Attention Business/Financial Editors:
Northgate first quarter gold production on plan; Kemess South mine-life extended by one year
VANCOUVER, May 3 /CNW/ - (All figures in US dollars except where noted) -
Northgate Minerals Corporation (TSX: NGX; AMEX: NXG) today reported cash flow
from operations of $19,241,000 or $0.08 per diluted common share and net
earnings of $9,406,000 or $0.04 per diluted common share for the first quarter
of 2007.
FIRST QUARTER HIGHLIGHTS
- Production of 68,110 ounces of gold and 17.7 million pounds of
copper.
- A net cash cost of gold production of $28 per ounce.
- The addition of 175,000 ounces of gold to reserves at Kemess South,
extending the mine-life by one year until the fourth quarter of 2010.
- During the quarter, Northgate opportunistically repurchased
30,000 ounces of its gold forward sales position at $612 per ounce
reducing its remaining position to only 30,000 ounces.
- Continuing positive drill results at Young-Davidson combined with
significant progress on the exploration ramp and shaft dewatering.
- The Kemess South mine was the safest metal mine in British Columbia
during the first quarter of 2007.
Ken Stowe, President and CEO, stated; "We are exceptionally pleased to
announce a one year extension of the mine-life at Kemess South through the
addition of approximately 18 million tonnes of ore to our existing Kemess
South reserve. This mine-life extension provides us with a profitable
production bridge to the projected start of operations at Kemess North and
Young-Davidson and provides our shareholders with additional fully-permitted
exposure to the gold price. Meanwhile, current production at Kemess South
continued to roll along on schedule as we produced 68,110 ounces of gold at a
net cash cost of only $28 per ounce. At Young-Davidson, our project team has
made excellent progress on the underground ramp development, shaft dewatering
and various technical studies. In the coming months, the surfaced-based
Diamond drilling program will be focusing on regions between areas of known
resources with the goal of significantly increasing measured and indicated
resource ounces by the end of the year."
RESULTS OF OPERATIONS
Northgate recorded net earnings of $9,406,000 or $0.04 per diluted common
share in the first quarter of 2007 compared with earnings of $21,735,000 or
$0.10 per share during the corresponding quarter of 2006. Per share data is
based on 255,541,281 weighted average diluted number of shares outstanding in
the first quarter of 2007 and 215,092,200 in the corresponding period of 2006.
As of May 1, 2007, the Corporation had 254,158,045 issued and outstanding
common shares.
Kemess South Mine Performance
The Kemess South mine posted gold and copper production of 68,110 ounces
and 17.7 million pounds, respectively, in the first quarter of 2007. While
gold production was on target as a result of higher than expected gold grades,
copper production was below forecast due to lower than expected mill
throughput.
During the first quarter of 2007, approximately 12.1 million tonnes of
ore and waste were removed from the open pit compared to 10.0 million tonnes
during the corresponding quarter of 2006 and an average of 10.8 million tonnes
per quarter during all of 2006. The increase in total mining volume was driven
by mining efficiencies related to higher elevation north wall waste stripping
and short hauls of supergene ore to the stockpile. Unit mining costs during
the current quarter were Cdn$1.47 per tonne compared with Cdn$1.38 per tonne
in the first 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 partially offset by the
higher mining volume.
Mill availability and mill throughput during the first quarter of 2007
were consistent with performance in the same period last year at 91% and
48,238 tonnes per day, respectively, compared with 90% availability and
throughput of 48,545 tonnes per day in the first quarter of 2006. However, the
ore milled in the first quarter of 2007 was somewhat harder than expected,
which resulted in a 6% shortfall in planned throughput.
Gold and copper recoveries averaged 72% and 86%, respectively, in the
first quarter of 2007, compared with 74% and 86% in the first quarter of 2006.
While gold recoveries were slightly lower than one year ago, metallurgical
performance in the first quarter of 2007 was generally as good as or better
than one year ago when higher grade ores with inherently higher copper and
gold recoveries were milled.
