Northgate buying Aussie gold producer

Vancouver – Looking past the recent blow dealt by an environmental review panel recommendation against development of its Kemess North project in B.C., Northgate Minerals (NGX-T, NXG-X) has set its sights on buying Australian gold producer Perseverance Corporation (PSV-A) in a deal valued at roughly US$257 million.

The all cash offer targets Perseverance for its pair of producing gold mines (Fosterville and Stawell) in Australia’s Victoria State propelling Northgate to mid-tier status.

“This is an opportunity we have been examining for a long time — since early this year,” states Northgate Minerals’ president and CEO Ken Stowe.

Perseverance’s two mines output a combined 189,000 oz. gold in the latest fiscal year.

Fosterville churned out 76,706 oz. gold for the year ending June 30, 2007, off slightly from projections due to an increased amount of lower-grade open pit ore. Ore production has come from a series of open pits with recent underground development contributing the first ore-flow from stoping in January 2007 — ramping up to form the bulk of mill feed by mid-2007.

Perseverance itself grew through the late-2006, stock-based acquisition of fellow Aussie-miner Leviathan Resources for its Stawell mine. That operation produced 112,486 oz. gold in its latest year from both open pit and underground mining.

Mine life’s of 7 and 3 years are forecast at Fosterville and Stawell respectively, however the latter has operated for about 25 years with just a few years of reserves normally in front of it.

The purchase fulfills Northgate’s development goal of securing immediate production within a politically stable region. Additionally, with about 7,700-sq. km of landholdings in the Victorian gold belt, Northgate is optimistic that significant exploration upside exists.

In his conference call presentation, Northgate’s Ken Stowe also hinted the acquisition may form a platform for potential future acquisitions in Australia.

With its acquisition of Perseverance, Northgate projects 2008 gold production of 434,000 oz. and copper output of about 71 million lbs. (32,200 tonnes). Pro forma average 2008 cash production costs of US$184 per oz. are estimated net of Kemess copper credits and based on a US$2.95 per lb. copper price.

“From a reserve and resource base, there will be a 99% increase in our reported gold reserves to 2.2 million oz. versus the 2006 year-end,” explained Stowe, “and a 93% increase in total resources to 4.24 million oz.”

Boards of both companies have unanimously approved the deal that has Northgate paying Aus20 for each Perseverance shares, a premium of about 38% to its October 26th closing price. Northgate will also buyout all the Aussie-producer’s July 2007 warrants at Aus8 apiece and assume its Aus$33.5 million in bank debt.

Northgate is also extending further bridge loan facilities of up to Aus$25 million for capital development needs and plans to close out Perseverance’s gold hedge book that brings Aus$48 million in exposure.

“The transaction will leave Northgate on a strong financial footing. We are paying for it out of cash on hand, which is good for our shareholder as we will not be diluting their holdings,” says Stowe. “We anticipate still having approximately US$105 million of cash on hand, pro forma, for the close of the transaction.”

Northgate eyes the pair of Aussie gold mines as delivering stable cash flow and production continuity as the Kemess South gold-copper mine in B.C. winds down and its Young Davidson gold project in northeastern Ontario moves towards production by 2011.

“We are doubling our resource base – moving significantly up our peer curve positioning the company for the next stage in our development,” continued Northgate’s president.

Closure of the transaction is anticipated by mid-February 2007 following Perseverance shareholder and Australian regulatory approvals.

Northgate got a thumbs-up from the market on the acquisition news, posting a 10% gain in October 29th trading to close up 26 at $2.97 per share.