Northgate Prefeasibility Boosts Young-Davidson Numbers

VANCOUVER — A prefeasibility study for the Young-Davidson project in Ontario has returned positive results for Northgate Minerals (NGX-T, NXG-X).

A mine at Young-Davidson, which is near Matachewan, is expected to produce 170,000 oz. gold a year for the first two years of open-pit operations, rising to 190,000 oz. annually during the following 13 years of underground mining. To develop the 6,000- tonne-per-day operation is expected to cost US$293 million.

For the investment, and based on a gold price of US$725 per oz., Northgate can expect to receive pretax operating cash flow of US$548 million. The project carries a net present value (NPV) of US$233 million, based on a 5% discount, and a 13.2% internal rate of return (IRR). Project payback should be achieved within 6.4 years.

During the two years of open-pit mining, the project should be able to produce an ounce of gold for US$333. When operations move underground, the cash cost to produce an ounce of gold actually decreases slightly, to US$326.

The prefeasibility study shows some significant improvements over the results of a scoping study completed last year. The new study increases reserves by 44%, raises throughput by 20%, and reduces operating costs per tonne by 23%. The previous study gave an undiscounted after-tax NPV of US$134 million and an IRR of 5.4% at US$735-per-oz. gold. On the other hand, life-of-mine sustaining capital has increased by 154% to US$159 million.

Northgate is now working on a feasibility study, while advancing permitting, and wants to start construction in the first half of 2010. The company’s goal is to produce the first gold at Young-Davidson in early 2012.

Young-Davidson’s open-pit reserves came in at 4.9 million tonnes grading 1.66 grams gold per tonne. Underground reserves total 3.5 million proven tonnes grading 3.22 grams gold and 0.58 gram silver per tonne plus 22.7 million probable tonnes averaging 2.92 grams gold and 0.97 gram silver. Combined, the reserves host 2.76 million oz. gold and 773,000 oz. silver.

The small open pit bears a strip ratio of 2.75:1. Production from the underground mine would be phased in during the third year of operations. The underground deposit sits between 210 and 1,500 metres depth. To haul ore and waste from the mine a shaft with a 6-metre diameter would be sunk to the east. The mine would also be accessible by a ramp; the current exploration ramp, which reaches 460 metres depth, would be extended to 1,500 metres below surface.

Ore would be processed in a 6,000-tonne-per-day plant using conventional gravity, flotation, and carbon-in-leach circuits. The grinding circuit, a single-stage autogenous mill, would be sourced from the company’s old Kemess plant. Gold recoveries are expected to average better than 92%.

To provide power to the operation, Northgate plans to upgrade roughly 50 km of an existing 115- kilovolt power line and install a new 7-km line. Capital costs for the mine also cover building a mine site transformer station, which alone would cost US$22 million.

Tailings are expected to be nonacid generating, which means a new mine at Young-Davidson would be able to impound tailings at the same facility that holds tailings from two previous mines.

In the two-year building phase, a Young-Davidson mine would employ as many as 600 people. During operations, the mine would require 275 direct employees. The project enjoys strong support from the local community: in July, Northgate signed an impacts and benefits agreement with the Matachewan First Nation, which established a framework for the permitting and development of the mine and defined a variety of initiatives relating to employment, training and entrepreneurial opportunities.

News of the prefeasibility study lifted Northgate’s share price 12¢ over three days to $2.59. The company has a 52-week trading range of 67¢-$2.82 and 256 million shares outstanding.