Northgate mine closing in June

The Colomac gold mine will be placed on care and maintenance late next month when remaining fuel supplies finally run out, shareholders were told at Northgate Exploration’s (TSE) recent annual meeting in Toronto.

But the long-term future of the Northwest Territories gold project, held by Northgate’s 52% owned affiliate NorthWest Gold (AMEX), depends on the outcome of negotiations involving Northgate and three banks owed $90 million.

After the annual meeting, Northgate President John Kearney said one of the banks balked at a debt rescheduling plan that could have allowed the 200,000-oz.-per-year project to operate throughout 1991.

But Kearney wouldn’t reveal which bank opposed the plan or how the others proposed to reschedule the debt. “Colomac will require a gold price of at least US$425 per oz. and an agreement with the project’s bankers regarding the restructuring and rescheduling of its debt in order to reopen,” said Kearney. “If they don’t agree, I don’t know what’s going to happen,” he told The Northern Miner.

NorthWest Gold was scheduled to make quarterly repayments of $7.5 million on a $90-million non-recourse project loan starting last December. But due to the slump in gold prices and operating problems at the mine, NorthWest Gold has been unable to repay any of the money it owes. If gold continues to trade at its recent US$354-per-oz. level, analysts say there is little incentive for Northgate or the banks to work out a deal, especially as a 1988 mine feasibility study is based on US$450 gold.

Meanwhile, the 190 employees still on site are managing to sort out many of the early operating problems, according to Kearney. The mill, for example, ran at 1,300 tons below its 10,000-ton-per-day capacity in April and gold recoveries averaged 94% in the first three months of 1991. “We are forcasting that Colomac will produce at least 65,000 oz. this year, about the same as in 1990,” said Kearney who declined to reveal what the operating costs will be.

After reporting a 1990 loss of $118.2 million, due to writedowns on investments, including Colomac, Northgate is still struggling to turn a profit. The Toronto company reported a loss of $1.3 million or six cents a share during the three months ended March 31, compared to earnings of $3.3 million or 15 cents a share in the same period last year.

First-quarter revenues also declined to $5.7 million from $10.4 million in the year-earlier period even though overall group production increased to 82,100 oz. from 51,100 oz. a year ago.

Kearney attributed the loss to NorthWest Gold’s 42% equity stake in Sonora Gold (TSE) which in turn owns 70% of the Jamestown gold mine in California. Regarded as marginal at current gold prices, the operation produced 27,700 oz. in the first quarter at a cost of US$262 per oz.

At the annual meeting, shareholders approved a special resolution designed to eliminate Northgate’s year-end retained earnings deficit of $44.1 million. Under the resolution, Northgate has reduced its stated capital account in respect of common shares by $44.1 million to $61.7 million and adjusted its deficit account to zero.

Northgate Exploration (TSE) 3 months ended Mar. 31 1991 1990 Revenue $5,794 $10,472 Net earnings (loss) (1,297) 3,310

per share (0.06) 0.15