An Ontario law firm that specializes in class-actions says it's preparing a suit against NovaGold Resources Inc. , claiming it failed to adequately warn investors about the true cost and timing of its Galore Creek project in British Columbia.
The Canadian suit, which contains similar allegations to one filed last year in the United States, is to be filed in the Ontario Superior Court of Justice on behalf of all investors who acquired NovaGold shares from Oct. 25, 2006 to Jan. 16, 2008.
The law firm Sutts, Strosberg LLP said its client alleges that "the defendants regularly and systematically assured the investing public that the construction of NovaGold's Galore Creek project was on schedule and on budget."
"Such claims allowed NovaGold to raise hundreds of millions of dollars in the capital markets," the firm said in announcing the suit Wednesday.
Galore Creek is now a 50-50 joint venture with with Teck Resources Ltd , which became a partner in 2007 when it agreed to share the cost of developing the copper-gold deposit.
NovaGold said in Oct. 17, 2007, that it expected "significant" increase to the estimated capital cost of Galore Creek, due to a combination of factors including a general escalation in construction costs and a change in the project's scope.
The following month the project was halted to deal with the soaring costs and on Jan. 16, 2008, NovaGold and Teck announced the appointment of a new management team.
News of the lawsuit came a day after NovaGold reported it swung to a loss in the third quarter and said lower interest rates pushed down revenues.
The miner generated a net loss of $18.1-million or 10 cents per share for the third quarter ended Aug. 31.
That compared to earnings of $1.6-million or two cents per share for the same period in 2008, when it had a $33.5 million gain on investments, including the sale of its subsidiary NovaGreenPower and its investment in U.S. Gold Corp .
Net revenues for the quarter were $300,000 compared with $1.4-million for the same time last year, which it blamed on lower interest rates.
NovaGold said it generates "modest revenues" from land and gravel sales and gold royalties.
NovaGold was hit by a U.S. law suit in August, 2008, alleging it failed to disclose materially adverse facts about the company's operations and prospects in various public statements and filings from October 2006 through November, 2007.
NovaGold shares traded Wednesday at $6.88 on the Toronto Stock Exchange, down 4 cents or 6.7 per cent from the previous close. On Oct. 16, 2006, the shares closed at $17.31.
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