The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
With its financial troubles in the past, the junior wants to move forward with permitting Donlin Creek, seeking new opportunities
NovaGold Resources Inc. not only survived 2008 - a year marked by skyrocketing development costs, an unstable financial market as well as environmental and mechanical setbacks at its projects - the embattled miner rocketed into 2009 with its core assets intact and cash in its pocket.
In NovaGold's 2008 year-end report, the company described the previous 12 months as challenging for precious metals stocks, including its own. Setbacks at NovaGold's Rock Creek Mine near Nome and uncertainty over the company's ability to secure financing and repay its short-term debt last fall combined with the sell-off of securities in the general market resulted in tremendous swings in valuation for the company.
NovaGold's woes actually began in late 2007 when it announced the decision to suspend construction at the Galore Creek project in northwestern British Colombia due to higher-than-expected cost estimates. NovaGold and its 50-50 joint venture partner Teck Resources Ltd. blanched at the prospect of the huge copper-gold-silver project costing upward of C$5 billion to develop.
The move fueled a stampede among investors who deserted what appeared to be a sinking ship. During the next 14 months, NovaGold's stock price plummeted to a low of US45 cents in December 2008, from a high of about US$19 per share in October 2007, when the company announced it would suspend production at Rock Creek after only two months in operation.
But 2009 has marked a change in direction for the struggling miner. Just two days into the New Year, NovaGold revealed that Electrum Strategic Resources LLC, a New York-based private investment company, had bought 46.15 million shares of its common stock at US$1.30 a share, infusing US$60 million into the Vancouver-based miner. Electrum has subsequently increased its NovaGold stock to 51.92 million shares, or a 28.5 percent stake in the company.
On the tails of Electrum, other investors jumped on board, increasing NovaGold's private placement financing to US$75 million.
With the struggles of 2008 a fading memory, the Vancouver BC-based miner is now focused on gaining the permits needed to build and operate a mine at its colossal 50-50 joint venture with Barrick Gold Corp. at Donlin Creek gold project, resuming gold production at Rock Creek and looking for opportunities to bring new gold projects into the company.
"NovaGold weathered the considerable challenges of 2008 and has emerged well-positioned to take advantage of a rising gold market and build a premier growth-focused precious metals company," NovaGold President and CEO Rick Van Nieuwenhuyse told shareholders in a recent letter. "Electrum's strategic investment substantially strengthened NovaGold's balance sheet, ensuring the ongoing advancement of our projects. With cash on hand and manageable expenditures at Donlin and Galore for the next few years, NovaGold is positioned to look at new opportunities that can provide future growth for the company."
Partners decide to permit Donlin
After reviewing the Donlin Creek feasibility study, Barrick Gold and NovaGold have decided to initiate the permitting process for the enormous gold project located in the Kuskokwim Region of Southwest Alaska.
The study, released in late April, places a staggering US$4.48 billion price tag on the construction of a world-class mine capable of producing an average of 1.25 million ounces of gold per year for more than two decades.
NovaGold said the construction costs were estimated in 2008, when global capital costs were at their peak, and managers expect a reduction in the actual building costs due to recent price decreases construction materials such as steel, concrete, diesel and labor.
While the feasibility study provides a framework for the upcoming permitting process, the true cost for building the mine will probably not be known until the partners have permits in-hand. The permitting process is expected to begin later this year and be complete in 2012.
"We have several years of permitting work before we know what the final project we are going to build is," Greg Johnson, NovaGold vice president of strategic development, told Mining News. "Who knows, in two or three years, what the costs of labor, concrete, steel and things are going to be, but they are certainly less today than they were in 2008 when we priced these things in the study."
The proposed 53,500-metric-ton-per-day mine outlined in the feasibility study is expected to produce about 1.6 million ounces of gold per year over its first five years of operation. Based on current reserves, the mine should produce about 26.2 million ounces of gold, or an average of about 1.25 million ounces per year, over a 21-year mine life.
NovaGold's share of the 2009 budget at the Donlin Creek project is about US$14 million, part of which was used to complete the feasibility study, and the remainder is planned to be used for permitting activities at the project.
Teck foots bill at Galore
At Galore Creek, Teck will fund the entire C$15.7 million budget for the copper-gold-silver project in 2009. The funds will primarily go toward maintaining the existing infrastructure and continuing to build a 90-kilometer-, or 55-mile-, long access road west from Highway 37 to the mine-site.
"We are going to continue (road construction); we have a couple of key bridge segments that would need to be purchased and installed to complete the road to kilometer 90, which is our new plan," Johnson said.
The first 40 kilometers, or 25 miles, of the road is complete, and as the partners reach camps and construction equipment staged along the remaining route, the surplus equipment will be trucked out on the new road where it can be sold.
Due to a deal struck with Teck, NovaGold is not expected to make any significant cash contributions at Galore Creek through 2012. Under the agreement, Teck will fund 100 percent of Galore Creek costs until the amount contributed by Teck after Nov. 1, 2008, together with funds spent on optimization studies equals C$60 million. Teck's remaining funding obligation - taking into account the C$8.5 million spent during the last two months of 2008 and C$15.8 million previously spent on optimization - is about C$35.7 million, due to be contributed by Dec. 31, 2012.
