Northgate Looks Past Kemess North to Young-Davidson - By Jon A. Nones 25 Sep 2007 at 06:20 PM GMT-04:00 DENVER (ResourceInvestor.com) --
Northgate Minerals - [AMEX:NXG; TSX:NGX] is coming to terms with last week’s recommendation by a government panel to refuse the company’s Kemess North copper-gold project in north-central British Columbia. With shares now at C$2.80, management believes the company is “exceptionally undervalued” as it moves forward with its Young-Davidson Project.
In a presentation at the Denver Gold Forum, Northgate President and CEO Ken Stowe said there has never been a panel to refuse a project in British Columbia, making Kemess North the first, “and the government really doesn’t know what to do with it.”
On Sept. 17, Northgate announced - that a joint panel set up by the B.C. and federal governments found that the economic and social benefits of Kemess North - “are outweighed by the risks of significant adverse environmental, social and cultural effects,” affectively halting further exploration at the site.
Northgate’s Kemess North - contains proven and probable reserves at 3.9 million ounces of gold and 1.465 billion pounds of copper. Stowe said that these reserves will be reclassified as resources, since there is no longer reasonable expectation of receiving permits to proceed.
The proposal is for an open-pit mine about six kilometres from its existing copper-gold mine at Kemess South. The $190 million project could extend the life of the existing mine by 11 years or more, which is significant since its resources are expected to be depleted by 2010.
Kemess South - produced 134,109 ounces of gold and 32 million pounds of copper in the first half of the year at a net cash cost of about $32/oz. The company forecasts total production for 2007 to be 276,000 ounces of gold and 68.5 million pounds of copper at an average cash cost of $15/oz.
The federal and provincial agencies will critically assess the report on Kemess North and make recommendations to the Environmental Ministers, who will then make the final decision expected in January 2008. Both governments will first consult with First Nations, namely the Takla Lake, Tsay Keh Dene and Kwadacha First Nations and the Gitxsan House of Nii Kyap.
First Nations raised objections to the impoundment of Duncan Lake for the use of waste disposal. Stowe said some people went to the panel and said the lake had a spiritual meaning, “which is very difficult to address.”
“If you’re going to [build a mine] in the region, you should probably cut a deal with First Nation first,” he said.
Stowe said the company will wait to see what the government decides, but “we’re not going to spend millions of dollars fighting that fight.” The company plans to review the carrying value of the asset, with is currently about C$28 million.
“Our number one requirement is that we’d like to be in stable jurisdiction,” said Stowe, indicating that the company will now focus on developing its Young-Davidson Project.
The 100%-owned project, located in northern Ontario, was purchased in November 2005 for C$18 million. Since then, Northgate has calculated a total resource base of 2.1 million ounces, and aims to increase total resources to 2.5 million by the end of 2007. Stowe said Northgate plans to release updated resources in late November.
In 2007, the company budgeted C$27 million in exploration. Northgate released positive results for four additional diamond drill holes at Young-Davidson on Tuesday.
Highlights include four separate holes intersecting 19.5 metres of 6.42 g/t Au, 26.3 metres of 5.20 g/t Au, 15.9 metres of 4.3 g/t Au and 10.5 metres of 4.51 g/t Au.
Later this year, Northgate plans to prepare an environmental assessment document and a pre-feasibility study. In 2008, the company hopes to complete the feasibility study and obtain necessary permitting to begin construction. By 2010, the company is targeting annual production of 150,000-200,000 ounces at a cash cost of US$325 for 10+ years.
The project will cost about C$150-C$175 million to develop. Stowe said in some ways the Kemess North decision made things easier, since “we have some free money to look at other assets.”
Shares in Northgate fell as much as 45 cents to C$2.78 immediately after the announcement concerning Kemess North, hitting a new 52-week low of C$2.69 on Sept. 19.
Today’s closing price of C$2.80 shows little recovery in the last week.
However, Stowe said that even without Kemess North, the company’s net asset value (NAV) at a discount of 6% comes closer to C$3.50-C$5.15 per share with a premium on gold assets. ----
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