Archive for May, 2009

Serengeti Purchases Exploration Data

Serengeti Resources wishes to announce that it has entered into an agreement with Amarc Resources to purchase certain proprietary historical exploration data, including geophysical survey and drilling results from work conducted by Amarc on portions of the Choo property which is now held by Serengeti and the Mil property which is held by Serengeti and Fjordland Exploration Inc.

In consideration for the purchase of the data, Serengeti has agreed to issue Amarc 100,000 common shares of Serengeti, subject to acceptance by the TSX Venture Exchange. The shares will be subject to the statutory four month hold period.

,

No Comments

Northgate Minerals Elects Directors

Mark J. Daniel, Paul J. Dowd and Richard J. Hall have been newly elected to the board of directors of Northgate Minerals Corp. pursuant to the annual general meeting of shareholders on May 8, 2009. Mr. Dowd and Mr. Hall were previously appointed to the board in December, 2008. The election of Mr. Daniel follows the retirement of C. William (Bill) Daniel, who served on the board since 2003.

Serving on the board in addition to the three newly elected members are: Terrence A. Lyons, chairman of the board; Kenneth G. Stowe, president and chief executive officer of the corporation; Patrick D. Downey; Douglas P. Hayhurst; and Conrad A. Pinette.

Mr. Stowe, president and chief executive officer, stated: “We have assembled a board that has a wealth of expertise in our industry and is committed to the growth of our company. I am looking forward to working with our newly elected and returning members of our board team to build upon our many recent successes, and to deliver growth and a solid rate of return to Northgate’s shareholders. On behalf of our management team and the board of directors, I wish to extend our heartfelt gratitude to Mr. Bill Daniel for his professional contributions and dedicated service to our board over the past six years.”

Mr. Daniel has been appointed chairman of Northgate’s corporate governance and compensation committee and also as a member of the health, safety and environment committee. Over his career, Mr. Daniel worked for the Bank of Canada and a number of other Canadian government organizations prior to joining the Conference Board of Canada in 1979. During his 15-year career with the Conference Board, he benchmarked leadership and management practices in some of the most successful companies in North America, Europe and Japan. Mr. Daniel joined Vale Inco (formerly CVRD Inco) in 1996, retiring as vice-president, human resources in 2007. Since that time, he has consulted to organizations on performance improvement, executive development, succession planning and organization design. Mr. Daniel holds a PhD in economics from the University of Minnesota.

,

No Comments

Northgate Minerals Q1 Earnings

Northgate Minerals Corp. had net earnings of $21.41-million, or eight cents per diluted common share, and cash flow from operations of $45,202,000, or 18 cents per diluted common share, for the first quarter of 2009 (all figures in United States dollars, except where noted). Northgate’s cash flow from operations includes cash proceeds of $19,182,000 from the early settlement of 9,000 tonnes of copper forward contracts.

First quarter of 2009 highlights:

 

  • Began commissioning the heated, leach circuit at the Fosterville mine, which will significantly improve gold recoveries;
  • Total gold production was 107,477 ounces, exceeding the first quarter production forecast:
    • Kemess produced 59,306 ounces during the first quarter, which was 10,000 ounces above forecast.
    • Fosterville continued its strong turnaround, producing 25,779 ounces during the first quarter, which was 2,000 ounces above forecast.
  • Average net cash cost of production was $396 per ounce, which was significantly lower than first-quarter guidance.
  • Gold sales for the first quarter totalled 111,850 ounces at a realized price of $935 per ounce.
  • Substantial progress was made on the prefeasibility study work at Young-Davidson, where the mine plan is being redesigned around the new, larger, 3.3-million-ounce, measured and indicated, gold resource, using low-cost, bulk-mining methods to reduce operating costs and increase annual production.
  • Successful exploration drilling at Stawell:
    • Discovered two additional zones of gold mineralization on either side of the GG5 mining zone.
    • Hole SD-622W6 in the North Magdala target area intersected 5.7 metres of 19.6 grams per tonne gold.

