The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
NovaGold considers copper subsidiary; expands Ambler district deposits
While NovaGold Resources Inc.'s ultimate goal is to become a 1-million-ounce-per-year gold producer, the Vancouver B.C.-based junior is taking a fresh look at the enormous reserves of copper waiting to be mined at its Galore Creek project in British Columbia and its Ambler project in Northwest Alaska.
"Management believes the recently completed economic analyses of Galore Creek and Ambler clearly demonstrate that NovaGold's copper assets are considerably undervalued having regard to their size, favorable geopolitical location, projected long life and low operating cost," said NovaGold President and CEO Rick Van Nieuwenhuyse.
Moving these projects into a copper subsidiary is one option being considered to bridge this valuation gap.
Such a company would produce some 228 million pounds of copper at a weighted average of US83 cents per pound, assuming development of the projects based on the Galore Creek PFS and the Ambler PEA.
"We are effectively looking at our whole copper portfolio and deciding what is the best way to maximize that value for our shareholders," Van Nieuwenhuyse told Mining News.
While upper management consults the financial expertise of J.P. Morgan Securities LLC and RBC Capital Markets on the best mechanism for mirroring the worth of these world-class copper properties in the financial markets, the junior's geological team is adding to their intrinsic value through old-fashioned exploration.
Arctic exploration
NovaGold's primary exploration endeavor in 2011 was at Ambler - a district-scale project that blankets some 68 kilometers (42 miles) of a belt of precious metals-enriched volcanogenic massive sulfide mineralization that stretches along the southern slope of the Brooks Range in Northwest Alaska.
Arctic - the crown jewel of a number of VMS deposits identified across this extensive land package - was one of the primary focuses of the US$10 million program carried out in the Ambler District.
Arctic currently has an indicated resource of 16.8 million metric tons averaging 4.1 percent copper, 6 percent zinc. The deposit has an additional 12.1million metric tons averaging 3.5 percent copper and 4.9 percent zinc in the inferred resource category.
A preliminary economic assessment prepared for Arctic early in 2011 envisions a 4,000-metric-ton-per-day-mine producing some 1.7 billion pounds of copper, 2 billion pounds of zinc, 291 million pounds of lead, 266,000 ounces of gold and 22 million ounces of silver over a 25-year mine-life.
"This preliminary economic assessment demonstrates the robust economics of developing one of the highest-grade VMS deposits in the world," Van Nieuwenhuyse said.
In addition to resource expansion and geotechnical drilling in support of developing Arctic, NovaGold's 2011 exploration in the region includes drilling at Bornite, a large under-explored copper deposit located about 27 kilometers (17 miles) to the southwest.
NovaGold gained access to Bornite through a partnership agreement with NANA Regional Native Corp., owners of the historical copper deposit.
The pact - which has been formalized under a letter of intent but not yet signed - is expected to include an exploration agreement that unites NovaGold's Ambler project - a 90,624-acre tract of state and federal mining claims - with NANA lands immediately to the south.
For NANA, the pending agreement will allow the Inupiat-owned Alaska Native regional corporation to be involved in the exploration and development of deposits on NovaGold's Ambler property. In return, NovaGold will get to explore the copper-rich Bornite deposit and other upper Kobuk region mineral prospects known to exist on NANA lands.
The Vancouver B.C.-based explorer also will gain access across NANA's lands, which encompass a key infrastructure corridor for development of the Arctic deposit.
The option of a joint venture partnership if any of the deposits advance to a production decision is also anticipated to be part of the agreement.
A historical resource calculated for Kennecott Exploration Co. estimates that Bornite contains 50 million metric tons averaging 1.2 percent copper with 454,000 metric tons grading up to 4 percent copper. The deposit also contains zinc, cobalt and germanium.
NovaGold carried out a 6,000-meter drill program at Bornite with the goal of updating and expanding this historical copper deposit. An NI 43-101-compliant resource is due out in the first half of 2012.
Enhancing Galore
Following a July prefeasibility study that demonstrates robust economics for the development of Galore Creek, NovaGold and Teck Resources Ltd. are advancing an enhanced plan for northern British Columbia project that includes increasing the size of the copper-gold-silver reserves.
The project envisioned in the PFS is forecast to produce 6.2 billion pounds of copper, 4 million ounces of gold and 65.8 million ounces of silver over about an 18-year mine life with cash costs averaging US80 cents per pound of copper at base price case assumptions of US$2.65 per pound copper, US$1,100 per ounce gold and US$18.50 per ounce silver and a foreign exchange rate of 1.11 CAD/USD.
"The key thing about Galore is the low cash costs of producing a pound of copper," Van Nieuwenhuyse points out Sept. 15.
Using July prices of US$4.44 per pound copper, US$1,613 per ounce gold and US$40.34 per ounce silver and foreign exchange rate of 0.949 CAD/USD the average cash costs drop to about US42 cents per pound of copper.
The PFS configuration moves the 95,000-metric-ton-per-day mill to a valley adjacent to the Galore Creek Valley that hosts the deposit thereby increasing flexibility to enable open-pit mine expansion, higher mill throughput and additional exploration.