Metal concentrate inventory increased by 1,000 wet metric tonnes (wmt) in
the first quarter of 2007 to approximately 11,000 wmt, increasing the value of
concentrate in inventory compared with the December 31, 2006 balance. Lower
than anticipated railcar availability due to winter conditions and the CN Rail
strike during February resulted in the small inventory build.
The total site cost of production during the first quarter of 2007 was
Cdn$9.65 per tonne milled, which was significantly higher than the
Cdn$8.46�per tonne milled in the corresponding period of 2006 due to higher
waste stripping and a significant amount of ore that was mined and stockpiled
for future processing. Total site operating costs in the first quarter of 2007
were Cdn$41.9 million compared with Cdn$37.0 million in the first quarter of
2006. The increase in total site operating costs resulted from additional
costs related to the north wall pushback and general increases in costs for
labour, energy and consumables. The net cash cost of production at Kemess in
the first quarter was $28 per ounce of gold compared to the $27 per ounce cash
cost reported in the first quarter of 2006. The cost was stable from period to
period, because increased site costs and lower gold and copper production was
offset by reduced concentrate marketing costs and higher copper prices.
The following table provides a summary of operations for the first
quarter of 2007 and the comparable period of 2006.
(100% of production basis) Q1 2007 Q1 2006
-------------------------------------------------------------------------
Ore plus waste mined (tonnes) 12,082,857 10,036,939
Ore mined (tonnes) 5,561,033 5,273,672
Stripping ratio (waste/ore) 1.17 0.903
Ore milled (tonnes) 4,341,422 4,369,022
Ore milled per day (tonnes) 48,238 48,545
Gold grade (grams per metric tonne) 0.677 0.751
Copper grade (%) 0.214 0.270
Gold recovery (%) 72 74
Copper recovery (%) 86 86
Gold production (ounces) 68,110 77,634
Copper production (thousands pounds) 17,702 22,282
Net Cash cost ($/ounce) 28 27
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Safety
------
Kemess was the safest metal mine in British Columbia during the first
quarter of 2007. The mine recorded no lost time injuries and only four medical
aids during the quarter continuing the strong safety performance that was
established in 2006.
Financial Performance
Northgate's revenue in the first quarter of 2007 was $74,313,000 compared
with $85,059,000 in the corresponding period of 2006. Revenue for the first
quarter of 2007 included negative mark-to-market adjustments of $20,099,000 on
Northgate's copper and gold hedge books, reversing the gain that was booked in
the fourth quarter of 2006. Due to mark-to-market requirements and the
relatively large amount of copper that has been sold forward, earnings in
future quarters will fluctuate depending on future movements in the price of
copper. Metal sales in the first quarter of 2007 consisted of 66,480 ounces of
gold and 17.3 million pounds of copper, compared with 73,873 ounces of gold
and 21.3 million pounds of copper in the first quarter of 2006. During the
first quarter of 2007, the price of gold on the London Bullion Market averaged
$650 per ounce and the price of copper on the London Metal Exchange (LME)
averaged $2.69. The net realized metal prices received on sales in the first
quarter of 2007 were approximately $579 per ounce of gold and $3.03 per pound
of copper, compared with $516 per ounce and $2.32 per pound in the first
quarter of 2006. In the first quarter of 2007, the Corporation reduced its
gold forward sales position by 30,000 ounces compared with no reduction during
the same period of 2006. A total of $6,537,000 of 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 $98 per ounce, compared with $38 per ounce
in the corresponding quarter one year ago. In the first quarter of 2007, the
Corporation entered into additional forward sales and purchase contracts with
a major financial institution to fix the price of copper for a portion of
future 2007 production. 8,800 metric tonnes (mt) of copper were sold forward
using LME contracts maturing from May 2007 through December 2007 at an average
forward price of $2.67 per pound. At March 31, 2007, a total of 25,050 mt of
copper, representing approximately 100% of Kemess South's remaining 2007
copper production, was sold forward at an average price of $2.98 per pound.
