CHICAGO (ResourceInvestor.com) -- It seems like we’ve been down this road before.
For the past two years, shares of Golden Star Resources [AMEX:GSS; TSX:GSC] have remained stuck in first gear even as the rest of the precious metals sector has heated up. Former small-time producers like IAMGold [NYSE:IMG; TSX:IMG], Yamana Gold [AMEX:AUY; TSX:YRI], and Eldorado Gold [AMEX:EGO; TSX:ELD] have seen substantial price appreciation, leaving one-time peer Golden Star in the dust.
Over the past two years, investment analysts and pundits alike (including this correspondent) have been waiting with baited breath for a turnaround in the former highflying African hopeful. Along the way Golden Star’s been plagued by work stoppages, environmental issues, and production cost overruns – all of which have served to keep the company trading largely between $2.50 and $3.50 for much of the past 18 months.
But with the company’s shares now trading at multi-year valuation lows, and the potential for a technology-fueled operational turnaround just weeks away, investors may soon see Golden Star shares return to their legacy of rapid price appreciation.
Bogoso Costs Set to Decline
While a sale of certain equity investments helped Golden Star return to profitability in its most recent quarter, the company’s actual operating units remained money-losers. Foremost amongst the problems were the continued escalation of cash operating costs at Bogoso/Prestea to $413/ounce, up from $281/ounce a year earlier.
A major culprit of this cost creep has been the large amount of refractory ore remaining at Bogoso/Prestea, which cannot be efficiently processed at the mine’s traditional milling facility. By the end of this month, however, the bulk of that problem will be solved with the startup of Golden Star’s new bio-oxidation processing plant, specially designed to treat refractory sulfide ore. With this new plant processing much of the unconventional ore from Bogoso (and operating side-by-side the existing plant, which will continue to process the oxide ore), it’s expected that operating costs will decline substantially while mine production should rise nicely.
In 2007, for example, company estimates for gold production from the properties total 370,000 ounces at a cash operating cost of $330. Most major analyst estimates are also within this range. Overall ore recoveries at the mine could improve to 85% from the 50%-60% range. It’s a tremendous improvement from the 44,000 ounces produced at Bogoso with a cash cost of $466/ounce in the first six months of this year.
Given Golden Star’s past history of operational underperformance, however, the market hasn’t yet priced in the new cost efficiencies expected from the BIOX plant.
Using Canaccord Adams’ net asset valuation (with a 5% discount) of $4.44, Golden Star’s current share price of $3.06 puts the stock at a P/NAV of 0.68, a substantial discount to the rest of the junior sector, and near a multi-year low for the stock. In fact, Golden Star’s valuation is at the bottom of nearly producers with a market cap of at least $400 million. While a producer with Golden Star’s shaky past shouldn’t be expected to trade at a NAV premium until after at least a few quarters of solid results, their current valuation is clearly discounting the worst – even in the continued strong investment climate for gold.
And, while the BIOX plant is the big news, Golden Star also has a few other upsides in its future. Management is currently undergoing a feasibility study at the Hwini-Butre and Benso projects. With the study due out toward the end of this year, and measured and indicated reserves currently listed at 775,000 ounces, successful results could provide decent upside for Golden Star’s shares.
Conclusion
While Golden Star’s stock has been struggling for the past few years, its expanding operations and reserve base have allowed its valuation to decline to the point where the stock is now a major bargain.
With the possibility of an operational turnaround now looking more likely than at almost any time in the past, prudent investors would do well to pick up shares in the $3 or below range – while they still can.
U.S. Federal Court Finds "Genuine Dispute" on NovaGold's Donlin Creek Gold Project and Says Preliminary Injunction Unnecessary
Thursday September 14, 7:00 am ET
VANCOUVER, BRITISH COLUMBIA--(MARKET WIRE)--Sep 14, 2006 -- NovaGold Resources Inc. (TSX:NG.TO - News)(AMEX:NG - News) today announced that the U.S. District Court for the District of Alaska has declined to grant a preliminary injunction to temporarily suspend the hostile take-over bid by Barrick Gold Corporation ("Barrick"), but has made no ruling yet on the merits of the remaining motions. NovaGold has requested an expedited date from the Court for a trial to decide the precise actions that Barrick must take to satisfy the Donlin Creek Mining Venture Agreement in order to earn an additional 40% interest in the Donlin Creek project.
