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Aaron Regent, president and CEO of Barrick Gold. (Fred Lum/Fred Lum/The Globe and Mail)
Aaron Regent, president and CEO of Barrick Gold. (Fred Lum/Fred Lum/The Globe and Mail)

Mining

Revamp puts NovaGold in takeover crosshairs Add to ...

NovaGold Resources Inc. is shedding assets in a major overhaul designed to lift the fortunes of the struggling mining company.

The company’s announcement of the shakeup – including an executive shuffle, the spinoff of its copper assets and the sale of its 50-per-cent stake in the $5-billion (U.S.) Galore Creek copper project in British Columbia – sent its shares up 30 per cent Wednesday, amid speculation that the new streamlined company is now a more enticing takeover target.

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NovaGold investors have missed out on the huge rally in gold prices: The shares have fallen 18 per cent in the past year, and 38 per cent in the past five, underperforming the S&P/TSX gold index by a wide margin. Wednesday’s moves allow the company to focus on gold production through its flagship Donlin Creek project in Alaska.

The Donlin Creek project, which it shares equally with bullion giant Barrick Gold Corp. , is one of the world’s largest undeveloped gold deposits.

Selling Galore Creek will help NovaGold pay for its share of the $7-billion cost to build Donlin Creek, which is up significantly from earlier estimates of $4.5-billion.

“It’s a classic unlocking of value. We want to focus NovaGold on Donlin, so we want to maximize the value out of Galore,” said NovaGold chief executive officer Rick Van Nieuwenhuyse, who will leave his role to head NovaCopper Inc., which will include NovaGold’s Ambler project in Alaska. He will be replaced in January by Gregory Lang, most recently president of Barrick’s North American division.

The changes demonstrate the constant pressure miners are under to increase production through new or expanded projects, while at the same time balancing rising costs.

That often leads to merger and acquisition activity as players scramble for what remains of the world’s diminishing resources.

NovaGold’s decision to separate its copper and gold assets also comes months after investors punished Barrick, the world’s largest gold producer, for buying pure copper producer Equinox Minerals Ltd for $7.3-billion, fearing more copper resources would dilute its gold premium.

“It’s not a direct reaction,” Mr. Van Nieuwenhuyse said of the metals split, “but we certainly recognize that having a mixed portfolio ... you get investors that like gold, you get investors that like copper, and that’s what we are giving them.”

NovaGold shares closed up 24 per cent or $2.16 to $11.13 on the Toronto Stock Exchange on Wednesday, increasing its market capitalization by about half a billion dollars in one day to $2.67-billion, as investors cheered the cleaner company model.

NovaGold shares had been beaten down this fall due in part to rising costs at Donlin.

“The market was expecting a strategic plan ... and I think it’s a good indication they like the plan,” said Mr. Van Nieuwenhuyse, adding that there is already a lot of interest in the company’s share of the Galore Creek project.

NovaGold’s shakeup also led to investor speculation that the miner is readying itself for a sale, five years after rejecting a $1.71-billion hostile bid from Barrick.

“By breaking the company into respective parts, you then make it more palatable if and when someone were to consider specific projects for acquisitions,” said National Bank Financial analyst Paolo Lostritto.

NovaGold also named mining entrepreneur Thomas Kaplan, chairman of private resources investor Electrum Group LLC, as its new chairman. An affiliate of Electrum is NovaGold’s largest shareholder with a 22-per-cent stake.

 
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