Filed pursuant to General Instruction II. L. of Form F-10

File No. 333-167487

 

PROSPECTUS SUPPLEMENT

(To Prospectus dated July 2, 2010)

 

 

$150,000,000

3.50% Convertible Senior Notes due 2016

 

NOTES

 

 

CONVERSION

 

 

REDEMPTION AND REPURCHASE

 

 

RANKING

 

 

LISTING

 

 

OPTION TO PURCHASE ADDITIONAL NOTES

 

 

Investing in the notes involves significant risks. See “Risk factors” beginning on page S-13.

 

 

 

We are permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare this prospectus supplement in accordance with Canadian disclosure requirements. Prospective investors should be aware that such requirements are different from those of the United States. The consolidated financial statements incorporated herein have been prepared in accordance with Canadian generally accepted accounting principles, and may be subject to Canadian auditing and auditor independence standards, and thus may not be comparable to financial statements of United States companies.

 

Prospective investors should be aware that the acquisition of the securities described herein may have tax consequences both in the United States and in Canada. Such consequences for investors who are resident in, or citizens of, the United States may not be described fully herein.

 

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that we are incorporated under the laws of British Columbia, Canada, that some of our officers and directors are residents of Canada, that some of the experts named in the prospectus supplement are residents of Canada, and that a substantial portion of our assets and said persons are located outside the United States.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

We expect that the notes will be ready for delivery in book-entry form through the facilities of The Depository Trust Company on or about October 5, 2010.

 

Sole Book-Running Manager

 

UBS Investment Bank

 

 

 

 

The date of this prospectus supplement is September 30, 2010

 

 

TABLE OF CONTENTS

 

 

 

This document is in two parts. The first part is the prospectus supplement, which describes the terms of the offering and adds to and updates information contained in the accompanying base shelf prospectus and the documents incorporated by reference. The second part is the accompanying base shelf prospectus, which gives more general information, some of which may not apply to the offering. This prospectus supplement is deemed to be incorporated by reference into the accompanying base shelf prospectus solely for the purpose of this offering.

 

You should rely only on the information contained in or incorporated by reference into this prospectus supplement and the accompanying base shelf prospectus. We and the underwriters have not authorized anyone to provide you with different information. We and the underwriters are not making an offer of the notes in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus supplement, the accompanying base shelf prospectus or the documents incorporated by reference herein and therein is accurate as of any date other than the date on the front of such documents.

 

Unless stated otherwise or the context otherwise requires, references in this prospectus supplement to “Northgate”, the “Corporation” or the terms “we”, “us” and “our” includes Northgate Minerals Corporation and, where applicable, our subsidiaries.

 

References in this prospectus supplement to the “base shelf prospectus” refer to the short form base shelf prospectus of the Corporation dated July 2, 2010.

 

Unless stated otherwise or the context otherwise requires, all references to dollar amounts in this prospectus supplement are references to U.S. dollars. References to “Cdn$” are to Canadian dollars and references to “$” or “US$” are to U.S. dollars. See “Exchange rate information”. Our consolidated financial statements that are incorporated by reference into this prospectus supplement have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”). Canadian GAAP differs in some material respects from U.S. generally accepted accounting principles (“U.S. GAAP”), and so these financial statements are not comparable to the financial statements of U.S. companies. Our audited consolidated financial statements for the fiscal year ended December 31, 2009 are reconciled to U.S. GAAP as described in the supplemental note entitled “Reconciliation to United States Generally Accepted Accounting Principles” included in our annual report on Form 40-F. See “Documents incorporated by reference”.

 

This prospectus supplement and the accompanying base shelf prospectus have been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States securities laws.

 

Disclosure, including scientific or technical information, has been made in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. For example, the terms “measured mineral resources”, “indicated mineral resources”, “inferred mineral resources” and “probable mineral reserves” are used in this prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference herein and therein to comply with

the reporting standards in Canada. While those terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission (the “SEC”), does not recognize them. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into mineral reserves. These terms have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of measured mineral resources, indicated mineral resources, inferred mineral resources or probable mineral reserves will ever be upgraded to a higher category. In accordance with Canadian rules, estimates of inferred mineral resources cannot form the basis of feasibility or other economic studies. Investors are cautioned not to assume that any part of the reported measured mineral resources, indicated mineral resources, or inferred mineral resources in this prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference herein and therein is economically or legally mineable and will ever be classified as a reserve. In addition, the definitions of proven and probable mineral reserves used in NI 43-101 differ from the definitions in the SEC Industry Guide 7. Disclosure of “contained ounces” is permitted disclosure under Canadian regulations, however, the SEC normally only permits issuers to report mineralization that does not constitute reserves as in place tonnage and grade without reference to unit measures. Accordingly, information contained in this prospectus supplement, the accompanying base shelf prospectus or documents incorporated by reference herein or therein containing descriptions of our mineral properties may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

 

See “Item 3. Narrative Description of the Business—3.1 General Overview—Mineral Reserves and Resources Information—Definitions” in our Annual Information Form for the year ended December 31, 2009 (the “AIF”), which is incorporated by reference, for a description of certain of the mining terms used in this prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference herein and therein.

 

This prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference, include references to net cash cost per ounce of gold. The net cash cost of production per ounce of gold is calculated by subtracting the net by-product metal revenue from total site operating costs (including royalties) and dividing this amount by the number of ounces of gold produced. We use this measure to assess how well we are performing compared to plan and to assess the overall effectiveness and efficiency of mining operations. This performance measure does not have a meaning within Canadian GAAP and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. See “Non-GAAP Measures” in our management’s discussion and analysis of financial condition and results of operations for the three and six month periods ended June 30, 2010, incorporated by reference herein, for a reconciliation of cash cost to the most comparable financial measures under Canadian GAAP.

 

This prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference herein and therein contain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities laws concerning our plans at Kemess South, Kemess North, Fosterville, Stawell and the Young-Davidson project, production, capital, operating and cash flow estimates, mineral reserve and resource estimates and other matters. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.

 

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “forecast” or “continue” or the negative thereof or variations thereon or similar terminology. Forward-looking statements are necessarily based on a number of estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies. Certain of the statements made herein by us, including those related to future financial and operating performance and those related to our future exploration and development activities, are forward-looking and subject to important risk factors and uncertainties, both known and unknown, many of which are beyond our ability to control or predict. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, without limitation:

 

RISKS RELATING TO THE NOTES AND THE OFFERING

 

 

 

RISKS RELATING TO NORTHGATE AND OUR INDUSTRY

 

 

 

This list is not exhaustive of the factors that may affect any of our forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and our actual achievements or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in this prospectus supplement, the accompanying base shelf prospectus and our AIF under the heading “Risk factors” and elsewhere in this prospectus supplement, the accompanying base shelf prospectus and in the documents incorporated by reference herein and therein. Although we have attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Forward-looking statements made in a document incorporated by reference in this prospectus supplement or

the accompanying base shelf prospectus are made as at the date of the original document, and have not been updated by us except as expressly provided for in this prospectus supplement. Except as required under applicable securities legislation, we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. No information contained on our website is incorporated by reference into this prospectus supplement or the accompanying base shelf prospectus regardless of any cross-reference thereto in any of the documents incorporated by reference herein or therein.

 

The following table sets forth, for the Canadian dollar expressed in U.S. dollars: (i) the high and low exchange rates during each period, (ii) the rate of exchange in effect at the end of each of the periods indicated, and (iii) the average of the exchange rates in effect during such periods, in each case based on the Bank of Canada noon exchange rate:

 

 

On September 29, 2010, the Canadian dollar/U.S. dollar noon exchange rate, as quoted by the Bank of Canada was Cdn$1.00 = US$0.9709.

 

The Corporation

		Cash Flow								NPV 5% Discount
Gold Price		($M)								($M)								IRR								Payback
($/oz)		Pre-tax				After Tax				Pre-tax				After Tax				Pre-tax				After Tax				(years)
825		$	646			$	466			$	264			$	166				12.4	%			10.3	%			6.9
925		$	887			$	631			$	418			$	275				16.3	%			13.6	%			5.9
1,025		$	1,131			$	799			$	573			$	383				19.9	%			16.6	%			5.1
1,125		$	1,379			$	969			$	729			$	492				23.3	%			19.5	%			4.5
1,225(2)		$	1,625			$	1,138			$	885			$	600				26.5	%			22.2	%			4.1

Capital expenditures		$	50 million
Operating cost		$	58 million
Exchange rate		$	136 million

(1)		$825/oz—$1.125/oz per Feasibility Study press release on January 25, 2010. Economic Analysis using exchange rate assumption of US$/Cdn$0.90.
(2)		$1,225/oz gold price analysis based on the scientific and technical information presented in the Feasibility Study as set out in the news release dated January 25, 2010.

		Actual (ounces)								Forecast (ounces)								Total				Forecast 2010
		Q1				Q2				Q3				Q4				(ounces)				cash cost ($/oz)(1)
Fosterville			26,421				28,476				22,500				23,000				100,000			$	735
Stawell			22,238				14,832				17,000				23,500				77,500			$	860
Kemess			24,703				24,967				26,000				26,500				102,000			$	425
			73,362				68,275				65,500				73,000				280,000			$	655

(1)		Assuming copper price of $3.20/lb and exchange rates of US$/Cdn$0.97 and US$/A$0.92 for Q3 and Q4 2010.

								Grades								Contained metal
				Quantity				Gold				Copper				Gold				Copper
At December 31, 2009		Category		(tonnes)				(g/t)				(%)				(ounces)				(000s lbs)
Kemess South		Proven			22,662,000				0.28				0.14				207,296				74,529
Fosterville		Proven			718,000				6.29				n/a				145,000				n/a
		Probable			2,569,000				4.32				n/a				357,000				n/a
					3,287,000				4.75								502,000
Stawell		Proven			93,000				5.90				n/a				18,000				n/a
(Open-Pit)		Probable			410,000				1.85				n/a				24,000				n/a
(Underground)		Probable			1,787,000				4.30				n/a				245,000				n/a
					2,290,000				3.90								287,000
Young-Davidson		Proven			3,469,000				3.22				n/a				359,000				n/a
(Open Pit)		Probable			4,939,000				1.66				n/a				264,000				n/a
(Underground)		Probable			22,740,000				2.92				n/a				2,135,000				n/a
					31,148,000				2.75								2,758,000
Total Proven & Probable Reserves					59,387,000												3,754,296				74,529

								Grades								Contained metal
				Quantity				Gold				Copper				Gold				Copper
At December 31, 2009		Category		(tonnes)				(g/t)				(%)				(ounces)				(000s lbs)
Kemess South		Measured			1,725,000				0.17				0.10				9,207				3,758
Kemess North		Measured			451,139,000				0.31				0.16				4,453,000				1,563,000
		Indicated			268,051,000				0.29				0.13				2,486,000				790,000
					719,190,000				0.30				0.15				6,939,000				2,353,000
Young-Davidson		Indicated			132,000				3.08				n/a				13,100				n/a
Total Measured & Indicated					721,047,000												6,961,307				2,356,758
Young-Davidson
(Open Pit)		Inferred			15,000				1.74				n/a				850				n/a
(Underground)		Inferred			5,950,000				3.40				n/a				650,000				n/a
Total Inferred Resources					5,965,000												650,850

						Quantity				Gold Grade				Contained Gold
At December 31, 2009		Category				(tonnes)				(g/t)				(ounces)
Fosterville
(<100 metres from surface)			Measured				3,088,000				2.16				215,000
(<100 metres from surface)			Indicated				5,215,000				1.54				259,000
(>100 metres from surface)			Indicated				902,000				5.02				145,000
							9,205,000				2.09				619,000
Stawell
(<100 metres from surface)			Indicated				2,975,000				2.19				209,000
(>100 metres from surface)			Indicated				384,000				4.79				59,000
							3,359,000				2.49				268,000
Total Measured & Indicated Resources							12,564,000								887,000
Fosterville
(<100 metres from surface)			Inferred				2,432,000				1.69				132,000
(>100 metres from surface)			Inferred				4,074,000				4.64				607,000
Stawell
(<100 metres from surface)			Inferred				204,000				2.61				17,000
(>100 metres from surface)			Inferred				739,000				6.13				146,000
Total Inferred Resources							7,449,000								902,000

