NovaGold hit with U.S. lawsuit alleging failure to disclose major adverse facts

By Brenda Bouw, The Canadian Press

VANCOUVER - NovaGold Resources Inc. (TSX: NG.TO) and three of its top executives have been hit with a lawsuit in the United States filed by disgruntled investors who allege the company didn't provide enough information about problems at its Galore Creek mining project in British Columbia.

The gold-silver-copper project, which it shares with Teck Cominco Ltd. (TSX: TCK-B.TO), was halted in November due to soaring construction costs. NovaGold shares dropped by more than half the day of the announcement, and have not recovered.

The complaint, filed by Rudolph Textor and "on behalf of all others similarly situated," alleges that the defendants failed to disclose "materially adverse facts" about the company's operations and prospects in various public statements and filings between October 2006 and November 2007.

"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiff and other class members have suffered significant losses and damages," states the lawsuit, filed in filed in the U.S. District Court for the Southern District of New York on Thursday.

NovaGold said in a statement Friday that it "has substantial and meritorious legal and factual defences, which the company intends to pursue vigorously."

The suit alleges NovaGold "falsely portrayed" itself as moving to a production company from a development company by issuing "materially false and misleading statements regarding the costs, progress and viability of its multibillion-dollar dollar Galore Creek project."

The suit names NovaGold president and chief executive Rick Van Nieuwenhuyse, chief financial officer Robert MacDonald and chief operating officer Peter Harris as individual defendants.

The legal action centres around a 2006 feasibility study done on the Galore Creek project, which the suit alleges was used as a "marketing tool" to fend off a hostile takeover bid from Barrick Gold Corp. (TSX: ABX.TO) and "artificially support its stock price."

It quotes a Nov. 10, 2006 NovaGold news release in which Van Nieuwenhuyse stated that "at US$16, NovaGold shares are better than money in the bank."

The suit also alleges the feasibility study "understated the capital costs and construction schedule required to successfully mine the Galore Creek site."

NovaGold and Teck Cominco announced on Nov. 26, 2007 that they were halting construction at Galore Creek after cost estimates ballooned to as much as $5 billion from the previous estimate of $2 billion.

NovaGold shares fell 54 per cent that day to $9.25 on the Toronto Stock Exchange.

On Friday, the company's shares closed down 41 cents, or 5.5 per cent, at $7.03. It has a 52-week range of $5.90 to $19.99.

NovaGold and Teck Cominco are currently working on a new, less-expensive strategy for developing Galore Creek, details of which are due to be released next month.

Teck Cominco said it has not been hit with a similar lawsuit.