BERAL, INC.  
Andrew G. Racz  
Director of Research  
300 East 54 Street, 26C  
New York, New York 10022  
Telephone: (212) 319-6949  
Fax: (212) 753-1944  

May 19, 2006

Company is in the development stage. 
By the end of 2006, the actual gold production phase will begin.

Northern Star is a typical exploration company possessing the right geographic territories near Quebec, a company which is being born because of astute management's timing of acquisition of the right properties. The gold market of 2005/2006 has totally changed the outlook for NSM. Even so, it's labeled as an aggressive junior mining company based in Val d'Or, Quebec, Canada, the owner of Midway Properties, in the heart of the well-known and prolific gold belt of Northwestern Quebec. The investment interest is concentrated on the proper application of the gold reserves in the right economic environment, converting into production.

Apart from the convenient geographic location, the close proximity to the city of Val d'Or, sixteen kilometers west and one kilometer south of the Trans-Canada highway, the issue with NSM is management's astuteness to begin exploration activity in early 2003. It has drilled about 90 diamond holes totally around 75,000 feet of core, which is complemented systematic analysis of a massive database of geological information from the historic exploration and the mining of the Midway gold fields which in the past have seen two million ounces of gold prior to 1964.

Northern Star Mineral's claims encompass the former mine work in its entirety and the ground surrounding the mine. It encompasses the old mine and some virgins territory, whose significant gold potential remains within and around the mines that was shut down forty years ago. The company has transformed itself from a purely exploration company, a shift towards project development. The successful conclusion of a property acquisition with Barrick Gold ensures the company's ownership and complete control over all the key mining claims covering the gold mineralization associated with the former mines, and vicinity.

The company evaluated the rehabilitation and development of a pre-existing shaft number one on the property, and because of changes in the gold price, it is planning to use a second shaft in early 2007. The company completed its acquisition program of mining equipment. The shaft activities are important for the future underground exploration and development of Midway Properties, as the gold zones are delineated and remain targets for further exploration work in 2007 and 2008.

To date, drilling resulted in the discovery of a new gold mineralized zone, making the property more valuable. So far, we have described the technical data which, however, creates the following assets.

1.   A large potential territory valued as a resource property.

2.   The potential of mining 120,000 ounces of gold in late 2008, early 2003.

3.   The possibility of the mining rate to increase to one million ounces of gold between       2100 and 2120.

 

It should be mentioned that the previous gold fields produced two million ounces of gold between 1939 and 1960.

Let us now look at the major financial parameters:

4.   The Midway property lies we've seen near the Agnico Eagle mining district, the mineral       claims covered the Malartic gold fields that in the past produced 2 million ounces of       gold.

5.   Building over 50,000 surface drilling sites, Northern Star has initiated plans to take       advantage of more mining shifts.

6.   Barrick has welcomed this new shareholder when Northern Star acquired territories
      for 750,000 shares.

The projection in the immediate future is actually encouraging. In 2007, the company is likely to produce 30,000 ounces of gold. This would be refined at a $600 price, or $18M dollars at $1,000 -- a theoretical possibility -- $30M. In the second year, the possibility of 100,000 ounces of gold would put revenues at $60M, and in 2008, with 120,000-150,000 ounces of gold production, the revenue base can even reach $100 million. Considering that the company has 80M shares, gold production would be 25 cents in 2006. At 100,000 ounces, production is nearly $1.00 per share. We can see that NSM could be considered a serious gold mining stock. The gold revenue would be two and a half times the current capitalization, which is considered almost startling.

At this stage, we have to consider the climate in which Northern Star operates. See Table 1.

With 80,000,000 shares outstanding, the company at C. $1.10 would have a market cap of CS 100,000 dollars, or roughly equivalent to $85 million U.S. The stock which is held 7% by management, 49% by institutions, had a sharp run in the year 2006. For analytical purposes, Northern Star, at the time of writing, is valued by one principal project, the Midway property in Northwestern Quebec. Total gold produced in the past is 2 million ounces to date is in excess of 60 million ounces. This information now has to be put in perspective in light of the recent changes in the gold market, and evaluated with our projection as far as the gold market is visualized by us.

Let us first look at simple statistics. If a company produces 100,000 ounces of gold at a cost of $300 per ounce, and if gold sells at $500, it creates a profit of $20 million. Taking into account depreciation, write-offs, capital expenditures, the profit may be $10 million.