(1)		The terms “Mineral Reserve”, “Proven Mineral Reserve” and “Probable Mineral Reserve” used in this report are Canadian mining terms as defined in accordance with NI 43-101 under the guidelines set out in the CIM Standards on Mineral Resources and Mineral Reserves Definitions and Guidelines adopted by the CIM Council on August 20, 2000. The terms “Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource”, and “Inferred Mineral Resource” used in this report are Canadian mining terms as defined in accordance with NI 43-101 under the guidelines set out in the CIM Standards. Mineral reserves and mineral resources for Kemess South have been estimated in accordance with the definitions contained in the CIM Standards and NI 43-101. Disclosure of “contained ounces” is permitted under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute reserves as in

		place tonnage and grade without reference to unit measures. See “Cautionary note to United States investors regarding mineral reporting standards”.
(2)		Mineral reserves for Fosterville and Stawell have been estimated in accordance with the AusIMM JORC Code and have been reconciled to CIM Standards as prescribed by NI 43-101.
(3)		All mineral resources are exclusive of mineral reserves.
(4)		Mineral resources that are not mineral reserves do not have demonstrated economic viability.
(5)		Mineral reserves and resources are rounded to 1,000 tonnes, 0.01 g/t gold and 1,000 ounces. Minor discrepancies in summations may occur due to rounding.
(6)		Mineral reserves were calculated using the following parameters:

Ø		Kemess South: exchange rate Cdn$/US$1.11; gold price $900/oz; copper price $2.25/lb; and, silver price $12.00/oz. Operating assumptions were as follows: gold recovery 59.9%; copper recovery 81.1%; mining costs Cdn$1.20/tonne; milling costs Cdn$4.00/tonne; and, G&A costs C$1.50/tonne.
Ø		Young-Davidson: gold price US$750/oz; A 1.7 g/t gold cut-off grade was applied to the underground resource model for the sublevel cave and longhole shrinkage mining methods based on 15% dilution, mining costs of Cdn$21.74, process costs of Cdn$11.40, and G&A costs of Cdn$2.75, and a gold recovery of 92.5%. A 2.3 g/t gold cut-off grade was applied to the longhole retreat mining method to account for the additional capital development and lower productivity of this mining method. The open pit gold cut-off considers ore-based operating costs of US$12.11/tonne (processing, G&A), a gold recovery of 91%, a US$0.68/tonne stockpile rehandle cost and royalty costs as appropriate. A 0.62 g/t cut-off was applied within royalty free claims, 0.68 g/t cut-off and 0.69 g/t cut-off applied to claims subject to royalty agreements.
Ø		Fosterville: gold price A$965/oz; cut-off grade applied was variable for underground ore depending on width, mining method and ground conditions; dilution of 5%-30% and mining recovery of 70%-100% were applied depending on mining method.
Ø		Stawell: gold price A$965/oz; cut-off grade applied was variable for underground ore depending upon width, mining method and ground conditions. Dilution of 2—3 metres and mining recovery of 95-100% were applied to the underground reserves, dependent upon mining method.

(7)		Mineral resources were calculated using the following economic parameters:

Ø		Kemess South: exchange rate Cdn$/US$1.06; gold price $1,100/oz; copper price $2.75/lb; and silver price $15.00/oz.
Ø		Kemess North (mineral reserves now reclassified as mineral resources following the decision of the British Columbia government to deny us the requisite development permit) calculated at the time of the feasibility study: exchange rate Cdn$/US$1.40; gold price $375/oz; copper price $1.00/lb; and, silver price $5.00/oz. Resources for Kemess North, calculated at the time of the feasibility study: exchange rate Cdn$/US$1.40; gold price $425/oz; copper price $1.20/lb; and silver price $5.00/oz.
Ø		Fosterville: gold price A$1,071/oz; cut-off grade applied were 0.5g/t gold for oxide, 1.0 g/t gold for near-surface sulphide (above 5050mRL) and 3.0 g/t gold for underground sulphide (below 5050mRL).
Ø		Stawell: gold price A$1,071/oz; Magdala surface above 130mRL and above a nominal 0.8g/t Au cutoff; Wonga surface within a A$1,071/oz optimized pit shell.
Ø		Young-Davidson: mineral resources were estimated using an average long-term gold price of US$750/oz (Cdn$806/oz). Underground mineralized wireframes constructed based on approximately a 1.70 g/t gold cut-off grade, a 1.3 g/t incremental cut-off grade and a minimum true thickness of three metres. Open pit mineralized wireframes constructed based on approximately a 0.60 g/t gold cut-off grade and a minimum true thickness of five metres.

Ø	New Exploration Results at Stawell.  On August 31, 2010, we reported in a news release entitled “Northgate Minerals Discovers Fault Offset of the Magdala and Golden Gift Orebodies at its Stawell Gold Mine” that recent diamond drilling at Stawell intersected a new zone of gold mineralization (the “Northgate Gift”). Northgate Gift is the fault offset extension of the Magdala/Golden Gift orebodies. Highlights of the drill results include hole MD5696A, which intersected gold-bearing intervals of 4.53 grams per tonne (g/t) gold over 1.8 metres and 3.83 g/t gold over 3.6 metres in a mineralized setting that is similar to the Magdala/Golden Gift orebodies. Hole MD5696A is the first exploration hole to be drilled into a previously untested area. We believe that the discovery of a basalt dome and associated gold mineralization in the Northgate Gift confirms the validity of our geologic model of Stawell, which was used to target hole MD5696A. Follow-up drilling is scheduled to begin in Q4 2010 in order to better define the size and geometry of the basalt dome and the associated gold-bearing sulphide mineralization. The discovery of the fault offset of the Magdala/Golden Gift orebodies is expected to have a considerable impact on the future of the Stawell mine, and we believe that the Northgate Gift represents one of the most significant discoveries in the state of Victoria in the past several years.
Ø	New Exploration Results at Young-Davidson.  On July 6, 2010, we reported in a news release entitled “Northgate Minerals Intersects New Gold Zone of 3.46 Grams per Tonne Over 79.5 Metres at Young-Davidson” that Hole YD10-198, located west of the Young-Davidson orebody, intersected 3.46 g/t gold over 79.5 metres (estimated true thickness 53.5 metres). The new gold zone is west of the currently defined reserves and resources that are postulated to be the faulted offset extension of the current orebody. Hole YD10-198 is one of the highest grade-thickness intervals intersected to date at Young-Davidson. This zone is open up, down dip and to the west. We have since mobilized a second drill rig to accelerate the definition of the zone, the results of which are expected in Q4 2010.
Ø	Young-Davidson Receives Key Permit.  On July 2, 2010, we announced that we had received the key construction permit for the Young-Davidson mine in the form of acceptance by the Ontario Ministry of Northern Development, Mines and Forestry of the closure plan for Young-Davidson. The closure plan sets out the framework for the development, operation and ultimate closure of the Young-Davidson mine and outlines the plans for rehabilitation of those areas affected by historic and future mining. Regulatory approval of the closure plan has enabled us to commence construction of the Young-Davidson mine in August 2010.
Ø	Nevada Exploration.  On June 4, 2010, we entered into an Exploration and Option to Enter Joint Venture Agreement with Nevada Exploration Inc. (“Nevada Exploration”) relating to Nevada Exploration’s Awakening Gold Project in Humboldt County, Nevada. The property consists of 420 claims (approximately 34km2) covering the NW portion of the historic Awakening mining district and the former producing Sleeper Gold Mine in Nevada. Under the terms of the agreement, we have an option to earn a 51% interest in the property by spending Cdn$4,100,000 in exploration and making additional payments totaling Cdn$436,000 over the next five years. Our exploration commitment for the first year is Cdn$500,000. If we complete the initial 51% earn-in, we will then have an option to earn an additional 14%, for a total of 65%, by completing a feasibility study on the property.
Ø	Kemess Underground.  On May 11, 2010, we announced in a news release entitled “Northgate Minerals Reports Solid First Quarter Results” that we had identified a high-grade zone of at least 70 million tonnes within our Kemess North deposit that could potentially support an underground block cave operation. While the original Kemess North feasibility study (completed in 2005) was prepared on the assumption that the deposit would be mined as a large, low-grade open pit, we are now reviewing the potential for mining the higher grade core of the Kemess North mineral resource using an underground block caving method. A target zone of at least 70 million tonnes of mineralization containing 1.4 million ounces of gold and 500 million pounds of copper has been identified in the eastern part of the Kemess North deposit from 300 metres—600 metres below

	surface. Additional resource definition drilling is required in order to develop a more detailed block caving model, to determine the boundary of the high-grade zone and to confirm the geotechnical conditions necessary to support block caving. An exploration budget of Cdn$3 million has been approved and we expect diamond drilling to be completed by the end of September, 2010.

 

QUALIFIED PERSONS

 

The offering

Issuer		Northgate Minerals Corporation is incorporated under the laws of the Province of British Columbia, Canada.
Notes		$150 million aggregate principal amount of 3.50% convertible senior notes due 2016. We have granted to the underwriters the option to purchase up to an additional $20 million aggregate principal amount of notes solely to cover over-allotments, if any.
Maturity		The notes will mature on October 1, 2016, unless repurchased or converted earlier.
Interest payment dates		We will pay 3.50% interest per annum on the principal amount of the notes payable semi-annually in arrears on April 1 and October 1 of each year, starting on April 1, 2011, to holders of record at the close of business on the preceding March 15 and September 15, respectively. Interest will accrue on the notes from and including October 5, 2010 or from, and including, the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date or maturity date, as the case may be.
Ranking		The notes will be our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness. The notes will be effectively subordinated to all of our existing and future secured indebtedness (to the extent of the assets securing such indebtedness) and structurally subordinated to all existing and future liabilities of our subsidiaries, including trade payables. As of June 30, 2010, we had $51.9 million in secured indebtedness outstanding, which amount is comprised of our short-term loan obligation of $40.8 million, short-term equipment lease obligations of $6.7 million and long-term equipment lease obligations of $4.4 million.
Conversion rights		Holders may convert their notes at their option prior to July 1, 2016 only under the following circumstances:
		Ø the notes will be convertible during any calendar quarter after the calendar quarter ending December 31, 2010, and only during such calendar quarter, if the closing sale price of our common shares for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price (the

		“conversion trigger price”) in effect on the last trading day of the immediately preceding calendar quarter;
		Ø the notes will be convertible during the five consecutive business days immediately after any ten consecutive trading day period (we refer to this ten consecutive trading day period as the “note measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of that note measurement period was equal to or less than 97% of the product of the closing sale price of our common shares and the applicable conversion rate for such trading day;
		Ø the notes will be convertible if we call the notes for redemption;
		Ø the notes will be convertible if we make certain distributions on our common shares or engage in certain corporate transactions; and
		Ø the notes will be convertible if a delisting event (as defined under “Description of notes—Events of default” below) occurs and is continuing.
		In addition, the notes will be convertible irrespective of the foregoing circumstances from, and including, July 1, 2016 to, and including, the business day immediately preceding the maturity date of the notes.
		The initial conversion rate, subject to adjustment, will be 244.9780 common shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $4.08 per common share). The conversion rate, and thus the conversion price, will be subject to adjustment as described in this prospectus supplement. See “Description of notes—Adjustments to the conversion rate”.
		Upon conversion, we will deliver our common shares, or, at our election, cash or a combination of cash and our common shares to satisfy our conversion obligation, in each case as described under “Description of notes—Settlement upon conversion”. At any time on or prior to the 33rd business day immediately preceding the maturity date, we may make an irrevocable election to satisfy our conversion obligation by delivering solely our common shares. See “Description of notes—Irrevocable election of full physical settlement”. Upon any conversion, subject to certain exceptions, you will not receive any cash payment representing accrued and unpaid interest. See “Description of notes—Conversion rights”.
		A holder that surrenders notes for conversion in connection with a “make-whole fundamental change” that occurs before the maturity date may in certain circumstances be entitled to an increased conversion rate. See “Description of notes—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change”.
Sinking fund		None.

Redemption for tax reasons		In the event of certain changes to the laws governing Canadian withholding taxes, we will have the option to redeem, in whole but not in part, the notes for a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest up to, but excluding, the redemption date but without reduction for applicable Canadian taxes (except in respect of certain excluded holders). See “Description of notes—Redemption of notes for changes in Canadian tax law”. Upon our giving a notice of redemption, a holder may elect not to have its notes redeemed, in which case such holder would not be entitled to receive the additional amounts referred to in “Description of notes—Additional amounts” after the redemption date set out in the notice.
Additional amounts		All payments made by us with respect to the notes will be made without withholding or deduction for Canadian taxes unless we are legally required to do so, in which case we will pay such additional amounts as may be necessary so that the net amount received by holders of the notes (other than certain excluded holders) after such withholding or deduction will not be less than the amount that would have been received in the absence of such withholding or deduction.
Fundamental change		If we undergo a fundamental change as defined in this prospectus supplement, we will be required to offer to purchase all of the outstanding notes at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest up to, but excluding, the fundamental change purchase date, subject to certain exceptions. We will pay cash for all notes so purchased. See “Description of notes—Offer to purchase upon a fundamental change”.
Events of default		If an event of default on the notes has occurred and is continuing, the principal amount of the notes, plus any accrued and unpaid interest, may become immediately due and payable. These amounts automatically become due and payable upon certain events of default. See “Description of notes—Events of default”.
NYSE Amex and TSX symbols for our common shares		Our common shares are listed on the NYSE Amex under the symbol “NXG” and on the TSX under the symbol “NGX”.
Certain income tax considerations		The notes and common shares issuable upon conversion of the notes will be subject to special and complex tax rules. Holders are urged to consult their own tax advisors with respect to the U.S. and Canadian federal, state, provincial and local tax and foreign tax consequences of purchasing, owning and disposing of the notes and the common shares issuable upon conversion of the notes. See “Certain Canadian and United States income tax considerations”.
Use of proceeds		We estimate that the net proceeds to us from this offering will be approximately $144.1 million (or approximately $163.5 million if the underwriters exercise their over-allotment option in full), after deducting the underwriters’ discounts and

		commissions and estimated offering expenses payable by us. We intend to use the net proceeds for construction at Young-Davidson. See “Use of proceeds”.
DTC eligibility		The notes will be issued in book-entry-only form and will be represented by one or more global certificates, without interest coupons, deposited with, or on behalf of, DTC and registered in the name of DTC or a nominee of DTC. Beneficial interests in the notes will be shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants. Except in limited circumstances, holders may not exchange interests in their notes for certificated securities. See “Description of notes—Form, denomination and registration of notes”.

