Final Prospectus Supplement
Filed
pursuant to General Instruction II. L. of Form F-10
File No. 333-141410
Prospectus Supplement
To prospectus, dated April 16, 2007
US$95,000,000
5.50% Senior
Convertible Notes due May 1, 2015
Interest payable May 1 and
November 1
Issue price: 100%
The notes will bear interest at a rate of 5.50% per year.
Interest will be payable semiannually in arrears on May 1
and November 1 of each year, beginning November 1,
2008. The notes will mature on May 1, 2015.
Holders may convert their notes based on a conversion rate of
94.2418 common shares per US$1,000 principal amount of
notes, equivalent to a conversion price of approximately
US$10.61 per share, subject to adjustment, at their option at
any time prior to maturity. Subject to the satisfaction of
certain conditions, we may, in lieu of delivering common shares
upon conversion of all or a portion of the notes, elect to pay
cash or a combination of cash and common shares. In addition,
following certain corporate transactions described in this
prospectus supplement, we will increase the conversion rate for
holders who elect to convert notes in connection with such
corporate transactions in certain circumstances.
We may not redeem any of the notes at our option prior to
maturity, except upon the occurrence of certain changes to the
laws governing Canadian withholding taxes.
Holders may require us to repurchase for cash all or a portion
of their notes on May 1, 2013 at a price equal to 100% of the
principal amount of the notes to be repurchased plus any accrued
and unpaid interest up to, but excluding, the date of
repurchase. In addition, if we experience specified types of
fundamental changes, we will be required to offer to repurchase
for cash all of the outstanding notes at a price equal to 100%
of the principal amount of the notes to be repurchased plus any
accrued and unpaid interest up to, but excluding, the date of
repurchase.
For a more detailed description of the notes, see the
Description of notes section of this prospectus
supplement.
The notes will not be listed on any securities exchange. Our
common shares are listed for trading on the American Stock
Exchange (AMEX) and on the Toronto Stock Exchange
(the TSX) under the symbol NG. On
March 19, 2008, the closing price of the common shares on
AMEX and the TSX was US$7.86 and Cdn$7.87, respectively.
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Public
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Net proceeds to the
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offering price
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Underwriters fee
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Company
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Per note
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US$
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1,000
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US$
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30
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US$
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970
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Total
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US$
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95,000,000
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US$
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2,850,000
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US$
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92,150,000
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We have granted to the underwriter an option exercisable not
later than 30 days after the closing date of this offering
to purchase from us an additional US$14,000,000 principal amount
of notes to cover over-allotments, if any.
Investing in the notes involves a high degree of risk. See
Risk factors beginning on
page S-11.
Our earnings coverage ratio as at the fiscal year ended
November 30, 2007 was less than one to one. See
Earnings coverage for more information.
This offering is made by a foreign issuer that is permitted,
under a multijurisdictional disclosure system adopted by the
United States and Canada, to prepare this prospectus supplement
in accordance with Canadian disclosure requirements. Prospective
investors should be aware that such requirements are different
from those of the United States. The financial statements
incorporated herein have been prepared in accordance with
Canadian generally accepted accounting principles, and may be
subject to Canadian auditing and auditor independence standards,
and thus may not be comparable to financial statements of United
States companies.
Prospective investors should be aware that the acquisition of
the securities described herein may have tax consequences both
in the United States and in Canada. Such consequences for
investors who are resident in, or citizens of, the United States
may not be described fully herein.
The enforcement by investors of civil liabilities under the
federal securities laws may be affected adversely by the fact
that the Company is incorporated under the laws of Nova Scotia,
Canada, that some of its officers and directors are residents of
Canada, that some of the experts named in the prospectus
supplement are residents of Canada, and that a substantial
portion of the assets of the Company and said persons are
located outside the United States.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The notes will be ready for delivery in book-entry form through
the facilities of The Depository Trust Company on or about
March 26, 2008.
JPMorgan
March 20, 2008
Table of
contents
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Page
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Prospectus supplement
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S-ii
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S-ii
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S-ii
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S-iv
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S-vii
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S-1
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S-8
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S-11
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S-23
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S-24
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S-25
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S-26
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S-27
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S-28
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S-49
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S-68
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S-71
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S-71
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S-71
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S-72
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Prospectus
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Cautionary note to United States investors
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2
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Cautionary statement regarding forward-looking statements
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2
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Exchange rate information
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4
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The company
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5
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Risk factors
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31
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Use of proceeds
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45
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Earnings coverage
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45
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Dividend policy
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45
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Consolidated capitalization
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46
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Management
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46
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Description of share capital
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49
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Description of debt securities
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49
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Description of warrants
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63
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Description of share purchase contracts and share purchase or
equity units
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65
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Denominations, registration and transfer
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65
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Plan of distribution
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66
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Legal matters
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66
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Auditors, transfer agent and registrar
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66
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Interest of experts
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67
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Documents incorporated by reference
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67
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Documents filed as part of the registration statement
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68
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Additional information
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69
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Enforceability of civil liabilities
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69
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General
matters
This document is in two parts. The first part is the prospectus
supplement, which describes the terms of the offering and adds
to and updates information contained in the accompanying base
shelf prospectus and the documents incorporated by reference.
The second part is the accompanying base shelf prospectus, which
gives more general information, some of which may not apply to
the offering. This prospectus supplement is deemed to be
incorporated by reference into the accompanying base shelf
prospectus solely for the purpose of this offering.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement and
the accompanying base shelf prospectus. We and the underwriter
have not authorized anyone to provide you with different
information. We and the underwriter are not making an offer of
the notes in any jurisdiction where the offer is not permitted.
You should not assume that the information contained in this
prospectus supplement, the accompanying base shelf prospectus or
the documents incorporated by reference herein and therein is
accurate as of any date other than the date on the front of such
documents.
Unless the context otherwise requires, references in this
prospectus supplement to NovaGold, the
Company or the terms we, us
and our includes NovaGold Resources Inc. and each of
its material subsidiaries.
References in this prospectus supplement to the base
shelf prospectus refer to the short form base shelf
prospectus of the Company dated April 16, 2007.
Currency and
financial statement presentation
Unless stated otherwise or the context otherwise requires, all
references to dollar amounts in this prospectus supplement are
references to Canadian dollars. References to $ or
Cdn$ are to Canadian dollars and references to
US$ are to U.S. dollars. See Exchange
rate information. The Companys financial statements
that are incorporated by reference into this prospectus
supplement have been prepared in accordance with generally
accepted accounting principles in Canada (Canadian
GAAP), and the financial statements for the fiscal year
ended November 30, 2007 are reconciled to generally
accepted accounting principles in the United States (U.S.
GAAP) as described in note 16 to the Companys
audited consolidated annual financial statements for fiscal 2007.
Cautionary
note to United States investors
This prospectus supplement and the accompanying base shelf
prospectus have been prepared in accordance with the
requirements of Canadian securities laws, which differ from the
requirements of United States securities laws. Unless otherwise
indicated, all reserve and resource estimates included or
incorporated by reference in this prospectus supplement and the
accompanying base shelf prospectus have been prepared in
accordance with Canadian National Instrument
43-101
Standards of Disclosure for Mineral Projects (NI
43-101)
and the Canadian Institute of Mining and Metallurgy
Classification System. NI
43-101 is a
rule developed by the Canadian Securities Administrators which
establishes standards for all public disclosure an issuer makes
of scientific and technical information concerning mineral
projects. NI
43-101
permits the disclosure of an historical estimate made prior to
the adoption of NI
43-101 that
does not
S-ii
comply with NI
43-101 to be
disclosed using the historical terminology if the disclosure:
(a) identifies the source and date of the historical
estimate; (b) comments on the relevance and reliability of
the historical estimate; (c) states whether the historical
estimate uses categories other than those prescribed by NI
43-101, and
(d) includes any more recent estimates or data available.
Such historical estimates are presented concerning the
Companys Saddle and Shotgun mineralization.
Canadian standards, including NI
43-101,
differ significantly from the requirements of the United States
Securities and Exchange Commission (SEC), and
reserve and resource information contained in or incorporated by
reference into this prospectus supplement and the accompanying
base shelf prospectus may not be comparable to similar
information disclosed by U.S. companies. In particular, and
without limiting the generality of the foregoing, the term
resource does not equate to the term
reserves. Under U.S. standards, mineralization
may not be classified as a reserve unless the
determination has been made that the mineralization could be
economically and legally produced or extracted at the time the
reserve determination is made. The SECs disclosure
standards normally do not permit the inclusion of information
concerning measured mineral resources,
indicated mineral resources or inferred
mineral resources or other descriptions of the amount of
mineralization in mineral deposits that do not constitute
reserves by U.S. standards in documents filed
with the SEC. U.S. investors should also understand that
inferred mineral resources have a great amount of
uncertainty as to their existence and great uncertainty as to
their economic and legal feasibility. It cannot be assumed that
all or any part of an inferred mineral resource will
ever be upgraded to a higher category or that any of the
resources described in this prospectus supplement will ever be
reclassified as reserves. Under Canadian rules, estimated
inferred mineral resources may not form the basis of
feasibility or pre-feasibility studies except in rare cases.
Investors are cautioned not to assume that all or any part of an
inferred mineral resource exists or is economically
or legally mineable. Disclosure of contained ounces
in a resource is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute
reserves by SEC standards as in place tonnage and
grade without reference to unit measures. The requirements of NI
43-101 for
identification of reserves are also not the same as
those of the SEC, and reserves reported by NovaGold in
compliance with NI
43-101 may
not qualify as reserves under SEC standards.
Accordingly, information concerning mineral deposits set forth
herein may not be comparable with information made public by
companies that report in accordance with United States standards.
See Preliminary notesGlossary and defined
terms in the Companys Annual Information Form for
the fiscal year ended November 30, 2007, which is
incorporated by reference, for a description of certain of the
mining terms used in this prospectus supplement and the
accompanying base shelf prospectus and the documents
incorporated by reference herein and therein.
S-iii
Cautionary
statement regarding forward-looking statements
This prospectus supplement, the accompanying base shelf
prospectus and the documents incorporated by reference herein
and therein contain forward-looking statements within the
meaning of the United States Private Securities Litigation
Reform Act of 1995 and Canadian securities laws concerning the
Companys plans at the Donlin Creek, Nome Operations,
Galore Creek and Ambler projects, production, capital, operating
and cash flow estimates and other matters. These statements
relate to analyses and other information that are based on
forecasts of future results, estimates of amounts not yet
determinable and assumptions of management.
Statements concerning mineral reserve and resource estimates may
also be deemed to constitute forward-looking statements to the
extent that they involve estimates of the mineralization that
will be encountered if the property is developed. Any statements
that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not
always, using words or phrases such as expects,
anticipates, plans,
estimates, intends,
strategy, goals, objectives
or stating that certain actions, events or results
may, could, would,
might or will be taken, occur or be
achieved, or the negative of any of these terms and similar
expressions) are not statements of historical fact and may be
forward-looking statements. Forward-looking
statements are subject to a variety of known and unknown risks,
uncertainties and other factors that could cause actual events
or results to differ from those expressed or implied by the
forward-looking statements, including, without limitation:
Risks relating to
the notes and the offering
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the notes are unsecured and are effectively subordinated to all
of our existing and future secured indebtedness;
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the notes are effectively subordinated to all liabilities of our
subsidiaries;
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we expect to incur substantially more debt or take other actions
which may affect our ability to satisfy our obligations under
the notes;
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we may not have the ability to repurchase the notes in cash upon
a redemption for changes in Canadian withholding tax law, at the
option of the holder or upon the occurrence of a fundamental
change;
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some significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to repurchase the notes;
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upon conversion of the notes, we will have the right to elect to
deliver cash in lieu of some or all the common shares to be
delivered upon conversion, the amount of cash to be delivered
per note being calculated on the basis of average prices over a
specified period, and you may receive less proceeds than
expected;
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the adjustment to the conversion rate for notes converted in
connection with a specified corporate transaction may not
adequately compensate you for any lost value of your notes as a
result of such transaction;
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the conversion rate of the notes may not be adjusted for all
dilutive events;
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S-iv
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the notes may not have an active market and their price may be
volatile; you may be unable to sell your notes at the prices you
desire or at all;
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the notes may not be rated or may receive a lower rating than
anticipated;
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if you hold notes, you will not be entitled to any rights with
respect to our common shares, but you will be subject to all
changes made with respect to our common shares;
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the price of our common shares, and therefore the price of the
notes, may fluctuate significantly, which may make it difficult
for holders to resell the notes or the common shares issuable
upon conversion of the notes when desired or at attractive
prices;
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sales of a significant number of our common shares in the public
markets, or the perception of such sales, could depress the
market price of the notes, our common shares, or both;
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the notes will initially be held in book-entry form and,
therefore, you must rely on the procedures and the relevant
clearing systems to exercise your rights and remedies;
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we may not be able to refinance the notes or other indebtedness
if required or if we so desire;
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the conversion of notes for cash or for a combination of cash
and common shares will be taxable to holders of the notes for
Canadian and United States tax purposes;
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U.S. holders may have to pay taxes if we make or fail to make
certain adjustments to the conversion rate of the notes even
though you do not receive a corresponding cash distribution;
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we believe we are a passive foreign investment
company under the U.S. Internal Revenue Code and if
we are or become a passive foreign investment
company there may be adverse U.S. tax consequences
for investors in the United States;
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Risks relating to
the Companys business
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uncertainty of production at the Companys mineral
exploration and development properties;
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risks related to the Companys ability to commence
production and generate material revenues or obtain adequate
financing for its planned exploration and development activities;
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uncertainty of estimates of capital costs, operating costs,
production and economic returns;
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risks related to the Companys ability to finance the
development of its mineral properties;
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the risk that permits and governmental approvals necessary to
develop and operate mines on the Companys properties will
not be available on a timely basis or at all;
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risks and uncertainties relating to the interpretation of drill
results, the geology, grade and continuity of the Companys
mineral deposits;
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commodity price fluctuations;
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risks related to the Companys current practice of not
using hedging arrangements;
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currency fluctuations;
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S-v
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risks related to current or future government regulation,
including environmental regulations as well as the potential
impact of two clean water initiatives proposed in
the State of Alaska;
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risks related to the need for reclamation activities on the
Companys properties and uncertainty of cost estimates
related thereto;
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the Companys need to attract and retain qualified
management and technical personnel;
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mining and development risks, including risks related to
accidents, equipment breakdowns, labour disputes or other
unanticipated difficulties with or interruptions in development,
construction or production;
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uncertainty related to unsettled aboriginal rights and title in
British Columbia;
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uncertainty related to title to the Companys mineral
properties;
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the Companys history of losses and expectation of future
losses;
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risks related to the integration of new acquisitions into the
Companys existing operations;
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uncertainty inherent in litigation including the effects of
discovery of new evidence or advancement of new legal theories,
and the difficulty of predicting decisions of judges and juries;
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risks related to increases in demand for equipment, skilled
labour and services needed for exploration and development of
mineral properties, and related cost increases;
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risks related to the impact of current and future indebtedness
of the Company and its subsidiaries, including the impact of the
terms of any such indebtedness on the notes;
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increased competition in the mining industry; and
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uncertainty as to the Companys ability to acquire
additional commercially mineable mineral rights.
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This list is not exhaustive of the factors that may affect any
of the Companys forward-looking statements.
Forward-looking statements are statements about the future and
are inherently uncertain, and actual achievements of the Company
or other future events or conditions may differ materially from
those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including,
without limitation, those referred to in this prospectus
supplement, the accompanying base shelf prospectus and the
Companys Annual Information Form for the fiscal year ended
November 30, 2007 under the heading Risk
factors and elsewhere in this prospectus supplement, the
accompanying base shelf prospectus and in the documents
incorporated by reference herein and therein. The Companys
forward-looking statements are based on the beliefs,
expectations and opinions of management on the date the
statements are made, and the Company does not assume any
obligation to update forward-looking statements if circumstances
or managements beliefs, expectations or opinions should
change, except as required by law. For the reasons set forth
above, investors should not place undue reliance on
forward-looking statements.
S-vi
Exchange rate
information
All dollar amounts in this prospectus supplement are expressed
in Canadian dollars unless otherwise indicated. The following
table sets forth the rate of exchange for the Canadian dollar,
expressed in U.S. dollars (i) in effect at the end of
the periods indicated, (ii) the average exchange rates on
the last day of each month during such periods, and
(iii) the high and low exchange rates during such periods,
each based on the closing rate of exchange as reported by the
Bank of Canada for conversion of Canadian dollars into
U.S. dollars.
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Fiscal year ended November 30,
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2007
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2006
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2005
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Rate at end of period
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US$
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1.0000
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US$
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0.8755
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US$
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0.8570
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Average rate based on last day each month
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US$
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0.9249
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US$
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0.8848
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US$
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0.8249
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High for period
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US$
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1.0852
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US$
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0.9105
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US$
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0.8601
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Low for period
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US$
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0.8435
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US$
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0.8524
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US$
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0.7876
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On March 19, 2008, the exchange rate based on the Bank of
Canada closing rate was $1.00 per US$0.9849 and on
November 30, 2007 was $1.00 per US$1.0000.
S-vii
The
Company
The following description of the Company, its properties and
its business highlights selected information contained in the
documents incorporated by reference into this prospectus
supplement and the accompanying base shelf prospectus. This
description does not contain all of the information about the
Company and its properties or business that you should consider
before investing in the notes. You should carefully read the
entire prospectus supplement, the accompanying base shelf
prospectus and the documents incorporated by reference herein
and therein, including the sections titled Risk
factors in this prospectus supplement, the accompanying
base shelf prospectus and the Companys Annual Information
Form for the fiscal year ended November 30, 2007, before
making an investment decision regarding the notes. Technical
information about the Companys properties, including
reserve and resource estimates, estimated capital costs to
develop the properties, and drilling results, are based on
information contained in technical reports and other documents
that were prepared or reviewed by, or under the supervisions of,
Qualified Persons as defined in
NI 43-101,
as described in further detail in the Companys Annual
Information Form for the fiscal year ended November 30,
2007 and the other documents incorporated by reference into this
prospectus supplement and the accompanying base shelf
prospectus.
Description of
the business
NovaGold is a gold and copper company engaged in the exploration
and development of mineral properties in Alaska and British
Columbia. The Company conducts its operations through
wholly-owned subsidiaries, partnerships, limited liability
companies and joint ventures. Since 1998, the Company has
assembled a portfolio of gold and base metal properties. The
Company is primarily focused on gold properties, some of which
have significant copper and silver resources. The Companys
portfolio of properties includes:
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Donlin Creek, an advanced-stage exploration project held
by a limited liability company that is owned 50% by the Company
and 50% by Barrick Gold U.S. Inc., a subsidiary of Barrick
Gold Corporation (collectively Barrick), is one of
the largest known undeveloped gold deposits in the world, based
on publicly reported sources, with measured and indicated
resources of 29.4 million ounces of gold and additional
inferred resources of 3.5 million ounces of gold.
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Rock Creek and Big Hurrah, which together are anticipated
to be NovaGolds first production project. Rock Creek and
Big Hurrah have 0.5 million ounces of gold reserves with
additional indicated resources of 0.3 million ounces of
gold and inferred resources of 0.1 million ounces of gold.
Construction on Rock Creek commenced in the summer of 2006.
Anticipated production from Rock Creek and Big Hurrah is
expected to be at an average annual rate of approximately
100,000 ounces of gold with commercial production starting in
mid-2008.
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Galore Creek, which is a large copper-gold-silver project
located in northwestern British Columbia held by a partnership
in which NovaGold and Teck Cominco Limited (Teck
Cominco) each have a 50% interest (the Galore Creek
Partnership). The Galore Creek project is the subject of
an October 2006 feasibility study; however, construction at the
Galore Creek project has been suspended while the Company and
Teck Cominco reassess the project and evaluate alternative
development strategies in light of information indicating
increased capital costs and a longer construction schedule from
those contemplated by the feasibility study. A revised resource
estimate for the Galore Creek project totals measured and
indicated resources of 8.9 billion pounds of copper,
7.3 million ounces of gold and 123 million ounces of
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S-1
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silver, with additional inferred resources, including the Copper
Canyon deposit of which NovaGold holds 60% (held in trust for
the Galore Creek Partnership), of 3.6 billion pounds of
copper, 3.8 million ounces of gold and 65 million
ounces of silver.
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Ambler, in which NovaGold is earning a 51% interest in
joint venture with subsidiaries of Rio Tinto plc (Rio
Tinto), is a large, high-grade earlier stage polymetallic
massive sulphide deposit with indicated resources of
1.5 billion pounds of copper, 2.2 billion pounds of
zinc, 0.45 million ounces of gold, 32.3 million ounces
of silver and 350 million pounds of lead, with additional
inferred resources of 0.9 billion pounds of copper,
1.3 billion pounds of zinc, 0.3 million ounces of
gold, 18.6 million ounces of silver and 210 million
pounds of lead.
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In addition, NovaGold holds a portfolio of earlier stage
exploration projects that have not advanced to the resource
definition stage. The Company is also engaged in the sale of
sand, gravel and land, and receives royalties from placer gold
production, largely from its holdings around Nome, Alaska,
earning $1 million to $3 million annually.
For the purposes of NI
43-101,
NovaGolds material properties are the Donlin Creek
project, the Rock Creek project and the Galore Creek project.
Summary of
reserves
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Total
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NovaGold
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In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Property
|
|
Reserve
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
100% Ownership
|
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Rock Creek 0.6 g/t Cutoff
(assumed US$500/oz Au price)
|
|
|
Probable
|
|
|
7.8
|
|
|
1.3
|
|
|
0.3
|
|
|
0.3
|
Big Hurrah 1.33 g/t Cutoff
(assumed US$500/oz Au price)
|
|
|
Probable
|
|
|
1.2
|
|
|
4.8
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Probable Reserves
|
|
|
|
|
|
9.0
|
|
|
1.8
|
|
|
0.5
|
|
|
0.5
|
|
|
Summary of
measured, indicated, inferred and historical
resources(1)
Donlin
Creek(2)
approximately 0.8 g/t gold
50%
Ownership 50% Owned by Barrick Gold Corporation
(Calista Corporation has the right to acquire up to a 15%
interest)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Measured
|
|
|
4.3
|
|
|
2.7
|
|
|
0.4
|
|
|
0.2
|
Indicated
|
|
|
367.4
|
|
|
2.5
|
|
|
29.0
|
|
|
14.5
|
|
|
|
|
|
|
Total M&I
|
|
|
371.7
|
|
|
2.5
|
|
|
29.4
|
|
|
14.7
|
|
|
|
|
|
|
Inferred
|
|
|
46.5
|
|
|
2.3
|
|
|
3.5
|
|
|
1.7
|
|
|
S-2
Galore
Creek(3) 0.21%
CuEq Cutoff
50%
Ownership 50% Owned by Teck Cominco Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NovaGold
|
|
|
|
|
|
|
Total
|
|
Share Net
|
|
|
|
|
In Situ Grade
|
|
Contained Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Ag
|
|
Cu
|
|
Au
|
|
Ag
|
|
Cu
|
|
Au
|
|
Ag
|
|
AuEq
|
|
Cu
|
Category
|
|
Millions
|
|
g/t
|
|
g/t
|
|
%
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Moz
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
|
Measured
|
|
|
4.7
|
|
|
0.4
|
|
|
4.4
|
|
|
0.5
|
|
|
0.1
|
|
|
0.7
|
|
|
54
|
|
|
0.03
|
|
|
0.3
|
|
|
0.04
|
|
|
27
|
Indicated
|
|
|
781.0
|
|
|
0.3
|
|
|
4.9
|
|
|
0.5
|
|
|
7.2
|
|
|
122.4
|
|
|
8,872
|
|
|
3.61
|
|
|
61.2
|
|
|
4.64
|
|
|
4,436
|
|
|
|
|
|
|
Total M&I
|
|
|
785.7
|
|
|
0.3
|
|
|
4.9
|
|
|
0.5
|
|
|
7.3
|
|
|
123.1
|
|
|
8,926
|
|
|
3.64
|
|
|
61.6
|
|
|
4.68
|
|
|
4,463
|
|
|
|
|
|
|
Inferred
|
|
|
357.7
|
|
|
0.2
|
|
|
3.7
|
|
|
0.4
|
|
|
2.1
|
|
|
42.5
|
|
|
2,858
|
|
|
1.03
|
|
|
21.2
|
|
|
1.39
|
|
|
1,429
|
|
|
Copper
Canyon(4) 0.35%
CuEq Cutoff
60%
Ownership NovaGold interest held in trust for the
Galore Creek Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NovaGold
|
|
|
|
|
|
|
Total
|
|
Share Net
|
|
|
|
|
In Situ Grade
|
|
Contained Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Ag
|
|
Cu
|
|
Au
|
|
Ag
|
|
Cu
|
|
Au
|
|
Ag
|
|
AuEq
|
|
Cu
|
Category
|
|
Millions
|
|
g/t
|
|
g/t
|
|
%
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Moz
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
|
Inferred
|
|
|
164.8
|
|
|
0.5
|
|
|
7.2
|
|
|
0.4
|
|
|
2.9
|
|
|
37.9
|
|
|
1,160
|
|
|
1.7
|
|
|
22.8
|
|
|
2.1
|
|
|
696
|
|
|
Rock Creek
0.6 g/t Cutoff
100%
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Indicated
|
|
|
4.6
|
|
|
1.2
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
Total M&I
|
|
|
4.6
|
|
|
1.2
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
Inferred
|
|
|
2.0
|
|
|
1.1
|
|
|
0.1
|
|
|
0.1
|
|
|
Big Hurrah
1.0 g/t Cutoff
100%
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Indicated
|
|
|
0.9
|
|
|
2.7
|
|
|
0.08
|
|
|
0.08
|
|
|
|
|
|
|
Total M&I
|
|
|
0.9
|
|
|
2.7
|
|
|
0.08
|
|
|
0.08
|
|
|
|
|
|
|
Inferred
|
|
|
0.2
|
|
|
3.0
|
|
|
0.02
|
|
|
0.02
|
|
|
Saddle(5) 1.0
g/t Cutoff
100%
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Historical
|
|
|
3.6
|
|
|
2.2
|
|
|
0.3
|
|
|
0.3
|
|
|
S-3
Nome
Gold(6) 0.2
g/m3 Cutoff
100%
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Volume
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
m3
|
|
g/m3
|
|
Moz
|
|
Moz
|
|
|
Measured
|
|
|
79.1
|
|
|
0.3
|
|
|
0.8
|
|
|
0.8
|
Indicated
|
|
|
83.8
|
|
|
0.3
|
|
|
0.8
|
|
|
0.8
|
|
|
|
|
|
|
Total M&I
|
|
|
162.9
|
|
|
0.3
|
|
|
1.6
|
|
|
1.6
|
|
|
|
|
|
|
Inferred
|
|
|
30.6
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
Shotgun(5) 0.5
g/t Cutoff
50%
Ownership 50% owned by TNR Gold Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
NovaGold
|
|
|
|
|
In Situ
|
|
Contained
|
|
Share Net
|
|
|
|
|
Grade
|
|
Metal
|
|
After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Au
|
|
Au
|
Category
|
|
Millions
|
|
g/t
|
|
Moz
|
|
Moz
|
|
|
Historical
|
|
|
32.8
|
|
|
0.9
|
|
|
1.0
|
|
|
0.5
|
|
|
Ambler(7) $100
Gross Metal Value / Tonne Cutoff
Earning
51% from subsidiaries of Rio Tinto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Situ Grade
|
|
Total Contained Metal
|
|
NovaGold Share Net After Earn-Ins
|
Resource
|
|
Tonnes
|
|
Au
|
|
Ag
|
|
Cu
|
|
Zn
|
|
Pb
|
|
Au
|
|
Ag
|
|
Cu
|
|
Zn
|
|
Pb
|
|
Au
|
|
Ag
|
|
AuEq
|
|
Cu
|
|
Zn
|
|
Pb
|
Category
|
|
Millions
|
|
g/t
|
|
g/t
|
|
%
|
|
%
|
|
%
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Mlbs
|
|
Mlbs
|
|
Moz
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Mlbs
|
|
Mlbs
|
|
|
Indicated
|
|
|
16.8
|
|
|
0.8
|
|
|
59.6
|
|
|
4.1
|
|
|
6.0
|
|
|
0.9
|
|
|
0.4
|
|
|
32.3
|
|
|
1,538
|
|
|
2,237
|
|
|
350
|
|
|
0.2
|
|
|
16.5
|
|
|
0.5
|
|
|
784
|
|
|
1,141
|
|
|
179
|
|
|
|
|
|
|
Total M&I
|
|
|
16.8
|
|
|
0.8
|
|
|
59.6
|
|
|
4.1
|
|
|
6.0
|
|
|
0.9
|
|
|
0.4
|
|
|
32.3
|
|
|
1,538
|
|
|
2,237
|
|
|
350
|
|
|
0.2
|
|
|
16.5
|
|
|
0.5
|
|
|
784
|
|
|
1,141
|
|
|
179
|
|
|
|
|
|
|
Inferred
|
|
|
11.9
|
|
|
0.7
|
|
|
48.4
|
|
|
3.6
|
|
|
5.0
|
|
|
0.8
|
|
|
0.3
|
|
|
18.6
|
|
|
937
|
|
|
1,313
|
|
|
210
|
|
|
0.1
|
|
|
9.5
|
|
|
0.3
|
|
|
478
|
|
|
670
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contained Metal
|
|
NovaGold Share Net After Earn-Ins
|
|
|
Au
|
|
Ag
|
|
Cu
|
|
Zn
|
|
Pb
|
|
Au
|
|
Ag
|
|
AuEq
|
|
Cu
|
|
Zn
|
|
Pb
|
Total all projects
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Mlbs
|
|
Mlbs
|
|
Moz
|
|
Moz
|
|
Moz
|
|
Mlbs
|
|
Mlbs
|
|
Mlbs
|
|
|
Total Probable Reserves
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Total Measured & Indicated (Exclusive of
Reserves)
|
|
|
38.9
|
|
|
155
|
|
|
10,465
|
|
|
2,237
|
|
|
350
|
|
|
20.4
|
|
|
78.0
|
|
|
21.7
|
|
|
5,248
|
|
|
1,141
|
|
|
179
|
Total Inferred
|
|
|
9.0
|
|
|
99
|
|
|
4,955
|
|
|
1,313
|
|
|
210
|
|
|
4.9
|
|
|
53.5
|
|
|
5.8
|
|
|
2,603
|
|
|
670
|
|
|
107
|
Total Historical Resource
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
1.
|
|
These resource estimates have been
prepared in accordance with NI
43-101 and
the Canadian Institute of Mining and Metallurgy Resource
Classification System, unless otherwise noted.
|
|
2.
|
|
See numbered footnotes below on
resource information. Resources shown in the right-hand columns
are reported as net values to NovaGold after all project
earn-ins.
|
|
3.
|
|
The gold equivalent (AuEq) is
calculated using gold and silver in the ratio of gold + silver /
(US$650 Au / US$11 Ag).
|
Resource footnotes:
|
|
|
(1) |
|
Mineral resources that are not
mineral reserves do not have demonstrated economic viability.
Inferred Resources are in addition to Measured and Indicated
Resources. Details of Measured and Indicated Resources and other
NI 43-101
information can be found in the relevant Technical Reports, all
of which have been prepared by a Qualified Person as defined in
NI 43-101
and filed with the Canadian securities regulators and which are
available on SEDAR (www.sedar.com). Inferred Resources have a
great amount of uncertainty as to their existence and whether
they can be mined legally or economically. It cannot be assumed
that all or any part of the Inferred Resources will ever be
upgraded to a higher category. Although Measured
Resources, Indicated Resources and
Inferred Resources are categories of mineralization
that are recognized and
|
S-4
|
|
|
|
|
required to be disclosed by
Canadian regulations, the SEC does not recognize them.
Disclosure of contained ounces is permitted under Canadian
regulations, however, the SEC generally permits resources to be
reported only as in place tonnage and grade. See
Cautionary note to United States investors. Rounding
differences may occur.
|
|
(2) |
|
A variable cut-off grade has been
estimated based on recent estimates of mining costs, processing
costs (dependent upon sulphur content), selling costs and
royalties, rather than gold grade alone. Resources are
constrained within a
Lerchs-Grossman
(LG) open-pit shell using the long-term metal price assumption
of US$650/oz of gold. Assumptions for the LG shell included pit
slopes varying by sector and pit area: mining cost is variable
with depth, averaging US$1.57/t mined; process cost is
calculated as the percent sulfur grade x US$2.09 + US$10.91;
general and administrative costs, gold selling cost and
sustaining capital are reflected on a per tonne basis. Based on
metallurgical testing, gold recovery is assumed to be 89.5%.
Blocks with a cost margin of US$0.01/t or higher above the
variable cutoff were reported. Waste blocks within the open-pit
shell surrounded by blocks above cutoff are included in resource
estimate. Blocks above cutoff within the open-pit shell
surrounded by blocks of waste are excluded from the resource
estimate.
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(3) |
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The copper-equivalent grade was
calculated as follows: CuEq = Recoverable Revenue / 2204.62 /
US$1.55 / Cu Recovery. Where: CuEq = Copper equivalent grade;
Recoverable Revenue = Revenue in US dollars for recoverable
copper, recoverable gold, and recoverable silver using metal
prices of Cu US$/lb = 1.550, Au US$/oz = 650, Ag US$/oz = 11. Cu
Recovery = Recovery for copper based on mineral zone and total
copper grade. The cut-off grade is based on assumptions of
offsite concentrate and smelter charges and onsite plant
recovery) and is used for break-even mill feed/waste selection.
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(4) |
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The copper equivalent (CuEq)
calculations use metal prices of US$375/oz for gold, US$5.50/oz
for silver and US$0.90/lb for copper. Copper equivalent
calculations reflect gross metal content that have been adjusted
for metallurgical recoveries based on the following criteria:
copper recovery = (%Cu0.06)/%Cu with a minimum of 50% and
maximum of 80%; gold recovery = (Au g/t0.14)/Au g/t with a
minimum of 30% and maximum of 80%; and silver recovery = 80%.
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(5) |
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These estimates include historical
resources that are not NI
43-101
compliant. The historical resource for the Saddle deposit was
completed by the Alaska Gold Company in 2000 and the historical
resource for Shotgun was completed by NovaGold Resources Inc.,
in 1998. Although believed by NovaGold management to be relevant
and reliable, these historical resources pre-date NI
43-101 and
because they were not estimated in compliance with NI
43-101
procedures, they are not NI
43-101
resources. Historical resources were completed prior to the
February 2001 adoption of NI
43-101
procedures. See Cautionary note to United States
investors.
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(6) |
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Nome Gold resource is an alluvial
deposit, which is reported in cubic meters rather than tonnes,
and grams/cubic meter rather than grams/tonne. 85,000 ounces
contained within the reported resources may be subject to a
royalty.
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(7) |
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Subject to an earn-in agreement
with subsidiaries of Rio Tinto.
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Recent
developments
Donlin
Creek
On December 1, 2007, the Company entered into an agreement
with Barrick that provided for the conversion of the Donlin
Creek joint venture into a new limited liability company, which
is owned 50% by the Company and 50% by Barrick (Donlin
Creek LLC). Pursuant to the limited liability company
agreement, the Company has agreed to reimburse Barrick over time
for approximately US$64.8 million, representing 50% of
Barricks approximately US$129.6 million expenditures
at the Donlin Creek project from April 1, 2006 to
November 30, 2007. The Companys reimbursement will be
made following the effective date of the agreement, by the
Company paying the next approximately US$12.7 million of
Barricks share of project development costs, and the
remaining approximately US$52.1 million will bear interest
and be paid out of future mine production cash flow. After the
Companys initial contribution of US$25.4 million, all
funding will be shared by both parties on a 50/50 basis.
As the Company and Barrick work together to review alternatives
at the Donlin Creek project to further optimize the project,
significant effort will be focused on determining the best power
source for the project. Building a power line that ties into the
Fairbanks grid will be evaluated along with other project power
generation including a combination of wind and on-site diesel
power generation. The Donlin Creek LLC is completing a
series of optimizing studies for power, logistics, processing
and production levels with the objective of identifying the
optimal design plan. The Company anticipates that the Donlin
Creek LLC will have clarity on the go-forward plan for
Donlin Creek by
mid-year 2008.
The 2008 exploration program at Donlin Creek is underway and
three drill rigs are currently focused on drilling the East ACMA
target area. The Company and Barrick have approved an
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initial 21,000 meter drill program at East ACMA, designed
to determine the limits of mineralization in this target area.
The East ACMA area is highly prospective for additional resource
discovery and follows the structural projection of mineralized
sill and dyke intersections within the Donlin anticline, which
hosts the majority of resources at Donlin Creek. The initial
exploration program should determine the limits of
mineralization and will be used to aid in facility and
infrastructure planning for the Donlin Creek feasibility study.
Should the initial expansion drilling prove successful, the
Company and Barrick are considering an additional
50,000 meters of infill drilling to begin to delineate
mineralization recognized in the initial program.
Galore Creek
Partnership
On August 1, 2007, the Company formed the Galore Creek
Partnership pursuant to which each of NovaGold and Teck Cominco
has a 50% interest in the Galore Creek project. The activities
of the Galore Creek Partnership are being conducted by the
jointly-managed Galore Creek Mining Corporation
(GCMC). Under the original partnership agreement,
the Company contributed its assets in the Galore Creek project
to the Galore Creek Partnership and Teck Cominco was to fund an
initial contribution of $520 million, subject to
adjustment, after which both partners would be equally
responsible to fund the project going forward. In addition,
under the terms of the original partnership agreement, the
Company would receive up to US$50 million of preferential
distributions once the Galore Creek project was fully
operational, if partnership revenues exceeded certain
established targets in the first year of commercial production.
On November 26, 2007, NovaGold announced that NovaGold and
Teck Cominco had reached the decision to suspend construction
activities at the Galore Creek project. In light of these
developments, NovaGold and Teck Cominco amended the terms of
Teck Comincos earn-in obligations in connection with the
project. Under the amended arrangements, Teck Comincos
total earn-in will be approximately $403 million and the
Company will receive up to US$25 million of preferential
distributions once Galore Creek is fully operational, if
partnership revenues exceed certain established targets in the
first year of commercial production. Teck Comincos sole
funding of project costs incurred after August 1, 2007
totals $264 million, and Teck Cominco has agreed to invest
up to an additional $72 million in the partnership to be
used prior to December 31, 2012 principally to reassess the
project and evaluate alternative development strategies.
NovaGold and Teck Cominco will fund the next $100 million
of project costs
one-third
and
two-thirds
respectively, and will fund costs proportionately thereafter.
The resource estimate for the Galore Creek project was updated
by NovaGold in January 2008 to reclassify proven and probable
reserves as measured and indicated resources.
Acquisitions
On December 1, 2007, the Company, GCMC and Pioneer Metals
Corporation (Pioneer) entered into a purchase and
sale agreement whereby GCMC purchased a 100% interest in the
Grace claims located adjacent to the Galore Creek project and
held by Pioneer, a wholly-owned subsidiary of Barrick, for a
purchase price of $54 million.
On November 14, 2007, the Company provided notice to Copper
Canyon Resources Ltd. that it had completed its earn-in
requirements under the Copper Canyon Option Agreement dated
October 1, 2003 between Eagle Plains Resources Ltd. (the
agreement was transferred to Copper Canyon Resources Ltd.) and
SpectrumGold Inc. (now NovaGold Canada Inc.) to earn a 60%
interest in the Copper Canyon property. On February 12,
2008, NovaGold notified Copper Canyon Resources Ltd. that it
would not exercise a second option for an additional 20%
interest
S-6
in the Copper Canyon property and, upon such notice, was deemed
to have formed a joint venture with Copper Canyon Resources Ltd.
to develop the property. NovaGolds 60% interest in the
Copper Canyon property is being held in trust for the Galore
Creek Partnership.
On June 1, 2007, the Company completed the exercise of its
option pursuant to an option agreement dated July 31, 2003
between SpectrumGold Inc. (now NovaGold Canada Inc.) and QIT-Fer
et Titane Inc. and Hudson Bay Mining and Smelting Co., Limited,
to purchase 100% of the mining claims of the main Galore Creek
copper-gold-silver deposit by paying the final
US$12.5 million of a US$20.3 million purchase price
for the acquisition of Stikine Copper Limited, then owner of the
core mineral claims at the Galore Creek project. NovaGolds
financial earn-in requirements under the Agreement were
satisfied and all of Stikine Coppers assets are now held
by the Galore Creek Partnership.
Other
For the year ended November 30, 2007, management concluded
that the Companys internal control over financial
reporting was ineffective as of November 30, 2007 due to a
material weakness identified by its external auditors in the
preparation and review of the U.S. GAAP reconciliation to
Canadian GAAP, specifically in respect to project expenditures
capitalized or expensed under U.S. GAAP. Management has
implemented changes to its controls in order to remediate the
material weakness. Due to the existence of the material weakness
relating to U.S. GAAP, the Company has also determined that
its disclosure controls and procedures, as defined in the
SECs rules under the Securities Exchange Act of 1934, were
not effective. See Risk factorsRisks relating to the
Companys business - The Company may fail to achieve
and maintain the adequacy of internal control over financial
reporting as per the requirements of the Sarbanes-Oxley
Act.
S-7
The
offering
The following summary contains basic information about the
notes and is not intended to be complete. It does not contain
all the information that is important to you. For a more
complete understanding of the notes, please refer to the
sections of this prospectus supplement entitled
Description of notes and the sections in the base
shelf prospectus entitled Description of debt
securities and Description of share capital.
Unless otherwise indicated, the information in this prospectus
supplement assumes that the underwriter does not exercise its
option to purchase additional notes.
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Issuer |
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NovaGold Resources Inc. |
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Securities offered |
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US$95,000,000 (or US$109,000,000 principal amount if the
underwriter exercises its over-allotment option in full)
principal amount of 5.50% Senior Convertible Notes due
May 1, 2015. |
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Maturity |
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May 1, 2015. |
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Interest |
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5.50%. Interest on the notes will accrue from March 26,
2008. Interest will be payable semiannually in arrears on
May 1 and November 1, of each year, beginning
November 1, 2008. |
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Conversion rights |
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Holders may convert their notes into common shares at the
applicable conversion rate, prior to the close of business on
the business day immediately preceding the maturity date, in
multiples of US$1,000 principal amount. |
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The initial conversion rate for the notes is 94.2418 common
shares per US$1,000 principal amount of notes (equal to a
conversion price of approximately US$10.61 per share), subject
to adjustment. |
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Upon conversion, we will have the right to elect to deliver cash
or a combination of cash and common shares instead of delivering
only common shares (plus cash in lieu of fractional shares). |
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In addition, following certain corporate transactions that occur
prior to maturity, we will increase the conversion rate for a
holder who elects to convert its notes in connection with such
corporate transactions by a number of additional common shares
as described under Description of notesConversion
rightsAdjustments to shares delivered upon conversion upon
certain fundamental changes. |
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You will not receive any additional cash payment or additional
shares representing accrued and unpaid interest upon conversion
of a note, except in limited circumstances. Instead, interest
will be deemed paid by the common shares issued and cash, if
any, paid to you upon conversion. |
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Purchase of the notes by us at the option of the holder |
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You have the right to require us to repurchase for cash all or a
portion of your notes on May 1, 2013 at a price equal to
100% of the |
S-8
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principal amount of the notes to be repurchased plus accrued and
unpaid interest up to, but excluding, the repurchase date. |
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Fundamental change |
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If we undergo a fundamental change as defined in this prospectus
supplement, we will be required to offer to purchase all of the
outstanding notes at a price equal to 100% of the principal
amount of the notes to be purchased plus any accrued and unpaid
interest up to, but excluding, the fundamental change repurchase
date, subject to certain exceptions. We will pay cash for all
notes so repurchased. |
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Redemption for tax reasons |
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In the event of certain changes to the laws governing Canadian
withholding taxes, we will have the option to redeem, in whole
but not in part, the notes for a purchase price equal to 100% of
the principal amount of the notes to be purchased plus any
accrued and unpaid interest up to, but excluding, the redemption
date but without reduction for applicable Canadian taxes (except
in respect of certain excluded holders). Upon our giving a
notice of redemption, a holder may elect not to have its notes
redeemed, in which case such holder would not be entitled to
receive the additional amounts referred to in
Additional amounts below after the redemption
date. |
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Additional amounts |
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All payments made by us with respect to the notes will be made
without withholding or deduction for Canadian taxes unless we
are legally required to do so, in which case we will pay such
additional amounts as may be necessary so that the net amount
received by holders of the notes (other than certain excluded
holders) after such withholding or deduction will not be less
than the amount that would have been received in the absence of
such withholding or deduction. |
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Events of default |
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If there is an event of default under the notes, the principal
amount of the notes, plus accrued and unpaid interest, if any,
may be declared immediately due and payable. These amounts
automatically become due and payable if an event of default
relating to certain events of bankruptcy, insolvency or
reorganization occurs. |
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Ranking |
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The notes will rank equally in right of payment with all of our
existing and future unsecured senior debt and are senior in
right of payment to all our future subordinated debt. The notes
will effectively rank junior to any of our secured debt to the
extent of the value of the assets securing such indebtedness,
and will effectively rank junior to debt incurred by our
subsidiaries, including any secured debt or debt incurred by our
subsidiaries for the construction and development of our mining
projects. The indenture does not limit the amount of debt that
we or our subsidiaries may incur. |
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Use of proceeds |
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We estimate that the net proceeds from this offering will be
approximately US$90.7 million (or approximately
US$104.2 million if the underwriter exercises its
over-allotment option in full), after deducting fees and
estimated expenses. We intend to use the net proceeds |
S-9
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of this offering to repay the amount drawn on our
$30.0 million short-term credit facility, which was
approximately $16.0 million as of March 18, 2008, to
fund exploration and development of our mineral properties, and
for general working capital. |
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Book-entry form |
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The notes will be issued in book-entry form and will be
represented by permanent global certificates deposited with, or
on behalf of, The Depository Trust Company, or DTC, and
registered in the name of a nominee of DTC. Beneficial interests
in any of the notes will be shown on, and transfers will be
effected only through, records maintained by DTC or its nominee
and any such interest may not be exchanged for certificated
securities, except in limited circumstances. |
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American Stock Exchange and Toronto Stock Exchange symbols for
our common shares |
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The notes will not be listed on any securities exchange. Our
common shares are listed on the American Stock Exchange and on
the Toronto Stock Exchange under the symbol NG. |
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U.S. and Canadian federal income tax considerations |
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The notes and common shares issuable upon conversion of the
notes will be subject to special and complex tax rules. Holders
are urged to consult their own tax advisors with respect to the
U.S. and Canadian federal, state, provincial, local and foreign
tax consequences of purchasing, owning and disposing of the
notes and the common shares issuable upon conversion of the
notes. See Certain Canadian and United States income tax
considerations. |
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Potential investors that are U.S. taxpayers should be aware that
we believe we were a passive foreign investment
company under Section 1297(a) of the U.S. Internal
Revenue Code (PFIC) for the taxable year ended
November 30, 2007, but we believe we will not be a PFIC for
the taxable year ending November 30, 2008 if commercial
production commences at Rock Creek and Big Hurrah in mid-2008,
as currently anticipated, and sufficient revenues are generated
to cause us to cease to be a PFIC. For more information on tax
considerations related to our PFIC status see Certain
Canadian and United States income tax considerationsUnited
States federal income tax considerations. |
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Risk factors |
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See Risk factors in this prospectus supplement for a
discussion of factors you should carefully consider before
deciding to invest in the notes. |
S-10
Risk
factors
An investment in the notes offered hereby involves certain
risks. In addition to the other information contained in this
prospectus supplement, the accompanying base shelf prospectus
and the documents incorporated by reference herein and therein,
prospective investors should carefully consider the factors set
out under Risk factors in the accompanying base
shelf prospectus, in the Companys Annual Information Form
for the fiscal year ended November 30, 2007 (which is
incorporated by reference herein) and the factors set out below
in evaluating NovaGold and its business before making an
investment in the notes.
Risks relating to
the notes and the offering.
The notes are
unsecured and are effectively subordinated to all of our
existing and future secured indebtedness.
The notes are unsecured and are effectively subordinated in
right of payment to all of our existing and future secured
indebtedness, to the extent of the value of the assets securing
such indebtedness. The indenture for the notes does not restrict
our ability to incur additional indebtedness, including secured
indebtedness generally, which would have a prior claim on the
assets securing that indebtedness. We may incur such
indebtedness under credit facilities entered into for purposes
of financing the construction and development of our mining
projects, and expect to secure any such indebtedness with
substantially all of the assets related to such projects. In the
event of our insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up, our assets that serve
as collateral for any secured indebtedness would be made
available to satisfy the obligations to our secured creditors
before any payments are made on the notes. Accordingly, all or a
substantial portion of our assets could be unavailable to
satisfy the claims of the holders of the notes.
The notes are
effectively subordinated to all liabilities of our
subsidiaries.
We expect that all or a substantial portion of the indebtedness
that we incur to finance the construction and development of our
mining projects will be incurred or guaranteed by our
subsidiaries. None of our subsidiaries has guaranteed or
otherwise become obligated with respect to the notes.
Accordingly, our right to receive assets from any of our
subsidiaries upon such subsidiarys bankruptcy, liquidation
or reorganization and the right of holders of the notes to
participate in those assets, is effectively subordinated to
claims of that subsidiarys creditors, including trade
creditors.
The ability of our subsidiaries and other entities in which we
have interests, including the Galore Creek Partnership and
Donlin Creek LLC, to pay dividends and make other payments to us
may be restricted by, among other things, applicable corporate
and other laws and regulations as well as agreements to which
our subsidiaries are or may become a party.
We expect to
incur substantially more debt or take other actions which may
affect our ability to satisfy our obligations under the
notes.
We will not be restricted under the terms of the notes or the
indenture from incurring additional indebtedness, including
secured debt. In addition, the limited covenants applicable to
the notes do not require us to achieve or maintain any minimum
financial results relating to our financial position or results
of operations. We may incur substantial additional indebtedness
in
S-11
connection with the financing of, or secured upon, our mining
projects in the future. Our ability to recapitalize, incur
additional debt and take a number of other actions that are not
limited by the terms of the notes could have the effect of
diminishing our ability to make payments on the notes when due,
and require us to dedicate a substantial portion of our cash
flow from operations to payments on our indebtedness, which
would reduce the availability of cash flow to fund our
operations, working capital and capital expenditures. In
addition, we are not restricted from repurchasing common shares
by the terms of the notes.
We may not have
the ability to repurchase the notes in cash upon a redemption
for changes in Canadian withholding tax law, at the option of
the holder or upon the occurrence of a fundamental
change.
We will be required to repurchase for cash all or a portion of a
holders notes at the option of such holder on May 1, 2013
and to make an offer to repurchase the notes upon the occurrence
of a fundamental change as described under Description of
notes. We may also redeem all but not part of the notes
upon certain changes to the law governing Canadian withholding
taxes. We may not have sufficient funds to repurchase or redeem
the notes in cash or to make the required repayment at such time
or have the ability to arrange necessary financing on acceptable
terms.
A fundamental change may also constitute an event of default or
prepayment under, or result in the acceleration of the maturity
of, our then-existing indebtedness. Our ability to repurchase
the notes in cash or make any other required payments may be
limited by law or the terms of other agreements relating to our
indebtedness outstanding at the time. Our failure to repurchase
the notes when required would result in an event of default with
respect to the notes.
Some significant
restructuring transactions may not constitute a fundamental
change, in which case we would not be obligated to offer to
repurchase the notes.
Upon the occurrence of a fundamental change, we will be required
to make an offer to repurchase the notes. However, the
fundamental change provisions will not afford protection to
holders of notes in the event of certain transactions. For
example, any leveraged recapitalization, refinancing,
restructuring, or acquisition initiated by us will generally not
constitute a fundamental change requiring us to make an offer to
repurchase the notes, even though any of these transactions
could increase the amount of our indebtedness, or otherwise
adversely affect our capital structure or any credit ratings,
thereby adversely affecting the holders of notes.
Upon conversion
of the notes, we will have the right to elect to deliver cash in
lieu of some or all the common shares to be delivered upon
conversion, the amount of cash to be delivered per Note being
calculated on the basis of average prices over a specified
period, and you may receive less proceeds than
expected.
Upon conversion of the notes, we will have the right to elect to
deliver cash in lieu of some or all the common shares to be
delivered upon conversion. As described below under
Description of notesConversion rights, the
amount of cash to be delivered per note will be equal to the
number of common shares in respect of which the cash payment is
being made multiplied by the average of the daily
volume-weighted average price of the common shares on the
corresponding Bloomberg screen for the 10 trading days
commencing one day after the date of our notice of election to
deliver all or part of the conversion consideration in cash if
we have not given notice of redemption or the conversion date,
in the case of conversion following
S-12
notice of redemption specifying our intention to deliver cash
upon conversion. Accordingly, upon conversion of a note, holders
might not receive any common shares and, if the above-referred
prices decline over the
10-day
period, they might receive less proceeds than expected.
Our failure to convert the notes into common shares, cash or a
combination of cash and common shares upon exercise of a
holders conversion right in accordance with the provisions
of the indenture would constitute a default under the indenture.
In addition, a default under the indenture could lead to a
default under future agreements governing our indebtedness. If,
due to a default, the repayment of related indebtedness were to
be accelerated after any applicable notice or grace periods, we
may not have sufficient funds to repay such indebtedness and the
notes.
The adjustment to
the conversion rate for notes converted in connection with a
specified corporate transaction may not adequately compensate
you for any lost value of your notes as a result of such
transaction.
If a specified corporate transaction that constitutes a
fundamental change occurs, under certain circumstances we will
increase the conversion rate by a number of additional common
shares for notes converted in connection with such specified
corporate transaction. The increase in the conversion rate will
be determined based on the date on which the specified corporate
transaction becomes effective and the price paid per common
share in such transaction, as described below under
Description of notesConversion
rightsAdjustments to shares delivered upon conversion upon
certain fundamental changes. The adjustment to the
conversion rate for notes converted in connection with a
specified corporate transaction may not adequately compensate
you for any lost value of your notes as a result of such
transaction. In addition, if the price of our common shares in
the transaction is greater than US$40.00 per share or less than
US$7.86 (in each case, subject to adjustment), no adjustment
will be made to the conversion rate.
The conversion
rate of the notes may not be adjusted for all dilutive
events.
