 PDF of Press Release
VANCOUVER, Nov. 5 /CNW/ - (All figures in US dollars except where noted) - Northgate Minerals Corporation (TSX: NGX; AMEX: NXG) today reported cash flow from operations of $29,445,000 or $0.12 per diluted common share and a net loss of $11,937,000 or $0.05 per diluted common share for the third quarter of 2007. The net loss for the quarter included a $32,347,000 non-cash write-down of the carrying value of the Kemess North project. Excluding this charge, earnings would have been approximately $6,000,000 for the quarter.
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THIRD QUARTER HIGHLIGHTS
- Kemess South produced 70,055 ounces of gold and 18.8 million
pounds of copper at a net cash cost of negative $233 per ounce
of gold, which was the lowest quarterly cash cost recorded in
the history of the mine.
- On October 29, 2007, Northgate announced a friendly proposal
to acquire Perseverance Corporation Ltd. (Perseverance), which
operates two gold mines in Australia with a combined annual
production of approximately 200,000 ounces.
- Exploration drilling at Young-Davidson continued to expand the
area of known underground resources and a revised resource
calculation is expected to be announced by the end of 2007.
- On September 17, 2007, the Joint Federal-Provincial Review
Panel for the Kemess North project submitted its report to the
Ministers of Environment, recommending that the project not be
allowed to proceed.
>>
Ken Stowe, President and CEO, stated, "The Kemess South mine posted strong operating results in the third quarter while recording the lowest quarterly net cash cost of production in the history of the mine and generating $30 million in operating cash flow. After a long search for the right asset, we were very pleased to announce our friendly proposal to acquire Perseverance, which currently operates two gold mines in the state of Victoria, Australia. We expect that the all-cash transaction will close next year in February and when it does, Northgate's 2008 gold production will be over 430,000 ounces. The acquisition of Perseverance will guarantee our status as a significant mid-tier gold producer and give us the opportunity to use our operating expertise and strong balance sheet to get the most out of two mines that have excellent potential, but have been limited by severe capital constraints. The addition of the Fosterville and Stawell mines to our Young-Davidson project and the continued strong cash flow from Kemess South over its remaining mine life will provide the diversified multi-mine base from which we can make additional acquisitions in the future."
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RESULTS OF OPERATIONS
Kemess South Mine Performance
The Kemess mine posted strong production of 70,055 ounces of gold and 18.8 million pounds of copper in the third quarter of 2007, which was consistent with Northgate's most recent forecast. For the balance of 2007, as a consequence of small variances and modifications to the ore release plan, Northgate now expects Kemess South's total 2007 metal production to be approximately 270,000 ounces of gold and 68.4 million pounds of copper.
During the third quarter of 2007, approximately 11.3 million tonnes of ore and waste were removed from the open pit, which was approximately the same as it was during the corresponding quarter of 2006. Unit mining costs during the most recent quarter were Cdn$1.56 per tonne compared with Cdn$1.52 per tonne in the third quarter of 2006.
Mill availability during the third quarter of 2007 was 93% and mill throughput averaged 52,029 tonnes per day (tpd), compared with 90% availability and throughput of 49,817 tpd in the third quarter of 2006. Mill availability in the third quarter of 2007 was higher than average due to the advantageous timing of maintenance shutdowns. Mill throughput was 4% higher than it was in the same period last year due to the higher mill availability.
Gold and copper recoveries averaged 71% and 86%, respectively, in the third quarter of 2007, which was higher than the recoveries of 68% and 82%, respectively, recorded in the third quarter of 2006 because no supergene-leachcap ore, which has metallurgical characteristics that generate lower metal recoveries, was milled in the most recent quarter.
Metal concentrate inventory increased by 1,000 wet metric tonnes (wmt) in the third quarter to approximately 7,000 wmt at September 30, 2007. Concentrate inventory is expected to decline by year-end to less than 5,000 wmt.
The total unit cost of production during the third quarter of 2007 was Cdn$12.31 per tonne milled, which was significantly lower than the Cdn$14.71 per tonne milled in the corresponding period of 2006 due primarily to the decrease in treatment and refining charges for copper concentrate that occurred in 2007 and the higher tonnes of ore milled in the most recent quarter. Total site operating costs in the third quarter of 2007 were Cdn$41.4 million, which was in line with third quarter 2006 costs of Cdn$40.6 million. The net cash cost of production at Kemess in the third quarter of 2007 was at a record low of negative $233 per ounce of gold compared to the previous record of negative $118 per ounce reported in the third quarter of 2006.
The following table provides a summary of operations for the third quarter and the nine months of 2007 and the comparable periods of 2006.
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2007 Kemess Mine Production
(100% of
production basis) Q3 2007 Q3 2006 9M 2007 9M 2006
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Ore plus waste
mined (tonnes) 11,282,000 11,355,290 33,983,404 34,645,827
Ore mined (tonnes) 4,799,000 3,970,620 13,854,785 12,472,892
Stripping ratio
(waste/ore) 1.35 1.86 1.45 1.57
Ore milled
(tonnes) 4,786,712 4,583,196 13,563,691 13,666,645
Ore milled per
day (tonnes) 52,029 49,817 49,684 50,061
Gold grade (grams
per metric tonne) 0.642 0.745 0.680 0.760
Copper grade (%) 0.207 0.237 0.207 0.245
Gold recovery (%) 71 68 69 68
Copper recovery (%) 86 82 83 81
Gold production
(ounces) 70,055 74,789 204,164 228,549
Copper production
(thousands pounds) 18,822 19,602 51,363 59,954
Net cash cost
($/ounce) (233) (118) (59) (44)
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Safety
Kemess recorded no lost time injuries during the third quarter of 2007 and remains the safest metal mine in British Columbia for the first nine months of the 2007. The Young-Davidson project continued to operate without a lost time injury.
Financial Performance
Northgate recorded a net loss of $11,937,000 or $0.05 per diluted common share in the third quarter of 2007 compared with net earnings of $14,902,000 or $0.07 per share during the corresponding quarter of 2006. The net loss for the quarter included a $32,347,000 non-cash write-down of the carrying value of the Kemess North project. Cash flow from operations during the most recent quarter was $29,445,000 or $0.12 per diluted common share compared with cash flow of $64,465,000 or $0.28 per diluted common share during the same quarter last year. Per share data is based on the weighted average diluted number of shares outstanding of 254,210,079 in the third quarter of 2007 and 226,992,626 in the corresponding period of 2006.
