07/13/2011 03:56 EDT | Updated 09/12/2011 05:12 EDT

Northgate Minerals To Acquire Primero Mining In $409 Million Deal

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THE CANADIAN PRESS -- Northgate Minerals Corp. (TSX:NGX) has agreed to acquire Primero Mining Corp. (TSX:P) in a deal valued at US$409 million in stock and debt that the two sides say creates a platform for more acquisitions.

Primero chief executive Joe Conway, who will head the combined company, said investors should expect more deals as Northgate will have the heft and cash flow necessary to buy projects.

"I think you can assume pretty safely that we're going to grow this thing through acquisitions, there's no question," Conway told a conference call with financial analysts.

"The general model is you buy a company or a project for shares and you build it with your cash and cash flow, so that is untouched."

The combined company will have a market value of about $1.2 billion. The deal adds Primero's San Dimas mine in Mexico to Northgate's stable of operating assets, while Primero shareholders get a stake in a company that owns more than one mine.

Northgate is building the Young-Davidson mine in northern Ontario and hopes to pour the first gold from the project next year.

The company also has the Fosterville and Stawell gold mines in Australia, however the mines have been disappointing.

Conway said the Australian operations, which both reported net cash costs of more than $1,000 per ounce of gold produced in the first quarter, will be reviewed carefully.

"We are expecting certain things to happen in the second half of the year that will improve the operations and if that happens, great. If not, then we will obviously have to look where we are at that time," he said.

John Ing, president and CEO at Maison Placements and a gold analyst, said Conway brings strong leadership to Northgate, which has struggled in recent years.

"I believe Northgate in essence is buying management," Ing said of Conway, who helped build Iamgold (TSX:IMG) into an intermediate gold producer.

"There will be a lot of changes at Northgate."

Ing said Conway will likely use the larger combined company to make deals that would have been harder to do if Primero remained independent.

"He's probably going to look for production because with production you get cash flow," Ing said.

Under the agreement Wednesday, Primero shareholders will get 1.5 Northgate shares for each of their shares, valuing them at about $4.26 based on Northgate's share price Tuesday.

Primero shares were up 40 cents or nearly 11 per cent at $4.10 in trading Wednesday on the Toronto Stock Exchange, while Northgate shares were down two cents at $2.79.

The deal, which will require approval by two-thirds of Primero shareholders and a majority of Northgate shareholders, will see Primero shareholders hold a 31 per cent stake in the combined company and Northgate shareholders hold a 69 per cent stake.

Northgate chairman Terry Lyons will be chairman, while Richard Hall, who was appointed chief executive of Northgate earlier this week, will be a director of the company.

The agreement also includes a $25-million break fee payable to Primero if Northgate walks away from the deal and $12 million that is payable to Northgate if Primero cancels.

The agreement has the support of Goldcorp Inc. (TSX:G), which owns 35.5 per cent of Primero's outstanding shares.

Under the deal, Goldcorp will receive 46.7 million Northgate shares representing a roughly 11 per cent stake in the combined company.