The conversion rate of the notes will be subject to adjustment
for certain events, including, but not limited to, the issuance
of share dividends on our common shares, the issuance of certain
rights or warrants, subdivisions, combinations, distributions of
share capital, indebtedness or assets, cash dividends and
certain issuer tender or exchange offers as described under
Description of notes. However, the conversion rate
will not be adjusted for other events, such as a third-party
tender or exchange offer or an issuance of common shares for
cash, that may adversely affect the trading price of the notes
or the common shares. An event that adversely affects the value
of the notes may occur, and that event may not result in an
adjustment to the conversion rate.
The notes may not
have an active market and their price may be volatile. You may
be unable to sell your notes at the price you desire or at
all.
There is no existing trading market for the notes. As a result,
there can be no assurance that a liquid market will develop or
be maintained for the notes, that you will be able to sell any
of the notes at a particular time (if at all) or that the prices
you receive if or when you sell the notes will be above their
initial offering price. We do not intend to list the notes on
any national securities exchange or the TSX. The underwriter may
make a market in the notes after this offering is completed, but
has no obligation to do so and may cease such market-making at
any time without notice.
S-13
The notes may not
be rated or may receive a lower rating than
anticipated.
We do not intend to seek a rating on the notes. However, if one
or more rating agencies rates the notes and assigns the notes a
rating lower than the rating expected by investors, or reduces
their rating in the future, the market price of the notes and
our common shares could be harmed.
If you hold
notes, you will not be entitled to any rights with respect to
our common shares, but you will be subject to all changes made
with respect to our common shares.
If you hold notes, you will not be entitled to any rights with
respect to our common shares (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common shares, other than extraordinary
dividends that our board of directors designates as payable to
the holders of the notes), but if you subsequently convert your
notes into common shares, you will be subject to all changes
affecting the common shares. You will have rights with respect
to our common shares only if and when we deliver common shares
to you upon conversion of your notes and, to a limited extent,
under the conversion rate adjustments applicable to the notes.
For example, in the event that an amendment is proposed to our
constating documents requiring shareholder approval and the
record date for determining the shareholders of record entitled
to vote on the amendment occurs prior to delivery of common
shares to you, you will not be entitled to vote on the
amendment, although you will nevertheless be subject to any
changes in the powers or rights of our common shares that result
from such amendment.
The price of our
common shares, and therefore the price of the notes, may
fluctuate significantly, which may make it difficult for holders
to resell the notes or the common shares issuable upon
conversion of the notes when desired or at attractive
prices.
The trading price of our common shares has been and may continue
to be subject to large fluctuations, which may result in losses
to investors. Since January 1, 2007, the trading price and
volume of our common shares on the TSX has ranged from a low of
$6.15 to a high of $20.13 per share and on the AMEX from a low
of US$6.08 per share to a high of US$20.94 per share. The
trading price of our common shares and any securities
convertible into or exchangeable for, common shares may increase
or decrease in response to a number of events and factors,
including:
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the price of gold and other metals;
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our operating performance and the performance of competitors and
other similar companies;
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the publics reaction to our press releases, other public
announcements and our filings with the various securities
regulatory authorities;
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changes in earnings estimates or recommendations by research
analysts who track our common shares or the shares of other
companies in the resource sector;
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changes in general economic conditions;
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the number of our common shares to be publicly traded after an
offering pursuant to any prospectus supplement;
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the arrival or departure of key personnel;
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S-14
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developments relating to acquisitions, strategic alliances or
joint ventures involving us or our competitors; and
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the factors listed under the heading Cautionary statement
regarding forward-looking statements.
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In addition, the share market in general, and prices for mining
companies in particular, have experienced volatility that often
has been unrelated to the operating performance of such
companies. These market and industry fluctuations may adversely
affect the price of our shares, regardless of our operating
performance. Because the notes are convertible into common
shares, volatility or depressed prices of our common shares
could have a similar effect on the trading price of our notes.
Holders who receive common shares upon conversion also will be
subject to the risk of volatility and depressed prices of our
common shares. In addition, the existence of the notes may
encourage short selling in our common shares by market
participants because the conversion of the notes could depress
the price of our common shares.
Sales of a
significant number of our common shares in the public markets,
or the perception of such sales, could depress the market price
of the notes, our common shares, or both.
Sales of a substantial number of our common shares or other
equity-related securities in the public markets could depress
the market price of the notes, our common shares, or both, and
impair our ability to raise capital through the sale of
additional equity securities. We cannot predict the effect that
future sales of our common shares or other equity-related
securities would have on the market price of our common shares
or the value of the notes. The price of our common shares could
be affected by possible sales of our common shares by investors
who view the notes as a more attractive means of equity
participation in our company and by hedging or arbitrage trading
activity which we expect to occur involving our common shares.
This hedging or arbitrage could, in turn, affect the market
price of the notes.
The notes will
initially be held in book-entry form and, therefore, you must
rely on the procedures and the relevant clearing systems to
exercise your rights and remedies.
Unless and until certificated notes are issued in exchange for
book-entry interests in the notes, owners of the book-entry
interests will not be considered owners or holders of notes.
Instead, the common depository, or its nominee, will be the sole
holder of the notes. Payments of principal, interest and other
amounts owing on or in respect of the Notes in global form will
be made to the paying agent, which will make payments to DTC.
Thereafter, such payments will be credited to DTC
participants accounts that hold book-entry interests in
the notes in global form and credited by such participants to
indirect participants. Unlike holders of the notes themselves,
owners of book-entry interests will not have the direct right to
act upon our solicitations for consents or requests for waivers
or other actions from holders of the notes. Instead, if you own
a book-entry interest, you will be permitted to act only to the
extent you have received appropriate proxies to do so from DTC
or, if applicable, a participant. We cannot assure you that
procedures implemented for the granting of such proxies will be
sufficient to enable you to vote on any requested actions on a
timely basis.
We may not be
able to refinance the notes or other indebtedness if required or
if we so desire.
We may need or desire to refinance all or a portion of the notes
or any other future indebtedness that we incur on or before the
maturity of the notes. There can be no assurance
S-15
that we will be able to refinance any of our indebtedness or
incur additional indebtedness on commercially reasonable terms,
if at all.
Conversion of
notes for cash or a combination of cash and common shares will
be a taxable transaction to holders of notes for Canadian
tax purposes.
Upon conversion of the notes, we will have the right to elect to
deliver cash or a combination of cash and common shares. You
should be aware that the conversion of notes into cash or a
combination of cash and common shares will be a taxable
transaction at the time of such conversion for Canadian tax
purposes. These consequences may be materially different from
the consequences that you may expect in considering other
convertible debt investments. Investors considering the purchase
of notes are urged to consult with their own tax advisors
concerning such consequences and the potential effect of their
particular circumstances. The material Canadian federal income
tax consequences of the purchase, ownership and disposition of
the notes are summarized in this prospectus supplement under the
heading Certain Canadian and United States income tax
considerationsCanadian federal income tax
considerations.
Conversion of
notes for cash or a combination of cash and common shares will
be a taxable transaction to holders of notes for United States
federal income tax purposes.
You should be aware that the conversion of notes into cash or a
combination of cash and common shares will be a taxable
transaction at the time of such conversion for United States
federal income tax purposes (or subject to alternative treatment
different from that of convertible debt instruments settled in
shares only). These consequences may be, for United States
federal income tax purposes, materially different from the
consequences that you may expect in considering other
convertible debt investments. Investors considering the purchase
of notes are urged to consult with their own tax advisors
concerning such consequences and the potential effect of their
particular circumstances. The material United States federal
income tax consequences of the purchase, ownership and
disposition of the notes are summarized in this prospectus
supplement under the heading Certain Canadian and United
States income tax considerationsUnited States federal
income tax considerations.
U.S. Holders may
have to pay taxes if we make or fail to make certain adjustments
to the conversion rate of the notes even though you do not
receive a corresponding cash distribution.
The conversion rate of the notes is subject to adjustment for
certain events and actions that modify our capital structure.
See Description of notesConversion rate and
adjustments. If, for example, the conversion rate is
adjusted as a result of a distribution that is taxable to our
common shareholders, such as a cash dividend, U.S. Holders
(as defined in United States federal income tax
considerations) of notes may be required to include an
amount in income for United States federal income tax purposes,
notwithstanding the fact that holders of notes do not receive a
corresponding cash distribution. In addition, a failure to
adjust (or to adjust adequately) the conversion rate after an
event that has the effect of increasing your proportional
interest in our company could be treated as a deemed taxable
dividend to U.S. Holders of notes. The amount that you
would have to include in income if you are a U.S. Holder of
notes generally will be equal to the amount of the distribution
that you would have received if you had converted your notes
into our common shares. See Certain Canadian and United
States income tax considerationsUnited States federal
income tax considerations.
S-16
If certain types of fundamental changes occur on or before the
maturity date of the notes, under some circumstances, we will
increase the conversion rate for notes converted in connection
with the fundamental change. Such increase may also be treated
as a distribution subject to United States federal income tax as
a dividend.
We believe we are
a passive foreign investment company under the
U.S. Internal Revenue Code and if we are or become a
passive foreign investment company there may be
adverse U.S. tax consequences for investors in the United
States.
Potential investors that are U.S. Holders (as defined in
Certain Canadian and United States income tax
considerationsUnited States federal income tax
considerations) should be aware that we believe we were a
passive foreign investment company under
Section 1297(a) of the U.S. Internal Revenue Code
(PFIC) for the taxable year ended November 30,
2007, but we believe we will not be a PFIC for the taxable year
ending November 30, 2008 if commercial production commences
at Rock Creek and Big Hurrah in mid-2008, as currently
anticipated, and sufficient revenues are generated to cause the
Company to cease to be a PFIC. If we are a PFIC, any gain
recognized on the sale of our notes and common shares and any
excess distributions (as specifically defined) paid
on our common shares must be ratably allocated to each day in a
U.S. Holders holding period for the notes and/or
common shares. The amount of any such gain or excess
distribution allocated to prior years of such
U.S. Holders holding period for the common shares
generally will be subject to U.S. federal income tax at the
highest tax rate applicable to ordinary income in each such
prior year, and the U.S. Holder will be required to pay
interest on the resulting tax liability for each such prior
year, calculated as if such tax liability had been due in each
such prior year.
The determination of whether we will be a PFIC for a taxable
year depends, in part, on the application of complex
U.S. federal income tax rules, which are subject to
differing interpretations. In addition, whether we will be a
PFIC for any taxable year generally depends on our assets and
income over the course of each such taxable year and, as a
result, cannot be predicted with certainty as of the date of
this prospectus supplement. Accordingly, there can be no
assurance that the U.S. Internal Revenue Service will not
challenge the determination made by us concerning our PFIC
status or that we will not be a PFIC for any taxable year.
See Certain Canadian and United States income tax
considerationsUnited States federal income tax
considerations for more information on tax considerations
related to our PFIC status, including the ability of U.S.
Holders to make certain elections that may mitigate the adverse
consequences of the Company being a PFIC.
Risks relating to
the Companys business.
NovaGold has no
history of producing precious metals from its mineral
exploration properties and there can be no assurance that it
will successfully establish mining operations or profitably
produce precious metals.
NovaGold has no history of producing precious metals from its
current portfolio of mineral exploration properties. All of the
Companys properties are in the exploration or development
stage and the Company has only defined or delineated any
probable reserves at its Rock Creek project. None of the
Companys properties, other than Rock Creek and Big Hurrah,
are currently under development. The future development of any
properties found to be economically feasible will require the
construction and operation of mines, processing plants and
related
S-17
infrastructure. As a result, NovaGold is subject to all of the
risks associated with establishing new mining operations and
business enterprises, including:
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the timing and cost, which can be considerable, of the
construction of mining and processing facilities;
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the availability and costs of skilled labour and mining
equipment;
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the availability and cost of appropriate smelting
and/or
refining arrangements;
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the need to obtain necessary environmental and other
governmental approvals and permits, and the timing of those
approvals and permits; and
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the availability of funds to finance construction and
development activities.
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The costs, timing and complexities of mine construction and
development are increased by the remote location of the
Companys mining properties. It is common in new mining
operations to experience unexpected problems and delays during
development, construction and mine
start-up. In
addition, delays in the commencement of mineral production often
occur. Accordingly, there are no assurances that the
Companys activities will result in profitable mining
operations, that the Company will successfully establish mining
operations or profitably produce precious metals at any of its
properties.
NovaGolds
ability to generate the cash needed to pay interest and
principal amounts on the notes, to continue its exploration
activities and any future development activities, and to
continue as a going concern, will depend in part on its ability
to complete this offering and to commence production and
generate material revenues or to obtain suitable financing in
the future.
The Company had consolidated cash as of November 30, 2007
of $97.9 million of which $82.8 million was designated
for Galore Creek activities, including payment of existing
payables, but a portion is expected to be used for payment of
suspension costs. Since November 30, 2007, the Company has
received cash from several sources including the release of
amounts securing bonds, the sale of some of its marketable
securities and $16.0 million from a $30.0 million line
of credit, and as of March 18, 2008 it had cash and undrawn
lines of credit of approximately $23.8 million. The Company
has an immediate need for the proceeds from this financing in
order to fund its plan of operations. In the future, the Company
intends to fund its obligations under the notes and its plan of
operations from working capital, the proceeds of financings and
cash flow from Rock Creek and Big Hurrah. In the future, the
Companys ability to continue its exploration and
development activities, will depend in part on the
Companys ability to commence production and generate
material revenues or to obtain additional financing through
joint ventures, debt financing, equity financing,
production-sharing arrangements or other means. There can be no
assurance that the Company will commence production at any of
its projects or generate sufficient revenues to meet its
obligations as they become due or obtain necessary financing on
acceptable terms, if at all.
The Companys failure to meet its ongoing obligations on a
timely basis could result in the loss or substantial dilution of
the Companys interests (as existing or as proposed to be
acquired) in its properties. For example, if we default in
making a required contribution to Donlin Creek LLC, the limited
liability company agreement that governs the co-ownership of the
Donlin Creek project provides that Barrick may, on not less than
30 days prior notice, exercise its right to have
S-18
our percentage ownership in the Donlin Creek LLC permanently
reduced by a percentage calculated by a formula that increases
if there are three or more such defaults.
The limited liability company agreement that governs the
co-ownership of the Donlin Creek project also provides that once
a draft environmental impact statement for the Donlin Creek
project is released for public comment, the parties will have to
vote on a construction plan and budget. If either party votes
against the construction plan and budget, a buy-sell provision
is triggered whereby the party who voted in favor of the
construction plan and budget can offer to buy the membership
interests of the party who voted against the construction plan
and budget. If the offeree accepts the offer, the offeror will
acquire the offerees interest. If the offer is rejected,
the offeree can either (1) make a counter-offer to the
offeror at the same price per percent as the original offer,
which the original offeror must accept, or (2) agree to
vote in favor of the construction plan and budget. If the
initial party who voted in favor of the construction plan and
budget does not want to make an offer to purchase the other
partys membership interest then the construction plan and
budget is terminated. If this provision was triggered by Barrick
and we were unable to fund a purchase of Barricks interest
in the Donlin Creek project, we could be required to either
accept the offer or fund a construction plan and budget that we
may not feel is in the best interests of the project.
Should the Company incur significant losses in future periods,
it may be unable to continue as a going concern, and realization
of assets and settlement of liabilities in other than the normal
course of business may be at amounts significantly different
than those included in the Companys Annual Information
Form for the fiscal year ended November 30, 2007.
The figures for
NovaGolds resources and reserves are estimates based on
interpretation and assumptions and may yield less mineral
production under actual conditions than is currently
estimated.
Unless otherwise indicated, mineralization figures presented in
this prospectus supplement and in the Companys other
filings with securities regulatory authorities, press releases
and other public statements that may be made from time to time
are based upon estimates made by Company personnel and
independent geologists. These estimates are imprecise and depend
upon geological interpretation and statistical inferences drawn
from drilling and sampling analysis, which may prove to be
unreliable. There can be no assurance that:
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these estimates will be accurate;
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reserves, resource or other mineralization figures will be
accurate; or
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this mineralization could be mined or processed profitably.
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Because the Company has not commenced production at any of its
properties, and has not defined or delineated any proven or
probable reserves on any of its properties other than at Rock
Creek, mineralization estimates for the Companys
properties may require adjustments or downward revisions based
upon further exploration or development work, actual production
experience or other developments. For example, as a result of
the escalation of costs at the Galore Creek project and the
decision to reassess the feasibility study and project economics
for the Galore Creek project, all of the previously reported
proven and probable reserves at the Galore Creek project were
reclassified as measured and indicated resources, and the
Company advised its shareholders that the information in the
feasibility study should not be relied on. In addition, the
grade of ore ultimately mined, if any, may differ from that
indicated by drilling
S-19
results. There can be no assurance that minerals recovered in
small-scale tests will be duplicated in large-scale tests under
on-site
conditions or in production scale.
The resource and reserve estimates contained in this prospectus
supplement have been determined and valued based on assumed
future prices, cut-off grades and operating costs that may prove
to be inaccurate. Extended declines in market prices for gold,
silver and copper may render portions of the Companys
mineralization uneconomic and result in reduced reported
mineralization. Any material reductions in estimates of
mineralization, or of the Companys ability to extract this
mineralization, could have a material adverse effect on
NovaGolds results of operations or financial condition.
The Company has not established the presence of any proven and
probable reserves at any of its mineral properties other than
Rock Creek. There can be no assurance that subsequent testing or
future studies will establish proven and probable reserves at
the Companys other properties. The failure to establish
proven and probable reserves could restrict the Companys
ability to successfully implement its strategies for long-term
growth.
Actual capital
costs, operating costs, production and economic returns may
differ significantly from those NovaGold has anticipated and
there are no assurances that any future development activities
will result in profitable mining operations.
The capital costs to take the Companys projects into
production may be significantly higher than anticipated.
Escalation of costs was a significant factor in the decision to
suspend construction at the Galore Creek project. In connection
with the Donlin Creek project, as a result of the potential for
changes to the project scale and design, and because of general
inflationary conditions affecting capital costs, management
currently expects significant increases to the
US$2.2 billion estimated capital costs of the Donlin Creek
project described in the September 2006 Preliminary Economic
Assessment on the Donlin Creek project, although the amount of
the increase has not yet been determined.
None of the Companys mineral properties, including the
Donlin Creek, Rock Creek, Galore Creek and Ambler projects, have
an operating history upon which the Company can base estimates
of future operating costs. Decisions about the development of
these and other mineral properties will ultimately be based upon
feasibility studies. Feasibility studies derive estimates of
cash operating costs based upon, among other things:
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anticipated tonnage, grades and metallurgical characteristics of
the ore to be mined and processed;
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anticipated recovery rates of gold and other metals from the ore;
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cash operating costs of comparable facilities and
equipment; and
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anticipated climatic conditions.
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Cash operating costs, production and economic returns, and other
estimates contained in studies or estimates prepared by or for
the Company, including the Rock Creek feasibility study or other
feasibility studies, if prepared, may differ significantly from
those anticipated by NovaGolds current studies and
estimates, and there can be no assurance that the Companys
actual operating costs will not be higher than currently
anticipated.
S-20
Two Alaska
Clean Water initiatives, if adopted and upheld, may
adversely affect our ability to develop the Donlin Creek project
or other properties in Alaska.
Two ballot initiatives may appear on the November 2008 Alaskan
general election ballot regarding large scale metallic mining.
The full impact of either of these initiatives, even if adopted
and found to be constitutional, cannot yet be determined as the
full impact will be dependent on the rules and regulations
implementing such initiatives. One initiative seeks to impose
two water quality standards on new large scale metallic mineral
mining operations in Alaska. The cost statement prepared by the
Alaska Division of Elections accompanying this initiative
indicated that the language in the initiative does not differ
significantly from existing water quality standards. We believe
this initiative, if adopted and implemented, would not
significantly impact our ability to develop our Alaskan
properties. The other initiative imposes new prohibitions on new
large scale metallic mineral mining operations in Alaska. In the
cost statement accompanying the initiative, the Division of
Elections noted that [b]y prohibiting any discharge of
certain pollutants, even if those discharges meet or exceed
existing state and federal water quality standards, this
initiative would effectively prohibit most, if not all new large
scale mining activity. This initiative has been held to be
unconstitutional by an Alaskan state court, but that ruling is
expected to be appealed to the Supreme Court of Alaska. We
believe if this initiative is adopted and found to be
constitutional, it may be difficult or impossible for any new
large mining project, such as the Donlin Creek project or other
of our Alaskan properties, to be successfully developed
and operated.
The Company may
fail to achieve and maintain the adequacy of internal control
over financial reporting as per the requirements of the
Sarbanes-Oxley Act.
The Company has documented and tested, during the current fiscal
year, its internal control procedures in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002 (SOX). Commencing November 30, 2006, the
end of the Companys 2006 fiscal year, SOX requires an
annual assessment by management of the effectiveness of the
Companys internal control over financial reporting and an
attestation report by the Companys independent auditors
addressing this assessment. Management concluded that the
Companys internal control over financial reporting was
ineffective as of November 30, 2007 due to a material
weakness identified by its external auditors in the preparation
and review of the U.S. GAAP reconciliation to Canadian
GAAP, specifically in respect to project expenditures
capitalized or expensed under U.S. GAAP. The remediation
efforts designed by the Company may not be adequate to address
the material weakness. Due to the existence of the material
weakness relating to U.S. GAAP, the Company has also
determined that its disclosure controls and procedures, as
defined under the Securities Exchange Act of 1934, were not
effective.
The Company may fail to achieve and maintain the adequacy of its
internal control over financial reporting, as such standards are
modified, supplemented, or amended from time to time, and the
Company may not be able to ensure that it can conclude on an
ongoing basis that it has effective internal controls over
financial reporting in accordance with Section 404 of SOX.
The Companys failure to remediate its material weakness or
to satisfy the requirements of Section 404 of SOX on an
ongoing, timely basis could result in the loss of investor
confidence in the reliability of its financial statements, which
in turn could harm the Companys business and negatively
impact the trading price of its common shares. In addition, any
failure to implement required new or improved controls, or
difficulties encountered in their implementation, could harm the
Companys operating results or cause it to fail to meet its
reporting obligations. Future acquisitions of companies may
provide the Company with challenges in implementing the
S-21
required processes, procedures and controls in its acquired
operations. Acquired companies may not have disclosure control
and procedures or internal control over financial reporting that
are as thorough or effective as those required by securities
laws currently applicable to the Company.
No evaluation can provide complete assurance that the
Companys internal control over financial reporting will
detect or uncover all failures of persons within the Company to
disclose material information otherwise required to be reported.
The effectiveness of the Companys control and procedures
could also be limited by simple errors or faulty judgments. In
addition, as the Company continues to expand, the challenges
involved in implementing appropriate internal controls over
financial reporting will increase and will require that the
Company continue to improve its internal controls over financial
reporting. Although the Company intends to devote substantial
time and incur substantial costs, as necessary, to ensure
ongoing compliance, the Company cannot be certain that it will
be successful in complying with Section 404.
S-22
Use of
proceeds
The Company estimates that the net proceeds from the offering
will be approximately US$90.7 million after deducting the
underwriters fee and the Companys estimated fees and
expenses. If the underwriters over-allotment option is
exercised in full, the net proceeds will be approximately
US$104.2 million. The Company intends to use the net
proceeds from the offering to repay the amount drawn down under
the Companys $30.0 million short-term credit
facility, which was approximately $16.0 million at
March 18, 2008, to fund general exploration and development
on the Companys projects and for general corporate
purposes.
The actual amount that the Company spends in connection with
each of the intended uses of proceeds may vary significantly
from the amounts specified above, and will depend on a number of
factors, including those listed under Risk factors
in or incorporated by reference in this prospectus supplement
and the accompanying base shelf prospectus.
Pending the uses described above, the Company intends to invest
the net proceeds in cash on deposit with major Canadian banks
and highly liquid short-term interest-bearing investments with
maturities of 90 days or less from the original date of
acquisition.
S-23
Dividend
policy
The Company has not declared or paid any dividends on its common
shares since the date of its incorporation. The Company intends
to retain its earnings, if any, to finance the growth and
development of its business and does not expect to pay dividends
or to make any other distributions in the near future. The
Companys Board of Directors will review this policy from
time to time having regard to the Companys financing
requirements, financial condition and other factors considered
to be relevant.
S-24
Consolidated
capitalization
The following table sets forth our consolidated capitalization
as of November 30, 2007 on an actual basis and as adjusted
to give effect to this offering (but not the exercise of the
over-allotment option) as though it had occurred on such date.
This table should be read in conjunction with the Companys
audited consolidated financial statements, including the notes
thereto, for the fiscal year ended November 30, 2007. This
table assumes no conversion of the notes into common shares.
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As at November 30,
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2007 after giving
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As at
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effect to the
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November 30,
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issuance of the
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(in thousands)
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2007
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notes
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Cash and cash
equivalents(1)
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$
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97,916
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$
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188,566
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Debt:
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Senior Convertible Notes offered
hereby(2)(3)
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36,816
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Shareholders Equity
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Common shares (1,000,000,000 shares authorized, no par value;
104,898,102 shares issued and
outstanding)(4)(5)
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760,468
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760,468
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Contributed surplus
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820
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820
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Share based compensation
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19,739
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19,739
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Warrants
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9,178
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9,178
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Deficit
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(163,657
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(168,962
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)
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Accumulated other comprehensive income
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15,927
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15,927
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Senior Convertible Notes offered
hereby(2)(3)
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55,224
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Total Shareholders
Equity(4)(5)
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642,475
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692,394
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Total Capitalization
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$
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642,475
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$
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729,210
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Notes:
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(1)
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Does not include restricted cash.
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(2)
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Under Canadian GAAP, the notes
would be allocated on our consolidated financial statements into
a debt component estimated at $36.8 million and an equity
component estimated at $55.2 million, after deducting
estimated offering expenses. Amounts do not include accretion of
the debt or the related interest. There are differences between
Canadian GAAP and U.S. GAAP in the accounting treatment for
convertible debt.
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(3)
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The US$ principal amount of the
notes has been converted for the purposes of this table using
Bank of Canada closing rate of $1.00 per US$0.9849 on
March 19, 2008. The effects of foreign exchange gains or
losses from revaluation have not been taken into account.
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(4)
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Does not include 8,761,000 common
shares reserved for issuance pursuant to outstanding stock
options, which were exercisable at a weighted average exercise
price of $8.76 as at November 30, 2007.
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(5)
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Includes approximately 9,396 common
shares held by a wholly-owned subsidiary of the Company.
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S-25
Earnings
coverage
The following consolidated financial earnings coverage figure
and ratio are calculated for the year ended November 30,
2007 and give effect to all
long-term
financial liabilities of the Company and the repayment,
redemption or retirement thereof since this date. The earnings
coverage deficiencies and the amount of earnings and interest
expense set forth below do not purport to be indicative of
earnings coverage deficiencies or ratios for any further
periods. The deficiency figures and coverage ratios have been
calculated based on Canadian GAAP. These coverage deficiencies,
coverage ratios, earnings or interest expenses have been
calculated giving effect to the issuance of US$95,000,000
principal amount of notes from the beginning of the
Companys fiscal year at December 1, 2006.
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Year ended
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November 30,
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2007
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(amounts in millions,
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other than earnings
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coverage ratio)
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Interest
expense(1)
|
|
$
|
5.3
|
|
Earnings (loss) before interest expense and income taxes
|
|
$
|
(61.3
|
)
|
Earnings coverage
(deficiency)(2)(3)(4)
|
|
$
|
(66.6
|
)
|
Earnings coverage ratio
|
|
|
(11.39
|
)
|
|
|
|
|
|
(1)
|
|
Includes interest expense for the
principal amount of the notes.
|
|
(2)
|
|
Earnings coverage (deficiency) is
the dollar amount of earnings required to attain an earnings
coverage ratio of
one-to-one.
Earnings coverage ratio is equal to net income after the
unrealised loss on derivatives and before interest expense and
income taxes divided by interest expense on all debt.
|
|
(3)
|
|
The convertible debenture has a
debt and equity component. $36.8 is the estimated debt
component. The amount included in the earnings coverage
(deficiency) calculation is the total interest expense for the
principal amount of the notes.
|
|
(4)
|
|
The US$95,000,000 principal amount
of the notes and related interest has been converted for the
purposes of this table using the Bank of Canada closing rate of
$1.00 per US$0.9849 on March 19, 2008.
|
S-26
Description of
share capital
The Companys authorized share capital consists of
1,000,000,000 common shares without par value and 10,000,000
preferred shares, issuable in series. As at March 18, 2008,
the Company had 105,161,311 common shares and no preferred
shares issued and outstanding.
Common
shares
All of the common shares rank equally as to voting rights,
participation in a distribution of the assets of the Company on
a liquidation, dissolution or
winding-up
of the Company and the entitlement to dividends. The holders of
the common shares are entitled to receive notice of all meetings
of shareholders and to attend and vote the shares at the
meetings. Each common share carries with it the right to one
vote.
In the event of the liquidation, dissolution or
winding-up
of the Company or other distribution of its assets, the holders
of the common shares will be entitled to receive, on a pro rata
basis, all of the assets remaining after the Company has paid
out its liabilities. Distributions in the form of dividends, if
any, will be set by the Board of Directors.
Provisions as to the modification, amendment or variation of the
rights attached to the common shares are contained in the
Companys articles of association and the Companies Act
(Nova Scotia). Generally speaking, substantive changes to
the share capital require the approval of the shareholders by
special resolution (at least 75% of the votes cast) and in
certain cases approval by the holders of a class or series of
shares, including in certain cases a class or series of shares
not otherwise carrying voting rights, in which event the
resolution must be approved by no less than two-thirds of the
votes cast by shareholders who vote in respect of the resolution.
Preferred
shares
The Companys preferred shares may be issued from time to
time in one or more series, the number of shares, designation,
rights and restrictions of which will be determined by the Board
of Directors of the Company. The preferred shares rank ahead of
the common shares with respect to the payment of dividends and
the payment of capital. There are no preferred shares
outstanding at the date of this prospectus supplement.
S-27
Description of
notes
The notes are to be issued under an indenture between us, as
issuer, and The Bank of New York as trustee, as supplemented by
a supplemental indenture thereto, each to be dated as of
March 26, 2008, relating to the notes. We refer to the
indenture, as so supplemented, as the indenture.
The following description is a summary of the material
provisions of the notes and the indenture and does not purport
to be complete. We urge you to read the indenture because the
indenture, and not this description, defines your rights as a
holder of the notes. You should refer to all of the provisions
of the indenture, including the definitions of certain terms
used in the indenture. The terms of the notes include those
stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
The indenture, including the form of note contained therein, is
specifically incorporated herein by reference. You may request a
copy of the indenture from us.
As used in this Description of notes section,
references to we, our or us
refer solely to NovaGold Resources Inc. and not to our
subsidiaries.
General
The notes are our senior unsecured debt and rank on parity with
all of our other existing and future senior unsecured debt and
prior to all of our subordinated debt. The notes are convertible
into our common shares, as described more fully under
Conversion rights below.
The notes are limited to US$95,000,000 aggregate principal
amount (or US$109,000,000 if the underwriters
over-allotment option is fully exercised). The notes are issued
only in denominations of US$1,000 and multiples of US$1,000. The
notes mature on May 1, 2015, unless earlier converted,
redeemed or repurchased. We may, without the consent of the
holders, issue additional notes under the indenture with the
same terms and with the same CUSIP numbers as the notes offered
hereby in an unlimited aggregate principal amount, provided that
such additional notes must be part of the same issue as the
notes offered hereby for U.S. federal income tax purposes.
We may also from time to time repurchase notes in open market
purchases or negotiated transactions without prior notice to
holders.
Neither we nor any of our subsidiaries are subject to any
financial covenants under the indenture. In addition, neither we
nor any of our subsidiaries are restricted under the indenture
from paying dividends, incurring debt, granting security, or
issuing or repurchasing our securities or those of our
subsidiaries.
The holders of the notes are not afforded protection under the
indenture in the event of a highly leveraged transaction or a
change in control of us except to the extent described under
Offer to purchase upon a fundamental change,
and Conversion rightsAdjustment to shares
delivered upon conversion upon certain fundamental changes.
Except under limited circumstances described below, the notes
are issued only in fully registered book-entry form and are
represented by one or more global notes. There is no service
charge for registration of transfer or exchange of the notes. We
may, however, require holders to pay a sum to cover any tax or
other governmental charge payable in connection with certain
transfers or exchanges.
S-28
Payments on the
notes; paying agent and registrar
We will pay principal of certificated notes at the office or
agency designated by us in the Borough of Manhattan, The City of
New York. We have initially designated the corporate trust
office of the trustee under the indenture at 101 Barclay Street,
New York, New York 10286 as our paying agent and registrar and
its agency in New York, New York as a place where notes may be
presented for payment or for registration of transfer. We may,
however, change the paying agent or registrar without prior
notice to the holders of the notes, and we may act as paying
agent or registrar. Interest on certificated notes will be
payable (i) to holders having an aggregate principal amount
of US$5 million or less, by check mailed to the holders of
these notes and (ii) to holders having an aggregate
principal amount of more than US$5 million, either by check
mailed to each holder or, upon application by a holder to the
registrar not less than 15 days prior to the relevant
payment date, by wire transfer in immediately available funds to
that holders account within the United States, which
application shall remain in effect until the holder notifies, in
writing, the registrar to the contrary.
We will pay principal of and interest on notes in global form
registered in the name of or held by The Depository
Trust Company or its nominee in immediately available funds
to accounts specified by The Depository Trust Company or
its nominee, as the case may be, as the registered holder of
such global note.
Interest
The notes will bear interest at a rate of 5.50% per year.
Interest on the notes will accrue from March 26, 2008.
Interest will be payable semiannually in arrears on May 1
and November 1, beginning November 1, 2008.
Interest will be paid to the person in whose name a note is
registered at the close of business on April 15 or
October 15, as the case may be, immediately preceding the
relevant interest payment date. Interest on the notes will be
computed on the basis of a
360-day year
composed of twelve
30-day
months.
Conversion
rights
Holders of the notes may convert any notes or portions of the
notes, in whole or in part, initially at a conversion rate of
94.2418 common shares per US$1,000 principal amount of notes
(equivalent to a conversion price of approximately US$10.61 per
common share) at any time prior to the close of business on the
business day immediately preceding the final maturity date of
the notes, subject to prior redemption or repurchase of the
notes.
The trustee will initially act as conversion agent. The
conversion rate and the applicable conversion price in effect at
any given time are referred to as the applicable
conversion rate and the applicable conversion
price, respectively, and will be subject to adjustment as
described below. A holder may convert fewer than all of such
holders notes so long as the notes converted are an
integral multiple of US$1,000 principal amount.
Upon conversion of a note, we will have the right to elect to
deliver cash or a combination of cash and common shares for the
notes surrendered instead of delivering only common shares (plus
cash in lieu of fractional shares). To exercise this right, we
must give notice of our election to deliver part or all of the
conversion consideration in cash to the holder converting the
notes within two business days of our receipt of the
holders notice of conversion. The amount of cash
S-29
to be delivered per note will be equal to the number of common
shares in respect of which the cash payment is being made
multiplied by the average of the daily VWAP prices of the common
shares for the 10 trading days commencing one day after
(a) the date of our notice of election to deliver all or
part of the conversion consideration in cash if we have not
given notice of redemption or (b) the conversion date, in
the case of conversion following notice of redemption specifying
our intention to deliver cash upon conversion. Daily
VWAP means the per share volume-weighted average price as
displayed under the heading Bloomberg VWAP on
Bloomberg page NG US Equity AQR in respect of the
period from 9:30 am to 4:00 pm (New York City time) on such
trading day (or if such volume-weighted average price is
unavailable, the market value of one common share on such
trading day on the TSX or otherwise as our board of directors
determines in good faith using a volume-weighted method);
provided that after the consummation of a fundamental change in
which the consideration is comprised entirely of cash,
daily VWAP means the cash price per common share
received by holders of our common shares on such fundamental
change.
If we elect to deliver cash in lieu of some or all of the common
shares issuable upon conversion, we will make the payment,
including delivery of the common shares, through the conversion
agent, to holders surrendering notes no later than the
fourteenth business day following the conversion date.
Otherwise, we will deliver the common shares, together with any
cash payment for fractional shares, as described below, through
the conversion agent no later than the fifth business day
following the conversion date.
We may not deliver cash in lieu of any common shares issuable
upon a conversion date (other than in lieu of fractional shares)
if there has occurred and is continuing an event of default
under the indenture, other than an event of default that is
cured by the payment of the conversion consideration.
If we call notes for redemption, a holder of notes may convert
the notes only until the close of business on the business day
immediately preceding the redemption date unless we fail to pay
the redemption price. If a holder of notes has submitted the
notes for purchase upon a fundamental change, a holder of notes
may convert the notes only if that holder withdraws the purchase
election made by that holder. Similarly, if a holder of notes
exercises the option to require us to repurchase the notes other
than upon a fundamental change, those notes may be converted
only if the holder withdraws its election to exercise the option
in accordance with the terms of the indenture.
Upon conversion, you will not receive any separate cash payment
for accrued and unpaid interest unless such conversion occurs
between a regular record date and the interest payment date to
which it relates. We will not issue fractional common shares
upon conversion of notes. Instead, we will pay cash in lieu of
fractional shares based on the last reported sale price of the
common shares on the trading day prior to the conversion date.
Our delivery to you of common shares, cash, or a combination of
cash and common shares, as applicable, together with any cash
payment for any fractional share, into which a note is
convertible, will be deemed to satisfy our obligation to pay:
|
|
|
the principal amount of the note; and
|
|
accrued and unpaid interest to, but not including, the
conversion date.
|
As a result, accrued and unpaid interest to, but not including,
the conversion date will be deemed to be paid in full rather
than cancelled, extinguished or forfeited.
S-30
Notwithstanding the preceding paragraph, if notes are converted
after 5:00 p.m., New York City time, on a regular record
date for the payment of interest, holders of such notes at
5:00 p.m., New York City time, on such record date will
receive the interest payable on such notes on the corresponding
interest payment date notwithstanding the conversion. Notes,
upon surrender for conversion during the period from
5:00 p.m., New York City time, on any regular record date
to 9:00 a.m. New York City time, on the immediately
following interest payment date, must be accompanied by funds
equal to the amount of interest payable on the notes so
converted on the corresponding interest payment date; provided
that no such payment need be made:
|
|
|
if we have specified a redemption date that is after a record
date and on or prior to the corresponding interest payment date;
|
|
|
if we have specified a fundamental change purchase date that is
after a record date and on or prior to the corresponding
interest payment date; or
|
|
|
to the extent of any overdue interest, if any overdue interest
exists at the time of conversion with respect to such note.
|
If a holder converts notes, we will pay any documentary, stamp
or similar issue or transfer tax due on the issue of any of our
common shares upon the conversion, unless the tax is due because
the holder requests any shares to be issued in a name other than
the holders name, in which case the holder will pay that
tax.
Conversion upon
specified corporate transactions
If we are a party to a consolidation, amalgamation, merger,
binding share exchange, statutory arrangement, sale of all or
substantially all of our assets or other combination, in each
case pursuant to which our common shares are converted into
cash, securities, or other property, then at the effective time
of the transaction, the right of a holder of notes to convert a
note into our common shares and cash will be changed into a
right to convert it into the kind and amount of cash, securities
and other property which holders of the notes would have
received if those holders had converted their notes immediately
prior to the transaction (the reference property).
If the transaction causes our common shares to be converted into
the right to receive more than a single type of consideration
(determined based in part upon any form of shareholder
election), the reference property into which the notes will be
convertible will be deemed to be the weighted average of the
types and amounts of consideration received by the holders of
our common shares that affirmatively make such an election. We
will agree in the indenture not to become a party to any such
transaction unless its terms are consistent with the foregoing.
If holders of notes would otherwise be entitled to receive, upon
conversion of the notes, any property (including cash) or
securities that would not constitute prescribed
securities for the purposes of
clause 212(1)(b)(vii)(E) of the Tax Act as it applied for
the 2007 taxation year (referred to herein as ineligible
consideration), such holders shall not be entitled to
receive such ineligible consideration but we or the successor or
acquirer, as the case may be, shall have the right (at the sole
option of us or the successor or acquirer, as the case may be)
to deliver either such ineligible consideration or
prescribed securities for the purposes of
clause 212(1)(b)(vii)(E) of the Tax Act as it applied for
the 2007 taxation year with a market value equal to the market
value of such ineligible consideration. In general, prescribed
securities would include our common shares and other shares
which are not redeemable by the holder within five years of the
date of issuance of the notes. Because of this, certain
transactions may
S-31
result in the notes being convertible into prescribed securities
that are highly illiquid. This could have a material adverse
effect on the value of the notes. We agree to give notice to the
holders of notes at least 30 days prior to the effective
date of such transaction in writing and by release to a business
newswire stating the consideration into which the notes will be
convertible after the effective date of such transaction. After
such notice, we or the successor or acquirer, as the case may
be, may not change the consideration to be delivered upon
conversion of the notes except in accordance with any other
provision of the indenture.
If the transaction also constitutes a fundamental change, we
will be required to offer to purchase for cash all of your notes
as described under Offer to purchase upon a
fundamental change.
Conversion
procedures
To convert the notes into common shares a holder of notes must
do the following (or comply with DTC procedures for doing so in
respect of its beneficial interest in notes evidenced by a
global note):
|
|
|
complete and manually sign the conversion notice on the back of
the note or facsimile of the conversion notice and deliver this
notice to the conversion agent;
|
|
|
surrender the note to the conversion agent;
|
|
|
if required, furnish appropriate endorsements and transfer
documents; and
|
|
|
if required, pay all transfer or similar taxes.
|
The date a holder of notes complies with these requirements is
the conversion date under the indenture.
Conversion rate
and adjustments
The initial conversion rate for the notes is 94.2418 common
shares per US$1,000 principal amount of notes, subject to
adjustment as described below.
We will adjust the conversion rate if any of the following
events occurs, except that we will not make any adjustment if
holders of notes may participate, as a result of holding the
notes, in the transactions described without having to convert
their notes.
(1) If we issue common shares as a dividend or distribution
on our common shares, or if we subdivide or combine our common
shares, the conversion rate will be adjusted based on the
following formula:
where,
CR0
= the conversion rate in effect immediately prior to such event
CR1
= the conversion rate in effect immediately after such event
OS0
= the number of our common shares outstanding immediately prior
to such event
S-32
OS1
= the number of our common shares outstanding immediately after
such event
(2) If we issue to all or substantially all holders of
common shares certain rights or warrants to purchase our common
shares for a total acquisition cost less than the closing sale
price of our common shares on the record date for shareholders
entitled to receive such rights and warrants, which rights or
warrants are exercisable for not more than 60 days, the
conversion rate will be adjusted based on the following formula
(provided that the conversion rate will be readjusted to the
extent that such rights or warrants are not exercised prior to
their expiration):
where,
CR0
= the conversion rate in effect immediately prior to such event
CR1
= the conversion rate in effect immediately after such event
|
|
|
|
OS0
=
|
the number of our common shares outstanding on the close of
business on the next business day following such record date
|
X = the total number of our common shares
issuable pursuant to such rights
|
|
|
|
Y =
|
the number of our common shares equal to the quotient of
(A) the aggregate price payable to exercise all such rights
or warrants and (B) the average of the closing sale prices
of our common shares for the ten consecutive trading days ending
on the business day immediately preceding the date of
announcement for the issuance of such rights or warrants
|
(3) If we distribute to all or substantially all holders of
our common shares, common shares, evidences of indebtedness or
assets, including securities but excluding:
|
|
|
rights or warrants specified above;
|
|
dividends or distributions specified above; and
|
|
dividends or distributions specified in (4) below;
|
then the conversion rate will be adjusted based on the following
formula:
where,
|
|
|
|
CR0 =
|
the conversion rate in effect immediately prior to such
distribution
|
CR1 =
the conversion rate in effect immediately after such distribution
|
|
|
|
SP0 =
|
the current market price (as defined below) of our common shares
on such record date for such distribution
|
|
|
|
|
FMV =
|
the fair market value (as determined by our board of directors)
of the common shares, evidences of indebtedness, assets or
property distributed with respect to each outstanding common
share on the record date for such distribution
|
S-33
To the extent that we have a rights plan in effect upon
conversion of the notes into common shares, a holder of notes
will receive, in addition to the common shares, the rights under
the rights plan unless the rights have separated from the common
shares at the time of conversion, in which case the conversion
rate will be adjusted as if we distributed to all holders of our
common shares, common shares, evidences of indebtedness or
assets as described above, subject to readjustment in the event
of the expiration, termination or redemption of such rights.
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our common shares or shares of any class or
series, or similar equity interest, of or relating to a
subsidiary or other business unit, which we refer to as a
spin-off, the conversion rate in effect immediately
before 5:00 p.m., New York City time, on the effective date
fixed for determination of shareholders entitled to receive the
distribution will be increased based on the following formula:
where,
CR0 =
the conversion rate in effect immediately prior to such
distribution
CR1 =
the conversion rate in effect immediately after such distribution
|
|
|
|
FMV0 =
|
the average of the closing sale prices of the common shares or
similar equity interest distributed to holders of our commons
shares applicable to one common share over the ten consecutive
trading-day
period commencing on and including the fifth trading day after
the date on which ex-dividend trading commences for
such distribution on the American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted
|
|
|
|
|
MP0 =
|
the average of the closing sale prices of our common shares over
the ten consecutive
trading-day
period commencing on and including the fifth trading day after
the date on which ex-dividend trading commences for
such distribution on the American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted
|
The adjustment to the conversion rate under the preceding
paragraph will occur on the fourteenth trading day after the
date on which ex-dividend trading commences for such
distribution on the American Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted.
(4) If any cash dividend or other distribution is made to
all or substantially all holders of our common shares, the
conversion rate will be adjusted based on the following formula:
where,
CR0
= the conversion rate in effect on the record date for such
distribution
S-34
|
|
|
|
CR1
=
|
the conversion rate in effect immediately after the record date
for such distribution
|
|
|
|
|
SP0
=
|
the current market price of one of our common shares on the
record date for such distribution
|
|
|
|
|
C =
|
the amount in cash per share we distribute to holders of our
common shares
|
Current market price means the average of the daily
closing sale prices per common share for the ten consecutive
trading days immediately preceding the earlier of the record
date and the ex date with respect to the
distribution, issuance or other event requiring such
computation. As used in the definition of current market price,
the term ex date, when used with respect to any
distribution, means the first date on which the common share
trades, regular way, on the relevant exchange or in the relevant
market from which the closing sale price was obtained without
the right to receive such distribution.
(5) If we or one of our subsidiaries makes a payment in
respect of a tender offer or exchange offer for our common
shares to the extent that the cash and value of any other
consideration included in the payment per common share exceeds
the current market price per common share on the trading day
immediately preceding the date such tender offer or exchange
offer is announced, the conversion rate will be increased based
on the following formula:
|
|
|
|
|
|
CR1
=
CR0
x
|
|
|
AC + ( SP1 x OS1) OS0
x SP1
|
where,
CR0
= the conversion rate in effect on the date such tender or
exchange offer expires
|
|
|
|
CR1
=
|
the conversion rate in effect on the day next succeeding the
date such tender or exchange offer expires
|
|
|
|
|
AC =
|
the fair market value (as determined by our board of directors)
of the aggregate consideration paid or payable for shares
purchased in such tender or exchange offer
|
|
|
|
|
OS0
=
|
the number of our common shares outstanding on the trading day
immediately preceding the date such tender or exchange offer is
announced
|
|
|
OS1
=
|
the number of our common shares outstanding less any shares
purchased in the tender or exchange offer at the time such
tender or exchange offer expires
|
|
|
|
|
SP1
=
|
the current market price of our common shares on the trading
date immediately after the date such tender or exchange offer
expires
|
In the event of:
|
|
|
any reclassification of our common shares;
|
|
|
a consolidation, merger or combination involving us; or
|
|
|
a sale or conveyance to another person or entity of all or
substantially all of our property and assets;
|
S-35
in which holders of our common shares would be entitled to
receive shares, other securities, other property, assets or cash
for their common shares, upon conversion of the notes, a holder
thereof will be entitled to receive the same type of
consideration which it would have been entitled to receive if it
had converted the notes into our common shares immediately prior
to any of these events (provided such consideration is not
ineligible consideration as described in
Conversion upon specified corporate
transactions).
A holder of notes may in certain situations be deemed to have
received a distribution subject to United States federal income
tax as a dividend in the event of any taxable distribution to
holders of common shares or in certain other situations
requiring a conversion rate adjustment. See Certain
Canadian and United States income tax considerationsUnited
States federal income tax considerations.
We may, from time to time, increase the conversion rate for a
period of at least 20 days if our board of directors has
made a determination that this increase would be in our best
interests. Any such determination by our board will be
conclusive. In addition, we may increase the conversion rate if
our board of directors deems it advisable to avoid or diminish
any income tax to holders of common shares or rights to purchase
common shares resulting from any dividend or distribution of
shares or rights to acquire shares or from any event treated as
such for income tax purposes. See Certain Canadian and
United States income tax considerationsUnited States
federal income tax considerations.
Any such increases in the conversion rate by our board of
directors shall not, without the approval of our shareholders,
if required by Rule 713 of the American Stock Exchange
Company Guide or the rules of the Toronto Stock Exchange, result
in the sale or issuance of 20% (25% in the case of the Toronto
Stock Exchange) or more of our common shares, or 20% (25% in the
case of the Toronto Stock Exchange) or more of the voting power,
outstanding on the date of this prospectus supplement.
Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common shares,
convertible or exchangeable securities or rights to purchase our
common shares or convertible or exchangeable securities.
We will not be required to make an adjustment in the conversion
rate unless the adjustment would require a change of at least 1%
in the conversion rate. However, we will carry forward any
adjustments that are less than 1% of the conversion rate.
Adjustments of
average prices
Whenever any provision of the indenture requires us to calculate
an average of last reported prices or daily VWAP over a span of
multiple days, we will make appropriate adjustments, determined
in good faith by our board of directors, to account for any
adjustment to the conversion rate that becomes effective, or any
event requiring an adjustment to the conversion rate where the
ex date of the event occurs at any time during the period from
which the average is to be calculated.
Adjustments to
shares delivered upon conversion upon certain fundamental
changes
If you elect to convert your notes as described above in the
first paragraph under Conversion upon specified
corporate transactions, and the corporate transaction also
constitutes a fundamental change (as defined under
Offer to purchase upon a fundamental change),
in certain
S-36
circumstances described below, the conversion rate will be
increased by an additional number of common shares (the
additional shares) as described below. Any
conversion occurring at a time when the notes would be
convertible in light of the expected or actual occurrence of a
fundamental change will be deemed to have occurred in connection
with such fundamental change notwithstanding the fact that a
note may then be convertible because another condition to
conversion has been satisfied.
The number of additional shares by which the conversion rate
will be increased will be determined by reference to the table
below, based on the date on which the fundamental change occurs
or becomes effective (the effective date) and the
price (the share price) paid per common share in the
fundamental change. If the fundamental change is a transaction
described in clause (2) of the definition of fundamental
change, and holders of our common shares receive only cash in
that fundamental change, the share price shall be the cash
amount paid per share. Otherwise, the share price shall be the
average of the last reported sale prices of our common shares
over the five
trading-day
period ending on the trading day preceding the effective date of
the fundamental change.
The share prices set forth in the first row of the table below
(i.e. column headings) will be adjusted as of any date on which
the conversion rate of the notes is otherwise adjusted. The
adjusted share prices will equal the share prices applicable
immediately prior to such adjustment, multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the share price adjustment and
the denominator of which is the conversion rate as so adjusted.
The number of additional shares will be adjusted in the same
manner as the conversion rate as set forth under
Conversion rate and adjustments.
The following table sets forth the hypothetical share price and
the number of additional shares to be received per US$1,000
principal amount of notes:
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Share Price
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Effective date
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$7.86
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$10.00
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$12.50
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$15.00
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$17.50
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$20.00
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$22.50
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$25.00
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$27.50
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$30.00
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$32.50
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$35.00
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$37.50
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$40.00
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March 26, 2008
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32.9846
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24.3039
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16.9140
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12.4056
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9.4206
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7.3273
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5.7958
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4.6389
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3.7432
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3.0362
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2.4696
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2.0100
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1.6338
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1.3236
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May 1, 2009
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32.9846
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24.3028
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16.9127
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12.4042
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9.4195
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7.3264
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5.7951
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4.6383
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3.7427
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3.0358
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2.4693
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2.0098
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1.6337
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1.3235
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May 1, 2010
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32.9846
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24.3016
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16.9113
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12.4030
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9.4184
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7.3255
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5.7943
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4.6377
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3.7422
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3.0355
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2.4690
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2.0096
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1.6335
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1.3234
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May 1, 2011
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32.9846
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24.3150
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16.9218
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12.4116
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9.4258
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7.3320
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5.8002
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4.6431
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3.7472
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3.0401
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2.4734
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2.0137
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1.6374
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1.3270
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May 1, 2012
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32.9846
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24.3287
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16.9323
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12.4202
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9.4331
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7.3385
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5.8060
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4.6484
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3.7521
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3.0447
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2.4777
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2.0178
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1.6413
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1.3307
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May 1, 2013
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32.9846
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24.3275
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16.9309
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12.4189
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9.4320
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7.3375
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5.8052
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4.6478
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3.7517
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3.0443
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2.4774
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2.0176
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1.6411
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1.3307
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May 1, 2014
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32.9846
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24.3263
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16.9295
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12.4176
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9.4309
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7.3366
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5.8045
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4.6472
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3.7512
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3.0440
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2.4772
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2.0174
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1.6410
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1.3306
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May 1, 2015
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32.9846
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24.2959
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16.9046
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12.3966
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9.4128
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7.3208
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5.7905
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4.6437
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3.7398
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3.0336
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2.4677
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2.0087
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1.6329
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1.3231
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The exact share prices and effective dates may not be set forth
in the table above, in which case
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If the share price is between two share price amounts in the
table or the effective date is between two effective dates in
the table, the number of additional shares will be determined by
a straight-line interpolation between the number of additional
shares set forth for the higher and lower share price amounts
and the two dates, as applicable, based on a
365-day year.
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If the share price is greater than US$40.00 per share (subject
to adjustment), no additional shares will be issued upon
conversion.
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S-37
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If the share price is less than US$7.86 per share (subject to
adjustment), no additional shares will be issued upon conversion.
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Notwithstanding the foregoing, in no event will the total number
of common shares issuable upon conversion exceed 127.2264 per
US$1,000 principal amount, subject to adjustments in the same
manner as the conversion rate as set forth under
Conversion rate and adjustments.