Northgate's revenue in the third quarter of 2007 was $86,756,000 compared with $102,667,000 in the corresponding period in 2006. Revenue for the third quarter of 2007 was reduced by mark-to-market adjustments of $17,255,000 on Northgate's hedge book (2006 - positive $19,754,000). Due to mark-to-market requirements of Canadian generally accepted accounting principles (Canadian GAAP) and the large size of the Corporation's copper forward sales position relative to quarterly copper production, earnings in future quarters may fluctuate significantly depending on future movements in the price of copper. Metal sales in the third quarter of 2007 consisted of 73,545 ounces of gold and 18.9 million pounds of copper, compared with 73,792 ounces of gold and 19.1 million pounds of copper in the third quarter of 2006. During the third quarter of 2007, the price of gold on the London Bullion Market (LBM) averaged $681 per ounce (2006 - $622) and the price of copper on the London Metal Exchange (LME) averaged $3.50 per pound (2006 - $3.48). The net realized metal prices received on metal sales in the third quarter of 2007 were approximately $608 per ounce of gold and $2.94 per pound of copper, compared with $531 per ounce and $3.43 per pound in the third quarter of 2006. A total of $7,438,000 in gold hedging losses were reclassified from accumulated other comprehensive income when the related sales occurred (see section on Changes in Accounting Policies). The Corporation's gold hedging activities reduced the realized price of gold sold during the most recent quarter by $101 per ounce, compared with $91 per ounce in the corresponding quarter one year ago. During the quarter, Falconbridge Limited (a wholly owned subsidiary of Xstrata Plc.) exercised its right to revise the copper pricing quotational period from one month after the month of arrival (MAMA) to four MAMA. In order to properly match the new pricing periods, forward sales contracts for August, September and October, representing a total volume of 7,050 metric tonnes of copper, were rolled forward into the January 2008 to April 2008 period at an average forward price of $3.41 per pound. The cost of this roll was $1,974,000, which was expensed in the third quarter resulting in a lower realized price of copper than would otherwise have been the case.
The cost of sales in the third quarter of 2007 was $59,241,000 compared with the corresponding period last year when the cost of sales was $59,069,000. Cost of sales in the most recent quarter reflect the reduction in treatment and refining charges in 2007; however, this was offset by the impact of the strengthening Canadian dollar on the Corporation's mostly Canadian dollar costs.
Administrative and general expenses totaled $2,019,000 in the third quarter of 2007, slightly higher than the $1,951,000 recorded in the corresponding period of 2006, due to the increased administration and compliance spending as well as the cost of various business development initiatives.
Depreciation and depletion expenses in the third quarter were lower at $8,050,000 compared to $8,397,000 during the corresponding period of 2006 due to the impact of the increase in the reserve base announced earlier in the year.
Net interest income was significantly higher at $4,611,000 in the third quarter of 2007 compared with $1,180,000 in the corresponding quarter of 2006, as the result of substantial increases in the Corporation's cash position due to strong operating cash flow and the exercise of share purchase warrants in December 2006, which brought $99,998,000 into Northgate's treasury.
Exploration costs in the third quarter were significantly higher at $10,773,000 compared with $3,509,000 in the comparable period of 2006, as the result of increased activity at the Young-Davidson property where the advanced underground exploration program continues.
Capital expenditures during the third quarter of 2007 totaled $4,926,000 compared to $4,817,000 in the corresponding period of 2006 and continue to be primarily devoted to ongoing construction of the Kemess South tailings dam.
Capital Resources
Northgate maintains a portion of its investments in AAA rated Auction Rate Securities (ARS). ARS are floating rate securities that are marketed by financial institutions with auction reset dates at 7, 28, or 35 day intervals to provide short-term liquidity. Beginning in August 2007, a number of ARS auctions began to fail and the Corporation is currently holding $72,600,000 in ARS, which currently lack liquidity. Northgate's ARS investments were originally structured and marketed by a major investment bank in the United States and all of Northgate's ARS investments continue to make regular cash interest payments and are still rated AAA by Standard & Poor's (S&P) and Aaa by Moody's.
Due to the high credit worthiness of its ARS investments, third party valuation reports which value these investments at 100% of par value, and management's assessment that the liquidity issues surrounding the specific ASR securities held by the Corporation will be resolved within the next twelve months, these investments continue to be classified by the Corporation at September 30, 2007, as available for sale short-term investments at their original par value, which is equal to their fair value.
The balance of the Corporation's investments are held in R1/P1/A1 rated investments including money market funds, direct obligation commercial paper, bankers acceptances and other highly rated short term investment instruments which are recorded as cash and cash equivalents. The Corporation has no investments in Asset Backed Commercial Paper (ABCP), Mortgage Backed Securities (MBS) or Collateralized Debt Obligations (CDO).
Based on the Corporation's current cash and investment balances and expected operating cash flows, it does not anticipate that the lack of liquidity for its ARS investments will adversely affect its ability to conduct its business.
NON-GAAP MEASURE
The Corporation has included net cash costs of production per ounce of gold in the discussion of its results from operations, because it believes that these figures are a useful indicator to investors and management of a mine's performance as they provide: (i) a measure of the mine's cash margin per ounce, by comparison of the cash operating costs per ounce to the price of gold; (ii) the trend in costs as the mine matures; and, (iii) an internal benchmark of performance to allow for comparison against other mines. However, cash costs of production should not be considered as an alternative to operating profit or net profit attributable to shareholders, or as an alternative to other Canadian GAAP measures and they may not be comparable to other similarly titled measures of other companies.
A reconciliation of net cash costs per ounce of production to amounts reported in the statement of operations is shown below.
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(Expressed in thousands of US$,
except per ounce amounts) Q3 2007 Q3 2006
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Gold production (ounces) 70,055 74,789
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Cost of sales $ 59,241 $ 59,069
Change in inventories and other (2,854) 1,069
Gross copper and silver revenue (72,694) (68,991)
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Total cash cost (16,307) (8,853)
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Cash cost ($/ounce) $ (233) $ (118)
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SELECTED QUARTERLY FINANCIAL DATA
(Thousands of US
dollars, except
per share, per 2007 Quarter Ended
ounce and per -----------------------------
pound amounts) Sep 30 Jun 30 Mar 31
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Revenue $ 86,756 $ 80,878 $ 74,313
Earnings
(loss) for
the period(1) (11,937) 8,647 9,406
Earnings (loss)
per share(1)
Basic $ (0.05) $ 0.03 $ 0.04
Diluted $ (0.05) $ 0.03 $ 0.04
Metal production
Gold (ounces) 70,055 65,999 68,110
Copper (thous-
ands pounds) 18,822 14,839 17,702
Metal Prices
Gold (LBM
- $/ounce) 681 667 650
Copper (LME Cash
- $/pound) 3.50 3.47 2.69
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(Thousands of US
dollars, except
per share, per 2006 Quarter Ended 2005
ounce and per -------------------------------------------------
pound amounts) Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
-----------------------------------------------------------------
Revenue $118,239 $102,667 $105,348 $ 85,059 $ 95,651
Earnings
(loss) for
the period(1) 19,790 14,902 50,315 21,735 44,527
Earnings (loss)
per share(1)
Basic $ 0.09 $ 0.07 $ 0.23 $ 0.10 $ 0.21
Diluted $ 0.09 $ 0.07 $ 0.22 $ 0.10 $ 0.21
Metal production
Gold (ounces) 81,746 74,789 76,127 77,634 94,405
Copper (thous-
ands pounds) 21,254 19,602 18,071 22,282 24,701
Metal Prices
Gold (LBM
- $/ounce) 614 622 627 554 486
Copper (LME Cash
- $/pound) 3.21 3.48 3.27 2.24 1.95
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(1) The figures in the table for 2006 and 2005 reflect the
Corporation's change in accounting policy for metal
inventories. Refer to the Corporation's consolidated
financial statements in the 2006 Annual Report for a
description of this change.
