Many observers are rooting for plucky little NOVAGOLD RESOURCES as it fights a hostile takeover by BARRICK GOLD. Last July Barrick offered US$14.50 per share for 50.1% of the outstanding shares of the smaller company. The offer is low, considering that NovaGold shares are now trading around Cdn$17.00.
At stake is control of the Donlin Creek gold project in Alaska. An interest in the property dropped in Barrick’s lap when it took over Placer Dome. As the deal stands now, NovaGold owns 70% of the project while Barrick holds 30% and is the operator. Barrick has an option on the Donlin Creek property to increase its stake to 70% by spending US$32 million for exploration including a feasibility study.
NovaGold recently released a preliminary economic study indicating that during its first seven years of operation the Donlin Creek mine could produce 1.9 million oz of gold annually, and over the 22-year life of the project production would average 1.4 million oz per year. There could be more than 30 million oz of gold in the deposit. Estimating cash costs at US$223/oz for the first seven years and US$276/oz thereafter, NovaGold says the total construction cost of US$2.0 billion would be recouped in less than five years.
NovaGold said it prepared the study to provide its shareholders and the market with updated information about Donlin Creek in light of Barrick’s offer. But the company also said the report was prepared without the results of the 2006 drilling program conducted by Barrick.
The partners approved an 80,000-m drilling program for 2006. The aim is to convert resources, expand the deposits, gather geotechnical information, and test the carbonate resources. NovaGold reported some of the results from this year’s program, notably long, low-grade intersections. The longest intersection was 194 m grading 3.64 g/t Au; the best grade was 5.01 g/t Au over 104 m. It put measured and indicated resources at 215 million tonnes grading 2.40 g/t Au plus inferred resources totalling 227 million tonnes at 2.34 g/t Au.
NovaGold believes Barrick will miss the November 2007 deadline for the feasibility study, and total control of Donlin Creek will revert to NovaGold. Barrick needs this project to build its reserves and remain the largest gold producer in the world.
With Barrick’s current offer set to expire on Oct. 12, the fight may soon be over. Or it may not. If NovaGold shareholders reject Barrick’s offer, the larger company may use a different line of attack to make a second attempt at NovaGold. Or the smaller company may “win” until it is forced to give up another 40% of the Donlin Creek project. Either way, lawyers for both sides are profiting now.