NovaGold suspends operations at Nome gold mine
Published Monday, November 24, 2008
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Stumble It!EDITOR'S NOTE: Unless noted otherwise, all dollar figures are Canadian.
VANCOUVER, British Columbia -- NovaGold Resources Inc. shares fell to their lowest level in years Monday after the junior miner said it has been unable to raise new money while falling short of state regulatory requirements at the Rock Creek gold mine in Alaska.
The company is suspending operations at Rock Creek and faces being unable to meet its financial obligations next month.
It's also planning to negotiate a new agreement with Teck Cominco Ltd., its partner in the stalled Galore Creek copper-silver-gold project in northern British Columbia.
In early trading Monday, NovaGold's stock plunged 78 percent to 49 cents, its lowest level since 2001. The shares recovered slightly by mid-afternoon to 83 cents, down $1.37 or 62 percent, on a volume of almost 6 million shares. NovaGold shares were trading at $20 a year ago.
NovaGold said it has been "actively seeking additional financing" to pay a $20 million bridge loan it secured in September that is due Dec. 29.
It has spent about US$30 million on Rock Creek since Aug. 31 and is about US$20 million over its most recent budget.
"Since August 31, 2008, the company has been unsuccessful in realizing further cash proceeds from existing assets," NovaGold said in a release.
"As a result of these unbudgeted expenditures, the company's inability to arrange bank financing to repay its bridge loan and realize additional cash from existing assets, and the delay in commissioning of the mill and achieving commercial production at Rock Creek, NovaGold's unconsolidated cash position has decreased to approximately C$10 million," the company said.
NovaGold said it continues to review strategic alternatives, but said there is no assurance a new issue of equity or debt or any other transaction can be completed.
"If NovaGold is not able to raise additional cash in December, it will not have sufficient cash to meet its obligations," the company stated.
The company said it plans to meet a US$3.9-million cash call from its Donlin Creek 50-50 joint venture in Alaska with Barrick Gold (TSX:ABX), but would not meet a C$1.9-million cash call Monday from its Galore Creek partnership.
NovaGold said it will be approaching Teck to discuss alternatives, but faces dilution of its Galore Creek interest to 49.8 percent from 50 percent.
Greg Waller, Teck's vice president of investor relations, said his company will discuss alternatives with NovaGold.
"This shouldn't influence our plans for how we progress with studies for the project," Waller said in an email to The Canadian Press on Monday.
Teck is expected to decide soon if it will go ahead with Galore Creek, which was halted last year after projected costs more than doubled to about $5 billion.
A new plan is expected to be released soon aimed at curbing project expenses.
NovaGold said Monday it will focus its efforts on Donlin Creek "while continuing to seek sources of cash and to take steps to reduce costs."
"We are focusing on addressing our shareholders and our employees during these difficult times," CEO Rick Van Nieuwenhuyse said in an e-mail to The Canadian Press.
At Rock Creek, NovaGold said "complications have arisen" in meeting environmental requirements. The company said Alaska regulators may impose financial penalties or additional mitigation or monitoring requirements.
Rock Creek has experienced "unanticipated mechanical problems including an electrical failure with the milling circuit and the company has ongoing concerns with the efficiency of the process and recovery circuit," NovaGold said, adding that extreme arctic weather has also been a problem for the project.
Hoped-for cash flow from Rock Creek will therefore not be available, while "the regulatory consequences of a suspension are uncertain" and the value of the mine may have to be written down.
"This is definitely two steps back for NovaGold," Salman Partners analyst Haytham Hodaly said of Monday's announcements.
"Its only option right now to not default on the bridge loan is to do some asset sales."
Hodaly said the Galore Creek project is not considered a strong asset because of the price of copper, which has fallen almost 50 percent in recent months.
Also, NovaGold's partner in the project, Teck, has its own debt problems after its US$14-billion takeover of Fording Canadian Coal Trust which closed last month.
"The only viable asset they have in this environment is Donlin Creek," said Hodaly, who thinks NovaGold will unload part of its share.
"The question now is what is NovaGold's portion worth and can they sell before they default?"
A design and feasibility study for Donlin Creek is expected early next year with construction targeted for 2012. The project is expected to operate for 25 to 30 years and produce potentially 1 to 1.5 million ounces of gold annually.
Also Monday, NovaGold said Carl Gagnier, its vice president of operations will resign effective Dec. 31.
Community Discussion
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"NovaGold Resources Inc. shares fell to their lowest level in years Monday after the junior miner said it has been unable to raise new money while falling short of state regulatory requirements at the Rock Creek gold mine in Alaska".
That should shut down the 'State's-nothing-but-a-rubber-stamp' argument.
So you'd rather the State "rubber-stamp" a foreign company's exploitation of OUR resources?
If the Canadian's can't make it here, let an Alaskan-owned business take over.
So you'd rather the State "rubber-stamp" a foreign company's exploitation of OUR resources?
If the Canadian's can't make it here, let an Alaskan-owned business take over.
No, Mr. Henry, I wish the anti-mining crowd would stop perpetuating the ‘State-is-nothing-but-a-rubber-stamp’ fantasy. And, the next time they try, this example would be an excellent item to bring up to prove they're absolutely, crammed, packed, full of it.
The 'evil-foreign-Canadian' fantasy is another matter all together.
In regards to the 'evil-foreign-Canadian' fantasy please see my post on August 28 at 3:33 p.m.
In the interests of full disclosure, I am -
1. Not part of the anti-mining crowd;
2. Not of the Canadians (or other foreigners) are Evil Carpetbaggers crowd;
3. Not of the State Is Nothing But A Rubber Stamp crowd.
But: I caution you NOT to read NovaGold's statement at face value. Their inability to bring Rock Creek online? It is wonderfully convenient of them too blame "state regulatory requirements" as the monkey wrench that jammed their crusher jaws, but.....they still fired their VP of Operations. Oops.
Lots more than meets the eye, there, fellas.
Mr. North Pole, I am not anti-mining. I am, however, very Pro-Alaska, and I do not in the least feel sorry for a foreign company that cannot afford to operate a mine here in Alaska. We are far too generous with our resources as it is.
Further, I don't care if that foreign company is Canadian, Uzbekistani, or Martian. If it's not an Alaskan company with a leadership composed largely or at least in part of Alaskans, I will shed few tears over their inability to profit here. Not that I wish them ill, but I don't think the State should go out of its way to support these ventures.
The Canadian owned mines are the only ones left. The Alaskan owned mines were shutdown decades ago by the government regulators.
Unfortunately there are no companies waiting in line. When this company fails it is game over and the prospect of new jobs in the area skyrockets to 0%. I don't know the details but it is not good for anyone when an Alaskan business fails.
Henry,
Yeah I'm sure there were no Alaskans harmed by this shutdown. Nome isn't in Alaska is it?
This is dire news for many in rural Alaska. I would remind readers that Nova Gold has been a major force in creating well paid, stable employment for many families in the "appalacia of the North", one of the most poverty stricken areas of modern America. Donlin Creek, a shining star of western Alaska, may now be placed in a vulnerable position, threateniing the economic backbone of Kuskokwim region. Let's sincerely hope and pray that Nova Gold can weather this crisis.
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