North of 60 Mining News - The mining newspaper for Alaska and Canada's North

The Grace property in British Columbia appears so far not to contain any significant gold or copper, but its surface could still be extremely valuable to Vancouver-based Novagold Resources. In a pre-feasibility level study for the Galore Creek mine that NovaGold expected to make public in late October, part of the 2,400-hectare Grace property may be a potential location for tailings disposal facilities. Another Vancouver company, Pioneer Metals, which owns the sub-surface rights, has upped the ante by commencing legal action against NovaGold.

Pioneer has turned to the Supreme Court of British Columbia seeking a declaration that its option agreement with NovaGold dated March 26, 2004, "is of no further force or effect, an order for the rescission of the agreement, damages for misrepresentation and for breach of fiduciary duty, punitive damages and other relief," the company said in a release Oct. 17. "Pioneer alleges that NovaGold did not properly disclose its true intentions with respect to the intended exploration and development of Pioneer's Grace project when we entered into the agreement and that NovaGold did not, in any event, abide by its terms," Pioneer's president and CEO, Stephen Sorensen, said.

"Its mineral prospects and strategic location make the Grace project a potentially valuable asset," Sorensen added. "Any use of its surface area for the containment of tailings and waste rock should be for the sole benefit of Pioneer, if and when economic mineralization has been discovered, developed and mined there."

Nova Gold: option for sub-surface rights only

NovaGold counters that the Pioneer option agreement relates to sub-surface rights only, and the surface rights rest with the Province of British Columbia. Moreover, the agreement stipulates that NovaGold should spend C$400,000 on exploration in year one, but in fact the company has spent in excess of C$1 million. "We're surprised by this, we had a pretty good working arrangement with them," Greg Johnson, NovaGold's vice president for corporate communications, told Mining News. "Pioneer wants us to focus on exploration and we have done that, we would have liked to find a second ore body on their land, but we have not yet found one."

Almost immediately after acquiring its interest in the Galore Creek property, NovaGold started negotiating with Pioneer and other land owners as part of the company's plan to develop the various claim blocks previously existing in the area, Johnson added. NovaGold struck a similar agreement with Copper Canyon Resources (formerly Eagle Plains Resources) to explore the nearby Copper Canyon property, and also purchased land from Silver Standard, Teck Cominco and other companies. Galore Creek is comparable in size to NovaGold's Donlin Creek project in Alaska and has the potential for a mine life of more than 20 years if developed.

The proposed tailings facility would only occupy part of the Grace claims and NovaGold would continue to explore the remaining claims, Johnson said. "To some degree we see this as fitting the expression, every good mine starts with a lawsuit, indicating in many ways that this whole situation wouldn't really be in front of us if it didn't look like we were going to be really building a world class mine at Galore," he added. NovaGold is confident that it can work through the issues with Pioneer, Johnson said.