 

Ken Stowe, president and chief executive officer, stated: “Strong financial results were achieved from our operations during the first quarter, as we beat the forecast for both gold and copper production, generating excellent cash flow from operations of $45-million. Kemess performed extremely well during the quarter, exceeding our expectations for production and costs. We were equally as pleased with the strong operating results from both Fosterville and Stawell, where we achieved another solid quarter of production and lower cash costs. On the exploration front, drill results over the past six months, in the North Magdala target at Stawell and in the Harrier zone at Fosterville, have been sufficiently compelling that we are commencing development towards both of these areas, while exploration continues. Prefeasibility work at Young-Davidson is moving along well, with completion expected by the end of June.”

Executive overview

Financial performance

Northgate Minerals recorded consolidated revenue of $123,818,000 in the first quarter of 2009, compared with $86,093,000 in the same period last year. Net earnings were $21.41-million, or eight cents per diluted share, in the first quarter of 2009, compared with net earnings of $20,427,000, or eight cents per diluted share, for the corresponding quarter of 2008. Cash flow from operations, after changes in working capital and other items, was $45,202,000, or 18 cents per diluted share, in the first quarter of 2009, which includes the early settlement of 9,000 tonnes of copper forward contracts for cash proceeds of $19,182,000. Cash flow for the same period last year was $15.45-million, or six cents per diluted share. Financial results for the corresponding quarter of 2008 exclude results from Fosterville and Stawell prior to Northgate’s acquisition of Perseverance Corporation Ltd. on Feb. 19, 2008. Per-share data are based on the weighted-average diluted number of shares outstanding of 255,762,702 in the first quarter of 2009, and 255,338,997 in the corresponding quarter of 2008. As of May 8, 2009, the corporation had 255,854,675 issued and outstanding common shares, and 6,958,450 outstanding common share options.

Health, safety and environment

Northgate promotes a strong culture of health and safety at its mine sites, and strives to ensure that the highest standards are maintained. During the first quarter of 2009, both Kemess and Young-Davidson performed without a single lost-time incident (LTI). Young-Davidson has continued with its exemplary performance, as the property has not recorded a single LTI over the past two years. In Australia, Stawell had no LTIs during the quarter, while Fosterville recorded one LTI.

Human resources

Negotiations between management and employee representatives at Fosterville progressed during the quarter, with the goal of executing the site’s first employee collective agreement by the end of the second quarter of 2009.

 

                         SUMMARIZED CONSOLIDATED RESULTS

                                                            Q1 2009       Q1 2008

Operating data
Gold
Production (ounces)                                         107,477    88,386 (1)
Sales (ounces)                                              111,850    61,539 (2)
Realized gold price ($/ounce) (3)                               935           962
Copper
Production (thousands pounds)                                15,007        14,380
Sales (thousands pounds)                                     14,788        13,375
Realized copper price ($/pound) (3)                            2.07          3.68
Net cash cost ($/ounce)                                         396       262 (4)
Financial data (thousands of U.S. dollars,
except where noted)
Revenue                                                     123,818        86,093
Net earnings                                                 21,410        19,665
Earnings per share
Basic                                                          0.08          0.08
Diluted                                                        0.08          0.08
Cash flow from operations                                    45,202        15,450
Cash and cash equivalents                                    88,379        52,688
Total assets                                                593,322       715,625

(1) Production in the first quarter of 2008 for Fosterville excludes the change 
in gold-in-circuit inventory previously recorded. Production figures are for the
full quarter ending March 31, 2008.
(2) Gold sales in the first quarter of 2008 include the results for Fosterville 
and Stawell from Feb. 19 to March 31, 2008.
(3) Metal-pricing quotational period is three months after the month of arrival 
(MAMA) at the smelting facility for copper, and two MAMA for gold. Realized 
prices reported will differ from the average quarterly reference prices, as 
realized price calculations incorporate the actual settlement price for 
prior-period sales, as well as the forward price profiles of both metals for 
unpriced sales at the end of the quarter.
(4) Cash costs in the first quarter of 2008 include the results for Fosterville 
and Stawell from Feb. 19 to March 31, 2008.

