In a move that will fund the advancement of its flagship Donlin Gold project in Alaska, Novagold (TSX:NG)(NYSE:NG) has agreed to sell its 50% interest in the Galore Creek project in northwest British Columbia to Newmont Mining (NYSE:NEM) for as much as $275 million.
Galore Creek is owned by the Galore Creek Partnership, a 50/50 joint venture between Novagold and Teck Resources (TSX:TECK.B)(NYSE:TECK). Teck waived its first right of refusal to acquire the stake in the partnership.
Per the deal, Newmont will pay $100 million up front and another $175 million based upon the project meeting certain development milestones or defined time lines. For instance, $75 million will be due upon the completion of a pre-feasibility study for Galore Creek or three years after the closing date, whichever happens first.
Another $25 million is payable upon completing a feasibility study or at the five-year anniversary of the transaction. A final $75 million is owed upon construction at the project being approved.
The transaction also includes Newmont acquiring Novagold's 40% stake in the Copper Canyon project next to Galore Creek. Teck, officially the Galore Creek Partnership, owns the other 60 percent of the project.
Novagold won't receive any cash for this divestment, rather register a loss of $92 million on its books.
Novagold has been looking to sell its position in Galore Creek, although it hasn't been in a rush. Novagold president and CEO Greg Lang commented in this morning's news, "Our patience has been rewarded."
Now, Novagold has extra cash to push forward with its Donlin project, which has about 39 million ounces of measured and indicated gold resources grading 2.24 grams per tonne, according to the latest feasibility study for the project.
Coupled with the existing cash on hand, Novagold chairman Thomas Kaplan says that the company will end the year with over $150 million in cash with more scheduled cash infusions from Newmont down the road.
He doesn't see any need for the company to raise capital until a construction decision is made at Donlin.
"For those who believe as we do, that there comes a time when the shares are more precious than the metal itself, this latest news should be seen for what it is: a very rare case of a mining company continuing every day, month, and year to honor its promises to do the right thing for its shareholders," said Kaplan in today's news release.
Shares of Toronto-listed NG closed Wednesday up by half a percent at $5.87, while U.S.-listed shares wrapped the day up 1.6% at $4.50.