 

An investment in the notes offered hereby involves certain risks. In addition to the other information contained in this prospectus supplement, the accompanying base shelf prospectus and the documents incorporated by reference herein and therein, prospective investors should carefully consider the factors set out under “Risk factors” in the accompanying base shelf prospectus, in our AIF (which is incorporated by reference herein) and the factors set out below in evaluating us, our properties and our business before making an investment in the notes. If any of the following risks actually occurs, our business would be harmed. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, including those of which we are currently unaware or that are deemed immaterial, may also adversely affect our business.

 

RISKS RELATING TO THE NOTES AND THE OFFERING

 

The notes are unsecured, are effectively subordinated to all of our existing and future secured indebtedness (to the extent of the assets securing such indebtedness) and are structurally subordinated to all liabilities of our subsidiaries, including trade payables.

 

The notes are unsecured, are effectively subordinated to all of our existing and future secured indebtedness, to the extent of the assets securing such indebtedness, and are structurally subordinated to all liabilities of our subsidiaries, including trade payables. As of June 30, 2010, we had $51.9 million in secured indebtedness outstanding, which amount is comprised of our short-term loan obligation of $40.8 million, short-term equipment lease obligations of $6.7 million and long-term equipment lease obligations of $4.4 million. See “Description of notes—Ranking”.

 

None of our subsidiaries has guaranteed or otherwise become obligated with respect to the notes. Our right to receive assets from any of our subsidiaries upon our liquidation or reorganization, and the right of holders of the notes to participate in those assets, is structurally subordinated to claims of that subsidiary’s creditors, including trade creditors. Even if we were a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of that subsidiary and any indebtedness of that subsidiary senior to that held by us. Furthermore, none of our subsidiaries is under any obligation to make payments to us, and any payments to us would depend on the earnings or financial condition of our subsidiaries and various business considerations. Statutory, contractual or other restrictions may also limit our subsidiaries’ ability to pay dividends or make distributions, loans or advances to us. For these reasons, we may not have access to any assets or cash flows of our subsidiaries to make payments on the notes.

 

Future issuances of common shares and hedging activities in connection with the notes offering may depress the trading price of our common shares and the notes.

 

Any issuance of equity securities after this offering, including any issuance of our common shares upon conversion of the notes, could dilute the interests of our existing shareholders, including holders who have received our common shares upon conversion of their notes, and could substantially decrease the trading price of our common shares and the notes. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions), to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding warrants or options or for other reasons.

 

In addition, the price of our common shares could also be affected by possible sales of our common shares by investors who view the notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity that we expect to develop involving our common shares. The hedging or arbitrage could, in turn, affect the trading price of the notes or any common shares that holders receive upon conversion of the notes.

 

Risk factors

 

 

Recent developments in the convertible debt markets may adversely affect the market value of the notes.

 

We expect that many investors in, and potential purchasers of, the notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the notes. Investors that employ a convertible arbitrage strategy with respect to convertible debt instruments typically implement that strategy by selling short the common stock underlying the convertible notes and dynamically adjusting their short position while they hold the notes. As a result, any specific rules regulating short selling of securities or other governmental action that interferes with the ability of market participants to effect short sales in our common shares could adversely affect the ability of investors in, or potential purchasers of, the notes to conduct the convertible arbitrage strategy that we believe they will employ, or seek to employ, with respect to the notes. This could, in turn, adversely affect the trading price and liquidity of the notes.

 

At an open meeting on February 24, 2010, the SEC adopted a new short sale price test through an amendment to Rule 201 of Regulation SHO. The amendments to Rule 201 became effective on May 10, 2010 and restrict short selling when the price of a “covered security” has triggered a “circuit breaker” by falling at least 10% in one day, at which point short sale orders can be displayed or executed only if the order price is above the current national best bid, subject to certain limited exceptions. Compliance with the amendments to Rule 201 is required by November 10, 2010. Because our common shares are a “covered security”, the new restrictions may interfere with the ability of investors in, and potential purchasers of, the notes, to effect short sales in our common shares and conduct the convertible arbitrage strategy that we believe they will employ, or seek to employ, with respect to the notes.

 

In addition, on June 10, 2010, the SEC approved a six-month pilot (the “circuit breaker pilot”) pursuant to which several national securities exchanges and the Financial Industry Regulatory Authority, Inc. (“FINRA”) adopted rules to halt trading in securities included in the S&P 500 Index if the price of any such security moves 10% or more from a sale in a five-minute period. On June 30, 2010, the national securities exchanges and FINRA proposed to expand the circuit breaker pilot to include component securities of the Russell 1000 Index, which includes our common shares, and over 300 exchange-traded funds. As of September 23, 2010, the expansion of the circuit breaker pilot had not yet been approved by the SEC. In light of the sudden, market-wide price declines experienced on May 6, 2010, the circuit breaker pilot, including the proposed expansion of the circuit breaker pilot (if approved), may decrease, or prevent an increase in, the market price and/or liquidity of our common shares and/or interfere with the ability of investors in, and potential purchasers of, the notes, to effect hedging transactions in or relating to our common shares and conduct the convertible arbitrage strategy that we believe they will employ, or will seek to employ, with respect to the notes.

 

Although the direction and magnitude of the effect that the amendments to Regulation SHO and the circuit breaker pilot, including the proposed expansion of the circuit breaker pilot (if approved), may have on the trading price and the liquidity of the notes will depend on a variety of factors, many of which cannot be determined at this time, past regulatory actions have had a significant impact on the trading prices and liquidity of convertible debt instruments. For example, in September 2008, the SEC issued emergency orders generally prohibiting short sales in the common stock of a variety of financial services companies while Congress worked to provide a comprehensive legislative plan to stabilize the credit and capital markets. The orders made the convertible arbitrage strategy that many convertible debt investors employ difficult to execute and adversely affected both the liquidity and trading price of convertible notes issued by many of the financial services companies subject to the prohibition. Any governmental actions that restrict the ability of investors in, or potential purchasers of, the notes to effect short sales in our common shares or to implement hedging strategies, including the recently adopted amendments to Regulation SHO and the pilot rules described above, could similarly adversely affect the trading price and the liquidity of the notes.

 

Risk factors

 

 

Volatility of the market price of our common shares may depress the trading price of the notes.

 

The market price of our common shares has experienced, and may continue to experience, significant volatility. From January 1, 2010 through September 29, 2010, the trading price of our common shares on the NYSE Amex has ranged from a low of $2.30 per share to a high of $3.59 per share. Because the notes are convertible into, and based upon the price of, our common shares, volatility in the price of our common shares may depress the trading price of the notes. The risk of volatility and depressed prices of our common shares also applies to holders who receive our common shares upon conversion of their notes.

 

Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares, including, among other things:

 

 

In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our common shares, regardless of our operating performance. In addition, sales of substantial amounts of our common shares in the public market after this offering, or the perception that those sales may occur, could cause the market price of our common shares to decline. Furthermore, shareholders may initiate securities class action lawsuits if the market price of our common shares drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.

 

These factors, among others, could significantly depress the trading price of the notes and the price of our common shares, if any, issued upon conversion of the notes.

 

The conversion rate of the notes may not be adjusted for all dilutive events that may occur.

 

As described under “Description of notes—Adjustments to the conversion rate”, we will adjust the conversion rate of the notes for certain events, including, among others:

 

 

We will not adjust the conversion rate for other events, such as an issuance of our common shares for cash or in connection with an acquisition, that may adversely affect the trading price of the notes or our common shares. If we engage in any of these types of transactions, the value of our common shares underlying your notes may be diluted. An event that adversely affects the value of the notes, but does not result in an adjustment to the conversion rate, may occur. Also, we will not increase the conversion rate to an amount that exceeds 318.4712 common shares per $1,000 principal amount of notes (subject to adjustment in the same manner as the conversion rate).

 

Risk factors

 

 

Our election to pay cash in respect of some or all of our conversion obligation may have adverse consequences.

 

Our election to deliver cash in respect of all or a portion of our conversion obligation (other than solely cash in lieu of fractional shares) as described under “Description of notes—Conversion rights”, may:

 

 

We will generally deliver the consideration due upon conversion of the notes as soon as practicable, but in no event later than three business days after (1) the last trading day in the cash settlement averaging period (if we have elected to deliver cash in respect of all or a portion of our conversion obligation (other than solely cash in lieu of fractional shares), which will generally be at least 26 trading days after the date holders surrender their notes for conversion or (2) the conversion date (if we have elected to deliver solely our common shares (other than solely cash in lieu of any fractional share) upon conversion of the notes or if we have irrevocably elected full physical settlement). In addition, if we have elected to deliver cash in respect of all or a portion of our conversion obligation (other than solely cash in lieu of fractional shares), because the consideration due upon conversion is based on the trading prices of our common shares during the cash settlement averaging period, any decrease in the price of our common shares after you surrender your notes for conversion may significantly decrease the value of the consideration you receive upon conversion. In addition, if the trading price of our common shares at the end of such period is below the average of the volume weighted average price of our common shares during such period, the value of any common shares that you receive in satisfaction of our conversion obligation will be less than the value used to determine the number of common shares you will receive.

 

The increase in the conversion rate applicable to notes that holders convert in connection with a make-whole fundamental change may not adequately compensate you for the lost option time value of your notes as a result of that fundamental change.

 

If a make-whole fundamental change occurs prior to the maturity date, we will under certain circumstances increase the conversion rate applicable to holders who convert their notes within a specified time frame. The amount of the increase in the conversion rate depends on the date when the make-whole fundamental change becomes effective and the applicable price, as described in this prospectus supplement. See “Description of notes—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change”.

 

Although the increase in the conversion rate is designed to compensate you for the lost option time value of your notes as a result of the make-whole fundamental change, the increase in the conversion rate is only an approximation of the lost value and may not adequately compensate you for the loss. In addition, you will not be entitled to an increased conversion rate if the applicable price is greater than $15.00 per common share or less than $3.14 per common share (in each case, subject to adjustment).

 

Our obligation to increase the conversion rate as described above could also be considered a penalty, in which case its enforceability would be subject to general principles of reasonableness of economic remedies. In addition, we will not increase the conversion rate to an amount that exceeds 318.4712 common shares per $1,000 principal amount of notes (subject to adjustment in the same manner as the conversion rate).

 

Risk factors

 

 

Increased leverage as a result of this offering may harm our financial condition and results of operations.

 

As adjusted to include the sale of the notes we are offering, our total consolidated long-term debt as of June 30, 2010 would have been approximately $119.0 million (net of a preliminary discount on the notes of approximately $29.5 million) and would have represented approximately 13.3% of our total debt and shareholders’ equity as of that date. The indenture for the notes will not restrict our ability to incur additional indebtedness.

 

Our level of indebtedness could have important consequences to you, because:

 

 

Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the notes, we could be in default on the notes, and this default could cause us to be in default on our other outstanding indebtedness.

 

The conditional conversion features of the notes, if triggered, may adversely affect our financial condition and operating results.

 

In the event the conditional conversion features of the notes are triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. See “Description of notes—Conversion rights”. If one or more holders elect to convert their notes, unless we satisfy our conversion obligation by delivering solely our common shares (other than solely cash in lieu of any fractional share) or if we have irrevocably elected full physical settlement of the notes, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the applicable conversion rate, which could adversely affect our liquidity.

 

We may not have the ability to raise the funds to pay interest on the notes, to purchase the notes upon a fundamental change or to pay cash due upon conversion.

