 PDF of Press Release
VANCOUVER, July 26 /CNW/ - (All figures in US dollars except where noted) - Northgate Minerals Corporation (TSX: NGX; AMEX: NXG) today reported cash flow from operations of $43,685,000 or $0.17 per diluted common share and net earnings of $8,647,000 or $0.03 per diluted common share for the second quarter of 2007.
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SECOND QUARTER HIGHLIGHTS
- Production of 65,999 ounces of gold and 14.8 million pounds
of copper
- Net cash cost of production of $35 per ounce of gold
- Exploration drilling on targets identified in a deep
penetrating induced polarization (IP) survey in 2006 has
discovered two new zones of mineralization east of the Kemess
North deposit
- Ora Zone: Hole KH-07-04 returned 441 metres (m) of
0.38 grams per metric tonne (g/t) gold and 0.39% copper
- Altus Zone: Holes KH-07-03 and KH-07-05 returned 155 m and
128 m, respectively , averaging 0.23 g/t gold and
0.3% copper
- The underground exploration ramp at the Young-Davidson
property progressed by 560 m during the quarter and is now
25% complete; the No. 3 shaft was dewatered down to the
180-m level
>>
Ken Stowe, President and CEO, stated, "The discovery of another large mineralized system in the Kemess camp is very exciting. Equally important is the success of the Titan(C) deep penetrating IP survey technique, which has proven itself to be an excellent predictive tool for spotting drill holes on the Kemess property in areas where there is no surface expression of mineralization. Over the next two months, we plan to follow up with further drilling of the Ora and Altus zones while conducting additional IP surveys at both Kemess North and Kemess South. From a financial point of view, the second quarter was also very successful as the Kemess mine generated over $43 million in operating cash flow and our cash balance increased to over $317 million. Looking forward to the second half of the year, we are eagerly awaiting the recommendation report from the Joint Environmental Review Panel on the Kemess North project, which is due in the next few weeks. At Young-Davidson, our pre-feasibility study is progressing very well and we expect to release more detailed information on the technical and economic parameters of the project before the end of the year."
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RESULTS OF OPERATIONS
Northgate recorded net earnings of $8,647,000 or $0.03 per diluted common share in the second quarter of 2007 compared with $50,315,000 or $0.22 per share during the corresponding quarter of 2006. Cash flow from operations during the most recent quarter was $43,685,000 or $0.17 per diluted common share compared with cash flow of $9,377,000 or $0.04 per diluted common share during the same quarter last year. Per share data is based on the weighted average diluted number of shares outstanding of 255,317,140 in the second quarter of 2007 and 226,972,597 in the corresponding period of 2006.
Kemess South Mine Performance
The Kemess mine posted gold and copper production of 65,999 ounces and 14.8 million pounds respectively in the second quarter of 2007. Gold production was on target due to higher than expected gold grades, which offset lower mill throughput. Copper production was below forecast due to lower than expected copper ore grades in supergene ore milled in the second quarter of 2007 and lower mill throughput. As a consequence of these second quarter variances and small modifications to the ore release plan for the second half of 2007, Northgate now expects Kemess South mine's metal production to be 276,000 ounces of gold and 68.5 million pounds of copper during 2007.
During the second quarter of 2007, approximately 10.6 million tonnes of ore and waste were removed from the open pit, which was approximately the same as it was during the corresponding quarter of 2006. Unit mining costs during the most recent quarter were Cdn$1.84 per tonne compared with Cdn$1.45 per tonne in the second quarter of 2006. The unit mining cost in the most recent quarter was higher than it was in the same period last year due primarily to extra drilling expenses related to the north wall pushback and major scheduled maintenance costs on two loading shovels.
Mill availability during the second quarter of 2007 was 89% and throughput averaged 48,742 tonnes per day, compared with 94% availability and throughput of 51,807 tonnes per day in the second quarter of 2006. Mill availability in the second quarter was slightly lower than the annual target of 91% due primarily to the timing of the annual transformer station maintenance by BC Hydro and lower than the record set in the second quarter of 2006 when an unusually small amount of scheduled maintenance was carried out. Average mill throughput in the most recent quarter was 6% lower than it was in the same period last year due to the lower mill availability.
Gold and copper recoveries averaged 64% and 76% respectively in the second quarter of 2007, which were the same recoveries recorded in the second quarter of 2006. Supergene-leachcap ores, which has metallurgical characteristics that generate lower metal recoveries, were milled in both periods. As a result, these recoveries were substantially lower than the average recoveries for the Kemess South ore body of 69% and 83% for gold and copper respectively.
Metal concentrate inventory decreased by 5,000 wet metric tonnes (wmt) in the second quarter to approximately 6,000 wmt at June 30, 2007.
The total unit cost of production during the second quarter of 2007 was Cdn$13.46 per tonne milled, which was the same cost recorded in the corresponding period of 2006. Total site operating costs in the second quarter of 2007 were Cdn$44.3 million compared with Cdn$38.8 million in the second quarter of 2006. While total site costs were up by 14% due to a larger than average amount of maintenance activity in the quarter and increased costs for labour, fuel and consumables, total unit costs were approximately the same due to the large decrease in treatment and refining charges for copper concentrate that occurred in 2007. The net cash cost of production at Kemess in the second quarter was $35 per ounce of gold compared to the negative $44 per ounce cash cost reported in the second quarter of 2006. The increase in net cash cost was the result of lower gold and copper production during the most recent quarter compared to the corresponding quarter of 2006.
The following table provides a summary of operations for the second quarter and first half of 2007 and the comparable periods of 2006.
