Barrick backs off hostile bid for NovaGold

The trading week ended April 20 closed with the partial resolution of a long-standing conflict in the North American gold industry.

* Barrick Gold sold its shares in its one-time hostile-takeover target NovaGold Resources, generating some US$221 million in cash (which should come in handy paying for the previous week’s US$250-million acquisition of another 20% of the Porgera mine).

Barrick had acquired 13.6 million NovaGold shares at US$16 in a sweetened bid that expired in December, or just 14.8% of the junior.

This final sell-off by Barrick ends a rancorous, mostly futile takeover attempt that started with an initial US$14.50 cash offer in July 2006, and soon had Barrick simultaneously raising its bid and trash-talking the very projects it was trying to acquire.

Barrick sold about 12 million NovaGold shares on the morning of April 20 at US$16.25 in block trades on the American Stock Exchange through RBC Capital Markets, after selling 1.5 million shares into the market earlier in the week at prices above US$16.25.

It was only on April 19 that NovaGold had priced a public offering of 12.5 million shares at the very same US$16.25 (C$18.33) price point, potentially raising up to US$234 million if an over-allotment option is fully exercised.

Barrick had already warned earlier in the month that it was ready to sell, so market reaction to the news was rather muted, with both companies’ shares ending the day flat.

NovaGold, of course, owns 70% of the very large but remote and low-grade Donlin Creek gold deposit in Alaska, with Barrick holding the remainder. NovaGold also has 100% of the low-grade and similarly remote Galore Creek copper-gold-silver project in northwestern British Columbia.

Next we’ll see what Barrick does with its 30% stake in Donlin Creek. There is a very strong incentive to hang on to it until after a full feasibility study is completed this November and a positive production decision is made, at which time Barrick’s stake rises to 70%.

NovaGold has repeatedly said Barrick doesn’t have enough time to do the study, and so will remain stuck at a 30% interest. Barrick, in turn, scoffs at the suggestion it won’t make the deadline.

It’s a classic showdown between a plucky little junior and a no-nonsense, powerful major, with more than a little east-west rivalry thrown into the mix.

While Barrick blundered in misreading the loyalty of NovaGold shareholders to long-time president and CEO Rick Van Nieuwenhuyse, we’re still betting that Barrick will tap into its tremendous technical and financial depth and get the job done at Donlin Creek on time. Whether Barrick sticks around after that is another matter.

* But the biggest M&A event of the week was Sherritt International’s all-share, $1.6-billion friendly offer to buy Dynatec, 40% owner of the massive, greenfields Ambatovy nickel-laterite project in Madagascar.

The twist is that Sherritt will be selling off Dynatec’s fine mining contracting business to Sudbury-focused nickel miner FNX Mining, at a price to be determined once the main deal closes.

The three-way agreement left many analysts on the ensuing conference call perplexed that some of the big numbers haven’t yet been pinned down, leaving gaps in their spreadsheets and unclear arbitrage opportunities. Sherritt management insist they’re looking at the big picture for nickel, which is very, very good.

* Our favourite exploration story of the week was Dianor Resources’ recovery of a 1.5-carat diamond from its Leadbetter deposit near Wawa, Ont., after a couple of patience-trying years of finding many small ones in most of the samples taken from the site. The clear stone is the largest one ever found in bedrock in the Wawa area. A few days later, Dianor reported the recovery of a 1-carat diamond and unveiled its first, independent estimate of 566 million tonnes for the three units comprising the diamond-bearing Leadbetter conglomerate. The stock jumped 25%.

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