Obviously, if the price goes up from $500 to $700, an operating profit potential over the next four years, based on our projection of production, is illustrated in Table 3.

In the last eighteen months, the gold market has changed dramatically. Whereas between 1984 and 2005, the compounded growth rate in gold was .89%. The cooperative investment statistics illustrate a trend of tranquility. See Table 2.

The market in 2005 has taken a dramatic turn in favor of gold. Currently selling at $700, the price of gold has been advanced almost entirely by various investment considerations and a geographic shift in monetary power between the Far East, China, India, Japan, Russia, as the three billion new capitalists versus the traditional monetary instrument and reserve currencies, namely the U.S. dollar to the Euro. In this climate, we have a picture illustrating that gold mine production did not increase meaningfully. The South African mining production declined from 20 million in 1992 and 10 million in 2006, and in total there is no particular reason to believe that the gold mines will have a substantial increase in the next few years apart from areas when the price differential rejuvenates territories which were untouched for periods of twenty years. See Appendix I.

Noticeable change occurred in Canada, in contrast to the total production. See Table 4.
The official demand for gold held by various investment demands has increased from 12% of the total gold investments in 1975 to 43% in 1996 to 46.7% in 2005. See Table 5.

The demand for gold where the numbers are not yet clear is purely the result of changes in investment interest in gold. We are talking about monetary accumulation where the actual value of gold is not measured in conventional terms, but in terms of the amount of currency in circulation which is slowly shifting towards precious metals, in particular to gold.

The most telling picture is the declining percentage of the United States gold reserves. Nevertheless, because of the shift in interest in the number of countries to hold gold in the face of a vast increase in global monetary reserves, the percentage of gold dropped from 60% in 1979 to 10% in the year 2005.

The monetary accumulation of gold has created a more diverse market in gold, not only as a reserve but a trading vehicle. This indicates in the so-called EFT's whose value has gone from
$2 billion to $12 billion, as illustrated in Table 6.

It is therefore obvious that worldwide exploration in gold has begun to grow in 2004, increased 30% in 2005, and is likely to increase another 30-40% in the next few years. See Appendix IV.

Northern Star is part of this picture. It has the luck of owning territories with exploration possibilities in the right era, but at the same time, it is possible to extrapolate its production, its profit, and the discounted cash flow of five years of activity at various prices of gold. Our assumption is that the current climate is not going to deteriorate against the onus of precious metals. Neither do we foresee a decline in the price. If anything, we see an increase in price because of the increase in international monetary reserves and the desire by a whole host of companies to own gold as part of their reserve currency. The fact that coins, EFT's and obviously other gold-related instruments for commercial and financial and speculative transactions would present themselves, is even more bullish for gold.

For instance, there are international bank accounts created whereby an individual can buy gold deposits for cash and the same amount of gold at any currency, at any time, is available for withdrawal. Just like the EFT's, which today represent already a $12 billion value, the gold account could represent an even bigger number not dissimilar to credit cards which are currently in circulation and represent a major percentage of the income of all international banks. Gold banking could happen and could run into the tens of billions of dollars in no time. Theoretically, there is no difference between EFT's to trade on the market, gold accounts for commercial and personal transactions, and if such a world happens before the year 2010, we will quote the late Professor Kenneth Gailbraith who described in the booming years of the early 1950s, the Depression, in a famous "Only Yesterday."

There is a possibility that a similar thing will happen in our monetary system and a new book, a monetary thesis, will be published in less than ten years describing the way we are doing investment and commercial business as "Only Yesterday."

To put this in proper perspective, we have evaluated Northern Star under various criteria. The conclusion we have to reach is that if a new monetary system is evolving with the greater role of gold, the potential cash flow of Northern Star will have to be considered with conviction. If such a world comes around, of which the years 2005 and 2006 are probably the opening chapters, the valuation suggests that this young exploration company will transform itself into a cash-generating machine. Speculative may be the word, but our projection clearly states that the stock has an interesting speculative appeal, which within a year of when production begins, a future production more or less can be taken seriously into consideration.
A new company will emerge: A junior gold producer.

(Article 29- posted May 19, 2006)

e-mail: mlikar@aol.com

Home | Biography | Links | Contact

All Content & Articles of This Web Site

© 2005-2006 Andrew G. Racz