Colomac gold pour upstaged at recent Northgate meeting

Although it was overshadowed by some verbal sparring at Northgate Exploration’s (TSE) recent annual meeting in Toronto, the first gold pour was expected to occur last week at the Colomac gold mine, north of Yellowknife, N.W.T. Northgate had planned to highlight the event by showing an 8-minute video of progress made this winter at the remote Northwest Territories project. But those at the annual meeting had to wait until President John Kearney had fielded a long list of questions from an angry shareholder before seeing the video.

The questions centred on the sale to Northgate of Westfield Minerals’ (TSE) 35% interest in the Choquelimpie gold mine in Chile (see separate story) which produced 89,000 oz. gold last year. Read by Mike Cahill, a member of the Westfield minority shareholders’ committee, the questions distracted attention from Colomac which now ranks as the cornerstone on which Northgate is building its future.

Owned and operated by Northgate’s 52% owned affiliate ABM Gold (AMEX), the 200,000-oz.- per-year operation will be by far the largest of four mines now held indirectly by the Northgate group. The others are Campbell Resources’ (TSE) Joe Mann mine in Chibougamau, Que.; Sonora Gold’s (TSE) Jamestown mine in California; and the Choquelimpie mine.

As it will rank as the largest gold mine in Canada, in terms of throughput, analysts and shareholders are waiting patiently to see if Colomac will operate as ABM has intended.

While ABM Executive Vice- President Ken Hill didn’t know how many ounces would be contained in the initial brick, its appearance represents a major stepping stone in Northgate’s drive toward full commercial production at the Northwest Territories project.

At a cost of $166 million (7% over budget), the construction work has been completed on schedule and about 30,000 tons of ore and waste rock are being moved daily from the open pit site. This will build up to 45,000 tons a day at full capacity.

“The project is still on schedule to reach full production in the fourth quarter and nothing has been encountered to date to suggest that the mine and plant will not operate as planned,” said Kearney.

Nevertheless, the recent slump in gold prices has cast a large question mark over the wisdom of getting involved in a project where grades are likely to run at around 0.063 oz. during the first three years of production and 0.056 oz. over the life of the mine.

Proven and probable reserves of 28.1 million tons of grade 0.056 oz. gold per ton are sufficient to sustain a mining operation for eight years unless more ore is found.

“While Colomac may not be very profitable at a gold price of US$360 per oz., it will have a positive cash flow and does have significant leverage to increases in the gold price,” said Kearney.

Meanwhile, Northgate’s 26% owned affiliate Campbell Resources is still implementing a $20-million expansion program at the Joe Mann mine where plans include the sinking of a new 2,000-ft. shaft.

Last year, production at Joe Mann increased to 47,100 oz. from 36,100 oz. in 1988 and output is scheduled to reach 60,000 oz. by the end of 1990. “Operating costs at Joe Mann increased to just over US$300 per oz. because of the initial costs involved in converting the mining method to shrinkage stoping,” said Kearney.

A record 111,300 oz. produced last year at Sonora Gold’s 70% owned Jamestown mine in California brought Northgate group output to 168,200 oz. in 1989. Sonora is 42% owned by ABM.

“Group gold production is expected to reach 300,000 oz. this year and rise to 400,000 oz. in 1991,” said Kearney. However, as Northgate is still regarded in investment circles as a holding company, the shares were trading recently at $6 in a 52-week range of $8.63 and $5.63.

On the advice of his doctors, Chairman Pat Hughes did not travel from his home in Ireland to attend this year’s annual meeting.