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Weekly UpdatesOne of Alaska's most active and successful gold prospectors in recent years is transitioning to producer status, with the start of construction this fall of its mid-sized, open-pit gold mine in the Nome area, called Rock Creek.
While Vancouver, B.C.-based NovaGold Resources is in the midst of building a new gold mine in Alaska and permitting a large-scale gold, copper and silver mine in northwestern British Columbia, the junior exploration company is also mired in a heated legal and financial battle to maintain control of the relatively new corporation.
NovaGold's conflict with mining industry giant Barrick Gold is a classic case of a David and Goliath battle with high stakes-the future outcome for NovaGold's properties, containing gold, silver and copper with a total value in excess of $70 billion at today's market prices.
In early August, Barrick launched a hostile bid to acquire NovaGold, offering shareholders a cash bid of $14.50 per share of stock, a proposed transaction valued at approximately $1.3 billion, according to Barrick. That cash offer, while slightly higher than trading prices for NovaGold stock in late July, is now considerably less than the stock is trading for on the open market.
As of late September, Barrick had acquired about 6,700 shares of the 106 million shares outstanding, according to NovaGold president and CEO Rick Van Nieuwenhuyse.
"NovaGold shareholders are not interested in tendering to a bid below market value," he said. "They're interested in exposure to gold, and our company is situated with a lot of gold under our control."
In response to the hostile bid effort by Barrick, NovaGold filed court cases in both Alaska and British Columbia courts, claiming breach of contract and breach of fiduciary duties by Barrick in its joint-venture agreement with NovaGold concerning the Donlin Creek gold property, also in Alaska.
Regarding its Galore Creek property in British Columbia, NovaGold claims that Barrick acted in bad faith-by using confidential information NovaGold shared with its partner to acquire a majority interest in Pioneer Metals Corp., a company NovaGold had been negotiating with regarding surface use of nearby mining claims in a planned open-pit mine and mill complex.
In an August 17 press release, Barrick denied using confidential information in its acquisition of Pioneer and said it will "vigorously defend this proceeding," said Greg Wilkins, president and CEO.
How the court cases and take-over effort will play out remains to be seen. Van Nieuwenhuyse is confident NovaGold shareholders will reject below-market bids by Barrick and corporate managers will continue with "business as usual," he said. "We're not going to let someone steal our company for $14.50 per share ... we're a pretty small company in comparison to Barrick, but we know what we have and what we've built up and what we will be producing, and so do our shareholders."
BUILDING VALUE
NovaGold's short corporate history is chalk full of tenacity by its founders, geological successes and unexpected, but very welcome, market timing. A project manager and geologist for Placer Dome, now owned by Barrick, Van Nieuwenhuyse worked on the Donlin Creek gold exploration project in the mid- 1990s. He left the major mining company in late 1997 to form his own exploration firm, and convinced two other former Placer coworkers to join him.
"When we started, we had no money, no assets, in a very tough market," he said. "From 1998 through 2000, those were not pretty years, but we developed our sand and gravel business in Nome to generate some cash flow."
The small group initially acquired assets of Alaska Gold, a former gold-dredging operation with property in Nome and Fairbanks. Some assets were sold and the Nome area became one of the company's key operations, with sales of sand and gravel from old mining tailings providing funds to explore.
Early on, NovaGold achieved exploration success with the near-surface Shotgun deposit in Southwest Alaska, containing an inferred resource of nearly 1 million ounces of gold. In recent years, NovaGold optioned the property to TNR Gold Corp.
NovaGold also began prospecting Rock Creek, located seven miles from Nome. An opportunity arose at Donlin Creek, as Placer Dome lost interest in the property--and in Alaska by pulling out of the state--during the gold market downturn.
In the 1990s, Placer Dome spent a total of about five years on Donlin Creek and more than $30 million to define a 13-million-ounce gold resource. Although large, it was considered sub-economic with gold prices in the $250 to $275 range.
"When we signed the deal with Placer for Donlin Creek, gold was at $265 an ounce," Van Nieuwenhuyse said. "We got in there and worked hard and had a very successful exploration program, but we also caught the gold market just right."