 

The notes bear interest semi-annually at a rate of 3.50% per year. In addition, we may in certain circumstances be obligated to pay additional amounts. If a fundamental change occurs, we will be required to offer to purchase for cash, all of the outstanding notes. In addition, upon conversion of the notes, if we have elected to deliver cash in respect of all or a portion of our conversion obligation (other than solely cash in lieu of fractional shares), we will be required to pay cash in respect of all or a portion of our conversion obligation. We may not have sufficient funds to pay the interest, purchase price or cash in respect of our conversion obligation when due. If we fail to pay interest on the notes, purchase price on a purchase of the notes or fail to pay any cash payment due upon conversion when required, we will be in default under the indenture governing the notes. See “Description of notes—Interest payments”, “Description of notes—Offer to purchase upon a fundamental change” and “Description of notes—Events of default”.

 

Risk factors

 

 

The conditional conversion feature of the notes could result in your receiving less than the value of our common shares into which the notes would otherwise be convertible.

 

Prior to the close of business on the business day immediately preceding July 1, 2016, you may convert your notes only if specified conditions are met. If the specific conditions for conversion are not met, you will not be able to convert your notes until July 1, 2016 or thereafter.

 

We have made only limited covenants in the indenture for the notes, and these limited covenants may not protect your investment.

 

The indenture for the notes does not:

 

 

Furthermore, the indenture for the notes contains only limited protections in the event of a change of control. We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations, that could substantially affect our capital structure and the value of the notes and our common shares but may not constitute a “fundamental change” that requires us to offer to purchase the notes or a “make-whole fundamental change” that permits holders to convert their notes at an increased conversion rate. For these reasons, you should not consider the covenants in the indenture or the repurchase features of the notes as a significant factor in evaluating whether to invest in the notes.

 

If an active and liquid trading market for the notes does not develop, the market price of the notes may decline and you may be unable to sell your notes.

 

The notes are a new issue of securities for which there is currently no public market. We do not intend to list the notes on any securities exchange or to arrange for their quotation on any interdealer quotation system. An active trading market may not develop for the notes. Even if a trading market for the notes develops, the market may not be liquid. If an active trading market does not develop, you may be unable to resell your notes or may only be able to sell them at a substantial discount.

 

Provisions in the indenture for the notes and shareholder rights agreement could discourage potential acquisition proposals and could deter or prevent a change in control.

 

If a “fundamental change” occurs, we will be required to offer to purchase for cash all of the outstanding notes. In the event of a “make-whole fundamental change”, we also may be required to increase the conversion rate applicable to notes surrendered for conversion in connection with such make-whole fundamental change. In addition, the indenture for the notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the notes.

 

Risk factors

 

 

We have a shareholder rights plan which, in certain circumstances, including a person or group acquiring, or the commencement of a tender or exchange offer that would result in a person or group acquiring, beneficial ownership of 20% or more of our outstanding common shares, would entitle each right holder, other than the person or group triggering the plan, to receive, upon exercise of the right, our common shares having a then-current fair value equal to twice the exercise price of a right. This shareholder rights agreement provides us with a defensive mechanism that decreases the risk that a hostile acquirer will attempt to take control of us without negotiating directly with our board of directors. The shareholder rights agreement may discourage acquirers from attempting to purchase us, which may adversely affect the price of our common shares.

 

For purposes of the percentage limits in our shareholder rights agreement, the common shares underlying the notes you hold may be aggregated with common shares you hold, and common shares held by your affiliates, associates and other members of any group of which you are a member, as well as shares of common shares underlying notes that are held by any of these persons or entities.

 

Under our shareholder rights agreement, the rights plan may be triggered when a person, including its affiliates and associates, or a group acquires “beneficial ownership” (as defined in the agreement) of 20% or more of our outstanding common shares. Upon such a triggering event, each rights holder, other than the person or group triggering the plan, would be entitled to receive our common shares having a then-current fair value equal to twice the exercise price of a right. As described elsewhere in this prospectus supplement, upon a noteholder’s exercise of its conversion right, we may elect to deliver to the converting noteholder our common shares or a combination of cash and shares. In addition, we have the ability during certain periods to irrevocably elect that all subsequent conversions will be settled by our delivery of common shares or a combination of cash and shares. In either case, at the time we make any such election, a noteholder would be deemed to be the “beneficial owner” of the underlying common shares for purposes of our shareholder rights agreement.

 

For purposes of determining whether our rights plan is triggered, a person’s common shares (including common shares underlying the notes, if we have elected to deliver common shares or a combination of cash and common shares upon conversion) are generally aggregated with common shares held by that person’s affiliates, associates and other members of groups of which that person is a member. If a purchaser of notes in this offering, together with its affiliates, associates and group members, would hold or be deemed to hold the triggering percentage or more of our common shares, our rights plan may be triggered and such purchaser would experience immediate and severe dilution of its ownership interest in our company.

 

An adverse rating of the notes may cause their trading price to fall.

 

We do not intend to rate the notes, but if a rating agency rates the notes, it also may lower ratings on the notes in the future. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings in the future, the trading price of the notes could significantly decline.

 

As a holder of notes, you will not be entitled to any rights with respect to our common shares, but you will be subject to all changes made with respect to our common shares.

 

If you hold notes, you will not be entitled to any rights with respect to our common shares (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common shares), but you will be subject to all changes affecting our common shares. You will have the rights with respect to (and will be the record holder of) our common shares only on the conversion date (if we have elected to deliver solely our common shares (other than solely cash in lieu of any fractional share) upon conversion of the notes or if we have irrevocably elected full physical settlement of the notes) or the last trading day of the applicable cash settlement averaging period (if we have elected to

 

Risk factors

 

 

deliver cash in respect of a portion (but not all) of our conversion obligation (other than solely cash in lieu of fractional shares), and only to the extent that we are obligated to deliver to you common shares in respect of our conversion obligation. For example, in the event that an amendment is proposed to our articles of incorporation or bylaws requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the date you are deemed the record owner of our common shares, if any, due upon conversion, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common shares. In addition, because the notes may be settled by delivery of solely cash, you may not receive any shares upon conversion.

 

We do not intend to pay cash dividends on our common shares in the foreseeable future.

 

We currently intend to continue our policy of retaining earnings to finance the growth of our business. As a result, we do not anticipate paying cash dividends on our common shares in the foreseeable future. Because we do not anticipate paying cash dividends for the foreseeable future, holders who convert their notes and receive our common shares will not realize a return on their investment unless the trading price of our common shares appreciates, which we cannot assure.

 

You may have to pay U.S. federal income tax if we adjust the conversion rate in certain circumstances, even if you do not receive any cash.

 

We will adjust the conversion rate of the notes for share splits and combinations, share dividends, cash dividends and certain other events that affect our capital structure. See “Description of notes—Adjustments to the conversion rate”. If we adjust the conversion rate, you may be treated as having received a constructive distribution from us, resulting in taxable income to you for U.S. federal income tax purposes, even though you would not receive any cash in connection with the conversion rate adjustment and even though you might not exercise your conversion right. See “Income tax considerations”.

 

RISKS RELATING TO NORTHGATE AND OUR INDUSTRY

 

The figures for our reserves and resources and future production are estimates based on interpretation and assumptions and actual production may be less than is currently estimated.

 

Unless otherwise indicated, mineralization figures presented in this prospectus supplement, the accompanying base shelf prospectus and in the documents incorporated by reference herein and therein are based upon estimates made by our personnel and independent geologists. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. There can be no assurance that the reserves, resources or other mineralization figures will be accurate or that we will achieve our production estimates. Our failure to achieve our production estimates could have a material and adverse effect on any or all of our future cash flows, earnings, results of operations and financial condition. These production estimates are dependent on, among other things, the accuracy of mineral reserve and resource estimates, the accuracy of assumptions regarding ore grades and recovery rates, ground conditions, physical characteristics of ores, such as hardness and the presence or absence of particular metallurgical characteristics, and the accuracy of estimated rates and costs of mining and processing.

 

Our actual production may vary from our estimates for a variety of reasons, including, actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics, short-term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades from those planned, mine failures, slope failures or equipment failures, industrial accidents, natural phenomena such as inclement weather conditions, floods, droughts, rock slides and earthquakes, encountering unusual or unexpected geological conditions, extended declines in

 

Risk factors

 

 

market prices for gold or copper, changes in power costs and potential power shortages, shortages of principal supplies needed for operation, including explosives, fuels, chemical reagents, water, equipment parts and lubricants, labour shortages or strikes, civil disobedience and protests, and restrictions or regulations imposed by governmental authorities or other changes in the regulatory environments. Such occurrences could result in damage to mineral properties, interruptions or decreases in production, injury or death to persons, damage to our property or others, monetary losses and legal liabilities. These factors may also cause a mineral deposit that has been mined profitably in the past to become unprofitable forcing us to cease production. It is not unusual in new mining operations to experience unexpected problems during the start-up phase. Depending on the price of gold, copper or other minerals, we may determine that it is impractical to commence or, if commenced, to continue commercial production at a particular site.

 

Delays in obtaining or a failure to obtain required property rights, permits and licenses, or a failure to comply with the terms of any such property rights, permits and licenses that we have obtained, could delay or prevent or make more expensive exploration, development and/or production.

 

Our current and anticipated future operations, including further exploration and development activities and expansion, commencement or continuation of production on our properties, require certain permits and licenses from various levels of governmental authorities in Canada, the United States and Australia. We may also be required to obtain certain property rights to access, or use, certain of our properties in order to proceed to development. There can be no assurance that all licenses, permits or property rights which we require for the expansion and construction of mining facilities or to conduct mining operations will be obtainable on reasonable terms or in a timely manner, or at all, that such terms will not be adversely changed, that required extensions will be granted, or that the issuance of such licenses, permits or property rights will not be challenged by third parties. Delays in obtaining or a failure to obtain such licenses, permits or property rights or extension thereto, challenges to the issuance of such licenses, permits or property rights, whether successful or unsuccessful, changes to the terms of such licenses, permits or property rights, or a failure to comply with the terms of any such licenses, permits or property rights that we have obtained, could have a material adverse effect on us by delaying, preventing or making more expensive exploration, development and/or production.

 

The sale of gold-copper concentrate produced at Kemess is subject to counterparty and market risks.

 

We have entered into a multi-year contract with Xstrata Canada Corporation (“Xstrata”) for the shipment and sale of gold-copper concentrate produced at Kemess mine to various smelting companies. The inability of Xstrata to purchase the Kemess concentrate, the termination of the agreement or the failure to renew the agreement on acceptable terms, or at all, could have a material adverse effect on our financial performance and results of operations until such time as appropriate logistical arrangements are put in place and alternative purchasers of our concentrates can be found. If we are not successful in entering into such alternative arrangements, we may be forced to sell all of our concentrates, or greater volumes of them than they may from time to time intend, in the spot market, on terms less favorable to us as our existing agreement with Xstrata.

 

In addition, should Xstrata or any other counterparty to any supply arrangement we may enter into not honour such arrangement, or should any of such counterparties become insolvent, we may incur losses for products already shipped and be forced to sell greater volumes of our concentrates than intended in the spot market, or we may not have a market for our concentrates, and our future operating results may be materially adversely impacted as a result. Moreover, there can be no assurance that our concentrates will meet the qualitative requirements under future concentrate agreements or the requirements of buyers.

 

Risk factors

 

 

Change in accounting or financial reporting standards may adversely impact our financial performance.

 

Changes in accounting or financial reporting standards may adversely impact our financial performance in the future. We currently report our financial performance in Canadian GAAP. The Canadian Accounting Standards Board announced that international financial reporting standards (“IFRS”) will become applicable to Canadian public entities for financial years beginning on or after January 1, 2011. Our first period of IFRS reporting will be for the quarter ending March 31, 2011. We have started the transition process from Canadian GAAP to IFRS and are in the process of assessing the potential impact of the transition to IFRS, including the detailed determination of accounting policy and disclosure changes that will be required upon transition, as well as a detailed analysis of the application of IFRS 1 “First-time Adoption of International Financial Reporting Standards”.

 

Regulatory bodies that promulgate Canadian GAAP and IFRS have significant ongoing projects that could affect the differences between Canadian GAAP and IFRS, and the impact of these differences relative to our financial statements, in the future.

 

Based on our review to date, we anticipate that there will be material differences in accounting treatment between Canadian GAAP and IFRS as they apply to us, including impairment of assets, provision for reclamation and rehabilitation, business combinations, income taxes and property, plant and equipment. The foregoing list is not a complete list and is only intended to highlight the areas that we believe to be the most significant. These differences may change as we continue to assess the impact of the transition and evaluate the impact that the ongoing regulatory projects could have.

 

For further information on our changeover plan and on the material differences in accounting treatment, see “Future Changes in Accounting Policies” in our management’s discussion and analysis for the year ended December 31, 2009, and “New Accounting Pronouncements” in our management’s discussion and analysis for the period ended June 30, 2010, each incorporated by reference herein.

 

Title to our mineral properties cannot be guaranteed and may be subject to prior liens, agreements, transfers or claims and other defects.