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KEMESS NORTH PROJECT
On September 17, 2007, after two and a half years of review and multiple rounds of public hearings, the Kemess North Joint Federal-Provincial Environmental Review Panel issued its report recommending that the project not be allowed to proceed. The Federal and Provincial governments are now studying the Panel's report and are expected to make a final decision on whether to permit the development of Kemess North sometime in the first half of 2008.
While Northgate strongly disagrees with the Panel's recommendation, the uncertainty it has created for the Kemess North project has forced the company to redefine its project development priorities. Northgate has ceased all project activities at Kemess North including exploration, feasibility study work and detailed engineering and is refocusing its development activities on projects in other jurisdictions. As a result of the panel report, Northgate has written off the full carrying value of its investment in Kemess North.
In the event that the Federal and Provincial governments also disagree with the Panel's recommendation and grant approval for the Kemess North project to proceed and the First Nations reconsider their stance on the project, Northgate will revisit the project at that time.
EXPLORATION UPDATE
Young-Davidson
Drilling continued during the third quarter at Young-Davidson with six drill rigs in operation. One drill targeted in-fill drilling on the proposed open-pit area. The other five rigs drilled deeper underground targets in and around the known underground resources on the Young-Davidson property. Diamond drilling completed in the third quarter of 2007 attempted to define the eastern and western edges of the deposit to a depth of 1,300 metres (m), and to expand resources below and laterally adjacent to the three main zones in the deposit: the Lower Boundary zone, the Lucky zone, and the Lower YD zone.
The longitudinal section shown in Figure 1 depicts known resource areas (as defined in the legend), historic mine workings, simplified geology, and potential new resource areas, along with the pierce points for holes drilled. Drill hole results reported for the first time are indicated by a five-point star. Elevations in the longitudinal section are based on an artificial mine grid where the surface is defined as 10,355 m.
Drill hole YD-07-49A was drilled in the gap between the Upper and Lower Boundary zones. This hole had a wide mineralized section that returned 2.35 grams per metric tonne (g/t) gold over 77.6m including 5.01 g/t gold over 25.6m and 7.87 g/t gold over 10.2m. Holes YD-07-33E and YD-07-33D are both located in an undrilled section of the Lower Boundary zone, and both returned auriferous sections at the zone horizon. In the case of YD-07-33E, returned assays averaged 3.32 g/t gold over 21.2m.
Hole YD-07-48 was drilled in the Lower Lucky zone within an assumed gap in the mineralization. This hole returned a narrow intersection of 7.93 g/t gold over 4.7m. This hole is located approximately 75m above YD90-22X, which was completed earlier this year and returned 4.42 g/t gold over 31.3m including 6.42 g/t gold over 19.5m.
Drill hole YD-07-46 was targeting the Lower YD zone at the 9,000 level (approximately -1,350m). This hole intersected a barren post mineralization dyke at the zone horizon. The hole intersected a small amount of zone material in the footwall on the east flank of the dyke, returning 2.4 g/t gold over 9m. This hole is currently being wedged off to intersect the entire zone on the east flank of the dyke.
A total of six holes are currently in progress on the Young-Davidson property and drilling is scheduled to continue at the current pace until the end of 2007 and a resource update is on track to be released by year-end.
Drill hole collar locations for all the holes referred to in this release can be found in Appendix 1.
Figure 1: Young-Davidson Property (Vertical, North Looking,
Longitudinal Section with Metric Grid)
http://files.newswire.ca/594/longsection.jpg
The ramp that will provide underground access to the deposit advanced by 580 m during the quarter and is now 40% complete. Underground definition drilling has begun from the second leg of the ramp targeting the Upper Lucky zone in order to move the resources there from Inferred to Indicated status. Dewatering of the existing No. 3 shaft down to the 250-m level has been completed and the underground infrastructure left by the previous operator continues to be in excellent condition.
The environmental and engineering studies that will form a critical part of the pre-feasibility study for the project are proceeding along rapidly and will be adjusted to incorporate the updated resource figures due out at the end of the year. A project prospectus was developed and filed with both Provincial and Federal government ministries during the quarter in order to initiate permitting activities.
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Table 1 - Selected Intersections from Drill Holes at
Young-Davidson
Boundary Zone
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Core True
Hole ID From To Length Thickness Gold
(m) (m) (m) (m) (g/t)
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YD-07-33D 1282.5 1308.0 25.5 20.3 2.08
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Including 1282.5 1290.0 7.5 6.0 2.77
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1354.7 1370.6 15.9 12.7 1.96
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Including 1359.0 1365.0 6.0 4.8 2.91
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YD-07-33E 1267.0 1285.7 18.7 16.0 2.67
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Including 1274.1 1285.7 11.6 9.9 3.30
-----------------------------------------------------------------
Including 1277.0 1284.5 7.5 6.4 4.11
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1321.5 1394.0 72.5 68.8 1.97
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Including 1360.8 1382.0 21.2 20.1 3.32
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Including 1371.5 1380.5 9.0 8.6 4.35
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YD-07-49A 625.2 702.8 77.6 42.0 2.35
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Including 633.5 659.1 25.6 13.7 5.01
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Including 648.9 659.1 10.2 5.4 7.87
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Lucky Zone
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Core True
Hole ID From To Length Thickness Gold
(m) (m) (m) (m) (g/t)
-----------------------------------------------------------------
YD-07-48 731.5 750.0 18.5 13.9 1.42
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Including 734.5 739.5 5.0 3.8 2.30
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868.5 874.2 5.7 4.4 4.64
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956.8 961.5 4.7 3.7 7.93
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Young-Davidson Zone
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Core True
Hole ID From To Length Thickness Gold
(m) (m) (m) (m) (g/t)
-----------------------------------------------------------------
YD-07-46 1456.0 1481.5 25.5 15.6 1.52
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Including 1468.0 1481.5 13.5 8.3 2.04
-----------------------------------------------------------------
Including 1468.0 1477.0 9.0 5.6 2.40
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QUALITY CONTROL - ANALYSES AND SAMPLE LOCATION
Details of quality assurance/quality control procedures for sample analysis and drill hole survey methodology are reported in detail in National Instrument 43-101 (NI 43-101) Technical Reports filed on SEDAR (www.sedar.com) on January 29, 2007. Summaries of these procedures may also be found in the press release dated April 10, 2006
QUALIFIED PERSONS
The program design, implementation, quality assurance/quality control and interpretation of the results is under the control of Northgate's geological staff that includes a number of individuals who are qualified persons as defined under NI 43-101. Overall supervision of the program is by Carl Edmunds, PGeo, Northgate's Exploration Manager.
