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Northgate And Primero To Combine And Create A Leading Mid-Tier Gold Producer

Stocks in this article: NGX NXG

Business Combination for Superior Value Creation

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VANCOUVER, July 13, 2011 /PRNewswire/ - (All figures in Canadian dollars, unless otherwise noted) Northgate Minerals Corporation ("Northgate") (TSX: NGX) (NYSE Amex: NXG) and Primero Mining Corp. ("Primero") (TSX: P) are pleased to announce today that they have entered into a definitive arrangement agreement (the "Arrangement Agreement") to combine their respective businesses and create a new, leading mid-tier gold producer with significant value creation opportunities.  The combined company will benefit from the current production and expansion potential at the San Dimas mine in Mexico and the Fosterville and Stawell gold mines in Australia, together with the long-life Young- Davidson gold development project in Ontario.  The new company will be led by Joe Conway, current President and Chief Executive Officer of Primero.  The transaction will create a company with an expected combined market capitalization of approximately $1.2 billion.

Under the terms of the Arrangement Agreement, Northgate will acquire all of the issued and outstanding common shares of Primero for 1.50 Northgate common shares per Primero Share (the "Exchange Ratio"). Each outstanding option of Primero shall be exchanged for options of Northgate that will entitle the holder to receive, upon the exercise thereof, Northgate shares based upon the Exchange Ratio and otherwise on the same terms and conditions as in the original option. Each outstanding warrant of Primero will entitle the holder to receive, upon the exercise thereof, Northgate shares and otherwise on the same terms and conditions as in the original warrant.  Northgate's offer represents:

  • A value of $4.215 for each Primero common share based on the July 12, 2011 closing price of Northgate common shares ($2.81) on the Toronto Stock Exchange
  • A premium of approximately 13.9% to Primero's closing price on July 12, 2011 and a premium of approximately 20.5% and 11.7% calculated on the 10-day and 20-day volume weighted average price (VWAP) of each respective company on the Toronto Stock Exchange

Highlights of the Transaction

  • Diversified production base:  Three producing gold mines with 320,000 gold equivalent ounces in 2011E increasing to 550,000 ounces in 2013E coming from the addition of the Young- Davidson development project and expansion at San Dimas, plus exploration pipe-line, all located in pro-mining jurisdictions.
  • Leading growth profile:  Expected production growth of 72% from 2011E to 2013E and declining cash costs - which will place the combined company amongst the leaders of its expected peer group.
  • Strong, complementary management team:  Combines proven management with an experienced technical team.
  • Solid financial position and cash flow:  Fully funded development of the Young- Davidson gold project in Ontario with expected sufficient cash flow to re-pay all corporate debt and pursue accretive opportunities.
  • Unique re-valuation opportunity:  Currently trading below peer average net asset value and cash flow multiples.
  • Enhanced capital markets presence$1.2 billion market capitalization is expected to appeal to a broader shareholder base, increase analytical following and improve share trading liquidity.

Management Team and Board of Directors

The Board of Directors and management of the combined company will draw from the expertise of both companies.  Terry Lyons will remain the Chairman of the Board and Joe Conway (current President and Chief Executive Officer of Primero) will become the new President and Chief Executive Officer upon completion of the business combination.  Peter MacPhail and Jon Douglas will continue in their current roles as Chief Operating Officer and Chief Financial Officer of the combined company, respectively.  The remaining senior management team will be comprised of existing management from both companies.

Upon completion of the transaction, the Board will initially be comprised of ten directors, with six directors nominated by Northgate and four directors nominated by Primero including the Chief Executive Officer.  The nominated directors in addition to Terry Lyons and Joe Conway include Wade Nesmith as Vice Chairman, Richard Hall, Mark Daniel, David Demers, Patrick D. Downey, Douglas P. Hayhurst, Rohan Hazelton and Conrad A. Pinette.

Terry Lyons, Chairman of the Board of Directors of Northgate, stated: "Our proposal is driven by the belief that a combination of Northgate and Primero will create a stronger and better positioned company going forward.  We believe the value proposition of the combined company represents a unique opportunity for our respective companies to deliver both immediate and long-term value to our shareholders.  The proposed transaction is part of an overall business strategy to grow through acquisition and exploration in politically stable jurisdictions with long histories of gold mining."

"We are executing on our strategy of low-risk growth through this consolidation," added Joe Conway, President and Chief Executive Officer of Primero.  "This is a unique opportunity that brings together two very complementary asset bases and groups of management.  Young- Davidson is a significant development project in one of the best mining jurisdictions in the world.  Our shareholders will benefit from the enhanced leverage to a diversified asset base and increased share liquidity."

The combined company is expected to provide Northgate and Primero shareholders with the following benefits:

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