 

Operational performance

The Fosterville mine produced 25,779 ounces of gold during the three months ended March 31, 2009, which exceeded Northgate’s first-quarter forecast and represented a significant improvement from gold production of 10,440 ounces in the corresponding quarter of the previous year. During the quarter, 165,355 tonnes of ore were mined, and mine development advanced 1,900 metres, compared with 110,904 tonnes mined and 1,420 m advanced, respectively, in the corresponding period of 2008. Mining rates dramatically increased in the first quarter of 2009, compared with the same period last year, resulting from an increase in the number of working faces made available by the substantial mine development completed since taking ownership of the mine. In addition, production figures for the first quarter of 2008 were adversely affected by a temporary suspension of underground mining activities, in order to facilitate a thorough review of operating procedures and provide additional safety training to mining personnel.

During the first quarter of 2009, approximately 168,000 tonnes of ore were milled at a grade of 5.53 grams per tonne, which was a significant improvement from the 139,000 tonnes of ore milled at a grade of 4.30 g/t in the first quarter of 2008. Gold recoveries of 86 per cent in the first quarter of 2009 were dramatically higher than the 54-per-cent recovery recorded in the same period last year. Higher recoveries were attributable to the lower quantity of carbonaceous ore milled during the most recent quarter, and a variety of significant process improvements made by Northgate’s engineers in the Biox and leach circuits over the past year. Subsequent to the first quarter, the new heated, leach circuit was fully commissioned in April, and is expected to further improve gold recoveries in future quarters.

Total operating costs for the first quarter of 2009 were $16,661,000 (Australian) or $99 (Australian) (2008 — $161 (Australian)) per tonne of ore milled. Operating costs continued to decline from previous quarters, as a result of increased mining efficiencies from the conversion to owner mining, increased mine output, and other improvements to the manner in which the mine has operated. Mining costs were $54 (Australian) (2008 — $74 (Australian)) per tonne of ore mined, and milling costs were $35 (Australian) (2008 — $53 (Australian)) per tonne of ore milled. Operating costs for the corresponding period of 2008 reflect results from the date of acquisition of Perseverance (Feb. 19, 2008) to March 31, 2008.

The net cash cost of production for the first quarter of 2009 was $430 per ounce of gold, which was dramatically lower than the net cash cost of $1,415 per ounce of gold in the same period last year. The decrease in net cash cost resulted from lower mining costs, higher ore grades, improved gold recovery, lower diesel prices and the stronger U.S. dollar relative to the Australian dollar.

Financial performance

Fosterville’s revenue for the three months ended March 31, 2009, was $23,782,000, based on gold sales of 26,363 ounces, compared with $4,398,000 and gold sales of 4,568 ounces in the corresponding period of 2008. The cost of sales for the first quarter of 2009, excluding depreciation and depletion, was $11,017,000 (2008 — $6,346,000), and the depreciation and depletion expense was $5,155,000 (2008 — $1,667,000). Earnings from operations before income taxes recorded for the period were $6,483,000, compared with a loss from operations of $3,781,000 in the corresponding period of 2008.

During the first quarter of 2009, the mine generated $12,748,000 in cash flow from operations, while $1,908,000 was utilized in the corresponding period of 2008. Financial performance for the corresponding period of 2008 reflects results from the date of acquisition of Perseverance (Feb. 19, 2008) to March 31, 2008.

Total investment in capital expenditures at Fosterville was $9,747,000, which included $4,661,000 for mine development. Capital expenditures for plant and equipment totalled $5,086,000, which included $2,461,000 for the heated, leach project, and $732,000 for the raising of the tailings dam. Cash expenditures in the corresponding period of 2008 were $2,596,000.

Exploration update

Two surface diamond drills are in operation on the Harrier underground zone, located 1.7 kilometres south of the current Phoenix mining area. Ten holes were drilled (6,269 m) in the first quarter, eight of which were directed at the Osprey and Harrier base zones. It is now apparent that there is a moderate southerly plunging orientation to both the Osprey and Harrier zones, similar to the Phoenix deposit. The base of the southern lens of the Osprey zone is defined by holes SPD512, 512A and 512B. The upper limit of the northern lens is defined by holes SPD504A and 504B. Within the Osprey zone, hole SPD511 intersected three m of 5.7 grams per tonne gold.

