NovaGold makes run at Copper Canyon partner (December 22, 2010)

Just days before Christmas, NovaGold Resources (NG-T, NG-X) has surprised Copper Canyon Resources (CPY-V) by announcing plans to make an unsolicited takeover bid for the company and its 40% interest in the Copper Canyon copper-gold project in northwestern British Columbia.

NovaGold, which owns the other 60% share of the project, intends to offer 0.0425 of a common share for every Copper Canyon share, representing an effective 60 cent bid worth about $34.1 million. The unsolicited bid represents a 41.8% premium based on the closing prices of Copper canyon and NovaGold on December 17.

“By making an offer for Copper Canyon, NovaGold has clearly acknowledged the quality and calibre of the Copper Canyon assets,” commented Tim Termuende, president of Copper Canyon, in a prepared statement. “We are surprised by the timing of this offer so close to the Holiday season, but are not unprepared.”

Copper Canyon’s board of directors is now reviewing the offer and has established a committee of independent directors to oversee the appointment of a financial adviser and special legal counsel. The company says it will consider all possible alternatives, including any competing offers it may receive, to maximize shareholder value.

Copper Canyon’s principal asset is its 40% interest in the Copper Canyon project that is adjacent to the Galore Creek project, owned equally by NovaGold and Teck Resources (TCK.B-T, TCK-N).

Earlier in the year, Copper Canyon released an updated resource estimate that showed the project contained an inferred resource potentially amenable to underground bulk-tonnage mining methods of 53.7 million tonnes grading 0.5% copper, 0.73 gram gold and 10.6 grams silver per tonne. This is equivalent to 592 million lbs. copper, 1.3 million oz. gold and 18.4 million oz. silver.

NovaGold originally earned a 60% interest in the project by incurring $3 million in exploration expenditures. Drilling at Copper Canyon stopped in 2007 when construction at Galore Creek was suspended due to escalating cost estimates and reduced operating margins.

NovaGold believes its proposed offer not only provides Copper Canyon shareholders with an attractive premium but allows continued upside exposure to the Galore Creek project, as well as new exposure to a portfolio of core assets that includes the 42-million-oz. Donlin Creek gold project.

Galore Creek is located 150 km northeast of Stewart, B.C., near the Alaska border in the traditional lands of the Tahltan nation. It contains measured and indicated resources of 786 million tonnes grading 0.52% copper, 0.29 gram gold and 4.87 grams, equivalent to 8.9 billion lbs. Copper, 7.3 million oz. gold and 123 million oz. silver. About 65% of the deposit’s value is in the copper, with the remaining 35% in with the gold and silver.

Inferred resources hold an additional 358 million tonnes averaging 0.36% copper, 0.18 gram gold and 3.69 grams silver, equal to 2.8 billion lbs. Copper, 2.1 million oz. gold and 42.5 million oz. silver.

Development of the project was put on hold in 2007 when costs soared as high as $5 billion, more than double what had been expected. Studies were initiated in 2008 aimed at re-evaluating and optimizing the project by defining a more realistic and lower risk development alternative, including alternative plant site and tailings location.

Significant changes to the original design include increasing throughput to 95,000 tonnes per day, relocating the tailings dam and processing facilities out of the Galore Creek valley, and realigning the access road and tunnel. A 15-km-long access tunnel would be used to transport the crushed ore to the processing plant, located at the headwaters of Moore Creek. The tailings would be gravity fed into a containment area in the upper Moore valley.

Teck is currently funding a prefeasibility study that will provide updated capital cost estimates. The report is scheduled for completion by mid-year 2011. Assuming a positive result, a bankable feasibility study would get underway in the third quarter of next year.

NovaGold’s takeover bid for Copper Canyon will be subject to various conditions, including the termination or waiver of Copper Canyon’s shareholder rights plan and at least two-thirds of the company’s shares being tendered.