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2007 Kemess Mine Production
(100% of
production basis) Q2 2007 Q2 2006 1H 2007 1H 2006
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Ore plus waste
mined (tonnes) 10,618,547 10,634,658 22,701,404 20,671,597
Ore mined (tonnes) 3,494,752 3,228,600 9,055,785 8,502,272
Stripping ratio
(waste/ore) 2.038 2.30 1.507 1.44
Ore milled
(tonnes) 4,435,557 4,714,427 8,776,979 9,083,449
Ore milled
per day (tonnes) 48,742 51,807 48,492 50,185
Gold grade (grams
per metric tonne) 0.724 0.784 0.701 0.768
Copper grade (%) 0.199 0.227 0.207 0.248
Gold recovery (%) 64 64 68 69
Copper recovery (%) 76 76 81 81
Gold production
(ounces) 65,999 76,127 134,109 153,761
Copper production
(thousands pounds) 14,839 18,071 32,541 40,353
Net cash cost
($/ounce) 35 (44) 32 (8)
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>>
Safety
Kemess recorded one lost time injury during the second quarter of 2007, but was still the safest metal mine in British Columbia for the first six months of the 2007. The Young-Davidson project, where there are now 90 employees and contractors on site, continues to operate without a lost time injury.
Financial Performance
Northgate's revenue in the second quarter of 2007 was $80,878,000 compared with $105,348,000 in the corresponding period in 2006. Revenue for the second quarter of 2007 included negative mark-to-market adjustments of $16,905,000 on Northgate's hedge book (2006 - $13,902,000). Due to mark-to-market requirements of Canadian generally accepted accounting principles (Canadian GAAP) and the large size of the Corporation's copper forward sales position relative to quarterly copper production, earnings in future quarters may fluctuate significantly depending on future movements in the price of copper. Metal sales in the second quarter of 2007 consisted of 70,220 ounces of gold and 16.8 million pounds of copper, compared with 79,999 ounces of gold and 19.2 million pounds of copper in the second quarter of 2006. During the second quarter of 2007, the price of gold on the London Bullion Market (LBM) averaged $667 per ounce (2006 - $627) and the price of copper on the London Metal Exchange (LME) averaged $3.47 per pound (2006 - $3.27). The net realized metal prices received on metal sales in the second quarter of 2007 were approximately $564 per ounce of gold and $3.26 per pound of copper, compared with $568 per ounce and $3.13 per pound in the second quarter of 2006. A total of $7,350,000 in gold hedging losses were reclassified from accumulated other comprehensive income when the related sales occurred (see section on Changes in Accounting Policies). The Corporation's gold hedging activities reduced the realized price of gold sold during the most recent quarter by $105 per ounce, compared with $59 per ounce in the corresponding quarter one year ago. In the second quarter of 2007, the Corporation entered into forward sales and purchase contracts with a major financial institution to fix the price of copper to be produced in the additional year of production that was announced in May 2007. A total volume of 16,200 metric tonnes of copper were sold forward during the second quarter using LME contracts maturing from November 2009 through October 2010 at an average forward price of $2.52 per pound. This copper represents approximately 100% of the accountable copper contained in the 18,000,000 tonnes of ore resources that were converted into reserves during the second quarter, extending the mine-life of the Kemess South pit until the end of the third quarter of 2010.
The cost of sales in the second quarter of 2007 was $60,384,000 compared with the corresponding period last year when the cost of sales was $56,884,000. Cost of sales was higher in the most recent quarter than it was in the corresponding period of 2006 due to the increased Canadian dollar site operating costs and the strengthening Canadian dollar.
Administrative and general expenses totaled $2,625,000 in the second quarter of 2007 compared to a total of $1,580,000 recorded in the corresponding period of 2006. The higher expense in the current quarter was the result of increased administration and compliance spending as well as the cost of various business development initiatives.
Depreciation and depletion expenses in the second quarter were $8,933,000 compared to $7,101,000 during the corresponding period of 2006. The higher depreciation and depletion expense for the most recent quarter was due to an increase in the amortization rate for 2007 as a result of capital expenditures in 2006 offset by the impact of the increase in the reserve base announced earlier in the quarter.
The Corporation recorded net interest income of $4,464,000 in the second quarter of 2007 compared with net interest income of $702,000 in the corresponding quarter of 2006. The dramatic increase in interest income was the result of substantial increases in the Corporation's cash position due to strong operating cash flow and the exercise of share purchase warrants in December 2006, which brought $99,998,000 into Northgate's treasury.
Exploration costs in the second quarter were $7,842,000 compared with $2,043,000 in the comparable period of 2006. The higher exploration costs in the most recent quarter were the result of increased activity at the Young-Davidson property where an advanced underground exploration program is underway. In future quarters of 2007, exploration costs are expected to remain at approximately $8 million per quarter as exploration continues on the Young-Davidson and Kemess properties.
Capital expenditures during the second quarter of 2007 totaled $3,573,000 compared to $2,331,000 in the corresponding period of 2006. Capital expenditures in the most recent quarter continue to be primarily devoted to ongoing construction of the tailings dam and the Kemess North project.
NON-GAAP MEASURE
The Corporation has included net cash costs of production per ounce of gold in the discussion of its results from operations, because it believes that these figures are a useful indicator to investors and management of a mine's performance as they provide: (i) a measure of the mine's cash margin per ounce, by comparison of the cash operating costs per ounce to the price of gold; (ii) the trend in costs as the mine matures; and, (iii) an internal benchmark of performance to allow for comparison against other mines. However, cash costs of production should not be considered as an alternative to operating profit or net profit attributable to shareholders, or as an alternative to other Canadian GAAP measures and they may not be comparable to other similarly titled measures of other companies.
A reconciliation of net cash costs per ounce of production to amounts reported in the statement of operations is shown below.
