Northgate buys 20% interest in Chelsea Res

While the ink is still drying on an agreement to sell its mining arm to a subsidiary of Australia based Western Mining Corp., Northgate Exploration of Toronto has gone shopping.

Not content to sit around with over $200 million in cash, $40 million in marketable securities and $13.7 million in convertible debentures, Northgate recently bought a 20% equity position in Vancouver- listed Chelsea Resources.

Under an agreement announced Feb 1, Northgate will subscribe for a private placement of 900,000 common Chelsea shares at $2.80 per share. As part of the agreement, Northgate also receives 300,000 share purchase warrants exercisable at $3.50 per share for one year.

Chelsea’s main asset is the Spotted Horse gold mine near Lewiston, Mont. One of the highest grade gold mines in North America it is expected to produce between 15,000 oz and 20,000 oz during the next two years. Having opened Sept 26, it is currently operating at a cost of $175(US) per oz with grades averaging 1.5 oz gold per ton.

As reported (N.M. Dec 14/87), exploration work has identified two new mineralized structures in the hangingwall on a level No 8 stope where one intersection returned 6 ft of 4.1 oz gold and 2.5 oz silver.

“We look on this acquisition as a speculative situation with some potential,” said Northgate President John Kearney. “The money we spend on this deal will be reinvested to develop the mine.”

While he declined to say what Northgate’s next move will be, the company is reviewing a number of mining investment opportunities. “The sale of Northgate’s two producing gold copper mines in Chibougamau, Que., to Western Mining subsidiary Westminster (Canada) Ltd., doesn’t mean we are withdrawing from the mining business, said Kearney.

“Our primary objective is to re-invest these funds in North American gold production.”

With a Northgate nominee on an expanded Chelsea board of directors, the two companies are planning a joint venture to develop a syenite porphyry (Gold Hill) surrounding the Spotted Horse mine.

Encouraged by results of initial surveys, Northgate’s chief geologist, Gerald Harper, will sit down with representatives from Chelsea Resources to plan an exploration program.

“Previous exploration indicates that the potential exists for a large mineable deposit,” he said.