NovaGold Raises US$75M In ‘Gut-Wrenching’ Time

A private New York Citybased company has agreed to take on a 28% interest in cash-strapped NovaGold Resources (NG-T, NG-X) through a US$60-million portion of a US$75-million financing.

Electrum Strategic Resources will be issued nearly 46.2 million shares at US$1.30 each. The shares come with the same number of warrants, which expire in four years and have an exercise price of US$1.50 per share. Another 11.5 million units will be issued to other institutional investors on similar terms.

The net proceeds of US$74 million will allow NovaGold to pay off a US$20-million bridge loan secured in September 2008. The loan was originally due at the end of December, but NovaGold was unable to pay. The maturity date was extended to March 2009.

Greg Johnson, Nova- Gold’s vice-president of strategic development, says the downturn in the markets has caused the value of companies across all industries, including NovaGold, to fall dramatically.

The Electrum bid values the company at about US$200 million, but just two years ago, NovaGold rejected a US$1.7-billion (US$16 per share) takeover offer from Barrick Gold (ABX-T, ABX-N), claiming it undervalued the company.

“These are the same assets that were valued by the same analysts at more than $20 a share a couple years ago,” Johnson says.

Johnson restarted NovaGold alongside president and CEO Rick Van Nieuwenhuyse in 1998, focusing on projects in British Columbia and Alaska. Since then, Johnson says he’s seen swings in the markets, but feels the recent correction has been particularly sharp.

“It’s tough,” he says. “There are a lot of expressions out there for what it feels like to go through these things, but gut-wrenching is definitely what it is.”

Because Electrum will be taking on more than a 25% interest, Nova- Gold would normally have to get shareholder approval, but because of its dire circumstances, the company has applied to the Toronto Stock Exchange for a financial hardship exemption.

If approved, current shareholders will not have a say in choosing the company’s new largest shareholder.

NovaGold shares had risen to $2.53 at presstime from $1.90 per share on Jan. 2, the day the financing was announced. The stock sunk to a 52-week low of 47.5¢ in late November from a 52-week high of $12.25 last January.

Johnson says looking past the current situation is important and that the management has confidence over the long-term.

After the bridge loan is paid off, NovaGold’s top priority will be maintaining its interest and advancing the Donlin Creek gold project, a 50% joint venture with Barrick. The companies are working on a feasibility study with the hopes of building a 50,000-tonne-per-day operation that would produce more than 1-1.5 million oz. gold per year over 25-30 years.

Donlin’s measured and indicated resources stand at 393.8 million tonnes grading 2.5 grams gold per tonne for a total of 31.67 million contained ounces.

NovaGold’s second priority is maintaining its equity interest in the Galore Creek copper-gold project, in northwestern B. C., which is 50% owned by Teck Cominco (TCK. B-T, TCK-N). The project was put on hold in November 2007 due to major capital cost overruns.

Galore Creek has a measured and indicated resource of 786 million tonnes grading 0.29 gram gold per tonne, 4.87 grams silver and 0.52% copper, for 7.27 million oz. gold, 123.09 million oz. silver and 8.93 billion lbs. copper.

The company’s third priority will be bringing its wholly owned Rock Creek gold mine in Alaska back into production. Mining was suspended in the fall due to environmental and operational issues.

Rock Creek contains probable reserves of 9 million tonnes grading 1.76 grams gold per tonne for 510,000 oz. gold.