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(Expressed in thousands of US$,
except per ounce amounts) Q2 2007 Q2 2006
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Gold production (ounces) 65,999 76,127
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Cost of sales $ 60,384 $ 56,884
Change in inventories and other (6,035) (358)
Gross copper and silver revenue (52,019) (59,906)
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Total cash cost 2,330 (3,380)
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Cash cost ($/ounce) $ 35 $ (44)
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SELECTED QUARTERLY FINANCIAL DATA
(Thousands of US
dollars, except
per share, per 2007 Quarter Ended 2006 Quarter Ended
ounce and per -----------------------------------------------
pound amounts) Jun 30 Mar 31 Dec 31 Sep 30
-----------------------------------------------------------------
Revenue $ 80,878 $ 74,313 $ 118,239 $ 102,667
Earnings (loss)
for the
period(1) $ 8,647 9,406 19,790 14,902
Earnings (loss)
per share(1)
Basic $ 0.03 $ 0.04 $ 0.09 $ 0.07
Diluted $ 0.03 $ 0.04 $ 0.09 $ 0.07
Metal production
Gold (ounces) 65,999 68,110 81,746 74,789
Copper (thousands
pounds) 14,839 17,702 21,254 19,602
Metal Prices
Gold (LBM
- $/ounce) 667 650 614 622
Copper (LME Cash
- $/pound) 3.47 2.69 3.21 3.48
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(Thousands of US
dollars, except
per share, per 2006 Quarter Ended 2005 Quarter Ended
ounce and per -----------------------------------------------
pound amounts) Jun 30 Mar 31 Dec 31 Sep 30
-----------------------------------------------------------------
Revenue $ 105,348 $ 85,059 $ 95,651 $ 64,631
Earnings (loss)
for the
period(1) 50,315 21,735 44,527 8,765
Earnings (loss)
per share(1)
Basic $ 0.23 $ 0.10 $ 0.21 $ 0.04
Diluted $ 0.22 $ 0.10 $ 0.21 $ 0.04
Metal production
Gold (ounces) 76,127 77,634 94,405 75,665
Copper (thousands
pounds) 18,071 22,282 24,701 16,917
Metal Prices
Gold (LBM
- $/ounce) 627 554 486 439
Copper (LME Cash
- $/pound) 3.27 2.24 1.95 1.70
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(1) The figures in the table for 2006 and 2005 reflect the
Corporation's change in accounting policy for metal
inventories. Refer to the Corporation's consolidated
financial statements in the 2006 Annual Report for a
description of this change.
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EXPLORATION UPDATE
Kemess Camp
There are currently two drills on the Kemess property exploring the area immediately east of the Kemess North deposit where the Titan(C) deep penetrating IP survey conducted in 2006 identified several large chargeability anomalies. Nine diamond drill holes have been completed to date totaling 7,708 m and assays have been received for core in six of these holes. Drill hole collar locations are listed in Appendix 1.
Figure 1 - 2007 Kemess Exploration Area
http://files.newswire.ca/592/Figure_1_-_KN_Ex.JPG
Ora Zone
Holes KH-07-02 and KH-07-04 were drilled to test the deep Titan(C) chargeability anomaly that was defined in 2006. Hole KH-07-04 intersected the longest mineralized interval ever drilled on the Kemess property with 441.3 m of 0.38 g/t gold and 0.391% copper. This hole also represents the deepest mineralization (850 m deep) so far discovered in the Kemess camp, but due to its grade and thickness it represents a very exciting discovery. While the relationship between this mineralization and the Kemess North deposit is unknown, this new discovery suggests that the Kemess North mineralizing system is far more extensive than previously understood and several follow-up holes are planned to explore for even higher-grade zones of mineralization or zones that have been faulted closer to surface.
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Table 1 - Selected Intervals in the Ora Zone
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Hole ID From To Core Gold Copper
(m) (m) Length (m) (g/t) (%)
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KH-07-01A 452.0 473.4 21.4 0.14 0.135
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KH-07-02 943.4 983.2 39.8 0.10 0.102
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KH-07-04 855.0 1296.3 441.3 0.38 0.391
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Including 1193.0 1289.0 96.0 0.57 0.395
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Figure 2 - Cross Section of the Ora Zone
http://files.newswire.ca/592/Figure_2_-_Ora_Zone.jpg
Note: Hole KH-07-01A is not shown on the cross-section above
because it is 170 metres outside the plane of the section.
Altus Zone
Just to the east of the Ora zone, three holes drilled in the 2007
exploration season have intersected a nearer surface zone of mineralization at
grades that are 30% higher than Kemess North grades. This mineralization is
close enough to surface that it could potentially be exploited as an open pit,
as illustrated in the accompanying cross section.
Table 2 - Selected Intervals from the Altus Zone
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Hole ID From To Core Gold Copper
(m) (m) Length (m) (g/t) (%)
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KH-07-03 273.6 429.0 155.4 0.23 0.269
-----------------------------------------------------------------
KH-07-05 130.0 258.2 128.2 0.23 0.332
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KH-07-06 594.0 650.0 56.0 0.18 0.304
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Figure 3 - Cross Section of the Altus Zone
http://files.newswire.ca/592/Figure_3_-_Altus_Zone.jpg
Future Exploration Activities at Kemess
With the validation of the Titan(C) system as an exploration tool for the terrain and deposit types in the Kemess camp, additional surveys have been contracted to more completely map out the area around hole KH-07-04, as well as to explore other areas of the Kemess North system and areas adjacent to the Kemess South pit. In addition to this survey work, Northgate will be drilling additional holes in and around the Altus and Ora zones during the 2007 exploration season. Total exploration expenditures on the Kemess property in 2007 are now expected to reach $4 million.
Young-Davidson
Drilling continued on the Young-Davidson property with five drills, four of which were working on the known deposit area and a fifth which is testing other targets in other areas of the property. The longitudinal section shown in Figure 4 presents known resource areas (as defined in the legend), historic mine workings, simplified geology, and potential new resource areas along with the pierce points for the holes drilled. Drill hole results reported for the first time are indicated by a five-point star. Elevations in the longitudinal section are based on an artificial mine grid where the surface is defined as 10,355 m. Diamond drilling completed in the second quarter of 2007 attempted to define the eastern and western edges of the deposit to a depth of 1,000 m and expand resources below and laterally adjacent to the three main zones in the deposit: the Lower Boundary zone, the Lucky zone, and the Lower YD zone.
Figure 4: Young-Davidson Property (Vertical, North Looking,
Longitudinal Section with Metric Grid)
http://files.newswire.ca/592/1LongsectionYD.jpg
Holes YD-07-33A and YD-07-41, below and above the western edge of the Lower Boundary zone respectively, intersected substantial widths of mineralization, which are expected to expand the zone significantly when the next resource recalculation is completed. Hole YD-07-33A returned an interval of 2.83 g/t over 33.6 m and hole YD-07-41 returned an interval of 4.16 g/t over 18.8 m.