 

We cannot guarantee that title to our properties will not be challenged. Title insurance is generally not available for mineral properties and our ability to ensure that we have obtained secure claims to individual mineral properties or mining concessions may be constrained. Our mineral properties may be subject to prior registered or unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, undetected defects. A successful challenge to the precise area and location of these claims could result in our being unable to operate on our properties as permitted or being unable to enforce our rights with respect to our properties.

 

Our activities are subject to environmental laws and regulations that may increase our costs of doing business and restrict our operations.

 

Our exploration and production activities in Canada and Australia are subject to regulation by governmental authorities under various environmental laws. To the extent that we conduct exploration activities or undertake new mining activities in other foreign countries, we will also be subject to environmental laws and regulations in those jurisdictions. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental legislation in many countries is evolving and the trend has been towards stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees. Compliance with environmental laws and regulations may require us to make significant capital outlays and may cause material changes or delays in our intended activities.

 

Risk factors

 

 

There can be no assurance that future changes in environmental regulations will not adversely affect our business, and it is possible that future changes in these regulations could have a significant adverse impact on some portion of our business, causing us to re-evaluate those activities at that time.

 

We cannot give any assurance that breaches of environmental laws (whether inadvertent or not) or environmental pollution will not materially and adversely affect our financial condition or the results of our operations. There is no assurance that future changes in environmental regulations, if any, will not adversely affect our operations. Environmental hazards may exist on the properties on which we hold interests which are unknown to us at present. Environmental hazards or liabilities may also exist that have been caused by previous or existing owners or operators of the properties and for which we are not indemnified. Reclamation costs are uncertain and planned expenditures may differ from the actual expenditures required.

 

We may experience difficulty attracting and retaining qualified management and technical personnel to meet our current and anticipated needs.

 

Our success is heavily dependent on our key personnel and on our ability to motivate, retain and attract highly skilled persons. The competition for qualified personnel in the mining industry is currently intense. There can be no assurance that we will successfully attract and retain additional qualified personnel to manage our current needs and anticipated growth. The failure to attract such qualified personnel to manage growth effectively could have a material adverse effect on our business, financial condition or results of operations. We do not currently have key person insurance for our key personnel.

 

Certain of our directors serve in positions with other public companies which puts them in conflict of interest positions from time to time.

 

Certain of our directors serve as directors, officers and members of management of other public companies involved in natural resource exploration, development and mining operations and therefore it is possible that a conflict may arise between their duties as our directors and their duties as directors, officers, promoters or members of management of such other companies. Our directors are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors’ conflicts of interest or in respect of any breaches of duty by any of our directors.

 

Regulatory efforts to control greenhouse gas emissions could materially negatively affect our business.

 

Our businesses include several operations in Canada and Australia that emit large quantities of carbon dioxide, or that produce or will produce products that emit large quantities of carbon dioxide when consumed by end users. Carbon dioxide and other greenhouse gases are the subject of increasing public concern and regulatory scrutiny.

 

The Kyoto Protocol is an international agreement that sets limits on greenhouse gas emissions from certain signatory countries. While the United States government has announced that it will not ratify the protocol, the Canadian Parliament voted to ratify our participation in this agreement and the Kyoto Protocol came into force in Canada on February 16, 2005. The Kyoto agreement commits Canada to limit its net greenhouse gas emissions to 6% below the levels emitted in 1990. Canada’s current level of greenhouse gas emissions significantly exceeds the agreed-upon limit.

 

While there is no current regulatory legislation in force at the federal level that specifically limits greenhouse gas emissions, in April 2007, the Government of Canada announced a policy objective of reducing total Canadian greenhouse gas emissions to 20% below 2006 levels by 2020 and to 60% to 70% below 2006 levels by 2050. As part of this initiative, the Government of Canada intends to

 

Risk factors

 

 

require reductions in emissions intensity levels from certain industrial facilities, including oil and gas facilities and smelting and refining facilities, by 6% per year for each year from 2007 to 2010 and 2% per year each year thereafter. Affected facilities will be permitted to meet reduction targets by emissions trading or contributions to a technology fund, in addition to emissions abatement. Additional policy measures are anticipated in coming years under this federal policy framework.

 

In British Columbia, the provincial government has announced a policy goal of reducing greenhouse gas emissions by at least 33% below current levels by 2020. Interim targets will be set for 2012 and 2016. The mechanisms by which these targets are to be achieved are not yet established.

 

In December 2007, Australia ratified its participation in the Kyoto Protocol and in March 2008, the international agreement came into force in Australia. Australia planned to implement a carbon-trading scheme to take effect in 2010 and help deliver a unilateral 5% emissions reduction on 2000 levels by 2020. However, in May 2010, this plan was delayed until 2013 and its future inception will depend largely on sufficient international progress in the reduction of greenhouse gas emissions. As a result of the delay, it is premature to predict what impact Australia’s adoption of the Kyoto Protocol could have on our business but it is likely that any mandated reduction in emissions will result in increased costs relating to our Australian operations.

 

The primary source of greenhouse gas emissions in Canada is the use of hydrocarbon energy. Our operations depend significantly on hydrocarbon energy sources to conduct daily operations, and there are currently no economic substitutes for these forms of energy. The federal and provincial governments have not finalized any formal regulatory programs to control greenhouse gases and it is not yet possible to reasonably estimate the nature, extent, timing and cost of any programs proposed or contemplated, or their potential effects on operations.

 

We may fail to achieve and maintain the adequacy of internal control over financial reporting as per the requirements of the Sarbanes-Oxley Act.

 

We documented and tested during our most recent fiscal year our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act (“SOX”). SOX requires an annual assessment by management of the effectiveness of our internal control over financial reporting and an attestation report by our independent auditors addressing this assessment. We may fail to achieve and maintain the adequacy of our internal control over financial reporting as such standards are modified, supplemented, or amended from time to time, and we may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of SOX. Our failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common shares or market value of our other securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause it to fail to meet our reporting obligations. Future acquisitions of companies may provide us with challenges in implementing the required processes, procedures and controls in our acquired operations. Acquired companies may not have disclosure controls and procedures or internal control over financial reporting that are as thorough or effective as those required by securities laws currently applicable to us.

 

No evaluation can provide complete assurance that our internal control over financial reporting will detect or uncover all failures of our personnel to disclose material information required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In addition, as we continue to expand, the challenges involved in implementing appropriate internal control over financial reporting will increase and will require that we continue to improve our internal control over financial reporting. Although we intend to devote substantial time and incur

 

Risk factors

 

 

substantial costs, as necessary, to ensure ongoing compliance, we cannot be certain that it will be successful in complying with Section 404 of SOX.

 

Recent high metal prices have encouraged increased mining exploration, development and construction activity, which has increased demand for, and cost of, exploration, development and construction services and equipment.

 

Recent increases in metal prices have encouraged increases in mining exploration, development and construction activities, which have resulted in increased demand for, and cost of, exploration, development and construction services and equipment. The costs of these services and equipment have increased with increased demand, and may continue to do so if current trends continue. Increased demand for services and equipment could cause project costs to increase materially, result in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and cause scheduling difficulties and cost increases due to the need to coordinate the availability of services or equipment.

 

Actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that any future development activities will result in profitable mining operations.

 

The capital costs to operate our projects, or to take future projects into production, may be significantly higher than anticipated. Decisions about the development of these and other mineral properties will ultimately be based upon feasibility studies. Feasibility studies derive estimates of cash operating costs based upon, among other things:

 

 

Capital and operating costs, production and economic returns, and other estimates contained in our feasibility studies or economic assessments, if prepared, may differ significantly from those anticipated by our current studies and estimates, and there can be no assurance that our actual capital and operating costs will not be higher than currently anticipated. In addition, operating delays may negatively impact the net present value and internal rates of return of our mineral properties as set forth in the applicable feasibility studies.

 

Because we have projects located in Canada and in Australia and will have production costs incurred in Canadian and Australian dollars, and gold, copper and other metals are generally sold in United States dollars, our results could be materially adversely affected by an appreciation of the Canadian or Australian dollar in relation to the United States dollar.

 

Our operating results and cash flow are significantly affected by changes in the Canadian/U.S. dollar and Australian/U.S. dollar exchange rates. Our revenues are denominated in U.S. dollars while most of our expenses are currently denominated in Canadian and Australian dollars. Therefore, exchange rate movements can have a significant impact on all of our costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the cost of production at our mines, making such mines less profitable. Based upon our projected 2010 production and operating cost estimates, a one-cent change in the average annual Canadian/U.S. dollar exchange rate would affect operating cash flow by approximately $1.1 million were it to be in effect for the entire year. A similar change to the Australian/U.S. dollar exchange rate would have a $1.7 million impact. To hedge our foreign exchange risk and minimize the impact of exchange rate movements on operating results and cash flow, we have

 

Risk factors

 

 

periodically used foreign exchange contracts to purchase Canadian dollars. However, there can be no assurance that our foreign exchange hedging strategies will be successful or that foreign exchange fluctuations will not materially adversely affect our financial performance and results of operations. As of December 31, 2009, we had no outstanding foreign currency options or forward foreign exchange contracts.

 

Our production is derived from a limited number of mines.

 

Our operations at Kemess, Fosterville and Stawell accounted for all of our metal production in 2009. Any adverse condition affecting mining or milling conditions at any of our mines could have a material adverse effect on our financial performance or results of operations until such time as the condition is remedied or our other exploration and development properties are brought into production.

 

We are dependent on unionized employees.

 

We employ approximately 338 people at Kemess and 754 people at our Australian operations. The majority of the Kemess personnel are represented by a union (the International Union of Operating Engineers Local 115) and the terms of their employment are subject to a three-year collective agreement that was ratified on April 8, 2008. On September 26, 2008, a new three-year employee collective agreement was ratified by the Employee Collective, comprised of the 155 production and maintenance employees at the Stawell Mine, and on June 26, 2009, the employees of Fosterville Gold Mine signed a three year Employee Collective Agreement. There can be no assurance that we will not experience future labour strikes or work stoppages.

 

We may require future financing to develop our mineral properties and fund future growth.

 

To develop our mineral properties and fund our growth, we are often dependent on securing the necessary capital through debt or equity financings. The availability of this capital is subject to general economic conditions and lender and investor interest in our business and our projects. There can be no assurance that the financing alternative we choose will be available on acceptable terms, or at all. The failure to obtain financing could have a material adverse effect on our growth strategy and results of operations and financial condition.

 

Mining is inherently dangerous and subject to conditions or events beyond our control, which could have a material adverse effect on our business.

 

The business of mining is generally subject to certain types of risks and hazards, including environmental hazards, industrial accidents, unusual or unexpected rock formations, and changes in the regulatory environment. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. We carry insurance to protect ourselves against certain risks of mining and processing in amounts that it considers to be adequate but which may not provide adequate coverage in certain unforeseen circumstances. We may also become subject to liability for pollution or other hazards against which it cannot insure or against which it may elect not to insure because of high premium costs or other reasons, or we may become subject to liabilities which exceed policy limits. In such cases, we may be required to incur significant costs that could have a material adverse effect upon our financial performance and results of operations.

 

We have ongoing reclamation on some of our mineral properties and we may be required to fund additional work, which could have a material adverse effect on our financial position.

 

As at December 31, 2009, our undiscounted provision for site closure and reclamation costs was $52.4 million. Provisions for site closure and reclamation costs are based on known requirements.

 

Risk factors

 

 

However, the exact nature of environmental control concerns, if any, that may be encountered in the future cannot be predicted with certainty, as environmental requirements currently established by governmental authorities may change. Should governmental authorities determine that our properties require additional reclamation work, we may be required to fund such work, which could have a material adverse effect on our financial position.

 

As of December 31, 2009, Kemess has a security bond of Cdn$17,820,000 posted in connection with its reclamation permit for the Kemess South mine. However, should governmental authorities determine that the property requires additional reclamation work, we may be required to fund this work, which could have a material adverse effect on our financial position. There can also be no assurance that we will not be required to fund additional reclamation work at our other project sites which could have a material adverse effect on our financial position. As of December 31, 2009, we also had pledged $9,447,000 in cash as security for performance guarantees relating to the future reclamation of Fosterville and Stawell.

 

We hold certain investments which currently lack liquidity. Continued illiquidity of these investments or recognition of an impairment loss related to these investments could have a material adverse effect on our financial position.