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x x x x x x
NOTE TO US INVESTORS:
The terms "Mineral Reserve", "Proven Mineral Reserve" and "Probable
Mineral Reserve" are Canadian mining terms as defined in accordance with NI
43-101 Standards of Disclosure for Mineral Projects under the guidelines set
out in the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM")
Standards on Mineral Resources and Mineral Reserves Definitions and Guidelines
adopted by the CIM Council on August 20, 2000. The terms "Mineral Resource",
"Measured Mineral Resource", "Indicated Mineral Resource", and "Inferred
Mineral Resource" used in this news release are Canadian mining terms as
defined in accordance with NI 43-101-Standards of Disclosure for Mineral
Projects under the guidelines set out in the CIM Standards.
x x x x x x
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NOTICE OF CONFERENCE CALL AND WEBCAST OF THIRD QUARTER RESULTS
November 5 at 10:00 a.m. ET
You are invited to participate in the Northgate Minerals Corporation live conference call and webcast discussing our third quarter financial results. The call and webcast will take place on Monday, November 5, 2007, at 10:00 a.m. ET.
Conference Call
Please call 416-644-3415 or toll free in North America at 1-800-733-7560. To ensure your participation, please call five minutes prior to the scheduled start of the call.
Webcast
The webcast package, including the webcast link and management presentation, will be available on the morning of November 5 and posted on Northgate's website at www.northgateminerals.com under the Calendar of Events section. You may also access the webcast at www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2030160
Replay
A replay of the conference call will be available beginning on November 5 at 12:00 P.M. ET until November 19 at 11:59 PM ET.
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Replay Access No. 416-640-1917 or 1-877-289-8525
Passcode: 212 49 495 followed by the number sign
x x x x x x
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NORTHGATE MINERALS CORPORATION is a gold and copper mining company focused on operations and opportunities in the Americas. The Corporation's principal assets are the Kemess South mine in north-central British Columbia and the Young-Davidson property in northern Ontario. Northgate is listed on the Toronto Stock Exchange under the symbol NGX and on the American Stock Exchange under the symbol NXG.
NOTE TO SECURITY HOLDERS:
This news release does not constitute an offer to buy or an invitation to sell, or the solicitation of an offer to buy or invitation to sell, any of the securities of Northgate or Perseverance. Information about Perseverance is provided by Perseverance and Northgate has not verified its accuracy or completeness.
Subject to the terms and conditions set forth in the Merger Implementation Agreement relating to the proposed transaction, Perseverance intends to mail a scheme booklet (which will include an explanatory statement and independent expert's report) to its shareholders. Perseverance shareholders and other interested parties are strongly advised to read these documents, as well as any amendments and supplements to these documents, when they become available because they will contain important information.
FORWARD-LOOKING STATEMENTS:
This news release includes certain "forward-looking statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. These forward-looking statements include estimates, forecasts, and statements as to management's expectations with respect to, among other things, future metal production and production costs, potential mineralization and reserves, exploration results, progress in the development of mineral properties, demand and market outlook for commodities and future plans and objectives of Northgate Minerals Corporation (Northgate). Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or "continue" or the negative thereof or variations thereon or similar terminology. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management are inherently subject to significant business, economic and competitive uncertainties and contingencies. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Northgate's expectations are disclosed under the heading "Risk and Uncertainties" in Northgate's 2006 Annual Report and under the heading "Risk Factors" in Northgate's 2006 Annual Information Form (AIF) both of which are filed with Canadian regulators on SEDAR (www.sedar.com) and with the United States Securities and Exchange Commission (www.sec.gov). Northgate expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
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APPENDIX 1 - DRILL HOLE COLLAR LOCATIONS
Young-Davidson
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Elev- Collar Collar Depth
Hole ID Easting Northing ation Azimuth Dip (m)
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YD-07-33A 23248.5 9701.7 10324.9 0 -70 1546.1
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YD-07-33B 23248.5 9701.7 10324.9 0 -70 1461.0
-----------------------------------------------------------------
YD-07-33C 23248.5 9701.7 10324.9 0 -70 1550
-----------------------------------------------------------------
YD-07-33D 23248.5 9701.7 10324.9 0 -70 1393.3
-----------------------------------------------------------------
YD-07-33E 23248.5 9701.7 10324.9 0 -70 1439.0
-----------------------------------------------------------------
YD-07-34 22711.5 10064.7 10331.0 353.0 -70 1066.8
-----------------------------------------------------------------
YD-07-37 23599.0 9976.0 10340.1 9 -70 1021.2
-----------------------------------------------------------------
YD-07-38 22711.5 10244.0 10330.0 0 -70 609.0
-----------------------------------------------------------------
YD-07-39 22713.1 10191.2 10333.1 350 -70 719.0
-----------------------------------------------------------------
YD-07-40 23875 10125 10340 315 -70 354.0
-----------------------------------------------------------------
YD-07-40A 23875 10125 10340 312 -70 261.0
-----------------------------------------------------------------
YD-07-40B 23875 10125 10340 310 -70 547.0
-----------------------------------------------------------------
YD-07-40C 23875 10125 10340 302 -70 969.0
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YD-07-41 23200.8 9940.0 10325.0 0 -65 1068.0
-----------------------------------------------------------------
YD-07-42 23522.0 9935.0 10322.0 356 -70 1008.0
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YD-07-42A 23522.0 9935.0 10322.0 356 -70 1400
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YD-07-43 23200.8 9940.0 10325.0 0 -60 919.0
-----------------------------------------------------------------
YD-07-44 22685.0 9725.0 10331.0 0 -70 19.3
-----------------------------------------------------------------
YD-07-45 23200.8 9940.0 10325.0 0 -70 1200
-----------------------------------------------------------------
YD-07-46 22685.0 9725.0 10331.0 0 -70 1700
-----------------------------------------------------------------
YD-07-48 23110.3 10037.4 10318.9 5 -67 1003.5
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YD-07-49A 23490.0 10140.0 10330.0 0 -70 714.0
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INTERIM CONSOLIDATED BALANCE SHEETS
September 30 December 31
Thousands of US dollars 2007 2006
-----------------------------------------------------------------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 269,191 $ 262,199
Short-term investments (note 6) 72,600 -
Concentrate settlements
and other receivables 49,636 17,960
Inventories 37,626 26,208