The cost of sales in the first quarter of 2007 was $46,986,000, which was
lower than the corresponding period last year when the cost of sales was
$48,170,000. Cost of sales was lower due to a decrease in sales volumes as
well as lower treatment and refining charges for concentrate, but was
partially offset by increased mining costs.
Administrative and general expenses of $2,128,000 in the first quarter of
2007 were lower than the $3,135,000 figure recorded in the comparable period
of 2006 due to lower stock option costs and decreased business development
costs.
Depreciation and depletion expenses in the first quarter were $11,026,000
compared to $9,971,000 during the corresponding period of 2006. The higher
depreciation and depletion expense for the most recent quarter was the result
of a 5% increase in tonnes mined and an increase in the amortization rate for
2007 as a result of capital expenditures in 2006.
Net interest income increased substantially to $3,236,000 for the three
months ended March 31, 2007 compared to an expense of $25,000 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 first quarter were $3,593,000 compared with
$944,000 in the comparable period of 2006. The higher exploration expense in
the most recent quarter was the result of increased activity at the
Young-Davidson property where the underground exploration program has begun.
In future quarters of 2007, exploration costs will increase substantially as
the program at Young-Davidson intensifies and seasonal exploration activities
at Kemess get underway.
Capital expenditures during the first quarter of 2007 totalled $2,761,000
compared to $1,936,000 in the corresponding period of 2006. Capital
expenditures in the most recent quarter were primarily devoted to ongoing
construction of the tailings dam and the purchase of two new dozers for the
Kemess South mine.
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 provision, 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.
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 $12,819,000. There were no other
material adjustments required for the period ended March 31, 2006.
NON-GAAP MEASURE
The Corporation has included net cash costs of production per ounce of
gold in the discussion of its results from operations, because it believes
that these figures are a useful indicator to investors and management of a
mine's performance as they provide: (i) a measure of the mine's cash margin
per ounce, by comparison of the cash operating costs per ounce to the price of
gold; (ii) the trend in costs as the mine matures; and, (iii) an internal
benchmark of performance to allow for comparison against other mines. However,
cash costs of production should not be considered as an alternative to
operating profit or net profit attributable to shareholders, or as an
alternative to other Canadian GAAP measures and they may not be comparable to
other similarly titled measures of other companies.
A reconciliation of net cash costs per ounce of production to amounts
reported in the statement of operations is shown in the following table.
(Expressed in thousands of US$,
except per ounce amounts) Q1 2007 Q1 2006
-------------------------------------------------------------------------
Gold production (ounces) 68,110 77,634
-------------------------------------------------------------------------
Cost of sales $ 46,986 $ 48,170
Change in inventories and other 4,361 5,236
Gross copper and silver revenue (49,406) (51,294)
-------------------------------------------------------------------------
Total cash cost 1,941 2,112
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Cash cost ($/ounce) $ 28 $ 27
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SELECTED QUARTERLY FINANCIAL DATA
(Thousands of US dollars,
except per share, 2007 2006 Quarter Ended
per ounce and per --------------------------------------------------
pound amounts) Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
-------------------------------------------------------------------------
Revenue $ 74,313 $118,239 $102,667 $105,348 $ 85,059
Earnings (loss) for
the period 9,406 19,790 14,902 50,315 21,735
Earnings (loss)
per share
Basic $ 0.04 $ 0.09 $ 0.07 $ 0.23 $ 0.10
Diluted $ 0.04 $ 0.09 $ 0.07 $ 0.22 $ 0.10
Metal production
Gold (ounces) 68,110 81,746 74,789 76,127 77,634
Copper (thousands
pounds) 17,702 21,254 19,602 18,071 22,282
Metal Prices
Gold (London Bullion
Market - $ per ounce) 650 614 622 627 554
Copper (LME Cash -
$ per pound) 2.69 3.21 3.48 3.27 2.24
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-------------------------------------------------------------------------
(Thousands of US dollars,
except per share, 2005 Quarter Ended
per ounce and per ------------------------------
pound amounts) Dec 31 Sep 30 Jun 30
-----------------------------------------------------
Revenue $ 95,651 $ 64,631 $ 54,461
Earnings (loss) for
the period 44,527 8,765 (3,342)
Earnings (loss)
per share
Basic $ 0.21 $ 0.04 $ (0.02)
Diluted $ 0.21 $ 0.04 $ (0.02)
Metal production
Gold (ounces) 94,405 75,665 59,352
Copper (thousands
pounds) 24,701 16,917 17,427
Metal Prices
Gold (London Bullion
Market - $ per ounce) 486 439 427
Copper (LME Cash -
$ per pound) 1.95 1.70 1.54
-----------------------------------------------------
-----------------------------------------------------
(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.
