Metals News

UPDATE 1-NovaGold refinances loan, shares fall

(Adds details. In U.S. dollars unless noted)

OTTAWA, Dec 19 (Reuters) - NovaGold Resources Inc NG.TONG.A said on Friday that it has been able to refinance and extend a $20 million bridge loan that is key to its solvency, but will pay an extension fee and a higher interest rate for that breathing room.

The Canadian gold miner, which warned three weeks ago that it could not afford to pay the loan and would need alternative means to stay afloat, said the payback deadline has been moved to March 13, 2009 from Dec. 29, 2008.

Interest on the outstanding principal will jump to 15 percent from 12 percent, said NovaGold, which last month suspended operations at its lone producing mine.

Under the agreement, New Jersey-based merchant bank Auramet Trading LLC will get an extension fee, equal to 6 percent of any portion of the loan not paid back by Dec. 29.

Shares in Vancouver, British Columbia-based NovaGold fell sharply in early trade on Friday, losing 14 percent to C$1.89 on the Toronto Stock Exchange, and nearly 17 percent to $1.55 on Amex.

“This extension provides the time for the company to continue discussions with a variety of interested parties to address NovaGold’s funding needs to advance our development stage projects in 2009,” said Chief Executive Rick Van Nieuwenhuyse in a statement.

NovaGold, whose core assets are 50 percent stakes in the Donlin Creek gold property in Alaska and the Galore Creek copper and gold project in British Columbia, said in late November that its cash position had declined to C$10 million ($8.2 million).

It also said operations at its Rock Creek gold mine in Alaska, which started the previous month, would be suspended due to mechanical problems, predicted lower cash flow, and difficulty meeting environmental requirements.

The lost cash flow is forcing NovaGold to find other sources of funding, a challenging task as credit markets close their doors to many miners.

Under its revised loan agreement, Auramet now has the right to convert the outstanding balance into NovaGold common shares for C$1.53 apiece, a sharp drop from the C$12 price struck in the initial deal announced Sept. 26.

The exercise price of 750,000 warrants issued with the bridge loan will also be repriced to C$1.53 from C$7.18.

NovaGold said it will also issue an additional 1 million common share purchase warrants with a two-year term and C$1.53 exercise price. ($1=$1.22 Canadian) (Reporting by Susan Taylor; editing by Peter Galloway)