The Court Order filed September 13 stated, "Having reviewed the evidence and assessed the credibility of the witnesses, this Court concludes that there is a genuine dispute as to the meaning of the terms of the Donlin Creek Mining Venture Agreement and the possibility of Barrick meeting the conditions under the agreement by November 2007." The Court also said that the supplementary information sent by Barrick to NovaGold shareholders, only after the first Court hearings on August 28, was sufficient as curative disclosure. In that supplementary disclosure filed with the U.S. Securities and Exchange Commission on August 29, Barrick advised shareholders of the existence of the dispute and described NovaGold's position regarding Barrick's inability to increase its interest in the Donlin Creek project.
NovaGold's President and CEO, Rick Van Nieuwenhuyse, said, "We are proceeding to a full hearing on the merits of our claims and will seek that hearing on an expedited basis. Although the Court decided not to suspend Barrick's hostile bid with a temporary injunction, we are confident that our shareholders share our view that Barrick's offer does not remotely reflect the value of NovaGold's shares. We believe it is highly unlikely that investors will tender to Barrick's bid, which expires on Friday."
In addition to the U.S. Securities Laws claims, NovaGold's lawsuit against Barrick alleges:
- Breach of contract by Barrick and Placer Dome U.S. Inc. under the Donlin Creek Mining Venture Agreement dated November 13, 2002
- Breach of fiduciary duties owed by Barrick and Placer Dome U.S. Inc. to NovaGold as a joint venture partner
and seeks, among other remedies:
- A declaratory judgment to clarify the requirements Barrick must satisfy to earn an additional 40% interest in Donlin Creek, and an order to the effect that it is impossible for Barrick to satisfy these requirements, in which case NovaGold expects to be appointed as manager of the project in place of Barrick.
Barrick has filed a motion asking the Court to dismiss the entire case; NovaGold will oppose that motion vigorously. The Court will likely decide Barrick's claim for dismissal shortly, and then is expected to decide NovaGold's request for an expedited trial on the merits of its claim.
Barrick's hostile bid for NovaGold expires at 6:00 pm (Toronto time) on September 15, 2006, unless the offer is extended or withdrawn.
NovaGold's Board of Directors, based on a recommendation from its Special Committee, today reiterated its recommendation that NovaGold shareholders REJECT Barrick's hostile bid and NOT TENDER their shares. Barrick is offering US$14.50 per share of NovaGold and on Wednesday, September 13, NovaGold's shares closed on AMEX at US$16.47 per share, a 14% premium over the Barrick bid.
NovaGold continues to pursue alternative transactions to generate greater value for NovaGold's shareholders. To date, NovaGold has been solicited by, and has initiated contact with, a number of third parties, including some of the world's largest mining companies, who have expressed an interest in considering alternative transactions. Discussions are being pursued with these third parties to generate value-enhancing alternatives.
About NovaGold
NovaGold Resources Inc. owns 70% of the Donlin Creek gold project in Alaska, one of the world's largest gold deposits. The Company is rapidly advancing toward production at its 100%-owned Galore Creek copper-gold project in northwestern British Columbia, and has commenced construction of its Rock Creek mine in Alaska. The Rock Creek mine at NovaGold's 100%-owned Nome Operations is expected to achieve production in mid-2007 in Alaska. Also in Alaska, NovaGold is earning a 51% interest as manager of the high-grade Ambler copper-zinc-silver-gold project in partnership with Rio Tinto. NovaGold is well financed with no long-term debt, and has one of the largest resource bases of any exploration or development-stage precious metals company. NovaGold trades on the TSX and AMEX under the symbol NG. More information is available online at: www.novagold.net or by e-mail at: info@novagold.net.
