The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Amended lease increases land for Donlin developers, improves benefits for Native landowners; NovaGold reports increased gold reserves
Donlin Creek LLC, the 50-50 joint venture between NovaGold Resources Inc. and Barrick Gold Corp., has renegotiated its lease on the Donlin Creek gold project in southwestern Alaska.
The Calista Regional Native Corp., owners of the property that holds the 40-million-ounce gold deposit, said the renewed lease provides the miners the additional time and land to mine the gold-rich ore, while maximizing benefits for its more than 13,000 shareholders.
Calista Corp. owns 6.5 million acres in the Yukon-Kuskokwim River Delta and the Kuskokwim Mountains regions of Southwest Alaska.
Donlin Creek is one of the largest known undeveloped gold deposits in the world. An updated resource released by NovaGold March 22 estimates reserves of 33.6 million ounces of gold at Donlin Creek, a 15 percent increase from a 29.3-million-ounce reserves estimate in a feasibility study approved by Barrick and NovaGold in May 2009. Additionally, the gold deposit contains 4.3 million ounces of measured and indicated resources and 4.4 million ounces of inferred resources, according to the updated estimate.
With the feasibility study complete, pre-permitting activities by the partners are under way to construct a mine estimated to produce more than 1 million ounces of gold annually for about 25 years.
The updated lease agreement increases Donlin Creek LLC's land position by 12,000 acres. The additional acreage will allow for roads, a mill and other related infrastructure needed for the mine to be developed and operate.
Native corporation officials said more land is needed because the project was in the early stage of exploration at the time of the original agreement, and the mine's layout and conceptual design were not complete.
According to the feasibility study, the partnership plans to build a port and storage facility on the Kuskokwim River and a 74-mile-, or 119-kilometer-, access road between the port and the mine.
At the mine site, the increased acreage would provide room to build a power generation plant, a wind turbine farm, conveyor systems, mill, water treatment plant, truck shop, labs, sewage treatment plant, offices, warehouses and on-site access roads.
The 53,500-metric-ton-per-day mine proposed in the feasibility study is expected to produce about 1.6 million ounces of gold per year during its first five years of operation.
NovaGold and Barrick are currently assessing ways to reduce power and processing costs and continue improving the project's economics.
One scenario the Donlin Creek partners are investigating is the possibility of building a pipeline to bring natural gas from Alaska's Cook Inlet to the mine.
NovaGold said it expects optimization studies will be completed by midyear, at which point the partnership will either file permit applications for the original project design or, upon unanimous board approval, approve a supplemental budget and proceed to revise the feasibility study to include the natural gas option.
The amended agreement also extends the lease to give the Donlin Creek developers more time to mine the deposit and it changes the payment structure for Calista shareholders. According to NovaGold, the increased reserves extend the mine life from the 21 years previously envisioned to about 25 years.
The new lease runs through April 2031. Calista said as long as mining operations are carried out in good faith the lease will continue to be extended on a year-to-year basis. If operations are not carried out, then the Donlin Creek partners must pay the Alaska Native corporation US$3 million annually to retain control of the property.
The original lease provided for an option for Calista to "buy into" a portion of the project. Calista said it has chosen to exchange this option in order to receive an 8 percent net proceeds royalty once capital, operating and certain carrying costs are recovered.
Under the amended agreement, the advanced royalty paid to Calista will increase to US$500,000 for the year ending April 2010, and continue to increase on an annual basis until it reaches US$1 million for each of the years 2015 to 2024 and US$2 million for each of the years 2025 to 2030. All advance minimum royalties paid to Calista will continue to be recoverable as a credit against Calista's existing net smelter royalty under the lease agreement, which remains unchanged.
The lease amendment also provides an increase in minimum payments during production.
"The Calista Corp. board of directors approved these amendments to the 1995 lease agreement because they maximize our shareholders' reward, minimize the corporation's risk and provide for responsible development of our natural resources," said Calista Chairman Art Heckman.
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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