The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Explorer will use investment capital to pay off bridge loan, move Donlin Creek to permitting and resolve Rock Creek water issues
NovaGold Resources Inc. is beginning 2009 with an infusion of cash. In two separate deals, the Vancouver B.C.-based miner sold enough of its equity to raise $75 million, funds it will use to pay debt and to advance three projects.
During a Jan. 12 interview, NovaGold President and CEO Rick Van Nieuwenhuyse told Mining News that moving its huge gold project at Donlin Creek in southwestern Alaska into permitting will be the company's focus in 2009. NovaGold is a 50-50 partner with Barrick Gold Corp. at Donlin Creek, which has a 31 million-ounce estimated resource.
Hit hard by the recent financial crisis in the markets and by problems at its Rock Creek gold mine, the company also will work on water issues at the mine, which is located on the outskirts of Nome. Within a few short months last year, NovaGold both launched and shut down production at the small mine, a project expected to produce at least 1 million ounces of gold over its operating life.
NovaGold's partner in the Galore Creek copper-gold project in northern British Colombia, Teck Cominco, is also suffering cash-flow problems. The 50-50 partners have decided to leave that project on care and maintenance in 2009.
Meanwhile in an amended deal, NovaGold has spun out its non-core Alaska properties into Mantra Mining Inc., Van Nieuwenhuyse said
Investors stake $81.3 million
Early in the New Year, NovaGold unveiled an agreement with Electrum Strategic Resources LLC to sell the New York-based private company more than 46.15 million units for $1.30 per unit, or $60 million. Each unit consists of one common share of NovaGold stock and one common share purchase warrant of NovaGold. Each warrant entitles the holder to buy one common share of NovaGold stock for an exercise price of $1.50 within four years of the transaction closing date.
Following the Electrum deal, NovaGold said it raised another $15 million. Institutional investors agreed to purchase 11.5 million units in a deal with identical terms to the one that NovaGold inked with Electrum. The two deals will be completed concurrently.
By mid-January, NovaGold had reported conditional approval of the transactions by the Toronto Stock Exchange and the company said it was waiting on approval from the New York Stock Exchange Alternext. NovaGold said it anticipated closing the financings by Jan. 23.
The company said it will use part of the proceeds to repay a $20 million bridge loan from Auramet Trading, LLC.
NovaGold said Auramet converted $6.3 million of the loan into 5 million shares of NovaGold stock, reducing the amount owed to about $13.7 million. NovaGold also said it will pay off the remaining balance and interest unless Auramet decides to purchase additional shares with the outstanding loan balance.
Electrum becomes 30 percent owner
Electrum Strategic Resources is a member of the Electrum Group of Companies, which holds one of the largest and most diversified portfolios of precious metals exploration projects in the world, according to NovaGold.
"We are really pleased to have a strong strategic partner like Electrum invest in NovaGold. I think it sends a very strong signal to the market," said Van Nieuwenhuyse. "They invest in a few stories and get involved with them (with) a long-term perspective."
The transaction with Electrum will give the private company 30 percent interest in NovaGold, making it the Vancouver B.C.-based miner's largest shareholder. Electrum's ownership stake will jump to about 46 percent if Electrum exercised all of the warrants in the deal. This also would give the miner another $69 million in cash.
"Our team is looking forward to working with NovaGold's management to develop the company's impressive mineral endowment, one of the largest in the world," said William Natbony, Electrum Strategic's CEO. "The company is exceptionally well-positioned to advance its operations along the value chain and maximize the returns for all shareholders."
While an Electrum representative will not sit on NovaGold's board of directors, the New York-based company has the right to have an observer at all board of directors meetings as long as Electrum holds at least 15 percent of NovaGold stock. Van Nieuwenhuyse said he will be dialoguing directly with the Electrum observer.
In April Electrum made its debut appearance in Alaska with the signing of joint venture agreements with Gold Crest Mines Inc. on five gold properties in the Kuskokwim region of Southwest Alaska. The claim groups included in the agreement-Kisa, Gold Lake, Gossan Valley, Little Swift and Gold Creek- are located about 100 miles southwest of Donlin Creek and about 40 miles west of NovaGold's Shotgun property.
Permitting at Donlin scheduled in '09
The 30-million-ounce-plus Donlin Creek gold project will be the center of NovaGold's attention in 2009. Operator Donlin Creek LLC, which is co-owned by Barrick and NovaGold, plans to unveil a feasibility study for the world-class gold deposit in the first quarter of the year and begin the permitting process shortly after that, according to Van Nieuwenhuyse .
Van Nieuwenhuyse said the partnership launched its pre-permitting public outreach program in November. The partnership has been traveling to the villages of the Kuskokwim Region, informing the communities of its plans for developing a mine at Donlin Creek.
The outreach is also designed provide a forum for the people of the region to provide their input before the project goes to permitting. According to Van Nieuwenhuyse the companies will review the public input and make the changes needed before submitting the permit applications to the state regulators.
In its community presentation, the partnership outlines a plan to process about 50,000 metric tons of gold-rich ore per day. At that rate and with the current resource outlined at Donlin, the mine could produce anywhere from 1 million to 1.5 million ounces of gold per year for the next 25 to 30 years.
