Solid economics for Northgate’s Young-Davidson project

The verdict of a final feasibility study on Northgate Minerals‘ (NGX-T, NXG-X) Young-Davidson project in northern Ontario confirms a healthy rate of return over a 15-year mine life with average annual production of 180,000 oz. gold at a net cash cost well below the industry average at US$351 per oz.

The mining operations will consist of an open pit and underground mine and after the first two years of open-pit production, average annual production over the remaining life of the mine will climb to 190,000 oz. gold from underground at a net cash cost of US$341 per oz.

Cash costs of production are anticipated to fall below the industry average because of the project’s good geometry, the ore body’s strong continuity and thickness, and the competency of the host rock, which enables the company to use low cost bulk-mining techniques, Northgate explains.

The Young-Davidson property sits on the site of two past producing mines, that produced about one million ounces of gold between the mid 1930’s and the mid 1950’s.

The property is about 3 km west of the town of Matachewan in the Abitibi greenstone belt, and about 60 km west of Kirkland Lake.

Initial capital costs have been estimated at US$339 million, with sustaining capital costs over the life of the mine of US$236 million.

The final feasibility study, which comes on the heels of the prefeasibility study completed in July 2009, was based on proven and probable gold reserves of 31.15 million tonnes or 2.8 million ounces gold and calculated using a gold price of US$825 per oz. and an exchange rate of US$1 to 90¢ Canadian.

The project economics did not include the 6 million tonnes of inferred resources and 132,000 tonnes of indicated resources.

The project should yield a pre-tax operating cash flow of US$646 million, a 5% net present value of US$264 million and an internal rate of return or IRR of 12.4%.

Production is forecast to begin in 2012.

The facilities will include a modern 6,000-tonne-per-day process plant utilizing conventional gold processing technology.

Access to the underground mine will be via the ramp, and the company plans to deepend the existing shaft and develop a new production shaft. 

Shaft dewatering activities and ramp development resumed at the site during the fourth quarter of last year to advance exploration and set up the underground access conditions necessary for the construction of the new production shaft.

Rather than sinking a new production shaft from surface, the company has decided to deepen the existing Matachewan consolidated mine shaft from 775 metres to 1,515 metres and raise a new main production shaft in two sections from the bottom of the known reserve at 1,515 metres.

Nearly US$7 million worth of underground equipment that is needed to develop the ramp has been ordered and is scheduled to arrive in the first quarter of this year.

Electric power for the site will be supplied by upgrading about 47 km of an existing 115-kilovolt power line and installing 7 km of a new 115-kilovolt line from Kirkland Lake to Matachewan Junction and a mine site transformer station.

Currently the open-pit zone has probable reserves of 4.94 million tonnes grading 1.66 grams gold per tonne for contained gold of 264,000 oz. The underground zone has proven reserves of 3.47 million tonnes grading 3.22 grams gold for contained gold of 359,000 oz. and probable reserves of 22.74 million tonnes grading 2.92 grams gold for 2.14 million oz. gold.

Additional work is expected to upgrade resources into the reserve category.

The Young-Davidson ore body remains open down plunge below existing reserves and resources.

Northgate and the Matachewan First Nation signed an impact and benefits agreement on July 2.

The gold and copper producer has mining operations, development projects and exploration properties in Canada and Australia and is forecasting gold production of 316,000 ounces in 2010.

In Toronto Northgate is trading at $3.12 per share and has a 52-week trading range of $1.21-$3.70 per share. The company has 290.5 million shares outstanding.