NovaGold Drops Poison Pill, Challenges Barrick
By Jon A. Nones
25 Sep 2006 at 04:38 PM
DENVER (ResourceInvestor.com) -- As the battle wages on against Barrick’s [NYSE:ABX; TSX:ABX] $1.5 billion takeover bid, NovaGold Resources [TSX:NG; AMEX:NG] released two announcements today: first, that its 70%-owned Donlin Creek project in southwestern Alaska could produce almost 2 million ounces of gold per annum, and second, that it has dropped its shareholder rights plan.
“Donlin Creek is one of the largest gold deposits in the world, truly an amazing gold system,” Rick Van Nieuwenhuyse, president and CEO of NovaGold, told listeners at the Denver Gold Forum 2006.
According to a study by SRK Consulting, Donlin Creek could turn out 1.9 million ounces annually for the first seven years at a cash cost of $223 an ounce. Over a 22-year open-pit mine life, projected production would average 1.4 million ounces at a cost of $276 an ounce.
At the base case $500/oz of gold, the study estimates a net present value at discount rates of 0% and 5% of $3 billion and $1 billion, respectively, with a payback of capital costs in less than 5 years. A gold price of $550/oz increases the NPV 5% to $1.45 billion, while a gold price of $450/oz decreases the NPV 5% to $554 million.
The property contains Measured and Indicated Resources of 16.6 million ounces of gold and an Inferred Resource of 17.1 million ounces. As the subject of much controversy, legally and otherwise, NovaGold reiterated during a presentation today that 30%-owner Barrick has not made much progress on the property.
To recap, under the terms of the Mining Venture Agreement, Barrick has a back-in option to potentially earn an additional 40% interest of Donlin by spending a minimum of $32 million on the property, completing a bankable Feasibility Study and making a board decision by November 2007 to construct a mine with an anticipated production rate of no less than 600,000 ounces of gold per year for the first 5 years of production.
NovaGold believes it will not be possible for Barrick to meet the terms and conditions of agreement, and has filed a lawsuit against Barrick in U.S. District Court for the District of Alaska seeking a declaratory judgment to clarify the requirements Barrick must satisfy to earn an additional 40% interest in Donlin Creek.
However, on September 15, the Honourable Timothy M. Burgess, U.S. District Court Judge for the District of Alaska, denied the motion filed by NovaGold requesting an expedited hearing. The court concluded on September 13 that although there was a “genuine dispute,” NovaGold's shareholders have sufficient information to determine whether they should tender their shares.
Nieuwenhuyse challenged Barrick to appear in court. He said he was confident that the court would rule in favour of NovaGold when the facts are presented.
So today, NovaGold put its money where its month is, voting to unanimously wave the company’s application of the Shareholder Rights Plan in regards to Barrick’s bid.
“Barrick wants NovaGold, but hasn’t offered to pay a fair price,” said Nieuwenhuyse.
*As of 23 July 2006, NovaGold has no recorded proven and probable reserves. RI used 80% of M&I resources as P&P reserves and assumed an annual production estimate of 750,000 ounces of gold at an average rate of $291/oz based on information from NovaGold's website.
According the company, the board's decision is based on discussions with a significant number of major shareholders who have indicated they will not tender their shares at Barrick’s offering price of $14.50 because “it does not reflect the fundamental value of NovaGold.”
This ultimately clears the way for NovaGold shareholders to freely express their views on the Barrick bid before it expires on September 29, 2006.
At same time today, Barrick announced it had acquired 89% of the shares of Pioneer Metals [TSX:PSM], and extended its offer until October 19.
Nieuwenhuyse concluded his speech mentioning a news story that circulated in the press last week, claiming Canadian executives don’t have any “balls.” NovaGold brought stress balls to the forum as gifts to attendees.
“It’s time for Barrick to put its balls on the table, or go play another game,” he concluded.
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