JUNIOR MINING

Northgate Minerals, Perseverance announce friendly gold merger

British Columbia gold miner Northgate Minerals and Victoria, Australian miner Perseverance have announced a friendly US$257 million cash merger.

Author: Dorothy Kosich
Posted: Monday , 29 Oct 2007

RENO, NV - 

For the second time in nearly two years, Vancouver-based gold miner Northgate Minerals (TSX: NGX, AMEX: NXG) has made a bid for another company, this time with Australian gold miner Perseverance Corporation (ASX: PSV).

The two companies have scheduled a conference call Monday to discuss the Au$282 million (US$257 million) friendly offer that would create a multi-mine producer yielding more than 430,000 ounces of gold annually.

The deal would put a rosy finish on two years of disappointments for Northgate, which was previously forced to withdraw a prior bid for fellow Canadian company Aurizon Mines in July 2006. Last September, the Kemess North Mine Joint Review Panel concluded that development of Northgate's Kemess North Copper/Gold project "would not be in the public interest."

Northgate has offered A20-cents cash per share and to acquire all of Perseverance's existing US$30.6 million debt (A$33.5 million), and to extend an additional bridging facility of up to US$22.8 million (A$25 million). The Canadian company has also agreed to acquire the bank's exposure of US$43.8 million (A$48 million) to Perseverance's gold hedges. Northgate will close out the hedge position.

The Canadian miner's principal assets are the Kemess South mine in north-central British Columbia and the Young-Davidson property in northern Ontario with a total resource base of 2.1 million ounces of gold.

Perseverance owns and operates the Fosterville and Stawell gold mines, and is the biggest gold producer in Victoria. However, Perseverance has been experiencing production problems at Fosterville although the Stawell mine has helped keep Perseverance's head above water.

"We believe Northgate's offer takes into account the current status and value of the existing operations and strong exploration potential at Perseverance," John Quinn, Chairman of Perseverance, said. "In addition to providing our shareholders with an attractive premium, I expect that the operational expertise and financial resources of Northgate should allow the assets to prosper going forward."

"Northgate has a plan to contribute the capital to fund the required development of Fosterville's underground infrastructure and to reinvigorate exploration on the company's extensive tenements," Quinn added.

If successful, the merged company would generate estimated 2008 production of 434,000 ounces of gold and 71 million pounds of copper, and possess 2.3 million ounces of proven and probable gold reserves and 2 million ounces of measured and indicated resources. Proven and probable copper reserve would total 250 million pounds.

In a news release, Ken Stowe, President and CEO of Northgate, said "our stated corporate development goal has been the acquisition of a 50,000 to 200,000-ounce producer in a politically stable jurisdiction with exploration potential and the opportunity for Northgate management to secure additional value through our track record as strong operators."

"With this acquisition of Perseverance, we will add two attractive assets in Australia, which allow us to meet that goal. This acquisition will add over 200,000 ounces of production in 2008 in the prolific Victorian gold belt in Australia with over 7,700km of exploration area," he said.

Perseverance has agreed to pay Northgate an A$2.5 million break fee if the deal falls through.