Northgate’s Aussie Mines Help Power Q2 Profits

VANCOUVER — Things are going well for Northgate Minerals (NGX-T, NXG-X): the company is making money, increasing its gold reserves in Australia, and moving development plans ahead in Ontario, and it has US$121 million in the bank.

Northgate operates the Stawell and Fosterville underground gold mines near Melbourne, Australia, as well as the open-pit Kemess gold-copper mine in north-central British Columbia. Those operations produced nearly 93,380 oz. gold and 13.8 million lbs. copper in the second quarter of 2009, which resulted in cash flow of US$50 million.

That cash flow translated into net earnings of US$5.4 million, or US2¢ per diluted share.

Northgate’s average net cash cost of production for the second quarter came in at US$465 per oz. gold. Gold sales totalled 100,570 oz. at a realized price of US$924 per oz., while copper sales added up to 14.9 million lbs. at a realized price of US$2.65 per lb.

The company reduced its 2009 gold production target slightly to 382,500 oz., at a net cash cost of US$440 per oz. Production at Kemess and Fosterville is in line with the company’s initial estimates but the target at Stawell has been reduced by 10,000 oz. as a result of changes to the mine plan necessitated by geotechnical issues within the Golden Gift mining block.

Northgate acquired Stawell and Fosterville in its takeover of Aussie miner Perseverance in early 2008 and has increased production and recoveries at both mines since. In the first half of 2009, Stawell produced 42,460 oz. gold from 325,540 tonnes of ore grading 4.18 grams gold.Netcash costs averaged US$515 per oz. gold.

And Northgate’s exploration efforts over the last 18 months recently paid off with an increased reserve estimate for Stawell. The company added 870,000 tonnes of ore containing 93,000 oz. gold to reserves, which extends the current mine life to the second quarter of 2012.

Open-pit reserves at Stawell now total 430,000 probable tonnes grading 1.8 grams gold; underground reserves come in at 64,000 proven tonnes grading 7.13 grams gold per tonne and 2 million probable tonnes averaging 4.24 grams gold. In total, Stawell hosts 313,000 oz. gold in reserves.

Since acquiring the mine, Northgate has added a total of 230,000 oz. gold to reserves. And the company says it expects to define additional reserves in six new zones during the rest of the year. The mine has produced more than 2 million oz. gold over its 26-year history.

The mine at Fosterville extracted 372,180 tonnes of ore in the first half of 2009; the head grade at the mill averaged 5.04 grams gold. The effort produced nearly 51,200 oz. gold at a cash cost of US$483 per oz. Recoveries averaged 86%, a significant improvement over the 65% average gold recovery during the first half of 2008. The improvement speaks to the efficacy of the heated leach circuit, which Northgate commissioned in early 2009.

Northgate has four drill rigs working in the southern part of the mine lease at Fosterville, where the company completed 17 holes totalling 9,000 metres in the second quarter. At Harrier Underground, a zone 1.7 km south of the current Phoenix mining area, 10 holes tested parts of the Osprey and Harrier Base zones. Drilling highlights include 4 metres of 11.4 grams gold and 3 metres of 5.8 grams gold at Osprey and 10 metres of 5.7 grams gold at Harrier. The results confirmed that both zones plunge moderately to the south. One of the two zones at Osprey has been limited down-plunge by drilling but the second Osprey zone and the Harrier zone remain open down-plunge.

Drilling is also under way at Phoenix, where the company is probing both the Phoenix Extension to the south of the current reserve block and Phoenix Deeps, which is down-plunge of the deepest intercept. At the Extension, where a drill program just got under way, the first two holes intersected mineralization in a program designed to upgrade inferred resources to reserves. And at the Deeps, three of five holes attained target depths and all holes intersected mineralization, including 10 metres of 1.9 grams gold and 2.7 metres of 4.3 grams gold.

In deal June, Northgate ratified a three-year employee collective agreement at Fosterville, covering 190 production and maintenance workers. The agreement completed the Fosterville conversion to owner mining from contract mining.

At Kemess in B. C., Northgate mined 8.5 million tonnes of ore grading 0.539 gram gold and 0.175% copper, as well as almost 4 million tonnes of waste rock, to produce 107,200 oz. gold and 28.8 million lbs. copper in the first half of the year.Netof copper credits, the net cash cost to produce an ounce of gold came out at US$366. Mining operations at Kemess were suspended for a few weeks during a spring thaw that caused localized sloughing. The western end of the pit is now depleted; all mining from now until the end of the mine’s life in mid-2011 will occur in the eastern end of the pit.

Northgate’s other key achievement in the second quarter was a positive prefeasibility study for its Young-Davidson gold project in northern Ontario. The study envisioned two years of open-pit mining followed by 13 years of underground operations, based on combined reserves of 2.76 million oz. gold and 773,000 oz. silver. For an investment of US$293 million, a mine at Young-Davidson is expected to produce a pretax internal rate of return of 13.2% and carries a net present value of US$233 million, using a 5% discount.

The company also signed a new impacts and benefits agreement with the Matachewan First Nation, on whose land Young-Davidson sits. The agreement establishes a framework for permitting and developing a mine at the site and sets out a variety of co-operative initiatives between the Matachewan and Northgate.

Northgate’s share price has spent the summer between $2.10 and $2.80. The company has a 52-week trading range of 67¢-$2.82 and 256 million shares outstanding.