Hole YD-07-40C, targeted to fill in the gap between the Upper and Lower Boundary zones, intersected a barren diabase dyke at the target interval. However, the hole did intersect a footwall zone grading 4.04 g/t over a 4.9 m core length. Due to the complexity of the geological formations in the area between the Upper and Lower Boundary zones the resolution of the interface between these two zones will wait until definition by closer-spaced underground drilling.
Holes YD-07-37 and YD-07-42 on the western side of the Lower Boundary zone were either terminated for technical reasons (too much deviation from the intended target) or they intersected diabase dykes at the target horizon.
Hole YD-07-36 intersected mineralization within an inferred resource area of the Lucky zone returning 3.23 g/t over 16 m. Hole YD-07-43 targeted an area below the Lucky zone and intersected two thin zones of 3.51 g/t over 1.9 m and 6.06 g/t over 4.2 m. This suggests that the Lucky Zone may extend down to the 9,650 m level, but more drilling will be necessary to confirm this hypothesis.
The western edge of the YD zone has now been defined above the 9,500 m level by three holes, YD-07-32, YD-07-38 and YD-07-39 that intersected barren syenite host rock with no significant values.
A total of five holes are currently in progress on the Young-Davidson property and drilling is scheduled to continue at the current pace until the end of 2007.
Drill hole collar locations for all the holes referred to in this release can be found in Appendix 1.
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Table 3 - Selected Intersections from Drill Holes at
Young-Davidson
Boundary Zones
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True
Hole ID From To Core Thickness Gold
(m) (m) Length (m) (m) (g/t)
-----------------------------------------------------------------
YD-07-33A 1407.9 1456.5 48.6 44.5 2.44
-----------------------------------------------------------------
Including 1407.9 1441.5 33.6 30.6 2.83
-----------------------------------------------------------------
1430.1 1441.5 11.4 10.4 3.52
-----------------------------------------------------------------
YD-07-41 932.1 972.3 40.2 27.6 3.26
-----------------------------------------------------------------
Including 933.6 952.4 18.8 12.9 4.16
-----------------------------------------------------------------
958.9 972.3 13.4 9.2 3.58
-----------------------------------------------------------------
YD-07-40C 936.0 940.9 4.9 4.2 4.04
-----------------------------------------------------------------
Lucky Zone
-----------------------------------------------------------------
True
Hole ID From To Core Thickness Gold
(m) (m) Length (m) (m) (g/t)
-----------------------------------------------------------------
YD-07-36 687.2 703.2 16.0 11.9 3.23
-----------------------------------------------------------------
Including 689.5 703.2 13.7 10.0 3.60
-----------------------------------------------------------------
Including 695.0 703.2 8.2 6.3 4.71
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YD-07-43 687.7 689.6 1.9 1.6 3.51
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YD-07-43 706.5 710.7 4.2 3.61 6.06
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The Young-Davidson underground project team, under the leadership of Project Manager, Luc Guimond, made excellent progress during the second quarter. A total of 55 Northgate employees and contractors are now working on the underground project at the Young-Davidson site in addition to the surface-based exploration team of 35 under the direction of Senior Project Geologist, Jim Janzen.
The ramp that will provide underground access to the deposit advanced by 560 m during the quarter and is now 25% complete. In the fall of 2007, underground definition drilling is expected to begin from the lower portion of the first flight of the ramp. Dewatering of the existing No. 3 shaft down to the 180-m level has been completed and the underground infrastructure left by the previous operator is in excellent condition.
The environmental and engineering studies that will form a critical part of the pre-feasibility study for the project are proceeding along rapidly and the scoping study that will determine the process flow and basic infrastructure for the mine is expected to be complete by the fall.
QUALITY CONTROL - ANALYSES AND SAMPLE LOCATION
Details of quality assurance/quality control procedures for sample analysis and drill hole survey methodology are reported in detail in National Instrument 43-101 (NI 43-101) Technical Reports filed on SEDAR (www.sedar.com) on June 4, 2004 and January 29, 2007 for Kemess North and Young-Davidson, respectively. Summaries of these procedures may also be found in press releases dated November 24, 2005 and April 10, 2006 for Kemess North and Young-Davidson, respectively.
QUALIFIED PERSONS
The program design, implementation, quality assurance/quality control and interpretation of the results is under the control of Northgate's geological staff that includes a number of individuals who are qualified persons as defined under NI 43-101. Overall supervision of the program is by Carl Edmunds, PGeo, Northgate's Exploration Manager.
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x x x x x x
NOTE TO US INVESTORS:
The terms "Mineral Reserve", "Proven Mineral Reserve" and "Probable
Mineral Reserve" are Canadian mining terms as defined in accordance with NI
43-101 Standards of Disclosure for Mineral Projects under the guidelines set
out in the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM")
Standards on Mineral Resources and Mineral Reserves Definitions and Guidelines
adopted by the CIM Council on August 20, 2000. The terms "Mineral Resource",
"Measured Mineral Resource", "Indicated Mineral Resource", and "Inferred
Mineral Resource" used in this news release are Canadian mining terms as
defined in accordance with NI 43-101-Standards of Disclosure for Mineral
Projects under the guidelines set out in the CIM Standards.
x x x x x x
>>
NOTICE OF CONFERENCE CALL AND WEBCAST OF SECOND QUARTER RESULTS
July 27, 2007 at 10:00 a.m. ET
You are invited to participate in the Northgate Minerals Corporation (TSX:NGX) (AMEX:NXG) live conference call and webcast discussing our second quarter financial results. The call and webcast will take place on Friday, July 27, 2007, at 10:00 a.m. ET. Northgate's quarterly financial results will be released the evening of July 26, 2007.
You may participate in the Northgate Conference Call by calling 416-644-3414 or toll free in North America at 1-800-733-7571. To ensure your participation, please call five minutes prior to the scheduled start of the call.
For those unable to participate in the conference call at the scheduled time, a replay of the conference call will be available beginning on July 27 at 12:00 P.M. ET until August 10 at 11:59 PM ET.
Replay Access No. 416-640-1917
Passcode: 212 38 660 followed by the number sign.
Replay Access No. 877-289-8525
Passcode: 212 38 660 followed by the number sign.
A live and archive Webcast of this call, which includes our presentation package, will also be made available on our website at www.northgateminerals.com.