DOUBLING DONLIN CREEK'S GOLD RESOURCE
NovaGold signed an agreement in 2001 with Placer Dome, giving the junior company an opportunity to earn a 70 percent interest in Donlin Creek by spending $10 million on exploration at the property in a 10-year timeframe.
An aggressive prospector, NovaGold completed its contractual obligation in 16 months and doubled the size of Donlin Creek's resource estimate to more than 28 million ounces.
The two partners signed a new agreement in November 2002, which outlined requirements for Placer Dome to regain a 70 percent controlling interest in Donlin Creek. Placer Dome is required to bring the project to a mine construction decision by spending a minimum of $32 million on the property, including completion of a bankable feasibility study and acquiring necessary permits to operate a large-scale mine and mill that would produce a minimum of 600,000 ounces of gold per year.
The agreement gave Placer Dome five years to complete that work, a timeline termed "realistic" by both companies at the time. In 2003 and 2004, Placer Dome project managers began working on logistical challenges of transportation and power for the remote property, located about 12 miles north of the Kuskokwim River near Cripple Creek. According to the Alaska Mineral Industry 2004 report, Placer Dome's work included a preliminary assessment on the viability and economics of the project, including 11,500 feet of drilling.
Late in 2004, Placer Dome completed an internal scoping study, shared with partner NovaGold. Placer Dome's project manager at the time declined to reveal specific results of that document but said there was "enough encouragement" to launch an $11 million program in 2005 that included substantial drilling.
DONLIN SCHEDULE SLIPS
But Placer Dome was falling behind in work needed to be completed to meet the November 2007 deadline. According to Van Nieuwenhuyse, Placer Dome initiated talks in 2005 with NovaGold to negotiate an extension for the agreement's November 2007 deadline.
Those talks fell to Barrick when it acquired Placer Dome in early 2006.
"Placer had five years and did basically nothing the first three years," Van Nieuwenhuyse said. "Barrick is trying to make it up in the last year."
NovaGold and Barrick continued negotiations this year on a modified timeline solution for the major mining company. The two companies were also discussing a potential joint venture on the Galore Creek project, according to NovaGold, although no mention was made of corporate acquisition.
"We believe Barrick is attempting to acquire NovaGold because Barrick will not meet the back-in milestones at Donlin Creek," NovaGold said on its Web site, and has charged that in its U.S. District Court case.
The hostile bid offer in early August caught NovaGold off-guard, Van Nieuwenhuyse said. "These are not actions becoming of the world's largest mining company," he said. "Just because they're big, they should not do that."
In press releases and public statements, Barrick officials contend that the company will meet the milestones required by the joint-venture agreement, even though a feasibility study has not yet been completed, nor has the permitting process started.
Barrick board members won't require completion of an Environmental Impact Statement before making a decision to construct a mine, spokesman Vincent Borg told the Alaska Journal of Commerce in August. He also cited Barrick's recent large mine development in Chile, where permits were fast-tracked.
Van Nieuwenhuyse challenges that plan to fast-track permitting, especially after completing permit acquisition for NovaGold's project in Nome. "Not even Barrick can collapse that work into such a short timeframe. Alaska is not a place where you can get permits in six months. We protect the environment a lot more here."
He believes NovaGold shareholders will hold out for a fair offer that compensates the company adequately for the large mineral resources discovered and identified. At present, NovaGold has on its books geological resources of 38.5 million ounces of gold, 215.8 million ounces of silver and 13.5 billion pounds of copper.
In addition, NovaGold is exploring the Ambler property in Northwest Alaska, acquiring a 51 percent interest in the property from Rio Tinto. A historical resource calculated for that property shows it contains 3.2 billion pounds of copper, 4.2 billion pounds of zinc, 640 million pounds of lead, 817,000 ounces of gold and 62.1 million ounces of silver.
ROCK CREEK CONSTRUCTION STARTED THIS SUMMER
After planning for several years, including purchasing and shipping construction supplies and mine equipment to Nome the last two summers, NovaGold is on its way to becoming a mid-tier gold producer.
Construction started at Rock Creek in late August, after receiving construction permits from state and federal regulators. Located seven miles from Nome, Rock Creek is being developed as an open-pit, year-round mining operation, on patented private land and land owned by the Bering Straits and Sitnasuak Native corporations.
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