More Information About the Barrick Bid
On August 14, 2006 NovaGold filed its Directors' Circular and its recommendation statement in which the NovaGold Board of Directors recommended that shareholders reject the August 4, 2006 hostile offer from Barrick Gold Corporation (TSX:ABX.TO - News)(NYSE:ABX - News). The Circular describes the reasons for the Board's recommendation that shareholders reject the Barrick Offer. Investors and shareholders are strongly advised to read the Directors' Circular and recommendation statement, as well as any amendments and supplements to those documents, because they contain important information. Investors and shareholders may obtain a copy of the Directors' Circular at www.sedar.com or the recommendation statement from the United States Securities and Exchange Commission at www.sec.gov. Free copies of these documents can also be obtained by directing a request to NovaGold at Suite 2300, 200 Granville Street, Vancouver, British Columbia, Canada V6C 1S4, telephone (604) 669-6227, Attn: Corporate Secretary. More information is available online at: www.novagold.net or by e-mail at: info@novagold.net.
Barrick to Seek Termination of NovaGold Poison Pill and Extends Bid
Thursday September 14, 4:02 pm ET
TORONTO, ONTARIO--(MARKET WIRE)--Sep 14, 2006 -- Barrick Gold Corporation (NYSE:ABX - News)(TSX:ABX.TO - News)(London:BGD.L - News)(Swiss:ABX.SW - News)(EURONEXT PARIS: ABX) announced today that it will be submitting an application to the British Columbia Securities Commission for a hearing to cease trade NovaGold Resources Inc.'s shareholder rights plan or poison pill. The Company will ask that the hearing be held no later than September 27, 2006. Barrick also announced that its offer to acquire the outstanding shares of NovaGold has been extended to 6:00 p.m. (Toronto time) on September 29, 2006.
"At the expiry of the bid, NovaGold will have had over two months to table an alternative proposal. It's time for the poison pill to be removed so that Barrick can proceed with its bid and shareholders can exercise their fundamental right to make their own decisions regarding the tender of their shares without constraints imposed on them by NovaGold's management," said Greg Wilkins, President and Chief Executive Officer.
Barrick is making the offer to acquire NovaGold in order to consolidate its interest in the Donlin Creek project in Alaska, USA, and acquire 100 per cent of the Galore Creek project in British Columbia, Canada. The proposed transaction is valued at approximately US$1.3 billion (or approximately US$1.5 billion on a fully diluted basis). The all-cash offer of US$14.50 per share represents a premium of 24 per cent over the July 21, 2006 closing price of NovaGold's shares on the AMEX, and a premium of 23 per cent over the equity offering of US$11.75 completed by NovaGold in February 2006.
For purposes of U.S. tender offer rules, Barrick hereby discloses that 6,797 NovaGold common shares have been validly tendered to date to the offer.
The Circular for NovaGold is available on Barrick's website at www.barrick.com, from the Canadian System for Electronic Document Analysis and Retrieval at www.sedar.com or the SEC's website at www.sec.gov.
Barrick's vision is to be the world's best gold company by finding, acquiring, developing and producing quality reserves in a safe, profitable and socially responsible manner. Barrick's shares are traded on the Toronto, New York, London, Euronext-Paris and Swiss stock exchanges.
Additional Information
On August 4, 2006, Barrick Gold Corporation filed a tender offer statement related to its tender offer for the outstanding common shares of NovaGold Resources Inc. Investors and security holders of NovaGold are urged to read the tender offer statement, because it contains important information. Investors and security holders of NovaGold may obtain a free copy of the tender offer statement and other documents filed by Barrick Gold Corporation with the SEC at the SEC's website at www.sec.gov. The tender offer statement may also be obtained for free from Barrick Gold Corporation on its website or by directing a request to Barrick Gold Corporation's investor relations department.
NovaGold Resources Inc.: Donlin Creek Study Indicates 1.9 Million Ounces Annual Gold Production
NovaGold's senior management will present at the Denver Gold Forum today starting at 12:40 PM EST '9:40 AM PST'. The presentation will be webcast and can be viewed live or delayed through NovaGold's website at www.novagold.net.
News 
Market Data 
Discover 