<<
x x x x x x
NORTHGATE MINERALS CORPORATION is a gold and copper mining company focused
on operations and opportunities in the Americas. The Corporation's principal
assets are the Kemess South mine in north-central British Columbia, the
adjacent Kemess North deposit, which contains a proven and probable reserve of
4.1 million ounces of gold and the Young-Davidson property in northern Ontario
with a total resource base of 2.1 million ounces of gold. Northgate is listed
on the Toronto Stock Exchange under the symbol NGX and on the American Stock
Exchange under the symbol NXG.
x x x x x x
>>
FORWARD-LOOKING STATEMENTS:
This news release includes certain "forward-looking statements" within the meaning of section 21E of the United States Securities Exchange Act of 1934, as amended. These forward-looking statements include estimates, forecasts, and statements as to management's expectations with respect to, among other things, future metal production and production costs, potential mineralization and reserves, exploration results, progress in the development of mineral properties, demand and market outlook for commodities and future plans and objectives of Northgate Minerals Corporation (Northgate). Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," or "continue" or the negative thereof or variations thereon or similar terminology. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management are inherently subject to significant business, economic and competitive uncertainties and contingencies. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Northgate's expectations are disclosed under the heading "Risk and Uncertainties" in Northgate's 2006 Annual Report and under the heading "Risk Factors" in Northgate's 2006 Annual Information Form (AIF) both of which are filed with Canadian regulators on SEDAR (www.sedar.com) and with the United States Securities and Exchange Commission (www.sec.gov). Northgate expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
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APPENDIX 1 - DRILL HOLE COLLAR LOCATIONS
Young-Davidson
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Collar Collar Depth
Hole ID Easting Northing Elevation Azimuth Dip (m)
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YD-07-33A 23248.5 9701.7 10324.9 0 -70 1546.1
-----------------------------------------------------------------
YD-07-33B 23248.5 9701.7 10324.9 0 -70 1461.0
-----------------------------------------------------------------
YD-07-33C 23248.5 9701.7 10324.9 0 -70 1550
-----------------------------------------------------------------
YD-07-34 22711.5 10064.7 10331.0 353.0 -70 1066.8
-----------------------------------------------------------------
YD-07-37 23599.0 9976.0 10340.1 9 -70 1021.2
-----------------------------------------------------------------
YD-07-38 22711.5 10244.0 10330.0 0 -70 609.0
-----------------------------------------------------------------
YD-07-39 22713.1 10191.2 10333.1 350 -70 719.0
-----------------------------------------------------------------
YD-07-40 23875 10125 10340 315 -70 354.0
-----------------------------------------------------------------
YD-07-40A 23875 10125 10340 312 -70 261.0
-----------------------------------------------------------------
YD-07-40B 23875 10125 10340 310 -70 547.0
-----------------------------------------------------------------
YD-07-40C 23875 10125 10340 302 -70 969.0
-----------------------------------------------------------------
YD-07-41 23200.8 9940.0 10325.0 0 -65 1068.0
-----------------------------------------------------------------
YD-07-42 23522.0 9935.0 10322.0 356 -70 1008.0
-----------------------------------------------------------------
YD-07-42A 23522.0 9935.0 10322.0 356 -70 1400
-----------------------------------------------------------------
YD-07-43 23200.8 9940.0 10325.0 0 -60 919.0
-----------------------------------------------------------------
YD-07-44 22685.0 9725.0 10331.0 0 -70 19.3
-----------------------------------------------------------------
YD-07-45 23200.8 9940.0 10325.0 0 -70 1200
-----------------------------------------------------------------
YD-07-46 22685.0 9725.0 10331.0 0 -70 1700
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KEMESS CAMP
-----------------------------------------------------------------
Collar Collar Depth
Hole ID Easting Northing Elevation Azimuth Dip (m)
-----------------------------------------------------------------
KH-07-01A 637915 6326373 1820 0 -90 980
-----------------------------------------------------------------
KH-07-02 637706 6326237 1817 0 -90 1120.5
-----------------------------------------------------------------
KH-07-03 638116 6326410 1820 340 -70 726
-----------------------------------------------------------------
KH-07-04 637706 6326237 1817 340 -70 1344
-----------------------------------------------------------------
KH-07-05 638116 6326410 1820 0 -90 417
-----------------------------------------------------------------
KH-07-06 638080 6326800 1765 180 -90 770
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INTERIM CONSOLIDATED BALANCE SHEETS
June 30 December 31
Thousands of US dollars 2007 2006
-----------------------------------------------------------------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 317,761 $ 262,199
Concentrate settlements and
other receivables 33,226 17,960
Inventories 38,123 26,208
Future income tax asset 11,280 7,469
Investments 1,151 -
Deferred hedging loss - 8,583
-----------------------------------------------------------------
401,541 322,419
Other assets 16,888 27,622
Future income tax asset 9,825 6,291
Mineral property, plant and equipment 146,163 159,299
-----------------------------------------------------------------
$ 574,417 $ 515,631
-----------------------------------------------------------------
-----------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued
liabilities $ 63,435 $ 22,023
Current portion of capital lease
obligations 2,581 2,439
-----------------------------------------------------------------
66,016 24,462
Capital lease obligations 1,173 2,586
Other long-term liabilities (note 4) 3,296 -
Provision for site closure and
reclamation obligations 31,925 28,197
Future income tax liability 13,849 12,638
-----------------------------------------------------------------
116,259 67,883
Shareholders' equity
Common shares 308,726 307,914
Contributed surplus 3,518 2,596
Accumulated other comprehensive
income (note 2) (9,377) -
Retained earnings 155,291 137,238
-----------------------------------------------------------------
458,158 447,748
-----------------------------------------------------------------
$ 574,417 $ 515,631
-----------------------------------------------------------------
-----------------------------------------------------------------
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
