Aurizon appoints committee to review Northgate bid

Vancouver – Aurizon Mines (ARZ-T, AZK-X) has appointed a special committee of directors to review and evaluate an unsolicited takeover bid for the purchase of its shares by Northgate Minerals (NGX-T, NGX-X). The company won’t comment further until the review is complete, but media reports suggest it had previously rebuffed overtures from Northgate for a friendly business combination.

Aurizon is a former gold producer with annual production in the range of 30,000-80,000 oz. from its inception in 1988 until 2005, when it sold its 50% interest in the Sleeping Giant gold mine in Quebec. The company plans to regain producer status later this year at its core asset, the past-producing Casa Berardi gold mine in Quebec’s Abitibi district. Aurizon raised $51 million in equity financings last year and closed a $75-million debt facility early this year, and plans to use the proceeds to bring Casa Berardi back into production at an annual rate of about 175,000 oz. gold, starting in November 2006.

Northgate’s main asset is the Kemess South copper-gold mine in British Columbia. With the mine nearing the end of its productive life, Northgate plans to develop its nearby Kemess North deposit, now in the permitting phase. The company also plans to carry out an underground exploration program at another advanced asset, the past-producing Young-Davidson gold mine in the Matachewan district of Ontario.

Under the terms of the proposed transaction, Aurizon shareholders will receive 0.741 of a Northgate common share for each common share. This implies an offer price of $3 per share, based on Northgate’s closing price of $4.05 on May 19, and a 30.5% premium over Aurizon’s closing price of that same day.

The combined company would have a market capitalization of more than US$1 billion, and estimated production in 2007 of about 480,000 oz. gold and 84 million lbs. copper from the Kemess South and Casa Berardi mines. Based on financial statements of both companies, the “new Northgate” would have net cash flow of US$70.2 million.

“We think this is a compelling transaction,” said Ken Stowe, Northgate’s president and chief executive, during a conference call. “It creates significant value to shareholders of both companies.”

Stowe said Northgate considers itself “under-valued” relative to its peers, and expressed confidence that a successful transaction [with Aurizon] would lead to a “re-rating” at higher multiples for the combined entity. “The new Northgate would be solidly entrenched as a mid-tier gold producer with amongst the lowest cash costs in its peer group, robust cash flow, and importantly, some organic production growth,” he added. “The financial strength and operating expertise of the combined company would be important to the start-up of the Casa Berardi, Young-Davidson and Kemess North operations.”

Northgate plans to send out an information circular to Aurizon shareholders shortly. The offer will remain open for 35 days, and will be subject to acceptance of at least 75% of Aurizon shareholders. News of the takeover bid drove shares of Aurizon up 38.7% to $3.19, while shares of Northgate fell 3.46% to $3.91.