MINE-LIFE EXTENSION AT KEMESS SOUTH
Northgate's geologists have identified approximately 18,000,000 tonnes of
additional mineral reserves in the eastern end of the Kemess South open pit
(Figure 1). These reserves contain approximately 175,000 ounces of gold and
26,000 tonnes of copper. Mining of these reserves is scheduled to begin in the
fourth quarter of 2009 and will continue until the end of the third quarter of
2010. Given the lower grade of the reserves, the net cash cost for gold
produced from the additional reserves is expected to be in the range of
$400�per ounce.
In order to move this lower-grade mineralization into a reserve category,
Northgate has entered into forward sales contracts for copper during this
period at an average price of $2.52 per pound. Northgate will be filing a
National Instrument 43-101 Technical Report within the next 45 days outlining
the reserve addition at Kemess South.
To view Figure 1 please visit:
http://files.newswire.ca/592/Northgate_Figure1.doc
KEMESS NORTH UPDATE
-------------------
The final public hearings on the Kemess North project will take place
from May 14 - 17. The Joint Review Panel's recommendation report will be
submitted to the Provincial and Federal Environmental Ministers in mid-July.
EXPLORATION UPDATE
Young-Davidson
Diamond drilling activities in the first quarter of 2007 focused on a
blend of infill holes and exploration holes that are necessary to determine
the overall scale and limits of the deposit. Assays from the infill holes were
consistent with the surrounding holes and the overall resource grades that we
released in December 2006 while the exploration holes continue to highlight
the significant potential of the Young-Davidson property. Hole YD07-33,
200�metres below the previous deepest intersection, demonstrated the
tremendous vertical continuity of the Young-Davidson deposit. Hole YD06-29,
which targeted the gap between the Lower Boundary and Lower YD Zones, suggests
that there is excellent potential to add substantial resource ounces in areas
immediately adjacent to currently defined resources above the 9,000 m level.
During the next four months, exploration drilling will focus on the three
areas highlighted with ovals shown in Figure 2 where Young-Davidson geologists
believe there is excellent potential to add additional resources in the
measured and indicated categories at better than average grades. By
identifying ounces in this category adjacent to existing resources, our
technical team will be able to include these resources in pre-feasibility
study mine design work that is underway.
The underground exploration program at Young-Davidson began in earnest in
the first quarter of 2007 as the ramp surface portal was excavated. The ramp
has progressed 250 metres towards the final 3,000 metre target. Dewatering of
the shaft began in April and the new hoist equipment for the shaft is due on
site in early May. The collection of environmental data in support of the
permit application is also underway as are a variety of engineering and
technical studies, which will determine the scope of the project.
To view Figure 2: Young-Davidson Property (Vertical, North Looking,
Longitudinal Section with Metric Grid) please visit:
http://files.newswire.ca/592/NorthgateFigure2.doc
Kemess Claims
In early April, exploration activities began in the Kemess North area
with crews focusing on clearing snow off drilling pads in preparation for
commencement of Diamond drilling. Northgate's geologists plan to drill
multiple holes towards the large induced polarization (IP) anomaly identified
just east of the Kemess North deposit during last year's IP survey of the
Kemess North region.