Thousands of
US dollars,
except
share and per Three Months Ended Six Months Ended
share amounts, June 30 June 30
unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Revenue $ 80,878 $ 105,348 $ 155,191 $ 190,407
-----------------------------------------------------------------
Cost of sales 60,384 56,884 107,370 105,054
Administrative
and general 2,625 1,580 4,753 4,715
Depreciation
and depletion 8,933 7,101 19,959 17,072
Net interest
income (4,464) (702) (7,700) (677)
Exploration 7,842 2,043 11,435 2,987
Currency
translation gains (3,972) (2,092) (5,164) (2,411)
Accretion of site
closure and
reclamation costs 467 386 905 761
Other 911 8,412 911 8,383
-----------------------------------------------------------------
72,726 73,612 132,469 135,884
-----------------------------------------------------------------
Earnings before
income taxes 8,152 31,736 22,722 54,523
Income tax
recovery (expense)
Current (1,905) (1,921) (5,218) (2,973)
Future 2,400 20,500 549 20,500
-----------------------------------------------------------------
495 18,579 (4,669) 17,527
-----------------------------------------------------------------
Net earnings
for the
period $ 8,647 $ 50,315 $ 18,053 $ 72,050
-----------------------------------------------------------------
-----------------------------------------------------------------
Other
comprehensive
income
Reclassification
of net realized
gains on
available for
sale securities
to net earnings - - (315) -
Unrealized gain
on available
for sale
securities 332 - 466 -
Reclassification
of deferred
losses on
gold forward
contracts to
net earnings,
net of tax of
$2,231 Q2 and
$4,738 YTD 4,842 - 9,148 -
-----------------------------------------------------------------
5,174 - 9,299 -
-----------------------------------------------------------------
Comprehensive
income $ 13,821 $ 50,315 $ 27,352 $ 72,050
-----------------------------------------------------------------
-----------------------------------------------------------------
Net earnings
per share
Basic $ 0.03 $ 0.23 $ 0.07 $ 0.34
Diluted $ 0.03 $ 0.22 $ 0.07 $ 0.33
Weighted
average shares
outstanding
Basic 254,159,902 215,275,933 254,061,971 214,806,041
Diluted 255,317,140 226,972,597 255,435,956 219,516,937
-----------------------------------------------------------------
-----------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Thousands of US Three Months Ended Six Months Ended
dollars, Jun 30 Jun 30
unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Retained
earnings,
beginning
of period $ 146,644 $ 52,231 $ 137,238 $ 30,496
Net earnings
for the period 8,647 50,315 18,053 72,050
-----------------------------------------------------------------
Retained
earnings, end
of period $ 155,291 $ 102,546 $ 155,291 $ 102,546
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Thousands
of US dollars, Number
except common of Common Share
shares, Common Shares Purchase Contributed
unaudited Shares Amount Warrants Surplus
-----------------------------------------------------------------
Balance at
December 31,
2006 253,700,033 $ 307,914 $ - $ 2,596
Transitional
adjustment
on adoption
of financial
instruments - - - -
Shares
issued under
employee
share
purchase
plan 32,807 79 - -
Shares
issued on
exercise
of options 413,420 519 - (153)
Stock-based
compensation - 39 - 759
Net income - - - -
Other
comprehensive
income - - - -
-----------------------------------------------------------------
Balance at
March 31,
2007 254,146,260 $ 308,551 $ - $ 3,202
Shares
issued under
employee
share
purchase
plan 41,860 107 - -
Shares
issued on
exercise
of options 5,600 15 - (4)
Stock-based
compensation - 53 - 320
Net income - - - -
Comprehensive
income - - - -
-----------------------------------------------------------------
-----------------------------------------------------------------
Balance at
June 30,
2007 254,193,720 $ 308,726 $ - $ 3,518
-----------------------------------------------------------------
-----------------------------------------------------------------
Thousands
of US dollars, Accumulated
except common Other
shares, Retained Comprehensive
unaudited Earnings Income Total
----------------------------------------------------
Balance at
December 31,
2006 $ 137,238 $ - $ 447,748
Transitional
adjustment
on adoption
of financial
instruments - (18,676) (18,676)
Shares
issued under
employee
share
purchase
plan - - 79
Shares
issued on
exercise
of options - - 366
Stock-based
compensation - - 798
Net income 9,406 - 9,406
Other
comprehensive
income - 4,125 4,125
----------------------------------------------------
Balance at
March 31,
2007 $ 146,644 $ (14,551) $ 443,846
Shares
issued under
employee
share
purchase
plan - - 107
Shares
issued on
exercise
of options - - 11
Stock-based
compensation - - 373
Net income 8,647 - 8,647
Comprehensive
income - 5,174 5,174
----------------------------------------------------
----------------------------------------------------
Balance at
June 30,
2007 $ 155,291 $ (9,377) $ 458,158
----------------------------------------------------
----------------------------------------------------
Thousands
of US dollars, Number
except common of Common Share
shares, Common Shares Purchase Contributed
unaudited Shares Amount Warrants Surplus
-----------------------------------------------------------------
Balance at
December 31,
2005 214,011,246 $ 195,565 $ 8,715 $ 1,657
Shares
issued under
employee
share
purchase
plan 45,027 68 - -
Shares
issued on
exercise of
share
purchase
warrants 314,523 480 (102) -
Shares
issued on
exercise
of options 386,800 490 - (154)
Stock-based
compensation - 34 - 1,131
Net income - - - -
-----------------------------------------------------------------
Balance at
March 31,
2006 214,757,596 $ 196,637 $ 8,613 $ 2,634
Shares
issued under
employee
share
purchase
plan 30,269 76 - -
Shares
issued on
exercise of
share
purchase
warrant 10,202 27 - -
Shares
issued on
exercise
of options 810,880 2,245 - (706)
Stock-based
compensation - 39 - 240
Net income - - - -
-----------------------------------------------------------------
-----------------------------------------------------------------
Balance at
June 30,
2006 215,608,947 $ 199,024 $ 8,613 $ 2,168
-----------------------------------------------------------------
-----------------------------------------------------------------
Thousands
of US dollars, Accumulated
except common Other
shares, Retained Comprehensive
unaudited Earnings(1) Income Total
----------------------------------------------------
Balance at
December 31,
2005 $ 30,496 $ - $ 236,433
Shares
issued under
employee
share
purchase
plan - - 68
Shares
issued on
exercise of
share
purchase
warrants - - 378
Shares
issued on
exercise
of options - - 336
Stock-based
compensation - - 1,165
Net income 21,735 - 21,735
----------------------------------------------------
Balance at
March 31,
2006 $ 52,231 $ - $ 260,115
Shares
issued under