Future income tax asset 5,380 7,469
Deferred hedging loss - 8,583
-----------------------------------------------------------------
434,433 322,419
Other assets 17,937 27,622
Future income tax asset 10,487 6,291
Mineral property, plant and equipment 123,872 159,299
Investments 950 -
-----------------------------------------------------------------
$ 587,679 $ 515,631
-----------------------------------------------------------------
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Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable
and accrued liabilities $ 67,656 $ 22,023
Current portion of
capital lease obligations 2,506 2,439
-----------------------------------------------------------------
70,162 24,462
Capital lease obligations 681 2,586
Other long-term liabilities (note 4) 16,735
Provision for site closure
and reclamation obligations (note 5) 48,550 28,197
Future income tax liability 315 12,638
-----------------------------------------------------------------
136,443 67,883
Shareholders' equity
Common shares 308,841 307,914
Contributed surplus 3,794 2,596
Accumulated other
comprehensive income (note 2) (4,753) -
Retained earnings 143,354 137,238
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451,236 447,748
-----------------------------------------------------------------
$ 587,679 $ 515,631
-----------------------------------------------------------------
-----------------------------------------------------------------
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
Thousands of US
dollars, except
share and per Three Months Ended Nine Months Ended
share amounts, Sept 30 Sept 30
unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Revenue $ 86,756 $ 102,667 $ 241,947 $ 293,074
-----------------------------------------------------------------
Cost of sales 59,241 59,069 166,611 164,123
Administrative
and general 2,019 1,951 6,772 6,666
Depreciation
and depletion 8,050 8,397 28,009 25,469
Net interest
income (4,611) (1,180) (12,311) (1,857)
Exploration 10,773 3,509 22,208 6,496
Currency
translation
loss (gain) (2,796) 607 (7,960) (1,804)
Accretion of
site closure
and reclamation
costs 964 386 1,869 1,147
Writedown of
mineral
property
(note 7) 32,347 - 32,347 -
Other 1,915 40 2,826 8,423
-----------------------------------------------------------------
107,902 72,779 240,371 208,663
-----------------------------------------------------------------
Earnings before
income taxes (21,146) 29,888 1,576 84,411
Income tax
recovery
(expense)
Current (1,040) (1,482) (6,258) (4,455)
Future 10,249 (13,504) 10,798 6,996
-----------------------------------------------------------------
9,209 (14,986) 4,540 2,541
-----------------------------------------------------------------
Net earnings
(loss) for
the period $ (11,937) $ 14,902 $ 6,116 $ 86,952
-----------------------------------------------------------------
-----------------------------------------------------------------
Other
comprehensive
income
Reclassification
of net realized
gains on
available for
sale securities
to net earnings - - (315) -
Unrealized
gain (loss) on
available for
sale securities (276) - 190 -
Reclassification
of deferred
losses on
gold forward
contracts to
net earnings,
net of tax of
$2,538 Q3 and
$7,276 YTD 4,900 - 14,048 -
-----------------------------------------------------------------
4,624 - 13,923 -
-----------------------------------------------------------------
Comprehensive
income
(loss) $ (7,313) $ 14,902 $ 20,039 $ 86,952
-----------------------------------------------------------------
-----------------------------------------------------------------
Net earnings
(loss) per
share
Basic $ (0.05) $ 0.07 $ 0.02 $ 0.40
Diluted $ (0.05) $ 0.07 $ 0.02 $ 0.39
Weighted
average
shares
outstanding
Basic 254,210,079 215,636,477 254,111,883 215,085,895
Diluted 254,210,079 226,992,626 255,329,229 222,281,149
-----------------------------------------------------------------
-----------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Thousands of Three Months Ended Nine Months Ended
US dollars, Sept 30 Sept 30
unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Retained
earnings,
beginning
of period $ 155,291 $ 102,546 $ 137,238 $ 30,496
Net earnings
(loss) for
the period (11,937) 14,902 6,116 86,952
-----------------------------------------------------------------
Retained
earnings, end
of period $ 143,354 $ 117,448 $ 143,354 $ 117,448
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
Thousands of
US dollars,
except common Number of Common Share
shares, Common Shares Purchase Contributed
unaudited Shares Amount Warrants Surplus
-----------------------------------------------------------------
Balance at
December 31,
2006 253,700,033 $ 307,914 $ - $ 2,596
Transitional
adjustment on
adoption of
financial
instruments - - - -
Shares issued
under employee
share purchase
plan 32,807 79 - -
Shares issued
on exercise
of options 413,420 519 - (153)
Stock-based
compensation - 39 - 759
Net income - - - -
Other
comprehensive
income - - - -
-----------------------------------------------------------------
Balance at
March 31,
2007 254,146,260 $ 308,551 $ - $ 3,202
Shares issued
under employee
share purchase
plan 41,860 107 - -
Shares issued
on exercise
of options 5,600 15 - (4)
Stock-based
compensation - 53 - 320
Net income - - - -
Other
comprehensive
income - - - -
-----------------------------------------------------------------
Balance at
June 30,
2007 254,193,720 $ 308,726 $ - $ 3,518
Shares issued
under employee
share purchase
plan 46,559 67 - -
Shares issued
on exercise
of options 5,200 14 - (3)
Stock-based
compensation - 34 - 279
Net loss - - - -
Other
comprehensive
income - - - -
-----------------------------------------------------------------
Balance at
September 30,
2007 254,245,479 $ 308,841 $ - $ 3,794
-----------------------------------------------------------------
-----------------------------------------------------------------
Thousands of Accumulated
US dollars, Other
except common Compre-
shares, Retained hensive
unaudited Earnings Income Total
-----------------------------------------------------------------
Balance at
December 31,
2006 $ 137,238 $ - $ 447,748
Transitional
adjustment on
adoption of
financial
instruments - (18,676) (18,676)
Shares issued
under employee
share purchase
plan - - 79
Shares issued
on exercise
of options - - 366
Stock-based
compensation - - 798
Net income 9,406 - 9,406
Other
comprehensive
income - 4,125 4,125
-----------------------------------------------------------------
Balance at
March 31,
2007 $ 146,644 $ (14,551) $ 443,846
Shares issued
under employee
share purchase
plan - - 107
Shares issued
on exercise
of options - - 11
Stock-based
compensation - - 373
Net income 8,647 - 8,647
Other
comprehensive
income - 5,174 5,174
-----------------------------------------------------------------
Balance at
June 30,
2007 $ 155,291 $ (9,377) $ 458,158
Shares issued
under employee
share purchase
plan - - 67
Shares issued
on exercise
of options - - 11
Stock-based
compensation - - 313
Net loss (11,937) - (11,937)
Other
comprehensive
income - 4,624 4,624
-----------------------------------------------------------------
Balance at
September 30,
2007 $ 143,354 $ (4,753) $ 451,236
-----------------------------------------------------------------
-----------------------------------------------------------------
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Thousands of
US dollars,
except common Number of Common Share
shares, Common Shares Purchase Contributed
unaudited Shares Amount Warrants Surplus
-----------------------------------------------------------------
Balance at