In August, another IP survey will be conducted in the area of the Kemess
South pit and any targets identified will be drill tested in the fall.
WEBCAST NOTIFICATION OF ANNUAL AND SPECIAL GENERAL MEETING
Annual and Special General Meeting
May 4, 2007, 10:00 AM PT (1:00 PM ET)
This event will also include an overview of Northgate's 2007 first
quarter financial results, which are scheduled for release on the evening of
May 3, 2007.
To listen to this event, please enter www.northgateminerals.com or
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID99380 in your web browser or call 416-644-3415 or toll free in North
America at 1-800-732-9307.
A replay of this event will be available beginning on May 4 at
3:30 P.M. ET until May 19 at 2:59 AM ET.
Replay Access No. 416-640-1917 Passcode: 21226480 followed by the number
sign.
Replay Access No. 877-289-8525 Passcode: 21226480 followed by the number
sign.
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.
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.
INTERIM CONSOLIDATED BALANCE SHEETS
March 31 December 31
Thousands of US dollars, unaudited 2007 2006
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 278,810 $ 262,199
Concentrate settlements and other receivables 23,207 17,960
Inventories 36,491 26,208
Future income tax asset 13,333 7,469
Deferred hedging loss - 8,583
Investments 148 -
-------------------------------------------------------------------------
351,989 322,419
Other assets 22,729 27,622
Future income tax asset 6,358 6,291
Mineral property, plant and equipment 149,043 159,299
-------------------------------------------------------------------------
$ 530,119 $ 515,631
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-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 40,130 $ 22,023
Current portion of capital lease obligations 2,384 2,439
-------------------------------------------------------------------------
42,514 24,462
Capital lease obligations 2,012 2,586
Provision for site closure and reclamation
obligations 28,973 28,197
Future income tax liability 12,774 12,638
-------------------------------------------------------------------------
86,273 67,883
Shareholders' equity
Common shares 308,551 307,914
Contributed surplus 3,202 2,596
Accumulated other comprehensive income (note 2) (14,551) -
Retained earnings 146,644 137,238
-------------------------------------------------------------------------
443,846 447,748
-------------------------------------------------------------------------
$ 530,119 $ 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 per Three Months Ended March 31
share amounts, unaudited 2007 2006(1)
-------------------------------------------------------------------------
Revenue $ 74,313 $ 85,059
-------------------------------------------------------------------------
Cost of sales 46,986 48,170
Administrative and general 2,128 3,135
Depreciation and depletion 11,026 9,971
Interest expense (income) (3,236) 25
Exploration 3,593 944
Currency translation gains (1,192) (319)
Accretion of site closure and reclamation costs 438 375
Other - (29)
-------------------------------------------------------------------------
59,743 62,272
-------------------------------------------------------------------------
Earnings before income taxes 14,750 22,787
Income tax expense
Current 3,313 1,052
Future 1,851 -
-------------------------------------------------------------------------
5,164 1,052
-------------------------------------------------------------------------
Net earnings for the period $ 9,406 $ 21,735
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other comprehensive income
Reclassification of net realized gain on
available for sale securities to net earnings (315) -
Unrealized gain on available for sale
securities 134 -
Reclassification of deferred losses on gold
forward contracts to net earnings,
net of tax of $2,231 4,306 -
-------------------------------------------------------------------------
4,125 -
-------------------------------------------------------------------------
Comprehensive income $ 13,531 $ 21,735
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings per share
Basic $ 0.04 $ 0.10
Diluted $ 0.04 $ 0.10
Weighted average shares outstanding
Basic 253,962,949 214,353,524
Diluted 255,541,281 215,092,200
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-------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended March 31
Thousands of US dollars, unaudited 2007 2006(1)
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 137,238 $ 30,496
Net earnings for the period 9,406 21,735
-------------------------------------------------------------------------
Retained earnings, end of period $ 146,6441 $ 52,231
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 Common Share
US dollars, 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
Other
Thousands of US dollars, 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Thousands of Common Share
US dollars, 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
Other
Thousands of US dollars, 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
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Balance at March 31, 2006 $ 52,231 $ - $ 260,115