employee
share
purchase
plan - - 76
Shares
issued on
exercise of
share
purchase
warrant - - 27
Shares
issued on
exercise
of options - - 1,539
Stock-based
compensation - - 279
Net income 50,315 - 50,315
----------------------------------------------------
----------------------------------------------------
Balance at
June 30,
2006 $ 102,546 $ - $ 312,351
----------------------------------------------------
----------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of US Three Months Ended Six Months Ended
dollars, Jun 30 Jun 30
unaudited 2007 2006(1) 2007 2006(1)
-----------------------------------------------------------------
Operating
activities:
Net earnings
for the
period $ 8,647 $ 50,315 $ 18,053 $ 72,050
Non-cash
items:
Depreciation
and depletion 8,933 7,101 19,959 17,072
Unrealized
currency
translation
losses (gains) 711 (241) 676 (343)
Accretion of
site closure
and reclamation
costs 467 386 905 761
Amortization
of hedging
losses 7,350 4,688 13,887 7,502
Amortization
of deferred
charges 76 75 148 414
Stock-based
compensation 373 279 1,171 1,444
Future income
tax recovery (2,400) (20,500) (549) (20,500)
Change in fair
value of
forward
contracts 16,905 13,902 37,004 21,110
Gain on sale
of investments - - (315) -
Changes in
operating working
capital and other:
Concentrate
settlements
and other
receivables (10,019) (31,792) (27,218) (44,457)
Inventories 2,531 (1,185) (3,671) (2,484)
Accounts
payable and
accrued
liabilities 10,111 5,536 12,202 6,621
Settlement of
forward
contracts - (18,693) (9,326) (18,693)
Reclamation
costs paid - (494) - (2,235)
-----------------------------------------------------------------
43,685 9,377 62,926 38,262
-----------------------------------------------------------------
Investing
activities:
Purchase of
other assets - - - (86)
Purchase of
mineral, property,
plant and
equipment (3,573) (2,331) (6,334) (4,267)
Purchase of
investments (637) - (322) -
-----------------------------------------------------------------
(4,210) (2,331) (6,656) (4,353)
-----------------------------------------------------------------
Financing
activities:
Repayment of
capital lease
obligation (642) (941) (1,271) (2,085)
Repayment of
long-term debt - - - (13,700)
Issuance of
common shares 118 1,644 563 2,427
-----------------------------------------------------------------
(524) 703 (708) (13,358)
-----------------------------------------------------------------
Increase in
cash and cash
equivalents 38,951 7,749 55,562 20,551
Cash and cash
equivalents,
beginning of
period 278,810 63,441 262,199 50,639
-----------------------------------------------------------------
Cash and cash
equivalents,
end of
period $ 317,761 $ 71,190 $ 317,761 $ 71,190
-----------------------------------------------------------------
-----------------------------------------------------------------
Supplementary
information
Cash paid
during the
period for:
Interest $ 74 $ 98 $ 145 $ 732
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Adjusted (note 2)
The accompanying notes form an integral part of these
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2007 and 2006 (unaudited)
All dollar amounts are stated in United States dollars unless
otherwise indicated. Tables are expressed in thousands of United
States dollars, except share and per share amounts.
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements for Northgate Minerals Corporation ("Northgate" or the
"Corporation") have been prepared in accordance with generally
accepted accounting principles in Canada (Canadian GAAP). They do
not include all the disclosures required by Canadian GAAP for
annual financial statements and should be read in conjunction
with the Corporation's consolidated financial statements and the
notes thereto included in the Corporation's Annual Report for the
year ended December 31, 2006. In the opinion of management, all
adjustments considered necessary for fair presentation have been
included in these financial statements.
Except as disclosed in note 2 below, these financial statements
are prepared using the same accounting policies and methods of
application as those disclosed in note 2 to the Corporation's
consolidated financial statements for the year ended December 31,
2006.
NOTE 2 CHANGES IN ACCOUNTING POLICIES
On January 1, 2007, the Corporation adopted the Canadian
Institute of Chartered Accountants ("CICA") Handbook Sections
1530, Comprehensive Income; Section 3251, Equity; Section 3855,
Financial Instruments - Recognition and Measurement; Section
3861, Financial Instruments - Disclosure and Presentation; and
Section 3865, Hedges. These new standards resulted in changes in
the accounting for financial instruments, hedges and available
for sale investments as well as recognition of certain
transitional adjustments that have been recorded for gold forward
contracts and available for sale investments. In accordance with
the transitional provisions, prior periods have not been
restated. The principal changes resulting from these new
standards are described below:
Comprehensive Income
Section 1530 establishes standards for reporting and presenting
comprehensive income. Comprehensive income, composed of net
income and other comprehensive income, is defined as the change
in shareholders' equity from transactions and other events from
non-owner sources. Other comprehensive income for the Corporation
includes unrealized gains and losses on available for sale
securities and changes in the fair market value of derivatives
designated as cash flow hedges, all net of related income taxes.
The components of comprehensive income are disclosed in the
consolidated statement of operations and comprehensive income.
Cumulative changes in other comprehensive income are included in
accumulated other comprehensive income ("AOCI") which is
presented as a new category in shareholders' equity. The
components of AOCI as at June 30, 2007, are as follows:
-----------------------------------------------------------------
Unrealized gain on available for sale securities $ 479
Unrealized hedging losses (9,856)
-----------------------------------------------------------------
AOCI $ (9,377)
-----------------------------------------------------------------
Financial Instruments
Under Section 3855, financial assets and liabilities, including
derivative instruments, are initially recognized and subsequently
measured based on their classification as held-for-trading,
available for sale financial assets, held-to-maturity, loans and
receivables, or other financial liabilities as follows:
- Held for trading financial instruments are measured at their
fair value with changes in fair value recognized in net
income for the period.
- Available for sale financial assets are measured at their
fair value and changes in fair value are included in other
comprehensive income until the asset is removed from the
balance sheet.
