Galore Creek situationFor those of you following the Galore Creek situation I post the following article.
I considered posting it on the NovaGold board, but due what happened to the stock-price recently you can imagine the bitch-fest that's taking place there...
NovaGold headwinds hit Galore Creek
Darcy Keith
25 November 2008
American Metal Market
NovaGold Resources Inc. is facing a serious cash squeeze that could result in it losing control of the Galore Creek project in British Columbia, one of the world's largest undeveloped copper-gold ore bodies.
Vancouver, British Columbia-based NovaGold said it did not pay a Canadian $1.9-million ($1.5-million) payment that was due Monday for its Galore Creek partnership with Teck Cominco Ltd. The company said it will discuss possible alternatives with Teck Cominco, but if it fails to reach a revised agreement NovaGold's interest in the partnership may be diluted to 49.8 percent from 50 percent.
That would give Teck Cominco enough of an ownership stake to call the shots on Galore Creek's future, said Greg Waller, Teck Cominco's vice president of investor relations and strategic analysis.
NovaGold's cash position has dwindled to C$10 million ($8.2 million) and it is scrambling to find ways to pay a $20-million bridge loan due Dec. 29. The company said Monday it had to suspend production at its only producing mine, the 100,000-ounce-per-year Rock Creek gold deposit in Alaska, due to a number of mechanical and state environmental problems since its start-up in September.
Without the cash flow from the 100-percent-owned mine to help pay for exploration and feasibility studies on its larger properties, NovaGold is in a bind. It is attempting to raise additional equity and debt financing, a difficult proposition given that credit is largely unavailable right now for smaller mining concerns and there is minimal investor appetite for new equity offerings.
NovaGold said it also is considering selling assets and "other restructuring alternatives."
"If NovaGold is not able to raise additional cash in December, it will not have sufficient cash to meet its obligations," the company said.
Teck Cominco, struggling under a massive debt load that helped pay for its $14-billion takeover of Fording Canadian Coal Trust in July, would be hard pressed to buy out NovaGold's stake in Galore Creek, analysts said. Teck Cominco, also based in Vancouver, announced last week a drastic debt-reduction plan for 2009 (AMM, Nov. 21).
Waller would not comment on whether Teck Cominco would consider buying a further stake in Galore Creek. "We will discuss alternatives with them, but I can't say anything more than that," he said.
More likely, Barrick Gold Corp., Toronto, which owns the other 50-percent stake in Donlin Creek in Alaska, would buy out NovaGold's interest in that development project, analysts say. Two years ago, Barrick launched a $1.7-billion hostile takeover of NovaGold that failed to win over shareholders.
Development of Galore Creek was halted one year ago after estimated costs more than doubled to C$5 billion ($4.08 billion). NovaGold was expected to announce a new development plan for Galore Creek this fall that would improve the project's economics and allow it to proceed to the feasibility study stage, but that never materialized.
Waller would not say when a new mine plan is expected. "We don't have any plans to make any development decision on it for quite a while," he said, adding that the company's expenditures on Galore Creek currently are minimal.
The mine is expected to yield about 430 million pounds of copper, 340,000 ounces of gold and 4 million ounces of silver annually.
NovaGold executives did not return telephone calls seeking comment.