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(1) Adjusted (note 2)
The accompanying notes form an integral part of these consolidated
financial statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
Thousands of US dollars, unaudited 2007 2006(1)
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Operating activities:
Net earnings for the period $ 9,406 $ 21,735
Non-cash items:
Depreciation and depletion 11,026 9,971
Unrealized currency translation losses (gains) (35) (102)
Accretion of site closure and reclamation costs 438 375
Amortization of hedging losses 6,537 2,814
Amortization of deferred charges 72 339
Stock-based compensation 798 1,165
Future income tax expense 1,851 -
Change in fair value of forward contracts 20,099 7,208
Gain on sale of investments (315) -
Changes in operating working capital and other:
Concentrate settlements and other receivables (17,199) (12,665)
Inventories (6,202) (1,299)
Accounts payable and accrued liabilities 2,091 1,085
Settlement of forward contracts (9,326) -
Reclamation costs paid - (1,741)
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19,241 28,885
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Investing activities:
Purchase of other assets - (86)
Purchase of mineral, property, plant and
equipment (2,761) (1,936)
Proceeds on sale of investments 315 -
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(2,446) (2,022)
-------------------------------------------------------------------------
Financing activities:
Repayment of capital lease obligation (629) (1,144)
Repayment of long-term debt - (13,700)
Issuance of common shares 445 783
-------------------------------------------------------------------------
(184) (14,061)
-------------------------------------------------------------------------
Increase in cash and cash equivalents 16,611 12,802
Cash and cash equivalents, beginning of period 262,199 50,639
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Cash and cash equivalents, end of period $ 278,810 $ 63,441
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Cash paid during the period for:
Interest $ 71 $ 634
Income taxes $ - $ -
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(1) Adjusted (note 2)
The accompanying notes form an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2007 and 2006
(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. Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements 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 March 31, 2007 are as
follows:
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Unrealized gain on available for sale securities $ 148
Unrealized hedging losses 14,699
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AOCI $ (14,551)
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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 period ended March 31, 2006.
NOTE 3 STOCK BASED COMPENSATION
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
- $1,131,000) of stock-based compensation was recognized related to
outstanding stock options.
During the three months ended March 31, 2007, a total of 114,020 options
were cancelled and 413,420 options were exercised.
At March 31, 2007, there were 5,552,900 options outstanding, of which
2,708,400 were exercisable.
The fair value of the share options granted during the three months ended
March 31, 2007 was estimated using the Black-Scholes pricing model with
the following assumptions:
For Options For Options
Granted Granted
in Q1 2007 in Q1 2006
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Risk-free interest rate 3.94% 4.1%
Annual dividends - -
Expected stock price volatility 53.4% 60%
Expected option life 5.0 years 5.0 years
Per share fair value of options granted (Cdn$) $2.05 $1.42
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NOTE 4 FINANCIAL INSTRUMENTS
At March 31, 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 sale 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 sale contracts at March 31, 2007 was approximately
$10,944,000 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 sale
contracts on adoption of Section 3865 will be released into net earnings
at the time the sales associated with the forward contracts occur.
At March 31, 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 25,050 metric tonnes of copper were sold
forward using LME contracts maturing from April 2007 through April 2008
at an average forward price of $2.98 per pound. The Corporation also
entered into separate forward purchase contracts with the same
institution to repurchase its forward sales position at monthly average
Cash LME prices over the same period. The volume of forward sales and
purchases in each future contract month match the expected future pricing
periods for copper in concentrate 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 March 31, 2007 was a net loss of $4,510,000 of which a loss
of $5,074,000 is included in accrued liabilities and a gain of $564,000
is included in other assets.
%CIK: 0000072931
For further information: Ms. Keren R. Yun, Manager, Investor Relations (416)
216-2781, kyun@northgateminerals.com
