Novagold Resources buy Bernhardow

ANDY HOFFMAN

MINING REPORTER

November 25, 2008

Just two years ago, NovaGold Resources Inc. head Rick Van Nieuwenhuyse was so confident in his company's prospects that he told the world's largest gold producer to take a hike.

As part of a bitter takeover battle, the upstart executive and his shareholders spurned Barrick Gold Corp.'s offer of $16 (U.S.) a share, certain the Vancouver junior's 50-per-cent stakes in the Donlin Creek gold project and the Galore Creek copper project were worth far more than Barrick's $1.7-billion bid.

How quickly things have changed.

NovaGold has gone from junior mining hero to a cringe-inducing cautionary tale. Its shares plummeted 67 per cent yesterday to 72 cents after the company revealed it is running out of cash and won't be able to repay a $20-million bridge loan due in late December unless it can sell assets or raise funds by selling shares on the stock market.

"If NovaGold is not able to raise additional cash in December, it will not have sufficient cash to meet its obligations," the company said yesterday. Mr. Van Nieuwenhuyse would not be interviewed.

NovaGold is the latest in a slew of mining firms that are grappling with the prospect of insolvency as metal prices have crashed, demand for new projects has nosedived and access to capital has all but dried up.

A cash crunch forced Toronto gold miner High River Gold Mines Ltd., to sell a controlling stake to OAO Severstal's mining division last week. Others struggling with liquidity issues include Ottawa junior Orezone Resources Inc., and a pair of miners operating in the Democratic Republic of the Congo - Anvil Mining Ltd. and Katanga Mining Ltd.

Lundin Mining Corp., whose chairman Lukas Lundin talked of building a $10-billion base metals behemoth only last year, was pushed into the arms of HudBay Minerals Inc. on Friday, in an all-stock deal valued at roughly $500-million (Canadian). As part of the controversial takeover, HudBay agreed to immediately inject $135-million of cash into Lundin to help the company deal with "liquidity concerns."

Even majors such as Rio Tinto PLC are under pressure because of their debt loads. The world's third-largest mining firm was downgraded by ING Groep NV yesterday on an increased risk it may default on the debt related to its $38-billion (U.S.) takeover of Canada's Alcan.

Yet NovaGold's fall from grace has been among the most spectacular. The miner's stock was crushed last year when joint venture partner, Teck Cominco Ltd., revealed that costs to build Galore Creek had doubled to more than $5-billion. The project was shelved.

Now NovaGold's only operating mine, Rock Creek in Alaska, is being shut down after just two months of production because of regulatory and operating issues. NovaGold was expecting $25-million in cash flow from Rock Creek in 2009, which won't be available now.

Now, NovaGold's best hope may be a bailout from its former foe Barrick. The gold giant has a right of first refusal on NovaGold's 50-per-cent interest in Donlin - with its more than 29 million ounces of gold.

NOVAGOLD (NG)

Close: 72 cents, down $1.48