Copper Canyon rejects NovaGold bid

 Copper Canyon Resources‘ (cpy-v) board has unanimously rejected as inadequate a hostile takeover bid launched by joint-venture partner NovaGold Resources (ng-t, ng-x).

NovaGold made the offer of 0.0425 of a NovaGold share for each Copper Canyon share in a Jan. 18 circular, having announced its intention to do so on Dec. 20, 2010. The deal represented an effective 60¢-per-share bid, worth about $34.1 million.

Based on NovaGold’s closing share price of $14.01 on Dec. 17 (the last trading day before it announced its intentions) and Copper Canyon’s closing share price of 42¢ on the same day, the deal represents a 41.8% premium. On a 20-day volume-weighted average price the deal represents a 33.4% premium.

NovaGold wants to gain control of the 40% of the Copper Canyon copper-silver-gold project in northern British Columbia that it does not already own through a joint venture.

With the Copper Canyon project sitting adjacent to the Galore Creek project, owned equally by NovaGold and Teck Resources (tck.b-t, tck-n), the project holds potential strategic benefits for the company.

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 per tonne 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.

In recommending that shareholders not tender their shares, the Copper Canyon board states it considered guidance from its legal and financial advisors, as well as from a committee, independent of company management, specifically established to review the offer.

In rejecting the deal, the Copper Canyon board believes the deal undervalues the asset, especially the future potential of the property. The board cites that an assessment by Primary Capital concluded that the deal is inadequate from a financial point of view to Copper Canyon shareholders.

The offer also does not recognize the “significant strategic value” of the project to NovaGold in relation to the development of Galore Creek, nor the value of Copper Canyon’s pre-emptive rights under the Copper Canyon joint venture.

Copper Canyon argues that the timing is highly opportunistic, as NovaGold made the offer before completing an updated prefeasibility study on Galore Creek. An update is expected by June and Copper Canyon believes it could provide information on the value of Copper Canyon in relation to Galore Creek.

The company notes that it is trading at a substantial discount to current and historical Copper Canyon share prices. Spun out of prospect generator Eagle Plains Resources (elp-v) in 2006, the stock was trading at $1.20 in late 2007 before plummeting to 40¢ when the Galore Creek project was put on hold.

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.

Copper Canyon’s share price jumped 32¢ to 74¢ on the initial news in December, and has since closed as high as 88¢. On the day the board rejected the offer, Copper Canyon’s share price closed at 76¢, up a penny.

 NovaGold’s share price fell 18¢ on the news, but was up $1.09 to close at $14.53 the next day.