Northgate remains quiet on acquisition rumors

Since Northgate Explorations (TSE) sold its Chibougamau, Que., gold/copper mines to Western Mining of Australia in December for $160 million, the question most asked around the Northgate offices is “what are we buying today?”

A cash position of $200 million and secret discussions with cash- hungry resource outfits has promoted a deluge of calls from anxious shareholders wanting to know what the company’s next acquisition will be.

Backed by Great Lakes Capital Markets Inc., Northgate recently invested a small portion ($5 million) of its cash reserves in five Canadian gold and base metal companies, giving it a direct interest in 85,000 oz of gold production.

In a 4-month shopping binge, Northgate acquired a 13% stake in Campbell Resources, 20% of Chelsea Resources (VSE), 15% of Geddes Resources (TSE), a 20% stake in Holmer Gold Mines (ASE) and 20% of Audrey Resources (TSE).

But at the company’s recent annual meeting in Toronto, President John Kearney gave a packed room of shareholders no indication as to when Northgate will make its next foray into the acquisition market. Special dividend

Instead, he attempted to provide shareholders with some temporary consolation in the form of a special dividend of 50 cents per share payable in either cash or stock. The stock portion consists of five common shares and five new share purchase warrants for every 100 shares held. Each share purchase warrant will enable the holder to buy one new common share at $10 per share until June 30, 1989, Kearney said.

According to Kearney, the special distribution dividend allows shareholders to choose between receiving cash or reinvesting their money back into the company.

While Northgate’s 1987 financial results included net income of $60.2 million or $3.30 per share compared to a loss of $4.8 million, or 34 cents per share in 1986 and a pre-tax gain of $67 million realized from the Western Mining transaction, it is still without a major mining operation.

But Kearney assured shareholders that the company’s current status as a mining finance house, is purely temporary.

“It is Northgate’s intention to reposition itself in a major way in the gold mining industry and it has the resources to do it,” said Kearney, who asked shareholders to be patient.

“Investors call every week to find out if we have bought something, but we are not going to buy just for the sake of it,” he said. “Our focus will be on gold and the emphasis will be on total investment return and growth in underlying assets Mineral inventory

Faced with rebuilding a mineral inventory which produced 70,000 oz gold and 16 million lb copper in 1987, Northgate will continue to acquire or invest in North American gold producers and properties.

Meanwhile, Northgate’s spring shopping spree gives the company exposure to a variety of precious and base metal projects in a number of different areas across North America, Kearney said.

By acquiring a 20% interest in Campbell Resources, for $31 million, Northgate has bought its way back into familiar territory. Campbell’s Chibougamau operations, including the Joe Mann gold- copper-mine, are expected to churn out 60,000 oz gold in 1988, up from 52,000 oz last year.

In contrast, a 15% equity stake in Geddes Resources for $5 million gives Northgate some exposure to the highly promising Windy Craggy gold deposit in northwestern B.C. Regarded as one of the largest undeveloped mineral reserves in North America, it includes a gold zone associated with over 350 million tons of copper-gold-cobalt-silver mineralization.

Similar style investments give the Toronto company an interest in Audrey Resources’ Mobrun mine project where a brand new $17-million mill should boost gold production to 35,000 oz in 1989 and Chelsea Resources’ high grade Spotted Horse gold mine in Montana. The Spotted Horse is scheduled to churn out 6,000 oz gold this year. Scadding mine

Northgate also retains a 52% interest in Orofino Resources (TSE) which expects to produce about 8,000 oz gold this year from its Scadding mine near Sudbury, Ont. The Swayze gold property further north could double Orofino’s gold production rate by 1989, Kearney said.

A 15.4% interest in Whim Creek Consolidated (TSE) obtained in a share-swap arrangement with Westfield Minerals (TSE) and a 10% interest in Dublin-based Ennex International may be disposed of since they don’t fit into Northgate’s only-in-North-American corporate strategy.

Northgate’s income for the first quarter of 1988 was $648,000 (3 cents per share) compared to $76,000 (5 cents per share) in the same period last year. The company’s first quarter results included an extraordinary tax recovery of $800,000 (5 cents per share).