NovaGold, Barrick to split Donlin 50/50

Vancouver — After long legal disputes and lots of nasty words, NovaGold Resources (NG-T, NG-X) and Barrick Gold (ABX-T, ABX-N) have decided to bury the hatchet and work together to advance the large-scale, low-grade Donlin Creek gold project in Alaska.

The agreement calls for a new limited liability company, jointly owned by NovaGold and Barrick on a 50/50 basis, to develop the mega gold project. The companies have agreed to drop all lawsuits against each other.

“We are very excited to see the project move forward,” says NovaGold president and CEO Rick Van Van Nieuwenhuyse. “It was obviously in the best interests of both companies to find a win-win situation, so we negotiated an agreement that allows both companies to play an active role in developing one of the world’s largest undeveloped gold deposits.”

The Donlin Creek agreement marks the end of a year-long battle between the companies that saw NovaGold fight off a hostile takeover bid from Barrick for nine months, and then launch a lawsuit against the company for claiming to be on track to earning a 70% interest in the project. NovaGold said Barrick was too far behind schedule to meet the earn-in conditions, which included the completion of an environmental impact statement, final feasibility study, and a production decision before Nov. 12, 2007.

The companies announced their agreement to advance the project as equal partners less than a week before Barrick’s earn-in deadline. NovaGold has agreed to reimburse Barrick over time for roughly US$63.5 million, representing 50% of Barrick’s spending at Donlin Creek since April 2006. To make the payment, NovaGold will fund the next US$12.7 million of Barrick’s share of the project’s costs, and the remaining amount owing will be paid out of future mine production cash flow. After NovaGold’s initial contribution, all project costs will be equally shared.

A 4-person board of directors will have two members nominated from each company, and Barrick has approved NovaGold’s nomination of Doug Nicholson as the general manager of the project until the end of 2009.

Van Nieuwenhuyse says NovaGold and Barrick will work together to finalize the feasibility study in the next few months.

“Our goal is to begin the permitting and environmental process in mid-2008,” he says.

The companies also plan to release the remaining drill results from this summer’s campaign before year-end, and to complete an updated resource estimate early next year.

The dispute between the two companies boiled over at last year’s Denver Gold Forum, where Van Nieuwenhuyse used his speaking time to sell the merits of Donlin Creek and to slam Barrick’s ability to make good on its project commitments, as well as its offer for NovaGold, which he said undervalued the project.

Barrick’s president and CEO Greg Wilkins countered the next day by taking shots at Van Nieuwenhuyse, downplaying the merits of Donlin Creek, and denying that Barrick couldn’t deliver the Donlin Creek feasibility study on time.

When Barrick finally lost its drawn-out takeover attempt early this year, the gold major sold all of its shares in NovaGold. Mid-April saw Barrick sell off 13.5 million shares of NovaGold, which constituted some 15% of the junior.

Then in July, NovaGold lost its lawsuit, which was launched in August 2006 and alleged breach of contract and breach of fiduciary duty as well as false disclosure by Barrick. The court ruled that it could not predict the future: until the deadline arrived, Barrick could not be found guilty of failing to act on time.

NovaGold inked the earn-in deal with Placer Dome, whose obligations Barrick acquired when it took over Placer in 2006.

To further complicate things, Barrick bought out Pioneer Metals, the junior that holds the Grace claims adjacent to Galore Creek. Galore Creek Mining, a company held jointly by Teck Cominco (tck.b-t, tck-n) and NovaGold, is developing the mega copper-gold project. The Grace claims cover land viewed as the best site for the proposed tailings and waste storage facility for Galore Creek.

Under the new agreement, Barrick will sell the claims to Galore Creek Mining.

The Donlin Creek deposit, which sits in the Kuskokwim gold belt in southwestern Alaska, hosts 16.6 million oz. gold in the measured and indicated categories, plus an inferred resource of 17.1 million oz. gold. A preliminary study by SRK Consulting predicted Donlin could produce 1.4 million oz. gold annually for 22 years, at a cash cost of US$276 per oz., if measured, indicated, and inferred resources are mined, and the deposit is mined at a rate of 60,000 tonnes per day.

The property sits on land under lease from Calista and Kuskokwim, two Alaska native corporations. The agreement states that the new Donlin Creek company is committed to continuing to work closely with the native corporations to develop the project.

The current mine scenario initially focuses on near-surface ore zones that would be amenable to open-pit mining and flotation. In terms of logistics, the project is remote. There is a commercial barge port 19 km south on the Kuskokwim River, near the community of Crooked Creek. SRK’s preliminary economic assessment examined the cost and time to permit and build a powerline for the project that would connect to the Anchorage-Fairbanks power grid.