NovaGold(NG) has a great story. It owns a 50% interest in the Donlin Gold project in Alaska, which a recent feasibility study projects can average 1.5 million ounces of production at $409/oz for the first 5 years, as well as two other major prospects. It has a market cap of over $2 billion. It counts George Soros, John Paulson, and Seth Klarman among its investors(UPDATE: NovaGold pointed out to us that Soros is no longer a shareholder. We had noted his most recent 13G from February, but had not examined his 13F-HR filings which show his holdings in Novagold disappearing between April and June). And it currently has no active mines and no meaningful revenues.
The Donlin project, which is jointly owned with Barrick Gold(ABX), will require $6.7 billion to complete. It is not clear how NovaGold will pay for its half. NovaGold CEO Rick Van Nieuwenhuyse came to NovaGold from Placer Dome, which was later acquired by Barrick. Barrick attempted to purchase NovaGold for more than twice its current share price but was rebuffed.
On November 16, NovaGold announced a series of major moves to its management and corporate structure. Tom Kaplan, who controls 31.5% of the company, was named chairman. The company announced that Gregory Lang, President of Barrick Gold Of North America, would replace Van Nieuwenhuyse as President and CEO in January 2012. It also announced that it would spin off its Ambler property as NovaCopper with Van Niewenhuyse as CEO. In addition, the company will attempt to sell its 50% stake in the Galore Creek prospect in British Columbia.
The NovaCopper spin is expected to be distributed in February or March, pending shareholder approval at a meeting that the company hopes to hold in February. It seems clear the Mr. Van Niewenhuyse was a major impediment to the Barrick bid, and by selling or spinning off non-Donlin assets and hiring a key Barrick official as CEO, the company is positioning itself for a closer partnership or merger with Barrick.
Mr. Van Niewenhuyse explains the move, saying that he prefers to be involved in exploration as opposed to development. The Ambler prospect is certainly promising, but is an a very early stage of development. We suspect that NovaCopper will soon find a development partner to help shoulder the costs.
Major holders Paulson and Soros acquired stock in private placements several years ago well below the current share price, but Klarman’s purchase, which took place in the third quarter, is puzzling. Klarman’s style generally involves buying undervalued assets with a margin of safety. While this is an interesting situation, there does not appear to be a margin of safety. We wonder what, precisely, Klarman sees. To us, it looks like much promise, much potential, but still no substance. No production. And splitting into two halves just creates two companies with no production.
Disclosure: The author holds no position in any stock mentioned
- Donlin’s gold economics leave lot to be desired for Barrick (business.financialpost.com)
- The Cost Of Mining Gold In Alaska Keeps Going Up (forbes.com)
- NovaGold Taps New CEO, Names Billionaire Kaplan Chairman (forbes.com)
- Paulson’s Gold Fund Said to Fall 10.5% in 2011 as Metal Rises (businessweek.com)