Teck completed the optimization study for the Galore Creek project during the fourth quarter of 2008. The final configuration resulted in moving the permanent facilities associated with the concentrator and tailings disposal located outside the Galore Valley.
The mine-site will be linked to the new concentrator location by a realigned 11-kilometer, or seven-mile, tunnel. The new plan will shorten the route between the mine and Highway 37 by 31 kilometers, or about 15 miles.
The concentrate will be transported via pipeline the entire 150 kilometers, or 93 miles, to the Port of Stewart, rather than to a location near Highway 37 and trucked the remaining distance. The new plan will require the relocation of the filter plant to the port in Stewart.
Due to current economic conditions, the partners have decided not to proceed with updating a final feasibility study based upon the results of the optimization study. Instead, they will place the Galore Creek site on care-and-maintenance indefinitely.
Decisions ahead at Rock Creek
About three months after beginning testing of the 7,000 metric-ton-per-day plant at the Rock Creek gold project NovaGold decided to place the operation on care-and-maintenance. The company attributes the decision to financial issues and mechanical problems with the crusher.
"It was a difficult decision, but unanticipated mechanical issues with the crusher and financial constraints, combined with market conditions at the time, meant the company could not proceed with the project," according to Van Nieuwenhuyse.
NovaGold also had to deal with environmental issues at Rock Creek. The U.S. Environmental Protection Agency asserted that between April 2007 and September 2008 stormwater discharges at Rock Creek mine exceeded turbidity standards on several occasions. During this period the company was delayed from completing stormwater facilities at Rock Creek mine due to litigation with environmental groups over the mine's construction permits that led into a severe winter with record snowfalls in Nome. NovaGold agreed to pay US$883,628 as part of a settlement to resolve alleged violations of the Clean Water Act at Rock Creek.
The miner said it is continuing to work with state and federal regulators to meet its environmental requirements and is completing a detailed project assessment to determine the cost, timing and requirements to successfully restart the commissioning process.
One of the key environmental requirements is to complete a water treatment facility that can process water building up behind the tailings impoundment dam at the mine. Johnson said the water treatment plan is complete and the company expects it to get approval from state regulators.
NovaGold said it will make a restart decision later this year on its operations at Rock Creek. The company has said it is exploring resuming operations on its own, bringing in an operating partner or selling the mine. Whichever route the miner decides to take, operations are not expected to resume until at least 2010.
"A key part of (the restart plan) is assembling a team to be successful, that could be done through a partnership, or by us rebuilding the team there. That is part of the evaluation that we are undertaking right now," Johnson said.
He also said an outright sale of the mine is doubtful.
The current care and maintenance budget at Rock Creek for 2009 is about US$7 million, excluding settlement of payables from 2008.
NovaGold is also putting together a drill program to follow up on deeper mineralization discovered last year below the Rock Creek pit.
"We got some deeper drill holes put in last year at Rock Creek that are indicating we may have a bigger mineral system than was previously identified, and we are putting together a program to go in and test that," Johnston said.
Drilling last year intersected 118 meters with an average grade of 1.4 grams per ton gold below the reserve pit outline at Rock Creek.
Another hole to the east of the pit intersected 52 meters of deeper mineralization, averaging 2.3 g/t gold. Both holes bottomed out in mineralization.
What to do with Ambler?
The 35,000-acre Ambler volcanic massive sulfide property in Northwest Alaska is NovaGold's one remaining early-stage exploration property.
Ambler, which hosts the precious-metal-rich Arctic copper-zinc deposit, was originally going to be lumped in with five other early-stage properties that NovaGold traded to Mantra Mining Inc.
Instead, NovaGold has extended its agreement with Rio Tinto to earn a 51 percent interest in Ambler and continues to view the property as a valuable copper-zinc- precious metals asset, Johnson said.
"We are evaluating whether it makes sense to continue to do the work on that project within NovaGold or if it might make sense to have that go into a company that is more focused on the base metals," he explained.
Johnson said the decision not to include Ambler in the deal with Mantra resulted from market conditions and Mantra's inability to raise capital at the time. The Vancouver-based junior is currently raising C$5 million in private placement financing, of which Electrum has indicated it will purchase about C$2.7 million worth of the available shares.
"Mantra is now completing the financing, and we will look at it if it makes sense for Ambler to go into Mantra, or some other vehicle. Depending on how we structure things, NovaGold may do the work on it," Johnson said.
Mantra also has indicated it may split off the three base metal properties that it acquired from NovaGold.
"One of the things we are looking at right now is how we are going to organize (Mantra) going forward. We may well split the precious metal assets and the base metal assets into two separate entities," Van Nieuwenhuyse, who is Mantra's chairman, told Mining News in January.
Searching for new opportunities
With the challenges of 2008 behind it, NovaGold is looking for new opportunities to expand the company's gold assets.
"A lot of the companies that are significantly smaller than NovaGold are struggling to get financed. With us being in a stronger financial position we feel there may be opportunity," Johnson explained.
Johnson said NovaGold is taking a Pan-Pacific approach to its search for new opportunities. The restructured company is looking at projects that are in production and near production that would benefit from NovaGold's resource expansion and permitting skills.
"A key for us is to take a resource that has already been defined to some stage; maybe it's a million ounces or so, where we see significant upside exploration opportunity," he said.
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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