December 31,
2005 214,011,246 $ 195,565 $ 8,715 $ 1,657
Shares
issued under
employee
share purchase
plan 45,027 68 - -
Shares issued
on exercise of
share purchase
warrants 314,523 480 (102) -
Shares issued
on exercise
of options 386,800 490 - (154)
Stock-based
compensation - 34 - 1,131
Net income - - - -
-----------------------------------------------------------------
Balance at
March 31,
2006 214,757,596 $ 196,637 $ 8,613 $ 2,634
Shares issued
under employee
share purchase
plan 30,269 76 - -
Shares issued
on exercise of
share purchase
warrant 10,202 27 - -
Shares issued
on exercise
of options 810,880 2,245 - (706)
Stock-based
compensation - 39 - 240
Net income - - - -
-----------------------------------------------------------------
Balance at
June 30,
2006 215,608,947 $ 199,024 $ 8,613 $ 2,168
Shares issued
under employee
share purchase
plan 30,955 73 - -
Shares issued
on exercise of
share purchase
warrant 2,778 8 - -
Shares issued
on exercise
of options 22,800 84 - (27)
Stock-based
compensation - 36 - 244
Net income - - - -
-----------------------------------------------------------------
Balance at
September 30,
2006 215,665,480 $ 199,225 $ 8,613 $ 2,385
-----------------------------------------------------------------
-----------------------------------------------------------------
Thousands of
US dollars, Accumulated
except common Other
shares, Retained Comprehensive
unaudited Earnings(1) Income Total
-----------------------------------------------------------------
Balance at
December 31,
2005 $ 30,496 $ - $ 236,433
Shares
issued under
employee
share purchase
plan - - 68
Shares issued
on exercise of
share purchase
warrants - - 378
Shares issued
on exercise
of options - - 336
Stock-based
compensation - - 1,165
Net income 21,735 - 21,735
-----------------------------------------------------------------
Balance at
March 31,
2006 $ 52,231 $ - $ 260,115
Shares issued
under employee
share purchase
plan - - 76
Shares issued
on exercise of
share purchase
warrant - - 27
Shares issued
on exercise
of options - - 1,539
Stock-based
compensation - - 279
Net income 50,315 - 50,315
-----------------------------------------------------------------
Balance at
June 30,
2006 $ 102,546 $ - $ 312,351
Shares issued
under employee
share purchase
plan - - 73
Shares issued
on exercise of
share purchase
warrant - - 8
Shares issued
on exercise
of options - - 57
Stock-based
compensation - - 280
Net income 14,902 - 14,902
-----------------------------------------------------------------
Balance at
September 30,
2006 $ 117,448 $ - $ 327,671
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
Thousands of Sept 30 Sept 30
US dollars, unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Operating activities:
Net earnings
for the period $(11,937) $ 14,902 $ 6,116 $ 86,952
Non-cash items:
Depreciation
and depletion 8,050 8,397 28,009 25,469
Unrealized currency
translation losses
(gains) 1,151 54 1,827 (288)
Accretion of site closure
and reclamation costs 964 386 1,869 1,147
Amortization of
hedging losses 7,438 7,525 21,325 15,027
Amortization of
deferred charges 81 75 229 489
Stock-based compensation 313 280 1,484 1,724
Future income tax
expense (recovery) (10,249) 13,504 (10,798) (6,996)
Change in fair value
of forward contracts 17,255 (19,754) 54,259 1,356
Writedown of
mineral property 32,347 - 32,347 -
Gain on sale
of investments - - (315) -
Changes in operating
working capital and other:
Concentrate settlements
and other receivables (16,410) 46,417 (43,628) 1,960
Inventories 156 (1,720) (3,515) (4,204)
Accounts payable and
accrued liabilities 4,867 (469) 17,069 6,152
Settlement of
forward contracts (4,581) (5,132) (13,907) (23,825)
Reclamation costs paid - - - (2,235)
-----------------------------------------------------------------
29,445 64,465 92,371 102,728
-----------------------------------------------------------------
Investing activities:
Purchase of other assets - (45) - (131)
Purchase of mineral property,
plant and equipment (4,926) (4,817) (11,260) (9,084)
Purchase of
short-term investments (72,600) - (72,600) -
Purchase of investments - - (322) -
-----------------------------------------------------------------
(77,526) (4,862) (84,182) (9,215)
-----------------------------------------------------------------
Financing activities:
Repayment of capital
lease obligation (567) (4,077) (1,838) (6,162)
Repayment of long-term debt - - - (13,700)
Issuance of common shares 78 138 641 2,564
-----------------------------------------------------------------
(489) (3,939) (1,197) (17,298)
-----------------------------------------------------------------
Increase / (decrease) in
cash and cash equivalents (48,570) 55,664 6,992 76,215
Cash and cash equivalents,
beginning of period 317,761 71,190 262,199 50,639
-----------------------------------------------------------------
Cash and cash equivalents,
end of period $269,191 $126,854 $269,191 $126,854
-----------------------------------------------------------------
-----------------------------------------------------------------
Supplementary information
Cash paid during
the period for:
Interest $ 71 $ 163 $ 216 $ 895
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2007 and 2006
(unaudited)
All dollar amounts are stated in United States dollars unless
otherwise indicated. Tables are expressed in thousands of
United States dollars, except share and per share amounts.
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements for Northgate Minerals Corporation ("Northgate" or the
"Corporation") have been prepared in accordance with generally
accepted accounting principles in Canada (Canadian GAAP). They do
not include all the disclosures required by Canadian GAAP for
annual financial statements and should be read in conjunction
with the Corporation's consolidated financial statements and the
notes thereto included in the Corporation's Annual Report for the
year ended December 31, 2006. In the opinion of management, all
adjustments considered necessary for fair presentation have been
included in these financial statements.
Except as disclosed in note 2 below, these financial statements
are prepared using the same accounting policies and methods of
application as those disclosed in note 2 to the Corporation's
consolidated financial statements for the year ended December 31,
2006.
NOTE 2 CHANGES IN ACCOUNTING POLICIES
On January 1, 2007, the Corporation adopted the Canadian
Institute of Chartered Accountants ("CICA") Handbook Sections
1530, Comprehensive Income; Section 3251, Equity; Section 3855,
Financial Instruments - Recognition and Measurement; Section
3861, Financial Instruments - Disclosure and Presentation; and
Section 3865, Hedges. These new standards resulted in changes in
the accounting for financial instruments, hedges and available
for sale investments as well as recognition of certain
transitional adjustments that have been recorded for gold forward
contracts and available for sale investments. In accordance with
the transitional provisions, prior periods have not been
restated. The principal changes resulting from these new
standards are described below:
Comprehensive Income
Section 1530 establishes standards for reporting and presenting
comprehensive income. Comprehensive income, composed of net
income and other comprehensive income, is defined as the change
in shareholders' equity from transactions and other events from
non-owner sources. Other comprehensive income for the Corporation
includes unrealized gains and losses on available for sale
securities and changes in the fair market value of derivatives
designated as cash flow hedges, all net of related income taxes.
