Northgate’s Young-Davidson gold project gets economic thumbs-up

Vancouver – Forced to mothball production plans for its Kemess North project in British Columbia, Northgate Minerals (NGX-V, NXG-X) turned its attention elsewhere. Now it has been rewarded for its ability to refocus quickly with a positive preliminary assessment for its other Canadian property: the Young-Davidson gold project in Matachewan, Ontario.

The assessment lays out the basis for developing a combined underground and open-pit mining operation with an initial capital cost of US$306 million, including a 17.5% contingency. The mine would produce 158,000 oz. gold annually at a net cash cost of US$405 per oz., based on a gold price of US$625 per oz. and an exchange rate of US90 to the Canadian dollar.

The Young-Davidson resources as outlined to date support a mine producing a total of 1.75 million oz. gold over a 12-year mine life. The project’s undiscounted net present value comes in at US$18.3 million, after tax, giving an internal rate of return of 0.8%. Increasing the gold price to US$735 per oz. increases the net present value to US$134 million and ups the internal rate of return to 5.4%.

In the proposed open pit, indicated resources stand at 4.3 million tonnes grading 2 grams gold per tonne and inferred resources add 42,000 tonnes grading 2.11 grams gold. The underground deposit hosts 11.5 million indicated tonnes averaging 3.79 grams gold and 4 million inferred tonnes at 3.35 grams gold.

Ken Stowe, Northgate’s president and CEO, says he is confident the project’s economics will continue to improve as exploration drilling proves up more resources and better geotechnical knowledge allows for a re-vamped mine plan. He says Northgate will be placing orders for long-lead-time equipment in the coming months, to keep the project on schedule for start-up in early 2011.

During the first three years of mining operations feed for the mill will be sourced from a small open pit as well as from the upper region of the underground mine. The open pit involves 10-metre high benches with 15-metre wide haul roads accommodating 50-tonne haul trucks. The stripping ratio for the open pit is 2.9 to 1.

Production from the underground operation will increase as production from the open pit declines. For the last nine years of the mine’s life mill feed will come exclusively from the underground operation.

The underground deposit sits 210 to 1,300 metres below surface. Development of an underground operation would start with a 6-metre diameter shaft into the footwall to a depth of 1,390 metres with three main levels. The underground operation would use 50-metre sublevel spacing and open-stoping mining methods. Seventeen scoop-trams would load, haul, and transfer stope production to the ore pass system.

Initial mining capital costs, including development of the new production shaft, ramp, and ventilation raises as well as a paste backfill plant and the purchase of underground equipment, come in at US$103.2 million.

Ore would be ground in a 5,000-tonne-per-day mill and gold recovered using gravity, flotation, and standard carbon-in-leach circuits. Preliminary metallurgical tests indicate gold recoveries better than 91%. The process plant would cost US$69.3 million and sustaining capital is estimated at US$52.9 million.

A new 7-km, 115kV power line connected to an upgraded 50-km, 115kV line already in place would provide power to the site. Tailings, which would be non-acid generating, would be impounded in the same area as historic tailings from the two mines that operated previously on the property.

Northgate is investigating several avenues to enhance the rate of return at Young-Davidson. First, the company is conducting exploration drilling in the region between the Boundary zone and the Young-Davidson zone with the goal of boosting resources. The company has already drilled more than 10,000 metres of core holes in its $5-million 2008 drilling program. Second, an updated resource model is planned for later this year that will reflect more current, higher estimates of long-term gold prices.

Third, a geotechnical program is currently investigating the maximum stable excavation size for the underground mine. The current preliminary assessment assumed a worst-case scenario where 100% of the stopes would be paste backfilled, at an average cash cost of US$3.45 per tonne of mill feed. In comparison, historic mining on the property did not use any backfill die to the competent host rock. Finally, Northgate is assessing the potential to increase inter-ramp wall angles to reduce the strip ratio.

The updated resource estimate should be available before the end of the year; a feasibility study should follow a few months later.

Environmental baseline studies are well underway and should be complete by the end of the year. And Northgate and the Matachewan First Nation recently signed a memorandum of understanding that provides the foundation for a co-operative and mutually beneficial relationship and outlines the basic framework for the negotiation of a long-term impact and benefit agreement. Negotiations on the specifics of the impact and benefit agreement began in April.

Northgate also operates the Kemess South copper-gold mine in British Columbia as well as two newly-acquired mines in Australia:

In the first quarter of 2008 Kemess South produced 49,583 oz. gold and 14.4 million lbs. copper. Metal production was adversely affected by several unscheduled power outages and lower gold grades than expected.

In Australia, the Stawell mine produced 28,363 oz. gold in the first three months of 2008; over the same period the Fosterville mine pumped out 11,655 oz. gold. A $7-million exploration program at Stawell has already resulted in strong drill results form the Golden Gift 6 zone, including 11.2 grams gold over 21.4 metres and 11.2 grams gold over 1.65 metres in hole 5267. A $3-million exploration program at Fosterville is also underway.

Northgate is almost on track to deliver its forecast gold production of 425,000 oz. in 2008, at an expected average cash cost of $272 per oz., net of by-product credits. All of the company’s present and future gold production is unhedged.

The company plans to raise some $250 million in the near future, having just filed a prospectus that allows it to offer debt securities, shares, and warrants adding up to that sizeable sum over the next 25 months.

On news of the Young-Davidson preliminary assessment Northgate’s share price fell slightly, closing down 2 at $2.86. The company has a 52-week trading range of $2.45 to $3.55 and has 255.4 million shares issued.