To accommodate the increased scale and scope of the operation outlined in the PFS, NovaGold and Teck are advancing an enhanced plan for Galore Creek that includes increasing the size of the copper-gold-silver reserves.
"In completing the prefeasibility study we recognized that is about 200 million tons of ore that wasn't coming into the mine-plan," Van Nieuwenhuyse explained.
The enhanced plan envisions upgrading these resources to reserves by expanding the pit to encompass resources located in the adjacent Bountiful zone.
Currently, Bountiful contains and inter-mingled assortment of inferred, measured and indicated resources.
Galore Creek Mining Company - a partnership to advance the enormous copper-gold silver project held equally by Teck and NovaGold - approved a C$30.5-million budget to carry out further work at Galore Creek during the second half of 2011. This work includes infill drilling to convert inferred mineral resources to the measured and indicated categories, geotechnical drilling on the tunnel alignment and geotechnical drilling in pit-expansion areas.
The enhanced plan also considers the addition of a second semi-autogenous grinding mill in the fifth or sixth year of operations to keep the operation processing at the 95,000-metric-ton-per-day rate as harder rock types are expected to be encountered as the pit deepens.
The enhanced plan will also re-evaluate two other areas of the prefeasibility study: the use of a pipeline to transport concentrate to the highway; and alternative port facilities. Both issues are important elements for the project description and scope for permitting.
If put into production as contemplated in the PFS, the Galore Creek mine is projected to be both the largest copper mine and the largest silver mine in Canada.
"The results of the prefeasibility study clearly indicate that Galore Creek is a very valuable asset," said Van Nieuwenhuyse. "The project's scale, long life, low operating costs and exploration upside make Galore Creek a significant value driver for the company."
Additional mineral resources occur at depth in the Central Zone and in four adjacent satellite deposits at Galore Creek
NovaGold said step-out and infill drilling of these deposits and several outlying prospects could add reserves to the Galore Creek mine-plan.
NovaGold recently acquired Copper Canyon Resources to consolidate the land position in the Galore Creek region.
The Copper Canyon deposit is located mid-way up the east fork of Galore Creek, about two kilometers from the Central Zone and hosts an inferred mineral resource and multiple high-quality target areas.
"There are at least three porphyry systems that exist on the Copper Canyon project, only one of which has been evaluated," Van Nieuwenhuyse explained.
NovaGold has offered the Copper Canyon lands to Teck for inclusion in the Galore Creek Partnership.
100-million-ounce Donlin Gold
Preliminary estimates released by NovaGold Resources Inc. in early September plants a US$7 billion price tag on building the facilities needed to mine the some 38-million-ounce Donlin Gold deposit, or about US$2.5 billion more than was calculated for a feasibility study completed in 2009.
After mulling over the 2009 development plan for Donlin Gold, Barrick Gold Corp. and NovaGold, equal partners in the project, decided to take the project back to the drawing board. This time around the assessment is considering the economics of powering the operation with natural gas, as opposed to the original plan of using diesel to generate the vast quantities of electricity needed.
"The cost of producing a kilowatt of power on-site with gas versus diesel is half," Van Nieuwenhuyse explained. "This is a huge mine; it will be consuming 85 megawatts of power, which is enough power for a city of 120,000 people."
In addition to lowering the cost of producing power, the delivery of fuel via a pipeline is logistically simpler and more reliable than the original plan of barging diesel to the remote site.
According to the preliminary estimates, it will cost US$1 billion to build the natural gas pipeline from Cook Inlet 500 kilometers (300 miles) northwest to the proposed mine. The outstanding US$6 billion of capital costs are for mine-development at the Kuskokwim area project.
Though the capital costs seem staggering, NovaGold and Barrick seem confident the 2011 feasibility study will outline a project with positive economics.
"The updated study is expected later this year and we anticipate permitting will commence shortly after that," Barrick Regional President, North America Greg Lang said a day after the estimated costs were announced.
"The fact that Barrick has expressed its desire to proceed with the permitting process to advance the project is a major plus for our company and our shareholders," said NovaGold President and CEO Rick Van Nieuwenhuyse. "We look forward to developing Donlin Gold into one of the largest and best gold mines in the world."
Adding to 33.6 million of gold reserves at Donlin, the deposit has about 8.7 million ounces of gold in resources and the pit is open at depth, to the east and along a 5,000-meter strike to the north.
"In addition to the already significant resources, the exploration potential is high. Several areas have already been identified, with the potential to extend the mine-life. There are almost 40 million ounces identified here and the deposit is open to the north and the east - and is only limited by the current drilling," Lang said.
During a Sept. 15 presentation at the Precious Metals Summit in Vale, Colorado, Van Nieuwenhuyse touted this exploration upside.
"I am an absolute believer that it will be a 100-million-ounce (gold) district before it is all said and done," the NovaGold CEO said.
He added, "The vision I have for Donlin Gold is: You will double the throughput from 55,000 to 110,000 (metric tons) and you will be producing well over 2 million ounces of gold annually for 50 years."
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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