Redemption for
changes in Canadian tax law
We may redeem all but not part of the notes if we have or would
become obligated to pay to the holder of any note
additional amounts (which are more than a de minimis
amount) as a result of any change from the date of this
prospectus supplement in the laws or any regulations of Canada
or any Canadian political subdivision or taxing authority, or
any change from the date of this prospectus supplement in an
interpretation or application of such laws or regulations by any
legislative body, court, governmental agency, taxing authority
or regulatory authority (including the enactment of any
legislation and the publication of any judicial decision or
regulatory or administrative determination); provided we cannot
avoid these obligations by taking reasonable measures available
to us and that we deliver to the trustee an opinion of legal
counsel specializing in taxation and an officers
certificate attesting to such change and obligation to pay
additional amounts. The term additional amounts is
defined under Additional amounts. This
redemption would be at 100% of the principal amount plus accrued
and unpaid interest to, but excluding, the redemption date but
without reduction for applicable Canadian taxes (as defined
below) (except in respect of certain excluded holders (as
defined below)). We will give holders of notes not less than
30 days nor more than 60 days notice of
this redemption, except that (i) we will not give notice of
redemption earlier than 60 days prior to the earliest date
on or from which we would be obligated to pay any such
additional amounts, and (ii) at the time we give the
notice, the circumstances creating our obligation to pay such
additional amounts remain in effect.
Upon receiving such notice of redemption, each holder who does
not wish to have us redeem its notes will have the right to
elect to:
(i) convert its notes; or
(ii) not have its notes redeemed,
provided that no additional amounts will be payable on any
payment of interest or principal with respect to the notes after
such redemption date. All future payments will be subject to the
deduction or withholding of any Canadian taxes required by law
to be deducted or withheld.
Where no election is made, the holder will have its notes
redeemed without any further action. The holder must deliver to
the paying agent a written notice of election so as to be
received by the paying agent no later than the close of business
on a business day at least five business days prior to the
redemption date.
A holder may withdraw any notice of election by delivering to
the paying agent a written notice of withdrawal prior to the
close of business on the business day prior to the redemption
date.
S-38
Repurchase at
option of the holder
A holder of notes has the right to require us to repurchase all
or a portion of such holders notes on May 1, 2013. We
must give notice of the upcoming repurchase date to all note
holders not less than 20 business days prior to the repurchase
date at their addresses shown in the register of the registrar.
We will also give notice to beneficial owners as required by
applicable law. This notice will state, among other things, the
procedures that holders must follow to require us to repurchase
all or a portion of their notes.
We will be required to repurchase for cash any outstanding note
for which a holder of notes delivers a written repurchase notice
to the paying agent. This notice must be delivered during the
period beginning at any time from the opening of business on the
date that is 20 business days prior to the repurchase date until
the close of business on the repurchase date. If a repurchase
notice is given and withdrawn during that period, we will not be
obligated to repurchase the notes. Our repurchase obligation
will be subject to certain additional conditions.
The repurchase price payable for a note will be equal to 100% of
the principal amount of the notes plus accrued and unpaid
interest to, but excluding, the repurchase date. The paying
agent initially will be the trustee.
The repurchase notice must state:
(1) if certificated notes have been issued, the note
certificate numbers (or, if the notes are not certificated, a
repurchase notice made by a holder of notes must comply with
appropriate DTC procedures);
(2) the portion of the principal amount of notes to be
repurchased, which must be in US$1,000 multiples; and
(3) that the notes are to be repurchased by us pursuant to
the applicable provisions of the notes and the indenture.
A holder of notes may withdraw any written repurchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the repurchase date. The
withdrawal notice must state:
(1) the principal amount of the withdrawn notes;
(2) if certificated notes have been issued, the certificate
numbers of the withdrawn notes (or, if the notes are not
certificated, the withdrawal notice must comply with appropriate
DTC procedures); and
(3) the principal amount, if any, which remains subject to
the repurchase notice.
Payment of the repurchase price for a note for which a
repurchase notice has been delivered and not withdrawn is
conditioned upon book-entry transfer or delivery of the note,
together with necessary endorsements, to the paying agent at its
office in the Borough of Manhattan, The City of New York, or any
other office of the paying agent, at any time after delivery of
the repurchase notice. Payment of the repurchase price for the
note will be made promptly following the later of the repurchase
date and the time of book-entry transfer or delivery of the
note. If the paying agent holds money sufficient to pay the
repurchase price of the note on the repurchase date, then, on
and after the date:
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the note will cease to be outstanding and any interest will
cease to accrue; and
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S-39
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all other rights of the holder will terminate, other than the
right to receive the repurchase price upon delivery of the note.
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This will be the case whether or not book-entry transfer of the
note has been made or the note has been delivered to the paying
agent.
Our ability to repurchase notes with cash may be limited by the
terms of our then-existing borrowing agreements. Even though we
become obligated to repurchase any outstanding note on the
repurchase date, we may not have sufficient funds to pay the
repurchase price on the repurchase date.
We will comply with the provisions of
Rule 13e-4
and any other rules under the Exchange Act and any applicable
Canadian securities laws that may be applicable.
No notes may be repurchased at the option of the holders if
there has occurred and is continuing an event of default under
the indenture, other than an event of default that is cured by
the payment of the repurchase price of the notes.
Offer to purchase
upon a fundamental change
In the event of a fundamental change, subject to the terms and
conditions of the indenture, we shall be required to offer to
purchase for cash all of the outstanding notes (a purchase
offer) on the date (the purchase date) that is
30 business days after the date of such offer, at a purchase
price equal to 100% of the principal amount of the notes, plus
accrued and unpaid interest up to but not including, the
purchase date.
If such purchase date is after a record date but on or prior to
an interest payment date, however, then the interest payable on
such date will be paid to the holder of record of the notes on
the relevant record date.
Within 30 business days after we know of the occurrence of
a fundamental change, we shall be required to give notice to all
holders of record of notes and to beneficial owners as may be
required by applicable law, as provided in the indenture,
stating among other things, the occurrence of a fundamental
change and setting out the terms of the purchase offer. We must
also deliver a copy of the notice to the trustee.
In order to accept such purchase offer, a holder must deliver to
the paying agent prior to the purchase date a purchase notice
stating among other things:
(1) if certificated notes have been issued, the note
certificate numbers (or, if the notes are not certificated, the
repurchase notice must comply with appropriate DTC procedures);
(2) the portion of the principal amount of notes to be
purchased, which must be in US$1,000 multiples; and
(3) that the notes are to be purchased by us pursuant to
the applicable provisions of the notes and the indenture.
A holder of notes may withdraw any written purchase notice by
delivering a written notice of withdrawal to the paying agent
prior to the close of business on the purchase date. The
withdrawal notice must state:
(1) the principal amount of the withdrawn notes;
S-40
(2) if certificated notes have been issued, the certificate
numbers of the withdrawn notes (or, if the notes are not
certificated, the withdrawal notice must comply with appropriate
DTC procedures); and
(3) the principal amount, if any, which remains subject to
the purchase notice.
We will promptly pay the purchase price for notes properly
surrendered for repurchase following the purchase date.
A fundamental change will be deemed to have occurred
at the time after the notes are originally issued that any of
the following occurs:
(1) a person or group within the
meaning of Section 13(d) of the Exchange Act other than us,
our subsidiaries or our or their employee benefit plans, files a
Schedule TO or any schedule, form or report under the
Exchange Act or applicable Canadian securities laws disclosing
that such person or group has become the direct or indirect
ultimate beneficial owner, as defined in
Rule 13d-3
under the Exchange Act or applicable Canadian securities laws,
of our common equity representing more than 50% of the voting
power of our common equity;
(2) consummation of any share exchange, consolidation,
amalgamation, merger, statutory arrangement or other combination
pursuant to which our common shares will be converted into cash,
securities or other property or any sale, lease or other
transfer in one transaction or a series of transactions of all
or substantially all of the consolidated assets of us and our
subsidiaries, taken as a whole, to any person other than one of
our wholly-owned subsidiaries; provided, however, that a
transaction where the holders of more than 50% of all classes of
our common equity immediately prior to such transaction own,
directly or indirectly, more than 50% of all classes of common
equity of the continuing or surviving corporation or transferee
immediately after such event shall not be a fundamental change;
(3) continuing directors cease to constitute at least a
majority of our Board of Directors; or
(4) our shareholders approve any plan or proposal for the
liquidation or dissolution of us.
A fundamental change will not be deemed to have occurred,
however, if at least 90% of the consideration, excluding cash
payments for fractional shares, in the transaction or
transactions otherwise constituting the fundamental change
consists of common shares or American Depositary Shares that are
traded or listed on, or immediately after the transaction or
event will be traded or listed on a U.S. national or
regional securities exchange or the Toronto Stock Exchange.
We will comply with any applicable provisions of
Rule 13e-4
and any other tender offer rules under the Exchange Act and any
applicable Canadian securities laws which may then be applicable
in the event of a fundamental change.
No notes may be purchased upon a fundamental change if there has
occurred and is continuing an event of default under the
indenture, other than an event of default that is cured by the
payment of the fundamental change purchase price of the notes.
These fundamental change purchase rights could discourage a
potential acquirer. However, this fundamental change repurchase
feature is not the result of managements knowledge of any
specific effort to obtain control of us by means of a merger,
tender offer or solicitation, or part of a plan by management to
adopt a series of anti-takeover provisions. The term
fundamental
S-41
change is limited to specified transactions and may not
include other events that might adversely affect our financial
condition or business operations. Our obligation to offer to
repurchase the notes upon a fundamental change would not
necessarily afford a holder of notes protection in the event of
a highly leveraged transaction, reorganization, merger or
similar transaction involving us.
We may be unable to repurchase the notes for cash if a
fundamental change occurs. If a fundamental change were to
occur, we may not have enough funds to pay the purchase price
for all tendered notes. Any future credit agreements or other
agreements relating to our indebtedness may contain provisions
prohibiting purchase of the notes under certain circumstances,
or expressly prohibit our purchase of the notes upon a
fundamental change or may provide that a fundamental change
constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from
purchasing notes, we could seek the consent of our lenders to
purchase the notes or attempt to refinance this debt. If we do
not obtain consent, we would not be permitted to purchase the
notes. Our failure to purchase tendered notes would constitute
an event of default under the indenture, which might constitute
a default under the terms of our other indebtedness.
Consolidation,
merger and sale of assets by us
The indenture provides that we may, without the consent of any
holder of notes, amalgamate with, consolidate with, combine with
or merge with or into any other person or sell, transfer or
lease all or substantially all of our properties and assets
substantially as an entirety to another person, provided that:
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the resulting, surviving or transferee person (the
successor company) will be a corporation,
partnership, limited liability company or trust organized and
existing under the laws of the United States of America, any
state thereof, the District of Columbia or the laws of Canada or
any province or territory thereunder and the successor company
(if not us) will expressly assume, by a supplemental indenture,
executed and delivered to the trustee, in form reasonably
satisfactory to the trustee, all of our obligations under the
notes and the indenture;
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immediately after giving effect to such transaction, no default
under the indenture, and no event which, after notice or lapse
of time or both, would become a default under the indenture,
shall have occurred and be continuing; and
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we or the successor company shall have delivered to the trustee
an officers certificate and an opinion of counsel, each
stating that (i) the amalgamation, consolidation, merger or
transfer and such supplemental indenture (if any) comply with
the provisions of the indenture and (ii) the transaction
will not result in the successor company being required to make
any deduction or withholding on account of certain Canadian
taxes from any payments in respect of the notes.
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The successor company will succeed to, and be substituted for,
and may exercise every right and power of, us under the
indenture, but in the case of a sale, transfer or lease of
substantially all our assets that results in the sale,
assignment, conveyance, transfer or other disposition or assets
constituting or accounting for less than 95% of our consolidated
assets, revenue or net income (loss), we will not be released
from the obligation to pay the principal of and interest on the
notes.
S-42
Additional
amounts
We will make payments on account of the notes without
withholding or deducting on account of any present or future
duty, levy, impost, assessment or other governmental charge
(including, without limitation, penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf
of the Government of Canada or of any province or territory
thereof or by any authority or agency therein or thereof having
the power to tax (Canadian taxes), unless we are
required by law or the interpretation or administration thereof,
to withhold or deduct Canadian taxes. If we are required to
withhold or deduct any amount on account of Canadian taxes, we
will make such withholding or deduction and pay as additional
interest the additional amounts (additional amounts)
necessary so that the net amount received by each holder of
notes after the withholding or deduction (including with respect
to additional amounts) will not be less than the amount the
holder would have received if the Canadian taxes had not been
withheld or deducted. We will make a similar payment of
additional amounts to holders of notes (other than excluded
holders) that are exempt from withholding but are required to
pay tax directly on amounts otherwise subject to withholding.
However, no additional amounts will be payable with respect to a
payment made to a holder or former holder of notes (an
excluded holder) in respect of the beneficial owner
thereof:
(i) with which we do not deal at arms length (within
the meaning of the Income Tax Act (Canada)) at the time of
making such payment;
(ii) that is subject to such Canadian taxes by reason of
its failure to comply with any certification, identification,
information, documentation or other reporting requirement if
compliance is required by law, regulation, administrative
practice or an applicable treaty as a precondition to exemption
from, or a reduction in the rate of deduction or withholding of,
such Canadian taxes (provided that in the case of any imposition
or change in any such certification, identification,
information, documentation or other reporting requirements which
applies generally to holders of notes who are not residents of
Canada, at least 60 days prior to the effective date of any such
imposition or change, we shall give written notice, in the
manner provided in the indenture, to the trustee and the holders
of the notes then outstanding of such imposition or change, as
the case may be, and provide the trustee and such holders with
such forms or documentation, if any, as may be required to
comply with such certification, identification, information,
documentation, or other reporting requirements); or
(iii) that is subject to such Canadian taxes by reason of
its carrying on business in or otherwise being connected with
Canada or any province or territory thereof otherwise than by
the mere holding of such notes or the receipt of payments, or
exercise of any enforcement rights thereunder;
and no additional amounts will be payable with respect to any
estate, inheritance, gift, sales, excise, transfer, personal
property or similar tax, assessment or governmental charge (the
excluded taxes).
We will remit the amount we withhold or deduct to the relevant
authority. Additional amounts will be paid in cash
semi-annually, at maturity, on any redemption date, on a
conversion date or on any repurchase date. With respect to
references in this prospectus supplement to the payment of
principal or interest on any note, such reference shall be
deemed to include the payment of additional amounts to the
extent that, in such context, additional amounts are, were or
would be payable.
S-43
We will furnish to the trustee, within 30 days after the
date the payment of any Canadian taxes is due pursuant to
applicable law, evidence that such payment has been made. We
will indemnify and hold harmless each holder of notes (other
than an excluded holder or with respect to excluded taxes) and
upon written request reimburse each such holder for the amount
of (i) any Canadian taxes so levied or imposed and paid by
such holder as a result of payments made under or with respect
to the notes, (ii) any liability (including penalties,
interest and expenses) arising therefrom or with respect
thereto, and (iii) any Canadian taxes levied or imposed and
paid by such holder with respect to any reimbursement under
(i) and (ii) above, but excluding any excluded taxes.
Ranking
The notes will be our senior unsecured obligations and will rank
equally in right of payment with any future unsecured and
unsubordinated senior debt and will be senior in right of
payment to all of our future subordinated debt. However, the
notes will be effectively subordinated to all of our future
secured debt, including any secured debt incurred for the
construction and development of our mining projects, to the
extent of the security on such indebtedness. In addition, the
creditors of our subsidiaries generally would have a right to
receive payment superior to our right to receive payment from
the assets of our subsidiaries, and accordingly, the holders of
notes are also effectively subordinated to the creditors of our
subsidiaries. If we were to liquidate or reorganize, a
holders right to participate in any distribution of a
subsidiarys assets is necessarily subject to the claims of
such subsidiarys creditors, including any debt incurred by
our subsidiaries for the construction and development of our
mining projects.
Limitation on
Liens
The limitation on liens contained in the base indenture and
described in the base prospectus does not apply to the notes.
Events of
default; notice and waiver
The following are events of default under the indenture:
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we fail to pay the principal amount of the notes when due upon
redemption, repurchase or otherwise on the notes;
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we fail to pay interest on the notes, when due and such failure
continues for a period of 30 days;
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we fail to perform or observe any other covenant, agreement or
condition in the indenture or the notes for 60 days after
written notice;
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we fail to convert notes into common shares, cash or a
combination of common shares and cash, at our election, upon
exercise of a holders conversion right and such failure
continues for five business days or more;
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any indebtedness (other than indebtedness which is non-recourse
to us or any of our subsidiaries) for money borrowed by us or
one of our subsidiaries (all or substantially all of the
outstanding voting securities of which are owned, directly or
indirectly, by us) in an outstanding principal amount in excess
of US$15 million (or the equivalent thereof in any other
currency or currency unit) is not paid at final maturity or upon
acceleration and such
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S-44
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failure is not cured or the acceleration is not rescinded or
annulled, within 10 days after written notice as provided
in the indenture;
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the rendering of a final judgment or judgments (not subject to
appeal and not covered by insurance) against us or any of our
subsidiaries in excess of US$15 million (or the equivalent
thereof in any other currency or currency unit) which remains
unstayed, undischarged or unbonded for a period of 60 days;
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our failure to give notice of a fundamental change as described
under Offer to purchase upon a fundamental change or
notice of a specified corporate transaction as described under
Conversion upon specified corporate transactions
when due;
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our failure to comply with our obligations under
Consolidation, merger and sale of assets by us; or
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certain events involving our bankruptcy, insolvency or
reorganization involving us or our subsidiaries.
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The trustee may withhold notice to the holders of the notes of
any default, except defaults in payment of principal or interest
on the notes. However, the trustee must consider it to be in the
interest of the holders of the notes to withhold this notice.
If an event of default occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of the
outstanding notes may declare the principal amount of the notes
and interest on the outstanding notes to be immediately due and
payable. In the case of certain events of bankruptcy, insolvency
or reorganization involving us or our subsidiaries, the
principal amount plus interest on the notes will automatically
become due and payable. However, if we cure all defaults, except
the nonpayment of the principal amount of the notes plus
interest that became due as a result of the acceleration, and
meet certain other conditions, with certain exceptions, this
declaration may be cancelled and the holders of a majority of
the principal amount of outstanding notes may waive these past
defaults.
Payments of redemption price, repurchase price, fundamental
change repurchase price, principal or interest that are not made
when due will accrue interest at the annual rate of 1% above the
then-applicable interest rate from the required payment date.
Subject to the trustees duties in the case of an event of
default, the trustee will not be obligated to exercise any of
its rights or powers at the request of the holders, unless the
holders have offered to the trustee indemnity reasonably
satisfactory to it. Subject to the indenture, applicable law and
the trustees indemnification, the holders of a majority in
aggregate principal amount of the outstanding notes will have
the right to direct the time, method and place of any
proceedings for any remedy available to the trustee.
No holder of the notes may pursue any remedy under the
indenture, except in the case of a default in the payment of
redemption price, repurchase price, fundamental change
repurchase price, principal or interest (in respect of any
default in payment under a Note on or after the due date) on the
notes, unless:
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the holder has given the trustee written notice of an event of
default;
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the holders of at least 25% in principal amount of outstanding
notes make a written request, and offer indemnity to the trustee
reasonably satisfactory to it to pursue the remedy;
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S-45
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the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the notes; and
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the trustee fails to comply with the request within 60 days
after receipt.
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Modification and
waiver
The consent of the holders of a majority in principal amount of
the outstanding notes is required to modify or amend the
indenture. However, a modification or amendment requires the
consent of the holder of each outstanding note affected thereby
if it would:
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extend the fixed maturity of any note;
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reduce the principal amount of, or interest rate on or extend
the stated time for payment of interest payable on, any note;
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reduce any amount payable upon redemption or repurchase of any
note;
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after the occurrence of a fundamental change, modify the
provisions with respect to the purchase right of the holders
upon a fundamental change in a manner adverse to holders;
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impair the right of a holder to institute suit for payment on
any note;
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change the currency in which any note is payable;
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impair the right of a holder to convert any note;
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reduce the quorum or voting requirements under the indenture;
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change any obligation of ours to maintain an office or agency in
the places and for the purposes specified in the indenture;
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change the ranking of the notes in a manner adverse to the
holders of the notes;
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subject to specified exceptions, modify certain of the
provisions of the indenture relating to modification or waiver
of provisions of the indenture; or
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reduce the percentage in principal amount of notes required for
consent to any modification of or waiver of terms of the
indenture.
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We are permitted to modify certain provisions of the indenture
without the consent of the holders of the notes.
Form,
denomination and registration
The notes are issued:
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in fully registered form; and
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in denominations of US$1,000 principal amount and integral
multiples of US$1,000.
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Global note,
book-entry form
The notes are evidenced by one or more global notes, deposited
and registered in the name of Cede & Co., as
DTCs nominee. Except as set forth below, a global note may
be transferred, in whole or in part, only to another nominee of
DTC or to a successor of DTC or its nominee.
S-46
Beneficial interests in a global note may be held through
organizations that are participants in DTC, or participants.
Transfers between participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearing
house funds. The laws of some states require that certain
persons take physical delivery of securities in definitive form.
As a result, the ability to transfer beneficial interests in the
global note to such persons may be limited.
Beneficial interests in a global note held by DTC may be held
only through participants, or certain banks, brokers, dealers,
trust companies and other parties that clear through or maintain
a custodial relationship with a participant, either directly or
indirectly, and when indirectly they are called indirect
participants. So long as Cede & Co., DTCs
nominee, is the registered owner of a global note,
Cede & Co. for all purposes will be considered the
sole holder of such global note. Except as provided below,
owners of beneficial interests in a global note will:
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not be entitled to have certificates registered in their names;
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not receive physical delivery of certificates in definitive
registered form; and
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not be considered holders of the global note.
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We will pay the principal and interest or the redemption price,
the repurchase price or the fundamental change repurchase price
of a global note to Cede & Co., as the registered
owner of the global note, by wire transfer of immediately
available funds on the applicable date. Neither we, the trustee
nor any paying agent will be responsible or liable:
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for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
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Neither we, the trustee, registrar, paying agent nor conversion
agent will have any responsibility for the performance by DTC or
its participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action
permitted to be taken by a holder of notes, including the
presentation of notes for conversion, only at the direction of
one or more participants to whose account with DTC interests in
the global note are credited, and only in respect of the
principal amount of the notes represented by the global note as
to which the participant or participants has or have given such
direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
S-47
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time.
We will issue notes in definitive certificate form only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary or DTC ceases to be a clearing agency registered
under the Exchange Act, and a successor depositary is not
appointed by us within 90 days;
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an event of default shall have occurred and the maturity of the
notes shall have been accelerated in accordance with the terms
of the notes and any holder shall have requested in writing the
issuance of definitive certificated notes; or
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we have determined in our sole discretion that notes shall no
longer be represented by global notes.
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Information
concerning the trustee
We have appointed The Bank of New York, the trustee under the
indenture, as paying agent, conversion agent, note registrar and
custodian for the notes. The trustee or its affiliates may
provide banking and other services to us in the ordinary course
of their business.
The indenture contains certain limitations on the rights of the
trustee, if it or any of its affiliates is then our creditor, to
obtain payment of claims in certain cases or to realize on
certain property received on any claim as security or otherwise.
The trustee and its affiliates will be permitted to engage in
other transactions with us. However, if the trustee or any
affiliate continues to have any conflicting interest and a
default occurs with respect to the notes, the trustee must
eliminate such conflict or resign.
S-48
Certain Canadian
and United States income tax considerations
The discussion below is intended to be a general description of
the Canadian and United States income tax considerations
generally applicable to an investment in the notes and the
common shares acquired upon a conversion of a note. It does not
take into account the individual circumstances of any particular
investor. Therefore, prospective investors are urged to consult
their own tax advisors with respect to the tax consequences of
an investment in the notes and the common shares acquired upon a
conversion of a note.
Canadian federal
income tax considerations
In the opinion of Blake, Cassels & Graydon LLP,
counsel to the Company and McCarthy Tétrault LLP, counsel
to the underwriter (collectively, counsel), the
following is a general summary of the principal Canadian federal
income tax considerations generally applicable under the Tax Act
to a holder who acquires notes as beneficial owner pursuant to
this prospectus supplement and who, at all relevant times, for
the purposes of the Tax Act, holds such notes and common shares
acquired pursuant to the terms of the notes (shares)
as capital property, deals at arms length with the Company
and is not affiliated with the Company (a Holder).
The notes and shares will generally be considered capital
property to a Holder unless either (i) the Holder holds the
notes or shares in the course of carrying on a business of
buying and selling securities or the Holder has acquired the
notes or shares in a transaction or transactions considered to
be an adventure in the nature of trade. This summary is not
applicable to a Holder that is a financial institution (as
defined in the Tax Act for purposes of the mark-to-market rules
in the Tax Act), a specified financial institution,
a Holder an interest in which is a tax shelter
investment or a Holder who has elected to have the
functional currency reporting rules apply to it, all
as defined in the Tax Act. Such Holders should consult their own
advisors.
This summary is based on the current provisions of the Tax Act,
the regulations thereunder (the Regulations), the
current provisions of the Canada-United States Income Tax
Convention (1980), (the Convention), counsels
understanding of the current administrative policies and
assessing practices of the Canada Revenue Agency (the
CRA) publicly available prior to the date hereof.
This summary also takes into account all specific proposals to
amend the Tax Act and Regulations publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date
hereof (collectively, the Proposed Tax Amendments).
No assurances can be given that the Proposed Tax Amendments will
be enacted or will be enacted as proposed. Other than the
Proposed Tax Amendments, this summary does not take into account
or anticipate any changes in law or the administration policies
or assessing practice of CRA, whether by judicial, legislative,
governmental or administrative decision or action, nor does it
take into account provincial, territorial or foreign income tax
legislation or considerations, which may differ significantly
from those discussed herein.
This summary is of a general nature only and is not intended
to be, nor should it be construed to be, legal or tax advice to
any particular holder and no representations with respect to the
income tax consequences to any particular holder are made. This
summary is not exhaustive of all Canadian federal income tax
considerations. Accordingly, prospective investors in notes
should consult their own tax advisors with respect to their own
particular circumstances.
S-49
Currency
conversion
For purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of the notes or shares
(other than the amounts related to the acquisition of shares on
a conversion of the principal amount of notes for only shares
pursuant to the Holders right of conversion), including
interest, dividends, adjusted cost base and proceeds of
disposition must be converted into Canadian dollars based on the
United States-Canadian dollar exchange rate applicable on the
effective date (as determined in accordance with the Tax Act) of
the related acquisition, disposition or recognition of income.
Residents of
Canada
The following portion of the summary is generally applicable to
a Holder who, at all relevant times, for the purposes of the Tax
Act, is or is deemed to be resident in Canada (a Resident
Holder). Certain such Resident Holders whose notes might
not otherwise qualify as capital property may be entitled to
obtain such qualification in certain circumstances by making the
irrevocable election permitted by subsection 39(4) of the Tax
Act to deem the notes and any other Canadian security (as
defined in the Tax Act) owned by such Resident Holder in the
taxation year in which the election is made, and in all
subsequent taxation years, to be capital property.
Taxation of
interest on the notes
A Resident Holder that is a corporation, partnership, unit trust
or trust of which a corporation or partnership is a beneficiary
will be required to include in computing its income for a
taxation year all interest on a note that accrues or is deemed
to accrue to the Resident Holder to the end of that taxation
year or becomes receivable or is received by the Resident Holder
before the end of that taxation year, except to the extent that
such amount was included in the Resident Holders income
for a preceding taxation year.
Any other Resident Holder, including an individual, will be
required to include in computing its income for a taxation year
any interest on a note that is received or receivable by such
Resident Holder in that year (depending upon the method
regularly followed by the Resident Holder in computing income),
to the extent that such amount was not otherwise included in the
Resident Holders income for a preceding taxation year.
A Resident Holder that is a Canadian-controlled private
corporation (as defined in the Tax Act) may be liable for a
refundable tax of
62/3%
on its aggregate investment income (as defined in the Tax Act).
For this purpose, aggregate investment income will generally
include interest income.
On an assignment or other transfer of a note, including a
conversion pursuant to the right of conversion, a redemption, a
payment on maturity, or a purchase for cancellation, a Resident
Holder will generally also be required to include in income the
amount of interest accrued on the note from the date of the last
interest payment to the date of disposition to the extent that
such amount has not otherwise been included in the Resident
Holders income for the taxation year or a preceding
taxation year. If the Company were to satisfy interest on the
notes by issuing shares as described under the heading
Description of notesConversion rights, the
Canadian federal income tax consequences to a Holder should not
differ from those described above.
S-50
In addition, any amount paid by the Company as a penalty or
bonus to a Resident Holder as a result of the early repayment of
all or part of the principal amount of the notes by the Company
will generally be deemed to be interest received by a Resident
Holder at the time of the redemption and will be required to be
included in computing the Resident Holders income as
described above to the extent that it can reasonably be
considered to relate to, and does not exceed the value at the
time of the redemption of, the interest that would have been
paid or payable by the Company on the note for a taxation year
ending after the redemption.
Disposition of
notes
In general, a disposition or deemed disposition of a note,
including a redemption, payment on maturity, purchase for
cancellation of notes or a conversion (but not including a
conversion of a note where the Resident Holder receives only
shares (plus any cash in lieu of a fraction of a share) pursuant
to the Resident Holders conversion right) will give rise
to a capital gain (or capital loss) to the extent that the
proceeds of disposition, net of any accrued interest and any
amounts included in the Resident Holders income on such
disposition or deemed disposition as interest, exceed (or are
less than) the adjusted cost base of the note or share to the
Resident Holder immediately before the disposition or deemed
disposition and any reasonable costs of disposition such capital
gain or (capital loss) will be subject to the tax treatment
described below under the heading, Taxation of capital
gains and capital losses.
If on a conversion the Company elects to pay the Resident Holder
in a combination of cash and shares or cash only, the Resident
Holders proceeds of disposition of the note will be equal
to the fair market value, at the time of disposition of the
note, of the shares and any other consideration so received,
which may result in a capital gain (or a capital loss) and will
be subject to tax treatment described below under the heading
Taxation of capital gains and capital losses. The
cost to the Resident Holder of the shares so acquired will be
equal to the fair market value thereof at the time of
acquisition and must be averaged with the adjusted cost base of
all other shares held as capital property for the purpose of
calculating the adjusted cost base of the shares to the Resident
Holder.
Exercise of
conversion right
The conversion of notes into only shares plus any cash in lieu
of a fraction of a share of the Company pursuant to a Resident
Holders right of conversion will generally be deemed not
to constitute a disposition of the notes pursuant to the Tax Act
and, accordingly, the Resident Holder will not realize a capital
gain or capital loss on such conversation. The Company does not
currently have a rights plan and the previous statement assumes
that there is no rights plan in existence at the time of
conversion. If a Resident Holder also receives rights under a
rights plan on a conversion the Canadian tax consequences to a
Resident Holder will be materially different than set out
herein. In this case, Resident Holders should consult their own
tax advisors.
A Resident Holders aggregate cost of the shares acquired
on conversion of the notes where the Resident Holder receives
only shares (plus cash in lieu of a fraction of a share) will be
equal to the adjusted cost base of the notes converted and the
amount of the accrued and unpaid interest on the note up to, but
not including the conversion date, which is included in such
Resident Holders income, subject to the discussion below
regarding cash in lieu of a fraction of a share. The adjusted
cost base of such shares will be averaged with the adjusted cost
base of all other shares held by a Resident Holder as capital
property.
S-51
Under the current administrative practice of the CRA, a Resident
Holder who, upon conversion of the notes where the Resident
Holder receives only shares (plus cash in lieu of a fraction of
a share), receives cash not in excess of $200 in lieu of a
fraction of a share may either treat this amount as proceeds of
disposition of a portion of the notes thereby realizing a
capital gain or capital loss, as discussed below under the
heading Taxation of capital gains and capital
losses, or alternatively may reduce the adjusted cost base
of the shares that the Resident Holder on the conversion by the
amount of cash received. If a Resident Holder receives greater
than $200 in lieu of a fraction of a share, the Resident Holder
must treat such amount as proceeds of disposition and report any
capital gain (or capital loss), as discussed below under the
heading Taxation of capital gains and capital losses.
Taxation of
dividends on shares
Dividends received or deemed to be received on the shares by an
individual (other than certain trusts) will be included in
computing the individuals income for tax purposes and will
be subject to the
gross-up and
dividend tax credit rules normally applicable to dividends
received from taxable Canadian corporations (as defined in the
Tax Act), including the enhanced
gross-up and
dividend tax credit for eligible dividends (as defined in the
Tax Act) paid by taxable Canadian corporations such
as the Company, where these dividends have been designated as
eligible dividends by the dividend-paying corporation in
accordance with the provisions of the Tax Act.
The Minister of Finance (Canada) announced as part of the 2008
federal budget (the Budget) proposals to decrease
the dividend
gross-up
factor and the dividend tax credit for eligible dividends as a
corollary to the reduction in the federal corporate tax rate
from 19% in 2008 to 15% in 2012. The Budget proposes to reduce
the eligible dividend
gross-up
from its current level of 45% to 44% for 2010, 41% for 2011 and
38% for 2012 and thereafter. The enhanced dividend tax credit
will also change on the same schedule from its current rate of
19% to 18% for 2010, 16.5% for 2011 and to 15% for 2012 and
thereafter. There can be no assurance that this proposal will be
enacted as proposed, or at all.
A Resident Holder that is a corporation will include dividends
received or deemed to be received on the shares in computing its
income for tax purposes and generally will be entitled to deduct
the amount of such dividends in computing its taxable income,
with the result that no tax will be payable by it in respect of
such dividends.
Certain corporations, including a private
corporation or a subject corporation (as such
terms are defined in the Tax Act), may be liable to pay a
refundable tax under Part IV of the Tax Act at the rate of
331/3%
of the dividends received or deemed to be received on the shares
to the extent that such dividends are deductible in computing
taxable income. This tax will be refunded to the corporation at
a rate of $1 for every $3 of taxable dividends paid while it is
a private corporation.
Taxable dividends received by an individual (including certain
trusts) may give rise to a liability for alternative minimum tax
as calculated under the detailed rules set out in the Tax Act.
Disposition of
shares
A disposition or deemed disposition of a share (other than to
the Company) will generally result in a Resident Holder
realizing a capital gain (or capital loss) to the extent that
the proceeds of disposition of the share exceed (or are less
than) the Resident Holders adjusted cost base of the
S-52
share and any reasonable costs of disposition. The general tax
treatment of capital gains and capital losses is discussed above
under the heading Taxation of capital gains and
losses.
In general, in the case of a Resident Holder that is a
corporation, the amount of any capital loss otherwise determined
arising from a disposition or deemed disposition of the shares
may be reduced by the amount of dividends previously received
thereon, or deemed received thereon, to the extent and under
circumstances prescribed in the Tax Act. Analogous rules apply
where a corporation is, directly or through a trust or
partnership, a member of a partnership or a beneficiary of a
trust which owns the shares.
Taxation of
capital gains and capital losses
Under the current provisions of the Tax Act, one half of the
amount of any capital gain (a taxable capital gain)
realized by a Resident Holder in a taxation year generally must
be included in the Resident Holders income in that year,
and, subject to and in accordance with the provisions of the Tax
Act, one half of the amount of any capital loss (an
allowable capital loss) realized by a Resident
Holder in a taxation year generally must be deducted from
taxable capital gains realized by the Resident Holder in that
year. Allowable capital losses in excess of taxable capitals
gains in any particular year may be carried back and deducted in
any of the three preceding taxation years or carried forward and
deducted in any subsequent taxation year against net taxable
capital gains realized in such years to the extent and under the
circumstances described in the Tax Act.
As discussed above, a Resident Holder that is a
Canadian-controlled private corporation (as defined in the Tax
Act) may be liable for an additional refundable tax of
62/3%
on its aggregate investment income (as defined in the Tax Act).
For this purpose, aggregate investment income will generally
include taxable capital gains.
Capital gains realized by an individual (including certain
trusts) may give rise to a liability for alternative minimum tax
as calculated under the detailed rules set out in the Tax Act.
Non-residents of
Canada
The following portion of the summary is generally applicable to
a Holder who, at all relevant times, for purposes of the Tax
Act, is not, and is not deemed to be, a resident of Canada and
has not and will not use or hold or be deemed to use or hold the
notes or shares in or in the course of carrying on business in
Canada (a Non-Resident). Special rules, which are
not discussed below, may apply to a non-resident of Canada that
is an insurer which carries on business in Canada and elsewhere.
The term US Holder, for the purposes of this
summary, means a Non-Resident who, for purposes of the
Convention, is at all relevant times a resident of the United
States and does not use or hold and is not deemed to use or hold
the notes or the shares in connection with carrying on a
business in Canada through a permanent establishment or fixed
base in Canada. It is the present published policy of the CRA
that most entities (including most limited liability companies)
that are treated as being fiscally transparent for United States
federal income tax purposes will not qualify as residents of the
United States under the provisions of the Convention and are
therefore not entitled to any benefits under the Convention.
Under the Fifth Protocol to the Convention, Canada and the
United States have agreed that the Convention will be extended
to apply, in some circumstances, in respect of fiscally
transparent entities (including limited liability companies).
However, the Fifth Protocol to the Convention has not yet been
S-53
ratified and is not currently in force. US Holders are urged to
consult with their own tax advisors to determine their
entitlement to benefits under the Convention based on their
particular circumstances.
Interest on the
notes
A Non-Resident will not be subject to Canadian withholding tax
in respect of amounts paid or credited by the Company as, on
account or in lieu of payment of, or in satisfaction of, the
principal of the notes or interest thereon.
Exercise of
conversion right
The conversion of notes into only shares (plus cash in lieu of a
fraction of a share) pursuant to a Non-Residents right of
conversion will generally be deemed not to constitute a
disposition of the notes pursuant to the Tax Act and,
accordingly, the Non-Resident will not realize a capital gain or
capital loss on such conversion. The Company does not currently
have a rights plan and the previous statement assumes that there
is no rights plan in existence at the time of conversion. If a
Non-Resident also receives rights under a rights plan on a
conversion the Canadian tax consequences to a Non-Resident will
be materially different than set out herein. In this case,
Non-Residents should consult their own tax advisors.
A Non-Residents cost base of the shares acquired on
conversion of the notes will be equal to the adjusted cost base
of the notes converted, subject to the discussion below
regarding cash in lieu of a fraction of a share. The adjusted
cost base of such shares will be averaged with the adjusted cost
base of all other shares held by a Non-Resident as capital
property. Under the current administrative practice of the CRA,
a Non-Resident who, upon conversion of the notes, receives cash
not in excess of $200 in lieu of a fraction of a share may
either treat this amount as proceeds of disposition of a portion
of the notes thereby realizing a capital gain or capital loss,
as discussed below under the heading Disposition of
shares, or alternatively may reduce the adjusted cost base
of the shares that the Non-Resident on the conversion by the
amount of cash received. If a Non-Resident receives greater than
$200 in lieu of a fraction of a share, the Non-Resident must
treat such amount as proceeds of disposition and report any
capital gain (or capital loss), as discussed below under the
heading Disposition of shares and notes.
Disposition of
shares and notes
A Non-Resident will not be subject to tax under the Tax Act in
respect of any capital gain realized by such Non-Resident on a
disposition of the notes (including upon conversion except as
set out above) or the shares acquired under the terms of the
notes, as the case may be, unless the notes or the shares
constitute taxable Canadian property (as defined in
the Tax Act) of the Non-Resident at the time of disposition and
the Non-Resident is not entitled to relief under an applicable
income tax treaty or convention. As long as the shares are then
listed on a designated stock exchange (which currently includes
the TSX and the AMEX), the notes and the shares generally will
not constitute taxable Canadian property of a Non-Resident,
unless at any time during the
60-month
period immediately preceding the disposition the Non-Resident,
persons with whom the Non-Resident did not deal at arms
length, or the Non-Resident together with all such persons,
owned or was considered to own 25% or more of the issued shares
of any class or series of shares of the capital stock of the
company. In this case, both the notes and the shares will
constitute taxable Canadian property to the Non-Resident.
S-54
If the shares are taxable Canadian property to a Non-Resident,
any capital gain realized on the disposition or deemed
disposition of such shares, may not be subject to Canadian
federal income tax pursuant to the terms of an applicable income
tax treaty or convention between Canada and the country of
residence of a Non-Resident. A Non-Resident whose shares are
taxable Canadian property should consult their own advisors.
Taxation of
dividends on shares
Under the Tax Act, dividends on shares paid or credited to a
Non-Resident will be subject to Canadian withholding tax at the
rate of 25% of the gross amount of the dividends. This
withholding tax may be reduced pursuant to the terms of an
applicable income tax treaty or convention between Canada and
the country of residence of a Non-Resident. Under the
Convention, a Non-Resident that is a US Holder will generally be
subject to Canadian withholding tax at a rate of 15% of the
amount of such dividends. In addition, under the Convention,
dividends may be exempt from Canadian non-resident withholding
tax if paid to certain US Holders that are qualifying religious,
scientific, literary, educational or charitable tax-exempt
organizations and qualifying trusts, companies, organizations or
arrangements operated exclusively to administer or provide
pension, retirement or employee benefits that are exempt from
tax in the United States and that have complied with specific
administrative procedures.
United States
federal income tax considerations
The following is a summary of the anticipated material
U.S. federal income tax consequences to a U.S. Holder
(as defined below) arising from and relating to the acquisition,
ownership, and disposition of a note acquired under this
offering, and from the ownership and disposition of common
shares acquired upon a conversion of such a note.
This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all
potential U.S. federal income tax consequences that may
apply to a U.S. Holder as a result of the acquisition,
ownership, and disposition of notes or common shares acquired
upon conversion of notes. This summary only applies to
U.S. Holders that hold the notes and any common
shares acquired upon a conversion of the notes as capital
assets (generally, property held for investment) within
the meaning of Section 1221 of the United States Internal
Revenue Code of 1986, as amended (the Code). In
addition, this summary does not take into account the individual
facts and circumstances of any particular U.S. Holder that
may affect the U.S. federal income tax consequences of the
acquisition, ownership, and disposition of notes or common
shares. Accordingly, this summary is not intended to be, and
should not be construed as, legal or U.S. federal income
tax advice with respect to any U.S. Holder. Each
U.S. Holder should consult its own financial advisor, legal
counsel, or accountant regarding the U.S. federal income,
U.S. state and local, and foreign tax consequences of the
acquisition, ownership, and disposition of notes or common
shares acquired upon conversion of notes.
Scope of this
summary
Authorities
This summary is based on the Code, Treasury Regulations (whether
final, temporary, or proposed), published rulings of the
Internal Revenue Service (the IRS), published
administrative positions of the IRS, the Convention Between
Canada and the United States of America with
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Respect to Taxes on Income and on Capital, signed
September 26, 1980, as amended (the
Canada-U.S. Tax Convention), and
U.S. court decisions that are applicable and, in each case,
as in effect and available, as of the date of this prospectus
supplement. Any of the authorities on which this summary is
based could be changed in a material and adverse manner at any
time, and any such change could be applied on a retroactive
basis. This summary does not discuss the potential effects,
whether adverse or beneficial, of any proposed legislation that,
if enacted, could be applied on a retroactive basis.
U.S.
holders
For purposes of this summary, a U.S. Holder is
a beneficial owner of notes
and/or
common shares acquired upon conversion of notes that, for
U.S. federal income tax purposes, is (a) an individual
who is a citizen or resident of the U.S., (b) a
corporation, or any other entity classified as a corporation for
U.S. federal income tax purposes, that is created or
organized in or under the laws of the U.S. or any state in
the U.S., including the District of Columbia, (c) an estate
if the income of such estate is subject to U.S. federal
income tax regardless of the source of such income, or
(d) a trust if (i) such trust has validly elected to
be treated as a U.S. person for U.S. federal income
tax purposes or (ii) a U.S. court is able to exercise
primary supervision over the administration of such trust and
one or more U.S. persons have the authority to control all
substantial decisions of such trust.
Non-U.S.
holders
For purposes of this summary, a
non-U.S. Holder
is a beneficial owner of notes
and/or
common shares acquired upon conversion of notes other than a
U.S. Holder. This summary does not address the
U.S. federal income tax consequences of the acquisition,
ownership, and disposition of notes
and/or
common shares acquired upon conversion of notes to
non-U.S. Holders.
Accordingly, a
non-U.S. Holder
should consult its own financial advisor, legal counsel, or
accountant regarding the U.S. federal income,
U.S. state and local, and foreign tax consequences
(including the potential application of and operation of any
income tax treaties) of the acquisition, ownership, and
disposition of notes
and/or
common shares acquired upon conversion of notes.
U.S. Holders
subject to special U.S. federal income tax rules not
addressed
This summary does not address the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of
notes and/or
common shares acquired upon conversion of notes to
U.S. Holders that are subject to special provisions under
the Code, including the following U.S. Holders:
(a) U.S. Holders that are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or
other tax-deferred accounts; (b) U.S. Holders that are
financial institutions, insurance companies, real estate
investment trusts, or regulated investment companies;
(c) U.S. Holders that are dealers in securities or
currencies or U.S. Holders that are traders in securities
that elect to apply a mark-to-market accounting method;
(d) U.S. Holders that have a functional
currency other than the U.S. dollar;
(e) U.S. Holders that are liable for the alternative
minimum tax under the Code; (f) U.S. Holders that own
notes or common shares as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other
arrangement involving more than one position;
(g) U.S. Holders that acquired common shares in
connection with the exercise of employee stock options or
otherwise as compensation for services;
(h) U.S. Holders that hold notes and/or common shares
other than as a capital asset
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within the meaning of Section 1221 of the Code;
(i) U.S. expatriates or former long-term residents of
the United States; and (j) U.S. Holders that own
(directly, indirectly or by attribution) 10% or more, by voting
power or value, of the outstanding shares of the Company.
U.S. Holders that are subject to special provisions under
the Code, including U.S. Holders described immediately
above, should consult their own financial advisor, legal counsel
or accountant regarding the U.S. federal income,
U.S. state and local, and foreign tax consequences of the
acquisition, ownership, and disposition of notes
and/or
common shares. If an entity that is classified as a partnership
(or pass-through entity) for U.S. federal
income tax purposes holds notes or common shares, the
U.S. federal income tax consequences to such partnership
(or pass-through entity) and the partners of such
partnership (or owners of such pass-through entity)
generally will depend on the activities of the partnership (or
pass-through entity) and the status of such partners
(or owners). Partners of entities that are classified as
partnerships (or owners of pass-through entities)
for U.S. federal income tax purposes should consult their
own financial advisor, legal counsel or accountant regarding the
U.S. federal income tax consequences of the acquisition,
ownership, and disposition of notes
and/or
common shares.
Tax consequences
other than U.S. federal income tax consequences not
addressed
This summary does not address the U.S. state and local,
U.S. federal estate and gift, or foreign tax consequences
to U.S. Holders of the acquisition, ownership, and
disposition of notes
and/or
common shares. Each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the
U.S. state and local, U.S. federal estate and gift,
and foreign tax consequences of the acquisition, ownership, and
disposition of notes
and/or
common shares.
The
notes
Taxation of
stated interest
For U.S. federal income tax purposes, interest (including
additional amounts, if any) on a note generally will be taxable
to a U.S. Holder as ordinary income at the time such
interest is received or accrued, in accordance with such
holders method of accounting for U.S. federal income
tax purposes. Subject to applicable limitations under the Code
and the United States Treasury Regulations and subject to the
discussion below, any Canadian withholding tax imposed on
interest payments in respect of the notes will be treated as a
foreign income tax eligible for credit against a
U.S. Holders U.S. federal income tax liability
(or, at a U.S. Holders election, may, in certain
circumstances, be deducted in computing taxable income).
Interest paid on the notes will be treated as income from
outside the U.S., and generally will be treated as passive
category income for U.S. foreign tax credit purposes.
The Code applies various limitations on the amount of foreign
taxes that may be claimed as a credit by U.S. taxpayers.
Because of the complexity of those limitations,
U.S. Holders should consult their own tax advisors with
respect to the amount of foreign taxes that can be claimed as a
credit.
Market discount
and amortizable bond premium
A U.S. Holder that purchased a note at a price less than
its principal amount would be treated for U.S. federal
income tax purposes as having purchased the note with market
discount, subject to a de minimis exception. In the case of a
note having non-de minimis market discount, a U.S. Holder
will be required to treat any partial principal payment received
on, and any gain recognized upon the sale or other disposition
of, the note as ordinary income to the extent of the market
discount that accrued during such U.S. Holders
holding period for the note (on a
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ratable basis or, at the election of the U.S. Holder,
constant yield basis), unless such U.S. Holder elects to
annually include market discount in gross income over time as
the market discount accrues. Any election to include market
discount over time as it accrues would apply to all market
discount debt obligations held by the U.S. Holder at the
beginning of the first taxable year and to market discount
obligations thereafter acquired by the U.S. Holder and is
irrevocable without the consent of the IRS. In addition, a
U.S. Holder that holds a note with market discount, and
that does not elect to accrue market discount into gross income
over time, may be required to defer the deduction of interest
expense incurred or continued to purchase or carry the note
until the maturity of the note or its earlier disposition in a
taxable transaction.
If a U.S. Holder converts a note with accrued market
discount that has not previously been included in gross income
into common shares, then a ratable portion of such market
discount will be allocated to such common shares. The amount of
market discount allocable to such common shares may be taxable
as ordinary income upon a sale or other disposition of such
common shares. See The common sharesDisposition of
common shares.
A U.S. Holder that purchased a note for an amount in excess
of its stated principal amount (subject to special rules for
early redemption dates as described below) would be treated as
having acquired the note with amortizable bond
premium in the amount of such excess. In such case, the
U.S. Holder may elect to amortize the bond premium over the
term of the note as a reduction in the amount required to be
included in the U.S. Holders gross income each year
with respect to interest on the note (provided that the amount
of amortizable bond premium will be calculated based on the
amount payable at the applicable redemption date if the use of
such redemption date in lieu of the stated maturity date results
in a smaller amortizable premium for the period ending on the
redemption date). Any election to amortize bond premium will
apply to all notes held by the U.S. Holder at the beginning
of the first taxable year to which the election applies as well
as those thereafter acquired by the U.S. Holder and is
irrevocable without the consent of the IRS.
The rules governing market discount and amortizable bond premium
are complex, and U.S. Holders should consult their own tax
advisors concerning the application of these rules.
Sale, redemption
or other taxable disposition of the notes
Except as discussed below under Conversion of the
notes and Additional rules that may apply to
U.S. HoldersPassive foreign investment company,
upon the sale, redemption or other taxable disposition of a note
(including repurchase), a U.S. Holder will recognize gain
or loss, if any, equal to the difference between the amount
realized on such sale, redemption or other taxable disposition
(other than amounts received that are attributable to accrued
but unpaid interest, which amounts shall be taxable as ordinary
income to the extent not previously included in the gross income
of the U.S. Holder) and such U.S. Holders
adjusted tax basis in the note. A U.S. Holders
adjusted tax basis in a note generally will equal the cost of
the note to the U.S. Holder, increased by any market
discount previously included in gross income by such holder, and
reduced by (i) any principal payments received by such
holder and (ii) any amortizable bond premium applied to
reduce interest inclusions with respect to such note. Any such
gain or loss generally will constitute capital gain or loss
(except that any gain will be treated as ordinary income to the
extent of any market discount that has accrued on the note but
not previously been included in the gross income of the
U.S. Holder), and will be long-term capital gain or loss if
the note was held by such U.S. Holder for more than one
year. Certain non-corporate U.S. Holders (including
individuals) may qualify for preferential rates of United States
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federal income taxation in respect of long-term capital gains.
The deduction of capital losses is subject to limitations under
the Code. Any gain realized by a U.S. Holder on a sale or
other disposition of a note generally will be treated as United
States-source income for purposes of calculating the foreign tax
credit.
Conversion of the
notes
A U.S. Holder generally will not recognize any income, gain
or loss upon conversion of a note into common shares, except
with respect to (i) cash received in lieu of a fractional
common share, or (ii) common shares that are attributable
to accrued but unpaid interest not previously included in gross
income. To the extent the Company pays cash to a
U.S. Holder upon a conversion of the notes instead of
delivering common shares, such U.S. Holder should recognize
gain or loss, if any, as if he or she redeemed the portion of
notes attributable to the receipt of cash in the same manner as
described above under Sale, redemption or other taxable
disposition of the notes. Cash received in lieu of a
fractional common share upon conversion will be treated as a
payment in exchange for such fractional share. Accordingly, the
receipt of cash in lieu of a fractional common share generally
will result in capital gain or loss measured by the difference
between the cash received for the fractional share and the U.S.
Holders adjusted tax basis in the notes that is allocated
to the fractional share (except that any gain will be treated as
ordinary income to the extent of any market discount that has
accrued on the notes but not previously been included in the
gross income of the U.S. Holder) and will be long-term capital
gain or loss if the U.S. Holder held the notes for more than one
year at the time of conversion. Amounts that are attributable to
accrued but unpaid interest generally will be taxable to the
U.S. Holder as interest to the extent not previously included in
gross income.
A U.S. Holders initial tax basis in the common shares
received on conversion of a note will be the same as the U.S.
Holders adjusted tax basis in the notes at the time of
conversion, reduced by any tax basis allocable to a fractional
share treated as exchanged for cash. However, the tax basis of
common shares received upon a conversion with respect to accrued
but unpaid interest should equal the fair market value of such
common shares. The holding period for the common shares received
on conversion generally will include the holding period of the
notes converted. To the extent any common shares issued upon a
conversion are allocated to accrued interest, however, the U.S.
Holders holding period for such common shares may commence
on the day following the date of delivery of the common shares.
Constructive
dividends
The conversion rate of the notes is subject to adjustment under
certain circumstances. Under Section 305 of the Code,
adjustments to the conversion rate that increase a
U.S. Holders proportionate interest in our assets or
our earnings and profits may in certain circumstances result in
a constructive dividend that is taxable to such U.S. Holder
to the extent of our current and accumulated earnings and
profits, as determined under U.S. federal income tax principles.
Generally, an increase in the conversion rate pursuant to a
bona-fide, reasonable formula which has the effect of preventing
the dilution of the interest of U.S. Holders in the notes
will not be considered to result in a constructive dividend.
