NovaGold Resources (TSX: NG) has entered into definitive agreements to acquire the 40% of the Donlin Gold project it does not already own from Paulson Advisers in an all share deal that lifts its interest in the Alaska asset to 100%.
The agreements, signed July 21, imply an equity value of roughly US$4.2 billion for the combined company, based on NovaGold’s closing price of $5.63.
The transaction runs through a newly formed Delaware parent, NovaGold Corporation, which is intended to list on the NYSE. Existing NovaGold shareholders will exchange their shares on a one for one basis, while Paulson contributes its Donlin holding companies in return for voting and non-voting stock. The number of shares issued to Paulson will be set at a 10% discount to the implied equity value of its 40% stake, calculated off a 10-day volume weighted average price as of July 21.
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Current NovaGold holders end up with about 65% of the new company. Paulson receives roughly 35% on a fully diluted basis, and once its existing position is counted, its economic interest reaches about 40%. Its voting interest is capped at 19.99%.
Those new shares are locked up until the earliest of completion of Donlin project financing, Paulson falling below 10% ownership, or the third anniversary of closing. The board expands to 11 seats from 10 and will be co-chaired by Thomas Kaplan and John Paulson, with Paulson entitled to two nominees while it holds above 15%.
The case for the deal is structural. Consolidation removes a layer of joint decision-making ahead of a bankable feasibility study, creates a single counterparty for landowners Calista Corporation and The Kuskokwim Corporation, and widens the financing pool. NovaGold also picks up more than 16 million ounces of measured and indicated resources, 13 million of which sit in proven and probable reserves, plus over 520,000 ounces of attributable annual production in the mine’s first decade.
Chief executive Greg Lang said the leaner structure will advance the project “that much more efficiently — and at reduced operating costs.”
Closing requires approval from at least 66 2/3% of votes cast at a special meeting, plus court, regulatory and exchange sign-off. Holders of roughly 28% of shares have already committed support. Closing of the transaction is expected to occur in the fourth quarter.
Novagold last traded at $7.94 on the TSX.
