NovaGold (NG) recently provided an update on its planned spinoff of its Northern Alaska Ambler copper deposits. Since that doesn’t quite roll off the tongue, the new company will be known as NovaCopper. Click here for our earlier article on this topic. Shareholders of NovaGold will receive 1 share of NovaCopper for every 6 shares of NovaGold owned. More information is expected to be released prior to the special shareholder meeting which will take place on March 28, 2012 for shareholders as of February 24th. The spin is expected to be completed around April 30th, with shares being listed on the TSX and NYSE-AMEX.
Former NovaGold CEO Rick Van Nieuwenhuyse is “very excited to be heading NovaCopper as we execute our business plan to unlock the value of one of the world’s most exciting copper exploration investments…We have an excellent team focused on determining the extent of the mineralization at Ambler and, with four rigs on the property; we should be able to complete 15,000 meters of drilling this year.”
He then went on to explain the ‘investment thesis’ behind NovaCopper:
NovaCopper holds highly valuable assets. One of the deposits along the Ambler belt, Arctic, had a net present value of between approximately $500 million and $1,600 million, depending on metal prices, in the Preliminary Economic Assessment filed May 10,20111. Yet, Ambler is more than just Arctic; it is a major world-class poly-metallic district. This notion was demonstrated very clearly by the recent drilling success at our Bornite deposit when DDH RC11-187 encountered mineralization of 4% copper over 178 meters, including a very significant high-grade intersection of 34.7 meters grading 11.4% copper. (See the Company’s press releases dated November 10, 2011 and December 14, 2011) These are results that would rival any copper project in any part of the world. Yet, at a time when resource nationalism and jurisdictional instability are becoming ever greater risks to the copper mining industry, these outstanding results come from a project in the United States. Our ultimate objective is that the twin attributes of high grades from multiple deposits, when combined with jurisdictional safety, will result in NovaCopper being rated as the premier vehicle in its class.
In addition to the spin, NovaGold is looking to sell its other copper project, Galore Creek, and focus exclusively on gold or more specifically on the continued development of its Donlin Gold project. The company believes that Donlin is “within the top 1% of global gold deposits in terms of size,” so there is also a lot of potential there as well. Not everyone is as positive on its prospects though, but the size should keep it on the radar of investors hunting for indirect gold exposure, such as this guy. The company recently reported a year end loss of $153m, which isn’t so surprising considering the lack of income sources. That could be a problem as time goes by. NovaGold also approved a $4m interim budget to support exploration and development activities for NovaCopper’s Ambler project and would need to provide further funding if the spin isn’t executed by the May drilling season. After the spin, NovaCopper will have no debt to to the parent company and will be funded with $40m in cash for operations
I am not sure how much more helpful the additional information provided by the company will be. As the Inelegant Investor noted in our earlier article, the company has a lot of potential, but also very little substance right now. It is worth noting that Mr. Van Nieuwnhuyse is joining this company (he was formerly CEO of the entire organization) so he obviously believes in its promise. Mining is a tough business everywhere in the world and is especially challenging in the harsh Alaskan environment where certain months of the year are inoperable. If everything goes according to plan it will be a big hit however, there are a lot of potential pitfalls in the way. Although not exactly the same (for one thing a lot more mining experience here), in some ways this feels similar to the Contango Ore (CTGO) spinoff (which we wrote about here) – higher on the risk spectrum, but potentially large payoff. Feel like speculating?
Disclosure: Author holds no position in any stock mentioned.
