'This is a good example of an instance where an asset we own might be better suited in the hands of others, while we pursue our priority portfolio of Barrick-managed growth projects,' Barrick CEO Mark Bristow said in a release.Cole Burston/The Globe and Mail
Barrick Gold Corp. ABX-T is selling its stake in the giant undeveloped Donlin gold project in Alaska to U.S. activist Paulson Advisers LLC and Novagold Resources Inc. NG-T for US$1-billion after clashing with its joint venture partner over the direction of the project.
Palm Beach, Fla.-based Paulson is paying US$800-million and will partly backstop the US$200-million that Novagold is contributing. After the transaction closes, Paulson will hold a 40-per-cent share in Donlin and Novagold’s stake will rise to 60 per cent from 50 per cent. Paulson chairman John Paulson is best known for betting against the U.S. housing market during the financial crisis of 2008 and 2009 and making billions in the process.
Donlin is one of the largest gold projects in the world, but its extremely remote location, lack of basic infrastructure and the gargantuan capital cost requirements has led to it sitting undeveloped for decades.
According to an engineering study commissioned by Novagold in 2021, Donlin contains a gold reserve of 34 million ounces, which could power a mine for 25 years. The project is located approximately 450 kilometres west of Anchorage with no road or rail access. The cost to build it was pegged at US$7.4-billion.
Barrick has owned a stake in Donlin since its US$10.4-billion acquisition of fellow Canadian mining company Placer Dome Inc. in 2006. Vancouver-based Novagold’s share dates back even further to 2001.
While Toronto-based Barrick has considered developing Donlin over the years, and funded exploration and engineering work, it has never pulled the trigger on building the project, electing instead to pursue mines elsewhere it believes offer superior return potential.
Barrick over the next few years has its hands full with another megaproject. It has committed billions to developing the Reko Diq copper and gold project in Pakistan.
In a conference call with analysts after the announcement of the Donlin transaction, Novagold’s long-time chairman Thomas Kaplan said that relations with Barrick have been strained for a while and during that time its market value has cratered.
“We and Barrick did not see eye-to-eye on a couple of things,” Mr. Kaplan said.
Those included the timing of a feasibility study and how much drilling to carry out, but most importantly a strategic decision within Barrick to increasingly focus on copper growth instead of gold. As part of its push to focus on copper, Barrick has proposed changing its name to “Barrick Mining,” something that will be put to its shareholders as a resolution in its annual general meeting.
“All it came down to was how does this affect us? And the truth is that we went from a $4-billion market cap as we treaded water to a billion dollars today,” Mr. Kaplan said.
Barrick chief executive officer Mark Bristow declined an interview for this story.
New Donlin partner Paulson has been a shareholder in Novagold since 2010. Paulson is best known in Canada for successfully leading an activist campaign at Detour Gold Corp., which resulted in a major board overhaul and the eventual sale of the company at a premium valuation to a richer competitor.
With the exit of Barrick from Donlin, the project ostensibly lacks an operator with experience in building large mines. Novagold and Paulson will likely need to find a new operating partner, Royal Bank of Canada analyst Michael Siperco wrote in a note to clients on Tuesday.
But Novagold CEO Gregory Lang in an interview indicated that isn’t necessarily the case, pointing to his own experience as former head of North American operations at Barrick, and to the credentials of chief operating officer Richard Williams, who was a lead project manager for Barrick’s Pueblo Viejo mine in the Dominican Republic.
“We’ve got the people in place to take this forward,” he said.
The infrastructure challenges at Donlin are immense. Apart from building two open-pit mines, the 2021 study said the project will require the construction of a 44 kilometre road to access a river port, an airstrip, a marine cargo terminal, a barge cargo and fuel terminal, as well as a power plant, and a 507 km natural gas pipeline to supply the plant.
Shares in Novagold rose by 39 per cent to close at $6 apiece on the Toronto Stock Exchange on Tuesday.