The base of the Harrier lens is similarly defined by holes SPD512 and 512A. Within the Harrier base zone, hole SPD504A intersected 6.4 m of 4.8 g/t gold, and hole SPD511 intersected 2.3 m of 5.2 g/t gold.

Both the Harrier and Osprey lenses are open downplunge. Phase 2 and 3 exploration activities during the balance of 2009 will infill the high-grade zones already known to exist and step out downplunge, to explore the full extent of these zones. While exploration continues from surface in the Harrier zone, the decision has been made to advance development in the Ellesmere orebody, originally scheduled in 2010, to the second half of 2009, in order to reduce the lead time involved in drifting over to the Harrier zone. Bringing forward the Ellesmere development would allow Harrier to be brought into production by 2012.

The Stawell mine produced a total of 22,392 ounces of gold during the three months ended March 31, 2009, compared with 28,363 ounces of gold in the corresponding period last year. During the quarter, gold production was 15 per cent lower than forecast, due to a combination of lower mining rates, ore grades and gold recovery. In January, underground production blasting was interrupted for 10 days, while an excessive blast vibration event was investigated. The suspension led to production sequencing delays, which resulted in processing a greater amount of lower-grade oxide ore from stockpiles than had been initially projected. Despite the lower production in the first quarter, it is expected that total gold production for 2009 will meet the original forecast of 107,000 ounces.

Mine production during the quarter of 155,000 tonnes of ore was slightly higher than the 150,000 tonnes mined in the same period of 2008, but lower than planned due to the 10-day interruption in mining. Underground mine development continued in the Golden Gift (GG) production zones, GG1, GG3 and GG5L, during the quarter, and the development advance totalled 1,407 m (2008 — 1,201 m). Progress was made in upgrading the underground ventilation systems for the lower areas of the mine, and improving secondary egress routes.

During the first quarter of 2009, approximately 180,000 tonnes of ore were milled at an average grade of 4.45 g/t, compared with 167,000 tonnes of ore at 5.96 g/t in the same period last year. Gold recoveries of 87 per cent in the first quarter of 2009 were slightly lower than the 89-per-cent recovery recorded in the same period of 2008, as a result of the higher volume of lower-grade, stockpiled, oxide ore processed.

Total operating costs for the first quarter of 2009 were $14,542,000 (Australian), or $81 (Australian) (2008 — $89 (Australian)) per tonne of ore milled. The decline in operating cost is primarily attributable to the increase in mill throughput, quarter over quarter. Mining costs were $57 (Australian) (2008 — $57 (Australian)) per tonne of ore mined and milling costs were $24 (Australian) (2008 — $29 (Australian)) per tonne of ore milled. Operating costs for the corresponding period of 2008 reflect results from the date of acquisition of Perseverance (Feb. 19, 2008) to March 31, 2008.

The net cash cost of production for the first quarter of 2009 was $432 per ounce of gold, which was significantly lower than the cost of $536 per ounce of gold recorded in the same period last year. The decrease in net cash cost resulted from the stronger U.S. dollar relative to the Australian dollar, which more than offset the effect of lower ore grades.

Financial performance

Stawell’s revenue for the three months ended March 31, 2009, was $22,415,000, based on gold sales of 24,635 ounces. The cost of sales during the quarter, excluding depreciation and depletion, was $11.05-million (2008 — $7,245,000), and the depreciation and depletion expense was $5,818,000 (2008 — $3,387,000). Earnings from operations before income taxes recorded for the period were $4,693,000, compared with earnings of $683,000 in the corresponding period of 2008. During the first quarter of 2009, Stawell generated $13,008,000 in cash flow from operations, compared with $6,592,000 in the corresponding quarter of 2008. Financial performance for the corresponding period of 2008 reflects results from the date of acquisition of Perseverance (Feb. 19, 2008) to March 31, 2008.

