Drills produce "exceptional" results at Galore Creek in remote British Columbia

NovaGold Resources appears to have hit another prospecting grand slam one year after optioning the Galore Creek project in a remote section of northwestern British Columbia.

The Vancouver, British Columbia-based junior in August released "exceptional" drill results, the first from this summer's planned 20,000-meter (60,000-foot) program, and an economically positive scoping study for developing the large gold-silver-copper deposit as an open-pit mine.

Four drill rigs were working on the property in late July, and a fifth was scheduled to be added within weeks, according to NovaGold's second quarter report, released July 29. The company plans to spend $8 million Canadian on the property this year, "with at least $5 million directed at drilling additional resources and upgrading the existing inferred category resources to measured and indicated," the company said.

NovaGold, through its Canadian subsidiary SpectrumGold, last August optioned from Rio Tinto and Anglo American the remote property some 36 miles west of the Cassiar Highway and about 56 miles east of Wrangell, Alaska.

To earn a 100 percent interest in the main Galore Creek property, NovaGold must complete a pre-feasibility study and make payments totaling US$20 million within eight years. The property has been prospected since the early 1960s, and based on that data along with drilling completed last fall, NovaGold released a new, independently calculated resource number for Galore Creek, increasing the amount of estimated gold by 15 percent and the amount of estimated copper by 14 percent over historic resource estimates.

Including both indicated and inferred categories, Galore Creek is now believed to contain 5.2 million ounces of gold, 69.4 million ounces of silver and 5.9 billion pounds of copper.

Also in August, NovaGold released its preliminary economic assessment study, or scoping study, independently produced by Hatch Ltd., a Vancouver, British Columbia-based engineering services company.

Using a base case of open-pit mining at only the well-defined Southwest and main Central zones and a mill throughput of 30,000 tonnes per day, Galore Creek has the potential to produce at least 3.3 billion pounds of copper, 2.4 million ounces of gold and 32.3 million ounces of silver in an estimated 23-year mine-life.

"There remain significant opportunities to optimize and enhance the economics of the Galore Creek project," NovaGold President and CEO Rick Van Nieuwenhuyse said in an Aug. 5 release detailing the scoping study results.

The company believes there is "excellent potential" to add to Galore Creek's resource and to expand higher grades of mineralization, measures that would each improve the project's economics.

Drilling at Bountiful Zone

Initial drill results released in mid-August indicate that NovaGold is well on its way to adding to Galore Creek's mineralized resource, in part by targeting unexplored but perspective anomalies around the perimeter of the known deposit.

Results from two holes drilled in the Bountiful Zone, discovered last year during NovaGold's initial drilling on the southern edge of the main deposit, "confirm the presence of a very large zone" of disseminated mineralization, NovaGold said in an Aug. 18 release.

The two new holes are 100 meter (328 feet) offsets from last year's discovery hole in the Bountiful Zone. That initial discovery drilling ended in mineralization after producing a 65 meter (213 foot) intercept grading 1.4 percent copper equivalent, or 2.3 grams of gold per ton of rock equivalent.

Drilling this year at Bountiful, hole GC04-448 produced a 159 meter (524 foot) intercept grading 0.15 grams of gold per ton of rock, 4.4 grams of silver per ton and averaging 0.56 percent copper.

Also, drill hole GC04-450 produced a 112 meter (369 foot) intercept grading 0.19 grams of gold, 12.1 grams of silver and averaging 1.29 percent copper. Three separate, higher-grade zones were also detailed within that hole.

"The thickness of the new Bountiful zone is yet undetermined as all of the first three drill holes ended in gold and copper mineralization due to depth limitations of the exploration drill rig," NovaGold said in its release. "The first two follow-up drill holes in combination with the results of the geophysical survey demonstrate significant potential for the definition of new resources in this zone."

Step-out prospect produces "exceptional" drill results

NovaGold also released results it describes as "exceptional" from holes drilled on a step-out prospect called Copper Canyon, about four kilometers east of the main Galore Creek deposit.

