A private New York company has agreed to take on a 30% interest in cash-strapped NovaGold Resources (NG-T, NG-N) through a $60 million-financing.
Electrum Strategic Resources will be issued nearly 46.2 million shares at US$1.30 each. The shares come with the same number of warrants, which expire in four years at an exercise price of US$1.50 per share, and would allow Electrum to bring its interest to 46.2%.
The net proceeds of $59 million will allow NovaGold to pay off a $20-million bridge loan secured in September 2008. The loan was originally due at the end of December but NovaGold was unable to pay up. The maturity date was extended to March 2009.
Greg Johnson, NovaGold vice president of strategic development, says the bear market has made raising money difficult.
It was just two years ago that NovaGold rejected a US$1.7 billion (US$16 per share) takeover offer from Barrick Gold (ABX-T, , ABX-N) claiming the bid undervalued the company. This latest bid values the company at about US$200 million.
“These are the same assets that were valued by the same analysts at more than $20 a share a couple years ago,” Johnson says.
Johnson restarted NovaGold along with president and CEO Rick Van Nieuwenhuyse in 1998, focusing on projects in British Columbia and Alaska. Over the last decade, Johnson has seen some ups and downs in the markets, though he notes the recent correction has been particularly sharp and has brought down all sectors dramatically from where they were.
“It’s tough,” Johnson says. “There are a lot of expressions out there for what it feels like to go through these things but gut-wrenching is definitely what it is.”
Because Electrum will be taking on more than a 25% interest, NovaGold would normally have to get shareholder approval, but because of the company’s dire circumstances, it has applied to the Toronto Stock Exchange for a financial hardship exemption.
Johnson looks past the current situation and says management have confidence over the long-term.
After the bridge loan is paid off, NovaGold’s top priority will be maintaining its interest and advancing the Donlin Creek gold project, a 50% joint venture with Barrick.
Its second priority is maintaining its equity interest in the Galore Creek copper-gold project in northwestern BC, which is 50% owned by Teck Cominco (TCK.B-T, TCK-N). The project was put on hold in November 2007 due to major capital cost overruns.
The company’s third priority will be bringing its Rock Creek gold mine in Alaska back into production. Production at Rock Creek was suspended was suspended in the fall due to environmental and operational issues.
NovaGold is also looking at raising another US$15 million through an offering with other significant shareholders that the company had already been negotiating with when it struck a deal with Electrum.
NovaGold shares were up 14% today, or 27¢, to $2.17 per share on a trading volume of 1.2 million. Shares rose 13¢ to $1.90 per share on Jan. 2, the day the financing was released.