 

We continue to maintain a portion of our investments in auction rate securities, which are floating rate securities marketed by financial institutions with auction reset dates at 7, 28, or 35 day intervals to provide short-term liquidity (“ARS”). The par value of these securities held by us is $72,600,000. Beginning in August 2007, auctions at which these securities were to be re-sold began to fail, and as of the date hereof, attempts to conduct auctions have generally ceased. All ARS currently held by us were purchased on our behalf by Lehman Brothers Inc. (“Lehman”), acting in its capacity as our broker agent using the limited discretion conferred on it. Based on an investigation conducted after the securities in question became illiquid, we concluded that a number of representations from Lehman had been incorrect, and that Lehman had mishandled our account. We have filed a claim against Lehman and certain of its employees with FINRA in the United States. Currently, our ARS holdings cannot be readily converted to cash for use by us to make capital investments or for other business purposes, although the underlying payment and other obligations of the original issuers of these securities remain intact, and these issuers continue to make regular interest payments to us. The estimated fair value of our ARS holdings at December 31, 2009 was $37,702,000, which reflects a $1,589,000 decline from the December 31, 2008 estimated fair value of $39,291,000. We have recognized an “other than temporary” impairment of $10,979,000 into earnings for the twelve months ended December 31, 2009. While the foregoing valuation judgments are based on current information available and are intended to conform to applicable accounting principles, it is possible that under applicable U.S. laws the actual damage to us would be considered to be equal to the par value of the securities. The conclusion for an “other than temporary” impairment is based on a variety of factors, including the bankruptcy of Lehman and its affiliates, the very substantial decline in the estimated fair value of individual investments over an extended period, recent downgrades in issuer credit ratings and continuing adversity in the credit and capital markets. Should these factors persist, we may recognize additional impairment losses in net earnings in respect of some or all of our ARS investments. Such further impairment or continued illiquidity of these investments could have a material adverse effect on our financial position.

 

There can be no assurance that we will successfully acquire additional mineral rights.

 

Our profitability is significantly affected by the cost and results of our exploration and development programs. As mines have limited lives based on proven and probable reserves, we actively seek to replace and expand our reserves, primarily through exploration and development and, from time to time, through strategic acquisitions. Exploration for minerals is highly speculative in nature, involves

 

Risk factors

 

 

many risks and frequently is unsuccessful. Among the many uncertainties inherent in any gold exploration and development program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary regulatory permits and the construction of mining and processing facilities. In addition, substantial expenditures are required to pursue such exploration and development activities. Assuming discovery of an economic ore body, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced, during which time the economic feasibility of production may change. Accordingly, there can be no assurance that our current exploration and development programs will result in any new economically viable mining operations or yield new reserves to replace or expand current reserves.

 

We conduct business in foreign countries and are exposed to risks, including political, economic and other risks and uncertainties.

 

Our operations are conducted in two politically stable mining jurisdictions—Canada and Australia. Our operations remain, however, exposed to various levels of political, economic and other risks and uncertainties. These risks and uncertainties include, but are not limited to, fluctuations in currency exchange rates; inflation; changes in laws and regulatory policies; royalty and tax increases or other claims by government entities, including retroactive claims; delays in obtaining or the inability to obtain necessary governmental permits; changing political conditions; currency controls; and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

 

Specifically, in May 2010, the government of Australia unveiled a new resource super tax that would see profits generated from Australia’s non-renewable resources taxed at 40%. Subsequently, in July 2010, the proposal was amended to a profits-based Minerals Resource Rent Tax at a rate of 30% applying to iron ore and coal in Australia, and the current Petroleum Resource Rent Tax would be extended to all Australian oil and gas projects. A consultative period has commenced with the proposed tax scheduled to come in to effect as early as July 2012. While we are currently evaluating the impact of these proposed tax changes in our Australian operations, the implementation of a new tax structure on mining projects in Australia could have a material adverse effect on our results of operations and financial condition. Changes in policies or laws affecting ownership of assets, foreign investment, taxation, rates of exchange, gold sales, environmental protection, labour relations, price controls, repatriation of income or return of capital may affect both our ability to undertake exploration and development activities in respect of future properties in the manner currently contemplated, as well as our ability to continue to explore, develop, and operate those properties to which we have rights relating to exploration, development and operations.

 

We are subject to significant governmental regulation.

 

Our mining operations and exploration activities are subject to extensive Canadian and Australian federal, state, provincial, territorial and local laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety, water disposal, toxic substances, explosives, management of natural resources, environmental protection, mine safety, dealings with native groups, historic and cultural preservation and other matters. Compliance with such laws and regulations increases the costs of planning, designing, developing, constructing, operating and closing mines and other facilities. Such laws and regulations are also subject to constant change. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation or interpretation thereof could impact our operations and our business in a material adverse manner, cause a reduction in levels of production, an increase in the costs of production and delay or prevent the development of new mining properties. Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions,

 

Risk factors

 

 

including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in our incurring significant expenditures. We may also be required to compensate persons suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements.

 

We are exposed to legal risks.

 

We are subject to various existing and potential legal claims and complaints, including unexpected environmental remediation costs in excess of current reserves, arising out of the normal course of business. While we believe that unfavourable decisions in any pending procedures or the threat of procedures related to any future assessment, or any amount it might be required to pay, will not have a material adverse effect on our financial condition, there is a risk that if such decisions are determined adversely to us, they could have a material adverse effect on our profitability.

 

There is uncertainty related to unsettled First Nations rights and title in British Columbia, Ontario and Australia and this may adversely impact our operations and profit.

 

Native land claims in British Columbia remain the subject of active debate and litigation. The Kemess operation and associated mineral tenures lie within overlapping land claims of several First Nations, as is the case for much of British Columbia. Although we have an agreement with local First Nations regarding land use as it pertains to our current Kemess operations, there can be no assurance that the broader land claims will not create delays or impose additional costs.

 

We signed an Impact and Benefits Agreement with Matachewan First Nation on July 2, 2009 in relation to our Young-Davidson project in Northern Ontario. We are committed to consulting with other local First Nations to gain an understanding of how the Young-Davidson project (as proposed) may impact upon the exercise of their asserted aboriginal and treaty rights.

 

In Australia, exploration licenses are generally subject to Native land and title issues when they are located on Crown land. This requires us to reach agreement with the affected peoples before an exploration license is granted by the state of Victoria, New South Wales or Western Australia. The mining leases on which our two Australian operations, Fosterville and Stawell, are located currently have no Native title issues.

 

Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

The mining industry is intensely competitive. Many companies and individuals are engaged in the mining business, including large, established mining companies with substantial capabilities. There is a limited supply of desirable mineral lands available for claim staking, lease or other acquisition in the areas where we contemplate conducting exploration activities. We may be at a competitive disadvantage in acquiring mining properties as we must compete with these individuals and companies, many of which have greater financial resources and larger technical staffs than we have. Accordingly, there can be no assurance that we will be able to compete successfully for new mining properties. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs and helicopters. Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

Risk factors

 

 

Changes in the market price of gold and copper, which in the past have fluctuated widely, will affect the profitability of our operations and financial condition.

 

Our revenues are derived primarily from gold and copper mining, and as such revenues are largely contingent on world market price of gold and copper. If the world market price of gold or copper were to drop and the prices realized by us on gold or copper sales were to decrease significantly and remain at such a level for any substantial period, our profitability and cash flow would be negatively affected. Gold and copper prices fluctuate widely and are affected by numerous factors beyond our control, including global and regional demand, political and economic conditions, central bank sales, producer hedging activities, expectations of inflation, interest rates, the relative exchange rate of the United States dollar with other major currencies, and production costs in major gold and copper producing regions. The aggregate effect of these factors is impossible to predict with accuracy. Gold and copper prices are also affected by worldwide production levels. In addition, the prices of gold and copper have on occasion been subject to very rapid, short-term changes because of speculative activities. Fluctuations in gold and copper prices may adversely affect our financial performance or results of operations. If our revenues from the sale of gold and copper fall below our cost of production due to a fall in the price of gold and/or copper and prices remain at such levels for any sustained period, we may experience losses and may curtail or suspend some or all of our exploration, development and mining activities. We have attempted to limit our exposure to a potential drop in copper prices by entering into forward sales contracts for 13,700 mt of copper at Cdn$3.31/pound, representing approximately 75% of the remaining production from our Kemess South mine as at June 30, 2010. There is no assurance however that this or any other hedging strategies by us will be successful or that fluctuations in the prices of gold or copper will not materially adversely affect our financial performance and results of operations. In the event we curtail or suspend some or all of our exploration activities, depleted reserves may not be replaced. In addition, the market value of our gold or copper inventory may be reduced and existing reserves may be reduced to the extent that ore cannot be mined and processed economically at the prevailing prices.

 

We may experience problems integrating new acquisitions into existing operations, which could have a material adverse effect on our business.

 

We acquired Perseverance in February 2008 and are actively evaluating opportunities to acquire additional mining assets and businesses. These acquisitions may be significant in size, may change the scale of our business and may expose us to new geographic, political, operating, financial and geological risks. Our success in our acquisition activities depends on our ability to identify suitable acquisition targets, acquire them on acceptable terms and integrate their operations successfully with ours. Any acquisitions would be accompanied by risks, such as the difficulty of assimilating the operations and personnel of any acquired companies; the potential disruption of our ongoing business; the inability of management to maximize our financial and strategic position through the successful incorporation of acquired assets and businesses; additional expenses associated with amortization of acquired intangible assets; the maintenance of uniform standards, controls, procedures and policies; the impairment of relationships with employees, customers and contractors as a result of any integration of new management personnel; and the potential unknown liabilities associated with acquired assets and businesses, including environmental liabilities. In addition, we may need additional capital to finance any such acquisitions. Debt financing related to an acquisition will expose us to the risk of leverage, while equity financing may cause existing shareholders to suffer dilution. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions. Due to all of the foregoing, our pursuit of any future acquisition may have a materially adverse effect on our business, result of operations, financial condition, cash flows and liquidity.

 

Risk factors

 

 

The trading price for our common shares is volatile.

 

The price of our common shares may be volatile as a result of several factors, including the following, some of which are beyond our control:

 

 

In addition, trends in capital markets or general economic conditions can influence the price of our common shares irrespective of our operating performance.

 

Investors in the United States or in other jurisdictions outside of Canada may have difficulty bringing actions and enforcing judgments against us, our directors, our executive officers and some of the experts named in this prospectus supplement based on civil liability provisions of federal securities laws or other laws of the United States or any state thereof or the equivalent laws of other jurisdictions of residence.

 

We exist under the laws of the Province of British Columbia. Many of our directors and officers, and some of the experts named in this prospectus supplement, are residents of Canada or otherwise reside outside of the United States, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside of the United States. As a result, it may be difficult for investors in the United States or outside of Canada to bring an action against directors, officers or experts who are not resident in the United States or in the other jurisdiction of residence. It may also be difficult for an investor to enforce a judgment obtained in a United States court or a court of another jurisdiction of residence predicated upon the civil liability provisions of federal securities laws or other laws of the United States or any state thereof or the equivalent laws of other jurisdictions of residence against those persons or us. Please refer to additional information under the heading “Enforceability of civil liabilities” in the accompanying base shelf prospectus.

 

Current global financial conditions have been subject to increased volatility.

 

Current global financial conditions have been subject to increased volatility and numerous financial institutions have either gone into bankruptcy or have had to be rescued by governmental authorities. Access to public financing continues to be negatively impacted by the recent liquidity crisis in global credit markets. These factors may impact our ability to obtain equity or debt financing in the future and, if obtained, on terms favourable to us. If these increased levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of our common shares could be adversely affected.

 

Risk factors

 

 

We could be classified as a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes for the current taxable year or a future taxable year, which may result in adverse tax consequences for U.S. Holders.

 

Based on available financial information, current business plans and the nature of our business, we do not believe we were a PFIC for the taxable year ending December 31, 2009 or that we will be a PFIC in subsequent taxable years. However, there can be no assurance that the Internal Revenue Service will not successfully challenge this position or that we will not become a PFIC in a future taxable year, because PFIC status is determined on an annual basis and depends on the composition of our assets and income in each taxable year. Consequently, U.S. Holders should be aware that we may be a PFIC for a taxable year in which such holders beneficially own notes offered pursuant to this prospectus supplement or common shares received upon the conversion of such notes. Depending on the availability of certain elections, the PFIC rules can, among other things, accelerate the timing of the recognition of taxable income and recharacterize what would otherwise be capital gain as ordinary income. The effect of these rules on a U.S. Holder’s ownership of the notes or common shares received upon a conversion of the notes is discussed under “Certain Canadian and United States income tax considerations—Certain U.S. federal income tax considerations for U.S. Holders”.

 

We estimate that the net proceeds from the offering will be approximately $144.1 million after deducting the underwriters’ commission and our estimated fees and expenses. If the underwriters’ over-allotment option is exercised in full, the net proceeds will be approximately $163.5 million. We intend to use the net proceeds from the offering as follows:

 

 

 

If the over-allotment option is exercised in full, the additional proceeds will be allocated on a pro rata basis to the three categories set out above. The actual amount that we spend in connection with each of the intended uses of proceeds may vary significantly from the amounts specified above, and will depend on a number of factors, including those listed under “Risk factors” in or incorporated by reference in this prospectus supplement and the accompanying base shelf prospectus.

 

We intend to use the funds as stated in this prospectus supplement. However, there may be circumstances where, on the basis of results obtained or for other sound business reasons, a re-allocation of funds may be necessary or prudent. Accordingly, our management will have broad discretion in the application of the proceeds of this offering.

