NovaGold launches hostile bid for Pioneer Metals

In the midst of a squabble over the Grace copper-gold property in B.C., NovaGold Resources (NG-T, NG-X) has launched a hostile takeover bid for the company pursuing litigation against it — Pioneer Metals (PSM-T, PNMTF-O).

NovaGold is making an all-cash offer of 57 per share for all of Pioneer’s common shares — that amounts to a 30% premium on the volume-weighted average trading price of Pioneer’s shares since mid-May.

On June 20, Pioneer issued a press release advising its shareholders not to take any action with respect to the hostile bid until its board and its advisors have evaluated the offer.

On June 19, Pioneer’s shares closed up around 37% or 16 at 59 on roughly 670,000 shares. A note from Canaccord Capital says the fact that the shares were trading above the offer price indicates that investors suspect a higher bid will be needed to close the deal.

NovaGold’s shares were off roughly 2.5% or 32 at $12.63 on roughly 67,000 shares traded.

Pioneer owns Grace, which is under option to NovaGold, but the relationship between the two companies has been anything but harmonious.

Pioneer took legal action against NovaGold in October 2005, arguing that NovaGold did not act in accordance with an earlier agreement.

Pioneer argues that instead of performing exploration drilling, NovaGold drilled with an eye towards condemning the site — by showing that there was no mineralization — so that the area could be used as a tailings and waste disposal site for its neighbouring Galore Creek copper-gold project.

While the settling of the legal proceedings seems an obvious driver behind the offer, NovaGold president and chief executive Rick Van Nieuwenhuyse cast some doubt on the hypothesis, saying Pioneer’s president and chief executive, Stephen Sorensen, could continue with the lawsuit even if the takeover is successful.

It is clear, however, that NovaGold is looking to consolidate the area around Galore Creek, as the company also recently agreed to acquire Coast Mountain Power (MW-V), which has hydroelectric projects nearby, for $2.20 per share. The move was made to secure a source of power for Galore Creek.

A feasibility study is under way at Galore with NovaGold planning to start mine development next year.

The Grace property includes 28 sq. km. of subsurface mineral claims and directly adjoins NovaGold’s 62-sq.-km Galore Creek property.

NovaGold says its offer is good until July 25.

If NovaGold is successful, the cost of buying all of the outstanding common shares will be roughly $35 million.