Editorial: Closing time at Rick’s golden cafe

A big chapter in the corporate life of NovaGold Resources came to a close, with long-time president and CEO Rick Van Nieuwenhuyse bowing out of the company. The charismatic executive will stick around as a NovaGold director and as president of a small, planned spin-off company named NovaCopper, which will launch with NovaGold’s Ambler volcanogenic massive sulphide project in northwestern Alaska.

Stepping in NovaGold president and CEO is the well-regarded Gregory Lang, who is leaving his position as president of Barrick Gold for North America. NovaGold and Barrick are already fifty-fifty partners at NovaGold’s flagship asset at the huge, but low-grade and remote, Donlin gold project in Alaska.

Barrick and NovaGold have a long, complex joint-venture relationship at Donlin Gold (formerly named Donlin Creek) that came to a head in July 2006 when Barrick – chuffed after its successful, pivotal takeover of Placer Dome – launched its hostile US$14.50-per-share bid for NovaGold, effectively offering a 24% premium and valuing the entire company at US$1.5 billion. Barrick raised the bid to $16 at the end of 2006.

NovaGold shareholders had already enjoyed a remarkable 70% compound annual growth rate in share price over the previous seven years.

At the time the hostile bid was launched, NovaGold had a 70% interest in Donlin, versus Barrick’s 30% acquired though Placer, and the deposit soon boasted measured and indicated resources of 16.6 million oz. gold, plus another 17.1 million oz. gold in the inferred category.

NovaGold countered that Barrick was late in its work commitments, and the two sides tried suing each other for a while.

After a year of fending off the hostile offer, the two sides kissed and made up, and forged their current joint venture.

There’s no getting around it: one of Van Nieuwenhuyse’s legacies will be his colossally foolish rallying of NovaGold shareholders to reject Barrick’s $16 bid. By late 2008, in the darkest days of the recession, NovaGold shares traded at 48¢, or a mind-bending 3% of the bid’s value two years earlier.

Of course, NovaGold also co-owns with Teck Resources the Galore Creek copper-gold deposit in northern B.C., which is also hampered by its remoteness but stands as one of the world’s largest undeveloped copper-gold deposits.

• It’s always been a tantalizing but risky project, so there isn’t a huge feeling of surprise with London-based Antofagasta confirming that the government of Balochistan province in Pakistan has rejected a mining lease application for the gigantic Reko Diq copper-gold project that was submitted in February by Tethyan Copper, a fifty-fifty partnership between Antofagasta and Barrick Gold.

“This move now opens the door for Chinese entities who have been waiting in the wings to gain control of the asset,” Canaccord Wealth Management said. A Chinese company already operates the nearby Saindak gold-copper mine in the province.

Tethyan Copper’s principal asset has been its 75% interest in the exploration licence encompassing the Reko Diq prospects in the Chagai Hills region of southwestern Pakistan, including the western porphyries. The Balochistan government owns the remaining 25% interest.

Reko Diq has estimated resources of 5.9 billion tonnes with an average copper grade of 0.41% and an average gold grade of 0.22 gram per tonne. Antofagasta’s attributable share of the joint-venture interest amounted to 2.2 billion tonnes.

A feasibility study of the project submitted in August 2010 demonstrated US$3.3 billion in capital costs on a 100% basis considering a 110,000-tonne-per-day plant, which would be capable of future expansions. The study outlined average annual production for the operation’s first five years at 190,000 tonnes copper and 270,000 oz. gold on a 100% basis.

Cash costs before by-product credits were estimated at US$1.40 per lb., with the gold credit reducing net cash costs by an estimated 6.5¢ for every US$100 in the gold price.

Canaccord estimates the Antofagasta-Barrick joint-venture spent $220 million completing the feasibility study.

Antofagasta says it’s studying its options, while Barrick didn’t even put out a press release on the matter. Earlier in the year, Barrick CEO Aaron Regent called Reko Diq “an outstanding deposit, and also technically fairly straightforward . . . it just happens to be located in a very challenging country.”