The components of comprehensive income are disclosed in the
consolidated statement of operations and comprehensive income.
Cumulative changes in other comprehensive income are included in
accumulated other comprehensive income ("AOCI") which is
presented as a new category in shareholders' equity. The
components of AOCI as at September 30, 2007, are as follows:
-----------------------------------------------------------------
Unrealized gain on available for sale securities $ 203
Unrealized hedging losses (4,956)
-----------------------------------------------------------------
AOCI $ (4,753)
-----------------------------------------------------------------
Financial Instruments
Under Section 3855, financial assets and liabilities, including
derivative instruments, are initially recognized and subsequently
measured based on their classification as held-for-trading,
available for sale financial assets, held-to-maturity, loans and
receivables, or other financial liabilities as follows:
- Held for trading financial instruments are measured at their
fair value with changes in fair value recognized in net income
for the period.
- Available for sale financial assets are measured at their fair
value and changes in fair value are included in other
comprehensive income until the asset is removed from the
balance sheet.
- Held-to-maturity investments, loans and receivables and other
financial liabilities are measured at amortized cost using the
effective interest rate method.
- Derivative instruments, including embedded derivatives, are
measured at their fair value with changes in fair value
recognized in net income for the period unless the instrument
is a cash flow hedge and hedge accounting applies in which
case changes in fair value are recognized in other
comprehensive income.
Upon adoption of this new standard, the Corporation designated
its investments in common shares of public corporations as
available for sale financial assets. On January 1, 2007, the
Corporation recorded these investments at their fair value of
$329,000 with an offsetting adjustment to AOCI in shareholders'
equity. When the investments are sold or otherwise disposed of,
gains or losses will be recorded in net earnings.
Hedging
Section 3865 specifies the circumstances under which hedge
accounting is permissible and how hedge accounting may be
performed. On January 1, 2007, the Corporation elected to
discontinue hedge accounting for its gold forward sales
contracts. As a result, a liability for the fair value of these
contracts of $20,265,000 and a future income tax asset of
$6,914,000 was recorded with the net transitional adjustment of
$13,351,000 recognized in AOCI in shareholders' equity. Also on
January 1, 2007, the deferred hedging loss asset of $8,583,000
and the related future income tax liability of $2,929,000
pertaining to gold forward contracts settled in prior years in
advance of their maturity date were reclassified to AOCI in
shareholders' equity. Changes in fair value of forward contracts
are recognized in net income each period. The transitional
adjustment and hedge loss recorded in AOCI will be released into
net income at the time the sales associated with the forward
contracts occur.
Inventory
In the year ended December 31, 2006, the Corporation changed its
accounting policy with respect to metal inventories to
incorporate a full costing method and also to value additional
components of inventory created during the mining process. As a
result of this change, opening retained earnings at January 1,
2006 increased by $12,819,000. There were no other material
adjustments required for the three and nine month periods ended
September 30, 2006.
NOTE 3 STOCK BASED COMPENSATION
Options were not granted during the three months ended
September 30, 2007 (2006 - nil). During the three months ended
September 30, 2007, $279,000 (2006 - $244,000) of stock-based
compensation was recognized related to outstanding stock options.
During the three months ended September 30, 2007, a total of
93,500 options were cancelled and 5,200 options were exercised.
At September 30, 2007, there were 5,428,800 options outstanding,
of which 2,911,700 were exercisable.
There were no options granted during the three months ended
June 30, 2007 (2006 - nil). During the three months ended
June 30, 2007, $320,000 (2006 - $240,000) of stock-based
compensation was recognized related to outstanding stock options.
During the three months ended June 30, 2007, a total of 19,800
options were cancelled and 5,600 options were exercised.
During the three months ended March 31, 2007, the Corporation
granted a total of 1,425,000 (2006 - 1,212,000) options to
employees, with a term of seven years. 1,410,000 of these options
are exercisable at Cdn$4.07 and 15,000 are exercisable at
Cdn$3.48. Twenty percent (282,000) of the options granted at
Cdn$4.07 vested immediately and the balance will vest in equal
amounts on the anniversary date of the grant over the next four
years and five years respectively. The fair value of the options
granted for the three months ended March 31, 2007 was $2,500,000
(2006 - $1,480,000). During the three months ended March 31,
2007, $759,000 (2006 - $1,131,000) of stock-based compensation
was recognized related to outstanding stock options.
During the three months ended March 31, 2007, a total of 114,020
options were cancelled and 413,420 options were exercised.
The fair value of the share options granted during 2007 was
estimated using the Black-Scholes pricing model with the
following assumptions:
For Options Granted in
-----------------------------------------------------------------
Q3 Q3 Q2 Q2 Q1 Q1
2007 2006 2007 2006 2007 2006
-----------------------------------------------------------------
Risk-free
interest rate - - - - 3.94% 4.1%
Annual dividends - - - - - -
Expected stock
price volatility - - - - 53.4% 60%
Expected option life - - - - 5.0 5.0
years years
Per share fair value
of options granted
(Cdn$) - - - - $2.05 $1.42
-----------------------------------------------------------------
NOTE 4 FINANCIAL INSTRUMENTS
At September 30, 2007, the Corporation had forward sales
commitments with major financial institutions to deliver
18,000 ounces of gold at an average accumulated price of $307 per
ounce. These forward sales commitments are in the form of forward
sales contracts maturing at various dates between October 31,
2007 and December 31, 2007. On January 1, 2007, the Corporation
adopted the CICA new standard on hedges (note 2). In conjunction
with the adoption of Section 3855, the Corporation elected to
discontinue hedge accounting. Therefore, the forward sales
contracts are now recorded at their fair value with changes in
fair value including in earnings for the period. The unrealized
loss on these forward sales contracts at September 30, 2007, was
approximately $7,882,000, which is recorded in accrued
liabilities. The deferred hedging loss, which was reclassified to
the opening balance of AOCI in shareholders' equity on January 1,
2007, and the transitional adjustment required to recognize the
fair value of outstanding forward sales contracts on adoption of
Section 3855 will be released into net earnings at the time the
sales associated with the forward contracts occur.