However, certain adjustments in the notes (including, without
limitation, adjustments to the conversion rate of the notes in
connection with cash dividends to our stockholders) will not
qualify as being pursuant to a bona-fide, reasonable formula. If
such adjustments are made, a U.S. Holder will, to the
extent of our current and accumulated earnings and profits, be
deemed to have received a constructive
S-59
dividend even though such U.S. Holder has not received any
cash or property as a result of the adjustment. In addition, a
failure to adjust the conversion price of the notes to reflect a
stock dividend or similar event could in some circumstances give
rise to a constructive dividend to U.S. Holders of common
shares.
The common
shares
Distributions on
common shares
General taxation of distributionsExcept as
discussed below under Additional rules that may apply to
U.S. HoldersPassive foreign investment company,
a U.S. Holder that receives a distribution, including a
constructive distribution, with respect to common shares will be
required to include the amount of such distribution in gross
income as a dividend (without reduction for any Canadian income
tax withheld from such distribution) to the extent of the
current or accumulated earnings and profits of the
Company. To the extent that a distribution exceeds the current
and accumulated earnings and profits of the Company,
such distribution will be treated (a) first, as a tax-free
return of capital to the extent of a U.S. Holders
adjusted tax basis in common shares and, (b) thereafter, as
gain from the sale or exchange of such common shares. (See more
detailed discussion at Disposition of common shares
below). Dividends paid on the common shares generally will not
be eligible for the dividends received deduction
available to domestic corporations.
Reduced tax rates for certain dividendsFor taxable
years beginning before January 1, 2011, a dividend paid by
the Company generally will be taxed at the preferential tax
rates applicable to long-term capital gains if (a) the
Company is a qualified foreign corporation (as
defined below), (b) the U.S. Holder receiving such
dividend is an individual, estate, or trust, and (c) such
dividend is paid on common shares that have been held by such
U.S. Holder for at least 61 days during the
121-day
period beginning 60 days before the ex-dividend
date.
The Company generally will be a qualified foreign
corporation under Section 1(h)(11) of the Code (a
QFC) if (a) the Company is incorporated in a
possession of the U.S., (b) the Company is eligible for the
benefits of the Canada-U.S. Tax Convention, or (c) the
common shares are readily tradable on an established securities
market in the U.S. However, even if the Company satisfies
one or more of such requirements, the Company will not be
treated as a QFC if the Company is a passive foreign
investment company (PFIC) (as defined below)
for the taxable year during which the Company pays a dividend or
for the preceding taxable year.
As discussed below, the Company believes that it was a PFIC for
the taxable year ended November 30, 2007, but the Company
believes it will not be a PFIC for the taxable year ending
November 30, 2008 if commercial production commences at
Rock Creek and Big Hurrah in
mid-2008, as
currently anticipated, and sufficient revenues are generated to
cause the Company to cease to be a PFIC. Accordingly, the
Company does not expect to be a QFC for the current taxable year
but may be a QFC for one or more subsequent taxable years.
If the Company is not a QFC, a dividend paid by the Company to a
U.S. Holder, including a U.S. Holder that is an
individual, estate, or trust, generally will be taxed at
ordinary income tax rates (and not at the preferential tax rates
applicable to long-term capital gains). The dividend rules are
complex, and each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the
dividend rules.
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Distributions paid in foreign currencyThe amount of
a distribution paid to a U.S. Holder in foreign currency
generally will be equal to the U.S. dollar value of such
distribution based on the exchange rate applicable on the date
of receipt. A U.S. Holder that does not convert foreign
currency received as a distribution into U.S. dollars on
the date of receipt generally will have a tax basis in such
foreign currency equal to the U.S. dollar value of such
foreign currency on the date of receipt. Such a U.S. Holder
generally will recognize ordinary income or loss on the
subsequent sale or other taxable disposition of such foreign
currency (including an exchange for U.S. dollars).
Disposition of
common shares
Except as discussed below under Additional rules that may
apply to U.S. HoldersPassive foreign investment
company, a U.S. Holder will recognize gain or loss on
the sale or other taxable disposition of common shares in an
amount equal to the difference, if any, between (a) the
amount of cash plus the fair market value of any property
received and (b) such U.S. Holders tax basis in
the common shares sold or otherwise disposed of. Any such gain
or loss generally will be capital gain or loss, which will be
long-term capital gain or loss if the common shares are held for
more than one year. Gain or loss recognized by a
U.S. Holder on the sale or other taxable disposition of
common shares generally will be treated as
U.S. source for purposes of applying the
U.S. foreign tax credit rules. (See more detailed
discussion at Foreign tax credit below).
Preferential tax rates apply to long-term capital gains of a
U.S. Holder that is an individual, estate, or trust. There
are currently no preferential tax rates for long-term capital
gains of a U.S. Holder that is a corporation. Deductions
for capital losses are subject to significant limitations under
the Code.
Foreign tax
credit
A U.S. Holder that pays (whether directly or through
withholding) Canadian income tax with respect to dividends paid
on the common shares generally will be entitled, at the election
of such U.S. Holder, to receive either a deduction or a
credit for such Canadian income tax paid. Generally, a credit
will reduce a U.S. Holders U.S. federal income
tax liability on a
dollar-for-dollar
basis, whereas a deduction will reduce a U.S. Holders
income subject to U.S. federal income tax. This election is
made on a
year-by-year
basis and applies to all foreign taxes paid (whether directly or
through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including
the limitation that the credit cannot exceed the proportionate
share of a U.S. Holders U.S. federal income tax
liability that such U.S. Holders foreign
source taxable income bears to such
U.S. Holders worldwide taxable income. In applying
this limitation, a U.S. Holders various items of
income and deduction must be classified, under complex rules, as
either foreign source or
U.S. source. In addition, this limitation is
calculated separately with respect to specific categories of
income. Dividends paid by the Company generally will constitute
foreign source income and generally will be
categorized as passive income. The foreign tax
credit rules are complex, and each U.S. Holder should
consult its own financial advisor, legal counsel, or accountant
regarding the foreign tax credit rules.
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Additional rules
that may apply to U.S. holders
If the Company is a passive foreign investment
company (as defined below), the preceding sections of this
summary may not describe the U.S. federal income tax
consequences to U.S. Holders of the acquisition, ownership,
and disposition of notes or common shares.
Passive foreign
investment company
The Company generally will be a passive foreign investment
company within the meaning of Section 1297 of the
Code (a PFIC) if, for a taxable year, (a) 75%
or more of the gross income of the Company for such taxable year
is passive income or (b) on average, 50% or more of the
assets held by the Company either produce passive income or are
held for the production of passive income, based on the fair
market value of such assets (or on the adjusted tax bases of
such assets, if the Company is not publicly traded and either is
a controlled foreign corporation or makes an
election). Passive income includes, for example,
dividends, interest, certain rents and royalties, certain gains
from the sale of stock and securities, and certain gains from
commodities transactions. However, gains arising from the sale
of commodities generally are excluded from passive income if
substantially all of a foreign corporations commodities
are (a) stock in trade of such foreign corporation or other
property of a kind which would properly be included in inventory
of such foreign corporation, or property held by such foreign
corporation primarily for sale to customers in the ordinary
course of business, (b) property used in the trade or
business of such foreign corporation that would be subject to
the allowance for depreciation under Section 167 of the
Code, or (c) supplies of a type regularly used or consumed
by such foreign corporation in the ordinary course of its trade
or business. In addition, if the Company is classified as a PFIC
for any taxable year in which a U.S. Holder has held notes
or common shares, the Company may continue to be classified as a
PFIC for any subsequent taxable year in which such
U.S. Holder continues to hold notes or common shares even
if the Companys income and costs are no longer passive in
nature in such subsequent taxable year.
For purposes of the PFIC income test and asset test described
above, if the Company owns, directly or indirectly, 25% or more
of the total value of the outstanding shares of another foreign
corporation, the Company will be treated as if it (a) holds
a proportionate share of the assets of such other foreign
corporation and (b) receives directly a proportionate share
of the income of such other foreign corporation. In addition,
for purposes of the PFIC income test and asset test described
above, passive income does not include any interest,
dividends, rents, or royalties that are received or accrued by
the Company from a related person (as defined in
Section 954(d)(3) of the Code), to the extent such items
are properly allocable to the income of such related person that
is not passive income.
Based on currently available information, the Company believes
that it was a PFIC for the taxable year ended November 30,
2007, but the Company expects that it will not be a PFIC for the
taxable year ending November 30, 2008 if commercial
production commences at Rock Creek and Big Hurrah in mid-2008,
as currently anticipated, and sufficient revenues are generated
to cause the Company to cease to be a PFIC. The determination of
whether the Company (or any Subsidiary PFIC) will be a PFIC for
a taxable year depends, in part, on the application of complex
U.S. federal income tax rules, which are subject to
differing interpretations. In addition, whether the Company will
be a PFIC for the taxable year ending November 30, 2008 and
subsequent taxable years depends on the assets and income of the
Company over the course of each such taxable year and, as a
result, cannot be predicted with certainty as of the date of
this prospectus supplement. Accordingly, there can be no
assurance that the IRS will not challenge the
S-62
determination made by the Company concerning its PFIC status or
that the Company will not be a PFIC for any taxable year.
Default PFIC
rules under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax
consequences to a U.S. Holder of the acquisition,
ownership, and disposition of a note or common shares will
depend on whether such U.S. Holder makes an election to
treat the Company as a qualified electing fund or
QEF under Section 1295 of the Code (a QEF
Election) or a
mark-to-market
election under Section 1296 of the Code (a
Mark-to-Market
Election). A U.S. Holder that does not make either a
timely and effective QEF Election or a
Mark-to-Market
Election will be referred to in this summary as a
Non-Electing U.S. Holder.
A Non-Electing U.S. Holder will be subject to the rules of
Section 1291 of the Code with respect to (a) any gain
recognized on the sale or other taxable disposition of notes or
common shares and (b) any excess distribution paid on the
common shares. A distribution generally will be an excess
distribution to the extent that such distribution
(together with all other distributions received in the current
taxable year) exceeds 125% of the average distributions received
during the three preceding taxable years (or during a
U.S. Holders holding period for the common shares, if
shorter).
Under Section 1291 of the Code, any gain recognized on the
sale or other taxable disposition of a note or common shares,
and any excess distribution paid on the common shares, must be
ratably allocated to each day in a Non-Electing
U.S. Holders holding period for a note or common
shares. The amount of any such gain or excess distribution
allocated to prior taxable years of such Non-Electing
U.S. Holders holding period for a note or common
shares (other than years prior to the first taxable year of the
Company beginning after December 31, 1986 for which the
Company was not a PFIC) will be subject to U.S. federal
income tax at the highest tax applicable to ordinary income in
each such prior taxable year. A Non-Electing
U.S. Holder will be required to pay interest on the
resulting tax liability for each such prior taxable year,
calculated as if such tax liability had been due in each such
prior taxable year. Such a Non-Electing U.S. Holder that is
not a corporation must treat any such interest paid as
personal interest, which is not deductible. The
amount of any such gain or excess distribution allocated to the
current year of such Non-Electing U.S. Holders
holding period for the notes or common shares will be treated as
ordinary income in the current year, and no interest charge will
be incurred with respect to the resulting tax liability for the
current year.
In addition, if the Company is a PFIC and own shares of another
foreign corporation that also is a PFIC, under certain indirect
ownership rules, a disposition by the Company of the shares of
such other foreign corporation or a distribution received by the
Company from such other foreign corporation generally will be
treated as an indirect disposition by a U.S. Holder or an
indirect distribution received by a U.S. Holder, subject to
the rules of Section 1291 of the Code discussed above. To
the extent that gain recognized on the actual disposition by a
U.S. Holder of notes or common shares or income recognized
by a U.S. Holder on an actual distribution received on
common shares was previously subject to U.S. federal income
tax under these indirect ownership rules, such amount generally
will not be subject to U.S. federal income tax.
If the Company is a PFIC for any taxable year during which a
Non-Electing U.S. Holder holds notes or common shares, the
Company will continue to be treated as a PFIC with respect to
such Non-Electing U.S. Holder, regardless of whether the
Company ceases to be a PFIC in one or more
S-63
subsequent years. A Non-Electing U.S. Holder may terminate
this deemed PFIC status by electing to recognize gain (which
will be taxed under the rules of Section 1291 of the Code
discussed above) as if such notes or common shares were sold on
the last day of the last taxable year for which the Company was
a PFIC.
QEF
Election
General
rules
A U.S. Holder that makes a timely and effective QEF
Election generally will not be subject to the rules of
Section 1291 of the Code discussed above. However, a
U.S. Holder that makes a QEF Election will be subject to
U.S. federal income tax on such U.S. Holders pro
rata share of (a) the net capital gain of the Company,
which will be taxed as long-term capital gain to such
U.S. Holder, and (b) the ordinary earnings of the
Company, which will be taxed as ordinary income to such
U.S. Holder. Generally, net capital gain is the
excess of (a) net long-term capital gain over (b) net
short-term capital loss, and ordinary earnings are
the excess of (a) earnings and profits over
(b) net capital gain. A U.S. Holder that makes a QEF
Election will be subject to U.S. federal income tax on such
amounts for each taxable year in which the Company is a PFIC,
regardless of whether such amounts are actually distributed to
such U.S. Holder by the Company. However, a
U.S. Holder that makes a QEF Election may, subject to
certain limitations, elect to defer payment of current
U.S. federal income tax on such amounts, subject to an
interest charge. If such U.S. Holder is not a corporation,
any such interest paid will be treated as personal
interest, which is not deductible.
A U.S. Holder that makes a QEF Election generally
(a) may receive a tax-free distribution from the Company to
the extent that such distribution represents earnings and
profits of the Company that were previously included in
income by the U.S. Holder because of such QEF Election and
(b) will adjust such U.S. Holders tax basis in
the common shares to reflect the amount included in income or
allowed as a tax-free distribution because of such QEF Election
In addition, a U.S. Holder that makes a QEF Election
generally will recognize capital gain or loss on the sale or
other taxable disposition of common shares.
The procedure for making a QEF Election, and the
U.S. federal income tax consequences of making a QEF
Election, will depend on whether such QEF Election is timely
made. A QEF Election will be treated as timely if
such QEF Election is made for the first taxable year in the
U.S. Holders holding period for the common shares in
which the Company was a PFIC. A U.S. Holder may make a
timely QEF Election by filing the appropriate QEF Election
documents at the time such U.S. Holder files a
U.S. federal income tax return for such first year.
However, if the Company was a PFIC in a prior taxable year, then
in addition to filing the QEF Election documents, a
U.S. Holder must elect to recognize (a) gain (which
will be taxed under the rules of Section 1291 of the Code
discussed above) as if the common shares were sold on the
qualification date or (b) if the Company was also a
controlled foreign corporation, such U.S. Holders pro
rata share of the post-1986 earnings and profits of
the Company as of the qualification date. The
qualification date is the first day of the first
taxable year in which the Company was a QEF with respect to such
U.S. Holder. The election to recognize such gain or
earnings and profits can only be made if such
U.S. Holders holding period for the common shares
includes the qualification date. By electing to recognize such
gain or earnings and profits, such U.S. Holder
will be deemed to have made a timely QEF Election. In addition,
under very limited circumstances, a U.S. Holder may make a
retroactive QEF Election if such U.S. Holder failed to file
the QEF Election documents in a timely manner.
S-64
A QEF Election will apply to the taxable year for which such QEF
Election is made and to all subsequent taxable years, unless
such QEF Election is invalidated or terminated or the IRS
consents to revocation of such QEF Election. If a
U.S. Holder makes a QEF Election and, in a subsequent
taxable year, the Company ceases to be a PFIC, the QEF Election
will remain in effect (although it will not be applicable)
during those taxable years in which the Company is not a PFIC.
Accordingly, if the Company becomes a PFIC in another subsequent
taxable year, the QEF Election will be effective and the
U.S. Holder will be subject to the QEF rules described
above during any such subsequent taxable year in which the
Company qualifies as a PFIC. In addition, the QEF Election will
remain in effect (although it will not be applicable) with
respect to a U.S. Holder even after such U.S. Holder
disposes of all of such U.S. Holders direct and
indirect interest in the common shares. Accordingly, if such
U.S. Holder reacquires an interest in the Company, such
U.S. Holder will be subject to the QEF rules described
above for each taxable year in which the Company is a PFIC.
Each U.S. Holder should consult its own financial advisor,
legal counsel, or accountant regarding the availability of, and
procedure for making, a QEF Election. The Company intends to
satisfy record keeping requirements that apply to a QEF, and to
supply U.S. Holders with information that they require to
report under the QEF rules, in the event that the Company is a
PFIC and a U.S. Holder wishes to make a QEF Election.
Application of
QEF Election to common shares received on exercise of
notes
Treasury Regulations provide that a holder of an option, warrant
or other right to acquire stock of a PFIC, such as the
conversion right contained in the notes, may not make a QEF
Election that will apply to the option, warrant or other right
or to the stock subject to the option, warrant or other right.
Under Treasury Regulations, if a U.S. Holder holds an
option, warrant or other right to acquire stock of a PFIC, the
holding period with respect to shares of stock of the PFIC
acquired upon exercise of such option, warrant or other right
shall include the period that the option, warrant or other right
was held. Thus, U.S. Holders will be treated as having held
common shares received on a conversion of the notes for the
entire period during which the notes were held. The general
effect of these rules is that (a) under the special taxation
rules for PFICs discussed above, excess distributions and gains
realized on the disposition of common shares received upon
exercise of notes in the Company will be spread over the entire
holding period for the notes and the common shares acquired
thereby and (b) even if a U.S. Holder makes a QEF
Election upon exercise of the notes and receipt of the common
shares, that election generally will not be a timely and
effective QEF Election with respect to the common shares
received on exercise. Thus, the special taxation rules and
applicable interest charge with respect to PFICs discussed above
will continue to apply. However, a U.S. Holder receiving
common shares upon the conversion of a note generally will be
eligible to make an effective QEF Election as of the first day
of the taxable year of such U.S. Holder beginning after the
receipt of such common shares if such U.S. Holder also
makes an election to recognize gain (which will be taxed under
the PFIC rules described above) as if such common shares were
sold on such date at fair market value. In addition, under the
Treasury Regulations, a disposition, other than by exercise, of
a note generally will be subject to the special taxation rules
for PFICs discussed above.
S-65
Mark-to-Market
Election
General
rules
A U.S. Holder may make a
Mark-to-Market
Election only if the common shares are marketable stock. The
common shares generally will be marketable stock if
the common shares are regularly traded on a qualified exchange
or other market. For this purpose, a qualified exchange or
other market includes (a) a national securities
exchange that is registered with the Securities and Exchange
Commission, (b) the national market system established
pursuant to section 11A of the Securities and Exchange Act
of 1934, or (c) a foreign securities exchange that is
regulated or supervised by a governmental authority of the
country in which the market is located, provided that
(i) such foreign exchange has trading volume, listing,
financial disclosure, surveillance, and other requirements
designed to prevent fraudulent and manipulative acts and
practices, remove impediments to and perfect the mechanism of a
free, open, fair, and orderly market, and protect investors (and
the laws of the country in which the foreign exchange is located
and the rules of the foreign exchange ensure that such
requirements are actually enforced), and (ii) the rules of
such foreign exchange effectively promote active trading of
listed stocks. If the common shares are traded on such a
qualified exchange or other market, the common shares generally
will be regularly traded for any calendar year
during which the common shares are traded, other than in de
minimis quantities, on at least 15 days during each
calendar quarter.
A U.S. Holder that makes a valid
Mark-to-Market
Election generally will not be subject to the rules of
Section 1291 of the Code discussed above. A
U.S. Holder that makes a
Mark-to-Market
Election will include in ordinary income, for each taxable year
in which the Company is a PFIC, an amount equal to the excess,
if any, of (a) the fair market value of the common shares
as of the close of such taxable year over (b) such
U.S. Holders adjusted tax basis in such common
shares. A U.S. Holder that makes a
Mark-to-Market
Election will be allowed a deduction in an amount equal to the
lesser of (a) the excess, if any, of (i) such
U.S. Holders adjusted tax basis in the common shares
over (ii) the fair market value of such common shares as of
the close of such taxable year or (b) the excess, if any,
of (i) the amount included in ordinary income because of
such
Mark-to-Market
Election for prior taxable years over (ii) the amount
allowed as a deduction because of such
Mark-to-Market
Election for prior taxable years.
A U.S. Holder that makes a
Mark-to-Market
Election generally also will adjust such U.S. Holders
tax basis in the common shares to reflect the amount included in
gross income or allowed as a deduction because of such
Mark-to-Market
Election. In addition, upon a sale or other taxable disposition
of common shares, a U.S. Holder that makes a
Mark-to-Market
Election will recognize ordinary income or loss (not to exceed
the excess, if any, of (a) the amount included in ordinary
income because of such
Mark-to-Market
Election for prior taxable years over (b) the amount
allowed as a deduction because of such
Mark-to-Market
Election for prior taxable years).
A
Mark-to-Market
Election applies to the taxable year in which such
Mark-to-Market
Election is made (except as discussed below for shares received
on conversion of a note) and to each subsequent taxable year,
unless the common shares cease to be marketable
stock or the IRS consents to revocation of such Election.
Each U.S. Holder should consult its own financial advisor,
legal counsel, or accountant regarding the availability of, and
procedure for making, a
Mark-to-Market
Election.
S-66
Application of
Mark-to-Market
Election to common shares received on exercise of
notes
Because of the rules which treat noteholders as holding common
shares received on exercise for the period during which they
held the notes, a U.S. Holder will be treated as making a
Mark-to-Market
Election after the beginning of such U.S. Holders
holding period for the common shares. Since the U.S. Holder
also is not treated as having made a timely QEF Election under
these same rules, the tax regime and interest charge of
Section 1291 described above will apply to dispositions of
and distributions on the common shares received on conversion
during the year in which the
Mark-to-Market
Election is made.
Other PFIC
rules
Under Section 1291(f) of the Code, the IRS has issued
proposed Treasury Regulations that, subject to certain
exceptions, would cause a U.S. Holder that had not made a
timely QEF Election to recognize gain (but not loss) upon
certain transfers of common shares that would otherwise be
tax-deferred (e.g., gifts and exchanges pursuant to corporate
reorganizations). However, the specific U.S. federal income
tax consequences to a U.S. Holder may vary based on the
manner in which common shares are transferred. Certain
additional adverse rules will apply with respect to a
U.S. Holder if the Company is a PFIC, regardless of whether
such U.S. Holder makes a QEF Election. For example under
Section 1298(b)(6) of the Code, a U.S. Holder that
uses common shares as security for a loan will, except as may be
provided in Treasury Regulations, be treated as having made a
taxable disposition of such common shares.
The PFIC rules are complex, and each U.S. Holder should
consult its own financial advisor, legal counsel, or accountant
regarding the PFIC rules and how the PFIC rules may affect the
U.S. federal income tax consequences of the acquisition,
ownership, and disposition of common shares.
Information
reporting; backup withholding tax
Payments made within the U.S., or by a U.S. payor or
U.S. middleman, of interest on the notes or dividends on
the common shares, or proceeds arising from the sale or other
taxable disposition of notes or common shares, generally will be
subject to information reporting and backup withholding tax
(currently at a rate of 28%) if a U.S. Holder
(a) fails to furnish such U.S. Holders correct
U.S. taxpayer identification number (generally on
Form W-9),
(b) furnishes an incorrect U.S. taxpayer
identification number, (c) is notified by the IRS that such
U.S. Holder has previously failed to properly report items
subject to backup withholding tax, or (d) fails to certify,
under penalty of perjury, that such U.S. Holder has
furnished its correct U.S. taxpayer identification number
and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding tax. However, U.S. Holders
that are corporations generally are excluded from the backup
withholding rules. Any amount paid as U.S. backup
withholding would be creditable against the
U.S. Holders U.S. federal income tax liability,
provided the applicable requisite information is timely provided
to the IRS. Each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the
information reporting and backup withholding tax rules.
S-67
Underwriting
Subject to the terms and conditions of the underwriting
agreement between us and J.P. Morgan Securities Inc., referred
to in this prospectus supplement as the underwriter,
we have agreed to sell and the underwriter has agreed to
purchase from us, US$95,000,000 aggregate principal amount of
the notes.
We have agreed to pay to the underwriter a fee of US$30 per
US$1,000 principal amount of the notes purchased by the
underwriter.
The underwriting agreement provides that the obligations of the
underwriter are subject to certain conditions precedent,
including the absence of any material adverse change in our
business and the receipt of certain certificates, opinions and
letters from us, our counsel and the independent auditors. The
underwriter is committed to purchase all the notes offered by us
if it purchases any notes.
We estimate that the total expenses of this offering, excluding
the underwriters fee, will be approximately $1,500,000.
This offering is being made concurrently in all of the provinces
of Canada, other than Québec, and in the United States
pursuant to the multi-jurisdictional disclosure system
implemented by the securities regulatory authorities in the
United States and Canada. The notes will be offered in the
United States and Canada by the underwriter either directly or
through its Canadian broker-dealer affiliate or agents, as
applicable. Subject to applicable law, the underwriter may offer
the notes outside of Canada and the United States.
The underwriter initially proposes to offer the notes to the
public at the public offering price that appears on the cover
page of this prospectus supplement. The underwriter may offer
the notes to selected dealers at the public offering price less
a concession of up to 1.8% of the principal amount. After the
initial offering, the underwriter may change the public offering
price and any other selling terms.
We have granted to the underwriter an option exercisable not
later than 30 days after the closing date of this offering to
purchase up to US$14,000,000 aggregate principal amount of
notes. The underwriter may exercise the over-allotment option
solely for the purpose of covering over-allotments, if any, in
connection with this offering. Under applicable Canadian
securities laws, this prospectus supplement also qualifies the
grant of the over-allotment option and the distribution of the
additional notes issuable on exercise of the over-allotment
option.
We, our executive officers and directors, and certain members of
our senior management have agreed that, for a period of
90 days from the date of the underwriting agreement (the
Restricted Period), we and they will not, without
the prior written consent of the underwriter, directly or
indirectly, offer, sell or otherwise dispose of, or enter into
any agreement to offer, sell or otherwise dispose of, any
securities of the Company other than grants of options or rights
or issuances of common shares (i) pursuant to existing
director or employee stock option or purchase plans;
(ii) under such director or employee stock options granted
subsequently in accordance with regulatory approval; or
(iii) as a result of the exercise of currently outstanding
share purchase warrants or options; provided, that, subject to
applicable laws, two of our executive officers, including our
Chief Executive Officer, may, without the consent of the
underwriter, offer, sell or contract to sell, during the last
60 days of the Restricted Period, up to 10% of such
officers holdings of common shares as at the date of the
underwriting agreement. The underwriter at its discretion may
release any of the securities subject to these
lock-ups.
S-68
You should be aware that the laws and practices of certain
countries require investors to pay stamp taxes and other charges
in connection with purchases of securities.
In connection with the offering of the notes, the underwriter
may engage in over-allotment, stabilizing transactions and
syndicate covering transactions in the notes and our common
shares. Over-allotment involves sales in excess of the offering
size, which creates a short position for the underwriter.
Stabilizing transactions involve bids to purchase the notes or
our common shares in the open market for the purpose of pegging,
fixing or maintaining the price of the notes. Syndicate covering
transactions involve purchases of the notes or common shares in
the open market after the distribution has been completed in
order to cover short positions. Stabilizing transactions and
syndicate covering transactions may cause the price of the notes
and our common shares to be higher than it would otherwise be in
the absence of those transactions.
We and the underwriter do not make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
notes or our common shares. In addition, we and the underwriter
do not make any representation that the underwriter will engage
in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
In the underwriting agreement, we have agreed that we will
indemnify the underwriter against certain liabilities, including
liabilities under the U.S. Securities Act and Canadian
securities laws, or contribute to payments that the underwriter
may be required to make in respect of those liabilities.
The underwriter and its affiliates have in the past and may in
the future provide various financial advisory, investment
banking and commercial banking services for us and our
affiliates in the ordinary course of business for which they
have received and will receive customary fees and commissions.
Notice to
prospective investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus supplement may not be made to the
public in that relevant member state prior to the publication of
a prospectus in relation to the securities that has been
approved by the competent authority in that relevant member
state or, where appropriate, approved in another relevant member
state and notified to the competent authority in that relevant
member state, all in accordance with the Prospectus Directive,
except that, with effect from and including the relevant
implementation date, an offer of securities may be offered to
the public in that relevant member state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (a) an average
of at least 250 employees during the last financial year;
(b) a total balance sheet of more than 343,000,000
and (c) an annual net turnover of more than
350,000,000, as shown in its last annual or consolidated
accounts; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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S-69
Each purchaser of securities described in this prospectus
supplement located within a relevant member state will be deemed
to have represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe for the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/ EC and
includes any relevant implementing measure in each relevant
member state.
We have not authorized and do not authorize the making of any
offer of the securities through any financial intermediary on
our behalf, other than offers made by the underwriter with a
view to the final placement of the securities as contemplated in
this prospectus supplement. Accordingly, no purchaser of the
securities, other than the underwriter, is authorized to make
any further offer of the securities on behalf of us or the
underwriter.
Notice to
prospective investors in the United Kingdom
This prospectus supplement is only being distributed to, and is
only directed at, persons in the United Kingdom that are
qualified investors within the meaning of Article 2(1)(e)
of the Prospectus Directive that are also (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(the Order) or (ii) high net worth entities,
and other persons to whom it may lawfully be communicated,
falling within Article 49(2)(a) to (d) of the Order
(all such persons together being referred to as relevant
persons). This prospectus supplement and its contents are
confidential and should not be distributed, published or
reproduced (in whole or in part) or disclosed by recipients to
any other persons in the United Kingdom. Any person in the
United Kingdom that is not a relevant person should not act or
rely on this document or any of its contents.
S-70
Legal
matters
Certain legal matters in connection with the offering will be
passed upon on behalf of the Company by Blake,
Cassels & Graydon LLP with respect to Canadian legal
matters and by Dorsey & Whitney LLP with respect to
U.S. legal matters, and on behalf of the underwriter by
McCarthy Tétrault LLP with respect to Canadian legal
matters and Skadden, Arps, Slate, Meagher & Flom LLP
with respect to U.S. legal matters. The partners and
associates of Blake, Cassels & Graydon LLP as a group
beneficially own, directly or indirectly, less than one percent
of the outstanding securities of the Company. The partners and
associates of McCarthy Tétrault LLP as a group beneficially
own, directly or indirectly, less than one percent of the
outstanding securities of the Company.
Auditors,
registrar and transfer agent
The auditors for the Company are PricewaterhouseCoopers LLP of
Vancouver, British Columbia.
The transfer agent and registrar for the Company in Canada is
Computershare Investor Services Inc. at its principal offices in
Vancouver, British Columbia and Toronto, Ontario. The
co-transfer agent and registrar in the United States is
Computershare Trust Company Inc. at its office in Denver,
Colorado.
Interest of
experts
Norwest Corporation, SRK Consulting (US) Inc., Sean Ennis, Bruce
Davis, William Pennstrom, Jr., Ken Shinya, Gordon Doerksen,
Kevin Francis, Stanton Dodd, Neal Rigby, Russ White, and Robert
Sim, each being companies or persons who have prepared reports
relating to the Companys mineral properties, or any
director, officer, employee or partner thereof, as applicable,
received or has received a direct or indirect interest in the
property of the Company or of any associate or affiliate of the
Company. As at the date hereof, the aforementioned persons, and
the directors, officers, employees and partners, as applicable,
of each of the aforementioned companies and partnerships
beneficially own, directly or indirectly, in the aggregate, less
than one percent of the securities of the Company.
The auditors of the Company are PricewaterhouseCoopers LLP,
Chartered Accountants, of Vancouver, British Columbia.
PricewaterhouseCoopers LLP, Chartered Accountants, report that
they are independent of the Company in accordance with the Rules
of Professional Conduct in British Columbia, Canada.
PricewaterhouseCoopers LLP is registered with the Public Company
Accounting Oversight Board.
Neither the aforementioned persons, nor any director, officer,
employee or partner, as applicable, of the aforementioned
companies or partnerships, is currently expected to be elected,
appointed or employed as a director, officer or employee of the
Company or of any associate or affiliate of the Company.
S-71
Documents
incorporated by reference
This prospectus supplement is deemed to be incorporated by
reference into the accompanying base shelf prospectus solely for
the purposes of this offering. Other documents are also
incorporated, or are deemed to be incorporated, by reference
into the base shelf prospectus and reference should be made to
the base shelf prospectus for full particulars thereof.
The following documents which have been filed by the Company
with securities commissions or similar authorities in Canada,
are also specifically incorporated by reference into, and form
an integral part of, the base shelf prospectus, as supplemented
by this prospectus supplement:
(a) annual information form of the Company for the year
ended November 30, 2007, dated March 2, 2008;
(b) audited comparative consolidated financial statements
of the Company for the years ended November 30, 2007 and
2006 together with the notes thereto and the auditors
report thereon, including managements discussion and
analysis for the year ended November 30, 2007;
(c) management information circular of the Company, dated
April 9, 2007, prepared in connection with the
Companys annual and special meeting of shareholders held
on May 31, 2007;
(d) material change report, dated December 4, 2007,
announcing that NovaGold and Teck Cominco Limited had reached
the decision to suspend construction activities at the Galore
Creek project;
(e) material change report, dated January 22, 2008,
announcing the appointment of a highly experienced senior
management team to lead the Galore Creek project through the
next phase of evaluation and optimization; and
(f) material change report, dated February 14, 2008,
announcing that the Measured and Indicated Resource for the
Donlin Creek project had increased by 77% to 29.4 million
ounces of gold, successfully converting a majority of the
Inferred Resources to the Measured and Indicated category.
Any statement contained in the base shelf prospectus, in this
prospectus supplement or in any document incorporated or deemed
to be incorporated by reference in this prospectus supplement or
the base shelf prospectus for the purpose of this offering shall
be deemed to be modified or superseded, for purposes of this
prospectus supplement, to the extent that a statement contained
herein or in the base shelf prospectus or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein or in the base shelf prospectus
modifies or supersedes such prior statement. The modifying or
superseding statement need not state that it has modified or
superseded a prior statement or include any other information
set forth in the document which it modifies or supersedes. The
making of such a modifying or superseding statement shall not be
deemed an admission for any purposes that the modified or
superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so
modified or superseded shall not constitute a part of this
prospectus supplement, except as so modified or superseded.
S-72
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PROSPECTUS
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APRIL 16, 2007 |
NOVAGOLD
RESOURCES INC.
US$500,000,000
Debt Securities
Preferred Shares
Common Shares
Warrants to Purchase Equity Securities
Warrants to Purchase Debt Securities
Share Purchase Contracts
Share Purchase or Equity Units
NovaGold Resources Inc.
(NovaGold
or the
Company)
may offer and issue from time to time, debt securities (the
Debt
Securities),
preferred shares and common shares (the
Equity
Securities),
warrants to purchase Equity Securities and warrants to purchase
Debt Securities (the
Warrants),
share purchase contracts and share purchase or equity units (all
of the foregoing, collectively, the
Securities)
or any combination thereof up to an aggregate initial offering
price of US$500,000,000 during the 25 month period that
this short form base shelf prospectus (the
Prospectus),
including any amendments thereto, remains effective. Securities
may be offered separately or together, in amounts, at prices and
on terms to be determined based on market conditions at the time
of sale and set forth in an accompanying shelf prospectus
supplement (a
Prospectus
Supplement).
Investing in our securities involves a high degree of risk.
You should carefully read the
Risk
Factors
section beginning on page 31 of this Prospectus.
This offering is made by a foreign issuer that is permitted,
under a multijurisdictional disclosure system adopted by the
United States and Canada, to prepare this Prospectus in
accordance with Canadian disclosure requirements. Prospective
investors should be aware that such requirements are different
from those of the United States. Financial statements included
or incorporated herein have been prepared in accordance with
Canadian generally accepted accounting principles, and may be
subject to Canadian auditing and auditor independence standards,
and thus may not be comparable to financial statements of United
States companies.
Prospective investors should be aware that the acquisition of
the securities described herein may have tax consequences both
in the United States and in Canada. Such consequences for
investors who are resident in, or citizens of, the United States
may not be described fully herein. Prospective investors should
read the tax discussion contained in the applicable Prospectus
Supplement with respect to a particular offering of
Securities.
The enforcement by investors of civil liabilities under the
federal securities laws may be affected adversely by the fact
that the Company is incorporated under the laws of Nova Scotia,
Canada, that some of its officers and directors are residents of
Canada, that some or all of the underwriters or experts named in
the registration statement are residents of a foreign country,
and that a substantial portion of the assets of the Company and
said persons are located outside the United States.
Neither the Securities and Exchange Commission, nor any state
securities regulator has approved or disapproved the Securities
offered hereby or determined if this Prospectus is truthful or
complete. Any representation to the contrary is a criminal
offence.
The specific terms of the Securities with respect to a
particular offering will be set out in the applicable Prospectus
Supplement and may include, where applicable: (i) in the
case of Debt Securities, the specific designation, aggregate
principal amount, the currency or the currency unit for which
the Debt Securities may be purchased, the maturity, interest
provisions, authorized denominations, offering price, covenants,
events of default, any terms for redemption or retraction, any
exchange or conversion terms, whether the debt is senior or
subordinated and any other terms specific to the Debt Securities
being offered; (ii) in the case of Equity Securities, the
designation of the particular class and series, the number of
shares offered, the issue price, dividend rate, if any, and any
other terms specific to the Equity Securities being offered;
(iii) in the case of Warrants, the designation, number and
terms of the Equity Securities or Debt Securities issuable upon
exercise of the Warrants, any procedures that will result in the
adjustment of these numbers, the exercise price, dates and
periods of exercise, the currency in which the Warrants are
issued and any other specific terms; (iv) in the case of
share purchase contracts, the designation, number and terms of
the Equity Securities to be purchased under the share purchase
contract, any procedures that will result in the adjustment of
these numbers, the purchase price and purchase date or dates of
the Equity Securities, any requirements of the purchaser to
secure its obligations under the share purchase contract and any
other specific terms; and (v) in the case of share purchase
or equity units, the terms of the share purchase contract and
Debt Securities or third party obligations, any requirements of
the purchaser to secure its obligations under the share purchase
contact by the Debt Securities or third party obligations and
any other specific terms. Where required by statute, regulation
or policy, and where Securities are offered in currencies other
than Canadian dollars, appropriate disclosure of foreign
exchange rates applicable to such Securities will be included in
the Prospectus Supplement describing such Securities.
Warrants will not be offered for sale separately to any member
of the public in Canada unless the offering is in connection
with, and forms part of, the consideration for an acquisition or
merger transaction or unless the Prospectus Supplement
describing the specific terms of the Warrants to be offered
separately is first approved for filing by each of the
securities commissions or similar regulatory authorities in
Canada where the Warrants will be offered for sale.
All shelf information permitted under applicable laws to be
omitted from this Prospectus will be contained in one or more
Prospectus Supplements that will be delivered to purchasers
together with this Prospectus. Each Prospectus Supplement will
be incorporated by reference into this Prospectus for the
purposes of securities legislation as of the date of the
Prospectus Supplement and only for the purposes of the
distribution of the Securities to which the Prospectus
Supplement pertains.
This Prospectus constitutes a public offering of these
Securities only in those jurisdictions where they may be
lawfully offered for sale and therein only by persons permitted
to sell such Securities. The Company may offer and sell
Securities to, or through, underwriters or dealers and also may
offer and sell certain Securities directly to other purchasers
or through agents pursuant to exemptions from registration or
qualification under applicable securities laws. A Prospectus
Supplement relating to each issue of Securities offered thereby
will set forth the names of any underwriters, dealers, or agents
involved in the offering and sale of such Securities and will
set forth the terms of the offering of such Securities, the
method of distribution of such Securities including, to the
extent applicable, the proceeds to the Company and any fees,
discounts or any other compensation payable to underwriters,
dealers or agents and any other material terms of the plan of
distribution. The common shares of NovaGold are listed on the
Toronto Stock Exchange
(TSX)
and the American Stock Exchange
(AMEX)
under the symbol
NG.
Unless otherwise specified in the applicable Prospectus
Supplement, Securities other than the common shares of NovaGold
will not be listed on any securities exchange. The offering of
Securities hereunder is subject to approval of certain legal
matters on behalf of NovaGold by Blake, Cassels &
Graydon LLP, with respect to Canadian legal matters, and
Dorsey & Whitney LLP, with respect to U.S. legal
matters.
The earnings coverage ratio of NovaGold for the fiscal year
ended November 30, 2006 was less than
one-to-one.
See
Earnings
Coverage.
ii
TABLE OF
CONTENTS
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2
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2
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4
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5
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31
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45
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45
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45
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46
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46
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49
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49
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63
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65
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65
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66
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66
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66
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67
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67
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68
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69
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69
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You should rely only on the information contained in or
incorporated by reference into this Prospectus. The Company has
not authorized anyone to provide you with different information.
The Company is not making an offer of these Securities in any
jurisdiction where the offer is not permitted. You should not
assume that the information contained in this Prospectus and any
Prospectus Supplement is accurate as of any date other than the
date on the front of those documents.
Unless stated otherwise or the context otherwise requires,
all references to dollar amounts in this Prospectus and any
Prospectus Supplement are references to Canadian dollars.
References to
$
or
Cdn$
are to Canadian dollars and references to
US$
are to U.S. dollars. See
Exchange
Rate
Information.
The Companys financial statements that are incorporated by
reference into this Prospectus and any Prospectus Supplement
have been prepared in accordance with generally accepted
accounting principles in Canada
(Canadian
GAAP),
and are reconciled to generally accepted accounting principles
in the United States
(U.S. GAAP)
as described therein.
Unless the context otherwise requires, references in this
Prospectus and any Prospectus Supplement to
NovaGold
or the
Company
includes NovaGold Resources Inc. and each of its material
subsidiaries.
1
CAUTIONARY
NOTE TO UNITED STATES INVESTORS
This Prospectus has been, and any Prospectus Supplement will be,
prepared in accordance with the requirements of Canadian
securities laws, which differ from the requirements of United
States securities laws. Unless otherwise indicated, all reserve
and resource estimates included in this Prospectus and any
Prospectus Supplement have been, and will be, prepared in
accordance with Canadian National Instrument
43-101
Standards of Disclosure for Mineral Projects
(NI
43-101)
and the Canadian Institute of Mining and Metallurgy
Classification System.
NI 43-101
is a rule developed by the Canadian Securities Administrators
which establishes standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral
projects. NI
43-101
permits the disclosure of an historical estimate made prior to
the adoption of NI
43-101 that
does not comply with NI
43-101 to be
disclosed using the historical terminology if the disclosure:
(a) identifies the source and date of the historical
estimate; (b) comments on the relevance and reliability of
the historical estimate; (c) states whether the historical
estimate uses categories other than those prescribed by NI
43-101, and
(d) includes any more recent estimates or data available.
Such historical estimates are presented concerning the
Companys Ambler project and the Saddle mineralization
adjacent to the Rock Creek property.
Canadian standards, including NI
43-101,
differ significantly from the requirements of the United States
Securities and Exchange Commission
(SEC),
and reserve and resource information contained or incorporated
by reference into this Prospectus and any Prospectus Supplement
may not be comparable to similar information disclosed by
U.S. companies. In particular, and without limiting the
generality of the foregoing, the term
resource
does not equate to the term
reserves.
Under U.S. standards, mineralization may not be classified
as a
reserve
unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the
time the reserve determination is made. The SECs
disclosure standards normally do not permit the inclusion of
information concerning
measured
mineral
resources,
indicated
mineral
resources
or
inferred
mineral
resources
or other descriptions of the amount of mineralization in mineral
deposits that do not constitute
reserves
by U.S. standards in documents filed with the SEC.
U.S. investors should also understand that
inferred
mineral
resources
have a great amount of uncertainty as to their existence and
great uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an
inferred
mineral
resource
will ever be upgraded to a higher category. Under Canadian
rules, estimated
inferred
mineral
resources
may not form the basis of feasibility or pre-feasibility studies
except in rare cases. Investors are cautioned not to assume that
all or any part of an
inferred
mineral
resource
exists or is economically or legally mineable. Disclosure of
contained
ounces
in a resource is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute
reserves
by SEC standards as in place tonnage and grade without reference
to unit measures. The requirements of NI
43-101 for
identification of
reserves
are also not the same as those of the SEC, and reserves reported
by NovaGold in compliance with NI
43-101 may
not qualify as
reserves
under SEC standards. Accordingly, information concerning mineral
deposits set forth herein may not be comparable with information
made public by companies that report in accordance with United
States standards.
See
Preliminary
Notes Glossary and Defined
Terms
in the Companys Annual Information Form for the fiscal
year ended November 30, 2006, which is incorporated by
reference herein, for a description of certain of the mining
terms used in this Prospectus and any Prospectus Supplement and
the documents incorporated by reference herein and therein.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference into
this Prospectus contain forward-looking statements within the
meaning of the United States Private Securities Litigation
Reform Act of 1995 concerning the Companys plans at the
Galore Creek, Donlin Creek, Nome Operations and Ambler projects,
production, capital, operating and cash flow estimates and other
matters. These statements relate to analyses and other
information that are based on forecasts of future results,
estimates of amounts not yet determinable and assumptions of
management.
Statements concerning mineral reserve and resource estimates may
also be deemed to constitute forward-looking statements to the
extent that they involve estimates of the mineralization that
will be encountered if the property is developed. Any statements
that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not
always, using
2
words or phrases such as expects,
anticipates, plans,
estimates, intends,
strategy, goals, objectives
or stating that certain actions, events or results
may, could, would,
might or will be taken, occur or be
achieved, or the negative of any of these terms and similar
expressions) are not statements of historical fact and may be
forward-looking
statements.
Forward-looking statements are subject to a variety of known and
unknown risks, uncertainties and other factors that could cause
actual events or results to differ from those expressed or
implied by the forward-looking statements, including, without
limitation:
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commodity price fluctuations;
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risks related to the Companys ability to finance the
development of its mineral properties;
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risks related to the Companys ability to commence
production and generate material revenues or obtain adequate
financing for its planned exploration and development activities;
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the risk that permits and governmental approvals necessary to
develop and operate mines on the Companys properties will
not be available on a timely basis or at all;
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uncertainty of capital costs, operating costs, production and
economic returns;
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risks related to management of the Donlin Creek project by
Barrick Gold Corporation
(Barrick)
and the effect of disputes with Barrick over management and
ownership of the project or its development;
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the possible dilution of the Companys interest in the
Donlin Creek project if Barrick successfully completes the
back-in requirements and earns an additional 40% interest in the
project or if Calista Corporation
(Calista)
exercises its right to acquire an interest in the project;
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risks involved in the Companys litigation over the Grace
claims with Pioneer Metals Corporation
(Pioneer),
which is owned by Barrick, and Pioneers opposition to the
use by the Company of a portion of the Grace property for a
tailings and waste rock facility for the Galore Creek project;
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risks involved in litigation opposing the Companys permits
at Rock Creek;
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uncertainty inherent in litigation including the effects of
discovery of new evidence or advancement of new legal theories,
and the difficulty of predicting decisions of judges and juries;
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the Companys need to attract and retain qualified
management and technical personnel;
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risks related to the integration of new acquisitions into the
Companys existing operations;
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uncertainty of production at the Companys mineral
exploration properties;
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risks and uncertainties relating to the interpretation of drill
results, the geology, grade and continuity of the Companys
mineral deposits;
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mining and development risks, including risks related to
accidents, equipment breakdowns, labour disputes or other
unanticipated difficulties with or interruptions in development,
construction or production;
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risks related to governmental regulation, including
environmental regulation;
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risks related to reclamation activities on the Companys
properties;
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uncertainty related to title to the Companys mineral
properties;
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uncertainty related to unsettled aboriginal rights and title in
British Columbia;
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the Companys history of losses and expectation of future
losses;
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uncertainty as to the Companys ability to acquire
additional commercially mineable mineral rights;
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currency fluctuations;
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increased competition in the mining industry; and
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risks related to the Companys current practice of not
using hedging arrangements.
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3
This list is not exhaustive of the factors that may affect any
of the Companys forward-looking statements.
Forward-looking statements are statements about the future and
are inherently uncertain, and actual achievements of the Company
or other future events or conditions may differ materially from
those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including,
without limitation, those referred to in this Prospectus under
the heading
Risk
Factors
and elsewhere in this Prospectus, in any applicable Prospectus
Supplement, and in the documents incorporated by reference
herein and therein. The Companys forward-looking
statements are based on the beliefs, expectations and opinions
of management on the date the statements are made, and the
Company does not assume any obligation to update forward-looking
statements if circumstances or managements beliefs,
expectations or opinions should change. For the reasons set
forth above, investors should not place undue reliance on
forward-looking statements.
EXCHANGE
RATE INFORMATION
The following table sets forth (i) the rate of exchange for
the Canadian dollar, expressed in U.S. dollars, in effect
at the end of the periods indicated, (ii) the average
exchange rates on the last day of each month during such
periods, and (iii) the high and low exchange rates during
such periods, each based on the noon rate of exchange as
reported by the Bank of Canada for conversion of Canadian
dollars into U.S. dollars:
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Fiscal Year Ended November 30
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2006
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2005
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2004
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Rate at the end of period
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0.8760
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0.8566
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0.8401
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Average rate during period
|
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0.8846
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0.8259
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0.7674
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Highest rate during period
|
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0.9099
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|
|
0.8613
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|
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0.8493
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|
Lowest rate during period
|
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0.8522
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0.7872
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0.7159
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On April 13, 2007, the exchange rate based on the Bank of
Canada noon rate was $1.00 per US$0.88.
4
THE
COMPANY
The following description of the Company is derived from
selected information about the Company contained in the
documents incorporated by reference into this Prospectus. This
description does not contain all of the information about the
Company and its properties and business that you should consider
before investing in any Securities. You should carefully read
the entire Prospectus and the applicable Prospectus Supplement,
including the section titled Risk Factors that
immediately follows this description of the Company, as well as
the documents incorporated by reference into this Prospectus and
the applicable Prospectus Supplement, before making an
investment decision. This Prospectus contains forward-looking
statements concerning the Companys plans at its
properties, production, capital costs, operating costs and cash
flow estimates and other matters. Forward-looking statements are
subject to a variety of known and unknown risks, uncertainties
and other factors that could cause the Companys results to
differ from those expressed or implied by the forward-looking
statements. See Cautionary Statement Regarding
Forward-Looking Statements.
Summary
Description of NovaGolds Business
NovaGold is a growing company engaged in the exploration and
development of mineral properties in Alaska and western Canada,
with one of its properties currently under development and two
of its properties progressing toward development. The Company
conducts its operations through wholly-owned subsidiaries and
joint ventures. Since 1998, the Company has assembled a
portfolio of gold and base metal properties. The Company is
focused primarily on gold properties, some of which have
significant copper and silver resources. The Companys
Galore Creek project is the subject of a feasibility study and
construction is expected to start following receipt of permits
and approvals. The Companys Donlin Creek project is an
advanced stage exploration project. Construction on the
Companys Rock Creek project commenced in the summer of
2006. The Ambler project is an earlier stage polymetallic
massive sulphide deposit.
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Galore Creek is a large copper-gold deposit located in
northwestern British Columbia with proven and probable reserves
of 5.3 million ounces of gold, 92.6 million ounces of
silver and 6.6 billion pounds of copper. The projects
measured and indicated resources, inclusive of proven and
probable reserves, total 8.3 million ounces of gold,
141.8 million ounces of silver and 10.2 billion pounds
of copper. In addition, Galore Creek hosts inferred resources of
5.3 million ounces of gold, 85.4 million ounces of
silver and 4.4 billion pounds of copper.
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Donlin Creek, a joint venture with a subsidiary of Barrick, is
one of the largest known undeveloped gold deposits in the world,
based on publicly reported resources. Donlin Creek contains
measured and indicated resources of 16.6 million ounces of
gold and additional inferred resources of 17.1 million
ounces of gold according to a NI
43-101
compliant report conducted by SRK Consulting (US), Inc. in
September 2006.
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The Nome Operations include the Rock Creek, Big Hurrah and Nome
Gold projects
(Nome
Operations).
Construction on Rock Creek commenced in the summer of 2006. The
Company expects production from Rock Creek and Big Hurrah to be
at an average annual production rate of approximately 100,000
ounces of gold with production expected to commence in late 2007.
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Ambler, in which NovaGold has an option to acquire a joint
venture interest through an agreement with subsidiaries of Rio
Tinto plc, is a large, high grade polymetallic massive sulphide
deposit with a non-compliant NI
43-101
historical inferred resource estimate. Ambler was estimated in
1995 to contain 817,000 ounces of gold, 64 million ounces
of silver, 3.2 billion pounds of copper and
4.4 billion pounds of zinc.
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In addition, NovaGold holds a portfolio of earlier stage
exploration projects that do not have a defined resource. The
Company is also engaged in the sale of sand, gravel and land,
and receives royalties from placer gold production, largely from
its holdings around Nome, Alaska. For the purposes of NI
43-101,
NovaGolds material properties are the Galore Creek project
and the Donlin Creek project.
5
The following table sets forth the reserves and resources at the
Companys Galore Creek project, Donlin Creek project, Nome
Operations and Ambler property, and the Companys share of
those resources.
Project
Reserve and Resource Estimates
Summary(7)
Galore
Creek
Reserves(1)
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Run of Mine
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Contained
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Contained
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Class
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Tonnage
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Cu
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Au
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Ag
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Copper
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Contained Gold
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Silver
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(Millions)
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(%)
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(g/t)
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(g/t)
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(B lbs)
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(M ozs)
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(M ozs)
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Proven
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239.5
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0.625
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0.343
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6.01
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3.30
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2.64
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46.28
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Probable
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301.3
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0.503
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0.271
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4.78
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3.34
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2.63
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46.30
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Total
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540.7
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0.557
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0.303
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5.32
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6.64
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5.27
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92.58
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Total
Project Resources
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Measured(3)
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Indicated(3)
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Measured and
Indicated(3)
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Inferred(3)
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Au
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Ag
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Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
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|
Au
|
|
|
Ag
|
|
|
Cu
|
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Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
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ozs.
|
|
|
oz.
|
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lbs.
|
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|
ozs.
|
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oz.
|
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|
lbs.
|
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|
ozs.
|
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|
oz.
|
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lbs.
|
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ozs.
