Barrick makes push for NovaGold, Pioneer

A legal dispute and hostile takeover bid involving NovaGold Resources (NG-T, NG-X) and Pioneer Metals (PSM-T) was the catalyst that prompted Barrick Gold (ABX-T, ABX-N) to make all-cash offers for both companies and consolidate ownership of two of the largest undeveloped mineral deposits in North America.

One day before NovaGold would extend its offer to acquire Pioneer Barrick swooped in with bids for both companies. In a transaction valued at US$1.29 billion, or US$1.53 billion on a fully diluted basis, Barrick offered to pay NovaGold shareholders US$14.50 per share, for a 24% premium over the pre-announcement closing price.

Barrick’s friendly bid for Pioneer is valued at about $60.1 million, or $64.7 million on a fully diluted basis. The cash offer of $1 per share represents a premium of 54% over the pre-announcement closing price and is almost double NovaGold’s cash offer to buy 100% of Pioneer’s shares for 57 per share.

Pioneer, which had previously urged its shareholders to reject NovaGold’s “woefully inadequate” offer, has unanimously approved the Barrick bid. A group of shareholders, including officers and directors, representing more than 40% of Pioneer’s fully diluted shares will tender their shares under a lock-up agreement.

NovaGold, on the other hand, expressed disappointment at the “unsolicited, opportunistic offer,” which “dramatically undervalues” its “world-class portfolio of gold and copper assets,” namely the Galore Creek copper-gold deposit in northwestern British Columbia, and the Donlin Creek gold deposit in Alaska.

“We have high confidence that we can conclude these deals,” said Barrick President Greg Wilkins in a conference call with analysts. He noted that the company’s integration with Placer Dome was “sufficiently advanced” to pursue new growth opportunities.

A successful bid for both NovaGold and Pioneer will give Barrick 100% of the Galore Creek deposit, situated in a rugged and remote region about 75 km east of its Eskay Creek mine. Galore Creek is in the permitting and feasibility stages, and at last report, hosted measured and indicated resources of 6 million oz. gold, 75.4 million oz. silver, 6.8 billion lbs. copper, along with additional inferred resources.

Grace claims

NovaGold is earning a 60% interest in Pioneer’s Grace claims adjacent to Galore Creek. Relations between the companies soured in the fall of 2005, when Pioneer filed a lawsuit against NovaGold alleging that that instead of conducting “legitimate exploration activities” on the Grace claims, NovaGold was carrying out condemnation drilling to identify tailings and waste disposal sites for a proposed mine at Galore Creek.

Pioneer has refuted NovaGold’s assertion that the Grace claims do not host economic mineralization. NovaGold countered by releasing results showing negligible mineralization from previous exploration and condemnation drilling campaigns. The impasse had threatened to stall development of the project, as land suitable for tailings disposal is not easily found in the mountainous region near Galore Creek.

“The Grace claims are an important piece of ground and we thought it was prudent to bring the whole project together,” Wilkins said. “The acquisition of Pioneer will allow Galore Creek to be developed on a timely basis.”

Another major driver of Barrick’s bid for NovaGold is its strong interest in the Donlin Creek gold deposit in Alaska. The company acquired rights to earn up to a 70% interest in the project early this year when it acquired Placer Dome, and can now gain the remaining 30% held by NovaGold.

“This is one of the largest undeveloped gold deposits in the world,” Wilkins said, adding that the project still has “excellent exploration potential.”

At year-end 2005, Donlin Creek hosted measured and indicated resources containing 14.8 million oz. gold within 167.1 million tonnes grading 2.76 grams gold per tonne, plus inferred resources containing another 13.6 million oz. gold

Barrick is operating the project, which is in the permitting and feasibility stage as a proposed bulk-tonnage operation that could produce an estimated 1 million oz. gold annually. The intrusive-related deposit is situated in the Kuskokwim gold belt of southwestern Alaska, near the community of Crooked Creek.

Wilkins said the large-scale Donlin Creek and Galore Creek projects enhance Barrick’s North American asset base while reducing its overall exposure to geopolitical risk. The advanced projects also significantly boost its reserve and resource profile.

Barrick’s acquisition of NovaGold, assuming completion, would boost its pro forma measured and indicated gold resources by 54% to 34.7 million oz., while inferred resources would jump 89% to 28.2 million oz.

NovaGold has other projects in Alaska, including Rock Creek, Big Hurrah, Nome Gold, all near Nome, and a joint-venture interest in the Ambler project. The company has about $200 million in its treasury, much of raised in a $175-million financing completed earlier this year.

Barrick’s offer for NovaGold is subject to various conditions, including the acceptance of not less than 75% of NovaGold’s common shares on a fully diluted basis. NovaGold has appointed a special committee and retained a financial advisor to review Barrick’s offer, and will respond once the formal offer is received.

Barrick intends to finance the transactions from internal sources.