Northgate tries to lose `banker label’

In its quest to acquire a geologically and geographically diverse portfolio of mining investments, the company has ended up with a complicated mixture of holdings, many of which it considers potential “turnaround situations.”

The company now holds varying interests in 12 separate mining companies.

“A side effect of Northgate’s strategy is that the company has taken on the appearance of a holding company or a mine finance house,” said President John Kearney at the recent annual meeting. “I should like to emphasize that it is not Northgate’s intention to remain so,” he added.

Kearney said the past year was one of “tremendous change” in which the company tried to replace the operating assets it sold in 1987 by acquiring interests in various mining companies.

“Northgate’s acquisition strategy has not been well understood,” said Kearney. “For this reason the market does not adequately appreciate the value of the company’s shares.”

Northgate shares currently trade around $6.50, which is less than the company’s book value and just about on par with its cash value. At the end of the first quarter, the company’s book value was $210 million or $9.50 per share.

Chairman Patrick Hughes said the value of the company’s diverse holdings will be realized “in the not too distant future.” Exploration risky

Northgate chose acquisitions rather than the more traditional route of exploration for three reasons — time, risk, and resources.

The company said exploration is a time consuming, high-risk endeavor and requires large land holdings. Acquisitions enable a company to achieve its objectives quickly and with a limited and manageable risk.

In the coming year, Northgate plans to rationalize, consolidate, and, in some cases, increase the various acquisitions it made last year. Simpli fying its corporate structure is a major objective.

“This restructuring has already begun and will continue throughout the year,” said Kearney.

In one such move, the company recently increased its stake in Geddes Resources (TSE) to 31% from 27% by way of a private placement. It may further increase its stake in Geddes at some time in the future, the company said. Geddes hopes to develop a large copper-cobalt- gold deposit on the top of Windy Craggy mountain in northwestern British Columbia.

Three other transactions have been completed in the restructuring plan. Goldenbell Resources (TSE), a subsidiary of ABM Gold Corp., which was 58% owned at the end of 1988, has now been acquired 100% by ABM. In an unrelated transaction, Northgate increased its effective interest in Campbell Resources (TSE) to 27% by acquiring 6.5 million additional shares of Campbell at $1.00 per share. Also subsequent to year end, 49%-owned Norwest Holdings disposed of its shareholdings in Whim Creek Consolidated for nearly $38 million. Bay Street skeptical

Regarding the company’s substantial $55-million investment in Neptune Resource’s (TSE) Colomac gold project in the Northwest Territories, Kearney said that Bay Street has been skeptical due to the low grade and remote location of the project. ” But all construction material has been successfully transported into the site using the winter ice road,” he noted.

Industry analysts have been doubtful that the planned open pit gold mine will live up to expectations. The project will cost $150 million to build and will produce 200,000 oz of gold per year at full capacity.

With more than $120 million in cash, Northgate stands to increase earnings from interest payments this year. As the government continues to bump up interest rates, the amount earned on Northgate’s bulging bank account increases.

For the year ended Dec 31, Northgate’s earnings were largely derived from interest income and equity in associated companies. Investment income totalled $16.7 million last year, while net income amounted to $2.26 million or 10 cents per share, compared with net income of $60.2 million or $3.19 per share in 1987.

The company says the decline in its 1988 earnings was mainly attributable to a pre-tax gain in 1987 of $66.9 million on the sale of its Copper Rand and Portage mines at Chibougamau, Que.

At the end of the first quarter Northgate had $126 million in cash on a consolidated basis and $160 million in investments and marketable securities. First quarter net income was $6 million or 30 cents per share compared with net income of $648,000 or 3 cents per share a year earlier.

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