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oz.
|
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lbs.
|
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Galore
Creek(2)(8)
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3.0
|
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51.2
|
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3.7
|
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5.3
|
|
|
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90.6
|
|
|
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6.6
|
|
|
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8.3
|
|
|
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141.8
|
|
|
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10.2
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|
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4.8
|
|
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77.8
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4.2
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Donlin
Creek(2)
|
|
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1.6
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|
|
|
|
|
|
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
Nome
Operations(5)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
Ambler(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
64.1
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Project Resources
|
|
|
5.4
|
|
|
|
51.2
|
|
|
|
3.7
|
|
|
|
21.7
|
|
|
|
90.6
|
|
|
|
6.6
|
|
|
|
27.1
|
|
|
|
141.8
|
|
|
|
10.2
|
|
|
|
23.0
|
|
|
|
141.9
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NovaGold
Net Share of
Projects(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured(3)
|
|
|
Indicated(3)
|
|
|
Measured and
Indicated(3)
|
|
|
Inferred(3)
|
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Cu
|
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
Million
|
|
|
Million
|
|
|
Billion
|
|
|
|
ozs.
|
|
|
oz.
|
|
|
lbs.
|
|
|
ozs.
|
|
|
oz.
|
|
|
lbs.
|
|
|
ozs.
|
|
|
oz.
|
|
|
lbs.
|
|
|
ozs.
|
|
|
oz.
|
|
|
lbs.
|
|
|
Galore Creek
(100%)(2)
|
|
|
3.0
|
|
|
|
51.2
|
|
|
|
3.7
|
|
|
|
5.3
|
|
|
|
90.6
|
|
|
|
6.6
|
|
|
|
8.3
|
|
|
|
141.8
|
|
|
|
10.2
|
|
|
|
4.8
|
|
|
|
77.8
|
|
|
|
4.2
|
|
Donlin Creek
(70%)(2)
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
Nome Operations
(100%)(5)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
Ambler
(51%)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
32.7
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NovaGold Share
|
|
|
4.9
|
|
|
|
51.2
|
|
|
|
3.7
|
|
|
|
17.2
|
|
|
|
90.6
|
|
|
|
6.6
|
|
|
|
22.1
|
|
|
|
141.8
|
|
|
|
10.2
|
|
|
|
17.6
|
|
|
|
110.5
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
(1) |
|
Cutoff grade of 0.25% copper
equivalent (CuEq). CuEq calculation is based on net smelter
return and uses metal prices of
US$1.25/lb
of copper, US$450/oz of gold and US$7/oz of silver.
|
|
(2) |
|
Assumes the following commodity
prices: US$450/oz gold, US$7/oz silver and
US$1.25/lb
copper for the Galore Creek project, US$500/oz gold for the
Donlin Creek project.
|
|
(3) |
|
Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the SEC does
not recognize them. Disclosure of contained ounces is permitted
under Canadian regulations, however, the SEC generally permits
resources to be reported only as in place tonnage and grade. See
Cautionary
Note to United States
Investors.
|
|
(4) |
|
Assumes net inventory to NovaGold
of 70% at Donlin Creek, 100% Galore Creek (80% of Copper Canyon
inferred resource), 100% Nome Operations and 51% of the Ambler
project. Assumes (i) Barrick will not be able to earn an
additional 40% interest in the Donlin Creek project, and
(ii) no exercise of Calistas right to earn up to 15%
of the Donlin Creek project. See
Properties
Donlin Creek
Project
and
Risk
Factors Barrick and Calista each retain back-in
right on the Donlin Creek project which, if exercised, could
dilute NovaGolds interest in the
project.
|
|
(5) |
|
These resources do not include
260,000 ounces of gold at the Saddle deposit, which is an
historical estimate and not NI
43-101
compliant.
|
6
|
|
|
(6) |
|
These resources are based on
historical estimates and are not NI
43-101
compliant.
|
|
(7) |
|
Rounding differences may occur.
|
|
(8) |
|
Assumes net inventory to NovaGold
of 100% (80% of Copper Canyon inferred resource).
|
Assuming the Company is successful in executing its business
plan, the Company believes its annual production, assuming 100%
ownership of each project (except for Donlin Creek for which a
70% interest is assumed) will grow from approximately 100,000
ounces of annual production of gold beginning in late 2007 to
over 4.0 million ounces of silver and 400 million
pounds of copper by 2012 and over 1.0 million ounces of
gold by early 2013. The Company intends to enter into a joint
venture agreement on the Galore Creek project which would reduce
the Companys ownership and corresponding production
profile. The Company also expects to advance the Ambler project
to the pre-feasibility level during this period. None of these
properties are currently in production. Prior to commencing
production, studies which demonstrate the economic feasibility
of the project must be completed, all necessary permits must be
obtained, a production decision must be made by NovaGolds
Board of Directors, financing for construction and development
must be arranged and construction must be completed. In
addition, in order to proceed to development, NovaGold may have
to obtain additional rights including, without limitation,
surface rights, access rights, rights of way and other
easements. See
Risk
Factors NovaGold requires various permits and
property rights in order to conduct its current and anticipated
future operations and delays or a failure to obtain such permits
and property rights, or a failure to comply with the terms of
any such permits that NovaGold has obtained, could have a
material adverse effect on
NovaGold..
Recent
Developments
Galore
Creek Project
Pre-construction activities related to tunnel and road
infrastructure at the Galore Creek project started in the latter
half of 2006. On February 23, 2007, NovaGold announced that
it had received the Environmental Assessment Certificate from
the Province of British Columbia. Mine production
start-up is
anticipated to begin in mid-2012 after three months
commissioning. Prior to production commencing on the Galore
Creek project, all additional permits must be received,
financing for construction and development must be obtained and
construction must be completed. A delay in any of the critical
permits could result in a delay in construction and production.
In particular, if the permits are not received in time to take
full advantage of the summer construction period to construct
roads, tunnels and bridges, the projects schedule could be
negatively affected. See
Galore
Creek Project
Construction
and
Galore
Creek Project Environmental Assessment and
Permitting.
As part of the current permitting process, NovaGold has filed an
application with the Province of British Columbia to obtain a
surface lease over a portion of the Grace claims, under option
from Pioneer, which is now 100% owned by Barrick, where NovaGold
intends to build a tailings and waste rock storage facility for
the Galore Creek project. Pioneer is opposing the application
and is seeking, among other things, an injunction to restrict
NovaGold from continuing its surface lease application and from
placing any waste or tailings facility on the Grace claims. A
final decision on granting the surface lease by the Province of
British Columbia is expected in the second quarter of 2007.
However, there can be no assurance that the surface lease will
be granted at such time.
Donlin
Creek Joint Venture
Effective July 14, 2001, the Company entered into an
earn-in agreement with Placer Dome U.S. Inc.
(Placer
Dome),
now Barrick Gold U.S., Inc. (referred to herein, interchangeably
with Barrick Gold Corporation, as
Barrick),
a wholly owned subsidiary of Barrick, to acquire a 70% interest
in the Donlin Creek project in southwestern Alaska, subject to a
back-in right reserved by Barrick. To earn its interest, the
Company was required to spend US$10 million on exploration
and development on the project by July 14, 2011. On
November 13, 2002, the Company completed
US$10.6 million of expenditures on the Donlin Creek project
and earned a 70% interest in the property from Barrick. On
February 10, 2003, Barrick elected to exercise an option to
earn an additional 40% interest from the Company, for a total of
70%, in the Donlin Creek project by spending a total of
US$31.9 million on the property, completing a bankable
feasibility study, and making a board decision to construct a
mine at Donlin Creek to produce not less than 600,000 ounces of
gold per year, all by November 13, 2007. Under this option,
Barrick may not earn any incremental interest in the project,
above the 30% level, until, and unless, all of the above
7
conditions are met by November 13, 2007. In February, 2003,
Barrick elected to become manager of the joint venture and to
initiate development work such that it would be in a position to
exercise its back-in right. The Company was not required to
contribute any additional funding until Barrick completed the
US$31.9 million expenditure, and the Company had the right
to elect that Barrick fund additional expenditures beyond the
US$31.9 million, subject to accruing interest at prime rate
plus 2% and granting a security interest on the property. All
such funds would be repayable from 85% of the Companys
cash flows from Donlin Creek. Barrick is also required to assist
the Company with third party financing for the Companys
share of construction costs. In May 2006, Barrick provided
notice that it had met the required minimum US$31.9 million
of expenditures effective March 31, 2006.
On August 25, 2006, NovaGold announced it had filed a
lawsuit in Alaska alleging that Barrick had violated
U.S. securities laws by making material misstatements in
documents relating to a hostile takeover bid for NovaGold. In
addition to the U.S. securities laws claims,
NovaGolds lawsuit against Barrick alleges:
|
|
|
|
|
breach of contract by Barrick under the back-in
agreement; and
|
|
|
|
breach of fiduciary duties owed by Barrick to NovaGold as joint
venture partners;
|
and seeks, among other remedies:
|
|
|
|
|
a declaratory judgement 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 the requirements, in which case NovaGold is asking to be
appointed as manager of the project.
|
Subsequent to the commencement of the lawsuit, Barrick sent
supplementary information to NovaGold shareholders which the
Alaska court found to be sufficient disclosure. However, the
Alaska court found in an order filed September 13, 2006
that there is a genuine dispute as to the meaning of the terms
of the back-in agreement and the possibility of Barrick. meeting
the terms by November 13, 2007. NovaGold believes it will
not be possible for Barrick to meet the requirements for it to
earn an additional 40% interest in the Donlin Creek project.
However, the outcome of the litigation and Barricks
ability to meet the requirements under the back-in agreement
remains uncertain. See
Risk
Factors Barrick and Calista each retain back-in
rights on the Donlin Creek project which, if exercised, could
dilute NovaGolds interest in the
project
and
Legal
Proceedings Litigation Regarding the Donlin Joint
Venture.
Rock
Creek Project
Construction on Rock Creek commenced in the summer of 2006. On
December 7, 2006, the U.S. Army Corps of Engineers
(the
Corps)
announced that it was reviewing the permit evaluation and
decision documents with regard to a permit issued on
August 21, 2006 for NovaGolds Rock Creek project, and
suspended the permit while it completed the review. The permit
was issued to NovaGolds subsidiary, Alaska Gold Company
(Alaska
Gold),
pursuant to Section 404 of the Clean Water Act, and
authorized Alaska Gold to conduct dredging and fill operations
at the Rock Creek and Big Hurrah sites. The Corps allowed
NovaGold to continue work in uplands and areas previously
disturbed.
A group of individuals from Nome, Alaska filed a lawsuit against
the Corps in mid-November 2006, alleging that the Corps issued
the Section 404 permit for Rock Creek in violation of the
governing legislation. Although neither NovaGold nor Alaska Gold
are named as defendants, the Alaskan court granted
NovaGolds motion to intervene in the case. NovaGold
received a modified permit on March 13, 2007, entitling it
to resume work in areas where work was prohibited while the
permit was suspended.
NovaGold continued to work on the plant site and the foundations
for the shop and mill buildings as the Company has obtained the
Air Quality permit. The Company has prepared the plant site for
construction of the mill facilities and has cleared a
significant portion of the wetlands covered by the permit in the
areas of the tailings facility and waste dump, as part of normal
construction activities. However, mine construction at the Rock
Creek project may be impeded if the permit is challenged again
and if a court enters an order in the litigation temporarily or
permanently enjoining the project.
8
Takeover
Bid by Barrick
In July 2006, Barrick initiated a hostile takeover bid to
acquire all the outstanding common shares of the Company. The
bid expired on December 6, 2006, and Barrick announced it
had taken up and paid for approximately 14.8% of the
Companys then issued and outstanding shares.
Shareholder
Rights Plan
NovaGolds Board of Directors approved a new Shareholder
Rights Plan (the
Rights
Plan),
which took effect December 7, 2006, immediately upon the
expiry of Barricks hostile takeover bid. NovaGold
originally adopted a shareholder rights plan on May 31,
2006, but waived its application to Barricks bid on
September 25, 2006.
The new Rights Plan, which includes substantially the same terms
as the original shareholder rights plan, was adopted to ensure
the fair treatment of shareholders in connection with future
unsolicited takeover bids and other stock acquisitions above 20%
that are not offered to all shareholders on the same terms.
Shareholder approval of the Rights Plan will be sought at
NovaGolds Annual General and Special Meeting of
shareholders, scheduled for May 2007. If ratified by
shareholders, the Rights Plan will expire at NovaGolds
Annual General Meeting in 2010, unless terminated at an earlier
date. The Rights Plan is subject to regulatory approval.
Acquisition
of Coast Mountain Power Corp.
On August 3, 2006, NovaGold completed the acquisition of
all of the outstanding common shares and stock options of Coast
Mountain Power Corp. and its wholly owned subsidiaries
(collectively,
Coast
Mountain)
pursuant to a Plan of Arrangement between NovaGold and Coast
Mountain. The Plan of Arrangement was approved by the Supreme
Court of British Columbia on July 31, 2006. NovaGold issued
approximately 2,512,000 common shares valued at
$44.4 million in connection with the acquisition. See
Legal
Proceedings Litigation Regarding Dissenting
Shareholder of Coast
Mountain.
Coast Mountain is a
green
power
company with planned
run-of-river
hydro-electric projects located near NovaGolds Galore
Creek project in northwestern British Columbia. Coast
Mountains largest asset is the Forrest Kerr run-of river
hydroelectric project which is designed to generate and transmit
up to 115 megawatts
(MW)
of electricity into the British Columbia hydroelectric grid.
Forrest Kerr qualifies as a
green
power
project under B.C. Hydros Green Power Initiative designed
to encourage the development of renewable, low-impact and
socially responsible power generation in the Province of British
Columbia.
By acquiring Coast Mountain, NovaGold secured the rights to
develop the Forrest Kerr
run-of-river
hydroelectric project and its associated electrical transmission
infrastructure which is required to connect both the Galore
Creek project and the Forrest Kerr generating facility to the
B.C. Hydro grid. NovaGold is working with Hatch Energy to update
and optimize the design of the Forrest Kerr generating facility
and to evaluate the possibility of expanding its design capacity
beyond Coast Mountains previously designed 115MW capacity.
In the event this expansion is deemed to enhance economics,
additional permits will be required. NovaGold possesses, through
Coast Mountain, all required permits and authorizations to
construct a 138 kilovolts
(kV)
transmission line and interconnection facility extending from
Bob Quinn, the eastern terminus of Galore Creeks proposed
transmission line, south to Meziadin Junction, the northernmost
extent of the existing B.C. Hydro grid. Under Galore
Creeks current construction schedule, construction of this
line is not required to commence until mid-2008 at the earliest.
While 138kV transmission infrastructure remains NovaGolds
base case for planning, the Company was formally approached by
the Government of the Province of British Columbia in late 2006
to explore the possibility of replacing this 138kV system with a
larger 287kV system which would be built, owned and operated by
the British Columbia Transmission Commission and B.C. Hydro. As
the construction and operation of transmission infrastructure is
not NovaGolds core business, the Company is currently
engaged in a dialogue with the Government of the Province of
British Columbia to determine how NovaGold can support this
initiative. Although these discussions are in early stages, if a
formal agreement is reached and this initiative can obtain its
required approvals, the Company believes that both its Forrest
Kerr and Galore Creek projects could benefit from its
development.
On March 26, 2007 Coast Mountain changed its name to
NovaGreenPower Inc.
9
Financings
On February 8, 2006, the Company issued by way of a public
offering 14,950,000 common shares at $13.43 (US$11.75) per
common share for net proceeds of $188.5 million after
commissions and expenses of $12.3 million.
Properties
The following description summarizes selected information about
the Companys Galore Creek project, Donlin Creek project,
Nome Operations and Ambler project. Please refer to the
Companys Annual Information Form for the fiscal year ended
November 30, 2006, and the various NI
43-101
compliant reports referenced below for a further description of
these properties, including their location, accessibility,
climate, local resources, infrastructure, physiography,
geological setting, mineralization, past drilling programs and
history.
Galore
Creek Project
The Galore Creek property is an advanced stage copper-gold
project located in northwestern British Columbia. NovaGold holds
the Galore Creek projects known resources under two option
agreements. The main Galore Creek property, which consists of
the Southwest, Central, Junction and West Fork deposits,
contains all the projects reserves and most of the
projects known resources. Under an option agreement
originally with subsidiaries of Rio Tinto plc and Anglo American
plc, the then shareholders of the company that owned the main
Galore Creek property, NovaGold can acquire 100% of such company
by completing a pre-feasibility study and making payments to the
shareholders totalling US$20 million by October 26,
2011. On March 29, 2007 NovaGold delivered notice under the
option agreement that it was exercising its option to acquire
100% of the Galore Creek project. As of the date of this
Prospectus, the Company has made US$7.8 million in payments
to the shareholders. Payments of US$2.5 million are due on
October 26th of each year between 2007 and 2011
inclusive. There are no royalties or back-in rights on the main
Galore Creek property.
Under a second option agreement with Eagle Plains Resources Ltd.
(Eagle
Plains),
NovaGold may acquire up to an 80% interest in the Copper Canyon
property which is immediately east of the main Galore Creek
property. An initial 60% interest may be earned by expending
$3 million on the property, issuing 296,296 common shares
of NovaGold (all of which have been issued), and making property
payments of up to $0.25 million. An additional 20% interest
may be earned by paying $1 million to Eagle Plains and
completing a feasibility study by September 2011. The Copper
Canyon property is subject to a 2% net smelter returns royalty
which may be reduced to 0.5% by the payment of $2 million
to the royalty holder.
In addition, under a further option agreement NovaGold may earn
a 60% interest in the Grace claims which are immediately to the
north of the main Galore Creek property pursuant to an option
agreement with Pioneer by purchasing approximately
$1 million of shares of Pioneer (which purchase was
completed in 2004) and expending $5 million on the
Grace claims over five years. Pioneer, which is now controlled
by Barrick, is seeking to rescind the option agreement. See
Legal
Proceedings Litigation Regarding the Grace
Claims.
The Company has also acquired mineral rights in the Galore Creek
vicinity through staking. NovaGold now holds, or has an interest
in, greater than 870 square kilometres in the Galore Creek
area.
On February 13, 2006, the Company announced that it had
entered into a comprehensive agreement with the Tahltan First
Nation for their participation in, and support of, the
development of the Galore Creek project. Financial contributions
will be made by NovaGold to the Tahltan Heritage Trust Fund
which will be used to mitigate any adverse social and cultural
impacts of mine development. During mine operations,
Trust Fund payments are guaranteed to be no less than
$1 million annually. Upon reaching certain agreed financial
targets, and subject to positive mine operating cash flow, the
Trust Fund will receive the greater of $1 million or a
0.5% to 1.0% net smelter royalty each year.
Feasibility
Study
In October 2006, Hatch Ltd., an independent engineering services
company, together with a number of specialized consultants,
completed a feasibility study (the
Galore
Creek Feasibility
Study)
for the Galore Creek project. This study confirms the economic
viability of a conventional open-pit mining operation using
long-term
10
metals prices and provides the basis for the Companys
first proven and probable reserves for copper, gold and silver.
The Galore Creek Feasibility Study was completed under the
coordination of Bruce Rustad, P.Eng., Director of
P&CM/Project Manager for Hatch Ltd. and an independent
Qualified Person as defined by NI
43-101. An
NI 43-101
compliant summary of the Galore Creek Feasibility Study has been
filed on the System for Electronic Document Analysis and
Retrieval
(SEDAR),
providing a complete description of the Galore Creek Feasibility
Study results. The information set out below is a summary of
information contained in the Feasibility Study and is subject to
important qualifications, assumptions and exclusions, all of
which are set out in the summary of the Galore Creek Feasibility
Study. For a complete description of assumptions, qualifications
and procedures associated with the following information,
reference should be made to the full text of the Galore Creek
Feasibility Study. Any information with respect to developments
after the base date of the Galore Creek Feasibility Study is
solely attributable to NovaGold and has not been verified by the
authors of the Galore Creek Feasibility Study.
Using base case prices of US$1.50/lb of copper,
US$525/oz of
gold and US$8/oz of silver, estimates of annual production and
cash costs for the Galore Creek project are summarized as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash
|
|
|
|
|
|
|
|
|
|
|
First 5 Years of Production (Averages)
|
|
Costs
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
|
|
(US$)
|
|
|
(lbs)
|
|
|
(ozs)
|
|
|
(ozs)
|
|
|
Average total cash costs (net precious metals credits)
|
|
$
|
0.38/lb Cu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total cash costs (net copper and silver credits)
|
|
- $
|
889/oz Au
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Production (Recovered Metal)
|
|
|
|
|
|
|
432 M
|
|
|
|
341,000
|
|
|
|
4.0 M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash
|
|
|
|
|
|
|
|
|
|
|
Life of Mine Production (Averages)
|
|
Costs
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
|
|
(US$)
|
|
|
(lbs)
|
|
|
(ozs)
|
|
|
(ozs)
|
|
|
Average total cash costs (net precious metals credits)
|
|
$
|
0.62/lb Cu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total cash costs (net copper and silver credits)
|
|
- $
|
874/oz Au
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Production (Recovered Metal)
|
|
|
|
|
|
|
262 M
|
|
|
|
165,000
|
|
|
|
2.7 M
|
|
Total Recovered Metal (Life of Mine)
|
|
|
|
|
|
|
5.8 B
|
|
|
|
3.6 M
|
|
|
|
58.5 M
|
|
A financial analysis using the base case parameters set out
below indicates that the Galore Creek project is expected to
generate an after-tax internal rate of return of approximately
10.6% and have an undiscounted after-tax net present value of
US$1.74 billion. An analysis has also been performed using
spot prices,
3-year
trailing average prices and a conservative metals price case.
The Galore Creek Feasibility Study evaluated the capital costs,
operating and processing costs, taxes and treatment charge for
the project. Key project economic parameters and financial
results are summarized below.
11
Galore
Creek Summary Financial Results
|
|
|
|
|
|
|
|
|
Units
|
|
Base Case
|
|
|
Mine Basis
|
|
|
|
|
|
|
Mine Life
|
|
Years
|
|
|
22
|
|
Ore Tonnage milled
|
|
M tonnes
|
|
|
522
|
|
Strip Ratio (waste to ore)
|
|
|
|
|
1.64
|
|
Mill throughput (nominal)
|
|
Tonnes per day
|
|
|
65,000
|
|
Total capital cost (mine facilities +
infrastructure)(1)
|
|
US $(millions)
|
|
|
1,805
|
|
Sustaining capital
cost(1)
|
|
US $(millions)
|
|
|
122
|
|
Unit Operating Costs
|
|
|
|
|
|
|
Mining cost per tonne
mined(1)
|
|
US$/t
|
|
|
1.22
|
|
Milling / Process cost per tonne
ore(1)
|
|
US$/t
|
|
|
3.05
|
|
G&A cost per tonne
ore(1)
|
|
US$/t
|
|
|
0.80
|
|
Total Cash Cost First 5 Years (net of precious metal
credits)(3)
|
|
US$/lb Cu
|
|
|
0.38
|
|
Total Cash Cost First 5 Years (net of copper and silver
credits)(3)
|
|
US$/oz Au
|
|
|
(889
|
)
|
Total Cash Cost Life of Mine (net of precious metal
credits)(3)
|
|
US$/lb Cu
|
|
|
0.62
|
|
Total Cash Cost Life of Mine (net of copper and silver
credits)(3)
|
|
US$/oz Au
|
|
|
(874
|
)
|
Total Co-product Cost First 5 Years (copper)
|
|
US$/lb Cu
|
|
|
0.67
|
|
Total Co-product Cost First 5 Years (gold)
|
|
US$/oz Au
|
|
|
150
|
|
Total Co-product Cost Life of Mine (copper)
|
|
US$/lb Cu
|
|
|
0.82
|
|
Total Co-product Cost Life of Mine (gold)
|
|
US$/oz Au
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3-Year
Trailing
|
|
|
Spot Case
|
|
|
Conservative
|
|
|
|
Units
|
|
Base Case
|
|
|
Average
|
|
|
(Sept 1/06)
|
|
|
Case(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal price assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
US$/lb
|
|
|
1.50
|
|
|
|
1.70
|
|
|
|
3.50
|
|
|
|
1.27
|
|
Gold
|
|
US$/oz
|
|
|
525
|
|
|
|
461
|
|
|
|
626
|
|
|
|
495
|
|
Silver
|
|
US$/oz
|
|
|
8.00
|
|
|
|
7.72
|
|
|
|
12.87
|
|
|
|
6.70
|
|
US$/CA$ exchange Rate
|
|
|
|
|
0.81
|
|
|
|
0.81
|
|
|
|
0.89
|
|
|
|
0.75
|
|
Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project IRR (pre-tax)
|
|
(%)
|
|
|
14.1
|
|
|
|
16.6
|
|
|
|
39.0
|
|
|
|
12.9
|
|
Project IRR (after-tax)
|
|
(%)
|
|
|
10.6
|
|
|
|
12.7
|
|
|
|
30.7
|
|
|
|
9.5
|
|
NPV 0% discount (pre-tax)
|
|
US $(millions)
|
|
|
2,935
|
|
|
|
3,689
|
|
|
|
13,822
|
|
|
|
2,101
|
|
NPV 0% discount (after tax)
|
|
US $(millions)
|
|
|
1,736
|
|
|
|
2,189
|
|
|
|
8,287
|
|
|
|
1,235
|
|
NPV 5% discount (pre-tax)
|
|
US $(millions)
|
|
|
1,187
|
|
|
|
1,604
|
|
|
|
7,224
|
|
|
|
833
|
|
NPV 5% discount (after tax)
|
|
US $(millions)
|
|
|
599
|
|
|
|
856
|
|
|
|
4,254
|
|
|
|
395
|
|
Payback
|
|
Years
|
|
|
4.0
|
|
|
|
3.7
|
|
|
|
1.5
|
|
|
|
3.9
|
|
Cashflow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Average After-tax Net Cashflow (years
1-5)(4)
|
|
US $(millions)
|
|
|
414
|
|
|
|
445
|
|
|
|
936
|
|
|
|
384
|
|
Cumulative After-tax Net Cashflow (years
1-5)(4)
|
|
US $(millions)
|
|
|
2,069
|
|
|
|
2,227
|
|
|
|
4,678
|
|
|
|
1,921
|
|
|
|
|
(1) |
|
Converted from Canadian dollars to
U.S. dollars at the base case $1.00 = US$0.81 long-term
exchange rate.
|
|
(2) |
|
Average metal price based on N.
Seldon Marketing Report with long-term staggered metal prices.
|
|
(3)
|
|
Cash cost is not a term recognized
by Canadian GAAP or U.S. GAAP and includes mining costs,
processing costs (including transportation and refining), and
local production taxes and royalties but excludes
end-of-mine
reclamation accruals.
|
|
(4)
|
|
After-tax net cash flow is defined
as the revenue, less operating, capital costs and cash taxes.
|
12
The Galore Creek Feasibility Study was designed to assist the
Company in making a decision as to whether to commence
construction on the Galore Creek project. The Company has since
updated its construction schedule which has lengthened the
planned construction time and extended the start of production
into 2012, assuming the timely receipt of all necessary permits
and assuming the Company is able to raise adequate financing.
The Company believes that this revised construction schedule
will reduce overall project development risk. However, the
revised schedule also results in an approximate
US$130 million reduction in the base case after-tax net
present value (at a 5% discount rate) and a reduction in the
base case after-tax internal rate of return to approximately 9%,
as of January 1, 2007. This reduction in net present value
and internal rate of return is not expected to affect the
Companys decision as to whether to commence construction
or to proceed to production.
Construction
As currently envisioned, the Galore Creek project capital
estimates include Phase 1 infrastructure associated with
providing road and power access to the Galore Creek Valley and
Phase 2 construction of the mine facilities. The Phase 1
work represents approximately 20% of the overall capital costs
for the project. Electrical power will be supplied from a
connection to the B.C. Hydro grid where the project access road
meets Highway 37.
Phase 1 construction is anticipated to take 24 months,
with access to the Galore Valley in the second half of 2009.
Significant activities during Phase 1 include the
construction of approximately 128 kilometres of mine access
roads, 40 small bridges and 13 large bridges, 4.5 kilometres of
access tunnels, the design of concentrate and diesel fuel
pipelines in the access road and the construction of an
approximately 130 kilometre power transmission line from Bob
Quinn to the Galore Valley. Most of the Phase 1 work is
scheduled to be completed during the summer months.
The largest portion of the capital expenditures will be the
Phase 2 construction which will focus on mine facilities,
including the tailings dam. Phase 1 and Phase 2
construction activities will overlap in the latter stages of
Phase 1. Mine production
start-up is
anticipated to begin in mid-2012 after three months of
commissioning. Significant activities during Phase 2
include the construction of mine infrastructure, the diversion
of Galore Creek, the completion of the concentrate and fuel
pipeline, construction of the tailings dam structure,
construction of the process plant, construction of the mine
infrastructure and completion of the power transmission line.
The completion of the tailings dam in Phase 2 will require
three summer seasons. Core dam material can only be placed
during optimum conditions as excessive moisture and inclusion of
frozen materials is unacceptable. Therefore, work during the
winter months will be limited accordingly.
The mine is envisioned as a conventional open-pit operation with
a 65,000 tpd processing plant based on crushing, grinding,
flotation, thickening and filtrating of a copper concentrate,
which would be shipped to the Port of Stewart for off-site
smelting and refining of the copper, gold and silver.
As at November 30, 2006, NovaGold had commitments
outstanding in the amount of $30.8 million for
pre-construction activities related to tunnel and road
infrastructure at the Galore Creek project, which started in the
latter half of 2006. These goods and services are anticipated to
be delivered by the end of 2007. Subsequent to November 30,
2006, NovaGold awarded contracts for road, tunnel and support
activities related to the Galore Creek project with minimum
commitments of $31.7 million. As of February 27, 2007,
NovaGold made payments of $5.0 million under certain of
these Galore Creek commitments entered into before and after
November 30, 2006.
NovaGold is considering financing alternatives for the
development of the Galore Creek project including a sale of a
significant interest in the project, project debt, a strategic
alliance with a company involving the sale of copper
concentrates from the property, equity finance or a combination
of some or all of these alternatives. Depending upon the
financing alternative ultimately chosen, NovaGold may have less
control over the management of the Galore Creek project than it
currently possesses. While NovaGold ultimately intends to enter
into a joint venture or other strategic alliances in connection
with the development of this project, NovaGold may also issue
Securities as described herein in order to make certain that
adequate funds are in place to ensure the development plans
proceed as scheduled. See
Risk
Factors NovaGold will require external financing or
may need to enter into a strategic alliance or sell property
interests, to develop its mineral
properties.
13
Prior to production commencing on the Galore Creek project, all
additional permits must be received and financing for
construction and development must be obtained and construction
must be completed. Based on the provincial and federal
permitting schedule, the project is on target to receive permits
in the second quarter of 2007. However, there can be no
assurance that all of the required permits will be received in
accordance with the schedule. NovaGold believes that completion
of the first phase of construction will add substantial value to
the project and reduce overall project development risk by
providing road access and power to the Galore Creek mine site in
preparation for the second larger phase of actual mine
construction.
Environmental
Assessment and Permitting
The Galore Creek environmental assessment process was initiated
in February 2004. As part of the environmental assessment review
process, a series of public meetings were held in various
communities in the Galore Creek region, with the public and
regulatory comment periods running from July 10, 2006 to
September 8, 2006 and September 22, 2006,
respectively. The Galore Creek team prepared responses to the
comments, with consultation with regulators and the Tahltan
First Nation on the process. The Tahltan Central Council
submitted their comments to the British Columbia Environmental
Assessment Office on October 18, 2006 supporting
NovaGolds application for an Environmental Assessment
Certificate.
As part of the concurrent permitting process, NovaGold has filed
an application with the British Columbia Government to obtain a
surface lease over a portion of the Grace claims, under option
from Pioneer which is now controlled by Barrick, where NovaGold
intends to build a tailings and waste rock storage facility for
the Galore Creek project. Pioneer is opposing the application
and is seeking, among other things: (a) an injunction to
restrict NovaGold from continuing its surface lease application
and from placing any waste or tailings facility on the Grace
claims; and (b) a declaration that NovaGold holds any
surface lease in trust for Pioneer and must transfer to Pioneer
any surface lease it obtains. A recent report from the British
Columbia Ministry of Energy, Mines and Petroleum Resources has
concurred that NovaGolds drilling on the Grace property is
sufficient to confirm that there is no economic mineralization
in the area proposed for the tailings and waste storage
facility. A final decision on granting a surface lease from the
British Columbia government is expected in the second quarter of
2007. However, there can be no assurance that the surface lease
will be granted at such time.
On February 23, 2007, NovaGold announced that it had
received from the Province of British Columbia, the
Environmental Assessment Certificate for the Galore Creek
project. The current provincial and federal environmental
assessment process is targeted to be concluded in the second
quarter of 2007, with construction targeted to begin in the
second quarter of 2007 upon issuance of appropriate permits. A
delay in any of the critical permits could result in a delay in
construction and in production. In particular, a delay in the
permits to construct roads, tunnels and bridges could negatively
impact the construction schedule. There can be no assurance that
all of the required permits will be received in accordance with
this schedule. See
Risk
Factors NovaGold requires various permits and
property rights in order to conduct its current and anticipated
future operations and delays or a failure to obtain such permits
and property rights, or a failure to comply with the terms of
any such permits that NovaGold has obtained, could have a
material adverse effect on
NovaGold.
Reserve
and Resource Estimates
The Galore Creek Feasibility Study estimates proven and probable
reserves for the Galore Creek project as set out in the NI
43-101
report by Hatch Ltd. in October 2006, and as summarized below.
Galore
Creek Reserve
Estimate(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Run of Mine
|
|
|
|
|
|
|
|
|
|
|
|
Contained
|
|
|
Contained
|
|
|
Contained
|
|
Class
|
|
Tonnage
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
|
|
(Millions)
|
|
|
(%)
|
|
|
(g/t)
|
|
|
(g/t)
|
|
|
(B lbs)
|
|
|
(M ozs)
|
|
|
(M ozs)
|
|
|
Proven
|
|
|
239.5
|
|
|
|
0.625
|
|
|
|
0.343
|
|
|
|
6.01
|
|
|
|
3.30
|
|
|
|
2.64
|
|
|
|
46.28
|
|
Probable
|
|
|
301.3
|
|
|
|
0.503
|
|
|
|
0.271
|
|
|
|
4.78
|
|
|
|
3.34
|
|
|
|
2.63
|
|
|
|
46.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
540.7
|
|
|
|
0.557
|
|
|
|
0.303
|
|
|
|
5.32
|
|
|
|
6.64
|
|
|
|
5.27
|
|
|
|
92.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cutoff grade of 0.25% copper
equivalent (CuEq). CuEq calculation is based on net smelter
return and uses metal prices of
US$1.25/lb
of copper, US$450/oz of gold and US$7/oz of silver.
|
The project reserves have been estimated using a C$3.82/t net
smelter return (net of offsite concentrate and smelter charges
and onsite plant recovery) as a cutoff for break-even ore/waste
selection and for the grade bins for
14
cashflow optimization. Detailed pit phases were engineered from
the results of a
Lerchs-Grossman
sensitivity analysis and yielded phase reserves using a 3.6%
dilution for all material above the 0.25% CuEq cut-off grade and
assuming mining losses of 2.4%. Reserves have been estimated
assuming metal recoveries based on detailed metallurgical
recovery program results, specific to each individual pit area,
ranging from 88 92% recovery for copper,
68 76% recovery for gold and 57 71%
recovery for silver, and a copper concentrate grade ranging from
26 28% copper. Proven and probable reserves are
considered to be
ore,
which by definition is economically recoverable.
The updated resource estimate used for the Galore Creek
Feasibility Study was filed on SEDAR on September 12, 2006
which was reviewed by Mike Lechner, Registered Professional
Geologist of Resource Modeling Inc., an NI
43-101
Qualified Person.
Galore
Creek Measured, Indicated and Inferred Resource
Estimate(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category
|
|
Tonnes
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
CuEq(2)
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
|
|
(Millions)
|
|
|
(%)
|
|
|
(g/t)
|
|
|
(g/t)
|
|
|
(%)
|
|
|
(B lbs)
|
|
|
(M ozs)
|
|
|
(M ozs)
|
|
|
Measured
|
|
|
263.6
|
|
|
|
0.62
|
|
|
|
0.35
|
|
|
|
5.9
|
|
|
|
0.81
|
|
|
|
3.6
|
|
|
|
3.0
|
|
|
|
50.0
|
|
Indicated
|
|
|
485.3
|
|
|
|
0.46
|
|
|
|
0.28
|
|
|
|
4.3
|
|
|
|
0.63
|
|
|
|
4.9
|
|
|
|
4.4
|
|
|
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured and Indicated
|
|
|
748.9
|
|
|
|
0.52
|
|
|
|
0.30
|
|
|
|
4.9
|
|
|
|
0.69
|
|
|
|
8.5
|
|
|
|
7.4
|
|
|
|
117.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred(3)
|
|
|
431.9
|
|
|
|
0.36
|
|
|
|
0.31
|
|
|
|
4.8
|
|
|
|
0.58
|
|
|
|
3.4
|
|
|
|
4.3
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
(1) |
|
Measured and Indicated Resources
include Proven and Probable Reserves.
|
|
(2) |
|
Copper-equivalent (CuEq)
calculations use metals prices of
US$1.25/lb
of copper, US$450/oz of gold and US$7/oz of silver.
Copper-equivalent calculations (CuEq%) reflect gross metal
content that has been adjusted for metallurgical recoveries
based on the metallurgical domain testwork completed by Hatch
Ltd. Copper recovery is expressed as a formula unique to each
metallurgical domain necessary to derive copper concentration
grades. Gold and silver recoveries of each metallurgical domain
are expressed as a proportion of copper recovery.
|
|
(3) |
|
Includes the Copper Canyon Inferred
Resource on an 80% basis calculated using a 0.35% CuEq cut-off
grade, as stated in the technical report titled
Geology
and Resource Potential of the Copper Canyon
Property
issued in February 2005. Mineral resources that are not mineral
reserves do not have demonstrated economic viability. Inferred
Resources have a great amount of uncertainty as to their
existence and whether they can be mined legally or economically.
It cannot be assumed that all or any part of the Inferred
Resources will ever be upgraded to a higher category. Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the SEC does
not recognize them. Disclosure of contained ounces is permitted
under Canadian regulations, however, the SEC generally permits
resources to be reported only as in place tonnage and grade. See
Cautionary
Note to United States
Investors.
|
The reserve and resource model in the Feasibility Study was
based on all data available through the 2005 season and
constructed by Kevin Francis, P.Geo., Resource Manager for
NovaGold and Mike Lechner, Registered Professional Geologist of
Resource Modeling Inc., who are both NI
43-101
Qualified Persons. The reserve and resource estimates are based
on a 3-D
computer block model with copper, gold and silver block grades
estimated into 25 metre x 25 metre x 15 metre high blocks using
5-metre-long drill hole composites. Prior to compositing the
drill hole grades, high-grade outlier values were cut based on
an analysis of cumulative probability plots. The grade models
were validated by visual and statistical methods and are deemed
to be globally unbiased. The blocks were then classified into
Measured, Indicated and Inferred Mineral Resource categories
using the number of data and distance to data method. No
environmental, permitting, legal, title, taxation,
sociopolitical, marketing or other issues are expected to
materially affect the above estimates of mineral reserves or
resources.
An updated resource estimate incorporating the results of the
2006 exploration drill campaign was completed by the Company in
March 2007. The updated estimate increased Measured and
Indicated Resources for copper, gold and silver by 20%, 12% and
21%, respectively. Inferred Resources increased by 32%, 23% and
33% for copper, gold and silver, respectively. Proven and
probable reserves for the Galore Creek project were estimated in
the Galore Creek Feasibility Study in October 2006 and have not
been updated. Less than 3% of the 2006 drilling, which was the
subject of the resource estimate update, is contained within the
pit that was the basis of the Galore Creek Feasibility Study and
for which NovaGold must receive applicable permits prior to
construction. The updated resource estimates are summarized
below.
15
Updated
Galore Creek Measured, Indicated and Inferred Resource
Estimate(1)(4)
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category
|
|
Tonnes
|
|
|
Cu
|
|
|
Au
|
|
|
Ag
|
|
|
CuEq(2)
|
|
|
Copper
|
|
|
Gold
|
|
|
Silver
|
|
|
|
(Millions)
|
|
|
(%)
|
|
|
(g/t)
|
|
|
(g/t)
|
|
|
(%)
|
|
|
(B lbs)
|
|
|
(M ozs)
|
|
|
(M ozs)
|
|
|
Measured
|
|
|
282.1
|
|
|
|
0.59
|
|
|
|
0.33
|
|
|
|
5.6
|
|
|
|
0.79
|
|
|
|
3.7
|
|
|
|
3.0
|
|
|
|
51.2
|
|
Indicated
|
|
|
646.3
|
|
|
|
0.46
|
|
|
|
0.25
|
|
|
|
4.4
|
|
|
|
0.60
|
|
|
|
6.6
|
|
|
|
5.3
|
|
|
|
90.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured and Indicated
|
|
|
928.4
|
|
|
|
0.50
|
|
|
|
0.28
|
|
|
|
4.7
|
|
|
|
0.65
|
|
|
|
10.2
|
|
|
|
8.3
|
|
|
|
141.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred(3)
|
|
|
533.4
|
|
|
|
0.36
|
|
|
|
0.28
|
|
|
|
4.5
|
|
|
|
0.52
|
|
|
|
4.2
|
|
|
|
4.8
|
|
|
|
77.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
(1) |
|
Measured and Indicated Resources
include Proven and Probable Reserves.
|
|
(2) |
|
Copper-equivalent (CuEq)
calculations use metals prices of US$1.25/lb for copper,
US$450/oz for gold and US$7/oz for silver. Copper-equivalent
calculations (CuEq%) reflect gross metal content that has been
adjusted for metallurgical recoveries based on the metallurgical
domain testwork completed by Hatch Ltd. Copper recovery is
expressed as a formula unique to each metallurgical domain
necessary to derive copper concentration grades. Gold and silver
recoveries of each metallurgical domain are expressed as a
proportion of copper recovery.
|
|
(3) |
|
Includes the Copper Canyon Inferred
Resource on an 80% basis calculated using a 0.35% CuEq cut-off
grade, as stated in the technical report titled
Geology
and Resource Potential of the Copper Canyon
Property
issued in February 2005. Mineral resources that are not mineral
reserves do not have demonstrated economic viability. Inferred
Resources have a great amount of uncertainty as to their
existence and whether they can be mined legally or economically.
It cannot be assumed that all or any part of the Inferred
Resources will ever be upgraded to a higher category. Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the SEC does
not recognize them. Disclosure of contained ounces is permitted
under Canadian regulations, however, the SEC generally permits
resources to be reported only as in place tonnage and grade. See
Cautionary
Note to United States
Investors.
|
|
(4) |
|
Rounding differences may occur.
|
The 2006 drill program and sampling protocol was completed with
oversight by Scott Petsel, Manager Exploration, Canada for the
Company, who is a
NI 43-101
Qualified Person. The updated resource estimate is based on a
3-D geologic
and mineralization model that integrated all exploration work on
the Galore Creek project, including over 216,806 meters
(711,304 feet) of drilling in 806 holes.
Future
Work
Drilling in 2007 will likely focus on: (i) high-grade
breccia mineralization known to exist at the Saddle prospect
just to the east of the Central deposit; (ii) recently
discovered mineralization at the Butte prospect lying roughly
between the Junction and Southwest deposits; and (iii) the
scoping of potential higher grade underground scenarios to
augment and optimize the long term mine production scheduling.
The Company currently expects to drill in excess of 15,000
metres in 2007.
Donlin
Creek Project
The Donlin Creek property is an advanced stage gold project
located in southwestern Alaska and is one of the largest known
undeveloped gold deposits in the world, based on publicly
reported resources. The Donlin Creek property contains a
measured and indicated resource estimated at 16.6 million
ounces of gold and an additional inferred resource estimated at
17.1 million ounces of gold. The property is under lease
from Calista and the Kuskokwim Corporation, two Alaska native
corporations. The Calista lease is in effect until 2015 and so
long thereafter as mining operations are carried out at the
Donlin Creek property. Under the Calista lease, Calista, the
owner of the subsurface rights of the property, has a right,
within 90 days of issuance of a bankable feasibility study
on the Donlin Creek project, to elect to acquire between a 5%
and 15% participating operating interest in the project covered
by the feasibility study by delivering a notice of election and
payment for the elected pro rata share of project capitalized
costs incurred on the project to that date. As part of its
payment, Calista would receive credit for any public funding or
other funding sources it secures to deliver equipment,
professional services or any other goods or services or
infrastructure necessary to the Donlin Creek project. If a
feasibility study is also issued on an additional stand-alone
operation that does not rely on the facilities or economic
viability of the original facility, then Calista will have an
additional mutually exclusive back-in right on the same terms
with respect to that facility.
16
Effective July 14, 2001, the Company entered into an
earn-in agreement with Placer Dome, now Barrick, to acquire a
70% interest in the Donlin Creek project, subject to a back-in
right reserved by Barrick. To earn its interest, the Company was
required to spend US$10 million on exploration and
development on the project by July 14, 2011. On
November 13, 2002, the Company completed
US$10.6 million of expenditures on the Donlin Creek project
and earned a 70% interest in the property from Barrick. On
February 10, 2003, Barrick elected to exercise an option to
earn an additional 40% interest from the Company, for a total of
70%, in the Donlin Creek project by spending a total of
US$31.9 million on the property, completing a bankable
feasibility study, and making a board decision to construct a
mine at Donlin Creek to produce not less than 600,000 ounces of
gold per year, all by November 13, 2007. Under this option,
Barrick may not earn any incremental interest in the project,
above the 30% level, until, and unless, all of the above
conditions are met by November 13, 2007. The Company was
not required to contribute any additional funding until Barrick
completed the US$31.9 million expenditure, and the Company
had the right to elect that Barrick fund additional expenditures
beyond the US$31.9 million, subject to accruing interest at
prime rate plus 2% and granting a security interest on the
property. All such funds would be repayable from 85% of the
Companys cash flows from Donlin Creek. Barrick is also
required to assist the Company with third party financing for
the Companys share of construction costs. In February
2003, Barrick elected to become manager of the joint venture and
to initiate development work such that Barrick would be in a
position to exercise its back-in right. If Calista exercises its
back-in right under the Calista Lease, Barricks and the
Companys interest will be proportionately reduced to
provide for the Calista interest. In May 2006, Barrick provided
notice that it had met the required minimum US$31.9 million
of expenditures effective March 31, 2006. If construction
is commenced, Barrick agreed to assist NovaGold in obtaining
third party financing for NovaGolds share of the costs of
the construction. If both the Barrick and Calista rights are
exercised in full, the Companys interest in the Donlin
Creek project would decrease to 25.5%. NovaGold does not believe
it will be possible for Barrick to meet the requirements for it
to earn an additional 40%. See
Legal
Proceedings Litigation Regarding the Donlin Joint
Venture
and
Risk
Factors Barrick and Calista each retain back-in
rights on the Donlin Creek project which, if exercised, could
dilute NovaGolds interest in the
project.
An advance minimum royalty
(AMR)
on the Donlin Creek property of US$200,000 is payable by the
joint venture to Calista annually until a feasibility study is
completed, after which the AMR will increase to
US$500,000 per year. Upon commencement of production, a net
smelter return royalty on production equal to the greater of
1.5% of the revenues from valuable minerals production and
US$500,000 is payable to Calista, until the earlier of the
expiry of five years or the payback of all pre-production
expenses incurred by Barrick and the Company. Thereafter, the
annual net smelter return royalty on production will be
increased to the greater of 4.5% of the revenues from valuable
minerals production and US$500,000.
Resource
Estimate
In January 2006, a new resource estimate was completed by the
Donlin Creek joint venture which supersedes previous resource
estimates on the Donlin Creek project. The new resource estimate
was based on an updated geologic and mineralization model that
integrated 28,240 metres of drilling completed by Placer Dome in
2005 and 193,598 metres of drilling previously completed by
Placer Dome and NovaGold. The model contained a total of 109,595
assay intervals from 221,838 metres of drilling and trenching.
A technical report was prepared and filed on SEDAR in accordance
with NI
43-101 by
Kevin Francis, P.Geo., Resource Manager of the Company, Stanton
Dodd, P.Geo., an employee of the Company, and Lynton
Gormely, Ph.D., P.Eng. of AMEC Americas Limited, each of
whom is a Qualified Person under NI
43-101. The
resource estimate was verified by Kevin Francis.
In September 2006, in support of a preliminary economic
assessment
(PEA)
by SRK Consulting
(SRK),
an updated tabulation of the January 2006 resource estimation
was completed for a pit using metal prices of US$500/oz of gold
and
US$8.30/oz
of silver and a base case of 0.76 g/t gold cut-off grade
assuming a 60,000 tpd. The PEA was prepared in accordance with
NI 43-101 by
Kevin Francis, P.Geo., Resource Manager of the Company, Stanton
Dodd, P.Geo., an employee of the Company, and Gordon Doerksen,
P.E. of SRK, each of whom is a Qualified Person under NI
43-101.
Unless stated otherwise the following information is summarized
from the PEA which has been filed on SEDAR. SRK conducted a
preliminary review of Placer Domes data and found the
methodology to be satisfactory and possibly conservative in
terms of contained metal at the 0.76 g/t gold cut-off grade. An
NI
17
43-101
compliant technical report for the resource estimate, relied
upon as the basis for this study, was filed in January 2006.
Based on a 0.76 g/t cut-off grade, the Donlin Creek resource
estimates as at September 2006 are as follows.
Total
Resources(1)
at 0.76 g/t cut-off Donlin Creek Project
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tonnes(1)(2)
|
|
|
Grade
|
|
|
Contained
Ounces(1)((2)
|
|
|
|
(Millions)
|
|
|
(g/t)
|
|
|
(Millions)
|
|
|
Measured
|
|
|
20
|
|
|
|
2.56
|
|
|
|
1.6
|
|
Indicated
|
|
|
196
|
|
|
|
2.39
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured and Indicated
|
|
|
215
|
|
|
|
2.40
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred
|
|
|
227
|
|
|
|
2.34
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the SEC does
not recognize them. Disclosure of contained ounces is permitted
under Canadian regulations; however, the SEC generally permits
resources to be reported only as in place tonnage and grades.
See
Cautionary
Note to United States
Investors.
|
|
(2) |
|
Rounding differences may occur.
|
In February 2007, Barrick published an initial interim resource
model to meet its year-end reporting requirements. The estimates
in this resource model are not based on a published
NI 43-101
compliant Technical Report. The interim resource model was based
on the results of 39,000 metres of drilling (out of the total
82,000 metres of drilling) carried out in 2006. The 39,000
metres of drilling results in the interim model were primarily
from the Acma area and the 43,000 metres of drilling not
reflected in the interim model were primarily in the Lewis area.
In preparing the interim resource model, Barrick used a more
restrictive estimation methodology that had previously been used
by Placer Dome and which formed the basis of the January 2006
report. Compared with the January 2006 report, this interim
update shows an increase of 4.9 million ounces in Measured
and Indicated Resources for the project from 14.9 million
ounces to 19.8 million ounces, representing a 33% increase.
At the Acma deposit, the Measured and Indicated Resources
increased by 2.9 million ounces from 8.2 million
ounces to 11.1 million ounces. The Barrick interim resource
model shows an overall decrease in the Inferred Resource from
13.6 million ounces to 1.6 million ounces, with
4.9 million ounces being converted to the Measured and
Indicated category and a decrease of 7.1 million ounces
largely due to the change in methodology used by Barrick to
define Inferred Resources. The January 2006 resource estimates
were updated in the September 2006 Report as set forth in the
table above.
Of the decrease in Inferred ounces, 6.0 million were in the
Lewis area where the vast majority of the remaining 43,000
metres of 2006 drilling not included in Barricks interim
update took place. NovaGold anticipates that additional Measured
and Indicated Resources and Inferred Resources will be added to
those shown in Barricks interim estimate once the full
results from the Lewis area are included.
NovaGold anticipates that the final 2006 drill assays and a
complete 2006 resource estimate will be released in the second
quarter of 2007. See
Risk
Factors The figures for NovaGolds reserves and
resources are estimates based on interpretation and
assumptions.
Preliminary
Economic Assessment
The September 2006 Preliminary Economic Assessment (the
PEA)
by SRK confirmed the economics of a conventional open-pit mining
operation at a production rate of 60,000 tpd with the potential
to produce on average 1.4 million ounces of gold per
year over the
22-year life
of the project. Costs, appropriate with this level of the PEA,
have been estimated and form the foundation of the economic
analysis of the project on a 100% basis. The PEA prepared by SRK
was based on a technical and economic review by a team of
consultants who are specialists in the fields of mineral
exploration, mineral resource estimation and classification,
open-pit mining, mineral processing and mineral economics. The
PEA was completed under the direction of Gordon Doerksen, P.E.,
an independent Qualified Person as defined by NI
43-101.
18
It is important to note that the PEA is preliminary in nature,
and includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations
applied that would allow them to be categorized as mineral
reserves, and there is no certainty that the conclusions reached
in the PEA will be realized. Inferred mineral resources have a
great amount of uncertainty as to their existence and great
uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an inferred resource
will ever be upgraded to a higher category.
SRK also completed a sensitivity analysis to determine the
economic effects of changes to the capital and operating costs
and the gold price, to determine the economic potential of the
Donlin Creek project. In the first seven years, the analysis
projects an average annual production of approximately
1.885 million ounces of gold at an average cash cost of
US$223/oz of
gold. The project would generate an average annual pre-tax cash
flow of approximately US$482 million for the first seven
years using a long-term gold price of US$500/oz, resulting in
payback of all mine capital in less than five years.
SRKs analysis indicates that using a gold price of
US$500/oz, Donlin Creek could generate a pre-tax rate of return
of 12.1% and a net present value at a 5% discount rate
(NPV5%)
of US$1,001 million, resulting in a capital cost payback
period of less than 5 years. A sensitivity analysis on the
project shows that the NPV is most sensitive to changes in the
gold price, followed by changes to operating costs and capital
costs. For example, a gold price of US$550/oz increases the
after-tax NPV5% to US$1,453 million, and a gold price of
US$450/oz decreases the
after-tax
NPV5% to US$554 million.
This financial analysis includes capital costs to construct a
powerline connecting the Donlin Creek project site to the
existing Anchorage/Fairbanks power grid. This analysis also
includes Inferred Resources. Inferred Resources have a great
amount of uncertainty as to their existence and whether they can
be mined legally or economically. It cannot be assumed that all
or any part of the Inferred Resources will ever be upgraded to a
higher category. Inferred Resources are excluded from estimates
forming the basis of a feasibility study.