Total investment in capital expenditures at Stawell was $5,926,000, which includes $3,179,000 for mine development, and $2,747,000 for plant and equipment. The plant and equipment expenditure includes $1,064,000 for the purchase of a new haul truck and $732,000 for the raising of the tailings dam. Capital expenditures in the corresponding period of 2008 were $2,622,000.

Exploration update

The surface drill working on the North Magdala target area successfully intersected the target horizon with an intercept of 5.7 m of 19.6 g/t gold (true thickness estimated to be 5.1 m), located 100 m north of the historic hole SD622 that had intersected 9.4 m of 8.4 g/t gold (true thickness estimated at eight m). A second hole from underground intersected the same zone with an intercept of 2.5 m of 6.6 g/t gold. These three intersections are higher grade than similar styles of mineralization mined in higher levels of the mine, which averaged five m to eight m thickness, with an average grade of 4.5 g/t to five g/t gold. A second, deep-surface, drill hole will attempt to intersect the North Magdala target with another 100-metre step-out, farther to the north.

On the strength of the recently delineated 28,000-ounce inferred resource in the Dukes Flank area and the very encouraging results in the North Magdala target, the decision has been made to begin development into Dukes Flank from the C7 zone. This development will provide a platform for resource conversion drilling into Dukes Flank and underground exploration of North Magdala.

A second exploration highlight during the quarter was the discovery of two zones in close proximity to the current GG5 workings. These two zones have initial intersections of 7.7 m of 18.1 g/t gold and 7.5 m of 10.6 g/t gold (each with an estimated true thickness of five m) in the G5L South block, and 10 m of 6.9 g/t gold in the G5 Open Flank (true thickness estimated at 5.5 m). Definition drilling is under way, and it is anticipated that these zones will be converted to the indicated and inferred resource categories within three months.

Operational performance

Kemess posted gold and copper production of 59,306 ounces and 15.0 million pounds, respectively, in the first quarter of 2009. Metal production was significantly higher than forecast, as a result of better-than-expected gold grades, and the mining and processing of some higher-grade ore from the western end of the open pit, which had been delayed from the fourth quarter of 2008.

During the first quarter of 2009, approximately 6.8 million tonnes of ore and waste were removed from the western end of the open pit, compared with 8.5 million tonnes during the corresponding quarter of 2008. Early in the second quarter of 2009, mining operations in the west pit were temporarily scaled back, in response to typical spring thaw conditions. During this period, the mill continues to operate normally with previously stockpiled ore. When normal operations resume toward the end of May, the remaining ore in the west end of the open pit will be mined, and mining operations will move back into the east end of the open pit for the remainder of the mine life.

Unit mining costs were $2.30 (Canadian) per tonne moved, compared with $2.07 per tonne moved in the first quarter of 2008. The unit mining costs in the most recent quarter were higher than they were in the same period last year, due to the significantly lower volume of material moved and higher maintenance costs, as higher-than-planned hours were accumulated on the hauling truck fleet in the extreme cold weather during the most recent quarter.

Mill throughput and mill availability during the first quarter of 2009 were 47,913 tonnes per day (tpd) and 91 per cent, respectively, which was consistent with the performance in the first quarter of 2008 of 46,636 tpd and 89 per cent. The ore milled in the first quarter of 2009 had grades of 0.606 g/t for gold and 0.187 per cent for copper, compared with grades of 0.522 g/t gold and 0.182 per cent copper in the same period of 2008. Gold and copper recoveries were consistent, year over year, and averaged 71 per cent and 85 per cent, respectively, in the first quarter of 2009, compared with 70 per cent and 85 per cent in the same period last year. Recoveries during the quarter were better than forecast due to improvements in the metallurgical process. Going forward, these improvements will have a very positive impact on the lower-grade ore, which makes up the majority of the remaining reserves at Kemess.

Metal concentrate inventory declined by 2,000 wet metric tonnes (wmt) to approximately 10,000 wmt in the first quarter of 2009. Railcar availability continued to be poor due to extreme winter conditions experienced throughout Canada in February and March.

