takeover, page-14

For the threads consideration from Resource Investor today....I don't hold but have a strong interest in C V mining...so watch out Bendigo...Maldon and Castlemaine

"Northgate Moves to Australia After Regulatory Road Block in Canada

By Jon A. Nones
29 Oct 2007 at 04:49 PM GMT-04:00

St. LOUIS (ResourceInvestor.com) -- Northgate Minerals Corp. [AMEX:NXG; TSX:NGX], after being road-blocked at Kemess North in British Columbia, Canada, and facing declining production and rising costs at Kemess South, has made a friendly US$257 bid for Australian gold producer, Perseverance Corp. [ASX:PSV], with hopes to double its gold output in 2008.

Perseverance owns and operates two producing mines at Fosterville and Stawell in Victoria, Australia, and holds 7,700 square kilometres of exploration properties. The company’s mines produced 189,000 ounces last year ending June 2007 at a cash cost of just over US$400 an ounce. Fosterville currently has a 7-year mine life while Stawell has 3 years, but both have expansion potential.

Under the terms of the deal, Perseverance will receive A$0.20 cash per ordinary share, A$0.08 cash for each of the Perseverance warrants issued as part of the recent A$26.5 million placement and A$100,000 plus any accrued interest per convertible subordinated note.

The Northgate offer represents a 37.9% premium to the Perseverance closing share price on October 26, 2007 and a 37.1% premium to the one month volume weighted average price of A$0.146.

Perseverance shares were trading at A$0.38 just 6 months ago and A$0.44 in February, but concerns over the company's finances have hit share value hard. The company has $30.6 million in bank debt and over $43.8 million in gold hedges, which have severely limited returns in a rising gold price market.

In June 2007, the full extent of Perseverance's operational problems at Fosterville became clear when the company advised that gold production would fall well short of previous estimates. The company said its financial position had been adversely impacted and its cash position would remain under pressure during the September 2007 quarter.

Then in July, Perseverance raised A$26.5 million by selling 53.45 million ordinary shares at a heavily discounted price of 15 cents each to see it through its cash flow problems. Enter Northgate.

Northgate has agreed to assume Perseverance’s bank debt, provide a no-interest bridge loan of up to $22.8 million, and take over and close the company’s gold hedges upon completion of the transaction. The offer values the equity of the Australian company at the equivalent of US$161 million, minus debt and hedges.

Therefore, the company told its shareholders that the deal was in their best interests, even if the bid price was less than half the 44 cents, and all directors intend to vote in favour of the transaction.

John Quinn, Chairman of Perseverance, said that said that in order to extract full value from the assets and to restructure the company's existing financing facilities and hedge commitments, substantial additional capital would have been required, which would have required a further large and dilutive equity raising.

"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,” he said in a statement.

Northgate has made a ‘no talk’ agreement with Perseverance in an attempt to ward off other would-be bidders, as well as a $2.5 million break fee if the takeover does not proceed under certain circumstances.

CEO Ken Stowe said in a conference call that the offer will be paid for out of Northgate's cash position of US$340 million. The deal assures “the immediate financial viability of Perseverance,” he said.

Northgate inadvertently freed up some funds last month after a joint panel set up by the B.C. and federal governments recommended the refusal of the company’s Kemess North project, effectively halting its development. The project, an open-pit mine about six kilometres from its existing copper-gold mine at Kemess South, was expected to cost C$190 million.

In a presentation at the Denver Gold Forum, Stowe said the Kemess North decision in some ways may have made things easier, since “we have some free money to look at other assets.” He even said the company plans to review the carrying value of the asset, with is currently about C$28 million.

However, Kemess North was expected to extend the life of the existing Kemess South mine by 11 years or more, which is significant since its resources are expected to be depleted by 2010. Output declined at Kemess South to 66,000 ounces of gold in the April-June quarter from 76,100 a year earlier.

Northgate earned US$107 million last year on production of 310,300 ounces of gold and 81.2 million pounds of copper at a negative cash cost of $56 per gold ounce. In 2007, the company forecasts total production to be 276,000 ounces of gold and 68.5 million pounds of copper at an average cash cost of $15/oz.

Northgate also hold a 100% interest in the Young-Davidson Project, which has a total resource base of 2.1 million ounces. The company is targeting annual production of 150,000-200,000 ounces at a cash cost of US$325 for 10+ years, but production isn’t slated to commence until 2010 and the project will cost about C$150-C$175 million to develop.

But upon completion of the transaction with Perseverance, the combined company will have immediate production of 434,000 ounces of gold and 71 million pounds of copper per annum to help fund Young-Davidson.

The company will have 2.3 million ounces of proven and probable gold reserves (7.1 million ounce of total gold resources) and 250 million pounds of copper reserves.

Northgate-Perseverance will have an average net cash cost of production of approximately US$184 per ounce during 2008 based on a copper price of US$2.95 per pound. Stowe said he believes that Northgate can lower cash costs at Fosterville and Stawell by as much as 25%.

Upon complete of the deal, the combined company will have no debt, no hedges and US$105 million in cash still on hand.

Perseverance shareholders will meet in mid-January 2008 with completion of the transaction anticipated in early February 2008. The deal must be approved at least 75% by number of the securities voted and at least 50% by number of the shareholders who voted.

Northgate shares jumped 29 cents or 10% to $3.10 on AMEX, while Perseverance shares rose 4.5 cents to 19 cents on the ASX.