Assumptions
Used in the Preliminary Economic Analysis
|
|
|
|
|
|
|
Parameter
|
|
Units
|
|
Value
|
|
|
Metal Price
|
|
|
|
|
|
|
Gold
|
|
US$/oz
|
|
|
500.00
|
|
Silver
|
|
US$/oz
|
|
|
8.30
|
|
Production
|
|
|
|
|
|
|
Pre-Production Period (Pre-strip)
|
|
Years
|
|
|
2
|
|
Mine Start Date
|
|
|
|
|
2013
|
|
Mine Life (after Pre-Production)
|
|
Years
|
|
|
22
|
|
Life of Mine Ore Tonnage
|
|
Million tonnes
|
|
|
482.3
|
|
Life of Mine Mill Head Grade (diluted)
|
|
Gold g/t
|
|
|
2.17
|
|
Contained Gold
|
|
Million oz
|
|
|
33.5
|
|
Metallurgical Recovery
|
|
%
|
|
|
90.6
|
|
Recovered Gold
|
|
Million oz
|
|
|
30.3
|
|
Recovered Silver
|
|
Million oz
|
|
|
7.2
|
|
Target Production Rate
|
|
Tonnes per day
|
|
|
60,000
|
|
|
|
|
|
|
|
|
Average Annual Gold Production (Years 1-7)
|
|
Million oz per year
|
|
|
1.885
|
|
|
|
|
|
|
|
|
Average Annual Gold Production (Life of Mine)
|
|
Million oz per year
|
|
|
1.379
|
|
|
|
|
|
|
|
|
19
Estimated
Life of Mine Operating Costs
|
|
|
|
|
|
|
Parameter
|
|
Units
|
|
Estimate (US$)
|
|
|
Mining
|
|
$/tonne mined
|
|
$
|
0.92
|
|
Processing
|
|
$/ore tonne milled
|
|
$
|
9.58
|
|
Mine Consumables
|
|
$/ore tonne milled
|
|
$
|
0.41
|
|
G&A
|
|
$/ore tonne milled
|
|
$
|
1.06
|
|
Refining and shipping
|
|
$/recovered oz
|
|
$
|
5.25
|
|
NSR (royalties)
|
|
$/tonne milled
|
|
$
|
1.12
|
|
Total life of mine operating costs are estimated at
US$17.44 per tonne milled and US$276/oz of recovered gold.
Estimated
Project Capital Costs
|
|
|
|
|
Description
|
|
Estimate (US$)
|
|
|
Direct Construction Capital (ex. Power Line)
|
|
$
|
976M
|
|
Indirect Construction Capital
|
|
$
|
423M
|
|
Contingency @ 15%
|
|
$
|
210M
|
|
|
|
|
|
|
Subtotal Construction (ex Power Line)
|
|
$
|
1,609M
|
|
Intertie Power Line
|
|
$
|
408M
|
|
|
|
|
|
|
Total Construction
|
|
$
|
2,017M
|
|
Permitting, Exploration, Studies,
1st Fills,
Spares(1)
|
|
$
|
113M
|
|
Life of Mine Sustaining
|
|
$
|
427M
|
|
|
|
|
|
|
|
|
|
(1) |
|
Capital costs in 2006 for
exploration, EIS/permitting and studies are assumed to be sunk
costs and are not included.
|
Estimated
Cash
Costs(1)
|
|
|
|
|
|
|
|
|
Average Total Cash Costs
|
|
|
Years 1 7
|
|
|
US$
|
223/oz of
gold
|
|
(total operating expense per recovered ounce of production)
|
|
|
Life of mine
|
|
|
US$
|
276/oz of gold
|
|
Total Costs
|
|
|
Years 1 7
|
|
|
US$
|
303/oz of
gold
|
|
(total operating expense plus depreciation per recovered ounce
of production)
|
|
|
Life of mine
|
|
|
US$
|
362/oz of gold
|
|
|
|
|
(1) |
|
Cash costs is not a term recognized
by Canadian GAAP or U.S. GAAP and includes mining costs,
processing costs (including transportation and refining), local
production taxes and royalties, but excludes end of mine
reclamation accruals.
|
The following table shows 100% of Donlin Creeks NPV from
the PEA at varying discount rates, as well as project payback
for the base case scenario. It should be noted that the NPV
calculation uses cash flows from January 1, 2007 onward,
including the three years (2007 2009) of
pre-construction costs such as an Environmental Impact Study,
permitting, a final bankable feasibility study, engineering
design, and similar items.
Gold
Price Sensitivity After Tax (US$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Base Case)
|
|
|
|
|
|
|
|
|
|
|
Gold Price ($/oz)
|
|
$450
|
|
|
$500
|
|
|
$550
|
|
|
$600
|
|
|
$700
|
|
|
NPV0%
|
|
|
2,123
|
|
|
|
3,009
|
|
|
|
3,930
|
|
|
|
4,821
|
|
|
|
6,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPV5%
|
|
|
554
|
|
|
|
1,001
|
|
|
|
1,453
|
|
|
|
1,888
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Mine
Plan
SRK, with the assistance of other professionals, performed the
open-pit mine design, scheduling and costing for the project.
The basic assumptions used in the Mine Plan are summarized below.
Basic
Assumptions Used in the Mine Plan (US$)
|
|
|
|
|
Parameter
|
|
Unit/Comments
|
|
Value
|
|
Run of Mine production rate
|
|
Tonnes per Day
|
|
60,000
|
Gold price
|
|
Per oz of gold
|
|
$500
|
Mine operating
costs(1)
|
|
Per tonne of rock mined
|
|
$0.88
|
Marketing, refining, shipping
|
|
Per tonne milled
|
|
$0.34
|
Process costs
|
|
Per tonne milled
|
|
$9.58
|
G&A costs
|
|
Per tonne milled
|
|
$1.06
|
Mining & Processing Break-even Cost
(Pit
Rim
costs)
|
|
Per tonne milled
|
|
$10.99
|
Process recovery average
|
|
Variable, depending on mineralization type
|
|
90.6%
|
Mining dilution
|
|
Waste grade at 0.61 g/t gold
|
|
12.8%
|
Mining loss
|
|
Of total ore tonnes
|
|
3%
|
Pit slopes
|
|
Depends on various geotechnical domains
|
|
30 ° to 48 °
|
|
|
|
(1) |
|
Mine operating costs exclude the
additional cost incurred for rehandling ore once it has been
mined from the pit.
|
These assumptions were used to determine the 0.76 g/t gold
cut-off grade. It should be noted that due to the complex nature
of the correlation between resource types and process recovery,
an average recovery was assumed for the cut-off grade
determination.
For the PEA, a 60,000 tpd processing rate was determined as
optimal by SRK, in consultation with NovaGold, based on the size
of the deposit, infrastructure requirements and the nature of
the metallurgical process. Past reported throughput rates have
not considered processing at this level due to the restrictions
of onsite power capacity. These restrictions have been overcome
through consultation with the regional power utility and by
including the capital cost of the necessary power infrastructure
in this study, such that Donlin Creek can tie in to the existing
Anchorage-Fairbanks intertie powerline. The capital costs and
financial results presented in the PEA reflect permitting and
development timelines consistent with this processing rate and
power delivery strategy.
The on-site
mineral processing plant is envisioned to take the ore to a
doré product. Difficult transportation logistics supported
the decision to build a plant for complete ore processing,
rather than shipping concentrate. The suggested processing unit
operations include tertiary crushing, primary ball milling,
single-stage flotation, autoclave oxidation, carbon in leach and
refining to doré.
In March 2007, as part of Barricks year-end disclosures,
Barrick published information suggesting that the capital costs
to construct a 50,000 tonne per day project (NovaGolds PEA
estimates assume a 60,000 tonne per day project) at Donlin Creek
may be significantly higher (possibly 80-90% higher or more)
than the capital costs estimated in NovaGolds PEA, and
that operating costs are likely to be materially higher as well.
In light of Barricks disclosure, NovaGold and SRK reviewed
certain information provided by Barrick to NovaGold for the
purpose of confirming the PEA estimates. Based on the limited
information provided by Barrick, NovaGold and SRK believe that
Barricks published estimates are the result of a
significantly different scope and approach to the project. In
particular, the Barrick estimates are based on utilizing
on-site
diesel and wind generation as the sources of operating power,
whereas NovaGold and SRK contemplated construction of a power
line to the Anchorage-Fairbanks power grid. This fundamental
difference in approach resulted in increased capital costs,
increased operating costs and reduced throughput in the Barrick
estimates. In addition there were further conceptual or
philosophical differences in estimating mineral processing
costs, mining costs, mine and grade modeling as well as
additional costs in certain other areas. NovaGold and SRK were
not provided with have adequate information or background on the
estimates to comment on the appropriateness of Barricks
approach. As a result, NovaGold and
21
SRK do not believe the two estimates can be reasonably compared.
As part of its review, SRK considered its capital cost estimate
in the PEA in light of current trends in capital cost increases
as well as other developments in the sector such as product
availability, lead times, premiums and U.S. dollar depreciation.
SRK has concluded that given the intended purpose of the PEA,
and the parameters and operating philosophy upon which it was
based, the cost estimates set forth in the PEA continue to be
valid as of the dates therein, within the contingencies and
accuracy level outlined in the PEA.
Future
Work
In 2007, Barrick has advised NovaGold that it has continued
environmental baseline studies and refining the layout and
design of the mine facilities. Barrick is currently completing a
pre-feasibility level study on the project in preparation for
the final feasibility study and the start of the mine permitting
process. Barrick had advised NovaGold that it has budgeted
US$87 million for expenditures at Donlin Creek in calendar
2007, including 70,000 metres of in-fill and in-pit exploration
drilling, environmental baseline studies, studies of alternative
power sources, permitting work, and feasibility and engineering
work.
Nome
Operations
The Nome Operations consist of the Rock Creek and Big Hurrah
open-pit gold deposits, the Nome Gold
gold-in-gravel
resource, the Nome
sand-and-gravel
resource, and various other gold deposits, all of which are
located around the town of Nome, Alaska.
Rock
Creek
In September 2006, Harry Parker, P.Geo. of AMEC Engineering and
Construction Services Inc., a Qualified Person as defined by NI
43-101
prepared a NI
43-101
compliant report (the
AMEC
Technical
Report).
Unless stated otherwise the following information is summarized
from the AMEC Technical Report which has been filed on SEDAR.
Rock Creek is the Companys first development stage project
and is expected to be its first production project. The project
is partly located on 5,700 hectares (14,000 acres) of
patented private land that is 100% owned by the Companys
wholly-owned subsidiary, Alaska Gold and partly on land owned by
the Bering Straits Native Corporation
(BSNC).
Alaska Gold holds an exploration and mining lease on
approximately 8,100 hectares (20,000 acres) of BSNC lands,
as well as a surface use agreement with Sitnasuak Native
Corporation
(Sitnasuak),
the local village corporation. These mineral surveys are fee
simple and have no annual requirements. Based on the current
preliminary mine plan, the Company advises that approximately
90% of the currently defined resources for the mine plan are
located on lands owned by Alaska Gold.
Pursuant to an exploration and option agreement dated
March 13, 2002, between Golden Glacier, Inc.
(GGI),
and the Company, the Company acquired the rights to explore and
develop the lode deposits on an additional 15,000 acres of
mineral claims held by GGI pursuant to four mining leases from
BSNC to GGI. Pursuant to the exploration and option agreement,
GGI granted the Company a five year option to acquire a mining
sublease. In order to maintain the option in effect, the Company
agreed to make annual payments to GGI ranging from US$15,000 to
US$25,000 and to complete annual work commitments ranging from
US$50,000 to US$150,000. The Company advises that it exercised
its option and concluded a Mining Sublease in April 2006. The
terms of the Sublease obligate the Company to pay an advance
royalty of US$126,560 for each year that the mining Sublease is
in place. The Company is also obligated to perform US$316,400 of
exploration and development work per year, with excess work
performed in any year able to be carried forward and applied in
subsequent years. GGI is entitled to a 2.5% net smelter returns
royalty and a 5% net proceeds royalty from production from BSNC
lands. NovaGold is also a party to an exploration surface use
agreement with Sitnasuak. In May 2006, the Company entered into
a Surface Use Agreement with Sitnasuak. The agreement gives the
Company exclusive use of the surface estate surrounding the Rock
Creek Project for the purposes of conducting mining and milling
operations. The agreement obligates the Company to pay an annual
fee of US$70,000 for seven years or as long as mining, milling
or marketing takes place, or until completion of active
reclamation. The Company is also obligated to pay US$900 for
each acre of disturbed lands.
22
Resource
Estimate
Prior to the AMEC Technical Report, the Company completed an
internal resource estimate for the Rock Creek project (including
Rock Creek and the adjacent Saddle mineralization) in March
2000, which estimated Measured and Indicated Resources at Rock
Creek of 6.4 million tonnes grading 2.7 grams per tonne
gold
(g/t)
containing 555,000 ounces of gold. In 2003 and 2004, additional
core drilling was carried out at Rock Creek. In comparing the
various drilling campaigns in general, core drilling data
yielded between 20% and 40% lower grades than reverse
circulation data which made up a majority of the data for the
March 2000 study.
Further resource estimation was undertaken in 2004 and 2005
prior to the AMEC Technical Report by the Company and various
models and adjustment factors were employed by the
Companys consultants that adjusted downwards the actual RC
drilling data used in the models. Though little conclusive
evidence of a systematic cause for the differences between the
various reverse circulation and core drill campaigns was
determined, resources were downgraded to reflect a conservative
basis for contained gold. Norwest Corporation, using the same
adjustment factors, revised the in-pit indicated estimated
resource at Rock Creek (the
2005
Rock Creek Project Economic Update
Review)
that forms the basis of the above-mentioned internal resource
estimate to 7.5 million tonnes grading 1.4 g/t containing
335,000 ounces of gold. NovaGold is using these reduced tonnages
and grades for base case planning purposes.
The current resource model was based on all data available
through the 2004 season and constructed under the supervision of
Harry Parker, P.Geo. of AMEC Engineering and Construction
Services Inc., a Qualified Person as defined by NI
43-101. The
resource estimate is based on a
3-D computer
block model with gold block grades estimated into 10 metre
(north-south) x 5 metre (east-west) x 5 metre high
blocks using 5-metre-long drill hole composites. Prior to
compositing the drill hole grades, high-grade outlier values
were cut based on metal at risk analysis. Additionally, samples
collected via reverse circulation drilling had their grades
adjusted downward to match the expected grades indicated from
core drilling. The grade estimation model was validated by
visual and statistical methods and are deemed to be globally
unbiased. The blocks were then classified into Indicated and
Inferred Mineral Resource categories using the number of data
and distance to data method. The reported resource has been
constrained by a conceptual pit shell constructed by Mike
Lechner of Resource Modeling Inc., using the base case resource
estimate, a gold price of US$500/oz and other economic
parameters from the 2005 Rock Creek Project Economic Update
Review. In September 2006, AMEC found no environmental,
permitting, legal, title, taxation, sociopolitical, marketing or
other issues that were expected to materially affect the above
estimates of mineral resources. No reserves are present at the
Rock Creek project; the gold resource estimate is as follows:
Total
Resources(1)
Rock Creek Project
0.6
g/t cut off grade
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category
|
|
Tonnes
|
|
|
Grade
|
|
|
Contained
|
|
|
|
(Millions)
|
|
|
(g/t)
|
|
|
Ounces(2)
|
|
|
Indicated
|
|
|
9.6
|
|
|
|
1.3
|
|
|
|
404,000
|
|
Inferred(3)
|
|
|
1.4
|
|
|
|
1.0
|
|
|
|
44,000
|
|
|
|
|
(1) |
|
Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize
them. See
Cautionary
Note to United States
Investors.
|
|
(2) |
|
Contained ounces are rounded to the
nearest 1,000. Disclosure of contained ounces is permitted under
Canadian regulations; however the SEC normally permits resources
only to be reported as in place tonnage and grade.
|
|
(3) |
|
These resources do not include
260,000 ounces of gold at the Saddle deposit, which is an
historical estimate and not NI 43-101 compliant.
|
Rock
Creek Activities Subsequent to the AMEC Technical
Report
Unless stated otherwise, the remaining Rock Creek sections
describe activities by the Company subsequent to AMECs
Technical Report.
23
In late 2005, a study was designed to determine the optimal
sampling method, sample preparation, and analytical method for
the grade control program at Rock Creek. A 30 metre by 30 metre
test site was selected (the equivalent of 18 model blocks)
within the ore body for the location of the test. Base data for
this test was derived from drilling 81 blastholes, 18 RC
borings, and excavating three trenches. All sample cuttings were
collected from blastholes and RC borings. Continuous chip
channel samples were collected from the three trenches. All
samples were shipped to McClelland Laboratories in Reno, Nevada
for processing.
During 2006, the grade control samples were processed and
analyzed. Based on the results of the grade control test, the
grade control program at Rock Creek will include the collection
of a 6 kg sample from blasthole cuttings. Sample preparation
will include traditional crushing and pulverization techniques
as well as gravity separation. Concentrates and a sample of the
gravity tails will be fire assayed and a calculated head assay
will be determined. Customized versions of MineSight and acQuire
software will facilitate the classification and management of
materials and destinations for the pit operations while allowing
the validation and tracking of data from the exploration model
to the short range model to recovered materials. A low-grade
stockpile will be used to mitigate potential misclassification
of material.
Work in 2006 included limited additional drilling along the
northern high-wall of the deposit and immediate extension of the
tension veins further to the south on the southern margin of the
deposit and across the Sophie Gulch fault. An update to the
resource is anticipated in 2007 once production reconciliation
data is available. The deposit exhibits a strong nugget effect
which has resulted in conservative downgrade of the resource
pending actual production.
In August 2006, the Company received the permits to develop Rock
Creek and Big Hurrah, and, following approval by the Board of
Directors, construction commenced on a mine developing both
projects. The main process facility and tailings will be located
at Rock Creek and will process ore from Rock Creek and ore
trucked from Big Hurrah. The decision to proceed to construction
was based upon the Companys assessment that net cash flows
from production, based upon current resource estimates, a gold
price of US$500 per ounce and estimated operating costs,
would be more than sufficient on a net present value basis to
cover the construction and working capital costs estimated at
such time to be approximately US$80 million. These costs
are significantly less than the anticipated construction costs
at Galore Creek and Donlin Creek, NovaGolds principal
projects. It was also believed that the resource at the Rock
Creek Project might be expanded through additional drilling done
in conjunction with mine development.
The decision of the Board of Directors to commence construction
at Rock Creek and Big Hurrah was based upon the Companys
internal economic assessment of these projects and no
pre-feasibility or feasibility study was prepared. As a result,
no
NI 43-101
compliant reserve estimate has been calculated for these
projects and such reserves, if calculated, could vary
significantly from the current resource estimates for the
projects. Mineral resources that are not mineral reserves do not
have demonstrated economic viability. In addition, there is a
potential for a greater degree of uncertainty as to capital
costs, operating costs, production and economic returns at these
projects than would be the case if a pre-feasibility study or
feasibility study had been prepared. Capital costs, operating
costs, production and economic returns may vary significantly
from those anticipated by NovaGold in its internal economic
assessment.
Future
Work
In 2007, approximately $37 million is budgeted to complete
construction and start operations leading to gold production at
an average rate of approximately 100,000 ounces of gold per year
starting by late 2007.
A group of individuals filed a lawsuit contesting a permit under
the U.S. Federal Clean Water Act
(Clean
Water
Act) to
conduct dredging and fill operations and the Corps suspended the
permit pending review in December 2006. NovaGold is continuing
work in uplands and areas disturbed before the permit was
suspended. NovaGold received a modified permit on March 13,
2007, entitling it to resume work in areas where work was
prohibited while the permit was suspended. NovaGold believes
that the lawsuit contesting this permit may be refiled.
Construction may be impeded if the permit is challenged again
and the court enters an order in the litigation temporarily or
permanently enjoining the project, see
Legal
Proceedings Litigation Regarding the Rock Creek
24
Project
and
Risk
Factors Current litigation in Alaska may impact
NovaGolds ability to conduct dredging and fill operations
at the Rock Creek and Big Hurrah project
sites.
Big
Hurrah
The Big Hurrah property is located 35 miles east of Nome,
Alaska on the existing road system. The permitted operation
calls for mining Big Hurrah ore three months out of the year and
trucking
run-of-mine
ore to the Rock Creek mill facility year-round for processing.
The Company has completed approximately 16,000 metres of
drilling in 273 holes and 2,850 metres of continuous trench
sampling within 60 trenches.
A NI 43-101
compliant technical report titled
Big
Hurrah Technical Report, Seward Peninsula,
Alaska
(the
Big
Hurrah Technical
Report)
dated August 25, 2006 has been filed on SEDAR. Unless
otherwise indicated, the summary below is based on the Big
Hurrah Technical Report. The resource model was based on all
data available through the 2005 season and constructed by Mike
Lechner, RPG of Resource Modeling Inc., a Qualified Person as
defined by NI
43-101. The
resource estimate is based on a
3-D computer
block model with gold block grades estimated into 2.5 metre x
2.5 metre x 5 metre high blocks using 2.5-metre-long drill hole
composites. Prior to compositing the drill hole grades,
high-grade outlier values were cut based on examination of
probability plots. The grade estimation model was validated by
visual and statistical methods and are deemed to be globally
unbiased. The blocks were then classified into Indicated and
Inferred Mineral Resource categories using the number of data
and distance to data method. No environmental, permitting,
legal, title, taxation, sociopolitical, marketing or other
issues are expected to materially affect the above estimates of
mineral reserves or resources. The Big Hurrah project gold
resource estimate is as follows:
Total
Resources(1)
Big Hurrah Project
1.0
g/t cut off grade
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category
|
|
Tonnes
|
|
|
Grade
|
|
|
Contained
|
|
|
|
(Millions)
|
|
|
(g/t)
|
|
|
Ounces(2)
|
|
|
Indicated
|
|
|
1.8
|
|
|
|
4.6
|
|
|
|
273,000
|
|
Inferred
|
|
|
0.6
|
|
|
|
3.1
|
|
|
|
56,000
|
|
|
|
|
(1) |
|
Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize
them. See
Cautionary
Note to United States
Investors.
|
|
(2) |
|
Contained ounces are rounded to the
nearest 1,000. Disclosure of contained ounces is permitted under
Canadian regulations; however the SEC normally permits resources
only to be reported as in place tonnage and grade.
|
Nome
Gold
The Nome Gold project is located three miles north of Nome,
Alaska on lands owned by the Company. The resources are hosted
by near-surface unconsolidated sands and gravels and have been
historically mined for over 100 years. The Company
estimates that since 1900, more than four million ounces of gold
have been extracted by various parties from the Nome Gold
property. Mining was shut-down on the project in 1998 due to low
gold prices at the time. In 2004, the Company commenced
engineering studies to evaluate the viability of restarting
mining operations at the property.
On August 28, 2006, Norwest Corporation completed a NI
43-101
compliance resource estimate and technical report for the
property entitled
Review
and Technical Report on the Nome Placer Gold
Property
(the
Nome
Technical
Report).
Bruce Davis, Ph.D., FAusIMM, an employee of Norwest
Corporation, and Robert Sim, P.Geo, an associate geologist with
Norwest Corporation, served as the Qualified Persons responsible
for the preparation of the Nome Technical Report. The resource
estimate has been generated from churn and reverse circulation
drill hole sample
assay
results and the associated thickness of gravel. The resource
estimate is based on a
2-D computer
gridded seam model with gold block grades estimated into 100
metre x 50 metre blocks using drill hole assays composited into
single samples. Prior to compositing the drill hole grades,
high-grade outlier values were cut based on examination of
probability plots. The grade estimation model was validated by
visual and statistical methods and
25
are deemed to be globally unbiased. The blocks were then
classified into Measured, Indicated and Inferred Mineral
Resource categories using the number of data and distance to
data method. No environmental, permitting, legal, title,
taxation, sociopolitical, marketing or other issues are expected
to materially affect the above estimates of mineral reserves or
resources. The Nome Gold project gold resource estimate is as
follows:
100%
Owned
Resources(1)
Nome Gold Project 0.00484 oz/cuyd Cutoff
Grade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic Yards
|
|
|
Grade
|
|
|
Contained
Ounces(2)
|
|
|
|
(Millions)
|
|
|
(oz/cuyd)
|
|
|
(Millions)
|
|
|
Measured
|
|
|
100.0
|
|
|
|
0.0078
|
|
|
|
0.8
|
|
Indicated
|
|
|
102.7
|
|
|
|
0.0070
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured and Indicated
|
|
|
202.7
|
|
|
|
0.0074
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred
|
|
|
36.5
|
|
|
|
0.0064
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partially
Owned
Resources(1)
Nome Gold Project 0.00484 oz/cuyd Cutoff
Grade
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cubic Yards
|
|
|
Grade
|
|
|
Contained
Ounces(2)
|
|
|
|
(Millions)
|
|
|
(oz/cuyd)
|
|
|
(Millions)
|
|
|
Measured
|
|
|
3.5
|
|
|
|
0.0063
|
|
|
|
0.0
|
|
Indicated
|
|
|
6.9
|
|
|
|
0.0063
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Measured and Indicated
|
|
|
10.4
|
|
|
|
0.0063
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred
|
|
|
3.5
|
|
|
|
0.0056
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Although
Measured
Resources,
Indicated
Resources
and
Inferred
Resources
are categories of mineralization that are recognized and
required to be disclosed by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize
them. See
Cautionary
Note to United States
Investors.
|
|
(2) |
|
Contained ounces are rounded to the
nearest 1,000. Disclosure of contained ounces is permitted under
Canadian regulations; however the SEC normally permits resources
only to be reported as in place tonnage and grade.
|
In 2007, the Company has budgeted $342,000 for completion of
scoping and feasibility studies. In addition the Company has
budgeted $605,000 to commence environmental baseline studies
necessary for permitting.
Ambler
Project
The Ambler project is located in the southern Brooks Range of
northwestern Alaska, approximately 220 kilometres east of
Kotzebue and 35 kilometres north of the village of Kobuk. The
Ambler property consists of 35,000 acres (14,000 hectares)
of patented and Alaska State mining claims covering a precious
metal rich, volcanogenic massive sulphide district.
In March 2004, NovaGold signed a strategic alliance with
subsidiaries of Rio Tinto plc on their 100% owned Ambler
property located in northwestern Alaska. Under the terms of the
agreement, the Company can earn a 51% interest in the project by
expending US$20 million on the property before 2016. During
the first five years of the agreement, the Company must spend a
minimum of US$5 million on exploration and development, and
obtain memoranda of understanding with land owners (State,
Federal and private Native corporations) in the region necessary
to provide access for mine development. During the second phase
of the agreement, the Company must spend the balance of the
earn-in funds (to total US$20 million) and complete a
pre-feasibility study resulting in a positive net present value
using a 10% discount rate. The Company is manager of the project
through to the completion of a final positive feasibility study,
at which time Kennecott, a subsidiary of Rio Tinto plc, has a
one-time option to acquire an extra 2% interest in the project,
and take over management of construction and operation of the
mine by making a payment to the Company equivalent to 4% of the
projects net present value using a 12.5% discount rate.
26
History
and Exploration
In 1957 the property was optioned by Bear Creek Mining Company
(Bear
Creek),
Kennecotts exploration subsidiary, and drilling commenced
on the property. Bear Creek also conducted a regional
exploration program covering the Cosmos Hills and the southern
Brooks Range. Reconnaissance geologic mapping and stream
sediment sampling of the south flank of the Brooks Range began
in 1962. In 1965, while re-evaluating a 1400 ppm Cu
geochemical anomaly from sampling completed in 1963, Bear Creek
geologists discovered sulfides in float on the east side of
Arctic Ridge a short distance below the crest of the ridge.
Eight core holes were drilled in 1967 intersecting massive
sulfide mineralization over a 1,500-foot strike length. Initial
results were sufficiently encouraging that Bear Creek and
Kennecott continued drilling at Arctic over the next several
seasons. From August 1967 to July 1985, 86 holes were drilled
(including 14 large diameter metallurgical test holes
pre-collared using a reverse circulation drill), totalling
16,080 m (52,756 ft). No drilling was done on the property after
1985 until 1998.
In 1993, Kennecott minerals began a re-evaluation of the Arctic
Ridge deposit. This included a review of the deposit geology and
the assembly of a computer database. A new computer-generated
block model was constructed in 1995 and an updated resource was
calculated from the block model. The resulting estimated
inferred resource totalled 36.3 million tonnes averaging
4.0% Cu, 5.5% Zn, 0.8% Pb, 54.9 g/t Ag and 0.7 g/t Au. This
estimate pre-dated NI
43-101 and
is therefore not compliant with NI
43-101,
however NovaGold considers the estimate relevant.
In September 1997, Kennecott located a total of 2,035 State of
Alaska claims covering most of the known Ambler schist belt
rocks. In 1998, an airborne geophysical survey, covering the
entire claim block, generated numerous electromagnetic
anomalies. Also in 1998, Kennecott drilled six core holes
totalling 1,492 m (4,895 ft) in the Arctic Ridge resource area
testing for extensions of the known resource as well as infill
to test for grade and thickness continuity. Drilling on the
Arctic Ridge deposit by Bear Creek/Kennecott between 1966 and
1998 totals 92 core holes for a combined 17,572 m (57,651 ft).
No additional exploration on the Arctic Ridge project was
conducted between 1998 and 2004. Since 1998, Kennecott reduced
their land position in the southern Brooks Range to 829 State of
Alaska claims. In addition to the Alaska State claims, Kennecott
maintains 15 unpatented federal mining claims surrounding 18
private patented claims.
The main focus of the 2004 NovaGold field program was to confirm
interval grade and thickness as defined from previous drill
programs within select areas of the Arctic Ridge deposit.
Alternative geologic models for the deposit were investigated
through surface mapping, drill core re-logging and
re-interpretation of previous drill results. The 2004 drilling
focused on the Arctic Ridge deposit area and was principally
designed to verify the grade and continuity of the mineralized
intercepts encountered in the previous drill campaigns. A few
holes were drilled in potential extensions of mineralization and
on an adjacent geophysical anomaly. Significant mineralized
intervals were encountered in 8 of the 11 holes drilled in the
program. The twin and infill drilling confirmed previously
drilled intervals of base-metal mineralization.
Drilling in 2005 again focused on extending and confirming
mineralization particularly in the lower limb of the Arctic
antiform. Just over 3,000 metres of core drilling was completed
and although good mineralization was encountered in several
holes, structural discontinuities appear to limit expansion of
mineralization to the south and east. Results suggest that the
model remains open to the northeast and that the faulted off
root zone has yet to be identified. Geophysical exploration
using ground electromagnetic has targeted a significant anomaly
of similar size and tenor a few kilometres to the northwest.
Exploration will target this anomaly as well as several
satellite airborne electromagnetic anomalies in close proximity
to the Arctic Ridge deposit and in the same permissive
stratigraphy
The 2006 exploration program focused on mapping, surface
sampling, and completing ground
follow-up
and core drill testing of airborne geophysical anomalies in the
central part of the Ambler district near the Arctic Ridge. The
program succeeded in drill testing four geophysical anomalies
with multiple drill holes and providing good geologic,
geochemical, and geophysical support for continued drill testing
of these areas. New mineralization was located at Red, a
prospect about two miles east of the Arctic Ridge. This
mineralization consists of crosscutting thin high grade Zn-Pb-Cu
veins cutting the lower part of the Ambler sequence, and could
represent a portion of a feeder system for stratigraphically
higher mineralization as yet unlocated.
27
Resource
Estimate
In 1995, based on Kennecotts interpretation of the
mineralized horizons of the Arctic Ridge deposit as a series of
stack sheets, a computer generated block model was constructed
and a resource estimate compiled. The resulting estimated
inferred resource totaled 36.3 million tonnes averaging
4.0% Cu, 5.5% Zn, 0.8% Pb, 54.9 g/t Ag and 0.7 g/t Au. The
resource estimate is not NI
43-101
compliant and is only intended to represent a historical
resource estimate but is considered relevant by the Company. The
contained precious metals in this resource total 817,000 ounces
of gold and 64 million ounces of silver, while the base
metals total 3.2 billion pounds of copper, 4.4 billion
pounds of zinc and 640 million pounds of lead. NovaGold
plans to update the resource estimate in 2007 using the
historical drilling and the 2004 and 2005 NovaGold drilling as
well as NovaGolds reinterpretation of the deposit geology.
Future
Work
For 2007 the Company, has budgeted $2 million for drilling
on selected targets following up on the work conducted in 2006.
In addition $1.3 million has been budgeted for completion
of a scoping study, further studies on potential power
generation including prospecting potential wind generation and
hydro sites and beginning environmental baseline. Future work at
Ambler and on the Arctic Ridge deposit is predicated on the
results of the scoping study presently in progress.
Corporate
Information
NovaGold Resources Inc. was incorporated by memorandum of
association on December 5, 1984, under the Companies Act
(Nova Scotia) as 1562756 Nova Scotia Limited. On
January 14, 1985, the Company changed its name to NovaCan
Mining Resources (1985) Limited and on March 20, 1987, the
Company changed it name to NovaGold Resources Inc. The Company
is in good standing under the laws of the Province of Nova
Scotia. The registered office of the Company is located at 5151
George Street, Suite 1600, Halifax, Nova Scotia, Canada,
B3J 2N9. The Companys principal office is located at
Suite 2300, 200 Granville Street, Vancouver, B.C., Canada,
V6C 1S4.
As at the end of its most recently completed financial year, the
Company had the following material, direct and indirect, wholly
owned subsidiaries: Alaska Gold Company, NovaGold Resources
Alaska, Inc., NovaGold (Bermuda) Alaska Limited and NovaGold
Resources (Bermuda) Limited, NovaGold Canada Inc. (formerly
SpectrumGold Inc.) and Coast Mountain.
The following chart depicts the corporate structure of the
Company together with the jurisdiction of incorporation of each
of the Companys material subsidiaries and related holding
companies. All ownership is 100%.
28
Legal
Proceedings
Litigation
Regarding the Grace Claims
NovaGold Canada was served with a writ of summons on
October 17, 2005 by Pioneer, now controlled by Barrick,
related to NovaGolds option to earn a 60% interest in the
Grace claims located at the Galore Creek project pursuant to an
agreement between Pioneer and NovaGold dated March 26,
2004. Pioneer is seeking to rescind the option agreement and to
receive unspecified damages for purported misrepresentations and
breach of fiduciary duty. Pioneer is alleging that NovaGold
failed to incur the expenditures on the Grace claims required by
the option agreement and that NovaGold breached other terms of
the option agreement. Pioneer is seeking to amend its statement
of claim alleging, among other things, that:
(a) NovaGolds activities proposed to be conducted on
the Grace Claims are not authorized by the option agreements;
(b) NovaGold is otherwise in violation of the option
agreement, including the confidentiality provisions in the
option agreement; and (c) NovaGold failed to conduct
sufficient drilling on the Grace claims to determine whether the
claims contain economic mineralization. In the proposed
amendment to its statement of claim, Pioneer has expanded its
claim for relief to seek: (a) an injunction restricting
NovaGold from continuing its surface lease application and from
placing any waste or tailings facility on the Grace claims;
(b) a declaration that NovaGold holds any surface lease in
trust for Pioneer and must transfer to Pioneer any surface lease
it obtains; (c) an order requiring NovaGold to disgorge to
Pioneer any benefits that NovaGold may obtain by virtue of
installing a tailings or waste facility; and (d) damages,
including exemplary and punitive damages, arising from these new
claims. NovaGold intends to contest all claims made by Pioneer
in its statement of claim. NovaGold believes it has met its
obligations under the option agreement to date and is seeking an
order that the option agreement is still in effect. See
Risk
Factors NovaGold is currently engaged in litigation
with Pioneer and there is no certainty as to the outcome of this
litigation.
Litigation
Regarding the Donlin Joint Venture
Effective July 14, 2001, the Company entered into an
earn-in agreement with Placer Dome, now Barrick, to acquire a
70% interest in the Donlin Creek project, subject to a back-in
right reserved by Barrick. To earn its interest, the Company was
required to spend US$10 million on exploration and
development on the project by July 14, 2011. On
November 13, 2002, the Company completed
US$10.6 million of expenditures on the Donlin Creek project
and earned a 70% interest in the property from Barrick. On
February 10, 2003, Barrick elected to exercise an option to
earn an additional 40% interest from the Company, for a total of
70%, in the Donlin Creek project by spending a total of
US$31.9 million on the property, completing a bankable
feasibility study, and making a board decision to construct a
mine at Donlin Creek to produce not less than 600,000 ounces of
gold per year, all by November 13, 2007. Under this option,
Barrick, may not earn any incremental interest in the project,
above the 30% level, until, and unless, all of the above
conditions are met by November 13, 2007. The Company was
not required to contribute any additional funding until Barrick
completed the US$31.9 million expenditure, and the Company
had the right to elect that Barrick fund additional expenditures
beyond the US$31.9 million, subject to accruing interest at
prime rate plus 2% and granting a security interest on the
property. All such funds would be repayable from 85% of the
Companys cash flows from Donlin Creek. Barrick is also
required to assist the Company with third party financing for
the Companys share of construction costs. In May 2006,
Barrick provided notice that it had met the required minimum
US$31.9 million of expenditures effective March 31,
2006.
On August 25, 2006, NovaGold announced it had filed a
lawsuit in Alaska alleging that Barrick had violated
U.S. securities laws by making material misstatements in
documents relating to a hostile takeover bid for NovaGold. In
addition to the U.S. securities laws claims,
NovaGolds lawsuit against Barrick alleges:
|
|
|
|
|
breach of contract by Barrick under the back-in
agreement; and
|
|
|
|
breach of fiduciary duties owed by Barrick to NovaGold as joint
venture partners;
|
and seeks, among other remedies:
|
|
|
|
|
a declaratory judgement to clarify the requirements Barrick must
satisfy to earn an additional 40% interest in Donlin
Creek; and
|
29
|
|
|
|
|
an order to the effect that it is impossible for Barrick to
satisfy the requirements, in which case NovaGold is asking to be
appointed as manager of the project.
|
Subsequent to the commencement of the lawsuit, Barrick sent
supplementary information to NovaGold shareholders which the
court found to be sufficient disclosure. However, the court
found in an order filed September 13, 2006 that there is a
genuine dispute as to the meaning of the terms of the back-in
agreement and the possibility of Barrick meeting the terms by
November 2007. NovaGold believes it will not be possible for
Barrick to meet the requirements for it to earn an additional
40% interest in the Donlin Creek project. However, the outcome
of the litigation remains uncertain. See
Risk
Factors Current litigation in Alaska may impact
NovaGolds interest in and ability to control the direction
of the Donlin Creek
Project.
Litigation
Regarding the Rock Creek Project
On December 7, 2006, the Corps announced that it was
reviewing the permit evaluation and decision documents with
regard to a permit issued on August 21, 2006 for
NovaGolds Rock Creek project, and suspended the permit
while they completed the review. The Corps allowed NovaGold to
continue work in uplands and areas previously disturbed. The
permit was issued to NovaGolds subsidiary, Alaska Gold,
pursuant to Section 404 of the Clean Water Act, and
authorized Alaska Gold to conduct dredging and fill operations
at the Rock Creek and Big Hurrah sites.
A group of individuals from Nome, Alaska filed a lawsuit against
the Corps in mid-November, alleging that the Corps issued the
Section 404 permit for Rock Creek in violation of the
governing legislation. Although neither NovaGold nor Alaska Gold
are named as defendants, the Alaskan court has granted
NovaGolds motion to intervene in the case. The case has
been dismissed because the Corps suspended the permit, but
NovaGold expects that the case may be re-filed. NovaGold
received a modified permit on March 13, 2007, entitling it
to resume work in areas where work was prohibited while the
permit was suspended.
NovaGold is continuing to work on the plant site and the
foundations for the shop and mill buildings as the Company has
obtained the air quality permit. The Company has prepared the
plant site for construction of the mill facilities and has
cleared a significant portion of the wetlands covered by the
permit in the areas of the tailings facility and waste dump, as
part of normal construction activities. However, mine
construction at the Rock Creek project may be impeded if the
permit is challenged again and if a court enters an order in the
litigation temporarily or permanently enjoining the project. See
Risk
Factors Current litigation in Alaska may impact
NovaGolds ability to conduct dredging and fill operations
at the Rock Creek and Big Hurrah project
sites.
Litigation
Regarding Dissenting Shareholder of Coast Mountain
The former CEO of Coast Mountain exercised dissent rights in
connection with the Plan of Arrangement transaction between
NovaGold and Coast Mountain which was completed in August 2006,
resulting in 225,880 common shares of the Company, valued at
approximately $4 million, being returned to the Company
treasury. In September 2006, this dissenting shareholder
commenced an action in the British Columbia Supreme Court
against the Company claiming that he be paid $15 million as
the fair value for his Coast Mountain shares. The Company has
included in accounts payable an amount of $4 million
representing the value of the shares returned to treasury. A
hearing is scheduled before the British Columbia Supreme Court
in September 2007 for a determination of the fair value of the
dissenting shareholders Coast Mountain shares. The Company
believes this claim for additional funds is without merit.
Other
NovaGold is subject to additional litigation arising from its
business activities. See Note 11
Commitments
and
contingencies
in the Companys consolidated financial statements for the
year ended November 30, 2006. NovaGold does not believe
that any of this litigation will have a material adverse affect
on the Company.
30
RISK
FACTORS
An investment in any Securities is speculative and involves a
high degree of risk due to the nature of the Companys
business and the present stage of exploration and development of
its mineral properties. The following risk factors, as well as
risks not currently known to the Company, could materially
adversely affect the Companys future business, operations
and financial condition and could cause them to differ
materially from the estimates described in forward-looking
statements relating to the Company. Before deciding to invest in
any Securities, investors should consider carefully the risks
included herein and incorporated by reference in this Prospectus
and those described in any Prospectus Supplement.
Risks
Relating to NovaGold and its Industry
Changes
in the market price of gold and other metals, which in the past
has fluctuated widely, will affect the profitability of
NovaGolds operations and financial
condition.
The Companys profitability and long-term viability depend,
in large part, upon the market price of gold and other metals
and minerals produced from the Companys properties. The
market price of gold and other metals is volatile and is
impacted by numerous factors beyond the Companys control,
including:
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expectations with respect to the rate of inflation;
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the relative strength of the U.S. dollar and certain other
currencies;
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interest rates;
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global or regional political or economic conditions;
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supply and demand for jewellery and industrial products
containing metals; and
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sales by central banks and other holders, speculators and
producers of gold and other metals in response to any of the
above factors.
|
A decrease in the market price of gold and other metals could
affect the Companys ability to finance the development of
the Galore Creek, Donlin Creek, Rock Creek and Nome Operations
projects and the exploration and development of the
Companys other mineral properties, which would have a
material adverse effect on the Companys financial
condition and results of operations. There can be no assurance
that the market price of gold and other metals will remain at
current levels or that such prices will improve.
Recent
high metal prices have encouraged increased mining exploration,
development and construction activity, which has increased
demand for, and cost of, exploration, development and
construction services and equipment.
Recent increases in gold prices have encouraged increases in
mining exploration, development and construction activities,
which have resulted in increased demand for, and cost of,
exploration, development and construction services and
equipment. In order to keep its projects on schedule, NovaGold
has made earlier commitments to contractors and suppliers to
obtain their services at its properties, particularly Galore
Creek. As of February 28, 2007, the Company had minimum
commitments of $51.0 million for Galore Creek. The costs of
these services and equipment have increased with increased
demand, and may continue to do so if current trends continue.
Increased demand for services and equipment could cause project
costs to increase materially, resulting in delays if services or
equipment cannot be obtained in a timely manner due to
inadequate availability, and increase potential scheduling
difficulties and cost increases due to the need to coordinate
the availability of services or equipment, any of which could
materially increase project exploration, development or
construction costs, result in project delays or both.
NovaGold
will require external financing or may need to enter into a
strategic alliance or sell property interests, to develop its
mineral properties.
The Company will need external financing to develop and
construct the Galore Creek, Donlin Creek and Nome Operations
projects and to fund the exploration and development of the
Companys other mineral properties. The mineral properties
that the Company is likely to develop are expected to require
significant capital expenditures.
31
The sources of external financing that the Company may use for
these purposes include project debt, convertible notes and
equity offerings. In addition, the Company may consider a sale
of a significant interest in the Galore Creek property or may
enter into a strategic alliance and may utilize one or a
combination of all these alternatives. There can be no assurance
that the financing alternative chosen by the Company will be
available on acceptable terms, or at all. Depending upon the
alternative ultimately chosen, NovaGold may have less control
over the management of the Galore Creek project then it
currently possesses. The failure to obtain financing could have
a material adverse effect on the Companys growth strategy
and results of operations and financial condition.
NovaGolds
ability to continue its exploration activities and any future
development activities, and to continue as a going concern, will
depend in part on its ability to commence production and
generate material revenues or to obtain suitable
financing.
The Company had working capital of approximately
$58.3 million as of February 28, 2007. At present, the
Company intends to fund its plan of operations from external
sources and working capital. The Companys ability to
continue its exploration and development activities, if any,
will depend in part on the Companys ability to commence
production and generate material revenues or to obtain financing
through joint ventures, debt financing, equity financing,
production sharing arrangements or other means.
There can be no assurance that the Company will commence
production on any of its projects or generate sufficient
revenues to meet its obligations as they become due or obtain
necessary financing on acceptable terms, if at all. The
Companys failure to meet its ongoing obligations on a
timely basis could result in the loss or substantial dilution of
the Companys interests (as existing or as proposed to be
acquired) in its properties. In addition, should the Company
incur significant losses in future periods, it may be unable to
continue as a going concern, and realization of assets and
settlement of liabilities in other than the normal course of
business may be at amounts significantly different than those
included in this Prospectus.
NovaGold
requires various permits and property rights in order to conduct
its current and anticipated future operations and delays or a
failure to obtain such permits and property rights, or a failure
to comply with the terms of any such permits that NovaGold has
obtained, could have a material adverse effect on
NovaGold.
The Companys current and anticipated future operations,
including further exploration, development activities and
commencement of production on the Companys properties,
require permits from various United States and Canadian federal,
state, provincial, territorial and local governmental
authorities. The Company may also be required to obtain certain
property rights to access, or use, certain of its properties in
order to proceed to development. There can be no assurance that
all permits or property rights which the Company requires for
the construction of mining facilities and the conduct of mining
operations will be obtainable on reasonable terms, or at all, or
that the issuance of such permits will not be challenged by
third parties. Delays in obtaining or a failure to obtain such
permits or property rights, challenges to the issuance of such
permits or property rights, whether successful or unsuccessful,
or a failure to comply with the terms of any such permits or
property rights that the Company has obtained, could have a
material adverse impact on the Company.
Actual
capital costs, operating costs, production and economic returns
may differ significantly from those NovaGold has anticipated and
there are no assurances that any future development activities
will result in profitable mining operations.
The capital costs to take the Companys projects into
production may be significantly higher than anticipated.
None of the Companys mineral properties, including the
Galore Creek, Donlin Creek, Nome Operations and Ambler projects,
have an operating history upon which the Company can base
estimates of future operating costs. Decisions about the
development of these and other mineral properties will
ultimately be based upon feasibility studies. Feasibility
studies derive estimates of cash operating costs based upon,
among other things:
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anticipated tonnage, grades and metallurgical characteristics of
the ore to be mined and processed;
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anticipated recovery rates of gold and other metals from the ore;
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32
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cash operating costs of comparable facilities and
equipment; and
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anticipated climatic conditions.
|
Capital and operating costs, production and economic returns,
and other estimates contained in the Galore Creek feasibility
study or other feasibility studies or economic assessments, if
prepared, may differ significantly from those anticipated by
NovaGolds current studies and estimates, and there can be
no assurance that the Companys actual capital and
operating costs will not be higher than currently anticipated.
In addition, delays to construction schedules may negatively
impact the net present value and internal rates of return of the
Companys mineral properties as set forth in the applicable
feasibility studies.
In March 2007, as part of Barricks year-end disclosures,
Barrick published information suggesting that the capital costs
to construct a 50,000 tonne per day project (the Companys
PEA estimates assume a 60,000 tonne per day project) at Donlin
Creek may be significantly higher (possibly
80-90%
higher or more) than the capital costs estimated in the PEA, and
that operating costs are likely to be materially higher than the
PEA estimates. In light of Barricks disclosure, NovaGold
and SRK reviewed certain information provided by Barrick to
NovaGold for the purpose of confirming the PEA estimates. Based
on the limited information provided by Barrick, NovaGold and SRK
believe that Barricks published estimates are the result
of a significantly different scope and approach to the project,
however, NovaGold and SRK were not provided with adequate
information or background on the estimates to comment on the
appropriateness of the criteria used by Barrick. Actual capital
and operating costs at Donlin Creek may differ significantly
from those contained in the PEA or published by Barrick, and
there can be no assurance that the actual capital and operating
costs will not be higher than currently anticipated.
In addition, the Company decided to develop Rock Creek and Big
Hurrah without a pre-feasibility or feasibility study. As a
result, no
NI 43-101
compliant reserve estimate could be calculated for these
projects and such reserves, if calculated, could vary
significantly from the current resource estimates for the
projects. In addition, there is a greater degree of uncertainty
as to capital costs, operating costs, production and economic
returns at these projects than would be the case if a
pre-feasibility study were prepared. Also, capital costs,
operating costs, production and economic returns may vary
significantly from those anticipated by NovaGold in its internal
economic assessment.
Because
NovaGold does not manage Donlin Creeks feasibility and
permitting process or oversee its future mine development and
operation, NovaGold cannot assure investors that the Donlin
Creek project will be managed in a way favourable to
NovaGold.
Under the terms of its back-in agreement with the Company,
Barrick now manages Donlin Creeks feasibility and
permitting processes and currently oversees any future mine
development and operation. Barrick commenced a hostile takeover
bid for the Companys shares in 2006, which was
unsuccessful, and Barrick and the Company are engaged in
litigation in Alaska regarding the interpretation of the back-in
agreement and the ownership and management of the project. The
Company cannot direct Barricks activities and, therefore,
cannot fully predict the pace or the scale of the projects
permitting and future development. Barricks disagreement
with the Company may result in actions by Barrick that serve
Barricks interest rather than those of the Company, and
there can be no assurance that Barrick will manage the project
in a manner consistent with the Companys vision for the
project.
Barrick
and Calista each retain back-in rights on the Donlin Creek
project which, if exercised, could dilute NovaGolds
interest in the project.
The Company has earned a 70% interest in the Donlin Creek
project under an agreement with Barrick. However, Barrick and
the underlying property owner, Calista, have each retained a
right to reacquire a portion of the project. With respect to
Barrick, this right allows it to increase its current 30%
interest to 70%. With respect to Calista, an interest between 5%
to 15% can be earned at the time of project development. If the
Barrick and Calista rights are exercised in full, the
Companys interest in the Donlin Creek project would
decline to 25.5%. While the Company believes that Barrick cannot
satisfy the back-in requirements, and therefore will not
increase its interest to 70%, the meaning of the back-in
requirement is the subject of litigation and it is uncertain
whether a court would accept the Companys interpretation
of the back-in requirements.
33
NovaGold
is currently engaged in litigation with Pioneer and there is no
certainty as to the outcome of this litigation.
In October 2005, Pioneer commenced litigation against the
Company related to an option agreement between Pioneer and the
Company dated March 26, 2004 under which the Company has an
option to earn a 60% interest in the Grace claims located at the
Galore Creek project. Pioneer is seeking to rescind the option
agreement and is claiming unspecified damages for alleged
misrepresentations and breach of fiduciary duty. During 2006,
Barrick acquired a controlling interest in Pioneer and has
indicated it will continue the litigation. The Company also has
applied to the government of British Columbia for a surface
lease over a portion of the Grace property to use as a tailings
and waste rock storage facility for the Galore Creek project.
Pioneer is opposing the application.
Pioneer is seeking to amend its statement of claim against the
Company alleging, among other things, that: (a) the
Companys activities proposed to be conducted on the Grace
claims are not authorized by the option agreement; (b) the
Company is otherwise in violation of the option agreement,
including the confidentiality provisions in the option
agreement; and (b) the Company failed to conduct sufficient
drilling on the Grace claims to determine whether the claims
contain economic mineralization. In its proposed amendment to
its statement of claim Pioneer has expanded its claim for relief
to seek: (a) an injunction restricting the Company from
continuing its surface lease application and from placing any
waste or tailings facility on the Grace claims; (b) a
declaration that the Company holds any surface lease in trust
for Pioneer and must transfer to Pioneer any surface lease it
obtains; (c) an order requiring the Company to disgorge to
Pioneer any benefits that the Company may obtain by virtue of
installing a tailings or waste facility; and (d) damages
arising from these new claims.
If Pioneer were to prevail in the legal action, the Company
would no longer have the exclusive right to explore the Grace
Claims. However, if a surface lease is granted by the government
of British Columbia, exploration by Pioneer would be limited by
the surface lease. An adverse finding against the Company in the
litigation or failure to obtain the surface lease in a timely
manner or at all could result in project delays, increased
development costs or both, which would have a material adverse
impact on the Galore Creek project and the Companys
financial situation. In addition, a successful challenge to the
issuance of the surface lease or the condemnation of the Grace
claims could have a material adverse effect on the
Companys financial situation.
Current
litigation in Alaska may impact NovaGolds interest in and
ability to control the direction of the Donlin Creek
Project.
On August 25, 2006, NovaGold announced it had filed a
lawsuit in Alaska against Barrick alleging breach of contract by
Barrick and Placer Dome under the Donlin Creek Mining Venture
Agreement dated November 13, 2002, and breach of fiduciary
duties owed by Barrick. and Placer Dome to NovaGold as a joint
venture partner. Remedies sought include 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 is asking to be appointed
as manager of the project in place of Barrick. The outcome of
the litigation remains uncertain. In the interim, there can be
no assurance that Barrick will manage the project in the manner
consistent with the Companys vision for the project.
Furthermore, if the Barrick rights are exercised, the
Companys interest in the Donlin Creek project would
decline to 30%.
Current
litigation in Alaska may impact NovaGolds ability to
conduct dredging and fill operations at the Rock Creek and Big
Hurrah project sites.
On December 7, 2006, the Corps announced that it was
reviewing the permit evaluation and decision documents with
regard to a permit issued on August 21, 2006 for
NovaGolds Rock Creek project, and suspended the permit
while it completed the review. The Corps will allow NovaGold to
continue work in uplands and areas previously disturbed. The
permit was issued to NovaGolds subsidiary, Alaska Gold,
pursuant to Section 404 of the Clean Water Act, and
authorized Alaska Gold to conduct dredging and fill operations
at the Rock Creek and Big Hurrah sites.
