Editor’s Picks: Back Slapping Galore

An unabashedly good news story right here in Canada highlighted the week ended May 26, the twenty-first trading week of 2007.

* After having so much focus directed towards its Donlin Creek gold project in Alaska and Barrick Gold’s now-rebuffed hostile bid, NovaGold Resources surprised the market by bringing in an ideal partner, Teck Cominco, to develop on a 50-50 basis the junior’s huge, low-grade, wholly owned Galore Creek copper-gold deposit in northwestern British Columbia.

To earn a half interest in the new Galore Creek partnership, Teck must fund the next US$478 million in construction costs, with each company equally funding the $2-billion project thereafter.

To announce the deal, the heads of the two companies, the B.C. government and the Tahltan First Nation all gathered at 999 Canada Place in Vancouver for a round of back slapping and effusive praise for each other. With B.C.’s First Nations often bitterly divided even within individual tribes, we’ll see how long the good feelings last.

Nevertheless, the project’s go-ahead is a big step towards opening up B.C.’s northwestern frontier, and NovaGold’s impacts and benefits agreement with the Tahltan may indeed serve as a template for future mineral development elsewhere in Canada’s North.

With NovaGold’s share price now recovering after its tumble in mid-April following Barrick’s abandonment of its hostile bid, NovaGold shareholders must be relieved to see that the stock has bounced off a new fundamental support level around $15.

Failing any surprise merger or acquisition, the next bit of major news for NovaGold will come in November, when Barrick is scheduled to have completed a full feasibility study at Donlin Creek and make a positive production decision, at which time Barrick’s stake rises to 70% from 30%, and NovaGold’s falls accordingly.

NovaGold says Barrick can’t do it in time and will remain stuck at 30%, but we continue to bet otherwise, in a nod to Barrick’s great operational and financial depth. Plus, some big egos are on the line.

Teck’s limited move into copper-heavy Galore Creek, rather than an easily affordable acquisition of the more gold-oriented NovaGold in its entirety, speaks volumes about the major’s Rio Tinto-esque ambivalence towards gold, and makes that much more believable the rumours that Teck is prepared to spin off its gold assets.

* Pulling out an extra $620 million from its wallet, Norilsk Nickel came back with an enhanced hostile bid for LionOre Mining International, boosting by $6 its cash offer to $27.50 per share, and beating out Xstrata’s revised, friendly bid of $25. Norilsk had rightly grumbled about the excessive $305-million break fee payable to Xstrata, but we all knew the Russian miner had a bad case of auction fever, and would come back for more.

LionOre’s directors, after pondering it for a day, told its shareholders that, yes, a $27.50 cash offer was indeed superior to a $25 cash offer.

Clearly getting a little squeamish, Xstrata closed the week by merely extending its inferior offer to June 7 from May 25.

* In Montreal, another non-surprise was the Alcan board of directors’ unanimous rejection on May 22 of Alcoa’s hostile cash-and-share offer. Alcan president and CEO Dick Evans commented that, “despite two years of approaches by Alcoa, at no time was Alcan presented a compelling proposal — either in terms of economics, structure or conditionality — that was in the best interests of our shareholders.”

The latest speculation is that Alcan may turn the tables and bid for Alcoa. However, it’s likely other mining behemoths are eyeing both aluminum giants, so we’re still expecting plenty more twists and turns before this is over.

* Coeur d’Alene Mines is in deep trouble and “reviewing its options” at its Kensington gold mine in Alaska’s panhandle. On May 22, the company lost its appeal of a March 16, 2007, ruling that overturned a lower court decision that had upheld the validity of a tailings disposal permit for Kensington. Simply put: no tailings permit means no mining. The stock is off 50% since the start of the year.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.