Northgate buys Kemess

The Kemess gold mine in northern British Columbia, the last remaining asset of defunct Royal Oak Mines, has been sold at last.

Northgate Exploration (NGX-T) has agreed to take on the mine and keep it operating for US$180 million. Affiliate Trilon Financial, Royal Oak’s principal secured creditor, will provide most of the cash Northgate will need. The mine went into production in 1998 with reserves of 211 million tonnes grading 0.2% copper and 0.6 gram gold per tonne. It cost Royal Oak $480 million to build, putting the company deep into debt. Royal Oak, unable to service the debt, went into receivership in April.

Northgate needs US$145 million net, after taking into account about US$35 million in debt already owed it by Royal Oak. Royal Oak borrowed US$120 million from Trilon late in 1998 as it was trying to stay afloat, and part of that secured loan was taken down by Northgate.

Kemess was expected to produce 235,700 oz. gold in 1999, at an estimated cash cost of US$185 per oz. after credits for copper. Actual cash costs, last reported in the early part of the year, had run to US$262 per oz. The purchase price of US$180 million — about half the value that the Kemess plant and equipment carried on Royal Oak’s books — may reflect poor projected operating earnings for the project.