A group of individuals from Nome, Alaska filed a lawsuit against
the Corps in mid-November, alleging that the Corps issued the
Section 404 permit for Rock Creek in violation of the
governing legislation. Although neither
34
NovaGold nor Alaska Gold are named as defendants, the Alaskan
court has granted NovaGolds motion to intervene in the
case. The case has been dismissed because the Corps suspended
the permit.
NovaGold is continuing to work on the plant site and the
foundations for the shop and mill buildings as the Company has
received the air quality permit. The Company has prepared the
plant site for construction of the mill facilities and has
cleared a significant portion of the wetlands covered by the
permit in the areas of the tailings facility and waste dump
areas, as part of normal construction activities. NovaGold
received a modified permit on March 13, 2007, entitling it
to resume work in areas where work was prohibited while the
permit was suspended. However, NovaGold expects that the lawsuit
contesting the permit is likely to be refiled. Mine construction
at the Rock Creek project may be impeded if the permit is
challenged again or if a court enters an order in the litigation
temporarily or permanently enjoining the project.
NovaGold
may experience difficulty attracting and retaining qualified
management and technical personnel to meet the needs of its
anticipated growth, and the failure to manage NovaGolds
growth effectively could have a material adverse effect on its
business and financial condition.
The Company is dependent on the services of key executives
including the Companys President and Chief Executive
Officer and other highly skilled and experienced executives and
personnel focused on managing the Companys interests and
its relationship with Barrick at Donlin Creek, the advancement
of the Galore Creek, Ambler, Rock Creek and Nome Operations
projects, as well as the identification of new opportunities for
growth and funding. Due to the Companys relatively small
size, the loss of these persons or the Companys inability
to attract and retain additional highly skilled employees
required for the development of the Companys activities
may have a material adverse effect on the Companys
business or future operations.
In addition, the Company anticipates that as it brings its
mineral properties into production and as the Company acquires
additional mineral rights, the Company will experience
significant growth in its operations. The Company expects this
growth to create new positions and responsibilities for
management and technical personnel and to increase demands on
its operating and financial systems. There can be no assurance
that the Company will successfully meet these demands and
effectively attract and retain additional qualified personnel to
manage its anticipated growth. The failure to attract such
qualified personnel to manage growth effectively could have a
material adverse effect on the Companys business,
financial condition and results of operations.
Because
NovaGold does not currently intend to use forward sale
arrangements to protect against low commodity prices,
NovaGolds operating results are exposed to the impact of
any significant drop in commodity prices.
The Company does not currently intend to enter into forward
sales arrangements to reduce the risk of exposure to volatility
in commodity prices. Accordingly, NovaGolds future
operations are exposed to the impact of any significant decrease
in commodity prices. If such prices decrease significantly at a
time when the Company is producing, the Company would realize
reduced revenues. While it is not the Companys current
intention to enter into forward sales arrangements, the Company
is not restricted from entering into forward sales arrangements
at a future date.
NovaGold
may experience problems integrating new acquisitions into
existing operations, which could have a material adverse effect
on NovaGold.
The Company acquired SpectrumGold Inc. and Coast Mountain and
may make selected acquisitions in the future, with a focus on
late stage development projects. The Companys success at
completing any acquisitions will depend on a number of factors,
including, but not limited to:
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identifying acquisitions which fit NovaGolds strategy;
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negotiating acceptable terms with the seller of the business or
property to be acquired; and
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obtaining approval from regulatory authorities in the
jurisdictions of the business or property to be acquired.
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35
If the Company does make further acquisitions, any positive
effect on the Companys results will depend on a variety of
factors, including, but not limited to:
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assimilating the operations of an acquired business or property
in a timely and efficient manner;
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maintaining the Companys financial and strategic focus
while integrating the acquired business or property;
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implementing uniform standards, controls, procedures and
policies at the acquired business, as appropriate; and
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to the extent that the Company makes an acquisition outside of
markets in which it has previously operated, conducting and
managing operations in a new operating environment.
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Acquiring additional businesses or properties could place
increased pressure on the Companys cash flow if such
acquisitions involve cash consideration or the assumption of
obligations requiring cash payments. The integration of the
Companys existing operations with any acquired business
will require significant expenditures of time, attention and
funds. Achievement of the benefits expected from consolidation
would require the Company to incur significant costs in
connection with, among other things, implementing financial and
planning systems. The Company may not be able to integrate the
operations of a recently acquired business or restructure the
Companys previously existing business operations without
encountering difficulties and delays. In addition, this
integration may require significant attention from the
Companys management team, which may detract attention from
the Companys
day-to-day
operations. Over the short-term, difficulties associated with
integration could have a material adverse effect on the
Companys business, operating results, financial condition
and the price of the Companys common shares. In addition,
the acquisition of mineral properties may subject the Company to
unforeseen liabilities, including environmental liabilities.
Lack
of infrastructure could delay or prevent NovaGold from
developing advanced projects.
Completion of the development of the Companys advanced
projects is subject to various requirements, including the
availability and timing of acceptable arrangements for power,
water and transportation facilities. The lack of availability on
acceptable terms or the delay in the availability of any one or
more of these items could prevent or delay development of the
Companys advanced projects. If adequate infrastructure is
not available in a timely manner, there can be no assurance that:
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the development of the Companys projects will be commenced
or completed on a timely basis, if at all;
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the resulting operations will achieve the anticipated production
volume; or
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the construction costs and ongoing operating costs associated
with the development of the Companys advanced projects
will not be higher than anticipated.
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NovaGold
has no history of producing precious metals from its mineral
exploration properties and there can be no assurance that it
will successfully establish mining operations or profitably
produce precious metals.
NovaGold has no history of producing precious metals from its
current portfolio of mineral exploration properties. Except for
the Rock Creek project, which is currently under development,
all of the Companys properties, including both of the
Companys material properties for purposes of NI
43-101, are
in the exploration stage and the Company has not defined or
delineated any proven or probable reserves on any of its
properties other than at Galore Creek. The future development of
any properties found to be economically feasible will require
the construction and operation of mines, processing plants and
related infrastructure. As a result, NovaGold is subject to all
of the risks associated with establishing new mining operations
and business enterprises including:
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the timing and cost, which can be considerable, of the
construction of mining and processing facilities;
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the availability and costs of skilled labour and mining
equipment;
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the availability and cost of appropriate smelting
and/or
refining arrangements;
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36
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the need to obtain necessary environmental and other
governmental approvals and permits, and the timing of those
approvals and permits; and
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the availability of funds to finance construction and
development activities.
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The costs, timing and complexities of mine construction and
development are increased by the remote location of the
Companys mining properties. It is common in new mining
operations to experience unexpected problems and delays during
development, construction and mine
start-up. In
addition, delays in the commencement of mineral production often
occur. Accordingly, there are no assurances that the
Companys activities will result in profitable mining
operations or that the Company will successfully establish
mining operations or profitably produce precious metals at any
of its properties.
The
figures for NovaGolds reserves and resources are estimates
based on interpretation and assumptions and may yield less
mineral production under actual conditions than is currently
estimated.
Unless otherwise indicated, mineralization figures presented in
this Prospectus and the documents incorporated by reference
herein with securities regulatory authorities, press releases
and other public statements that may be made from
time-to-time
are based upon estimates made by company personnel and
independent geologists. These estimates are imprecise and depend
upon geological interpretation and statistical inferences drawn
from drilling and sampling analysis, which may prove to be
unreliable. There can be no assurance that:
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these estimates will be accurate;
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reserves, resources or other mineralization figures will be
accurate; or
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this mineralization could be mined or processed profitably.
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In addition, Barrick has provided NovaGold with an initial
interim resource model for the Donlin Creek project based on
partial results from the 2006 drilling program. This interim
resource model shows an overall decrease in Inferred Resources
of 12 million ounces. NovaGold is continuing to rely on the
resource estimate contained in the preliminary economic
assessment by SRK in September 2006. There can be no assurance
that any resource estimate completed after the results from the
2006 drilling program are received and analyzed will confirm the
September 2006 estimate or that the Inferred Resources for the
Donlin Creek project will not be lower than previously predicted.
Because the Company has not commenced production on any of its
properties, and has not defined or delineated any proven or
probable reserves on any of its properties other than at Galore
Creek, mineralization estimates for the Companys
properties may require adjustments or downward revisions based
upon further exploration or development work or actual
production experience. In addition, the grade of ore ultimately
mined, if any, may differ from that indicated by drilling
results. There can be no assurance that minerals recovered in
small scale tests will be duplicated in large scale tests under
on-site
conditions or in production scale.
The reserve and resource estimates contained in this Prospectus
and the documents incorporated by reference herein have been
determined and valued based on assumed future prices, cut-off
grades and operating costs that may prove to be inaccurate.
Extended declines in market prices for gold, silver and copper
may render portions of the Companys mineralization
uneconomic and result in reduced reported mineralization. Any
material reductions in estimates of mineralization, or of the
Companys ability to extract this mineralization, could
have a material adverse effect on NovaGolds results of
operations or financial condition.
The Company has not established the presence of any proven and
probable reserves at any of its mineral properties other than
Galore Creek. There can be no assurance that subsequent testing
or future studies will establish proven and probable reserves on
the Companys other properties. The failure to establish
proven and probable reserves would restrict the Companys
ability to successfully implement its strategies for long-term
growth.
37
The
Company is subject to significant governmental
regulation.
The Companys operations and exploration and development
activities in Canada and the United Stated are subject to
extensive federal, state, provincial, territorial and local laws
and regulation governing various matters, including:
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environmental protection;
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management and use of toxic substances and explosives;
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management of natural resources;
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exploration, development of mines, production and post-closure
reclamation;
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exports;
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price controls;
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taxation;
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regulations concerning business dealings with native groups;
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labor standards and occupational health and safety, including
mine safety; and
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historic and cultural preservation.
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Failure to comply with applicable laws and regulations may
result in civil or criminal fines or penalties or enforcement
actions, including orders issued by regulatory or judicial
authorities enjoining or curtailing operations or requiring
corrective measures, installation of additional equipment or
remedial actions, any of which could result in the Company
incurring significant expenditures. The Company may also be
required to compensate private parties suffering loss or damage
by reason of a breach of such laws, regulations or permitting
requirements. It is also possible that future laws and
regulations, or a more stringent enforcement of current laws and
regulations by governmental authorities, could cause additional
expense, capital expenditures, restrictions on or suspensions of
the Companys operations and delays in the development of
the Companys properties.
Mining
is inherently dangerous and subject to conditions or events
beyond NovaGolds control, which could have a material
adverse effect on NovaGolds business.
Mining involves various types of risks and hazards, including:
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environmental hazards;
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industrial accidents;
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metallurgical and other processing problems;
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unusual or unexpected rock formations;
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structural cave-ins or slides;
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flooding;
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fires;
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metals losses; and
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periodic interruptions due to inclement or hazardous weather
conditions.
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These risks could result in damage to, or destruction of,
mineral properties, production facilities or other properties,
personal injury, environmental damage, delays in mining,
increased production costs, monetary losses and possible legal
liability. The Company may not be able to obtain insurance to
cover these risks at economically feasible premiums. Insurance
against certain environmental risks, including potential
liability for pollution or other hazards as a result of the
disposal of waste products occurring from production, is not
generally available to the
38
Company or to other companies within the mining industry. The
Company may suffer a material adverse effect on its business if
it incurs losses related to any significant events that are not
covered by its insurance policies.
NovaGolds
activities are subject to environmental laws and regulations
that may increase the Companys costs of doing business and
restrict its operations.
All of the Companys exploration and production activities
in Canada and the United States are subject to regulation by
governmental agencies under various environmental laws. To the
extent that the Company conducts exploration activities or
undertakes new mining activities in other foreign countries, the
Company will also be subject to environmental laws and
regulations in those jurisdictions. These laws address emissions
into the air, discharges into water, management of waste,
management of hazardous substances, protection of natural
resources, antiquities and endangered species and reclamation of
lands disturbed by mining operations. Environmental legislation
in many countries is evolving and the trend has been towards
stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental
assessments of proposed projects and increasing responsibility
for companies and their officers, directors and employees.
Compliance with environmental laws and regulations may require
significant capital outlays on behalf of the Company and may
cause material changes or delays in the Companys intended
activities. There can be no assurance that future changes in
environmental regulations will not adversely affect the
Companys business, and it is possible that future changes
in these laws or regulations could have a significant adverse
impact on some portion of the Companys business, causing
the Company to re-evaluate those activities at that time.
NovaGold
has ongoing reclamation on some of its mineral properties and
NovaGold may be required to fund additional work which could
have a material adverse effect on its financial
position.
The Company mined silver and gold from the Murray Brook mine
until 1992 when the mine was closed. In September 2000, the
Company completed the final reclamation of the mine site.
Although the Company has posted a bond with the Province of New
Brunswick to cover expected future mine reclamation costs, there
is no guarantee that this amount will satisfy the environmental
regulations and requirements. Should government regulators
determine that the program requires additional reclamation work,
the Company may be required to fund this work, which could have
a material adverse effect on the Companys financial
position.
The Companys Nome, Galore Creek and Ambler properties have
been subject to either historic mining operations or exploration
activities by prior owners. Alaska Gold carried out mining
operations for many years in the Nome area before NovaGold
acquired the company. On acquisition, the Company set up a
provision for reclamation work and the Company has been actively
remediating the property against prior activities. The Company
has also been carrying out certain remediation against previous
exploration activities at both its Galore Creek and Ambler
properties. There can be no assurance, however, that the Company
will not be required to fund additional reclamation work at
these sites which could have a material adverse effect on the
Companys financial position.
Title
to NovaGolds mineral properties cannot be guaranteed and
may be subject to prior recorded and unrecorded agreements,
transfers or claims and other defects.
The Company cannot guarantee that title to its properties will
not be challenged. Title insurance is generally not available
for mineral properties and the Companys ability to ensure
that it has obtained secure claim to individual mineral
properties or mining concessions may be severely constrained.
The Companys mineral properties may be subject to prior
recorded and unrecorded agreements, transfers or claims, and
title may be affected by, among other things, undetected
defects. The Company has not conducted surveys of all of the
claims in which it holds direct or indirect interests. A
successful challenge to the precise area and location of these
claims could result in the Company being unable to operate on
its properties as permitted or being unable to enforce its
rights with respect to its properties.
39
There
is uncertainty related to unsettled aboriginal rights and title
in British Columbia and this may adversely impact
NovaGolds operations and profit.
Native land claims in British Columbia remain the subject of
active debate and litigation. The Galore Creek project lies
within the traditional territory of the Tahltan First Nation and
the Tahltan like the majority of British
Columbias First Nations have not concluded a
comprehensive treaty or land claims settlement regarding their
traditional territories. There can be no guarantee that the
unsettled nature of land claims in British Columbia will not
create delays in project approval, unexpected interruptions in
project progress or result in additional costs to advance the
project.
NovaGold
has a history of losses and expects to incur losses for the
foreseeable future.
The Company has incurred losses since its inception and the
Company expects to incur losses for the foreseeable future. The
Company incurred the following losses during each of the
following periods:
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$30.5 million for the fiscal year ended November 30,
2006;
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$5.8 million for the fiscal year ended November 30,
2005;
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$8.4 million for the fiscal year ended November 30,
2004;
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$7.0 million for the fiscal year ended November 30,
2003; and
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$3.5 million for the fiscal year ended November 30,
2002.
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The Company had an accumulated deficit of $88.4 million as
of November 30, 2005, and an accumulated deficit of
$118.9 million as of November 30, 2006.
The Company expects to continue to incur losses unless and until
such time as one or more of its properties enter into commercial
production and generate sufficient revenues to fund continuing
operations. The development of the Companys properties
will require the commitment of substantial financial resources.
The amount and timing of expenditures will depend on a number of
factors, including the progress of ongoing exploration and
development, the results of consultant analysis and
recommendations, the rate at which operating losses are
incurred, the execution of any joint venture agreements with
strategic partners, and the Companys acquisition of
additional properties, some of which are beyond the
Companys control. There can be no assurance that the
Company will ever achieve profitability.
There
can be no assurance that NovaGold will successfully acquire
additional mineral rights.
Most exploration projects do not result in the discovery of
commercially mineable ore deposits and no assurance can be given
that any particular level of recovery of ore reserves will be
realized or that any identified mineral deposit will ever
qualify as a commercially mineable (or viable) ore body which
can be legally and economically exploited. Estimates of
reserves, resources, mineral deposits and production costs can
also be affected by such factors as environmental permitting
regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected
geological formations and work interruptions. Material changes
in ore reserves, grades, stripping ratios or recovery rates may
affect the economic viability of any project.
NovaGolds future growth and productivity will depend, in
part, on its ability to identify and acquire additional
commercially mineable (or viable) mineral rights, and on the
costs and results of continued exploration and development
programs. Mineral exploration is highly speculative in nature
and is frequently non-productive. Substantial expenditures are
required to:
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establish ore reserves through drilling and metallurgical and
other testing techniques;
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determine metal content and metallurgical recovery processes to
extract metal from the ore; and
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construct, renovate or expand mining and processing facilities.
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In addition, if the Company discovers ore, it would take several
years from the initial phases of exploration until production is
possible. During this time, the economic feasibility of
production may change. As a result of
40
these uncertainties, there can be no assurance that the Company
will successfully acquire commercially mineable (or viable)
additional mineral rights.
Increased
competition could adversely affect NovaGolds ability to
attract necessary capital funding or acquire suitable producing
properties or prospects for mineral exploration in the
future.
The mining industry is intensely competitive. Significant
competition exists for the acquisition of properties producing
or capable of producing gold or other metals. The Company may be
at a competitive disadvantage in acquiring additional mining
properties because it must compete with other individuals and
companies, many of which have greater financial resources,
operational experience and technical capabilities than the
Company. The Company may also encounter increasing competition
from other mining companies in its efforts to hire experienced
mining professionals. Competition for exploration resources at
all levels is currently very intense, particularly affecting the
availability of manpower, drill rigs and helicopters. Increased
competition could adversely affect the Companys ability to
attract necessary capital funding or acquire suitable producing
properties or prospects for mineral exploration in the future.
Because
NovaGolds Galore Creek project is located in Canada and
will have production costs incurred in Canadian dollars, while
gold and other metals are generally sold in United States
dollars, the Galore Creek project results could be materially
adversely affected by an appreciation of the Canadian
dollar.
Gold and other metals are sold throughout the world principally
in United States dollars. If NovaGold commences production on
its Galore Creek project, its operating costs on the Galore
Creek project will be incurred in Canadian dollars. As a result,
any significant and sustained appreciation of the Canadian
dollar against the United States dollar may materially
increase NovaGolds costs and reduce revenues, if any, on
the Galore Creek project. NovaGold currently has no foreign
exchange hedging contracts to offset currency fluctuations.
The
Company may fail to achieve and maintain the adequacy of
internal control over financial reporting as per the
requirements of the Sarbanes-Oxley Act.
The Company documented and tested during its most recent fiscal
year, its internal control procedures in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act
(SOX).
SOX requires an annual assessment by management of the
effectiveness of the Companys internal control over
financial reporting and an attestation report by the
Companys independent auditors addressing this assessment.
The Company may fail to achieve and maintain the adequacy of its
internal control over financial reporting as such standards are
modified, supplemented, or amended from time to time, and the
Company may not be able to ensure that it can conclude on an
ongoing basis that it has effective internal controls over
financial reporting in accordance with Section 404 of SOX.
The Companys failure to satisfy the requirements of
Section 404 of SOX on an ongoing, timely basis could result
in the loss of investor confidence in the reliability of its
financial statements, which in turn could harm the
Companys business and negatively impact the trading price
of its common shares or market value of its other securities. In
addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation,
could harm the Companys operating results or cause it to
fail to meet its reporting obligations. Future acquisitions of
companies may provide the Company with challenges in
implementing the required processes, procedures and controls in
its acquired operations. Acquired companies may not have
disclosure controls and procedures or internal control over
financial reporting that are as thorough or effective as those
required by securities laws currently applicable to the Company.
No evaluation can provide complete assurance that the
Companys internal control over financial reporting will
detect or uncover all failures of persons within the Company to
disclose material information otherwise required to be reported.
The effectiveness of the Companys control and procedures
could also be limited by simple errors or faulty judgments. In
addition, as the Company continues to expand, the challenges
involved in implementing appropriate internal controls over
financial reporting will increase and will require that the
Company continue to improve its internal controls over financial
reporting. Although the Company intends to devote substantial
time and incur substantial costs, as necessary, to ensure
ongoing compliance, the Company cannot be certain that it will
be successful in complying with Section 404.
41
Legislation
proposed from time to time that would increase the environmental
compliance and tax burdens of the Company may be passed in the
future.
From time to time, proposed legislation has been introduced in
the Alaska legislature that would increase environmental
regulation of mining in Alaska, limit or prohibit common mining
practices, such as use of cyanide to process ore, or impose
increased taxes on mining activities. Adoption of any of these
measures could have a material adverse effect on NovaGolds
Alaska properties, operations and financial position.
Risks
Relating to the Companys Securities
NovaGold
may raise funds for future operations through the issuance of
shares, debt instruments or other securities convertible into
shares and such financings may result in the dilution of present
and prospective shareholdings.
In order to finance future operations, the Company may raise
funds through the issuance of shares or the issuance of debt
instruments or other securities convertible into shares. The
Company cannot predict the size of future issuances of common
shares or the issuance of debt instruments or other securities
convertible into shares or the effect, if any, that future
issuances and sales of the Companys securities will have
on the market price of the Companys common shares. Any
transaction involving the issuance of previously authorized but
unissued shares, or securities convertible into shares, would
result in dilution, possibly substantial, to present and
prospective security holders.
The
trading price for the Companys securities is
volatile.
The trading price of the Companys common shares has been
and may continue to be subject to large fluctuations and,
therefore, the trading price of the Companys securities
convertible into, or exchangeable for, common shares may also
fluctuate significantly, which may result in losses to
investors. The trading price of the Companys common shares
and warrants and any securities convertible into, or
exchangeable for, common shares or warrants may increase or
decrease in response to a number of events and factors,
including:
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the price of gold and other metals;
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the Companys operating performance and the performance of
competitors and other similar companies;
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the publics reaction to the Companys press releases,
other public announcements and the Companys filings with
the various securities regulatory authorities;
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changes in earnings estimates or recommendations by research
analysts who track the Companys common shares or the
shares of other companies in the resource sector;
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changes in general economic conditions;
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the number of the Companys common shares to be publicly
traded after an offering pursuant to any Prospectus Supplement;
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the arrival or departure of key personnel;
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acquisitions, strategic alliances or joint ventures involving
the Company or its competitors; and
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the factors listed under the heading
Cautionary
Statement Regarding Forward-Looking
Statements.
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In addition, the market price of the Companys shares are
affected by many variables not directly related to the
Companys success and are therefore not within the
Companys control, including other developments that affect
the market for all resource sector shares, the breadth of the
public market for the Companys shares, and the
attractiveness of alternative investments. The effect of these
and other factors on the market price of common shares on the
exchanges in which the Company trades has historically made the
Companys share price volatile and suggests that the
Companys share price will continue to be volatile in the
future.
42
The
debt securities may not be listed and there is no established
trading market for the securities. You may be unable to sell
debt securities at the price you desire or at all.
There is no existing trading market for our debt securities. As
a result, there can be no assurance that a liquid market will
develop or be maintained for the debt securities, that you will
be able to sell any of the debt securities at a particular time
(if at all). We may not list the debt securities on any national
securities exchange. The liquidity of the trading market in
these debt securities, and the market price quoted for these
debt securities, may be adversely affected by, among other
things:
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changes in the overall market for debt securities;
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changes in our financial performance or prospects;
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the prospects for companies in our industry generally;
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the number of holders of the debt securities;
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the interest of securities dealers in making a market for the
debt securities; and
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prevailing interest rates.
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The
Company does not intend to pay any dividends in the foreseeable
future.
The Company has not declared or paid any dividends on its common
shares since the date the Company was incorporated. The Company
intends to retain its earnings, if any, to finance the growth
and development of the business and does not intend to pay
dividends on the common shares in the foreseeable future. Any
return on an investment in the Companys common shares will
come from the appreciation, if any, in the value of the common
shares. The payment of future dividends, if any, will be
reviewed periodically by the Companys Board of Directors
and will depend upon, among other things, conditions then
existing including earnings, financial condition and capital
requirements, restrictions in financing agreements, business
opportunities and conditions and other factors. See
Dividend
Policy.
NovaGold
believed it was a
passive
foreign investment
company
for the taxable year ended November 30, 2006 and may
be a
passive
foreign investment
company
for the taxable year ending November 30, 2007 and for
future taxable years under the U.S. Internal Revenue Code,
which may result in adverse tax consequences for investors in
the United States.
Potential investors that are U.S. taxpayers should be aware
that the Company believes it was a
passive
foreign investment
company
under Section 1297(a) of the U.S. Internal Revenue
Code (a
PFIC)
for the taxable year ended November 30, 2006 and may be a
PFIC for the current and future taxable years. If the Company is
or becomes a PFIC, any gain recognized on the sale of common
shares and any
excess
distributions
(as specifically defined) paid on the common shares must be
ratably allocated to each day in a U.S. taxpayers
holding period for the common shares. The amount of any such
gain or excess distribution allocated to prior years of such
U.S. taxpayers holding period for the common shares
generally will be subject to U.S. federal income tax at the
highest tax applicable to ordinary income in each such prior
year, and the U.S. taxpayer will be required to pay
interest on the resulting tax liability for each such prior
year, calculated as if such tax liability had been due in each
such prior year.
As an alternative to the U.S. federal income tax treatment
if the Company is a PFIC as described above, a
U.S. taxpayer that makes a
QEF
election
generally will be subject to U.S. federal income tax on
such U.S. taxpayers pro rata share of the
Companys
net
capital
gain
and
ordinary
earnings
(calculated under U.S. federal income tax rules),
regardless of whether such amounts are actually distributed by
the Company. U.S. taxpayers should be aware that there can
be no assurance that the Company will satisfy record keeping
requirements or that it will supply U.S. taxpayers with
required information under the QEF rules in the event that the
Company is a PFIC and a U.S. taxpayer wishes to make a QEF
election. As a second alternative, a U.S. taxpayer may make
a
mark-to-market
election
if the Company is a PFIC and the common shares are
marketable
stock
(as specifically defined). A U.S. taxpayer that makes a
mark-to-market
election generally will include in gross income, for each
taxable year in which the Company is a PFIC, an amount equal to
the excess, if any, of (a) the fair market
43
value of the common shares as of the close of such taxable year
over (b) such U.S. taxpayers tax basis in such
common shares.
Additional tax considerations may apply to purchasers of
Securities other than common shares. Prospective investors
should be aware that the acquisition of Securities may have
additional tax consequences both in the United States and
Canada that are not described herein. Prospective investors
should read the tax discussion contained in the applicable
Prospectus Supplement with respect to a particular offering of
Securities.
Investors
in the United States or in other jurisdictions outside of Canada
may have difficulty bringing actions and enforcing judgments
against NovaGold, its directors, its executive officers and some
of the experts named in this Prospectus based on civil liability
provisions of federal securities laws or other laws of the
United States or any state thereof or the equivalent laws of
other jurisdictions of residence.
The Company is organized under the laws of the Province of Nova
Scotia and its principal executive office is located in the
Province of British Columbia. Many of the Companys
directors and officers, and some of the experts named in this
Prospectus, are residents of Canada or otherwise reside outside
of the United States, and all or a substantial portion of their
assets, and a substantial portion of the Companys assets,
are located outside of the United States. As a result, it may be
difficult for investors in the United States or outside of
Canada to bring an action against directors, officers or experts
who are not resident in the United States or in the other
jurisdiction of residence. It may also be difficult for an
investor to enforce a judgment obtained in a United States court
or a court of another jurisdiction of residence predicated upon
the civil liability provisions of federal securities laws or
other laws of the United States or any state thereof or the
equivalent laws of other jurisdictions of residence against
those persons or the Company. Please refer to additional
information under the heading
Enforceability
of Civil
Liabilities
in this Prospectus.
44
USE OF
PROCEEDS
The net proceeds of any offering of Securities under a
Prospectus Supplement will be used to fund further exploration
at, and initial construction of, the Galore Creek project, to
fund general exploration and development on the Companys
other projects and for general corporate purposes. More detailed
information regarding the use of proceeds from a sale of
Securities will be included in the applicable Prospectus
Supplement.
All expenses relating to an offering of Securities and any
compensation paid to underwriters, dealers or agents, as the
case may be, will be paid out of the Companys general
funds, unless otherwise stated in the applicable Prospectus
Supplement.
EARNINGS
COVERAGE
The following consolidated financial earnings coverage figures
and cash flow coverage ratios are calculated for the year ended
November 30, 2006 and give effect to all long-term
financial liabilities of the Company and the repayment,
redemption or retirement thereof since those dates,
respectively. The earnings coverage deficiencies, cash flow
coverage ratios, cash flow coverage deficiencies and the amount
of earnings, cash flow and interest expense set forth below do
not purport to be indicative of earnings coverage deficiencies
or ratios or cash flow coverage deficiencies or ratios for any
further periods. The deficiency figures and coverage ratios have
been calculated based on Canadian GAAP. These coverage
deficiencies, coverage ratios, earnings, cash flows or interest
expenses do not give effect to the issuance of any Debt
Securities that may be issued pursuant to any Prospectus
Supplement, since the aggregate principal amounts and the terms
of such Debt Securities are not presently known.
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Year Ended
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November 30, 2006
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($ amounts in millions)
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Earnings coverage
(deficiency)(1)
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($32.1
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Earning coverage ratio
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(41.46
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Cash flow coverage
(deficiency)(2)
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($64.2
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Cash flow coverage ratio
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(0.89
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(1) |
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Earnings coverage (deficiency) is
the dollar amount of earnings required to attain an earnings
coverage ratio of
one-to-one.
Earnings coverage ratio is equal to net income after the
unrealised loss on derivatives and before interest expense and
income taxes divided by interest expense on all debt.
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Cash flow coverage (deficiency) is
the dollar amount of cash flow required to attain a cash flow
coverage ratio of
one-to-one.
Cash flow coverage ratio is equal to cash flow from operating
activities before depreciation divided by debt, which is the
amounts in other liabilities less deferred income.
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The Companys cash flow deficiency amounted to
approximately $64.2 million for the year ended
November 30, 2006 which is the difference between the
Companys net loss for the year and total debt payments at
the end of the year. The cash flow deficiency ratio of 0.89 for
the year ended November 30, 2006 is a result of dividing
the Companys net loss for the year by the total debt.
The Companys interest expense amounted to approximately
$0.7 million for the year ended November 30, 2006. The
Companys loss before interest expense and income tax for
the year ended November 30, 2006 was approximately
$31.3 million, which results in an earnings cover ratio of
(41.46) for the year.
If the Company offers any Debt Securities having a term to
maturity in excess of one year under a Prospectus Supplement,
the Prospectus Supplement will include earnings coverage ratios
giving effect to the issuance of such Debt Securities.
DIVIDEND
POLICY
The Company has not declared or paid any dividends on its common
shares since the date of its incorporation. The Company intends
to retain its earnings, if any, to finance the growth and
development of its business and does not expect to pay dividends
or to make any other distributions in the near future. The
Companys Board of Directors will review this policy from
time to time having regard to the Companys financing
requirements, financial condition and other factors considered
to be relevant.
45
CONSOLIDATED
CAPITALIZATION
As of the date of this Prospectus, there have been no material
changes in the capital structure of the Company since
November 30, 2006.
MANAGEMENT
Executive
Officers, Senior Management and Directors
The following table sets forth information about the
Companys directors, executive officers and certain key
employees, and their respective positions as of the date of this
Prospectus.
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Name
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Title
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Executive Officers and Directors
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Rick Van Nieuwenhuyse
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President, Chief Executive Officer and Director
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Robert J. (Don) MacDonald
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Senior Vice President, Chief Financial Officer and Secretary
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Peter Harris
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Senior Vice President and Chief Operating Officer
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George L. Brack
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Director
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Michael H. Halvorson
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Director
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Gerald J. McConnell
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Director
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Cole E. McFarland
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Director
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Clynton R. Nauman
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Director
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James L. Philip
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Director
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Other Senior Management
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Douglas Brown
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Vice President, Business Development
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Gregory S. Johnson
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Vice President, Corporate Communications and Strategic
Development
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Joseph R. Piekenbrock
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Vice President, Exploration
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Elaine M. Sanders
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Vice President, Finance
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Carl Gagnier
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Executive Vice President, General Manager Galore Creek Project
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Douglas Nicholson
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Vice President, NovaGold Resources/Alaska Gold Company
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Rick Van Nieuwenhuyse joined the Company as President and
Chief Operating Officer in January 1998 and was appointed as
Chief Executive Officer in May 1999. Mr. Van Nieuwenhuyse
brings with him over 25 years of experience in the natural
resource sector including most recently as Vice President of
Exploration for Placer Dome. In addition to his international
exploration perspective, Mr. Van Nieuwenhuyse brings years
of working experience in, and knowledge of, Alaska to the
Company. Mr. Van Nieuwenhuyse has managed projects from
grassroots discovery through to advanced feasibility studies and
production. Mr. Van Nieuwenhuyse holds a Candidature degree
in Science from the Universite de Louvain, Belgium, and a
Masters of Science degree in geology from the University of
Arizona.
Peter W. Harris was appointed Senior Vice President and
Chief Operating Officer of the Company in October 2005.
Mr. Harris brings over 30 years of mine design,
development and operations experience to NovaGold. He has been
involved with, and responsible for, the development and
operation of mines on four different continents including mines
in Canada, Papua New Guinea, South Africa and England. Recently,
Mr. Harris was Senior Vice President, Project Development
at Placer Dome where he was responsible for project development
activities related to projects in the United States, Chile and
the Dominican Republic.
Robert J. (Don) MacDonald joined the Company as Senior
Vice President, Chief Financial Officer and Secretary in January
2003. Mr. MacDonald brings with him over 20 years of
experience in the mining industry. He
46
has been directly involved in the operation or development of
ten mines in North and South America, has been involved in the
completion of over thirty mining financings totalling almost
$1 billion and over $500 million of successful mergers
and acquisition transactions. Mr. MacDonalds
experience in the mining industry included Senior VP & CFO
of De Beers Canada Mining Inc. (formerly Winspear Diamonds) and
Dayton Mining Corporation. Mr. MacDonald holds a Bachelor
and Masters degree in engineering from Oxford University and he
is a chartered accountant.
Douglas Brown joined the Company as Vice President,
Business Development in June 2003, having spent the previous
15 years as a senior executive in the mining industry. He
has lived and worked in Chile, South Africa, Canada, Russia and
the United States and brings to the Company a depth of
experience in project evaluation, acquisitions, operations
management and corporate finance. Mr. Brown holds a
Bachelor of Science degree in Mining Engineering and a Master of
Science degree in Mineral Economics from the Colorado School of
Mines. Prior to joining NovaGold, Mr. Browns
positions within the Placer Dome group of companies included
Vice President of Strategic Development from 1999 to 2002,
Assistant Mine General Manager at the South Deep Gold Mine in
2001, Director of Finance and Planning from 1997 to 1999 and
Manager of Corporate Finance from 1994 to 1997.
Gregory S. Johnson joined the Company as Vice President,
Corporate Communications and Strategic Development in 1998.
Prior to joining the Company, Mr. Johnson was part of the
management team responsible for overseeing the exploration and
acquisition activities for Placer Dome International Exploration
in Africa and Eurasia. In 1995, as a senior geologist for Placer
Dome in Alaska, Mr. Johnson played a key role in the
multi-million ounce Donlin Creek project discovery. From the
late 1980s, Mr. Johnson worked for Placer Dome on projects
ranging from regional grassroots reconnaissance to mine
feasibility studies in the United States, Canada, Australia,
Russia and Africa. Mr. Johnson is responsible for marketing
and communications activities of the Company and is involved in
developing strategic growth opportunities.
Joseph R. Piekenbrock joined the Company as Vice
President, Exploration in June 2003. Prior to this, as a
consultant, he was a key member of the Donlin Creek exploration
team for NovaGold during 2002 and 2003. Mr. Piekenbrock
brings with him over 25 years of experience in the minerals
exploration and development sector. He has managed exploration
from grassroots discovery through advanced acquisitions, most
recently in South America for Placer Dome and Brett
Resources Inc. In addition, he brings a wealth of northern
experience through years of exploration for both Cominco Ltd.
and Placer Dome in Alaska. Mr. Piekenbrock holds a Bachelor
of Arts degree in geology from the University of Colorado and a
Master of Science degree in geology from the University of
Arizona.
Elaine M. Sanders joined the Company as Controller in
March 2003 and became Vice President, Finance in October 2006.
Prior to joining the Company, she was Controller and Chief
Accounting Officer for an international high technology company
in the telecommunications sector. Ms. Sanders brings over
14 years of experience in auditing, financing and
accounting for public and private companies. She has been
involved with numerous financings and acquisitions, and has
listed companies on both the TSX and AMEX stock exchanges.
Ms. Sanders is a chartered accountant and a certified
public accountant, and holds a Bachelor of Commerce degree from
the University of Alberta.
Carl Gagnier joined NovaGold in January 2005, having
spent 15 years as a senior executive with Placer Dome in
Chile, Costa Rica, Venezuela and Canada. He has a wealth of
experience with operations management, government relations, and
project development. Mr. Gagniers positions within
the Placer Dome Group (PDG) included President Minera Las
Cristinas, President PDG Costa Rica, and Mine General Manager
Minera Mantos de Oro. Most recently, he was General Manager of
Minera Zaldivar, in Antofagasta, Chile during the operation of
the world-class Zaldivar mine. Mr. Gagnier is
responsible for engineering, environmental and government
relations pertaining to the Galore Creek project. He holds a
Bachelor of Science degree in Metallurgical Engineering from
Queens University.
Douglas Nicholson has over 18 years of mine
development and operation experience. Prior to joining NovaGold,
Mr. Nicholson was in charge of mine development engineering
at the Kinross Gold 400,000 oz per year open-pit Fort Knox
and True North deposits in Fairbanks, Alaska. Prior to his work
at the Fort Knox and True North
47
gold deposits, Mr. Nicholson was chief mine engineer for
Cambior at the Valdez Creek Mine in Alaska. Mr. Nicholson
has a Bachelor of Science degree in mine engineering from the
University of Alaska Fairbanks.
George Brack, a director of the Company, is Managing
Director and Industry Head Mining of Scotia Capital.
Prior to joining Scotia Capital, Mr. Brack held the
position of President of Macquarie North America Ltd., an
investment banking firm specializing in mergers and acquisitions
as well as other advisory functions for North American
resource companies. Mr. Brack has also held positions with
Placer Dome as Vice President Corporate Development and with
CIBC Wood Gundy, where he was Vice President of the Investment
Banking Group. Mr. Bracks career in corporate finance
has been focused on the world-wide identification, evaluation
and execution of strategic mergers and acquisitions in the
mining industry.
Michael H. Halvorson, a director of the Company, is the
President of Halcorp Capital Ltd., a position he held since
September 1981. Mr. Halvorson is also currently a director
of Strathmore Minerals Corp., Gentry Resources Ltd., Esperanza
Silver Corporation, Orezone Resources Inc., Radiant Resources
Inc. and Pediment Exploration Ltd. Past directorships include
Western Silver Inc. and Viceroy Exploration Ltd.
Gerald J. McConnell, Q.C., a director of the Company, is
the Chairman, President and Chief Executive Officer of Etruscan
Resources Inc., a junior natural resource company. He is also a
director of Etruscan Resources. From December 1984 to January
1998, Mr. McConnell was the President of the Company and
from January 1998 to May 1999 he was the Chairman and Chief
Executive Officer of the Company. Gerald McConnell was called to
the bar of Nova Scotia in 1971 and was an associate and partner
with the law firm, Patterson Palmer, Halifax Regional
Municipality, Nova Scotia from 1971 to 1987.
Cole L. McFarland, a director of the Company, is the
principal of McFarland & Associates and a veteran of
the mining industry with over 40 years of experience in the
development and operation of mineral properties in the United
States and the Philippines, with extensive experience in Alaska.
Mr. McFarland was President and Chief Executive Officer of
Placer Dome US from 1987 until his retirement in July 1995.
During that period, Placer Dome US substantially expanded gold
production at several mines and initiated development of the
Cortez world-class Pipeline deposit. Prior to his
appointment as President of Placer Dome US, Mr. McFarland
held a number of managerial and executive positions within the
Placer Dome group of companies. Mr. McFarland was also a
director of Bema Gold Corp.
Clynton R. Nauman, a director of the Company, is the
Chief Executive Officer of Alexco Resource Corp., Asset
Liability Management Group ULC, and was formerly President of
Viceroy Gold Corporation and Viceroy Minerals Corporation and a
director of Viceroy Resource Corporation, positions he held from
February 1998 until February 2003. Previously, Mr. Nauman
was the General Manager of Kennecott Minerals from 1993 to 1998.
Mr. Nauman has 25 years of diversified experience in
the mining industry ranging from exploration and business
development to operations and business management in the
precious metals, base metals and coal sectors.
James L. Philip, a director of the Company, is the
President of Clan Chatton Finance Ltd., a private investment
holding company. Mr. Phillip joined Morgan &
Company Chartered Accountants in May 1980 and became a partner
in June 1981 and managing partner in August 1993 until 2005.
Mr. Philip is a chartered accountant and has over
25 years of public accounting experience, servicing mainly
companies listed on Canadian and United States stock exchanges.
His clients include a significant number of public companies in
the mining resource sector. The services he provided his clients
include assisting them with the financial aspects of continuous
disclosure reporting requirements in Canada and the United
States.
Conflicts
of Interest
To the knowledge of the Company as of the date of this
Prospectus, no existing or potential conflicts of interest exist
between the Company and any of its officers or directors other
than as set forth below.
The Company provided exploration and management services
totalling $826,000 to Alexco Resource Corp.
(Alexco),
a related party having two common directors. Mr. Nauman is
Alexcos President and Chief Executive Officer and
Mr. Van Nieuwenhuyse is a director of Alexco.
Ms. Sanders is Alexcos Chief Financial Officer.
48
DESCRIPTION
OF SHARE CAPITAL
The Companys authorized share capital consists of
1,000,000,000 common shares without par value and 10,000,000
preferred shares, issuable in series. As at March 1, 2007,
the Company had 91,979,525 common shares and no preferred
shares issued and outstanding.
Common
Shares
All of the common shares rank equally as to voting rights,
participation in a distribution of the assets of the Company on
a liquidation, dissolution or
winding-up
of the Company and the entitlement to dividends. The holders of
the common shares are entitled to receive notice of all meetings
of shareholders and to attend and vote the shares at the
meetings. Each common share carries with it the right to one
vote.
In the event of the liquidation, dissolution or
winding-up
of the Company or other distribution of its assets, the holders
of the common shares will be entitled to receive, on a pro rata
basis, all of the assets remaining after the Company has paid
out its liabilities. Distributions in the form of dividends, if
any, will be set by the Board of Directors. See
Dividend
Policy.
Provisions as to the modification, amendment or variation of the
rights attached to the common shares are contained in the
Companys articles of association and the Companies Act
(Nova Scotia). Generally speaking, substantive changes to
the share capital require the approval of the shareholders by
special resolution (at least 75% of the votes cast) and in
certain cases approval by the holders of a class or series of
shares, including in certain cases a class or series of shares
not otherwise carrying voting rights, in which event the
resolution must be approved by no less than two
thirds of the votes cast by shareholders who vote in respect of
the resolution.
Preferred
Shares
The Companys preferred shares may be issued from time to
time in one or more series, the number of shares, designation,
rights and restrictions of which will be determined by the Board
of Directors of the Company. The preferred shares rank ahead of
the common shares with respect to the payment of dividends and
the payment of capital. There are no preferred shares
outstanding at the date of this Prospectus.
DESCRIPTION
OF DEBT SECURITIES
In this section only,
we,
us,
our
or
NovaGold
refers only to NovaGold Resources Inc. and not any of its
subsidiaries. The following description sets forth certain
general terms and provisions of the Debt Securities. We will
provide the particular terms and provisions of a series of Debt
Securities and a description of how the general terms and
provisions described below may apply to that series in a
Prospectus Supplement.
The Debt Securities will be issued under an indenture to be
entered into between us and The Bank of New York, as
trustee (the
Trustee)
(hereinafter referred to as the
Indenture).
The Indenture will be subject to and governed by the
U.S. Trust Indenture Act of 1939, as amended. A copy of the
form of Indenture has been filed as an exhibit to the
registration statement filed with the SEC. The following is a
summary of the Indenture which sets forth certain general terms
and provisions of the Debt Securities and is not intended to be
complete. For a more complete description, including the
definition of capitalized terms used but not defined under this
section, prospective investors should refer to the Indenture.
Whenever we refer to particular provisions of the Indenture,
those provisions are qualified in their entirety by reference to
the Indenture. References in parentheses are to section numbers
or articles of the Indenture.
We may issue securities (including debt securities) and incur
additional debt other than through the offering of Debt
Securities under this Prospectus.
General
The Indenture does not limit the aggregate principal amount of
Debt Securities which we may issue under the Indenture and does
not limit the amount of other debt we may incur. The Indenture
provides that Debt Securities may be issued from time to time in
one or more series and may be denominated and payable in
U.S. dollars or any
49
foreign currency. Special Canadian and U.S. federal income
tax considerations applicable to any of the Debt Securities
denominated in a foreign currency will be described in the
Prospectus Supplement relating to any offering of Debt
Securities denominated in a foreign currency. Unless otherwise
indicated in a Prospectus Supplement, the Debt Securities will
be unsecured obligations. The Indenture also permits us to
increase the principal amount of any series of the Debt
Securities previously issued and to issue that increased
principal amount.
The applicable Prospectus Supplement will describe the specific
terms of the Debt Securities of any series being offered and may
include, but is not limited to, any of the following:
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the title and the aggregate principal amount of the Debt
Securities;
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the date or dates, or the method by which such date or dates
will be determined or extended, on which the principal of (and
premium, if any, on) the Debt Securities will be payable and the
portion (if less than the principal amount) to be payable upon a
declaration of acceleration of maturity;
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the rate or rates (whether fixed or variable) at which the Debt
Securities will bear interest, if any, or the method by which
such rate or rates will be determined and the date or dates from
which such interest will accrue;
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the date or dates, or the method by which such date or dates
will be determined or extended, on which any interest will be
payable and the regular record dates for the payment of interest
on the Debt Securities in registered form;
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the place or places where the principal of (and premium, if any)
and interest, if any, on the Debt Securities will be payable and
each office or agency where the Debt Securities may be presented
for registration of transfer or exchange;
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each office or agency where the principal of (and premium, if
any) and interest, if any, on the Debt Securities of such series
will be payable;
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the period or periods within which, the price or prices at
which, the currency or currency unit in which, and other terms
and conditions upon which the Debt Securities may be redeemed or
purchased, in whole or in part, by us;
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the terms and conditions upon which you may redeem the Debt
Securities prior to maturity and the price or prices at which
and the currency or currency unit in which the Debt Securities
are payable;
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any mandatory or optional redemption or sinking fund or
analogous provisions;
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if other than denominations of US$1,000 and any integral
multiple thereof, the denomination or denominations in which any
registered securities of the series shall be issuable and, if
other than the denomination of US$5,000, the denomination or
denominations in which any bearer securities of the series shall
be issuable;
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if other than U.S. dollars, the currency or currency unit
in which the Debt Securities are denominated or in which
currency payment of the principal of (and premium, if any) or
interest, if any, on such Debt Securities will be payable;
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any index formula or other method used to determine the amount
of payments of principal of (and premium, if any) or interest,
if any, on the Debt Securities;
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whether the series of the Debt Securities are to be registered
securities, bearer securities (with or without coupons) or both;
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whether the Debt Securities will be issuable in the form of one
or more global securities and, if so, the identity of the
depository for the global securities;
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whether and under what circumstances we will be required to pay
any Additional Amounts (defined below under
Additional
Amounts)
for withholding or deduction for Canadian taxes with respect to
the securities, and whether we will have the option to redeem
the Debt Securities rather than pay the Additional Amounts;
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the terms, if any, on which the Debt Securities may be converted
or exchanged for other of our securities or securities of other
entities;
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if payment of the Debt Securities will be guaranteed by any
other person;
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the extent and manner, if any, in which payment on or in respect
of the Debt Securities will be senior or will be subordinated to
the prior payment of our other liabilities and obligations;
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the percentage or percentages of principal amount at which the
Debt Securities will be issued;
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any applicable Canadian and U.S. federal income tax
consequences; and
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any other terms, conditions, rights and preferences (or
limitations on such rights and preferences) of the Debt
Securities including covenants and events of default which apply
solely to a particular series of the Debt Securities being
offered which do not apply generally to other Debt Securities,
or any covenants or events of default generally applicable to
the Debt Securities which do not apply to a particular series of
the Debt Securities.
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Unless otherwise indicated in a Prospectus Supplement, the
Indenture does not afford holders of the Debt Securities the
right to tender such Debt Securities to us for repurchase or
provide for any increase in the rate or rates of interest at
which the Debt Securities will bear interest, in the event we
should become involved in a highly leveraged transaction or in
the event we have a change in control.
The Debt Securities may be issued under the Indenture bearing no
interest or at a discount below their stated principal amount.
The Canadian and U.S. federal income tax consequences and
other special considerations applicable to any such discounted
Debt Securities or other Debt Securities offered and sold at par
which are treated as having been issued at a discount for
Canadian
and/or
U.S. federal income tax purposes will be described in a
Prospectus Supplement.
Ranking
and Other Indebtedness
Unless otherwise indicated in an applicable Prospectus
Supplement, the Debt Securities will be unsecured obligations
and will rank equally with all of our other unsecured and
unsubordinated debt from time to time outstanding and equally
with other securities issued under the Indenture. The Debt
Securities will be structurally subordinated to all existing and
future liabilities, including trade payables and other
indebtedness, of our subsidiaries.
Form,
Denominations and Exchange
A series of the Debt Securities may be issued solely as
registered securities, solely as bearer securities or as both
registered securities and bearer securities. Registered
securities will be issuable in denominations of US$1,000 and any
integral multiple thereof and bearer securities will be issuable
in denominations of US$5,000 or, in each case, in such other
denominations as may be set out in the terms of the Debt
Securities of any particular series. The Indenture will provide
that a series of the Debt Securities may be issuable in global
form. Unless otherwise indicated in a Prospectus Supplement,
bearer securities will have interest coupons attached.
Registered securities of any series will be exchangeable for
other registered securities of the same series and of a like
aggregate principal amount and tenor of different authorized
denominations. If, but only if, provided in a Prospectus
Supplement, bearer securities (with all unmatured coupons,
except as provided below, and all matured coupons in default) of
any series may be exchanged for registered securities of the
same series of any authorized denominations and of a like
aggregate principal amount and tenor. In such event, bearer
securities surrendered in a permitted exchange for registered
securities between a regular record date or a special record
date and the relevant date for payment of interest shall be
surrendered without the coupon relating to such date for payment
of interest, and interest will not be payable on such date for
payment of interest in respect of the registered security issued
in exchange for such bearer security, but will be payable only
to the holder of such coupon when due in accordance with the
terms of the Indenture. Unless otherwise specified in a
Prospectus Supplement, bearer securities will not be issued in
exchange for registered securities.
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The applicable Prospectus Supplement may indicate the places to
register a transfer of the Debt Securities. Except for certain
restrictions set forth in the Indenture, no service charge will
be made for any registration of transfer or exchange of the Debt
Securities, but we may, in certain instances, require a sum
sufficient to cover any tax or other governmental charges
payable in connection with these transactions.
We shall not be required to:
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issue, register the transfer of or exchange any series of the
Debt Securities during a period beginning at the opening of
business 15 days before any selection of that series of the
Debt Securities to be redeemed and ending at the close of
business on (A) if the series of the Debt Securities are
issuable only as registered securities, the day of mailing of
the relevant notice of redemption and (B) if the series of
the Debt Securities are issuable as bearer securities, the day
of the first publication of the relevant notice of redemption
or, if the series of the Debt Securities are also issuable as
registered securities and there is no publication, the mailing
of the relevant notice of redemption;
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register the transfer of or exchange any registered security, or
portion thereof, called for redemption, except the unredeemed
portion of any registered security being redeemed in part;
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exchange any bearer security selected for redemption, except
that, to the extent provided with respect to such bearer
security, such bearer security may be exchanged for a registered
security of that series and like tenor, provided that such
registered security shall be immediately surrendered for
redemption with written instruction for payment consistent with
the provisions of the Indenture; or
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issue, register the transfer of, or exchange any of the Debt
Securities which have been surrendered for repayment at the
option of the holder, except the portion, if any, thereof not to
be so repaid.
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Global
Securities
A series of the Debt Securities may be issued in whole or in
part in global form as a
global
security
and will be registered in the name of and be deposited with a
depositary, or its nominee, each of which will be identified in
the Prospectus Supplement relating to that series. Unless and
until exchanged, in whole or in part, for the Debt Securities in
definitive registered form, a global security may not be
transferred except as a whole by the depositary for such global
security to a nominee of the depositary, by a nominee of the
depositary to the depositary or another nominee of the
depositary or by the depositary or any such nominee to a
successor of the depositary or a nominee of the successor.
The specific terms of the depositary arrangement with respect to
any portion of a particular series of the Debt Securities to be
represented by a global security will be described in a
Prospectus Supplement relating to such series. We anticipate
that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a global security, the depositary therefor
or its nominee will credit, on its book entry and registration
system, the respective principal amounts of the Debt Securities
represented by the global security to the accounts of such
persons, designated as
participants,
having accounts with such depositary or its nominee. Such
accounts shall be designated by the underwriters, dealers or
agents participating in the distribution of the Debt Securities
or by us if such Debt Securities are offered and sold directly
by us. Ownership of beneficial interests in a global security
will be limited to participants or persons that may hold
beneficial interests through participants. Ownership of
beneficial interests in a global security will be shown on, and
the transfer of that ownership will be effected only through,
records maintained by the depositary therefor or its nominee
(with respect to interests of participants) or by participants
or persons that hold through participants (with respect to
interests of persons other than participants). The laws of some
states in the United States may require that certain purchasers
of securities take physical delivery of such securities in
definitive form.