 

We do not currently pay a dividend. The decision to continue this policy will be made by our Board of Directors from time to time based upon, among other things, cash flow, the results of operations, our financial condition and that of our subsidiaries, the need for funds to finance ongoing operations, compliance with credit agreements and other instruments, and such other considerations as our Board of Directors considers relevant. We do not currently intend to pay dividends or to make any other distributions, which may limit the way in which investors may realize any returns on their investment.

 

The following table sets forth our consolidated capitalization as of June 30, 2010 on an actual basis and as adjusted to give effect to this offering as though it had occurred on such date. The table should be read in conjunction with our unaudited interim consolidated financial statements for the three and six months ended June 30, 2010, including the notes thereto, and management’s discussion and analysis of results of operations and financial conditions for such period, each of which is incorporated by reference in this prospectus supplement. This table assumes no conversion of the notes into common shares.

 

Since June 30, 2010, the date of the financial statements for our most recently completed financial quarter, there have been no material changes in our capitalization.

 

 

 

 

The selected consolidated financial data set forth below should be read in conjunction with our audited annual comparative consolidated financial statements and related notes thereto, interim comparative consolidated financial statements and related notes thereto, management’s discussion and analysis of financial condition and results of operations and other information contained in and incorporated by reference in the accompanying base shelf prospectus, as supplemented by this prospectus supplement. Our comparative consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP. See “Currency and financial statement presentation”.

 

The selected consolidated financial data in the table below is presented in accordance with Canadian GAAP and is expressed in thousands of U.S. dollars except share and per share amounts. Historical results do not necessarily indicate results for any future period.

 

 

 

 

The earnings coverage set out below has been prepared and included in this prospectus supplement in accordance with Canadian disclosure requirements and is prepared in accordance with Canadian GAAP. Our earnings coverage for the 12 months ended June 30, 2010 and for the 12 months ended December 31, 2009 was less than one to one. The amount of additional earnings required to attain pro-forma earnings coverage ratios of one to one in each of these periods is $78.9 million and $53.3 million, respectively.

 

Our interest requirements, after giving pro forma effect to transactions involving the issuances of long-term debt and changes in indebtedness not reflected in the unaudited financial information for the 12 months ended June 30, 2010 and in our audited annual financial statements for the 12 months ended December 31, 2009 (including the notes offered under this prospectus supplement) and all servicing costs that have been, or are expected to be, incurred in connection therewith, but without recognizing any effect on earnings related to such transactions and without giving effect to changes in income taxes or the offsetting changes to net income, which result from the change in interest expense, for the 12 months ended June 30, 2010 and the 12 months ended December 31, 2009 would have been $12.7 million and $12.6 million, respectively, and our net loss (before deducting interest expense and income taxes) for such periods would have been $(66.1) million and $(40.6) million, respectively, which is (5.2) and (3.2) times our pro forma interest requirements for such periods, respectively.

 

The following table sets out the earnings coverage ratios discussed above.

 

 

 

 

(footnotes continued on following page)

 

Earnings coverage

 

 

 

We have authorized capital of 100,000,000,000,000 shares of each of the following classes: common shares and Class A and Class B preference shares, all without par value. As at September 29, 2010, 291,039,376 common shares and no Class A or Class B preference shares were issued and outstanding. A noteholder will not have any rights as a shareholder until it converts its notes into our common shares.

 

COMMON SHARES

 

Holders of common shares are entitled to receive on a pro rata basis dividends if, as and when declared by our Board of Directors, subject to the prior rights of the holders of any shares ranking senior to the common shares in the payment of dividends. In the event we dissolve, liquidate or wind-up, the holders of the common shares, subject to the prior rights of the holders of any shares ranking senior to the common shares with respect to priority in the distribution of our property and assets upon our dissolution, liquidation or winding-up, will be entitled to receive on a pro rata basis our remaining property and assets. Holders of common shares are entitled to receive notice of, attend and vote at any meeting of our shareholders, except meetings where only the holders of another class or series of shares are entitled to vote separately as a class or series. The common shares carry one vote per share.

 

CLASS A PREFERRED SHARES AND CLASS B PREFERRED SHARES

 

Our Class A preferred shares and Class B preferred shares are issuable in series. Each series may consist of such number of shares and have such designation, rights, privileges restrictions and conditions attached thereto as may be determined by the Board of Directors, subject to the provisions attached to the Class A preferred shares as a class or the Class B preferred shares as a class. The Class A preferred shares rank ahead of the Class B preferred shares and the common shares and the Class B preferred shares rank ahead of the common shares with respect to the distribution of our assets upon liquidation, dissolution or winding-up.

 

SHAREHOLDERS’ RIGHTS PLAN

 

On March 8, 2010, the Board of Directors adopted the Northgate Shareholders’ Rights Plan (the “Plan”) to replace the shareholders’ rights plan that it initially adopted on March 11, 2004 (the “Original Rights Plan”), which was confirmed by shareholders at our annual general and special meetings held on May 14, 2004 and May 4, 2007, respectively. The Original Rights Plan expired on March 11, 2010. The successor Plan became effective on March 8, 2010 and was confirmed by a majority of our shareholders at the annual and special meeting of our shareholders held on May 11, 2010. The Plan is designed to ensure the fair treatment of our shareholders in the event of a take-over bid for the common shares and to provide the Board of Directors and our shareholders with more time to evaluate any unsolicited takeover bid and, if appropriate, to seek out other alternatives to maximize shareholder value. Under the terms of the Plan, one right is issued and attached to each common share.

 

The Plan is similar to shareholders’ rights plans adopted by a number of other Canadian companies. The Plan is not intended to block take-over bids. The Plan includes “Permitted Bid” provisions which do not invoke the dilutive effects of the Plan if a take-over bid is made by way of a take-over bid circular that remains open for a minimum of 60 days and is accepted by not less than 50 per cent of the common shares held by independent shareholders. The Plan will be invoked by an acquisition bid, other than pursuant to a Permitted Bid, of 20% or more of the outstanding common shares or the commencement of a take-over bid that is not a Permitted Bid.

 

The following description of the particular terms of the notes supplements the general description of the notes set forth in the accompanying prospectus under the heading “Description of Debt Securities.” It is important for you to consider the information contained in the accompanying prospectus and this prospectus supplement before making your decision to invest in the notes. If any specific information regarding the notes in this prospectus supplement is inconsistent with the more general description of the notes described in the prospectus, you should rely on the information contained in this prospectus supplement.

 

The following summary of the material terms of the notes and the indenture by and between Northgate, as issuer, and The Bank of New York Mellon and BNY Trust Company of Canada, as trustees (which we refer to as the “trustee”), including the supplement to that indenture concerning the notes (we refer to the indenture so supplemented as the “indenture”). This summary does not purport to be complete and is subject, and qualified in its entirety by reference, to the detailed provisions of the notes and the indenture. We will provide copies of the indenture and the notes to you upon request, and they are also available for inspection at the office of the trustee. Those documents, and not this description, define your legal rights as a holder of the notes.

 

GENERAL

 

The notes bear interest at a rate of 3.50% per annum payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2011, to holders of record at the close of business on the preceding March 15 and September 15, respectively, except as described below.

 

The notes we are offering:

 

 

The notes mature on October 1, 2016. All cash payments on the notes will be made in U.S. dollars.

 

We will issue the notes in denominations of integral multiples of $1,000 principal amount, without coupons. We will initially issue the notes as global securities in book-entry form. We will make payments in respect of notes represented by global securities by wire transfer of immediately available funds to DTC or its nominee as registered owner of the global securities. We will make payments in respect of notes that are issued in certificated form by wire transfer of immediately available funds to the accounts specified by each holder of more than $5.0 million aggregate principal amount of the notes. However, if a holder of a certificated note does not specify an account, or holds $5.0 million or

 

Description of notes

 

 

less in aggregate principal amount of the notes, then we will mail a check to that holder’s registered address.

 

You may convert notes at the office of the conversion agent, present notes for registration of transfer at the office of the registrar for the notes and present notes for payment at maturity at the office of the paying agent. We have appointed the trustee as the initial conversion agent, registrar, bid solicitation agent and paying agent for the notes.

 

We will not provide a sinking fund for the notes. The indenture does not contain any financial covenants and will not limit our ability to incur additional indebtedness, including senior or secured indebtedness, pay dividends or repurchase our securities. In addition, the indenture does not provide any protection to holders of notes in the event of a highly leveraged transaction or a change in control, except as, and only to the limited extent, described under “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change,” “—Offer to purchase upon a fundamental change” and “—Consolidation, merger and sale of assets.”

 

If any payment date with respect to the notes falls on a day that is not a business day, we will make the payment on the next business day. The payment made on the next business day will be treated as though it had been made on the original payment date, and no interest will accrue on the payment for the additional period of time. The term “business day” means, with respect to any note, any day other than a Saturday, a Sunday or a day on which banks in either New York City or Toronto are closed.

 

We may, without the consent of the holders, issue additional notes under the indenture with the same terms and with the same CUSIP numbers as the notes offered hereby in an unlimited aggregate principal amount; provided that such additional notes must be part of the same issue as the notes offered hereby for Canadian and U.S. federal income tax purposes.

 

RANKING

 

The notes will be our unsecured senior obligations and will rank equally with all our other unsecured senior indebtedness. However, the notes will be effectively subordinated to any of our existing and future secured indebtedness to the extent of the assets securing such indebtedness. The notes will also be structurally subordinated to all liabilities, including trade payables and lease obligations, of our subsidiaries. Any right by us to receive the assets of any of our subsidiaries upon a liquidation or reorganization of that subsidiary, and the consequent right of the holders of the notes to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, except to the extent that we are recognized as a creditor of such subsidiary, in which case our claims would still be subordinated to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary that is senior to that held by us.

 

As of June 30, 2010, we had $51.9 million in secured indebtedness outstanding, which amount is comprised of our short-term loan obligation of $40.8 million, short-term equipment lease obligations of $6.7 million and long-term equipment lease obligations of $4.4 million.

 

Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the notes or to make any funds available for payment on the notes, whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to us by our subsidiaries may be subject to statutory, contractual or other restrictions, may depend on their earnings or financial condition and are subject to various business considerations. As a result, we may be unable to gain access to the cash flow or assets of our subsidiaries.

 

The indenture does not limit the amount of additional indebtedness, including senior or secured indebtedness, which we can create, incur, assume or guarantee, nor does the indenture limit the amount of indebtedness or other liabilities that our subsidiaries can create, incur, assume or guarantee.

 

Description of notes

 

 

INTEREST PAYMENTS

 

We will pay interest on the notes at a rate of 3.50% per annum payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2011. Except as described below, we will pay interest that is due on an interest payment date to holders of record at the close of business on the preceding March 15 and September 15, respectively. Interest will accrue on the notes from, and including, October 5, 2010 or from, and including, the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date or maturity date, as the case may be. We will pay interest on the notes on the basis of a 360-day year consisting of twelve 30-day months.

 

If notes are converted after the close of business on a record date but prior to the open of business on the next interest payment date, holders of such notes at the close of business on the record date will, on the corresponding interest payment date, receive the full amount of the interest payable on such notes on that interest payment date notwithstanding the conversion. However, a holder who surrenders a note for conversion after the close of business on a record date but prior to the open of business on the next interest payment date must pay to the conversion agent, upon surrender, an amount equal to the full amount of interest payable on the corresponding interest payment date on the note so converted; provided that no such interest payment need be made to us:

 

 

For purposes only of disclosure under the Interest Act (Canada), the yearly rate of interest to which interest calculated under the notes for any period in any calendar year (the “calculation period”) is equivalent, is the rate of interest payable under the note in respect of the calculation period multiplied by a fraction the numerator of which is the actual number of days in such calendar year and the denominator of which is the actual number of days in the calculation period.

 

ADDITIONAL AMOUNTS

 

We will make payments on account of the notes, including by way of delivering our shares or cash on conversion (if applicable), without withholding or deducting on account of any present or future duty, levy, impost, assessment or other governmental charge (including, without limitation, penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having the power to tax (“Canadian taxes”), unless we are required by law or the interpretation or administration thereof, to withhold or deduct Canadian taxes. If we are required to withhold or deduct any amount on account of Canadian taxes, we will make such withholding or deduction and pay as additional interest the additional amounts (“additional amounts”) necessary so that the net amount received by each holder of notes after the withholding or deduction (including with respect to additional amounts) will not be less than the amount the holder would have received if the Canadian taxes had not been withheld or deducted. We will make a similar payment of additional amounts to holders of notes (other than excluded holders) that are exempt from withholding but are required to pay tax directly on amounts otherwise subject to withholding. However, no additional amounts will be payable with

 

Description of notes

 

 

respect to a payment made to a holder or former holder of notes (an “excluded holder”) in respect of the beneficial owner thereof:

 

 

We will remit the amount we withhold or deduct to the relevant authority. Additional amounts will be paid in cash semi-annually, at maturity, on any redemption date, on a conversion date or on any purchase date. With respect to references in this prospectus supplement to the payment of principal or interest on any note, such reference shall be deemed to include the payment of additional amounts to the extent that, in such context, additional amounts are, were or would be payable.