Acquired earlier this year, Copper Canyon consists of 700 acres of claims, which already had historic drilling data. NovaGold's report from this summer includes results from two of eight holes planned for the prospect.

Drill hole CC04-022, which did not reach its intended target depth due to broken ground conditions, intersected 73.6 meters (241 feet) grading 1.01 grams of gold per ton of rock, 20.1 grams of silver and 0.87 percent copper.

Drill hole CC04-023, a 100 meter (328 foot) offset to the north, intersected a total of 274 meters (900 feet) grading an average of 0.76 grams of gold per ton, 12.9 grams of silver and averaging 0.74 percent copper.

Within that hole was a high-grade section of 33 meters (110 feet) grading 1.77 grams of gold, 23.8 grams of silver and 2.16 percent copper.

"As currently defined the mineralization extends over a 600 meter by 400 meter area and the deposit remains open to expansion in all directions," NovaGold said.

Pre-feasibility EA reports

In addition to drilling, NovaGold has completed a ground based, deep sensing Induced Polarization geophysical survey. It identified a series of kilometer-scale chargeability anomalies "indicating the presence of sulfide minerals possibly as disseminated gold and copper mineralization," the company said. "These geophysical targets are largely untested by drilling."

In particular, the IP survey identified a large anomaly, continuing from the Main Galore deposit to depth and to the east of known mineralization, NovaGold said in its second quarter report. "This preliminary data suggests a dramatic increase in the apparent size of the mineral system and has identified a large area of prospective ground for additional exploration."

The company plans to move to airborne geophysical surveys this fall, covering the Grace claims and Copper Canyon, both to the east of the main Galore Creek deposit.

Other work this summer includes mining planning and infrastructure and gathering environmental baseline data in preparation for a pre-feasibility study, targeted for completion in the first half of 2005. An environmental assessment study is on track for submission in 2005, and a full feasibility study is targeted for 2006.

Scoping study details

NovaGold released results on Aug. 5 from the preliminary economic assessment study, showing a rapid 3.4 year payback of mine capital using long-term metal prices.

In the first five years of production, Galore Creek would produce an average 270,000 ounces of gold, 1.8 million ounces of silver and 200 million pounds of copper yearly, with average grades during the first five years of production expected to be 0.94 percent copper, 0.96 grams of gold per ton of rock and 6.33 grams of silver per ton of rock.

Average total cash costs are estimated at 15 cents per pound of copper, with precious metals as credits, or negative $180 per ounce of gold with copper and silver as a by-product. That analysis is based on metal prices of 90 cents per pound of copper, $375 per ounce for gold and $5.50 per ounce for silver.

Both indicated and inferred resources were used in the scoping study, but only from the southwest and main Galore Creek deposits. It did not include other resources "that are believed to be geologically reasonable to defined with additional exploration work," NovaGold said.

Estimated cost to construct the mine, mill, power and transportation infrastructure is $500 million, which includes a 20 percent contingency. That includes a mill with daily throughput of 30,000 tons.

Bumping production up to 60,000 tons per day would increase the estimated capital cost to $630 million. "If sufficient resources can be defined at Galore Creek, a higher capacity mining and milling operation could be justified which should significantly enhance the project economics," the report said.

Rather than milling 242 million tonnes during the life of the mine, that larger capacity would require 400 million tonnes of mineralized resources, an objective the company has set for exploration work.

Hatch's report estimated a strip ration of 1.75:1, operating costs of $3.21 per tonne of ore and total costs of $11.29 per tonne of ore. Total production cost over the life of the mine is 70 cents per pound of copper.

Rates of return

A financial analysis of the project, using a long-term average price for copper of 90 cents per pound, shows Galore Creek could generate a pre-tax rate of return between 11.2 to 16.6 percent.

At recent market prices for copper of $1.25 per pound, the pre-tax rate of return would double, ranging from 23.3 to 27.1 percent.

Hatch's analysis shows that the rate of return is most sensitive to changes in metals prices and grade, followed by changes in operating costs and then changes in capital costs, the company said.