So long as the depositary for a global security or its nominee
is the registered owner of the global security, such depositary
or such nominee, as the case may be, will be considered the sole
owner or holder of the Debt Securities represented by the global
security for all purposes under the Indenture. Except as
provided below, owners of beneficial interests in a global
security will not be entitled to have a series of the Debt
Securities represented by the
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global security registered in their names, will not receive or
be entitled to receive physical delivery of such series of the
Debt Securities in definitive form and will not be considered
the owners or holders thereof under the Indenture.
If a depositary for a global security representing a particular
series of the Debt Securities is at any time unwilling or unable
to continue as depositary and a successor depositary is not
appointed by us within 90 days, we will issue such series
of Debt Securities in definitive form in exchange for a global
security representing such series of Debt Securities. In
addition, we may at any time and in our sole discretion
determine not to have a series of Debt Securities represented by
a global security and, in such event, will issue a series of
Debt Securities in definitive form in exchange for all of the
global securities representing the series of Debt Securities.
Payment
Unless otherwise indicated in a Prospectus Supplement, payment
of principal of (and premium, if any) and interest on the Debt
Securities will be made at the office or agency of the Trustee,
at 101 Barclay Street, 4 East, New York, New York 10286,
Attn: Global Finance Americas Unit, or at our option we can pay
principal, interest and any premium by (1) check mailed or
delivered to the address of the person entitled as the address
appearing in the security register of the Trustee or
(2) wire transfer to an account in the United States of the
person entitled to receive payments if such person is a holder
of US$5.0 million or more in aggregate principal amount of
the Debt Securities.
Unless otherwise indicated in a Prospectus Supplement, payment
of any interest will be made to the persons in whose name the
Debt Securities are registered at the close of business on the
day or days specified by us.
Any payments of principal (and premium, if any) and interest, if
any, on global securities registered in the name of a depositary
or its nominee will be made to the depositary or its nominee, as
the case may be, as the registered owner of the global security
representing such Debt Securities. None of us, the Trustee or
any paying agent for the Debt Securities represented by the
global securities will have any responsibility or liability for
any aspect of the records relating to or payments made on
account of beneficial ownership interests of the global security
or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that the depositary for a global security or its
nominee, upon receipt of any payment of principal, premium or
interest, will credit participants accounts with payments
in amounts proportionate to their respective beneficial
interests in the principal amount of the global security as
shown on the records of such depositary or its nominee. We also
expect that payments by participants to owners of beneficial
interests in a global security held through such participants
will be governed by standing instructions and customary
practices, as is now the case with securities held for the
accounts of customers registered in
street
name,
and will be the responsibility of such participants.
Certain
Definitions
Set forth below is a summary of certain of the defined terms
used in the Indenture. Reference is made to the Indenture for
the full definition of all such terms.
Capital
Lease
Obligation
means the obligation of a person, as lessee, to pay rent or
other amounts to the lessor under a lease of real or personal
property which is required to be classified and accounted for as
a capital lease on a consolidated balance sheet of such person
in accordance with generally accepted accounting principles.
Consolidated
Net Tangible
Assets
means the total amount of assets of NovaGold on a consolidated
basis after deducting therefrom:
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all current liabilities (excluding any current liabilities which
are by their terms extendible or renewable at the option of the
obligor thereon to a time more than 12 months after the
time as of which the amount thereof is being computed);
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all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other similar intangibles (mineral
properties and deferred costs shall not be deemed intangibles
for purposes of this definition); and
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appropriate adjustments on account of minority interests of
other persons holding stock of NovaGolds Subsidiaries;
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in each case, as shown on the most recent annual audited or
quarterly unaudited consolidated balance sheet of NovaGold and
computed in accordance with generally accepted accounting
principles.
Current
Assets
means current assets as determined in accordance with generally
accepted accounting principles.
Debt
means as at the date of determination, all items of indebtedness
in respect of any amounts borrowed which, in accordance with
generally accepted accounting principles, would be recorded as
debt in the consolidated financial statements of any person,
including:
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any obligation for borrowed money;
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any obligation evidenced by bonds, debentures, notes, or other
similar instruments;
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any Purchase Money Obligation;
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any Capital Lease Obligation;
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any payment obligation under Financial Instrument
Obligations; and
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any guarantee of Debt of another person.
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Financial
Instrument
Obligations
means obligations arising under:
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interest rate swap agreements, forward rate agreements, floor,
cap or collar agreements, futures or options, insurance or other
similar agreements or arrangements, or any combination thereof,
entered into by a person of which the subject matter is interest
rates or pursuant to which the price, value or amount payable
thereunder is dependent or based upon interest rates in effect
from time to time or fluctuations in interest rates occurring
from time to time;
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currency swap agreements, cross-currency agreements, forward
agreements, floor, cap or collar agreements, futures or options,
insurance or other similar agreements or arrangements, or any
combination thereof, entered into by a person of which the
subject matter is currency exchange rates or pursuant to which
the price, value or amount payable thereunder is dependent or
based upon currency exchange rates in effect from time to time
or fluctuations in currency exchange rates occurring from time
to time; and
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commodity swap or hedging agreements, floor, cap or collar
agreements, commodity futures or options or other similar
agreements or arrangements, or any combination thereof, entered
into by a person of which the subject matter is one or more
commodities or pursuant to which the price, value or amount
payable thereunder is dependent or based upon the price of one
or more commodities in effect from time to time or fluctuations
in the price of one or more commodities occurring from time to
time.
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generally
accepted accounting
principles
means the primary generally accepted accounting principles in
which NovaGold reports its financial statements and which are in
effect from time to time.
Lien
means any security by way of an assignment, mortgage, charge,
pledge, lien, encumbrance, title retention agreement or other
security interest whatsoever, but not including any security
interest in respect of a lease which is not a Capital Lease
Obligation and provided that such term shall not include any
encumbrance that may be deemed to arise solely as a result of
entering into an agreement, not in violation of the terms of
this Indenture, to sell or otherwise transfer assets or Property.
Non-Recourse
Debt
means Debt to finance the creation, development, construction or
acquisition of properties or assets and any increases in or
extensions, renewals or refinancings of such Debt, provided that
the recourse of the lender thereof (including any agent,
trustee, receiver or other person acting on behalf of such
entity) in respect of such Debt is limited in all circumstances
to the properties or assets created, developed, constructed or
acquired in respect of which such Debt has been incurred, to the
capital stock and debt securities of the Restricted Subsidiary
that acquires or owns such properties or assets and to the
receivables, inventory,
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equipment, chattels, contracts, intangibles and other assets,
rights or collateral connected with the properties or assets
created, developed, constructed or acquired and to which such
lender has recourse.
Property
or
property
means all property owned by NovaGold or a Restricted Subsidiary
except such property which is determined by a resolution of our
Board of Directors delivered to the Trustee not to be property
of material importance to the total business conducted by us and
our Restricted Subsidiaries.
Purchase
Money
Mortgage
means any Lien created, issued, incurred or assumed by NovaGold
or a Restricted Subsidiary to secure a Purchase Money
Obligation; provided that such Lien is limited to the property
(including the rights associated therewith) acquired,
constructed, installed or improved in connection with such
Purchase Money Obligation.
Purchase
Money
Obligation
means Debt of NovaGold or a Restricted Subsidiary incurred or
assumed to finance the purchase price, in whole or in part, of
any property or incurred to finance the cost, in whole or in
part, of construction or installation of or improvements to any
property; provided, however, that such Debt is incurred or
assumed within 180 days after the purchase of such property
or the completion of such construction, installation or
improvements, as the case may be, provided that the principal
amount of such Debt which is secured by the Lien does not exceed
100% of such purchase price or cost, as the case may be, and
includes any extension, renewal or refunding of any such Debt
provided the principal amount thereof outstanding on the date of
such extension, renewal or refunding is not increased, and
provided further that any such extension, renewal or refunding
does not extend to any property other than the property in
connection with which such obligation was created and
improvements erected or constructed thereon.
Restricted
Subsidiary
means a Subsidiary of NovaGold provided, however, such term
shall not include any Subsidiary of NovaGold if the amount of
NovaGolds share of the shareholders equity in such
Subsidiary does not, at the time of determination, exceed 2% of
Shareholders Equity.
Shareholders
Equity
means the aggregate amount of shareholders equity
(including but not limited to share capital, contributed surplus
and retained earnings) of NovaGold as shown on the most recent
annual audited or quarterly unaudited consolidated balance sheet
of NovaGold and computed in accordance with generally accepted
accounting principles.
Subsidiary
of any person means, at the date of determination, any
corporation or other person of which Voting Shares or other
interests carrying more than 50% of the voting rights attached
to all outstanding Voting Shares or other interests are owned,
directly or indirectly, by or for such person or one or more
Subsidiaries thereof.
Voting
Shares
means shares of any class of a corporation having under all
circumstances the right to vote for the election of the
directors of such corporation, provided that, for the purpose of
this definition, shares which only carry the right to vote
conditionally on the happening of an event shall not be
considered Voting Shares whether or not such event shall have
happened.
Covenants
Limitation
on Liens
The Indenture provides that so long as any of our Debt
Securities are outstanding, we will not, and will not permit any
of our Restricted Subsidiaries to, create, incur or assume any
Lien on or over any present or future property securing any Debt
of ours or a Restricted Subsidiary without also simultaneously
or prior thereto securing, or causing such Restricted Subsidiary
to secure, equally and ratably with such other Debt all of the
Debt Securities then outstanding under the Indenture, except:
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Liens existing on the date of the Indenture, or arising
thereafter pursuant to contractual commitments entered into
prior to such date;
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Liens incidental to the conduct of our business of any
Restricted Subsidiary or the ownership of our assets that, in
the aggregate, do not materially impair the operation of the
business of us and our Subsidiaries taken as a whole, including,
without limitation, any such Liens created pursuant to joint
development agreements and leases, subleases, royalties or other
similar rights granted to or reserved by others;
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any Purchase Money Mortgage;
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any Lien on any Property existing at the time we or any
Restricted Subsidiary acquires the Property (or any business
entity then owning the Property) whether or not assumed by us or
such Restricted Subsidiary and whether or not such Lien was
given to secure the payment of the purchase price of the
Property (or any entity then owning the Property), provided that
no such Lien shall extend to any other Property;
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any Lien to secure Debt owing to us or to another Subsidiary;
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Liens on the assets of a corporation existing at the time the
corporation is liquidated or merged into, or amalgamated or
consolidated with, us or any Restricted Subsidiary or at the
time of the sale, lease or other disposition to us or any
Restricted Subsidiary of the properties of such corporation as,
or substantially as, an entirety;
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any attachment or judgment Lien provided that (i) the
execution or enforcement of the judgment it secures is
effectively stayed and the judgment is being contested in good
faith, (ii) the judgment it secures is discharged within
60 days after the later of the entering of such judgment or
the expiration of any applicable stay, or (iii) the payment
of the judgment secured is covered in full (subject to a
customary deductible) by insurance;
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any Lien in connection with Debt which by its terms is
Non-Recourse Debt;
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any Lien for taxes, assessments or governmental charges or
levies (a) that are not yet due and delinquent or
(b) the validity of which is being contested in good faith;
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any Lien of materialmen, mechanics, carriers, workmen,
repairmen, landlords or other similar Liens, or deposits to
obtain the release of these Liens;
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any Lien (a) to secure public or statutory obligations
(including reclamation and closure bonds and similar
obligations), (b) to secure payment of workmens
compensation, employment insurance or other forms of
governmental insurance or benefits, (c) to secure
performance in connection with tenders, leases of real property,
environmental, land use or other governmental or regulatory
permits, bids or contracts or (d) to secure (or in lieu of)
surety or appeal bonds, and Liens made in the ordinary course of
business for similar purposes;
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any Lien granted in the ordinary course of business in
connection with Financial Instrument Obligations;
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any Lien created for the sole purpose of renewing or refunding
any of the Liens described in the list above, provided that the
Debt secured thereby shall not exceed the principal amount of
Debt so secured at the time of such renewal or refunding, and
that such renewal or refunding Lien shall be limited to all or
any part of the same property which secured the Lien renewed or
refunded;
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Liens granted in connection with the securitization of
marketable securities; and
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Liens that would otherwise be prohibited by the foregoing
clauses, provided that the aggregate Debt outstanding and
secured pursuant to this clause does not at the time of granting
the Lien exceed an amount equal to 10% of Consolidated Net
Tangible Assets.
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For greater certainty, the following do not constitute Liens
securing payment of Debt:
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all rights reserved to or vested in any governmental authority
by the terms of any lease, license, franchise, grant or permit
held by us or a Restricted Subsidiary, or by any statutory
provision, to terminate any such lease, license, franchise,
grant or permit, or to require annual or other periodic payments
as a condition of the continuance thereof or to distrain against
or to obtain a charge on any property or assets of ours or a
Restricted Subsidiary in the event of failure to make any such
annual or other periodic payment;
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any Lien upon any Property in favour of any party to a joint
development or operating agreement or any similar person paying
all or part of the expenses of developing or conducting
operations for the recovery, storage, treatment, transportation
or sale of the mineral resources of the Property (or property or
assets with which it is united) that secures the payment to such
person of ours or a Restricted Subsidiarys
proportionate part of such development or operating expenses;
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any acquisition by us or by any Restricted Subsidiary of any
Property subject to any reservation or exception under the terms
of which any vendor, lessor or assignor creates, reserves or
excepts or has created, reserved or excepted an interest in
precious metals or any other mineral or timber in place or the
proceeds thereof; and
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any conveyance or assignment whereby we or any Restricted
Subsidiary conveys or assigns to any person or persons an
interest in precious metals or any other mineral or timber in
place or the proceeds thereof.
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Consolidation,
Amalgamation, Merger and Sale of Assets
The Indenture provides that we may, without the consent of any
holder of Debt Securities, amalgamate with, consolidate with or
merge with or into any other person or sell, transfer or lease
all or substantially all of our properties and assets
substantially as an entirety to another person, provided that:
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the resulting, surviving or transferee person (the
successor
company)
will be a corporation, partnership, limited liability company or
trust organized and existing under the laws of the United States
of America, any state thereof, the District of Columbia or the
laws of Canada or any province or territory thereunder and the
successor company (if not us) will expressly assume, by a
supplemental indenture, executed and delivered to the trustee,
in form reasonably satisfactory to the trustee, all of our
obligations under the Debt Securities and the Indenture;
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immediately after giving effect to such transaction, no default
under the Indenture, and no event which, after notice or lapse
of time or both, would become a default under the Indenture,
shall have occurred and be continuing; and
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we shall have delivered to the trustee an officers
certificate and an opinion of counsel, each stating that the
amalgamation, consolidation, merger or transfer and such
supplemental indenture (if any) comply with the provisions of
the Indenture.
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The successor company will succeed to, and be substituted for,
and may exercise every right and power of, us under the
Indenture, but in the case of a sale, transfer or lease of
substantially all our assets that results in the sale,
assignment, conveyance, transfer or other disposition or assets
constituting or accounting for less than 95% of our consolidated
assets, revenue or net income (loss), we will not be released
from the obligation to pay the principal of and interest on the
Debt Securities.
If, as a result of any such transaction, any of our properties
or assets or any properties or assets of any Subsidiary of
NovaGold becomes subject to a Lien, then, unless such Lien could
be created pursuant to the Indenture provisions described under
the
Limitation
on
Liens
covenant above without equally and ratably securing the Debt
Securities, we, simultaneously with or prior to such
transaction, will cause the Debt Securities to be secured
equally and ratably with or prior to the Debt secured by such
Lien.
Additional
Amounts
Unless otherwise specified in a Prospectus Supplement, all
payments made by us under or with respect to the Debt Securities
will be made free and clear of and without withholding or
deduction for or on account of any present or future tax, duty,
levy, impost, assessment or other governmental charge (including
penalties, interest and other liabilities related thereto)
imposed or levied by or on behalf of the Government of Canada or
any province or territory thereof or by any authority or agency
therein or thereof having power to tax
(Canadian
Taxes),
unless we are required to withhold or deduct Canadian Taxes by
law or by the interpretation or administration thereof. If we
are so required to withhold or deduct any amount for or on
account of Canadian Taxes from any payment made under or with
respect to the Debt Securities, we will pay to each holder of
such Debt Securities as additional interest such additional
amounts
(Additional
Amounts)
as may be necessary so that the net amount received by each such
holder after such withholding or deduction (and after deducting
any Canadian Taxes on such Additional Amounts) will not be less
than the amount such holder would have received if such Canadian
Taxes had not been withheld or
57
deducted. However, no Additional Amounts will be payable with
respect to a payment made to a Debt Securities holder (such
holder, an
Excluded
Holder)
in respect of the beneficial owner thereof:
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with which we do not deal at arms length (within the
meaning of the Income Tax Act (Canada)) at the time of
making such payment;
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which is subject to such Canadian Taxes by reason of the holder
of the Debt Securities being a resident, domicile or national
of, or engaged in business or maintaining a permanent
establishment or other physical presence in or otherwise having
some connection with Canada or any province or territory thereof
otherwise than by the mere holding of Debt Securities or the
receipt of payments thereunder; or
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which is subject to such Canadian Taxes by reason of the holder
of the Debt Securities failure to comply with any certification,
identification, documentation or other reporting requirements if
compliance is required by law, regulation, administrative
practice or an applicable treaty as a precondition to exemption
from, or a reduction in the rate of deduction or withholding of,
such Canadian Taxes.
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We will also (i) make such withholding or deduction; and
(ii) remit the full amount deducted or withheld to the
relevant authority in accordance with applicable law.
We will furnish to the holders of the Debt Securities, within
60 days after the date the payment of any Canadian Taxes is
due pursuant to applicable law, certified copies of tax receipts
or other documents evidencing such payment by us.
We will indemnify and hold harmless each holder of Debt
Securities (other than an Excluded Holder) and upon written
request reimburse each such holder for the amount, excluding any
payment of Additional Amounts by us, of:
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any Canadian Taxes levied or imposed and paid by such holder as
a result of payments made under or with respect to the Debt
Securities;
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any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto; and
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any Canadian Taxes imposed with respect to any reimbursement
under clause (i) or (ii) of this paragraph, but
excluding any such Canadian Taxes on such holders net
income.
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Wherever in the Indenture there is mentioned, in any context,
the payment of principal (and premium, if any), interest or any
other amount payable under or with respect to a debt security,
such mention shall be deemed to include mention of the payment
of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect
thereof.
Tax
Redemption
Unless otherwise specified in a Prospectus Supplement, a series
of Debt Securities will be subject to redemption at any time, in
whole but not in part, at a redemption price equal to the
principal amount thereof together with accrued and unpaid
interest to the date fixed for redemption, upon the giving of a
notice as described below, if we (or our successor) determine
that (i) as a result of (A) any amendment to or change
(including any announced prospective change) in the laws (or any
regulations thereunder) of Canada (or our successors
jurisdiction of organization) or of any political subdivision or
taxing authority thereof or therein, as applicable, or
(B) any amendment to or change in an interpretation or
application of such laws or regulations by any legislative body,
court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any
judicial decision or regulatory determination), which amendment
or change is announced or becomes effective on or after the date
specified in the applicable Prospectus Supplement (or the date a
party organized in a jurisdiction other than Canada or the
United States becomes our successor), we have or will become
obligated to pay, on the next succeeding date on which interest
is due, additional amounts with respect to any debt security of
such series as described under
Additional
Amounts,
or (ii) on or after the date specified in the applicable
Prospectus Supplement (or the date a party organized in a
jurisdiction other than Canada or the United States becomes our
successor), any action has been taken by any taxing authority
of, or any decision has been rendered by a court of competent
jurisdiction in, Canada (or our successors jurisdiction of
organization) or any political subdivision or taxing authority
thereof or therein, including any of those actions specified in
(i) above,
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whether or not such action was taken or decision was rendered
with respect to us, or any change, amendment, application or
interpretation shall be officially proposed, which, in any such
case, in the written opinion to us of legal counsel of
recognized standing, will result in our becoming obligated to
pay, on the next succeeding date on which interest is due,
additional amounts with respect to any debt security of such
series.
In the event that we elect to redeem a series of the Debt
Securities pursuant to the provisions set forth in the preceding
paragraph, we shall deliver to the Trustee a certificate, signed
by an authorized officer, stating that we are entitled to redeem
such series of the Debt Securities pursuant to their terms.
Notice of intention to redeem such series of our Debt Securities
will be given not more than 60 nor less than 30 days prior
to the date fixed for redemption and will specify the date fixed
for redemption.
Provision
of Financial Information
We will file with the Trustee, within 15 days after we file
or furnish them with the SEC, copies of our annual reports and
of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules
and regulations prescribe) which we are required to file or
furnish with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that we may not remain subject to
the reporting requirements of Section 13 or 15(d) of the
Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting
pursuant to rules and regulations promulgated by the SEC, we
will continue to provide the Trustee:
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within the time periods required for the filing of such forms by
the SEC, annual reports on
Form 40-F
or
Form 20-F,
as applicable, or any successor form; and
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within the time periods required for the filing or furnishing of
such forms by the SEC, reports on
Form 6-K
(or any successor form), containing the information which,
regardless of applicable requirements shall, at a minimum,
contain such information required to be provided in quarterly
reports under the laws of Canada or any province thereof to
security holders of a corporation with securities listed on the
Toronto Stock Exchange, whether or not we have any of our
securities listed on such exchange. Each of such reports, to the
extent permitted by the rules and regulations of the SEC, will
be prepared in accordance with Canadian disclosure requirements
and generally accepted accounting principles provided, however,
that we shall not be obligated to file or furnish such reports
with the SEC if the SEC does not permit such filings.
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Events of
Default
The following are summaries of events with respect to any series
of our Debt Securities which will constitute an event of default
with respect to the Debt Securities of that series:
(i) default in the payment of any interest on any debt
security of that series or additional amounts payable in respect
of any interest on any debt security of that series, when it
becomes due and payable, and continuance of such default for a
period of 30 days;
(ii) default in the payment of the principal of (or
premium, if any, on) or any additional amounts payable in
respect of any principal of (or premium, if any, on) any debt
security of that series when it becomes due and payable;
(iii) default in the performance, or breach, of any
covenant or warranty in the Indenture in respect of the Debt
Securities of that series, and continuance of such default or
breach for a period of 90 days after written notice has
been given to us by the Trustee or by the holders of at least
25% in principal amount of all outstanding Debt Securities of
any series affected thereby;
(iv) default under any bond, note, debenture or other
evidence of Debt of or guaranteed by NovaGold or a Restricted
Subsidiary or under any mortgage, indenture or other instrument
of NovaGold or a Restricted Subsidiary under which there may be
issued or by which there may be secured or evidenced any
indebtedness of NovaGold or a Restricted Subsidiary which
results in the acceleration of such indebtedness in an aggregate
principal amount exceeding US$15,000,000 (or the equivalent
thereof in any other currency or currency unit) but only if such
indebtedness is not discharged or such acceleration is not
rescinded or annulled within 30 days
59
after notice to NovaGold by the Trustee or to NovaGold and the
Trustee by the holders of at least a majority of the aggregate
principal amount of the outstanding debt securities of such
series;
(v) certain events in bankruptcy, insolvency, assignment
for the benefit of creditors or analogous process have occurred
with respect to us; or
(vi) any other events of default provided with respect to
Debt Securities of that series.
If an event of default occurs and is continuing with respect to
Debt Securities of any series, unless the principal of all of
the Debt Securities of that series shall have already become due
and payable, the Trustee may, in its discretion, and shall upon
request in writing made by the holders of not less than 25% in
principal amount of the outstanding Debt Securities of that
series, declare the principal of (and premium, if any, on) all
the outstanding Debt Securities of that series and the interest
accrued thereon and all other money, if any, owing under the
provisions of the Indenture in respect of those Debt Securities
to be due and payable immediately on demand.
Reference is made to the Prospectus Supplement relating to each
series of the Debt Securities which are original issue discount
Debt Securities for the particular provisions relating to
acceleration of the maturity of a portion of the principal
amount of such original issue discount securities upon the
occurrence of any event of default and the continuation thereof.
Subject to certain limitations set forth in the Indenture, the
holders of a majority in principal amount of the outstanding
Debt Securities of all series affected by an event of default
shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of all series
affected by such event of default.
No holder of a debt security of any series will have any right
to institute any proceeding with respect to the Indenture, or
for the appointment of a receiver or a Trustee, or for any other
remedy thereunder, unless:
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such holder has previously given to the Trustee written notice
of a continuing event of default with respect to the Debt
Securities of such series affected by such event of default;
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the holders of at least 25% in aggregate principal amount of the
outstanding Debt Securities of such series (voting as one class)
affected by such event of default have made written request, and
such holder or holders have offered reasonable indemnity, to the
Trustee to institute such proceeding as Trustee; and
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the Trustee has failed to institute such proceeding, and has not
received from the holders of a majority in aggregate principal
amount of the outstanding Debt Securities of such series
affected by such event of default a direction inconsistent with
such request, within 60 days after such notice, request and
offer.
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However, such above-mentioned limitations do not apply to a suit
instituted by the holder of a debt security for the enforcement
of payment of the principal of or any premium, if any, or
interest on such debt security on or after the applicable due
date specified in such debt security.
We will annually furnish to the Trustee a statement by certain
of our officers as to whether or not NovaGold, to the best of
their knowledge, is in compliance with all conditions and
covenants of the Indenture and, if not, specifying all such
known defaults. We will also be required under the Indenture to
notify the Trustee as soon as practicable upon becoming aware of
any event of default.
Defeasance
Unless otherwise specified in the applicable Prospectus
Supplement, the Indenture provides that, at our option, we will
be discharged from any and all obligations in respect of the
outstanding Debt Securities of any series upon irrevocable
deposit with the Trustee, in trust, of money
and/or
government securities which will provide money in an amount
sufficient in the opinion of a nationally recognized firm of
independent chartered accountants to pay the principal of and
premium, if any, and each instalment of interest on the
outstanding Debt Securities of such series (hereinafter referred
to as a
Defeasance)
(except with respect to the authentication, transfer, exchange
or
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replacement of our Debt Securities or the maintenance of a place
of payment and certain other obligations set forth in the
Indenture). Such trust may only be established if, among other
things:
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we have delivered to the Trustee an opinion of counsel in the
United States stating that (a) NovaGold has received from,
or there has been published by, the Internal Revenue Service a
ruling, or (b) since the date of execution of the
Indenture, there has been a change in the applicable
U.S. federal income tax law, in either case to the effect
that the holders of the outstanding Debt Securities of such
series will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
Defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as
would have been the case if such Defeasance had not occurred;
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we have delivered to the Trustee an opinion of counsel in Canada
or a ruling from Canada Customs and Revenue Agency to the effect
that the holders of the outstanding Debt Securities of such
series will not recognize income, gain or loss for Canadian
federal or provincial income or other tax purposes as a result
of such Defeasance and will be subject to Canadian federal or
provincial income and other tax on the same amounts, in the same
manner and at the same times as would have been the case had
such Defeasance not occurred (and for the purposes of such
opinion, such Canadian counsel shall assume that holders of the
outstanding Debt Securities of such series include holders who
are not resident in Canada);
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we are not an
insolvent
person
within the meaning of the Bankruptcy and Insolvency Act (Canada)
on the date of such deposit or at any time during the period
ending on the 91st day following such deposit;
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no event of default or event that, with the passing of time or
the giving of notice, or both, shall constitute an event of
default shall have occurred and be continuing on the date of
such deposit; and
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other customary conditions precedent are satisfied.
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We may exercise our Defeasance option notwithstanding our prior
exercise of our Covenant Defeasance option described in the
following paragraph if we meet the conditions described in the
preceding sentence at the time we exercise the Defeasance option.
The Indenture provides that, at our option, unless and until we
have exercised our Defeasance option described in the preceding
paragraph, we may omit to comply with the
Limitation
on
Liens
and
Consolidation,
Amalgamation, Merger and Sale of
Assets
covenants and certain other covenants and such omission shall
not be deemed to be an event of default under the Indenture and
its outstanding Debt Securities upon irrevocable deposit with
the Trustee, in trust, of money
and/or
government securities which will provide money in an amount
sufficient in the opinion of a nationally recognized firm of
independent chartered accountants to pay the principal of and
premium, if any, and each instalment of interest, if any, on the
outstanding Debt Securities (hereinafter referred to as
Covenant
Defeasance).
If we exercise our Covenant Defeasance option, the obligations
under the Indenture other than with respect to such covenants
and the events of default other than with respect to such
covenants shall remain in full force and effect. Such trust may
only be established if, among other things:
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we have delivered to the Trustee an opinion of counsel in the
United States to the effect that the holders of the outstanding
Debt Securities will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant
Defeasance had not occurred;
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we have delivered to the Trustee an opinion of counsel in Canada
or a ruling from Canada Customs and Revenue Agency to the effect
that the holders of the outstanding Debt Securities will not
recognize income, gain or loss for Canadian federal or
provincial income or other tax purposes as a result of such
Covenant Defeasance and will be subject to Canadian federal or
provincial income and other tax on the same amounts, in the same
manner and at the same times as would have been the case had
such Covenant Defeasance not occurred (and for the purposes of
such opinion, such Canadian counsel shall assume that holders of
our outstanding Debt Securities include holders who are not
resident in Canada);
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we are not an
insolvent
person
within the meaning of the Bankruptcy and Insolvency Act
(Canada) on the date of such deposit or at any time during
the period ending on the 91st day following such deposit;
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no event of default or event that, with the passing of time or
the giving of notice, or both, shall constitute an event of
default shall have occurred and be continuing on the date of
such deposit; and
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other customary conditions precedent are satisfied.
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Modification
and Waiver
Modifications and amendments of the Indenture may be made by us
and the Trustee with the consent of the holders of a majority in
principal amount of the outstanding Debt Securities of each
series issued under the Indenture affected by such modification
or amendment (voting as one class); provided, however, that no
such modification or amendment may, without the consent of the
holder of each outstanding debt security of such affected series:
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change the stated maturity of the principal of, or any
instalment of interest, if any, on any debt security;
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reduce the principal amount of, or the premium, if any, or
interest rate, if any, on any debt security;
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change the place of payment;
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change the currency or currency unit of payment of principal of
(or premium, if any) or interest, if any, on any debt security;
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impair the right to institute suit for the enforcement of any
payment on or with respect to any debt security;
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reduce the percentage of principal amount of outstanding Debt
Securities of such series, the consent of the holders of which
is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults; or
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modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of
past defaults or covenants except as otherwise specified in the
Indenture.
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The holders of a majority in principal amount of the outstanding
Debt Securities of any series may on behalf of the holders of
all Debt Securities of that series waive, insofar as that series
is concerned, compliance by us with certain restrictive
provisions of the Indenture. The holders of a majority in
principal amount of outstanding Debt Securities of any series
may waive any past default under the Indenture with respect to
that series, except a default in the payment of the principal of
(or premium, if any) and interest, if any, on any debt security
of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of
the holder of each outstanding debt security of that series. The
Indenture or the Debt Securities may be amended or supplemented,
without the consent of any holder of such Debt Securities, in
order to, among other things, cure any ambiguity or
inconsistency or to make any change that, in each case, does not
adversely affect the rights of any holder of such Debt
Securities.
Resignation
of Trustee
The Trustee may resign or be removed with respect to one or more
series of the Debt Securities and a successor Trustee may be
appointed to act with respect to such series. In the event that
two or more persons are acting as Trustee with respect to
different series of Debt Securities, each such Trustee shall be
a Trustee of a trust under the Indenture separate and apart from
the trust administered by any other such Trustee, and any action
described herein to be taken by the
Trustee
may then be taken by each such Trustee with respect to, and only
with respect to, the one or more series of Debt Securities for
which it is Trustee.
Consent
to Jurisdiction and Service
Under the Indenture, we will irrevocably appoint CT Corporation
System, 111 8th Avenue, 13th Floor, New York, New York
10011, as our authorized agent for service of process in any
suit or proceeding arising out of or relating to the Debt
Securities or the Indenture and for actions brought under
federal or state securities laws in any federal or state court
located in the Borough of Manhattan in The City of New York, and
we irrevocably submit to the non-exclusive jurisdiction of such
courts.
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Governing
Law
Our Debt Securities and the Indenture will be governed by and
construed in accordance with the laws of the State of New York.
Enforceability
of Judgments
Since a significant portion of all of our assets, as well as the
assets of a number of our directors and officers, are outside
the United States, any judgment obtained in the United States
against us or certain of our directors or officers, including
judgments with respect to the payment of principal on any Debt
Securities, may not be collectible within the United States.
We have been informed by Blake, Cassels & Graydon LLP
that the laws of the Province of British Columbia and the
federal laws of Canada applicable therein permit an action to be
brought in a court of competent jurisdiction in the Province of
British Columbia on any final and conclusive judgment in
personam of any federal or state court located in the State of
New York (hereinafter referred to as a
New
York
Court)
against us, which judgment is subsisting and unsatisfied for a
sum certain with respect to the enforceability of the Indenture
and our Debt Securities that is not impeachable as void or
voidable under the internal laws of the State of New York if:
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the New York Court rendering such judgment had jurisdiction over
the judgment debtor, as recognized by the courts of the Province
of British Columbia or the federal courts of Canada (and
submission by us in the Indenture to the jurisdiction of the New
York Court will be sufficient for that purpose with respect to
our Debt Securities);
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such judgment was not obtained by fraud or in a manner contrary
to natural justice and the enforcement thereof would not be
inconsistent with public policy, as such terms are understood
under the laws of the Province of British Columbia, the federal
laws of Canada or contrary to any order made by the Attorney
General of Canada under the Foreign Extraterritorial Measures
Act (Canada) or by the Competition Tribunal under the
Competition Act (Canada);
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the enforcement of such judgment would not be contrary to the
laws of general application limiting the enforcement of
creditors rights including bankruptcy, reorganization,
winding up, moratorium and similar laws and does not constitute,
directly or indirectly, the enforcement of foreign revenue,
expropriatory or penal laws in the Province of British Columbia
or any applicable federal laws in Canada;
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no new admissible evidence relevant to the action is discovered
prior to the rendering of judgment by the court in the Province
of British Columbia or a federal court of Canada;
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interest payable on our Debt Securities is not characterized by
a court in the Province of British Columbia as interest payable
at a criminal rate within the meaning of section 347 of the
Criminal Code (Canada); and
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the action to enforce such judgment is commenced within
the appropriate limitation period except that any court in the
Province of British Columbia or federal court of Canada may only
give judgment in Canadian dollars.
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We have been advised by such counsel that there is doubt as to
the enforceability in Canada in original actions, or in motions
to enforce judgments of U.S. courts, of civil liabilities
predicated solely upon U.S. federal securities laws.
DESCRIPTION
OF WARRANTS
This section describes the general terms that will apply to any
Warrants for the purchase of common shares (the
Equity
Warrants)
or for the purchase of Debt Securities (the
Debt
Warrants).
Warrants may be offered separately or together with other
Securities, as the case may be. Each series of Warrants will be
issued under a separate Warrant indenture to be entered into
between the Company and one or more banks or trust companies
acting as Warrant agent. The applicable Prospectus Supplement
will include details of the Warrant agreements covering the
Warrants being offered. The Warrant agent will act solely as the
agent of the
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Company and will not assume a relationship of agency with any
holders of Warrant certificates or beneficial owners of
Warrants. The following sets forth certain general terms and
provisions of the Warrants offered under this Prospectus. The
specific terms of the Warrants, and the extent to which the
general terms described in this section apply to those Warrants,
will be set forth in the applicable Prospectus Supplement.
Equity
Warrants
The particular terms of each issue of Equity Warrants will be
described in the related Prospectus Supplement. This description
will include, where applicable:
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the designation and aggregate number of Equity Warrants;
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the price at which the Equity Warrants will be offered;
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the currency or currencies in which the Equity Warrants will be
offered;
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the designation and terms of the common shares purchasable upon
exercise of the Equity Warrants;
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the date on which the right to exercise the Equity Warrants will
commence and the date on which the right will expire;
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the number of common shares that may be purchased upon exercise
of each Equity Warrant and the price at which and currency or
currencies in which the common shares may be purchased upon
exercise of each Equity Warrant;
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the designation and terms of any Securities with which the
Equity Warrants will be offered, if any, and the number of the
Equity Warrants that will be offered with each Security;
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the date or dates, if any, on or after which the Equity Warrants
and the related Securities will be transferable separately;
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whether the Equity Warrants will be subject to redemption or
call and, if so, the terms of such redemption or call provisions;
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material United States and Canadian tax consequences of owning
the Equity Warrants; and
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any other material terms or conditions of the Equity Warrants.
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Debt
Warrants
The particular terms of each issue of Debt Warrants will be
described in the related Prospectus Supplement. This description
will include, where applicable:
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the designation and aggregate number of Debt Warrants;
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the price at which the Debt Warrants will be offered;
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the currency or currencies in which the Debt Warrants will be
offered;
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the aggregate principal amount, currency or currencies,
denominations and terms of the series of Debt Securities that
may be purchased upon exercise of the Debt Warrants;
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the designation and terms of any Securities with which the Debt
Warrants are being offered, if any, and the number of the Debt
Warrants that will be offered with each Security;
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the date or dates, if any, on or after which the Debt Warrants
and the related Securities will be transferable separately;
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the principal amount of Debt Securities that may be purchased
upon exercise of each Debt Warrant and the price at which and
currency or currencies in which that principal amount of
Securities may be purchased upon exercise of each Debt Warrant;
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the date on which the right to exercise the Debt Warrants will
commence and the date on which the right will expire;
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the minimum or maximum amount of Debt Warrants that may be
exercised at any one time;
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whether the Debt Warrants will be subject to redemption or call,
and, if so, the terms of such redemption or call provisions;
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material United States and Canadian tax consequences of owning
the Debt Warrants; and
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any other material terms or conditions of the Debt Warrants.
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DESCRIPTION
OF SHARE PURCHASE CONTRACTS AND SHARE PURCHASE OR EQUITY
UNITS
The Company may issue share purchase contracts, including
contracts obligating holders to purchase from the Company, and
the Company to sell to the holders, a specified number of Equity
Securities, at a future date or dates, or similar contracts
issued on a
prepaid
basis (in each case,
Share
Purchase
Contracts).
The price per Equity Security and the number of Equity
Securities may be fixed at the time the Share Purchase Contracts
are issued or may be determined by reference to a specific
formula set forth in the Share Purchase Contracts. The Share
Purchase Contracts will require either the share purchase price
be paid at the time the Share Purchase Contracts are issued or
that payment be made at a specified future date. The Share
Purchase Contracts may be issued separately or as part of units
consisting of a Share Purchase Contract and Debt Securities or
obligations of third parties (including U.S. treasury
securities) (the
Share
Purchase or Equity
Units),
and may, or may not serve as collateral for a holders
obligations. The Share Purchase Contracts may require holders to
secure their obligations thereunder in a specified manner. The
Share Purchase Contracts also may require the Company to make
periodic payments to the holders of the Share Purchase Contracts
or vice versa, and such payments may be unsecured or refunded on
some basis.
The applicable Prospectus Supplement will describe the terms of
the Share Purchase Contracts or Share Purchase or Equity Units.
The description in the Prospectus Supplement will not
necessarily be complete, and reference will be made to the Share
Purchase Contracts, and, if applicable, collateral, depositary
or custodial arrangements, relating to the Share Purchase
Contracts or Share Purchase or Equity Units. Material United
States and Canadian federal income tax considerations applicable
to the holders of the Share Purchase or Equity Units and the
Share Purchase Contracts will also be discussed in the
applicable Prospectus Supplement.
DENOMINATIONS,
REGISTRATION AND TRANSFER
The Securities will be issued in fully registered form without
coupons attached in either global or definitive form and in
denominations and integral multiples as set out in the
applicable Prospectus Supplement (unless otherwise provided with
respect to a particular series of Debt Securities pursuant to
the provisions of the Trust Indenture, as supplemented by a
supplemental indenture). Other than in the case of book-entry
only Securities, Securities may be presented for registration of
transfer (with the form of transfer endorsed thereon duly
executed) in the city specified for such purpose at the office
of the registrar or transfer agent designated by the Company for
such purpose with respect to any issue of Securities referred to
in the Prospectus Supplement. No service charge will be made for
any transfer, conversion or exchange of the Securities but the
Company may require payment of a sum to cover any transfer tax
or other governmental charge payable in connection therewith.
Such transfer, conversion or exchange will be effected upon such
registrar or transfer agent being satisfied with the documents
of title and the identity of the person making the request. If a
Prospectus Supplement refers to any registrar or transfer agent
designated by the Company with respect to any issue of
Securities, the Company may at any time rescind the designation
of any such registrar or transfer agent and appoint another in
its place or approve any change in the location through which
such registrar or transfer agent acts.
In the case of book-entry only Securities, a global certificate
or certificates representing the Securities will be held by a
designated depository for its participants. The Securities must
be purchased or transferred through such participants, which
includes securities brokers and dealers, banks and trust
companies. The depository will establish and maintain book-entry
accounts for its participants acting on behalf of holders of the
Securities. The interests of such holders of Securities will be
represented by entries in the records maintained by the
participants. Holders of
65
Securities issued in book-entry only form will not be entitled
to receive a certificate or other instrument evidencing their
ownership thereof, except in limited circumstances. Each holder
will receive a customer confirmation of purchase from the
participants from which the Securities are purchased in
accordance with the practices and procedures of that participant.
PLAN OF
DISTRIBUTION
The Company may sell the Securities to or through underwriters
or dealers, and also may sell Securities to one or more other
purchasers directly or through agents. Each Prospectus
Supplement will set forth the terms of the offering, including
the name or names of any underwriters or agents, the purchase
price or prices of the Securities and the proceeds to the
Company from the sale of the Securities.
The Securities may be sold, from time to time in one or more
transactions at a fixed price or prices which may be changed or
at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated
prices. The prices at which the Securities may be offered may
vary as between purchasers and during the period of
distribution. If, in connection with the offering of Securities
at a fixed price or prices, the underwriters have made a bona
fide effort to sell all of the Securities at the initial
offering price fixed in the applicable Prospectus Supplement,
the public offering price may be decreased and thereafter
further changed, from time to time, to an amount not greater
than the initial public offering price fixed in such Prospectus
Supplement, in which case the compensation realized by the
underwriters will be decreased by the amount that the aggregate
price paid by purchasers for the Securities is less than the
gross proceeds paid by the underwriters to the Company.
Underwriters, dealers and agents who participate in the
distribution of the Securities may be entitled under agreements
to be entered into with the Company to indemnification by the
Company against certain liabilities, including liabilities under
the U.S. Securities Act of 1933 and Canadian securities
legislation, or to contribution with respect to payments which
such underwriters, dealers or agents may be required to make in
respect thereof. Such underwriters, dealers and agents may be
customers of, engage in transactions with, or perform services
for, the Company in the ordinary course of business.
In connection with any offering of Securities, the underwriters
may over-allot or effect transactions which stabilize or
maintain the market price of the Securities offered at a level
above that which might otherwise prevail in the open market.
Such transactions, if commenced, may be discontinued at any time.
LEGAL
MATTERS
Certain legal matters in connection with the Securities offered
hereby will be passed upon on behalf of the Company by Blake,
Cassels & Graydon LLP with respect to Canadian legal
matters, and by Dorsey & Whitney LLP with respect to
U.S. legal matters and, except as otherwise set forth in
any Prospectus Supplement, on behalf of any underwriters by
McCarthy Tétrault LLP with respect to Canadian legal
matters, and by Skadden, Arps, Slate, Meagher & Flom
LLP with respect to U.S. legal matters.
AUDITORS,
TRANSFER AGENT AND REGISTRAR
The auditors of the Company are PricewaterhouseCoopers LLP of
Vancouver, British Columbia. The transfer agent and registrar
for the Companys common shares in Canada is Computershare
Investor Services Inc. at its principal offices in Vancouver,
British Columbia and Toronto, Ontario. The co-transfer agent and
registrar for the Companys common shares in the United
States is Computershare Trust Company Inc. at its office in
Denver, Colorado.
66
INTEREST
OF EXPERTS
None of Blake, Cassels & Graydon LLP, Canadian counsel
to the Company, or AMEC Americas Limited, AMEC Engineering and
Construction Services Inc., Norwest Corporation, Hatch Ltd.,
Resource Modeling Inc., SRK Consulting (US) Inc., Stanton Dodd,
Kevin Francis, Scott Petsel, Lynton Gormely, Mike Lechner, Bruce
Rustad, Bruce Davis, Robert Sim, Gordon Doerksen or Harry
Parker, each being companies or persons who have prepared
reports relating to the Companys mineral properties, or
any director, officer, employee or partner thereof, as
applicable, received or has received a direct or indirect
interest in the property of the Company or of any associate or
affiliate of the Company. As at the date hereof, the
aforementioned persons, and the directors, officers, employees
and partners, as applicable, of each of the aforementioned
companies and partnerships beneficially own, directly or
indirectly, in the aggregate, less than one percent of the
securities of the Company.
Information relating to the Companys mineral properties in
this Prospectus and the documents incorporated by reference
herein has been derived from reports prepared by AMEC Americas
Limited, AMEC Engineering and Construction Services Inc.,
Norwest Corporation, Hatch Ltd., Resource Modeling Inc., SRK
Consulting (US) Inc., Stanton Dodd, Kevin Francis, Scott Petsel,
Lynton Gormely, Mike Lechner, Bruce Rustad, Bruce Davis, Robert
Sim, Gordon Doerksen or Harry Parker and has been included in
reliance on such persons expertise.
The auditors of the Company are PricewaterhouseCoopers LLP,
Chartered Accountants, of Vancouver, British Columbia.
PricewaterhouseCoopers LLP, Chartered Accountants, report that
they are independent of the Company in accordance with the rule
of professional conduct in British Columbia, Canada.
PricewaterhouseCoopers LLP is registered with the Public Company
Accounting Oversight Board.
Neither the aforementioned persons, nor any director, officer,
employee or partner, as applicable, of the aforementioned
companies or partnerships is currently expected to be elected,
appointed or employed as a director, officer or employee of the
Company or of any associate or affiliate of the Company.
DOCUMENTS
INCORPORATED BY REFERENCE
Information has been incorporated by reference in this
Prospectus from documents filed with securities commissions or
similar authorities in Canada. Copies of the documents
incorporated herein by reference may be obtained on request
without charge from the Secretary of the Company at
Suite 2300, 200 Granville Street, Vancouver, British
Columbia, Canada, V6C 1S4, telephone:
(604) 669-6227.
These documents are also available through the internet on SEDAR
which can be accessed on line at www.sedar.com. For the purpose
of the Province of Québec, this Prospectus contains
information to be completed by consulting the permanent
information record. A copy of the permanent information record
may be obtained from the Secretary of the Company at the
above-mentioned address and telephone number. The following
documents filed with the securities commissions or similar
authorities in Canada are specifically incorporated by reference
into, and form an integral part, of this Prospectus:
(a) annual information form of the Company for the year
ended November 30, 2006, dated February 27, 2007 (the
Annual
Information
Form);
(b) audited comparative consolidated financial statements
of the Company for the years ended November 30, 2006 and
2005 together with the notes thereto and the auditors
report thereon, including managements discussion and
analysis for the year ended November 30, 2006;
(c) management information circular of the Company dated
April 28, 2006 prepared in connection with the
Companys annual and special meeting of shareholders held
on May 31, 2006;
(d) material change report, dated December 15, 2006,
announcing the approval of a new Shareholder Rights Plan, to
take effect December 7, 2006, the day following the expiry
of Barricks takeover bid; and
(e) material change report, dated February 20, 2007,
announcing that the Galore Creek copper-gold-silver project in
northwestern British Columbia is rapidly advancing toward the
start of construction in the second quarter of 2007, upon
receipt of permits. The project is in the last stages of
permitting, with the final
67
public comment and review period underway. Final assay results
from the 2006 drilling program have been received, and a
resource update is targeted for the end of the first quarter.
Any material change reports (excluding confidential material
change reports), any interim and annual consolidated financial
statements and related management discussion and analysis,
information circulars (excluding those portions that, pursuant
to National Instrument
44-101 of
the Canadian Securities Administrators, are not required to be
incorporated by reference herein), any business acquisition
reports, any news releases or public communications containing
financial information about the Company for a financial period
more recent than the periods for which financial statements are
incorporated herein by reference, and any other disclosure
documents required to be filed pursuant to an undertaking to a
provincial or territorial securities regulatory authority that
are filed by the Company with various securities commissions or
similar authorities in Canada after the date of this Prospectus
and prior to the termination of this offering under any
Prospectus Supplement, shall be deemed to be incorporated by
reference in this Prospectus. In addition, to the extent
indicated in any Report on
Form 6-K
furnished to the SEC or in any Report on
Form 40-F
filed with the SEC, any information included therein shall be
deemed to be incorporated by reference in this Prospectus.
Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or
supersedes such statement. The modifying or superseding
statement need not state that it has modified or superseded a
prior statement or include any other information set forth in
the document it modifies or supersedes. The making of a
modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded
statement, when made, constituted a misrepresentation, an untrue
statement of a material fact or an omission to state a material
fact that is required to be stated or that is necessary to make
a statement not misleading in light of the circumstances in
which it was made. Any statement so modified or superseded shall
not constitute a part of this Prospectus, except as so modified
or superseded.
A Prospectus Supplement containing the specific terms of an
offering of Securities, updated disclosure of earnings coverage
ratios, if applicable, and other information relating to the
Securities, will be delivered to prospective purchasers of such
Securities together with this Prospectus and the applicable
Prospectus Supplement and will be deemed to be incorporated into
this Prospectus as of the date of such Prospectus Supplement
only for the purpose of the offering of the Securities covered
by that Prospectus Supplement.
Upon a new annual information form and the related annual
financial statements being filed by the Company with, and, where
required, accepted by, the applicable securities commissions or
similar regulatory authorities during the currency of this
Prospectus, the previous annual information form, the previous
annual financial statements and all quarterly financial
statements, material change reports and information circulars
filed prior to the commencement of the Companys financial
year in which the new annual information form is filed shall be
deemed no longer to be incorporated into this Prospectus for
purposes of further offers and sales of Securities hereunder.
DOCUMENTS
FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been or will be filed with the SEC
as part of the registration statement of which this prospectus
forms a part: the documents referred to under the heading
Documents
Incorporated by
Reference;
consent of PricewaterhouseCoopers LLP; consent of Blake,
Cassels & Graydon LLP; consents of AMEC Americas
Limited, AMEC Engineering and Construction Services Inc.,
Norwest Corporation, Hatch Ltd., Resource Modeling Inc., SRK
Consulting (US) Inc., Stanton Dodd, Kevin Francis, Lynton
Gormely, Mike Lechner, Bruce Rustad, Bruce Davis, Robert Sim,
Gordon Doerksen, Scott Petsel and Harry Parker; powers of
attorney from directors and officers of NovaGold; the Indenture
between Registrant and The Bank of New York, as Trustee; and the
Statement of Eligibility under the Trust Indenture Act of 1939
on form T-1 of the Bank of New York.
68
ADDITIONAL
INFORMATION
The Company has filed with the SEC a registration statement on
Form F-10
relating to the Securities. This Prospectus, which constitutes a
part of the registration statement, does not contain all of the
information contained in the registration statement, certain
items of which are contained in the exhibits to the registration
statement as permitted by the rules and regulations of the SEC.
Statements included or incorporated by reference in this
Prospectus about the contents of any contract, agreement or
other documents referred to are not necessarily complete, and in
each instance you should refer to the exhibits for a more
complete description of the matter involved. Each such statement
is qualified in its entirety by such reference.
The Company is subject to the information requirements of the
U.S. Securities Exchange Act of 1934 (the
U.S. Exchange
Act)
and applicable Canadian securities legislation, and in
accordance therewith files reports and other information with
the SEC and with the securities regulators in Canada. Under a
multijurisdictional disclosure system adopted by the United
States, documents and other information that the Company files
with the SEC may be prepared in accordance with the disclosure
requirements of Canada, which are different from those of the
United States. As a foreign private issuer, the Company is
exempt from the rules under the U.S. Exchange Act
prescribing the furnishing and content of proxy statements, and
its officers, directors and principal shareholders are exempt
from the reporting and shortswing profit recovery provisions
contained in Section 16 of the U.S. Exchange Act. In
addition, the Company is not required to publish financial
statements as promptly as U.S. companies.
You may read any document that the Company has filed with the
SEC at the SECs public reference room in
Washington, D.C. You may also obtain copies of those
documents from the public reference room of the SEC at
100 F Street, N.E., Washington, D.C. 20549 by paying a
fee. You should call the SEC at
1-800-SEC-0330
or access its website at www.sec.gov for further information
about the public reference rooms. You may read and download some
of the documents the Company has filed with the SECs
Electronic Data Gathering and Retrieval system at www.sec.gov.
You may read and download any public document that the Company
has filed with the Canadian securities regulatory authorities at
www.sedar.com.
ENFORCEABILITY
OF CIVIL LIABILITIES
The Company is a corporation existing under the Companies Act
(Nova Scotia). Many of the Companys directors and
officers, and some of the experts named in this Prospectus, are
residents of Canada or otherwise reside outside the United
States, and all or a substantial portion of their assets, and a
substantial portion of the Companys assets, are located
outside the United States. The Company has appointed an agent
for service of process in the United States, but it may be
difficult for holders of common shares who reside in the United
States to effect service within the United States upon those
directors, officers and experts who are not residents of the
United States. It may also be difficult for holders of common
shares who reside in the United States to realize in the United
States upon judgments of courts of the United States predicated
upon the Companys civil liability and the civil liability
of its directors, officers and experts under the United States
federal securities laws. The Company has been advised by its
Canadian counsel, Blake, Cassels & Graydon LLP, that a
judgment of a United States court predicated solely upon civil
liability under United States federal securities laws or the
securities or
blue
sky
laws of any state within the United States, would probably be
enforceable in Canada if the United States court in which the
judgment was obtained has a basis for jurisdiction in the matter
that would be recognized by a Canadian court for the same
purposes. The Company has also been advised by Blake,
Cassels & Graydon LLP, however, that there is
substantial doubt whether an action could be brought in Canada
in the first instance on the basis of liability predicated
solely upon United States federal securities laws.
The Company filed with the SEC, concurrently with its
registration statement on
Form F-10
of which this Prospectus is a part, an appointment of agent for
service of process on
Form F-X.
Under the
Form F-X,
the Company appointed CT Corporation System as its agent for
service of process in the United States in connection with any
investigation or administrative proceeding conducted by the SEC,
and any civil suit or action brought against or involving the
Company in a United States court arising out of or related to or
concerning the offering of the common shares under this
Prospectus.
69
US$95,000,000
5.50% Senior
Convertible Notes due May 1, 2015
Prospectus
JPMorgan
March 20, 2008