The Globe and Mail

— Northgate Minerals Corp., faced with declining production and regulatory obstacles at its British Columbia gold-copper mine, is almost doubling its output with a $257-million (U.S.) deal to acquire Australian miner Perseverance Corp. Ltd.

Perseverance has an expected 200,000 ounces of annual gold production from two mines in the Australian state of Victoria, and holds 7,700 square kilometres of exploration properties.

The friendly takeover is to be paid for out of Northgate's cash on hand and will leave it still holding $105-million in cash, chief executive officer Ken Stowe told analysts in a conference call Monday.

The offer, announced late Sunday and worth 20 cents Australian (18 cents U.S.) per Perseverance share, values the equity of the Australian company at the equivalent of $161-million.

The price is a premium of 38 per cent to Friday's price of 14.5 cents (Australian), which was down from 38 cents six months ago amid fears for the company's finances.

In addition to the equity purchase, Northgate has agreed to assume $30.6-million (U.S.) in bank debt, provide a no-interest bridge loan of up to $22.8-million, and take over $43.8-million in Perseverance gold hedges, which Northgate plans to close out with a non-cash loss.

The deal assures "the immediate financial viability of Perseverance," Mr. Stowe said.

The combined company will have estimated production of 434,000 ounces of gold and 71 million pounds of copper in 2008. It also will have 2.3 million ounces of proven and probable gold reserves, and 250 million pounds of copper reserves.

Northgate, which took over the Kemess open-pit mine in north-central B.C. in 2000 after the bankruptcy of Royal Oak Mines, earned $107-million last year on production of 310,300 ounces of gold and 81.2 million pounds of copper.

However, output is declining at Kemess, to 66,000 ounces of gold in the April-June quarter from 76,100 a year earlier, and a B.C. environmental panel ruled in September that an expansion should not be allowed because of "adverse environmental, social and cultural effects."

The Perseverance mines at Fosterville and Stawell produced 189,000 ounces in the year to June 30 at a cash cost of more than $400 an ounce, which Mr. Stowe expects to reduce by as much as 25 per cent as "we're going to be putting the money into the ground." He added that there is "exceptional potential" in the Perseverance land package.

The Perseverance board has endorsed the bid, which chairman John Quinn said provides an attractive premium and "takes into account the current status and value of the existing operations and strong exploration potential at Perseverance."

Mr. Quinn added that Perseverance faced a looming need to raise new capital, and "the operational expertise and financial resources of Northgate should allow the assets to prosper going forward."

The deal, which carries a break fee of $2.5-million (Australian) if another proposal prevails, is expected to close in February.