- Held-to-maturity investments, loans and receivables and other
financial liabilities are measured at amortized cost using
the effective interest rate method.
- Derivative instruments, including embedded derivatives, are
measured at their fair value with changes in fair value
recognized in net income for the period unless the instrument
is a cash flow hedge and hedge accounting applies in which
case changes in fair value are recognized in other
comprehensive income.
Upon adoption of this new standard, the Corporation designated
its investments in common shares of public corporations as
available for sale financial assets. On January 1, 2007, the
Corporation recorded these investments at their fair value of
$329,000 with an offsetting adjustment to AOCI in shareholders'
equity. When the investments are sold or otherwise disposed of,
gains or losses will be recorded in net earnings.
Hedging
Section 3865 specifies the circumstances under which hedge
accounting is permissible and how hedge accounting may be
performed. On January 1, 2007, the Corporation elected to
discontinue hedge accounting for its gold forward sales
contracts. As a result, a liability for the fair value of these
contracts of $20,265,000 and a future income tax asset of
$6,914,000 was recorded with the net transitional adjustment of
$13,351,000 recognized in AOCI in shareholders' equity. Also on
January 1, 2007, the deferred hedging loss asset of $8,583,000
and the related future income tax liability of $2,929,000
pertaining to gold forward contracts settled in prior years in
advance of their maturity date were reclassified to AOCI in
shareholders' equity. Changes in fair value of forward contracts
are recognized in net income each period. The transitional
adjustment and hedge loss recorded in AOCI will be released into
net income at the time the sales associated with the forward
contracts occur.
Inventory
In the year ended December 31, 2006, the Corporation changed its
accounting policy with respect to metal inventories to
incorporate a full costing method and also to value additional
components of inventory created during the mining process. As a
result of this change, opening retained earnings at January 1,
2006 increased $12,819,000. There were no other material
adjustments required for the three and six month periods ended
June 30, 2006.
NOTE 3 STOCK BASED COMPENSATION
No options were granted during the three months ended June 30,
2007 (2006 - nil). During the three months ended June 30, 2007,
$320,000 (2006 - $240,000) of stock-based compensation was
recognized related to outstanding stock options.
During the three months ended June 30, 2007, a total of 19,800
options were cancelled and 5,600 options were exercised.
At June 30, 2007, there were 5,527,500 options outstanding, of
which 2,895,800 were exercisable.
During the three months ended March 31, 2007, the Corporation
granted a total of 1,425,000 (2006 - 1,212,000) options to
employees, with a term of seven years. 1,410,000 of these options
are exercisable at Cdn$4.07 and 15,000 are exercisable at
Cdn$3.48. Twenty percent (282,000) of the options granted at
Cdn$4.07 vested immediately and the balance will vest in equal
amounts on the anniversary date of the grant over the next four
years and five years respectively. The fair value of the options
granted for the three months ended March 31, 2007 was $2,500,000
(2006 - $1,480,000). During the three months ended March 31,
2007, $759,000 (2006 - $1,131,000) of stock-based compensation
was recognized related to outstanding stock options.
During the three months ended March 31, 2007, a total of 114,020
options were cancelled and 413,420 options were exercised.
The fair value of the share options granted during 2007 was
estimated using the Black-Scholes pricing model with the
following assumptions:
For Options For Options For Options For Options
Granted Granted Granted Granted
in Q2 2007 in Q2 2006 in Q1 2007 in Q1 2006
-----------------------------------------------------------------
Risk-free
interest rate - - 3.94% 4.1%
Annual dividends - - - -
Expected stock
price volatility - - 53.4% 60%
Expected
option life - - 5.0 years 5.0 years
Per share fair
value of options
granted (Cdn$) - - $2.05 $1.42
-----------------------------------------------------------------
NOTE 4 FINANCIAL INSTRUMENTS
At June 30, 2007, the Corporation had forward sales commitments
with major financial institutions to deliver 30,000 ounces of
gold at an average accumulated price of $307 per ounce. These
forward sales commitments are in the form of forward sales
contracts maturing at various dates between August 31, 2007 and
December 31, 2007. On January 1, 2007, the Corporation adopted
the CICA new standard on hedges (note 2). In conjunction with the
adoption of Section 3855, the Corporation elected to discontinue
hedge accounting. Therefore, the forward sales contracts are now
recorded at their fair value with changes in fair value including
in earnings for the period. The unrealized loss on these forward
sales contracts at June 30, 2007, was approximately $10,385,000,
which is recorded in accrued liabilities. The deferred hedging
loss, which was reclassified to the opening balance of AOCI in
shareholders' equity on January 1, 2007, and the transitional
adjustment required to recognize the fair value of outstanding
forward sales contracts on adoption of Section 3865 will be
released into net earnings at the time the sales associated with
the forward contracts occur.
At June 30, 2007, the Corporation had forward sales contracts
with a major financial institution to fix the price for delivered
copper for which final settlement has not occurred, and in
certain cases, for future production. A total volume of 35,300
metric tonnes of copper were sold forward using London Metal
Exchange (LME) contracts maturing from July 2007 through October
2010 at an average forward price of $2.77 per pound. The
Corporation also entered into separate forward purchase contracts
with the same institution to repurchase its forward sales
position at monthly average LME cash prices over the same period.
The volume of these forward sales contracts match expected future
pricings of copper in concentrate produced and delivered to
Falconbridge Limited (a wholly owned subsidiary of Xstrata Plc.)
under a multi-year concentrate sales agreement. The copper
forward sales and purchase contracts are being recognized on a
mark-to-market basis. The fair value of these contracts at
June 30, 2007 was a net loss of $20,961,000 of which $17,665,000
is included in accrued liabilities and $3,296,000 in other long
term liabilities.
NOTE 5 COMMITMENTS AND CONTINGENCIES
On May 28, 2007, Northgate entered into an Option and Joint
Venture Agreement ("Agreement") with Opawica Explorations Inc.
("Opawica") and is committed to spend Cdn$750,000 in exploration
over the twelve month period from the effective date of the
Agreement. In the second quarter, the Corporation provided
Cdn$225,000 to Opawica to fund exploration activity.
>>
%CIK: 0000072931
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