Once in production, Donlin Creek will employ 500 to 600 people, many of them residents of the Kuskokwim Region. Van Nieuwenhuyse said the project will need a larger work force during the construction phase, which is targeted for 2012.
Due to high energy costs, power generation has been a critical, and sometimes contentious, issue for the development of the Donlin Creek Mine.
Running a power line from Alaska's railbelt was the plan originally preferred by NovaGold. The company said detailed scoping studies indicated that the increased construction time as well as permitting and business risks associated with the power line outweighed the economic incentives of this option. The partners concluded that the best solution was to use onsite diesel and wind cogeneration for power. While this solution will mean higher capital costs, it is believed a reduced carbon footprint and reduced operating costs will offset the investment.
We've been working toward this goal since we acquired the property in 2002," said the NovaGold CEO. "I am particularly pleased that after careful consideration and a review of all possible alternatives, the partners are aligned on the path forward. NovaGold and Barrick will work together to optimize the final project design, complete a feasibility study and initiate permitting. We're one step closer to building one of the world's largest gold mines."
Dam issues at Rock Creek
While Donlin Creek may be NovaGold's primary focus this year, dealing with water building up behind the tailings dam at Rock Creek is the company's most immediate concern.
In November, two months after the company fired up the gold mine, NovaGold announced it was suspending operations at Rock Creek. The company said the suspension was due to complications in meeting environmental requirements outlined by state and federal regulators.
The tailings dam was designed to retain waste from the mine, which will mostly consist of solids. The company plans to treat the water buildup and pump it down injection wells.
The first step is to commission the mine's water treatment plant. The facility is scheduled to begin operation by mid-February. Van Nieuwenhuyse said the water, once treated, will meet regulatory requirements.
In early January, the NovaGold executive met with regulators from the Alaska departments of Natural Resources and Environmental Conservation to address permitting issues related to the mine. Van Nieuwenhuyse and the regulators discussed dam-related issues and how to effectively deal with storm water resulting from the spring thaw.
Storm water resulting from the thaw of record snowfalls last winter caused considerable problems at Rock Creek, prompting Alaska regulators to issue NovaGold a Notice of Violation related to a lack of preventative measures for storm-water discharges from its construction site.
Litigation cost more than money
When the mine went into production in September it was already several million dollars over budget. The cost overruns were, in a large part, due to delays resulting from legal challenges to the company's permits.
"To go through the (permitting) process and then have the permits challenged, there is a huge financial burden on the company when that happens. That is exactly what happened to us at Rock Creek," Van Nieuwenhuyse reflected. "In hindsight, we would have been much better off in that situation to just have let everybody go and said, 'Okay guys you can pick up the ball .'"
When the challenged wetlands permits were finally upheld by the U.S. Ninth Circuit Court, NovaGold was put in the position of finishing the tailings pond and other work covered by the permits in the middle of what turned out to be the snowiest winter on record in Nome.
The NovaGold CEO said the legal delays threw off the timing of completing the construction at Rock Creek.
"All the judges said (the lawsuit) didn't have any merit. That cost us six months in delays. The work you planned on doing in the summertime you find yourself doing in the wintertime and visa-versa," Van Nieuwenhuyse explained. "You are planning the work in your engineering to minimize the impact on the environment, and then the legal process and delays are causing just the opposite."
The NovaGold CEO leader said the company is now evaluating the costs of restarting operations at the Rock Creek gold mine.
Early-stage assets go to Mantra
Van Nieuwenhuyse said NovaGold's early-stage projects are now assigned to Mantra Mining Inc.
NovaGold and Mantra finalized a deal in late December to spin out NovaGold's non-core Alaska assets into Mantra. The five properties - Colorado Creek, Kugruk prospect, Baird project, Omalik property and Tintina properties - total about 397,560 acres.
In the amended deal, Mantra agreed to pay 3.125 million of its common shares for the NovaGold properties. Valued at C$5 million or C$1.60 per Mantra share, the transaction will give NovaGold about a 6.68 percent ownership interest in Mantra. The Ambler property, which was the centerpiece of the original agreement in September, was subtracted from the year end deal.
"One of the things we are looking at right now is how we are going to organize (Mantra) going forward," said Van Nieuwenhuyse, who is a Mantra director. "We may well split the precious metal assets and the base metal assets into two separate entities."
The drill plans and budget for Mantra in 2009 will be dependant on the reorganization and money-raising efforts of the NovaGold spin-out vehicle.
Van Nieuwenhuyse said Colorado Creek will be one of Mantra's core properties and likened the geology of the early-stage property to Donlin Creek.
NovaGold signed a lease in 2008 on the gold property, located about 70 kilometers, or 43 miles, northwest of McGrath.
After completing an initial review, NovaGold geologists say the property is very similar to the Donlin Creek deposit. The 2008 field work turned up new mineralization to the southwest of the leased claims, and, as a result, NovaGold staked additional claims to cover this new discovery.
Van Nieuwenhuyse said a NI 43-101 report has been submitted for the property based on the early-stage exploration.
Colorado Creek, according to Mantra, needs a total re-evaluation of existing data and interpretation in light of NovaGold's advanced understanding of ore controls at Donlin Creek. In 2009 the junior plans to conduct an exploratory trenching and drilling program on targets identified by company geologists.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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