Northgate completes US$257M deal for Perseverance in Australia, boosts assets

TORONTO - Northgate Minerals Corp. (TSX:NGX) has completed a US$257-million acquisition of Australian miner Perseverance Corp., giving the mid-sized Vancouver firm several more years' worth of resources as its only other producing asset, the Kemess mine in B.C., begins to wind down.

The all-cash deal also gives Northgate its first international presence and is expected to lead to more than 400,000 ounces of unhedged gold production in 2008.

Perseverance has an expected 200,000 ounces of annual gold production from two mines in the Australian state of Victoria and holds 7,700 square kilometres of exploration properties.

The new mines will add much-needed reserves to Northgate, following a B.C. environmental panel's decision in September that an expansion at Kemess North should not be allowed because of "adverse environmental, social and cultural effects."

"We're near the end of Kemess's mine life, with about three years left now," chief financial officer Jon Douglas said in an interview Monday.

"Any 12-year mine that you can have is a good mine life, but all mines eventually deplete," he said.

While Northgate would "have loved to have Kemess North go ahead because it makes very good use of our existing infrastructure there," Douglas said, the company would had done the Perseverance deal "regardless of whether Kemess North had gone ahead or not, simply because we wanted to be more than a one-mine company."

"These were assets that were fairly priced but that there was a lot of upside to them," he said.

Northgate is hoping to increase reserves and efficiency at the two new mines.

"In terms of reserve life, one of these mines has about a seven-year reserve life and the other has about a three-year reserve life," Douglas said

"We're hopeful that we can add significantly to the reserve life of both mines by spending exploration dollars that they (Perseverance) really didn't have to spend, and hopefully we can make them both more efficient."

The company hasn't announced an exploration budget yet, other than to say it will spend "significant dollars" there. An update is expected when the company releases its quarterly results on March 31.

The friendly takeover is to being paid for out of Northgate's cash on hand and will leave it still holding US$105 million in cash.

Northgate plans to get started immediately after talking control of the mines Monday, with CEO Ken Stowe in Australia to oversee the deal's completion.

"Our targeted objective has been significant production growth in stable jurisdictions, and the Perseverance transaction is exactly that," Stowe said in a statement.

"We are now an unhedged, multi-mine gold producer with three fully permitted operations in Canada and Australia, with combined production of over 400,000 ounces of gold expected in 2008."

The takeover deal was announced last October and subsequently approved by Perseverance security-holders. The combined company will have 2.3 million ounces of proven and probable gold reserves and 250 million pounds of copper reserves.

The company is also working to develop its Young-Davidson property in northern Ontario into a mine by 2011 and is doing some exploration in the area around the Kemess South. It halted all work on the Kemess North project and took a $32.3-million hit in the third quarter after writing down that asset.

"If you looked at the future of Northgate, it's Young-Davidson and it's Australia. And certainly when we're looking at mining jurisdictions that we like - Ontario, Quebec, Australia, certain jurisdictions in South America - all those are placed that we would feel very comfortable operating in," Douglas said.

"As we look to the future, we'll look to those jurisdictions first."

Northgate shares were untraded on the TSX Monday as markets were closed for a provincial holiday. They closed last Friday at $2.95, up six cents or two per cent.