At September 30, 2007, the Corporation had forward sales
contracts with a major financial institution to fix the price for
delivered copper for which final settlement has not occurred, and
in certain cases, for future production. A total volume of
32,950 metric tonnes of copper were sold forward using London
Metal Exchange (LME) contracts maturing from November 2007
through October 2010 at an average forward price of $2.87 per
pound. The Corporation also entered into separate forward
purchase contracts with the same institution to repurchase its
forward sales position at monthly average LME cash prices over
the same period. The volume of these forward sales contracts
match expected future pricings of copper in concentrate produced
and delivered to Falconbridge Limited (a wholly owned subsidiary
of Xstrata Plc.) under a multi-year concentrate sales agreement.
The copper forward sales and purchase contracts are being
recognized on a mark-to-market basis. The fair value of these
contracts at September 30, 2007 was a net loss of $35,714,000 of
which $18,979,000 is included in accrued liabilities and
$16,735,000 in other long-term liabilities.
NOTE 5 SITE CLOSURE & RECLAMATION OBLIGATIONS
In the third quarter of 2007, the Corporation revised the
undiscounted estimate for the Kemess South mine site closure and
reclamation costs used in the determination of the provision. In
addition, the Corporation changed the estimated timing of when
the costs would be paid. The continuity of the provision for
these costs is as follows:
-----------------------------------------------------------------
Balance, beginning of year $ 28,197
Effect of change in estimated future cash flows 14,003
Site closure and reclamation liability incurred 88
Accretion expense 1,869
Effect of foreign exchange 4,393
-----------------------------------------------------------------
Balance, end of period $ 48,550
-----------------------------------------------------------------
-----------------------------------------------------------------
The estimated undiscounted cash flows used to determine the
revised liability is $52,200,000. The majority of the site
closure costs at the Kemess South mine are expected to be spent
between 2008 and 2012 with some expenditures, such as monitoring,
to be spent in excess of 100 years after the mine closes. The
credit-adjusted risk-free rate at which the incremental estimated
future cash flows have been discounted is 6.25% and the inflation
rate used to determine future expected cost is 2.29%.
NOTE 6 SHORT-TERM INVESTMENTS
Northgate maintains a portion of its investments in AAA rated
Auction Rate Securities (ARS). ARS are floating rate securities
that are marketed by financial institutions with auction reset
dates at 7, 28, or 35 day intervals to provide short term
liquidity. Beginning in August 2007 a number of ARS auctions
began to fail and the Corporation is currently holding
$72,600,000 in ARS, which currently lack liquidity. Northgate's
ARS investments were originally structured and marketed by a
major investment bank in the USA and all of Northgate's ARS
investments continue to make regular cash interest payments and
are still rated AAA by Standard & Poor's (S&P) and AAA by
Moody's.
Due to the high credit worthiness of its ARS investments, third
party valuation reports, which value these investments at 100% of
par value, and management's assessment that the liquidity issues
surrounding the specific ASR securities held by the Corporation
will be resolved within the next twelve months, these investments
continue to be classified by the Corporation at September 30,
2007, as available for sale short-term investments at their
original par value, which is equal to their fair value.
The balance of the Corporation's investments are held in R1/P1/A1
rated investments including money market funds, direct obligation
commercial paper, bankers acceptances and other highly rated
short term investment instruments which are recorded as cash and
cash equivalents. The Corporation has no investments in Asset
Backed Commercial Paper (ABCP), Mortgage Backed Securities (MBS)
or Collateralized Debt Obligations (CDO).
NOTE 7 WRITE-DOWN OF MINERAL PROPERTY
During the quarter, the Joint Federal-Provincial Environmental
Review Panel for the Kemess North project completed its review
and submitted its final report to the federal and provincial
Ministers of the Environment. The report recommended that the
project not be permitted to proceed. The Federal and Provincial
governments are now studying the Panel's report and are expected
to make a final decision on whether to permit the development of
Kemess North sometime in the first half of 2008.
In light of the negative panel recommendation, Northgate has
written off the full carrying value ($32,347,000) of its
investment in this property.
NOTE 8 COMMITMENTS AND CONTINGENCIES
On May 28, 2007, Northgate entered into an Option and Joint
Venture Agreement ("Agreement") with Opawica Explorations Inc.
("Opawica") and is committed to spend Cdn$750,000 in exploration
over the twelve month period from the effective date of the
Agreement. In the third quarter of 2007, the Corporation
fulfilled its obligation and provided an additional Cdn$562,000
(YTD Cdn$787,000) to Opawica to fund exploration activity.
NOTE 9 SUBSEQUENT EVENT
On October 29, 2007, Northgate announced that it had entered into
a definitive Merger Implementation Agreement ("MIA") that
provides for the acquisition by Northgate of Perseverance
Corporation Ltd. ("Perseverance"), which operates two gold mines
in Australia with a combined annual production of approximately
200,000 ounces. The transaction will be implemented via schemes
of arrangement between Perseverance and its shareholders and
warrant holders, respectively (the "Schemes"), and a resolution
of holders of convertible subordinated notes to approve the early
redemption of the notes. Under the Schemes, a wholly owned
subsidiary of Northgate will acquire all of the outstanding fully
paid ordinary shares of Perseverance. In addition, under the
resolution of holders of convertible subordinated notes, the
convertible subordinated notes will be cancelled. The transaction
is subject to certain conditions, including the approval of
securityholders.
Under Northgate's offer, Perseverance securityholders will
receive (in Australian dollars (A$)):
- A$0.20 cash per ordinary share (total A$177.9 million);
- A$0.08 cash for each of the Perseverance warrants issued as
part of the recent A$26.5 million placement (total
A$14.1 million).; and,
- A$100,000 (face value) plus any accrued interest per
convertible subordinated note (total A$37.0 million).
Northgate has also agreed to acquire all of Perseverance's
existing debt from a major financial institution in Australia
(the "Bank") amounting to $30.6 million (A$33.5million) and is
extending an additional bridging facility of up to $22.8 million
(A$25.0 million). Northgate has also agreed to acquire
approximately $43.8 million (A$48.0 million) gold forward
contracts from the Bank and subsequent to the close of the
Transaction, Northgate will close out these contracts.
Under the terms of the debt assumption and loan agreements, all
debt held by Northgate will be in a first secured position and
interest on the bridge financing will be deferred up to the date
of successful conclusion of the transaction or termination of the
MIA.
The additional bridging facility eliminates any short-term
requirement for Perseverance to raise further equity capital.
In the event that the transaction does not close as a result of
another person acquiring an interest in Perseverance of more than
20%, the Bank debt and bridging facility will become immediately
repayable in full and Perseverance will be required to
immediately close out the gold forward contracts.
In the event that the transaction does not close for any other
reason, Perseverance is required to repay the principal amount of
all bridge financing plus accrued interest and fees within three
months of the relevant termination date. The remaining Bank debt
and the gold forward contracts will remain in place and subject
to their current terms, only Northgate will be counterparty to
Perseverance, having assumed these assets and the associated
first secured lender position from the bank.
>>
%CIK: 0000072931
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