 

We will furnish to the trustee, within 30 days after the date the payment of any Canadian taxes is due pursuant to applicable law, certified copies of tax receipts evidencing that such payment has been made. We will indemnify and hold harmless each holder of notes (other than an excluded holder) and upon written request reimburse each such holder for the amount of (i) any Canadian taxes so levied or imposed and paid by such holder as a result of payments made under or with respect to the notes, (ii) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, and (iii) any Canadian taxes levied or imposed and paid by such holder with respect to any reimbursement under (i) and (ii) above, but in all such cases excluding any excluded taxes.

 

The obligation to pay additional amounts or any amounts under the indemnity provision above shall survive any discharge of certain payment obligations in respect of the notes or repayment of the notes.

 

CONVERSION RIGHTS

 

If the conditions for conversion of the notes described under “—Conditions for conversion” and “—Conversion procedures” are satisfied, holders of notes may, subject to prior maturity or repurchase, convert their notes in integral multiples of $1,000 principal amount at an initial conversion rate of 244.9780 common shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $4.08 per common share). The conversion rate, and thus the conversion price, will be subject to adjustment as described below. Except as described below, we will not make any payment or other adjustment on conversion with respect to any accrued interest on the notes, and we will not adjust the conversion rate to account for accrued and unpaid interest. Instead, accrued interest will be deemed to be paid by the consideration received by the holder upon conversion. As a result,

 

Description of notes

 

 

accrued interest is deemed to be paid in full rather than cancelled, extinguished or forfeited. Upon conversion of the notes into a combination of cash and our common shares, accrued and unpaid interest will be deemed to be paid first out of the cash paid upon such conversion.

 

We will not issue fractional shares upon conversion of notes. Instead, we will pay cash in lieu of fractional shares based on the closing sale price of our common shares on the conversion date (if we deliver solely our common shares to satisfy our conversion obligation, other than solely cash in lieu of fractional shares, or if we have irrevocably elected full physical settlement) or the closing sale price of our common shares on the last trading day of the relevant cash settlement averaging period (as defined below) (if we pay cash to satisfy a portion, but less than all, of our conversion obligation, other than solely cash in lieu of any fractional share.

 

In certain circumstances, a holder must, upon conversion, pay interest if the conversion occurs after the close of business on a record date and prior to the open of business on the next interest payment date. See “—Interest payments” above. A note for which a holder has delivered a fundamental change repurchase notice, as described below, may be surrendered for conversion only if the holder withdraws the notice in accordance with the indenture, unless we default in the payment of the fundamental change repurchase price.

 

“Closing sale price” on any date means the per share price of our common shares on such date, determined (i) on the basis of the closing per share sale price (or if no closing per share sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date on the primary. national or regional securities exchange on which our common shares are listed; or (ii) if our common shares are not listed on a national or regional securities exchange, as reported by Pink OTC Markets Inc. or a similar organization; provided, however, that in the absence of any such report or quotation, the closing sale price shall be the price determined by a nationally recognized independent investment banking firm retained by us for such purpose as most accurately reflecting the per share price that a fully informed buyer, acting on his own accord, would pay to a fully informed seller, acting on his own accord in an arms-length transaction, for our common shares.

 

CONDITIONS FOR CONVERSION

 

The notes will be convertible only during certain periods or in certain circumstances, which we describe below. If the notes become convertible, we will provide written notice to each registered holder, at its address appearing in the security register, and we will publicly announce, through a reputable national newswire service, that the notes have become convertible, stating, among other things:

 

 

We will mail the notice, and make the public announcement, as soon as practicable, but in no event later than the open of business on the business day following the date the notes become convertible as a result of the event.

 

Description of notes

 

 

 

Holders may surrender their notes for conversion only in the following circumstances:

 

Conversion based on price of common shares

 

Prior to July 1, 2016, holders may surrender their notes for conversion during any calendar quarter after the calendar quarter ending December 31, 2010 (and only during such calendar quarter), if the “closing sale price” of our common shares for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price of the notes (the “conversion trigger price”) in effect on the last trading day of the immediately preceding calendar quarter.

 

Our board of directors will make appropriate adjustments to the closing sale price, in its good faith determination, to account for any adjustment to the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the “ex-date” of the event occurs, during the 30 consecutive trading day period described above.

 

Conversion upon satisfaction of the trading price condition

 

Prior to July 1, 2016, holders may surrender their notes for conversion during the five consecutive business days immediately after any ten consecutive trading day period (we refer to this ten consecutive trading day period as the “note measurement period”) in which the trading price per $1,000 principal amount of the notes, as determined following a request by a holder of notes in accordance with the procedures described below, for each trading day in that note measurement period was equal to or less than 97% of the conversion value of the notes on such trading day. We refer to this condition as the “trading price condition.”

 

Solely for purposes of the trading price condition, the “conversion value” per $1,000 principal amount of notes on each trading day in the note measurement period is the product of the closing sale price per share of common shares and the conversion rate of the notes in effect on that trading day.

 

Except as described below, the “trading price” of the notes on any day means the average of the secondary market bid quotations obtained by the bid solicitation agent for $5.0 million principal amount of notes at approximately 3:30 p.m., New York City time, on such day from three independent nationally recognized securities dealers we select. However, if the bid solicitation agent can reasonably obtain only two such bids, then the average of the two bids will instead be used, and if the bid solicitation agent can reasonably obtain only one such bid, then that one bid will be used. Even still, if on a given day:

 

 

then the trading price per $1,000 principal amount of the notes will be deemed to be equal to 97% of the product of the closing sale price of our common shares on that day and the conversion rate in effect on that day. If we do not so instruct the bid solicitation agent to obtain bids when required, the trading price per $1,000 principal amount of the notes will be deemed to be equal to 97% of the conversion value of the notes on each day we fail to do so.

 

The bid solicitation agent will have no obligation to determine the trading price of the notes unless we have requested it to do so, and we will have no obligation to make such request unless a holder of at least $1.0 million aggregate principal amount of notes provides us with reasonable evidence that the trading price per $1,000 principal amount of the notes would be equal to or less than 97% of the conversion value of the notes. At such time, we will instruct the bid solicitation agent to determine the

 

Description of notes

 

 

trading price of the notes for each of the next ten trading days and on each succeeding trading day until we notify the bid solicitation agent that the trading price condition is no longer satisfied.

 

Conversion upon the occurrence of certain corporate transactions

 

If, prior to July 1, 2016:

 

 

then a holder may surrender its notes for conversion at any time during the period that begins on, and includes, the 35th business day before the date we originally announce as the anticipated effective date of the transaction and ends on, and includes, the 35th business day after the actual effective date of the transaction. In addition, if the transaction is a “make-whole fundamental change,” then the notes may also be surrendered for conversion at any time during the “make-whole conversion period” described under “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change,” and if the transaction is a “fundamental change,” then the notes may also be surrendered for repurchase at any time until, and including, the fundamental change repurchase date for that fundamental change. Holders that convert their notes in connection with a “make-whole fundamental change” may in some circumstances also be entitled to an increased conversion rate. See “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change.” We will notify holders and the trustee (i) as promptly as practicable following the date we publicly announce such transaction but in no event less than 35 business days prior to the anticipated effective date of such transaction or (ii) if we do not have knowledge of such transaction at least 35 business days prior to the anticipated effective date of such transaction, within one business day of the date upon which we receive notice, or otherwise become aware, of such transaction, but in no event later than the actual effective date of such transaction.

 

In addition, if we elect to:

 

 

then we must mail to registered holders written notice of the action or event at least 35 business days before the ex-date for such distribution. Once we have given such notice, holders may surrender their notes for conversion at any time until the earlier of 5:00 p.m., New York City time, on the business day immediately preceding the ex-date and our announcement that such distribution will not take place, even if the notes are not otherwise convertible at such time.

 

Conversion upon notice of redemption

 

If we call the notes for redemption as described under “—Redemption of notes for changes in Canadian tax law,” a holder of notes may convert the notes until the close of business on the business day

 

Description of notes

 

 

immediately preceding the redemption date, after which time the holder’s right to convert will expire unless we default in the payment of the redemption price.

 

Conversion upon delisting

 

Prior to July 1, 2016, holders may surrender their notes for conversion if a delisting event (as defined under “—Events of default” below) occurs and is continuing.

 

Conversion prior to the maturity date

 

The notes may be surrendered for conversion at any time from, and including, July 1, 2016 to, and including, the business day immediately preceding October 1, 2016.

 

CONVERSION PROCEDURES

 

To convert its note into our common shares, cash or a combination of cash and our common shares, as the case may be, a holder must:

 

 

The date a holder complies with these requirements is the “conversion date” under the indenture. If a holder holds a beneficial interest in a global note, to convert such note, a holder must comply with the last two requirements listed above and comply with DTC’s procedures for converting a beneficial interest in a global note. A holder receiving our common shares upon conversion will not be entitled to any rights as a holder of our common shares, including, among other things, the right to vote and receive dividends and notices of shareholder meetings, until the close of business on the conversion date (if we deliver solely our common shares in respect of our conversion obligation, other than solely cash in lieu of fractional shares, or if we have irrevocably elected full physical settlement) or the close of business on the last trading day of the applicable cash settlement averaging period (if we deliver cash in respect of a portion (but not all) of our conversion obligation, other than solely cash in lieu of any fractional share).

 

SETTLEMENT ELECTIONS

 

Upon conversion of the notes, we will deliver to holders our common shares (together with cash in lieu of any fractional share), or, at our election, cash or a combination of cash and our common shares (together with cash in lieu of any fractional share) in satisfaction of our conversion obligation.

 

We will inform the holders through the trustee of the method we choose to satisfy our obligation upon conversion (and the specified cash amount (as defined below), if applicable), as follows:

 

 

Upon surrender of your notes for conversion, we will, subject to limitations imposed by the listing standards of the NYSE Amex described under “—Settlement upon conversion” below, deliver our

 

Description of notes

 

 

common shares or, at our election, cash or a combination of cash and our common shares as described below under “—Settlement upon conversion.”

 

IRREVOCABLE ELECTION OF FULL PHYSICAL SETTLEMENT

 

At any time on or prior to the 33rd business day immediately preceding the maturity date, we may irrevocably elect to satisfy our conversion obligation with respect to the notes to be converted after the date of such election by delivering solely our common shares (other than solely cash in lieu of any fractional share). We refer to this election as a “full physical settlement election,” which will be in our sole discretion without the consent of the holders of notes.

 

Upon making such election, we will promptly (i) issue a press release and use our reasonable best efforts to post such information on our website or otherwise publicly disclose this information and (ii) provide written notice to the holders of the notes in a manner contemplated by the indenture, including through the facilities of the DTC.

 

CASH SETTLEMENT NOTICES

 

If we choose to satisfy a portion (but not all) of our conversion obligation in cash, other than solely cash in lieu of any fractional share, we will notify holders as described above of the amount to be satisfied in cash as a fixed dollar amount per $1,000 principal amount of notes (the “specified cash amount”). If we choose to satisfy a portion (but not all) of our conversion obligation in cash (other than solely cash in lieu of any fractional share), and we fail to timely notify converting holders of the specified cash amount, the specified cash amount will be deemed to be $1,000.

 

We will treat all converting holders with the same conversion date in the same manner. Except for any conversions that occur on or after the 32nd business day immediately preceding the maturity date, we will not, however, have any obligation to settle conversions occurring on different conversion dates in the same manner. That is, we may choose with respect to one conversion date to settle by delivering solely our common shares and choose with respect to another conversion date to settle by paying cash or paying or delivering, as the case may be, a combination of cash and our common shares.

 

SETTLEMENT UPON CONVERSION

 

If we settle a conversion of notes by delivering solely our common shares (other than solely cash in lieu of fractional shares), such settlement will occur within three business days of the relevant conversion date.

 

Except in connection with certain make-whole fundamental changes described in the second bullet of the definition thereof, where the consideration is comprised entirely of cash as described under “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change—The increase in the conversion rate,” settlements made entirely or partially in cash (other than solely cash in lieu of fractional shares) will occur on the third business day following the final trading day of the applicable cash settlement averaging period.

 

The amount of cash and number of our common shares, as the case may be, due upon conversion will be determined as follows:

 

(1)  if we satisfy the entire conversion obligation by delivering our common shares, we will deliver to the converting holder a number of our common shares equal to (i) (A) the aggregate principal amount of notes to be converted, divided by (B) $1,000, multiplied by (ii) the conversion rate in effect on the relevant conversion date (provided that we will deliver cash in lieu of fractional shares as described above);

 

Description of notes