The average unit cost of production at Kemess was $13.25 (Canadian) per tonne milled during the first quarter of 2009, including $3.61 (Canadian) per tonne for concentrate marketing costs, comprising treatment and refining costs, and transportation fees. The unit cost in the same quarter in 2008 was $13.58 (Canadian) per tonne milled, which included $3.18 (Canadian) per tonne for marketing costs. Concentrate marketing costs have increased, year over year, as the 2009 smelting and refining terms for 2009 have increased to $75 per dry metric tonne (dmt) and 75 cents per pound of copper, compared with terms of $45 per dmt and 45 cents per pound in 2008. However, site operating costs of $41.6-million (Canadian) have come down approximately 6 per cent in the first quarter of 2009 ($44.2-million (Canadian) in the first quarter of 2008). The decrease in site operating costs is attributed primarily to the lower cost of diesel fuel and mill steel.

The net cash cost of production at Kemess in the first quarter was $367 per ounce of gold, compared with $105 per ounce reported in the first quarter of 2008. The net cash cost was significantly lower than forecast, due to the stronger gold and copper production from higher-than-expected ore grades and metal recoveries, as well as the higher-than-forecast copper prices. However, the net cash cost was significantly higher than the comparative quarter of 2008, due to the lower copper price and higher marketing costs, which were only partially offset by the weaker Canadian dollar and lower Canadian-dollar-denominated site costs.

Financial performance

Revenue from Kemess in the first quarter of 2009 was $86,153,000, compared with $104,016,000 in the corresponding period of 2008, excluding the effects of mark-to-market adjustments on Northgate’s hedge books. Metal sales in the first quarter of 2009 consisted of 60,852 ounces of gold and 14.8 million pounds of copper, compared with 44,724 ounces of gold and 13.4 million pounds of copper in the first quarter of 2008. During the first quarter of 2009, the price of gold on the London Bullion Market averaged $909 per ounce, and the price of copper on the London Metal Exchange (LME) averaged $1.56 per pound. The net realized metal prices received on sales in the first quarter of 2009 were approximately $963 per ounce of gold and $2.07 per pound of copper, compared with $965 per ounce and $3.68 per pound in the first quarter of 2008. Since Northgate’s metal pricing quotational period is three months after the month of arrival (MAMA) at the smelting facility, for copper, and two MAMA for gold, the realized prices reported differ from the average quarterly reference prices. The realized price calculations incorporate the actual settlement price for prior-period sales, as well as the forward price profiles of both metals for unpriced sales at March 31.

The cost of sales in the first quarter of 2009 was $37,251,000, which was lower than the corresponding period last year, when the cost of sales was $49,164,000. The decrease in the most recent quarter reflects the lower costs of production, as well as the impact of the strengthening U.S. dollar.

Depreciation and depletion expense in the first quarter was $12,402,000, compared with $7,745,000 during the corresponding period of 2008. The higher depreciation and depletion expense for the most recent quarter reflects the increase in tonnes of ore mined.

Capital expenditures during the first quarter of 2009 totalled $1,877,000, compared with $1,789,000 in the corresponding period of 2008. Capital expenditures in the most recent quarter reflect the impact of the strengthening U.S. dollar, and were primarily devoted to continuing construction of the tailings dam and the purchase of new mill liners.

Exploration update — Young-Davidson

Prefeasibility work at Young-Davidson is moving along well, with completion expected by the end of June. This will include revised economics for the development of the project, using the dramatically higher measured and indicated gold resource of 3.3 million ounces that was announced in December, 2008. The new larger resource has allowed for the application of lower-cost, bulk-mining methods that will decrease mining costs and increase annual production. In addition, the capital estimates will be updated to reflect changes in equipment pricing and contractor unit rates that have taken place over the past 12 months. A feasibility study is scheduled for completion by year-end.

The rocks that host the Young-Davidson deposit are known to extend to the west under barren cover rocks. Historically, only a handful of drill holes have been tested along strike west of the deposit. Drilling in late 2008 and early 2009 has targeted the area outside of the known resource, immediately west of the open pit. The results are highlighted by hole 91, which intersected 25.5 m of 4.49 g/t gold, including 15 m of 6.29 g/t gold and 3.5 m of 3.07 g/t gold. Hole YD09-97, located 100 m west of hole 91, intersected 11.5 m of 2.62 g/t gold, and hole YD09-96, located 150 m west of hole 91, intersected 6.3 m of 1.53 g/t gold. Hole YD09-98, located 200 m west of hole 91, intersected three m of 1.56 g/t gold, and hole YD09-99, located 50 m below hole 91, intersected 3.7 m of 1.87 g/t gold and 5.8 m of 3.59 g/t gold. Assays on remaining holes are pending.

