Simon Constable
A mouse of a miner seems to be fixing for a fight with a gold-industry titan over the development of a potentially massive gold deposit in the Alaskan wilderness.
On one side is tiny Vancouver-based exploration and development company NovaGold Resources (NG Quote - Cramer on NG - Stock Picks), and on the other is Toronto's Barrick Gold (ABX Quote - Cramer on ABX - Stock Picks), one of the world's largest mining concerns. Should NovaGold prevail in the spat, or at least come to a truce, its shares could see a quick rally into the upper-$20s from the current price around $19, one money manager believes. The two are at loggerheads because of their differing interpretations of a 2002 joint venture agreement between NovaGold and Placer Dome, a company Barrick acquired in March 2006. With that purchase, Barrick inherited the Placer deal, for a property called Donlin Creek. Currently, NovaGold owns 70% of Donlin Creek, an undeveloped deposit estimated to have more than 30 million ounces of gold, with Barrick holding the remaining 30%. But if Barrick can deliver on two important items before Nov. 13 then it can up its own stake to 70% and leave NovaGold with just 30%. The two key things are the delivery of a full feasibility study and a decision by Barrick's board to start construction on the mine. A complete feasibility study typically involves getting the required environmental permits, since they have a large impact on a mine's capital costs and hence profitability, a key factor in any construction decision. The question of what constitutes a study is something on which the two sides disagree vehemently. NovaGold's management is taking the view that Barrick can't succeed in fulfilling the requirements within the required time because the permitting process won't be complete. Barrick, though, steadfastly says it will fulfill its obligations. "Since taking over this project from Placer in early 2006, Barrick has dedicated the necessary personnel, with the right mix of expertise, on the feasibility study for Donlin. They remain on track to complete it on time," says Vince Borg, a spokesman for Barrick.
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