Nordgold raises its offer for Northquest

Northquest CEO Jon North (middle) at the Pistol Bay gold project in eastern Nunavut. Credit: Northquest.Northquest CEO Jon North (middle) at the Pistol Bay gold project in eastern Nunavut. Credit: Northquest.

VANCOUVER — After increasing its stake in Northquest (TSXV: NQ) to 52.3% late last year, Russian gold miner Nordgold is making a move to acquire the rest of the junior and its wholly owned Pistol Bay gold project in the Canadian Arctic.

At the end of April, Nordgold offered 25.3¢ per share to acquire all of the outstanding shares that it does not already own in a deal valued at $27.3 million on an undiluted basis. The offer represented a 10% premium based on Northquest’s closing share price on April 25.

Nordgold then raised its offer price to 26¢ per Northquest share. The latest offer values Northquest at $28 million on an undiluted basis.

Nikolai Zelenski, the CEO of Nordgold, which made its first investment in Northquest in June 2014, said in prepared remarks that the offer “provides excellent value for shareholders. We hope they will accept our improved offer.”

Jon North, Northquest’s president and CEO, could not be reached for comment.

Northquest acquired the Pistol Bay project, on the west coast of Hudson Bay in eastern Nunavut, in 2010. Inco uncovered the property’s potential in 1985 after drilling an intercept in the Vickers zone of 149.8 metres grading 2.55 grams gold per tonne.

In 2012, Northquest twinned the Inco hole in the same stratigraphy and doubled the grade, with a 164.4-metre intercept averaging 5.39 grams gold. (The company attributed the better grade to a larger core sample and more comprehensive assay method to take into account the abundant coarse visible gold in the core samples.)

Nordgold stepped in to take majority control of Northquest in May 2015, a day after the junior released its second batch of intercepts for the year from the Vickers zone, with highlights of 134.4 metres grading 1.36 grams gold, 39 metres grading 2.57 grams gold, 30 metres grading 2.10 grams gold, 44.5 metres grading 1.07 grams gold and 50 metres of 2.13 grams gold.

In April, Northquest completed an inferred resource estimate for the Vickers zone based on 69 drill holes (17,200 metres between 2012 and 2015) that identified, at a cut-off grade of 1.25 grams gold, a total of 7.79 million tonnes averaging 2.95 grams gold for 739,000 contained oz. gold.

Pistol Bay is 80 km south of Agnico Eagle Mines’ (TSX: AEM: NYSE: AEM) Meliadine gold project. The two properties are on the opposite sides of a sterile, granitic gneiss block, and Northquest’s geologists believe that the Pistol Bay trend is a mirror image of the Meliadine trend.

The Pistol Bay project is on Crown land and within 10 km of Whale Cove, which has a population of 350 people. Whale Cove has an airstrip with daily flights to Winnipeg, among other cities, and there is an all-season road linking Whale Cove to the project.

As for Moscow-headquartered Nordgold, last year the company produced 950,000 oz. gold at all-in sustaining costs of US$793 per ounce.

The company operates nine gold mines: five in Russia, two in Burkina Faso and one each in Guinea and Kazakhstan.

It also has two active gold development projects — Bouly in Burkina Faso and Gross in Russia. Production could start at the Bouly mine in the third quarter of 2016, and Nordgold announced that construction had begun at its Gross mine, an open-pit heap leach project in southwestern Yakutia, next to its Neryungri mine. Nordgold says it will take US$250 million and two years to complete the project and once finished, Gross will produce 230,000 oz. gold a year over a 17-year mine life. The first gold pour is expected in the first quarter of 2018.

Russian billionaire Alexey Mordashov owns just over 90% of the company’s outstanding shares.

At press time Northquest shares traded at 25.5¢, within a 52-week range of 6.5¢ to 32¢.


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