Exploration diamond drilling on the property during the balance of 2009 will focus on testing various geophysical anomalies that have similar characteristics to those of the known Young-Davidson deposit.

Corporate overview

In the first quarter of 2009, Northgate closed out 9,000 tonnes of copper forward sales contracts for proceeds of $19,182,000. The closed-out contracts were spread equally over the maturity dates from November, 2009, to October, 2010. At March 31, 2009, there were 7,200 tonnes of copper forward sales outstanding at an average price of $2.49 per pound over the period from November, 2009, through October, 2010. The change in fair value of the remaining forward contracts during the quarter was a loss of $8,433,000, resulting from the significant increase in the price of copper since Dec. 31, 2008. The fair value of these contracts at March 31, 2009, was an asset of $9,519,000, of which $4,075,000 is included in trade and other receivables for contracts expiring within 12 months, and $5,444,000 is included in other assets. Northgate had no forward gold contracts outstanding at March 31, 2009.

Corporate administration costs in the first quarter of 2009 were $2,282,000, compared with $3,161,000 in the corresponding quarter of the prior year, representing a decrease of 28 per cent. The decrease is due mainly to reduced stock-based compensation, which is $466,000 lower compared with the first quarter of 2008, as a result of Northgate’s lower share price at the grant date. Australian corporate administration costs of $351,000 have also decreased by $318,000, compared with the corresponding period in 2008, due to reduced staffing and the elimination of duplicate administration costs. Canadian corporate expenditures of $1,931,000 mainly comprise personnel costs, as well as continuing compliance and investor relations costs.

Northgate granted a total of 1,566,000 options to employees in the first quarter of 2009, compared with 1.48 million options in the corresponding quarter of 2008. At March 31, 2009, there were 6,963,150 options outstanding, of which 3,981,100 were exercisable.

Exploration costs in the first quarter of 2009 were $3,249,000, compared with $6,161,000 in the first quarter of 2008. Costs incurred in Canada were $1,367,000, a decrease of $4,206,000 from the corresponding quarter in 2008 due to decreased exploration activity at Young-Davidson, which is now focused on prefeasibility work rather than exploration activities at site. This decrease was offset by exploration expenses in Australia of $1,882,000, as Fosterville and Stawell continue to identify additional zones with the potential to extend each site’s mine life.

Net interest income was significantly lower, at $380,000, in the first quarter of 2009, compared with $3,612,000 in the corresponding quarter of 2008. The decrease is attributable to lower average cash balances compared with 2008, when Northgate had cash and cash equivalents in excess of $250-million prior to the acquisition of Perseverance for cash consideration. The decrease also results from increased interest expenses resulting from plant and equipment acquired by Fosterville and Stawell, beginning in the second quarter of 2008, through the assumption of capital leases.

Northgate recorded an income tax expense of $11,805,000 in the first quarter of 2009, compared with $1,319,000 in the corresponding quarter of 2008. Current income taxes in the current quarter were $22,853,000, of which $19,555,000 relates to the Canadian operations. This amount is attributable to the strong financial results at Kemess in the current quarter, and the settlement of the copper forward contracts. Northgate’s Australian operations are also forecast to be cash taxable in the current fiscal year and have recognized a current income tax expense of $3,298,000. The current income tax expense is offset by a future income tax recovery of $11,048,000, resulting mainly from the reversal of future tax liabilities relating to the copper forward contracts, which were in a significant asset position at Dec. 31, 2008.

