum amount equal to the first 6 million ounces of payable silver produced at San Dimas and 50% of any excess. Goldcorp will continue to guarantee the delivery by Primero of all silver produced and owing to the Company until 2029, and a payment of $0.50 per ounce for any shortfall below 215 million cumulative silver ounces delivered to Silver Wheaton by the end of 2031. In addition, Goldcorp will continue to deliver to Silver Wheaton the silver produced by the Los Filos mine. Primero has provided Silver Wheaton with a right of first refusal on any metal stream or similar transaction it enters into.





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Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months

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The above is a reply to the following message:
Re: NXG - *SOLD*
By: Decomposed in ROUND
Fri, 15 Jul 11 5:39 PM 		Msg. 33934 of 45510

Here's the problem with the Northgate "deal."

Northgate just merged with a company, Primera. Primera operates the San Dimas silver/gold mine in Mexico. However, it has forward sold its silver to Silver Wheaton at just $4/oz... essentially benefiting only from the gold that gets produced.

That isn't so bad. But whereas Primera collects just $4/oz for its silver, IT MUST PAY TAXES AS IF THE SILVER HAD SOLD AT SPOT.

In other words, it is paying vastly higher taxes on that silver. And the situation actually worsens as more silver gets pulled from the mine and as the spot price of silver rises.

This is a *BAD* thing.

The merger comes with a 13 percent premium for P shareholders, so NXG shareholders don't benefit from that. NXG shareholders *do* benefit from an excellent new CEO, and from being a larger company, but I don't think the current runup in NXG's price is factoring in the significant drawbacks to the deal.

Moreover, I think gold is due for a short-term pullback. But we'll see.

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