Shares of NovaGold Resources Inc. fell more than 60% Monday after the Vancouver company announced it was facing cash concerns and was suspending operations at its only working mine.
NovaGold said it plans to shelve operations at its Rock Creek gold mine in Alaska because of rising costs and expectations that the mine will not generate significant net cash flow for the company over the next six months.
In mid-October, the company was projecting cash flow of more than $25 million at the then prevailing gold price and exchange rate. But the mine has run into unanticipated mechanical problems and challenges associated with working in extreme arctic winter conditions.
Given the loss of cash flow from Rock Creek, the company faces a severe credit squeeze with a US$20 million bridge loan coming due and only $10 million in cash on hand. The company said it's reviewing strategic alternatives to raise additional equity or debt financing or sell assets by the end of the year, when the bridge loan comes due.
Its credit situation also risks NovaGold's ownership stake in the Galore Creek project. The company has a $1.9 million payment due this week to Teck Cominco. If NovaGold doesn't reach alternative arrangements this week, its Galore Creek interest could fall to 49.8% from its current 50%.
NovaGold's shares have fallen to $0.75, down from an opening price of $2.25. It's 52-week low was reached last week at $1.76, well off its 52-week high of $19.99.