Other income for the three months ended March 31, 2009, includes an insurance settlement of $554,000 relating to the collapse of a buried section of the process water line at Kemess, which occurred in the third quarter of 2008, and resulted in 10 days of lost production. No amount had previously been accrued in the consolidated financial statements. Other income in the corresponding period in 2008 includes a one-time, non-cash, mark-to-market gain of $9,836,000, related to the settlement of Perseverance’s gold forward contracts. In connection with the acquisition of Perseverance, Northgate had entered into an agreement to acquire Perseverance’s portfolio of gold forward contracts, based on the value of the underlying forward contracts at Oct. 30, 2007. A gain was recorded to recognize the difference in the fair value of the portfolio and the settlement amount.

Liquidity and capital resources

Working capital

At March 31, 2009, Northgate had working capital of $68.33-million, compared with working capital of $21,947,000 at Dec. 31, 2008. The increase in working capital was driven entirely by increases to current assets, as current liabilities have decreased by 2 per cent since Dec. 31, 2008. Northgate’s cash and cash equivalents have increased by $25.96-million due to strong cash flow from operations and the settlement of a portion of the corporation’s copper forward contracts. Trade and other receivables have increased in light of higher quarter-end gold and copper prices. Inventories have increased by $10,577,000 due to the timing of deliveries of concentrate at Kemess and the increase in ore stockpiles. Northgate’s cash balance at March 31, 2009, amounted to $88,379,000, compared with $62,419,000 at Dec. 31, 2008. All cash is held on deposit with major established banks in Canada and Australia.

During the quarter, Northgate generated cash flow from operations of $45,202,000, compared with $15.45-million for the corresponding quarter of 2008. The increased cash flow resulted from the increase in revenues from higher gold sales, and the inclusion of the results from Fosterville and Stawell for the entire quarter, whereas the corresponding quarter in 2008 included financial results from these two operations from Feb. 19, 2008, onward. The increase was also attributable to the settlement of 9,000 tonnes of Northgate’s copper forward contracts, which generated proceeds of $19,182,000.

Northgate continues to hold investments in auction-rate securities (ARS), which are floating-rate securities marketed by financial institutions, with auction reset dates at seven-, 28- or 35-day intervals, to provide short-term liquidity. Beginning in August, 2007, auctions at which these securities were to be resold began to fail, and, as of the date hereof, attempts to conduct auctions have generally ceased. Currently, these securities cannot be readily converted to cash for use by Northgate to make capital investments or for other business purposes, although the underlying payment and other obligations of the original issuers of these securities remain intact, and these issuers continue to make regular interest payments to the corporation. The par value of these securities held by Northgate is $72.6-million. The estimated fair value of Northgate’s ARS holdings at March 31, 2009, was $36,817,000, which reflects a $2,474,000 decline from the estimated fair value of $39,291,000 at Dec. 31, 2008.

The decline in value is related mainly to Northgate’s ARS investments issued by Regulation XXX insurance companies. The corporation has concluded that this decline is temporary. In determining that the loss in value is temporary, the corporation considered the fact that: these particular securities have a lower probability of future default; continue to make interest payments; are insured by monoline insurance companies; and continue to maintain a credit rating above investment grade. Management also considered the senior rank of its holdings in the capital structures of the respective issuers, and the fiduciary obligation of the major insurance companies who own the Regulation XXX entities, as factors that improve the likelihood that these investments might eventually return to par value.

The estimated fair value of the corporation’s ARS investments issued by derivative product companies (companies involved in the issuance of credit default swaps) increased slightly in the three months ending March 31, 2009. In previous periods, decreases in the estimated fair value of these ARSs were determined to be other than temporary and recognized into net earnings. Previous permanent impairments are not reversed and, consequently, the increase in estimated fair value was not recognized in net earnings.

Northgate previously received a short-term loan collateralized by the corporation’s ARS investments, subsequent to such ARS investments becoming illiquid. As of March 31, 2009, the principal outstanding on the short-term loan was $42,478,000. Northgate continues to treat the short-term loan as an obligation of the corporation, and has continued to classify it as a current liability, based on its original maturity date.

Northgate believes that its working capital at March 31, 2009, together with future cash flow from operations, are more than sufficient to meet its normal operating requirements for the next year, notwithstanding the current continuing illiquidity and impairment of its ARS investments.

,

No Comments