Barrick makes move on NovaGold

In a significant, but not altogether surprising move, Toronto-based Barrick Gold has made a hostile takeover bid for Vancouver-based NovaGold Resources, the owner of several assets in Alaska and British Columbia. At the same time, Barrick and Vancouver-based Pioneer Metals announced an agreement for Barrick, the world's largest gold producer, to acquire Pioneer. The deals are all related because NovaGold was in the midst of a hostile takeover bid for Pioneer. Pioneer owns claims that could be crucial to the development of NovaGold's Galore Creek project.

The offer from Barrick was somewhat predictable as the company had already moved into Alaska late last year when it acquired Vancouver-based Placer Dome, which was developing the Donlin Creek gold project. Donlin Creek, located in Alaska's historic Kuskokwim Gold Belt, is a joint venture with NovaGold, which owns a 70 percent interest in the property. Barrick was set to earn an additional 40 percent interest in NovaGold if it produced a bankable feasibility study by November 2007.

Barrick's offer of US$14.50 per NovaGold share, which it announced July 24, represents a premium of 24 percent over the July 21 closing price of the company's shares on the AMEX. The transaction is valued at US$1.29 billion (or $1.53 billion on a fully diluted basis), according to Barrick. The major also offered C$1.00 per share for Pioneer, in a transaction valued at C$60.1 million (or C$64.7 million on a fully diluted basis). This topped NovaGold's hostile bid of C$0.57 per share, which Pioneer had been fighting vigorously. Pioneer announced that its directors, officers and largest shareholders had agreed to accept Barrick's offer.

NovaGold permitting projects

NovaGold recently submitted permit applications for its Rock Creek gold project near Nome and its Galore Creek copper-gold-silver project in northwestern British Columbia. The Galore Creek project was being hindered by a dispute between NovaGold and Pioneer that flared up when Pioneer sued NovaGold last year. NovaGold was hoping to use Pioneer's Grace property as part of its tailings facility for Galore Creek, after completing condemnation drilling that showed there was no significant mineralization on the claims. Pioneer refused to agree with that assessment, and as a consequence, NovaGold made its bid for Pioneer in June.

The possibility of NovaGold taking over Pioneer served as a catalyst for Barrick to act immediately, according to the company's president and CEO, Greg Wilkins. Barrick's management had previously held talks with NovaGold about opportunities for more joint projects, but nothing that was discussed seemed satisfactory to Barrick. The major gave NovaGold no prior warning about its bid, but Barrick was obviously well-prepared, with a Web cast and a presentation going up on its Web site on the day of the bid.

The integration of Placer Dome into Barrick has been very successful, Wilkins said in an interview with Bloomberg News. "Our strategy is really to build a portfolio of long-life assets, and so we sort of looked around at various opportunities, we actually did a small deal in Pakistan back in March, and we just looked at Nova's assets and the two projects that they had were very attractive to us," Wilkins said. The two projects he was referring to were Galore Creek and Donlin Creek. Barrick is giving no indications yet about what it might do with Rock Creek or NovaGold's Ambler exploration project, also in Alaska.

Wilkins: more work needed at Donlin Creek

Wilkins gave few details about current activities at Donlin Creek in the Web cast, during which he answered questions from investors. He did say that "significant" exploration is taking place there and that Placer Dome's original timeline for the development of Donlin Creek was "on the optimistic side." A lot more work will be needed to take Donlin Creek to the pre-feasibility stage, Wilkins added.

Barrick's Eskay Creek mine is very close to Galore Creek and is not expected to be in operation much longer. As Eskay Creek winds down, manpower and expertise will be available for Galore Creek, Wilkins told investors. It is also useful that Barrick has experience dealing with the government of British Columbia and with the First Nations in the region, he said. On the whole, North America is an attractive place for mining for geopolitical reasons, too, Wilkins said. Donlin Creek and Galore Creek play to Barrick's strengths in the spheres of permitting and development, and there should be a "minimal integration risk", according to Wilkins, since Barrick already manages Donlin Creek.

While gold is volatile and there is momentum in the market, it makes sense for Barrick to increase its exposure to gold through the NovaGold transaction, Wilkins said. If the bid is successful, Barrick will "have an unrivaled pipeline of reserve replacement and growth potential in the industry," he added.

NovaGold: 'disappointed'

NovaGold's president and CEO, Rick Van Nieuwenhuyse, responded that he was "disappointed" by Barrick's offer. "NovaGold management believes that the offer proposed by Barrick dramatically undervalues NovaGold's world-class portfolio of gold and copper assets and would not adequately compensate NovaGold's shareholders for the loss of opportunity to participate in the future growth in the value of the company's assets as they continue to move toward production," the company said in a release July 25.

"By making an offer for NovaGold, Barrick has clearly acknowledged the quality and caliber of the NovaGold assets," Van Nieuwenhuyse said. "We have assembled one of the best teams in the industry and are confident in our ability to turn these projects into world class producing mines and thereby add shareholder value over the next few years."

NovaGold drew attention to Barrick's statement that acquiring NovaGold would expand Barrick's North American measured and indicated resources by 54 percent and its inferred resources by 89 percent. NovaGold has appointed a special committee to deal with the takeover bid, and has retained RBC Dominion Securities as a financial advisor and Blake, Cassels & Graydon LLP as a legal advisor. The company recently adopted a shareholder rights plan which is designed to protect the interest of all shareholders.