NovaGold, Pioneer line up legal pads over Grace

Vancouver A lawsuit filed by Pioneer Metals (PSM-T) seeks to overturn an option that allows NovaGold Resources (NG-T, NG-X) to earn 60% of the Grace claims near its advanced Galore Creek copper-gold project in northwestern British Columbia.

NovaGold has rights to earn 100% of the Galore Creek project from subsidiaries of Rio Tinto (RTP-N) and Anglo American. A major drill program is under way, aimed at advancing the project to the pre-feasibility stage later this year and to full feasibility by the second half of 2006. The company envisions an open-pit operation that would process 65,000 tonnes daily to produce an estimated 305 million lbs. copper and 195,000 oz. gold annually over the mine life.

Pioneer appears to have concerns that NovaGold intends to use the Grace property as a potential site for containment of tailings and waste rock, and says such use of the surface area “should be for the sole benefit of Pioneer, if and when economic mineralization has been discovered, developed and mined there.”

Pioneer views the Grace property as a “potentially valuable asset” and intends to seek a legal declaration that the March 2004 option agreement is of no further force or effect. It also seeks an order for the rescission of the agreement, damages for alleged “misrepresentation and for breach of fiduciary duty,” punitive damages and other relief.

NovaGold President Rick Van Nieuwenhuyse describes Pioneer’s claim as “completely without merit and baseless.” In a prepared statement, he noted that the company had “diligently” carried out two seasons of exploration on the Grace property, “with significant input from Pioneer,” yet had failed to discover a resource on the claims.

NovaGold says it exceeded the expenditure requirements to date under the option agreement, and notes that the option agreement relates to sub-surface rights only. “Subject to mining regulations, the surface rights related to the Grace claims rest with the Province of British Columbia, not with Pioneer,” the company asserts.

Both companies have retained legal representation to defend their respective positions in the matter.